Political Economics

[DougMacG]

"Charlie Brown as the kicker and Lucy as the football holder"

Lucy representing Leftist policies and Charlie Brown representing a trusting nation.
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 A Verdict on Obama's "Stimulus" Plan
May 15, 2011 John Hinderacker Powerlineblog.com

Economists Timothy Conley and Bill Dupor have studied (36 page pdf)
http://web.econ.ohio-state.edu/dupor/arra10_may11.pdf
the effects of the American Recovery and Reinvestment Act (the purported stimulus bill) with great rigor. Earlier this week, they reported their findings in a paper titled "The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled." The paper is dense and rather lengthy, and requires considerable study. Here, however, is the bottom line:

    Our benchmark results suggest that the ARRA created/saved approximately 450 thousand state and local government jobs and destroyed/forestalled roughly one million private sector jobs. State and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases rather than boost private sector employment. The majority of destroyed/forestalled jobs were in growth industries including health, education, professional and business services.

So the American people borrowed and spent close to a trillion dollars to destroy a net of more than one-half million jobs. Does President Obama understand this? I very much doubt it. When he expressed puzzlement at the idea that the stimulus money may not have been well-spent, and said that "spending equals stimulus," a shocking level of economic ignorance.

[Crafty_Dog]

As always, and as a balance to the doom and gloom tendencies around here, Scott Grannis is always a worthy read:

http://scottgrannis.blogspot.com/
===========================

Public Policy Looking Better To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/16/2011


We think there are five (5) reasons to be bullish about the US economy. First, monetary policy is loose and likely to remain so. Second, the financial panic is over, thanks to the end of overly-strict mark-to-market accounting rules. Third, technological advances continue to boost productivity growth. Fourth, our free market economy is incredibly resilient, much more so than the pessimists believe. And fifth, the policy environment is improving.

Despite what Ben Bernanke might say (that quantitative easing lifted stock prices), we think the 15% total return in the S&P 500 since late last year has more to do with a positive shift in government policy. Not only were the lower Bush-era tax rates extended for two years, but lawmakers are becoming even more serious about cutting spending.
 
The debate over the 2011 budget, which resulted in some very slight reductions in spending, is over. But now a more serious fight about the “debt ceiling” is taking shape. We don’t want to get too far ahead of ourselves; after all we are dealing with politicians here. But, it appears that we can expect some modest, but noticeable, reductions in the size of government in the years ahead.
 
Our “most likely” outcome (about 50%) from this political wrangling expects the path of discretionary spending to be lowered and that entitlements would be tinkered with. We would be moving in the right direction, but the Congress would “kick the can” of major entitlement reform down the road for another time. This would be good for markets, but it would not be a watershed moment.
 
The next most likely outcome (about 30%) would be “market neutral.” In this scenario, Congress caves on the debt ceiling and we see little more than token measures to improve the long-term fiscal outlook. In this scenario, the stock market treads water.
 
There is obviously a small chance (make it 5%) that the Congress goes back on a spending binge and doesn’t cut spending at all. It seems impossible, but it is Congress.
 
The final option, and the one that intrigues us most, is the still small, but growing, possibility of a major breakthrough – a watershed moment – on the US’s long-term entitlement problems. To be careful, we would put relatively low odds (say 15%) on this scenario. But if it does happen the positive effect on the stock market could be huge, rivaling the impact on the markets of the change in policy direction that resulted from the 1994 election.
 
One reason we are intrigued by this option is how fast the political landscape has changed. On April 21, 2011, when Brian Wesbury wrote this very short piece for National Review Online (link here), he was among a small minority who thought using the “debt ceiling” as a political tool to force spending cuts was a wise, or even doable, thing. Even last Monday morning, when Brian participated in this press conference (see C-Span coverage here), the  conventional wisdom, even among those who advocate for smaller government, was that the debt limit would have to be raised regardless of whether significant policy improvements could be achieved.
 
Congressional leaders were scared about using the debt ceiling as a political tool and many of them were angry with members of the Tea Party and other members of Congress who stood firm.   But in just a few short days, many of these same congressional leaders are saying they won’t support lifting the debt limit unless trillions are cut from the budget. In other words, the odds of some very significant cuts in government spending are growing.
 
The political battles of the next decade are going to be fierce. And the outcomes of those battles will have major implications for the long-term growth path of the economy and financial markets. The sooner and more favorably those battles get resolved the longer and stronger the current bull market will be.

[Crafty_Dog]

Industrial production was unchanged in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/17/2011


Industrial production was unchanged in April, coming in below the consensus expected gain of 0.4%. Including revisions to prior months, production declined 0.5%. Production is up 5.0% in the past year.

Manufacturing, which excludes mining/utilities, was down 0.4% in April. Including downward revisions to prior months, manufacturing fell 1.1%. The decline in April was due to auto production, which dropped 8.9%. Non-auto manufacturing increased 0.2%. Auto production is up 8.3% versus a year ago while non-auto manufacturing has risen 4.5%.
 
The production of high-tech equipment increased 2.3% in April and is up 13.6% versus a year ago.
 
Overall capacity utilization declined slightly to 76.9% in April. Manufacturing capacity use declined to 74.4%.
 
Implications:  Industrial production took a breather in April coming in unchanged, which was below the consensus expected gain of 0.4%. While mining and utility production both increased for the second straight month, manufacturing declined 0.4%. However, all of the drop in manufacturing was due to a 8.9% decline in auto production.  Given temporary shortages of parts related to the earthquake, tsunami, and nuclear/electricity problems in Japan, some US automakers are shifting their traditional summer shutdowns into the spring. As a result, auto production will slip in Q2 and then surge sharply again in Q3. So for the next few months, we will continue to focus on manufacturing excluding autos in order to figure out the underlying trend.   This measure of output was up 0.2% in April and is up 4.5% versus last year, so no problems there. High tech equipment continues to grow, up 2.3% in April and, despite downward revisions for prior months, up at a 23.1% annual rate in the past six months.  Production is going to continue to move higher and will likely keep being led by business equipment.  Inventories are low, corporate profits are at a record high and so is cash on the balance sheets of non-financial companies.  In other recent news on the manufacturing sector, the Empire State index, a measure of manufacturing activity in New York, declined to a still solid +11.9 in May from +19.6 in April, suggesting continued growth in the factory sector, but not quite as quickly as earlier this spring.

[Body-by-Guinness]

Calling the President's Bluff

by William Poole


Within a matter of weeks, the Treasury will run up against the debt ceiling. It can finance the government for some weeks after that through a variety of gimmicks. Democrats and Republicans are preparing for thrust and parry on a variety of specific spending and nonspending issues. We have already seen a dress rehearsal in the maneuvering over the expiration of the continuing resolution on April 8. That episode went to the 11th hour, literally. The president derided the conflict as being over nickels and dimes. For the most part, he was right about that.

Republicans have an opportunity for a much more important debate, which will frame the election campaign next year. Republicans should tell President Obama they will vote to increase the debt ceiling, in a clean bill with no other provisions, provided he promises three things:

The administration will submit a revised budget that will deal with the deficit. Upon the president's agreement, the first installment of the debt ceiling increase should be $500 billion; further installments will await the revised budget. The nation has a right to expect that the president will be serious about the deficit issue.
Republicans will support a second clean increase of $500 billion in the debt ceiling when the president submits the revised budget. The president agrees that the Congressional Budget Office should score the revised budget according to its "alternative budget scenario." The February budget systematically understates future outlays and overstates future revenues. CBO's alternative scenario scores the budget on what is most easily described as a current services principle rather than according to current law, which understates the likely future deficit. For one example of this problem, current law and the president's budget include the assumption that doctor reimbursements under Medicare and Medicaid can be cut in future years. The CBO alternative scenario is based on the more realistic assumption that reimbursements will be at about the current level.

When the CBO analysis is in, the president will submit a second revised budget reflecting that analysis. At that time, Republicans will agree to accept an increase in the debt ceiling large enough to finance the government through mid-2013.

What if Obama refuses to make this promise? Then, instead of a clean bill, the Republicans should attach a clause requiring that the president submit a revised budget to address the deficit. The point would not be to argue about how to address the deficit -- we already know that the parties are deeply split on their vision as to the role of the federal government -- but instead to require that Obama present an actual plan. A Treasury default would then be squarely the president's responsibility because he refused to present a plan to address the deficit.

The president's plan and Ryan's plan will be at the center of next year's election debate over the role of government and how to finance it.
Republicans should emphasize that the debt ceiling issue is not about the substance of how to address the deficit, but that the president present a plan voters can judge.

The substance will be the election debate next year.

How can the president not accept a deal in which he presents proposals to reduce the deficit over time? Is that too much to ask?

Americans understand the responsibility of the president to address the deficit, and his refusal to do so will stand in stark contrast to the plan proposed by Rep. Paul Ryan (R-Wis.). The president must not be allowed to trash the Republican proposal without presenting his own alternative.

In the academic world, the saying goes if you are in a horse race, you have to have a horse; if you don't like a theory, you have to have a better theory. In politics, unfortunately, the reverse seems to be true. It seems more effective to demagogue your opponent's spending or tax proposals than to present your own.

In the debt ceiling debate, Republicans have the opportunity to force Obama to explain how he proposes to finance the spending commitments now on the books, or which spending commitments will be cut back.

The president's plan and Ryan's plan will be at the center of next year's election debate over the role of government and how to finance it. Democrats should surely welcome the opportunity to defend their vision.

http://www.cato.org/pub_display.php?pub_id=13111

[DougMacG]

For all the accusations of no compromise, what if we said no more deficit spending right now.  The recession ended 2 years ago.  The Keynesian flood experiment of stimulus spending failed miserably to stimulate.  The resulting dependency on government is harming our families and destroying our cities.  Make do with what we actually take in is not even on the table.  Too extreme.

We take in about 2.2 trillion a year right now and are already borrowed to the hilt.  What is the correct amount of spending for that level of income?  A do-nothing congress could actually solve this right now.

[Crafty_Dog]

This could also belong in the Budget thread.

Maybe I am missing something, but IIRC all spending bills must originate in the House of Representataives-- which is controlled by the Republicans.  So why don't they just pass spending bills as they see fit and leave it to the Senate and BO to take the blame for not passisng it?

[G M]

Because the republicans tend to have the political killer instincts of a teacup poodle?

[Crafty_Dog]

By SARA MURRAY And JON HILSENRATH
The world's largest economy may be facing a growth problem.

After a disappointing first quarter, economists largely predicted the U.S. recovery would ramp back up as short-term disruptions such as higher gas prices, bad weather and supply problems in Japan subsided.

But there's little indication that's happening. Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.

"It's very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer," said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters—better than the first-quarter's 1.8% rate, but too slow to make a meaningful dent in unemployment.

A growing number of forecasters are downgrading their second-quarter growth predictions. JPMorgan Chase & Co. economists revised down their estimate to a 2.5% rate from 3%, while Bank of America Merrill Lynch economists cut theirs to 2% from 2.8%. Deutsche Bank cut its forecast to 3.2% from 3.7%.

Companies are similarly cautious. Applied Materials Inc., the largest maker of machines used in producing computer chips, said it expected growth in its semiconductor and solar markets to slow following one of its best quarters ever. Hewlett-Packard Co. cut its fiscal-year outlook amid weak computer sales and negative effects from the disaster in Japan. Clorox Co. offered a more guarded outlook for its household goods business as executives noted that higher prices may hurt sales.

The dimming outlook raises a deeper question about the economy's health: Has it emerged from the financial turmoil of 2008 and 2009 with a chronic growth problem?

Some economists think it has. "We keep expecting the economy to perform along norms that are very difficult to achieve when you have this much private debt and public debt," said Carmen Reinhart, an economist at the Peterson Institute for International Economics. She thinks the Federal Reserve's forecasts have been too optimistic, and the U.S. could be in for a protracted period of subpar growth and high unemployment.

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.In their April forecast, Fed officials projected the economy would grow between 3.1% and 3.3% in 2011 and between 3.5% and 4.2% in 2012. That's more optimistic than private forecasters, who on average project growth of 2.9% in 2011 and 3.1% in 2012, according to Blue Chip Economics, which surveys forecasters monthly.

Even after temporary headwinds subside, the economy could face challenges as the Fed scales back its stimulus efforts, state and local governments trim spending to balance their budgets and Congress looks to cut federal spending next year.

To be sure, some corners of the economy are showing strength. Job growth has been relatively robust in recent months and expansion in emerging markets is helping to buoy export demand. But it will take strong, sustained job gains to inspire households to spend freely, economists say.

Judy Sheppers, 70, of Aiken, S.C. has no doubt the economy is improving. She recently found a job at a real estate company after being laid off in 2008 and is now able to splurge on lunches and dinners out. But she's holding back on more substantial spending. "I'd love to travel," said Ms. Sheppers, but with a tight budget, she and a few friends are planning road trips to nearby beaches. "I do the driving, they pay for the gas."

Meanwhile, with home prices falling and sales depressed, both builders and buyers are on edge.

After starting off the year on a high note, Victor DePhillips' optimism is waning. The chief executive of Signature Building Systems, which manufactures modular homes in Moosic, Pa., and employs about 165 workers, says he has seen orders slow in the past month or so.

While things aren't nearly as bleak as they were during the depths of the downturn, qualified buyers seem to be holding back, possibly because they think prices still have further to fall. "It's a little scary," Mr. DePhillips said. "I don't know what to attribute it to."

Since the recession officially ended in mid-2009, the economy's annualized growth rate has averaged 2.8%. That's no better than its performance after the much-milder 2001 recession, and far worse than the 7.1% growth rate after the similarly deep 1982 recession.

"There are pretty big costs to not really generating a sizeable recovery," said Joseph Lupton, an economist at JP Morgan Chase & Co. Most notably: high unemployment. Some 5.8 million people have been out of work for more than six months, and prolonged slow economic growth makes it less likely that they will rejoin the labor force.

Slow growth could become a central focus in the weeks ahead. Fed officials revised down their 2011 growth forecast in April. With new forecasts due June 22, they might be forced to do so again. If growth disappoints, that could mean less inflation pressure, reducing the likelihood the Fed would raise interest rates anytime soon.

Write to Sara Murray at sara.murray@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com

[DougMacG]

From GM. Moved here at the request of our host: "An outstanding question".  Open to EVERYONE, not just BD.

"Ok, BD. You are the new president to be sworn in 1/2013. What policies would you want to dig us out of our economic crisis."

[bigdog]

GM, do you want unrealistic campaign promises or items that as president I can actually change as president?

[G M]

Serious policies you'd pursue, if the job was yours come 2013.

[DougMacG]

http://www.realclearpolitics.com/video/2011/06/05/this_week_roundtable_where_are_the_jobs.html

Krugman: We need a new stimulus, a new boot from the Fed.

Woman from Reuters is completely oblivious to damage done by uncertainty now in regards to FUTURE tax rates and interest rates.

Chamber of Commerce economist: 400-500 major projects waiting for regulatory approval could be started tomorrow. The economy is broad and diverse.  This government needs to get out of its way.

[Crafty_Dog]

Economic Rapture? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/6/2011


Radio-host Harold Camping predicted the Biblical end-times (specifically, the “rapture’) would begin on May 21st. Forget the theological meaning of all this. For most people, Camping’s prediction was simplified to mean the "end of the world" as we know it. Obviously, that did not happen.  Or, did it?

Let’s imagine that the world really did end. Let’s imagine that we’re now living in an artificial world. Federal Reserve Chairman Ben Bernanke is making the sun rise with monetary policy. Federal spending is generating oxygen and enormous increases in federal debt are making water. Everything seems relatively normal, but it’s all ultimately just a mirage, created by artificial means, and it can't last forever.
 
Of course this is an extreme example, but that's what it seems many believe about the economy today.
 
It all goes back to 2008 when the economy crashed, supposedly all by itself, in what was called "the worst crisis since the Great Depression." The pundits said capitalism had failed. Many predicted the complete collapse of the economy, a worthless dollar, and a “new normal” – it was the “end of the world” as we knew it.
 
 And while the economy could be doing better, real GDP has expanded for seven straight quarters – we’re now in the eighth. Corporate profits are at a record; the S&P 500 is up 100% from the bottom; consumer spending is $450 billion above its pre-panic 2008 peak, and private sector payrolls have expanded for 15 straight months.
 
So, which is it – fake, or real? Did the economy crash and burn, only to be supported in an artificial state by government actions? Or, was all that “end of the world” talk a prediction that did not come true? Are all the same old real world things – like creative destruction, supply and demand, innovation, or trial and error – still happening like they always have?
 
If the former – the artificial state – then there is lots to worry about. QE2 will end this month. Stimulus spending has wound down and politicians are debating large spending reductions. The political class seems to have gotten “religion” about federal debt. In other words, to those in the artificial camp, things don’t look good.
 
In contrast, if the world really did not end back in 2008, if we are experiencing a relatively normal recovery, things look a great deal better. This is what we believe.
 
We do not believe that capitalism failed and that the world as we knew it is over. The crisis was caused by a failure of government policy. The bubble in housing was caused by low Fed rates and housing subsidies. The Panic of 2008 was caused by a set of misguided reactions to the bursting of that bubble (mark-to-market accounting and TARP).
 
In our view, quantitative easing has had little impact – the money supply (M1 or M2) is not expanding as rapidly as many think. Moreover, and this is key, the massive increase in government spending has been a drag on growth, not a boost. In other words, the end of quantitative easing, spending cuts and a new focus on government debt reduction are things to rejoice about.
 
We are not in the majority, nor are we ignoring our economic problems. We just believe the economy did not come to an end back in 2008 and we do not believe recent growth has been created artificially.
 
But a large, loud and sincere group is still convinced the economy is broken and fragile. They see the recent slowdown in economic growth – real GDP growth looks to be growing at only a 1.5% annual rate in Q2 – as another sign that it really has been the end of the economic world. Gloom and doom are back on the table.
 
Never mind that much of the slowdown is so obviously tied to temporary Japan-related disruptions in manufacturing and tornado-related dips in home building. That doesn’t matter if you really believe the end is near.
 
But, when we move through these temporary problems, when auto production overcomes the parts-related slowdown and spikes back up at about a 100% annual rate in Q3, real GDP will sharply accelerate again.
 
At that point, we suppose that those predicting the end of the economy will postpone their forecast once again.

[bigdog]

From GM. Moved here at the request of our host: "An outstanding question".  Open to EVERYONE, not just BD.

"Ok, BD. You are the new president to be sworn in 1/2013. What policies would you want to dig us out of our economic crisis."

Let me begin with some caveats and such.  1, I do not have a staff of economists and policy experts whose sole job is to inform me on the issues.  2, I do not currently have as much time to divulge in non-professional research as I would like.  3, I will likely be unable to respond to the inevitable criticisms I face for at least a few days.  4, as a new president, I must remind you that I am new kind of president.  In this case, I ran because I fear the accumulated powers that this office has gained in the era of the "modern presidency."  5, and related to 4, the Constitution does not have a place for the president in the budget process.  The president's role, most directly is related to the 1921 Budget and Accounting Act.  I would like to cede some of the budgetary powers back to Congress.  This stance will generally help to inform many of my budget stances.

So, here goes:

According to
http://nationalpriorities.org/resources/federal-budget-101/budget-briefs/federal-discretionary-and-mandatory-spending/, about 60% of the discretionary budget is military.  Therefore, we have to start there.  I would cut 10% of the military budget, but would focus on military pork projects.  The numbers and examples are dated, but I hope we can all agree with Cato here: http://www.cato.org/pubs/handbook/hb105-8.html. 

I would increase the Social Security tax by 5%.  I would also increase the age of retirement to 70, or perhaps even 72. 

I would have a welfare to work program.  Not only would it get people off of the govt. dole, it would increase the tax revenue.

I would cut non-military executive branch officials by 25%.  Smaller WH staff, EOP staff, and the like by either cutting the programs or eliminating them outright.

I would encourgage MOCs to limit their staffs, by matching the cuts I make in my staff.  I have even toyed with the idea of asking for a constitutional amendment mandating a shift to a unicameral legislature. 

Relatedly, govt. bureaucrats actually earn more than the private sector equivalents, on average.  I would cut retirement benefits, and institute a pay freeze for all federal employees for the first three years of their employment. 

I would cut subsidies to farmers who don't grow food. 

Let the chorus of boos and the spittle begin to fly.  I am sure I have angered at least one of you. 

[DougMacG]

Cheers to Bigdog for coming through.  I would suggest everybody post their own plan before criticizing.  I will try to write and post by the end of the week.  That said, I offer these quick comments and one question.

cut 10% of the military budget, but would focus on military pork projects.  - agree

increase the Social Security tax by 5%.  - Clarifying, not 5 points higher, just 5% increase.  Rough numbers from memory.  If we are talking about the full FICA they used to call it, it is split into employee and employer halves.  For the self employed I think the self employment tax was .93 * 15.3% which is 14.3%.  Add 5%, new tax is 15%.  I don't personally agree, but acknowledge it is a very reasonable compromise between funding and cutting.

increase the age of retirement to 70, or perhaps even 72 - agree

welfare to work program.  Not only would it get people off of the govt. dole, it would increase the tax revenue.  - agree

cut non-military executive branch officials by 25%.  Smaller WH staff, EOP staff, and the like by either cutting the programs or eliminating them outright.  - agree

encourgage MOCs (members of congress) to limit their staffs, by matching the cuts I make in my staff.  - agree

Relatedly, govt. bureaucrats actually earn more than the private sector equivalents, on average.  I would cut retirement benefits, and institute a pay freeze for all federal employees for the first three years of their employment.  - agree

I would cut subsidies to farmers who don't grow food.  - agree

Let the chorus of boos and the spittle begin to fly.  - I hope not.
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Question: The complaint from the left (ex: Krugman, Reich)  is that austerity is not stimulative.  Your answer to them?

[ccp]

Well if we are increasing retirement to 70 which I have been saying is necessary for years (thus I agree with this) then why do we need to increase SS tax 5%?

Also don't the Dems borrow from SS for their projects?  What ever happened to "lock box"?

I would cut subsidies to farmers who don't grow food"

Problem with this is the loop holes.  Does anyone think Bruce Springsteen is really in the organic farming business yet he gets a nice tax break in NJ (though I guess this is a state not federal loophole).

Do we really need to subsidize this at all?

[Crafty_Dog]

Gentlemen:

It occurs to me that we already have a thread with many ideas on cutting spending, (see nearby) where I have just posted.  I would like to ask that we continue this conversation there so as to take advantage of the accumulated wisdom already to be found there.  As for the post already here, please feel free to repost them there or incorporate them by reference.

[bigdog]

http://www.nationalreview.com/articles/268973/obama-kills-war-powers-act-rich-lowry

[ccp]

on an opinion of the war power act's constitutionality.

[G M]

http://www.pjtv.com/?cmd=mpg&mpid=86&load=5559

Reality bites.

[DougMacG]

A question posed recently: "You are the new president to be sworn in 1/2013. What policies would you want to dig us out of our economic crisis."
(I would like to see everyone in on this with their own plan.)

My plan:
Table of contents
a) Energize: Open up our own production and supplies of essential domestic energy sources
b) Healthcare: Repeal and Replace
c) Government Spending - Roll back and restrain the growth of spending
d) Regulations -  eased, re-evaluated and reauthorized
e) New tax Code, on one sheet of paper
f) Value the Dollar
g) Reform Entitlements, really!
h) Employment Mentoring:  Welfare reform revisited
i) Unleash Innovation - the result of the above policies


a) These all need to be virtually simultaneous, but energy reform is first because of the long lead times.  Must send a strong signal now. The energy plan is move forward on all fronts.  Get the best and the cleanest with the safest possible techniques.  ANWR, yes.  Fill the Alaskan pipeline before that trickle peters out altogether.  Offshore, yes, but learn from everything that happened in Deepwater. Natural gas, yes, but with the smartest real protections an minimal releases.  Nuclear, yes, but learn everything we can learn from Daichi Fukushima.  Coal, yes.  Find its cleanest and most cost effective use and let's permit and start building.  If any part of CO2 emissions can be sequestered cost efficiently, sequester them.  Natural gas hybrids, yes, but in a free private sector.  Conservation, yes, but not at the expense of individual liberty or choking our economy. 

b) Healthcare: Repeal Obamacare, get those new taxes, expenses and new regulations off the table now.  Implement the best of the Republican proposals updated from last year that both parties can agree to.  Do it all in one vote.  Pre-existing condition reform, universal availability of coverage, malpractice and liability reform, and the advance of making competitive plans available across state lines are things we likely can all agree on once the government centric system is taken off the table.

c) Government Spending - rolled back and restrained.  The Ryan Plan referred to a roll back to 2008 levels.  Spending is 3.8 trillion, revenues are 2.5.  We can't close the gap only with cuts, and we can't close it without meaningful cuts.  Set targets, set priorities and make meaningful cuts, then really truly curtail the overall growth of spending - to a rate no more than half the rate of growth of production and revenues - until the gap is closed.  Put spending on a downward path to 3 trillion until the trillion and half dollar Obama deficits are down to 0.5 trillion.  Then close the rest with economic growth to full private employment accompanied with sustained spending restraint.

d) Regulatory easing.  Put moratoriums, delays on ALL non-health/safety/essential regulations.  Delay and re-authorize where necessary.  The limited discussion of tax and spend to balance the budget at full employment is fatally flawed.  Federal taxes are only a part of the government caused burdens on employment and production.  Shine the light on ALL of it.  One simple reform to help create new jobs would be to allow startup employers to issue 1099's to all new hires in their first calendar year.  The market is tough enough out there without having to instantly learn every rule about payroll deductions, withholdings, forms, compliance and the like.  The new entity has enough to do jumping out of the gate.  Do we want startups or DON'T WE?

e) Tax reform.  My plan would eliminate deductions with the exceptions ofother taxes paid, half of home mortgage interest paid and half of charitable contributions made. I would set a minimum and a maximum tax rate, let's say 6.25% minimum and 25% maximum.  Everybody is in.  Set the limit point and make rates continuously variable in between.  Every dollar gets taxed and no dollar of income shall receive cruel or unusual punishment. Make up for lower rates with higher velocity.  Lower the corporate rate from 35 (highest in the world) to 22.5%, just below the OECD average.  Lower inheritance tax double taxation from 55% to 7.5%, but make it apply to all people and all dollars. Lower the capital gains rate from 15% to 12.5%, or introduce indexation of all gains to inflation.  (States need to index capital gains too.)

f) Value the Dollar.  Accompany our repair of competitiveness across the globe with the tying of our supply of total dollars to the total supply of goods and services in the economy, imagine that!  Prohibit Federal Reserve inflation targets of more than 0.5% per year and end the flawed 'dual mission' of the Fed.  The Fed's mission is to protect and preserve the value of our currency.  That's it.

g) Reform entitlements - really!  We already know how, so do it.  Pawlenty spelled it out.  Raise the age, but not for the people already in or close.  Cap the escalators, but not for the people without other means.  Get the reforms done and let the markets know we are serious.  It is unacceptable that every man, woman, transexual, child and fetus owes $560,000 per person right now in unfunded liabilities.

h) Employment mentoring.  Welfare reform revisited.  Set a national goal that no one goes on assistance or stays on any of it without a plan for getting off of it and that plan with all its action items gets reviewed every month.  I would offer to the outgoing President and First Lady immediately the unpaid positions of national employment mentoring leaders, in charge of getting the best and brightest from all professions to agree to mentor at least one person until all citizen recipients of assistance are matched up and on a plan to develop themselves, produce and contribute to the best of their capabilities. 

i) Unleash innovation!  This is the result of the above.  Whatever is stopping us from innovating better than ever and better than anywhere else in the world, fix it.  Decline is a choice.  Stop choosing it.  Set goals, make the hard choices and move this economy forward - like we've never seen before.

[Crafty_Dog]

Soft Patch Already Fading To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/13/2011


For the record, in our professional lives, we don’t really care that much about Republicans or Democrats. Our constituency is the investor. But everything is politicized. Conservatives get mad at us because we are optimistic about the economy – they want to say Obama is hurting it. Liberals get mad because we think investors are better served by a much smaller government – they want a bigger one.

We are in “no-man’s-land,” taking fire from both sides. Some argue the end of stimulus is certain death for the economy. Others argue government growth is causing the next great depression. Anyone in the middle (like us), that says, “yes, the economy would be more robust (and unemployment lower) if we had less government, but, the US economy is still growing anyway” is a target for politicized anger.
 
And now that a “Soft Patch” in economic data and some softness in stock prices have developed, the political rhetoric has ramped up. We think it’s all temporary, but that suits almost no one in the political sphere. Investors who let politics interfere with their economic or investing thought-process are making a grave mistake. We think the pessimism is overdone and this is a great buying opportunity.
 
Take a deep breath and start looking for signs of economic life. Start looking at Calafia Beach Pundit, a blog written by a fabulous economist, Scott Grannis. Scott has been optimistic for the past two years and recently highlighted commercial and industrial lending, what he calls “a good measure of bank lending to small and medium-sized businesses.” These loans expanded for the seventh straight month in May and are up 12.2% at an annual rate in the past three months.
 
How about tax receipts? Up 19.2% in May compared to a year ago, despite a cut in payroll tax rates. Net individual income tax payments were up 55% versus May 2010 – a burst due to a sharp rise in “non-withheld” payments (final settlement for taxes owed for 2010). But, according to the Congressional Budget Office, withheld receipts – for income and payroll taxes combined – were still up 10% versus a year ago.
 
Meanwhile, exports hit a record high in April, up 18.8% versus year-ago levels. And aggregate hours worked (total employment times the length of the workweek) are up 3.5% at an annual rate during the three months ending in May. Commercial construction expanded for the third straight month in April. And this week, we’ll get a key report on May retail sales. Weak auto sales will drag the top-line number down, but chain store sales were up in May and we expect ex-auto retail sales to be up about 8% above May 2010 levels.
 
None of this fits the dour, and politically-hyped, forecasts of economic Armageddon so prevalent these days. The soft patch is nothing more than a temporary and superficial blow to the economy. If it was anything more than Japan’s disasters and the tornado season, the good numbers we’ve been seeing lately – on lending, tax revenue, trade, hours-worked, ex-auto sales, and commercial building – wouldn’t be happening.

--------------------------------------------------------------------------------

[Crafty_Dog]

Retail sales declined 0.2% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/14/2011


Retail sales declined 0.2% in May (-0.6% including downward revisions to March/April). The consensus had expected a drop of 0.5%. Retail sales are up 7.7% versus a year ago.

Sales excluding autos were up 0.3% in May (0.2% including revisions to March/April). The consensus expected a gain of 0.2%. Retail sales ex-autos are up 8.2% in the past year.
 
The drop in retail sales for May was led by autos, which fell 2.9%. The largest move outside the auto sector was an upswing in non-store retailers (mail order and internet).   
 
Sales excluding autos, building materials, and gas increased 0.2% in May and were up 0.4% including revisions for March/April. These sales are up 6.1% versus last year. This calculation is important for estimating GDP.
 
Implications:  Despite dire headlines and political rhetoric, the US is nowhere near a double-dip recession. While overall retail sales dipped 0.2% in May, this reflects what we already knew, which is that supply-chain disruptions due to Japan’s disasters have temporarily reduced auto sales. Excluding autos, sales came in very close to consensus expectations. In the past year, total retail sales are up 7.7% and sales excluding autos are up 8.2%. Once the supply-chain issues are resolved, within the next month or so, auto sales will pick up again. The details of the report show strength. “Core” sales (which exclude autos, building materials, and gas) were up a solid 0.4% including upward revisions to prior months.  Even if these sales are unchanged for the rest of the second quarter they will still be up at a 5% annual rate in Q2. Factoring-in services as well as inflation, real consumer spending will probably be up at a 2% to 2.5% annual rate in Q2. Consumer spending continues to rise for two key reasons. First, earnings are growing due to more jobs, more wages per hour, and more hours per worker. Second, consumers’ financial obligations (debt service plus other recurring payments like rent, car leases, homeowners’ insurance, and property taxes) are now the smallest share of disposable income since 1995. Add on top of that a recovery in the auto sector as Japan heals, and the future looks bright for retail sales.

[DougMacG]

There are three main reasons why the president’s policies have made this recovery weaker than usual:  Regulatory uncertainty, tax uncertainty, debt uncertainty - Ryan nails it.  I like that he puts excessive regulations front and center and that uncertainty coming from the public sector is a major cause of the inaction from investors in the private sector.  Also, more people need to equate spending with debt.  Everything we spend at the margin - beyond the first two and a half trillion and beyond essential government functions like funding the court system and national security - is permanent debt, a burden that grows literally with the magic of compound interest.
--------------
http://www.foxnews.com/opinion/2011/06/13/obamas-economic-experiment-has-failed-time-to-get-back-to-what-works/#ixzz1PGltBqCY

Obama's Economic Experiment Has Failed -- Time to Get Back to What Works

By Rep. Paul Ryan
Published June 13, 2011

A flurry of recent economic news – especially the May jobs report – confirms what many have feared for some time: This president’s leadership deficit has caused a disastrous jobs deficit, and where he has led, his policies have made things worse.

The president clearly inherited a difficult fiscal and economic situation when he took office. But his response to the crisis has been woefully inadequate. The president and his party’s leaders have made it their mission to test the hypothesis that more government spending and greater government control over the economy can jump-start a recovery better than the private sector can.

That experiment has failed. The stimulus spending spree failed to create jobs. Massive overhauls of the financial sector and health-care sector are fueling uncertainty and hindering our recovery.

House Republicans are charting a new course with a better plan – starting with a budget that frees the private sector from regulatory uncertainty, punishing tax increases, and the crushing burden of debt that is weighing on this recovery. But making progress on this plan will require leaders in Washington to relinquish the idea that government knows best, and many just don’t seem ready to face that reality.

The May jobs report was yet another reminder that the government-knows-best crowd got it wrong. When he came into office, the president’s economic team predicted that a stimulus bill of unprecedented size and scope would hold unemployment below 8 percent and steadily lower it to 7 percent by the first quarter of this fiscal year.

These estimates weren’t just off by a little bit – they completely missed the mark. The jobless rate went all the way up to 10.1 percent, never fell below 8.8 percent, and has now ticked back up to 9.1 percent. Private-sector hiring continues to stagnate. The cost of gas and groceries continues to rise. And the national debt continues to climb, casting a long shadow over economic activity and job creation.

This recovery pales in comparison to past, private-sector-led recoveries. Unemployment today has fallen by just 1 percentage point from its recessionary peak. By contrast, unemployment at the same point in the past ten recoveries dropped by an average of 5 percentage points in past recoveries. The dismal jobs record underscores the fact that the Great Recession is far from over for millions of American families.

There are three main reasons why the president’s policies have made this recovery weaker than usual:

1. Regulatory uncertainty: After the stimulus passed, the president turned his attention immediately to costly overhauls of the nation’s financial and health-care sectors. These overhauls needlessly transferred more control over America’s economy to government bureaucrats in Washington, without fixing the problems they were intended to address. The transfer of so much power to the arbitrary dictates of federal regulators has made it hard for businesses to plan for the future with confidence, and things will remain this way until these laws are replaced with real reforms.

2. Tax uncertainty: The president’s ad hoc tax policies, with a mix of tax hikes on job creators and temporary rebates for others being the hallmarks of his approach, have left businesses in the lurch. Moreover, the president’s new health care law imposes a crushing $800 billion tax hike, and he continues to threaten businesses and families with higher rates in the future, even as he dithers on his vague promise to address America’s uncompetitive corporate tax rate, which is the highest in the developed world.

3. Debt uncertainty: The president has not put forward a plan that saves Medicare from bankruptcy, even though nonpartisan experts tell us that this could happen in 9-13 short years unless we act. Each year that we fail to put our critical government health and retirement programs on a path to long-term solvency, we are making trillions of dollars of unfunded promises to future retirees. We are already borrowing 40 cents of every dollar we spend, and Washington’s inability to solve its spending problems is leading rating agencies such as Standard & Poors to downgrade our credit outlook. Government under this administration is failing at its number-one economic job, which is to create a stable, predictable environment for job creators.

By contrast, the Republicans have put forward a plan to tackle each of these problems head-on. Our budget, which we call The Path to Prosperity, reduces regulatory uncertainty for businesses by repealing the new health care law. It reduces tax uncertainty by promoting low, stable rates and clearing out loopholes and deductions that go primarily to the well-off. And it reduces debt uncertainty by dealing with our long-term unfunded liabilities, saving Medicare from bankruptcy, and putting us on a path to pay off the debt.

This debate comes down to one big philosophical difference: Who should we put in the drivers’ seat when it comes to jobs and the economy: government bureaucrats in Washington, or a vibrant private sector freed from uncertainty?

The president’s economic experiment has failed. It is time to get back to what we know works: empowering free citizens with the tools they need to prosper. To close the alarming budget deficit and the painful jobs deficit, we must first erase Washington’s leadership deficit by providing real solutions for a real recovery.

Rep. Paul Ryan is chairman of the House Budget Committee and represents Wisconsin's 1st district.

[Body-by-Guinness]

Entitlement Overstretch
This great country has reached such a point of fiscal insanity that we may need a monumental crisis to save it.

In the late 1980s, Prof. Paul Kennedy of Yale achieved academic celebrity with his bestseller, The Rise and Fall of the Great Powers. In it, he wrote that the United States was likely to collapse because of a phenomenon he called “imperial overstretch.” As Kennedy saw it, the approximately 6 percent of GDP the United States spent on maintaining its military and meeting other global commitments was too great a burden. It was only a matter of time until our ambitious agenda would push us into decline and eventual collapse. This thesis, as it applied to the United States, was simple, beautiful, and spectacularly wrong.

Kennedy’s overstretch theory was not, however, without merit. Hindsight makes clear that much of what Kennedy wrote provides a valid description of the Soviet Union’s collapse. Furthermore, while Kennedy misjudged America’s ability to sustain its military commitments, if he had looked deeper into our national balance sheet, he would have seen the true danger: entitlement overstretch. What the historian failed to see — because there was no historical precedent for him to analyze — was the dangers brought on by the rise of the entitlement state. The 6 percent of GDP spent on national security that so concerned Kennedy is dwarfed by projected entitlement expenditures that are far beyond America’s ability to pay.

There is a basic law of economics: What can’t happen won’t happen. As it is impossible for a $14 trillion economy to pay $60 trillion or more of unfunded liabilities, it won’t happen. Even after raising taxes to crippling levels and sucking every other revenue source dry, the United States will still face tens of trillions of dollars of expected payments it cannot meet. That being the case, only one question remains: What form will the nation’s default take?

The first option is a default in expectations. Unfunded liabilities are not yet debt, as the money has not been spent. The government is therefore free to change its implicit contract with the citizenry. In other words, it can renege on its promises with regard to Social Security, Medicare, and Medicaid. This requires a huge amount of political courage and a willingness to pay a severe price at the ballot box. As neither side of the political divide has shown any inclination toward taking the draconian measures that restoring fiscal sanity requires, there is little reason for optimism along this path.

The second option is the historical favorite of countries that find themselves in a fiscal crisis: debasing the currency. Because the dollar is the key global reserve currency and is viewed by many — irrationally, of late — as a secure store of value, the United States is able to issue all its debts denominated in dollars. Therefore, by pressing a few computer keys, the Federal Reserve can create $60 trillion in an instant. Of course, the Fed would be much cleverer about it and spread its money creation over a number of years or even decades. No matter how the debasement is done, though, the results are easy to foresee. Inflation on a scale that could see us envying Weimar Germany’s fiscal propriety would wreck the U.S. economy as the nation’s wealth and savings were destroyed. Unfortunately, this option always seems the most appealing to policymakers, as it is easy and apparently painless. Well, it is painless — right up until the cataclysm, the onset of which no doubt will be as sudden as the crisis of 2008. We must all hope that our elected officials are wise enough not to go down this road. Of course, betting on the wisdom of politicians is more often than not a fool’s wager.

The final option is to keep going as we are, making cosmetic changes of the type we have seen recently. This head-in-the-sand option will work just fine, until the calamity can no longer be postponed. In this scenario, the government runs up taxes until the economy falters while continuing to issue debt until it can no longer afford even the interest payments. This, for worse or worse, is the road we are heading down. Make no mistake about it: The final outcome will be crushing. Entitlement overstretch will cause the collapse of the national economy and end America’s global dominance.

But only for a time.

Modern nations do not just disappear. After a default, the United States will still have a productive population, a sound economic base, and, most important, a clean balance sheet. If we are lucky, our chastened politicians, given all these advantages and a clean slate, will then undertake only those commitments the economy can afford. If so, there is reason for optimism that, after the harrowing experience of default, the United States will roar back stronger than before. Conversely, if politicians prove incapable of mending their ways, then the country will join the list of serial defaulters and begin an inevitable and ugly decline.

It is a sad state of affairs when one has to pin the long-term hopes of this great nation on a crisis so monumental that one has to count on the “day after” to return reason to the nation’s fiscal policy. But at a time when proposals to cut a mere 1 percent from the budget can bring vested interests to the barricades, there appears little hope that policy sanity can be restored in any conditions short of a fiscal implosion.

Rumor has it that Professor Kennedy is now updating his seminal work for a new edition. One must hope that, this time around, he puts his finger on the true crisis undermining America.

— Jim Lacey is professor of strategic studies at the Marine Corps War College. He is the author of the recently released The First Clash and Keep from All Thoughtful Men. The opinions in this article are entirely his own and do not represent those of the Department of Defense or any of its members.

http://www.nationalreview.com/articles/269604/entitlement-overstretch-jim-lacey

[Crafty_Dog]

By John H. Cochrane And Anil Kashyap
Greek debt is in trouble—again. After a month of dickering, it seems likely that the International Monetary Fund and the European Union will agree to roll over Greece's debt so bondholders will be paid in full. Why is Europe so terrified of letting bondholders bear some of the risk that comes with high yields?

The answer is that most of those bondholders are banks. If Greece defaults, then important French and German banks will be in deep trouble. Even a small rescheduling would force the banks to admit their losses.

If Greece is allowed to default, reschedule or abandon its restructuring, Ireland, Portugal, Spain and Italy may soon follow. This scenario is beyond the EU's bailout capability. And it would leave the European financial system in shambles, because, again, the banks are holding that debt.

There are four key facts to recognize:

First, the Greek government has borrowed more than it can plausibly afford to pay and certainly more than it will choose to pay. It now owes more than one and a half years' economic output. The reforms necessary to produce strong economic growth and drastically cut spending are very unlikely.

Keep in mind, Greece is not being bailed out. Greece's bondholders are being bailed out. Greece would rather default. Cleared of its debts, it would likely be able to borrow again soon.

Financial markets have figured this out. As of yesterday, it cost $182 per year to insure $1,000 five-year Greek debt, implying a 63% probability of total loss in five years. Yes, the write-down is inevitable.

Second, European banks are holding the bag. This week the Moody's rating agency put three large French banks under review for a potential downgrade because of their Greek exposure. Beyond direct exposure, banks throughout Europe lend to each other and write insurance against sovereign defaults. Even U.S. prime money market funds are indirectly exposed.

One would think that wise regulators would have required hefty capital against sovereign lending, or lending to other banks whose main investments are Greek debt. One would think that given a full year, those regulators would have at least increased the capital requirements for sovereign debt, run serious stress tests against sovereign default, or forced banks to buy credit-default swap insurance from counterparties other than Greek banks. But one would be wrong. (This is a sobering lesson for the U.S.'s plan under Dodd-Frank to trust that our wise regulators will spot all dangers, require adequate capital, and keep banks from getting into trouble.)

Third, the European Central Bank (ECB) is now involved as well. It started buying secondary-market Greek debt last May. The ECB has now lent in excess of 80 billion euros to Greek banks, replacing private funding that has run away, and typically receiving Greek government debt as collateral.

If there is even a minor credit event, the ECB could no longer legally take that collateral. If Greece defaults and Greek banks fail, the ECB is stuck with junk collateral. This explains why ECB President Jean Claude Trichet insists that there must be "no credit event, no selective default."

Fourth, in the end this is all about Ireland, Portugal, Spain and Italy. If Greece were the only country in trouble, it would have been allowed to default. European governments would have plugged the holes in their banks, bailing out those deemed "too big to fail" and reorganizing the others so that deposit and lending operations continue unimpeded. After all, Greece is small.

But Spain, Portugal and Italy are also experiencing slow growth, high unemployment, and have unpopular governments with limited ability or desire to implement reforms. The banks in each of these countries are chock full of their government's debt. Other euro-area banks are lending to them, indirectly taking on additional exposure. And the ECB is full in, holding their sovereign debt and lending vast amounts of money to their banks, taking sovereign debt as collateral.

Germany would like banks to roll over their Greek debt. But Greece cannot possibly pay 17% interest rates for 10 years. So if banks roll over debt at market rates, Greece's eventual default is ensured. Banks cannot roll over at low rates without enduring huge losses. Thus, the only way to get banks to "voluntarily" roll over the debt is by letting them carry the debt at artificial "hold to maturity" valuations, which leaves the danger to the financial system.

Germany knows it's likely to bear the brunt of bailouts. The German sentiment that bondholders should bear risk is nice. Alas, the chance to do that is passing quickly. All the private bondholders will soon have cashed in their debt, and only the ECB, IMF, governments and government-guaranteed banks are left.

So what to do? Prepare for the worst. Europe needs to expunge the rot from its banks so that the inevitable write-downs do not imperil its financial system. Sovereign debt and sovereign exposure must face large capital buffers. Sovereign debt must be marked to market. Banks must run serious stress tests to find implicit sovereign exposure. Banks with inadequate capital must raise it, find buyers, or reorganize. If that means bailouts of "systemically important" banks, then governments must do so, face their taxpayers, and make their regulators explain how they let this happen.

Sovereign defaults often follow financial crises. But with a more proactive policy, any European sovereign defaults need not create a second financial crisis.

Messrs. Cochrane and Kashyap are professors of economics and finance at the University of Chicago Booth School of Business.

[G M]

[youtube]http://www.youtube.com/watch?v=Jr9pAsH-1Ao&feature=player_embedded[/youtube]

http://www.youtube.com/watch?v=Jr9pAsH-1Ao&feature=player_embedded

Hope!

[JDN]

How Today's Conservatism Lost Touch with Reality
By Fareed Zakaria

"Conservatism is true." That's what George Will told me when I interviewed him as an eager student many years ago. His formulation might have been a touch arrogant, but Will's basic point was intelligent. Conservatism, he explained, was rooted in reality. Unlike the abstract theories of Marxism and socialism, it started not from an imagined society but from the world as it actually exists. From Aristotle to Edmund Burke, the greatest conservative thinkers have said that to change societies, one must understand them, accept them as they are and help them evolve.

Watching this election campaign, one wonders what has happened to that tradition. Conservatives now espouse ideas drawn from abstract principles with little regard to the realities of America's present or past. This is a tragedy, because conservatism has an important role to play in modernizing the U.S. (See "The Heart of Conservative Values: Not Where It Used to Be?")

Consider the debates over the economy. The Republican prescription is to cut taxes and slash government spending — then things will bounce back. Now, I would like to see lower rates in the context of tax simplification and reform, but what is the evidence that tax cuts are the best path to revive the U.S. economy? Taxes — federal and state combined — as a percentage of GDP are at their lowest level since 1950. The U.S. is among the lowest taxed of the big industrial economies. So the case that America is grinding to a halt because of high taxation is not based on facts but is simply a theoretical assertion. The rich countries that are in the best shape right now, with strong growth and low unemployment, are ones like Germany and Denmark, neither one characterized by low taxes.

Many Republican businessmen have told me that the Obama Administration is the most hostile to business in 50 years. Really? More than that of Richard Nixon, who presided over tax rates that reached 70%, regulations that spanned whole industries, and who actually instituted price and wage controls?

In fact, right now any discussion of government involvement in the economy — even to build vital infrastructure — is impossible because it is a cardinal tenet of the new conservatism that such involvement is always and forever bad. Meanwhile, across the globe, the world's fastest-growing economy, China, has managed to use government involvement to create growth and jobs for three decades. From Singapore to South Korea to Germany to Canada, evidence abounds that some strategic actions by the government can act as catalysts for free-market growth. (See a dozen Republicans who could be the next President.)

Of course, American history suggests that as well. In the 1950s, '60s and '70s, the U.S. government made massive investments in science and technology, in state universities and in infant industries. It built infrastructure that was the envy of the rest of the world. Those investments triggered two generations of economic growth and put the U.S. on top of the world of technology and innovation.

But that history has been forgotten. When considering health care, for example, Republicans confidently assert that their ideas will lower costs, when we simply do not have much evidence for this. What we do know is that of the world's richest countries, the U.S. has by far the greatest involvement of free markets and the private sector in health care. It also consumes the largest share of GDP, with no significant gains in health on any measurable outcome. We need more market mechanisms to cut medical costs, but Republicans don't bother to study existing health care systems anywhere else in the world. They resemble the old Marxists, who refused to look around at actual experience. "I know it works in practice," the old saw goes, "but does it work in theory?" (See "When GOP Presidential Candidates Skip, They Quickly Stumble.")

Conservatives used to be the ones with heads firmly based in reality. Their reforms were powerful because they used the market, streamlined government and empowered individuals. Their effects were large-scale and important: think of the reform of the tax code in the 1980s, for example, which was spearheaded by conservatives. Today conservatives shy away from the sensible ideas of the Bowles-Simpson commission on deficit reduction because those ideas are too deeply rooted in, well, reality. Does anyone think we are really going to get federal spending to the level it was at under Calvin Coolidge, as Paul Ryan's plan assumes? Does anyone think we will deport 11 million people?

We need conservative ideas to modernize the U.S. economy and reform American government. But what we have instead are policies that don't reform but just cut and starve government — a strategy that pays little attention to history or best practices from around the world and is based instead on a theory. It turns out that conservatives are the woolly-headed professors after all.

http://www.time.com/time/nation/article/0,8599,2077943,00.html

[G M]

So much distortion and DNC talking points in the Zakaria piece, it's a good example of why Time magazine is on it's way to extinction.

Unlike the good old days, there is real global competition. Business goes where the business climate is best for the business in question. In the wake of WWII, the US was the last country left standing. 2011 is a very different place. Detroit was once the booming city that could be the only one to supple cars to the US and elsewhere. Now, after decades of dems running things, Detroit looks like a post-apocalyptic movie set and the GM operation in China is the only real profit center GM has right now.

Obama promised to use the money we are borrowing from China for "shovel ready" infrastructure projects. Instead, we saw the money go to "fork ready pork" with no real impact on infrastructure needs but more massive debt that increases the potential for global economic crisis.

The free market has an amazing way of raising living standards and reducing consumer costs, yet somehow healthcare is immune to market forces? So, the government that loses vast amounts of money every year on the post office and Amtrak will somehow outperform the free market on providing healthcare? Look at the mortality rates and the gov't death panels in europe and despite the leftist adulation of europe, it's nothing we'd want to dupicate here. The whole world glides along on the technological advances done in the US related to medicine and pharma. Obamacare will kill that off, as well as kill off many Americans and dig us even deeper into crushing debt.

Starving gov't of all but the most essential funds is the path to saving ourselves from what looms ever closer.

[JDN]

 Look at the mortality rates and the gov't death panels in europe and despite the leftist adulation of europe, it's nothing we'd want to dupicate here. The whole world glides along on the technological advances done in the US related to medicine and pharma. Obamacare will kill that off, as well as kill off many Americans and dig us even deeper into crushing debt.

"Healthcare is (not) immune to market forces?"  But is that good?  Whatever surgery pays the most, that's the one the doctor does here in America.  Whenever I go to see a doctor,
I see the Drug Rep. in the lobby with free samples and tickets for the Lakers, etc.  Is that good?

Look at longevity rates; America is tied at 36th.  That is terrible.  I think the whole of Europe is ahead of us, not to mention Japan which also has a national health care plan.
Also, not to mention Hong Kong and yes Israel which also has a national health care plan.  It seems all the leading countries do.  And they are healthier than we are....

http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy

Death Panels?  You mean Medical Boards that determine that a 92 year old shouldn't get a heart transplant?  Like my friend's friend here in LA who did get one?  Well someone needs to say "No". 
Both from a humanitarian reason - let a younger person get the heart and from a cost standpoint.

[G M]

If you think your surgery is being done by your Dr. because of a profit margin rather than medical need, I suggest finding another doc. Something you can't do with a Nat'l Health Service. In addition, if Obamacare is so wonderful, why the clamor for exemptions?

[G M]

http://www.city-journal.org/html/17_3_canadian_healthcare.html

I was once a believer in socialized medicine. I don’t want to overstate my case: growing up in Canada, I didn’t spend much time contemplating the nuances of health economics. I wanted to get into medical school—my mind brimmed with statistics on MCAT scores and admissions rates, not health spending. But as a Canadian, I had soaked up three things from my environment: a love of ice hockey; an ability to convert Celsius into Fahrenheit in my head; and the belief that government-run health care was truly compassionate. What I knew about American health care was unappealing: high expenses and lots of uninsured people. When HillaryCare shook Washington, I remember thinking that the Clintonistas were right.

My health-care prejudices crumbled not in the classroom but on the way to one. On a subzero Winnipeg morning in 1997, I cut across the hospital emergency room to shave a few minutes off my frigid commute. Swinging open the door, I stepped into a nightmare: the ER overflowed with elderly people on stretchers, waiting for admission. Some, it turned out, had waited five days. The air stank with sweat and urine. Right then, I began to reconsider everything that I thought I knew about Canadian health care. I soon discovered that the problems went well beyond overcrowded ERs. Patients had to wait for practically any diagnostic test or procedure, such as the man with persistent pain from a hernia operation whom we referred to a pain clinic—with a three-year wait list; or the woman needing a sleep study to diagnose what seemed like sleep apnea, who faced a two-year delay; or the woman with breast cancer who needed to wait four months for radiation therapy, when the standard of care was four weeks.

I decided to write about what I saw. By day, I attended classes and visited patients; at night, I worked on a book. Unfortunately, statistics on Canadian health care’s weaknesses were hard to come by, and even finding people willing to criticize the system was difficult, such was the emotional support that it then enjoyed. One family friend, diagnosed with cancer, was told to wait for potentially lifesaving chemotherapy. I called to see if I could write about his plight. Worried about repercussions, he asked me to change his name. A bit later, he asked if I could change his sex in the story, and maybe his town. Finally, he asked if I could change the illness, too.

My book’s thesis was simple: to contain rising costs, government-run health-care systems invariably restrict the health-care supply. Thus, at a time when Canada’s population was aging and needed more care, not less, cost-crunching bureaucrats had reduced the size of medical school classes, shuttered hospitals, and capped physician fees, resulting in hundreds of thousands of patients waiting for needed treatment—patients who suffered and, in some cases, died from the delays. The only solution, I concluded, was to move away from government command-and-control structures and toward a more market-oriented system. To capture Canadian health care’s growing crisis, I called my book Code Blue, the term used when a patient’s heart stops and hospital staff must leap into action to save him. Though I had a hard time finding a Canadian publisher, the book eventually came out in 1999 from a small imprint; it struck a nerve, going through five printings.

Nor were the problems I identified unique to Canada—they characterized all government-run health-care systems. Consider the recent British controversy over a cancer patient who tried to get an appointment with a specialist, only to have it canceled—48 times. More than 1 million Britons must wait for some type of care, with 200,000 in line for longer than six months. A while back, I toured a public hospital in Washington, D.C., with Tim Evans, a senior fellow at the Centre for the New Europe. The hospital was dark and dingy, but Evans observed that it was cleaner than anything in his native England. In France, the supply of doctors is so limited that during an August 2003 heat wave—when many doctors were on vacation and hospitals were stretched beyond capacity—15,000 elderly citizens died. Across Europe, state-of-the-art drugs aren’t available. And so on.

But single-payer systems—confronting dirty hospitals, long waiting lists, and substandard treatment—are starting to crack. Today my book wouldn’t seem so provocative to Canadians, whose views on public health care are much less rosy than they were even a few years ago. Canadian newspapers are now filled with stories of people frustrated by long delays for care:

[G M]

http://pajamasmedia.com/blog/the-doctor-is-in-infant-mortality-comparisons-a-statistical-miscarriage/?singlepage=true

The Doctor Is In: Infant Mortality Comparisons a Statistical Miscarriage

Babies don't do better in countries with socialized medicine.

August 3, 2008 - 12:00 am - by Dr. Linda Halderman

Q: If socialized medicine is so bad, why are infant mortality rates higher in the U.S. than in other developed nations with government or single-payer health care?
 
A: U.S. infant mortality rates (deaths of infants <1 year of age per 1,000 live births) are sometimes cited as evidence of the failings of the U.S. system of health care delivery. Universal health care, it’s argued, is why babies do better in countries with socialized medicine.
 
But in fact, the main factors affecting early infant survival are birth weight and prematurity. The way that these factors are reported — and how such babies are treated statistically — tells a different story than what the numbers reveal.
 
Low birth weight infants are not counted against the “live birth” statistics for many countries reporting low infant mortality rates.

According to the way statistics are calculated in Canada, Germany, and Austria, a premature baby weighing <500g is not considered a living child.
 
But in the U.S., such very low birth weight babies are considered live births. The mortality rate of such babies — considered “unsalvageable” outside of the U.S. and therefore never alive — is extraordinarily high; up to 869 per 1,000 in the first month of life alone. This skews U.S. infant mortality statistics.
 
When Canada briefly registered an increased number of low weight babies previously omitted from statistical reporting, the infant mortality rose from 6.1 per 1,000 to 6.4 per thousand in just one year.
 
According to research done by Canada’s Bureau of Reproductive and Child Health, “Comparisons of infant mortality rates by place and time should be adjusted for the proportion of such live births, especially if the comparisons involve recent years.”
 
Norway boasts one of the lowest infant mortality rates in the world. But when the main determinant of mortality — weight at birth — is factored in, Norway has no better survival rates than the United States.
 
Pregnancies in very young first-time mothers carry a high risk of delivering low birth weight infants. In 2002, the average age of first-time mothers in Canada was 27.7 years. During the same year, the same statistic for U.S. mothers was 25.1 — an all-time high.
 
Some of the countries reporting infant mortality rates lower than the U.S. classify babies as “stillborn” if they survive less than 24 hours whether or not such babies breathe, move, or have a beating heart at birth.

Forty percent of all infant deaths occur in the first 24 hours of life.
 
In the United States, all infants who show signs of life at birth (take a breath, move voluntarily, have a heartbeat) are considered alive.
 
If a child in Hong Kong or Japan is born alive but dies within the first 24 hours of birth, he or she is reported as a “miscarriage” and does not affect the country’s reported infant mortality rates.
 
The length of pregnancy considered “normal” is 37-41 weeks. In Belgium and France — in fact, in most European Union countries — any baby born before 26 weeks gestation is not considered alive and therefore does not “count” against reported infant mortality rates.
 
Too short to count?
 
In Switzerland and other parts of Europe, a baby born who is less than 30 centimeters long is not counted as a live birth. Therefore, unlike in the U.S., such high-risk infants cannot affect Swiss infant mortality rates.
 
Efforts to salvage these tiny babies reflect this classification. Since 2000, 42 of the world’s 52 surviving babies weighing less than 400g (0.9 lbs.) were born in the United States.
 
The parents of these children may view socialized medicine somewhat differently than its proponents.
 
Dr. Linda Halderman was a Breast Cancer Surgeon in rural central California until unsustainable Medicaid payment practices contributed to her practice's closure. She now serves as a policy advisor in the California State Senate.

[G M]

http://www.biggovhealth.org/resource/myths-facts/infant-mortality-and-premature-birth/

Infant Mortality and Premature Birth

Myth: The U.S. infant mortality rate is higher than that of other countries
 
Fact: The U.S.’ infant mortality rate is not higher; the rates of Canada and many European countries are artificially low, due to more restrictive definitions of live birth. There also are variations in the willingness of nations to save very low birth weight and gestation babies.
 
The ethnic heterogeneity of the U.S. works against it because different ethnic and cultural groups may have widely different risk factors and genetic predispositions. (G M-Imagine the impact of illegal aliens and the pathologies from the inner cities and how that might skew the statistics, as well as the costs.)

Definitions of a live birth, and therefore which babies are counted in the infant mortality statistics very considerably. The U.S. uses the full WHO definition, while Germany omits one of the four criteria. The U.K. defines a still birth “a child which has issued forth from its mother after the twenty-fourth week of pregnancy and which did not at any time after being completely expelled from its mother breathe or show any other signs of life.”1
 
This leaves what constitutes a sign of life open and places those born before 24 weeks in a gray area. Canada uses the complete WHO definition but struggles with tens of thousands of missing birth records and increasing numbers of mothers sent to the U.S. for care.2 France requires “a medical certificate [that] attests that the child was born ‘alive and viable’” for baby who died soon after birth to be counted, which may be difficult to obtain.
 
--------------------------------------------------------------------------------

Myth: The U.S. premature birth rate is higher than that of other countries.
 
Fact: In the Netherlands, babies below 25 weeks gestation are no longer resuscitated, but rather given only palliative treatment. Those at 25 to 26 weeks are generally resuscitated and kept alive, but the decision depends on the facts of each case.3 The result is underreporting the number babies that may be live-born but who are not offered aggressive treatment.
 
Switzerland only uses two of the four WHO criteria, respiration and heart beat, and does not aggressively treat very premature babies. In some cantons, the baby must be 30 cm long to be registered as a live birth. Switzerland also requires registration of still births only from 6 months gestation and has no rule regarding registration of live births. Studies have found significant underreporting of premature births in Switzerland, which can alter the overall mortality rate by more than a percentage point.4
 1 Births and Deaths Registration Act 1953, paragraph 41, modified by Still Birth Definition Act 1992.
2 Lisa Priest, “Canada’s U.S. baby boom,” The Globe and Mail, 5 May 2008; Caroline Abraham, “Red tape denies baby Sonja her brief life; To the dismay of parents, thousands of births go undocumented in Ontario,” The Globe and Mail, 22 July 2006.
3 From the newsletter of the Dutch Paediatric Association, quoted in “The Dutch Policy,” BBC News, 22 September 2004, http://news.bbc.co.uk/go/pr/fr/-/2/hi/programmes/panorama/3677278.stm.
4 Martina Müller, Gero Drack, Christian Schindler, and Hans Ulrich Bucher, “Live and Stillborn very low birthweight infants in Switzerland: comparison between hospital based birth registers and the national birth register,” Swiss Medical Weekly, vol. 135, (2005).

[G M]

http://www.dailymail.co.uk/news/article-1234276/Britain-sick-man-Europe-Heart-cancer-survival-rates-worst-developed-world.html

If I recall correctly, JDN, your wife survived cancer, right? What would he chances have been had she had to wait months for diagnosis and months for treatment?

[G M]

http://news.scotsman.com/health/Revealed-the-true-scale-of.2786966.jp

Revealed: the true scale of NHS cancer waiting times


Published Date: 25 June 2006

By EDDIE BARNES

POLITICAL EDITOR





Full table

See the full table of cancer treatment waiting times for Scotland here
THE shocking extent of cancer treatment delays in Scotland has been revealed in official new figures which also lay bare the postcode lottery facing patients across the country.

Despite repeated promises and billions of pounds invested, the hospital-by-hospital breakdown reveals some patients are waiting more than a year between GP referral and treatment.

The statistics also expose massive variations in average waiting times across Scotland, with some units beginning treatment for lung cancer in 10 days while others take 10 weeks.

Ministers last night admitted the situation was "unacceptable". Health minister Andy Kerr ordered health boards to explain the lengthy delays and widespread variations.

But one of Europe's leading cancer specialists, Professor Gordon McVie, said the NHS could provide "no excuses" for routinely delaying potentially life-saving treatment.

And one health board, NHS Lothian, issued an unreserved apology for a bowel cancer patient waiting over 300 days between referral and treatment.

Cancer claims the lives of 15,000 Scots every year, and one in three people will fall prey to the disease. Ministers have made combating cancer one of their top health priorities, and rapid treatment is seen as an essential plank in that strategy.

Scotland on Sunday has obtained the latest Scottish Executive figures for 32 hospitals, showing the time between referral and treatment for 10 different types of cancer.

The figures, for patients diagnosed between October and December last year, reveal that:

• Eighteen out of 32 hospitals forced bowel cancer patients to wait an average of two months or more to receive treatment. In the most extreme case, a patient at Monklands hospital in Airdrie was finally treated 335 days after being referred for treatment by a GP.

• Patients diagnosed with bladder, prostate and kidney cancer suffered extraordinary delays. The 13 patients treated at Glasgow Royal Infirmary waited an average of 168 days for treatment. A patient at Falkirk and District Royal Infirmary waited 379 days.

• Six breast cancer patients at Belford hospital, Inverness, waited an average of 80 days before getting treatment for a disease that becomes virtually incurable if it spreads.

• There remains a 'postcode lottery' of cancer in Scotland. The 18 bowel cancer patients at Ayr hospital waited an average of 18 days, compared with the 127 days suffered by those at Wishaw General.

One health board chairman last night launched an immediate investigation after he was confronted with the case of a bowel cancer patient at the Western General, Edinburgh, who waited 305 days before being treated. The delay has been blamed on an "administrative error".

Brian Cavanagh, chairman of NHS Lothian, said: "This is completely unacceptable. I have already asked for a report into how this occurred and have asked for an assurance from the University Hospital Division that it will not happen again."

Mike Grieve, Director of Operations, University Hospitals Division, NHS Lothian, added: "I would like to apologise unreservedly for this lengthy delay."

Kerr has now asked all cancer services across Scotland to probe the long waits, demanding that they show evidence that any long delays can be explained. "I have asked cancer services across Scotland to examine very long waits and confirm that there were indeed clinical or other relevant reasons for long delays over six months," he said.

"Long waits are unacceptable. If a patient's condition demands

immediate access to treatment, I would expect that need to be recognised by clinicians and acted upon appropriately. Patients should be diagnosed and have their treatment according to their individual clinical need and personal needs."

Ministers have set a two-month maximum limit for treatment for the most urgent cases. Executive officials and health chiefs insist that for many 'non-urgent' cases, which are included in the new figures, waits may be longer because patients could be too ill or too frail to receive aggressive treatment.

But one of the world's leading cancer experts said this could not be used as an excuse. He said that in all but a tiny number of cases, a modern-day health service should treat cancer patients within two months of referral.

Professor Gordon McVie, consultant to the European Institute of Oncology, said: "For the majority of common cancers there is cut-and-dried, five-star evidence to suggest that delay in treatment will affect prognosis and the likelihood of a cure."

He added: "It is nonsense to suggest that there are clinical reasons for lots of delays. That will only affect a very small number of people. Things are slowly getting better in Scotland but they were shocking to start with. Both Scotland and England are not up to acceptable standards of efficiency."

Kerr has now identified cancer waiting times as among his top priorities, with ministers desperate to avoid damaging statistics in the run-up to next year's Scottish Parliament elections. Opposition parties agreed the figures revealed a postcode lottery of care. SNP health spokeswoman Shona Robison said: "Depending on where you live decides how long it takes for you get treated. There are too many patients being let down because of the performance of the health boards which they live within."

Jenny Whelan, head of Cancerbackup in Scotland - which runs a helpline for cancer patients - said: "Cancerbackup receives many calls from anxious patients concerned about long delays to their treatment, at a time when they should be focusing on trying to recover. It's imperative people are treated as quickly as possible and do not have the added stress of lengthy waits between diagnosis and the start of treatment."

[DougMacG]

"If you think your surgery is being done by your Dr. because of a profit margin rather than medical need, I suggest finding another doc. "

Looks to me like GM has the points covered I would try to make back to JDN.  Allowing for-profit activities in healthcare does not mean all decisions are 100% economic.  I don't get a dollar more in rent every time I try to do something extra for a tenant.  I mostly just try to keep them as a customer.

Pretending to make healthcare non-profit is silly, and ignorant of what profits are and what they do... the most efficient and effective way known to allocate scarce resources.

State law here requires all hospitals to be non-profit, what a joke.  A friend is CFO of one of the largest groups.  They own for-profit businesses within the non-profit building like the pharmacy in the front entry (as you point out) that can make up for all of anti-capitalistic legislation people can think of.  An argument I make to a different friend (of the stalinist-socialist persuasion) is that it meaningless to call a building non-profit if all of the people walking in and out of it are pulling down 300k or more.
----------------
"Look at longevity rates; America is tied at 36th.  That is terrible.  I think the whole of Europe is ahead of us, not to mention Japan which also has a national health care plan."

Does anybody ever compare Europe with European Americans, African Americans with Africans and Hispanic Americans with outcomes for people south of the border or do we just throw around bullshit and to see if a false point can be proven?

A look at differences in educational outcomes based on varying diversity is helpful, please read Iowahawk: Longhorns 17, Badgers 1. http://iowahawk.typepad.com/iowahawk/2011/03/longhorns-17-badgers-1.html  White students in Texas (wild west) do better than white students in (unionized) Wisconsin.  Hispanics in Texas do better in Texas than Hispanics in Wisconsin.  Blacks in Texas do better than blacks in Wisconsin.  But every reporting out there is about the highest test scores coming out of Iowa, MN or Wisc.

The graduation rate at my daughter's very large public high school is 99% with the strictest standards of any state and the on-to-college rate is 91%.  See how that or any healthcare outcome measures up with say immigrant-based Malmo Sweden with national healthcare.  Let's compare Scandinavian Americans here with Sweden's Islamic and see what part is genetic or cultural differences and what part is systemic.

Where, JDN, is the highest survival rates for the ailments you and/or your wife (update: no one can stay ahead of GM on this) are most likely to get (hypothetically, not personally)?  My guess is the good old US of A.

[JDN]

Just a few points.  

GM - Why twice bring up excuses for America's poor infant mortality rate?  In contrast, I brought up, much more importantly, longevity.  Fact - people consistently live longer in countries that have national health care systems.

As for profit margin?  Sorry, even excellent doctors will order tests and do procedures that pay the most.  That's just how it is.  I'm not saying those procedures don't work, or that these doctors don't truly care about their patients, actually we have great doctors here; just that they often do tests/procedures that are not necessary.  But that is how the doctor/hospital get paid.  And it inflates the doctors and hospital's income.

I'm too lazy/busy tonight to look it up, but time after time studies will show doctors when given a choice perform surgeries that are the highest paying.  Studies further show
than when the profit motive is deleted (reimbursement levels lowered) the frequency of the same surgery/test is significantly lowered.  Imagine that?  Maybe it's because the average American doctor makes nearly double what his counterpart makes in Europe or Japan or Hong Kong.   But higher salaries for doctors does not translate to longevity.  Nor do needless tests and procedures
mean longer longevity.  

Worse, in in this country if you can't pay top tier, well you simply don't get top tier care.  That's ok for buying a car; some drive an old used VW bug, others a new top of the line Benz, either way you get there, but I'm not sure it's right that the poor guy next door gets marginal care and maybe dies versus the guy with the big bucks who gets the newest and latest and the best.  Something immoral about that in my opinion.  But that is one of the reasons our nations's longevity as a group is pitiful compared to other nations.

As for my wife, please leave her out of it....

[Crafty_Dog]

1) Would not the infant mortality rate affect the longevity rate?

2) Does not the fact that we are (as best as I know) the fattest population on the planet have something to do with our longevity rate?

[DougMacG]

The silent ending to every sentence in economics is 'all other things equal'.  A doctor might be expected to respond to a monetary incentive, 'all other things held equal'.  That you think he/she will perform a test or procedure unnecessarily only to make an extra buck only tells us something about principles or the absence of them.  I don't know any doctors who knowingly or intentionally waste resources.

What JDN is finding fault with is crony capitalism, known on the board as fascism.  Third party compensators write the procedure rate book before anyone diagnoses the patient.  Not exactly a free market or a healthcare systm.  Then we compare that with nationalizing the whole system, aka Marxism, as if we didn't know a better way.  The reason money/capital doesn't allocate resources best in this scenario is the distortion called third party pay.  We discuss what a supplier would do for compensation and what some regulatory board will pay per procedure, need it or not, but if this were some form of market or capitalism, the supply question would have to be mapped against demand - what ordinary people are able and willing to pay.  We remove that half of the equation, wonder why costs run up, then compare it only with complete statism.  Something is missing.

[Crafty_Dog]

BTW, as I forgot to note in my previous post, the last several posts would be better placed if posted in the Health Care thread

[Body-by-Guinness]

White House’s Daley seeks balance in outreach meeting with manufacturers

By Peter Wallsten and and Jia Lynn Yang, Published: June 16

It was supposed to be the White House’s latest make-nice session with corporate America — a visit by Chief of Staff William M. Daley to a meeting with hundreds of manufacturing executives in town to press lawmakers for looser regulations.

But the outreach soon turned into a rare public dressing down of the president’s policies with his highest-ranking aide.

One by one, exasperated executives stood to air their grievances on environmental regulations and stalled free-trade deals. And Daley, the former banker tasked with building ties with industry, found himself looking for the right balance between empathy and defending his boss.

At one point, the room erupted in applause when Massachusetts manufacturing executive Doug Starrett, his voice shaking with emotion, accused the administration of blocking construction on one of his facilities to protect fish, saying government “throws sand into the gears of progress.”

Daley said he did not have many good answers, appearing to throw up his hands in frustration at what he called “bureaucratic stuff that’s hard to defend.”

“Sometimes you can’t defend the indefensible,” he said.

The exchange suggests the limits of the elaborate courtship of corporations begun by President Obama and his top aides after Democrats’ big losses in the 2010 elections — an effort that has taken on new urgency in recent weeks.

Top aides have been reaching out to business leaders as Obama’s reelection campaign seeks to expand its network of potential new donors and fundraisers. And the White House has hoped that a closer alliance with businesses would help spur job growth.

Even as the White House pledges more receptivity to corporate concerns, business continues to spar with the administration on numerous fronts.

Wall Street is lobbying to undo many of the new regulations signed into law last year. Manufacturers say environmental policies are hindering growth. And, in a high-profile case that tests the administration’s allegiances, aerospace giant Boeing is warring with labor regulators over its decision to open a plant in South Carolina, which is hostile to unions.

In his speech and during a question-and-answer session Thursday, Daley laid out the administration’s efforts to help business, promoting Obama’s support for changing the corporate tax structure and for new free trade agreements.

He pointed to the administration’s effort, led by regulatory czar Cass Sunstein, to identify hundreds of rules that could be costing businesses money and time.

When a paper company executive said Environmental Protection Agency regulations might cost her $10 million to $15 million to upgrade a mill, Daley said the number of rules and regulations “that come out of agencies is overwhelming.”

Later, he added: “We’re trying to bring some rationality to it.”

Daley’s appearance before Thursday’s meeting of the National Association of Manufacturers was an unusual public appearance for Obama’s relatively new chief of staff. He invited the executives to offer candid views and extended the question-and-answer session, at one point joking, “I’ll probably regret saying that.”

He acknowledged the touchy political calculation the White House faces as Obama tries to promote his economic record on the campaign trail while being sensitive to the reality that many Americans are struggling. This month, the White House was thrown a political curveball with a surprisingly glum jobs report in which the unemployment rate ticked up to 9.1 percent, giving several of Obama’s potential GOP rivals an opening to attack his leadership.

“You can’t sound Pollyannaish,” Daley told the business leaders. “I believe this economy of ours is better than the perception right now.”

Daley offered blunt assessments on key issues of interest to executives in the room.

On the status of free-trade agreements with South Korea, Panama and Colombia, he suggested politics was proving to be a challenge. He said there are “people who lose from these agreements” and urged businesses to lobby their workers to help overcome opposition on Capitol Hill.

“No politician loses an election because they voted against trade,” he said.

On lowering the corporate tax rate, a top goal of business groups, Daley said again, “there are winners and losers.” He warned that some small businesses might face a tax increase.

Mary Andringa, head of NAM, described the meeting as “constructive” and was “quite pleased” that Daley devoted more than an hour to the group’s concerns.

But some business executives in the room said they were unimpressed by the White House’s attempts to woo industry.

“We think there’s a thin facade by the administration to say the right things, but they don’t come close to doing things,” said Barney T. Bishop III, chief executive of the business group Associated Industries of Florida. He called the efforts to streamline regulations “immaterial.”

“We love the platitudes, but we want to see action,” Bishop said.

White House officials described Thursday’s encounter as part of a work in progress. Spokesman Eric Schultz described the meeting as a “frank and open conversation . . . about steps we can take to drive private-sector job growth.”

Daley said afterward that he’s sympathetic to the gripes he heard. “This is a practical world you’ve got to live in,” he said. “These people run businesses.”

http://www.washingtonpost.com/politics/white-houses-daley-seeks-balance-in-outreach-meeting-with-manufacturers/2011/06/16/AG177yXH_print.html

[Crafty_Dog]

Balancing out the Bear with some Bull from Wesbury   Seriously, he is a good economist and we need to keep an open mind.
=================
Data Watch

--------------------------------------------------------------------------------
New orders for durable goods increased 1.9% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/24/2011


 New orders for durable goods increased 1.9% in May (2.8% including upward revisions to April). The consensus expected a gain of 1.5%. Orders excluding transportation rose 0.6% in May (1.9% including upward revisions to April). The consensus expected 0.9%.  From a year ago, overall new orders are up 9.0%, while orders excluding transportation are up 7.2%

The overall increase in orders was led by civilian aircraft. Almost all other major categories of orders increased as well.
 
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure rose 1.4% in May and even if unchanged in June, will be up at a 7.2% annual rate in Q2 versus the Q1 average.
 
Unfilled orders rose 0.9% in May and are up 6.3% from last year.
 
Implications:  The economy is still alive and kicking, and today’s report on durable goods shows it. New orders for durable goods increased 1.9% in May, beating the expected increase of 1.5%, and were revised up for April as well. Most of the gain in May was due to civilian aircraft, which are very volatile from month to month. However, excluding the transportation sector, orders were still up 0.6% in May and up 1.9% including upward revisions for April. Moreover, the gains in May were widespread, with almost every major category of orders increasing. In other words, this is not just a Boeing story. Shipments of “core” capital goods (which exclude civilian aircraft and defense and which the government uses to calculate GDP) bounced back 1.4% in May. These shipments are up 7.7% versus a year ago and up at a much faster 14.9% annual rate in the past three months. Given record corporate profits and balance sheet cash, relatively low borrowing rates in the corporate sector, a recent rise in commercial and industrial lending, plus full expensing for tax purposes for 2011, we believe business investment will continue to increase substantially for at least the next couple of years.
 

[JDN]

It's a sad day for Baseball in LA, "The Los Angeles Dodgers filed for bankruptcy court protection early Monday."

But what caught me attention was the comment,

"The bankruptcy filing lists numerous Dodgers players, past and present, among its largest creditors, with former player Manny Ramirez the largest creditor, owned almost $21 million.
Players are likely to be paid in full, though, as they have protections under in the collective bargaining agreement between their union and Major League Baseball."

http://money.cnn.com/2011/06/27/news/companies/dodgers_bankruptcy/index.htm?hpt=hp_t1

[DougMacG]

JDN,  The economics of pro sports is nuts, an extreme version of crony capitalism aka fascism where government picks winners and losers.  I'm sure every town has their story.  I wonder what baseball would look like if government considered treating all businesses equally.

[JDN]

Doug, I absolutely agree.  While I am no fan of McCourt, I simply don't get why the Commissioner is able to take over the team
when McCourt has documented that he is able to raise financing.  Further, while I love the Dodgers, if McCourt wants to take some money out for
personal use, it would seem to me that is his prerogative; it's his team, his money.  If you want to sell one of your buildings and buy that 50 foot Swan,
well, isn't that your right?

My post was to highlight that Unions were to be given priority in bankruptcy.  Frankly, I didn't know that normal procedure.  I thought Obama
made a rare, albeit necessary (?) exception for GM.

p.s. off topic, but a while ago you said you need a license to sail a boat in MN?  You mean registration don't you?

[DougMacG]

"p.s. off topic, but a while ago you said you need a license to sail a boat in MN?  You mean registration don't you?"

Correct. Large govt fees required to harness the wind from my own property. 

In the Boundary waters (BWCA) under federal control, sail boats are banned entirely. http://www.bwca.cc/tripplanning/rules.htm

If they knew anything about political economics or cared about wanting to save the world from the C02 that is growing our forests too rapidly, they might want to subsidize rather than tax and ban sailboats.

[G M]

http://www.weeklystandard.com/blogs/obama-s-economists-stimulus-has-cost-278000-job_576014.html

Who knew that a marxist community organizer would be such a failure as president?

[DougMacG]

Avoiding the ad hominem attascks (as I accused on a post against Beck), I always try to refute Krugman point by point, rather than smear the person.  Still I wonder how he came to his current status of liberal economist de facto in chief and I wonder what scholarly work he once did to earn the profession's highest award.  This piece touches on the evolution of the famous journalist/economist of the NY Times and Princeton.

http://opinion.financialpost.com/2011/06/28/peter-foster-the-demons-in-krugmanomics/

Peter Foster: The demons in Krugmanomics
Financial Post, Jun 28, 2011

Paul Krugman’s affection for ­markets fell as he became obsessed with inequality, market instability and catastrophic climate change

Nobel economist Paul Krugman is due to address the Economic Club of Toronto Wednesday on whether the United States has “mortgaged its future.” If Mr. Krugman is true to form, he will tell his audience that it has not mortgaged its future enough. What is desperately needed is more government borrowing and spending.

Mr. Krugman is a Nobel-winning trade-policy academic economist who, over the past couple of decades, has gone increasingly to the liberal dark side, as evidenced in his columns in The New York Times. What seems to have driven him completely over the edge is a combination of Bush Derangement Syndrome and an evangelical desire to prove that Reaganomics was a failure. He criticizes Barack Obama for not going far enough. He hates Republicans with a passion and is Keynesian to the core. Thus he can only interpret the failure of government stimulus as evidence of “cowardice” or “lack of political will.”

Like most liberal moralists, Mr. Krugman demonizes his opponents as not merely wicked and/or stupid/and or venal, but also “furious” because he is so right and they are so wrong. On election night 2008, he and his even more uncompromisingly liberal wife, Robin Wells, who is also a Princeton economist, had a party at which effigies of their enemies were burned. Salem, anyone?

Mr. Krugman constantly concocts conspiracies of the rich to grind the faces of the poor. He calls anti-Keynesians “The Pain Caucus.” He is currently lashed to the mast of not one but two sinking ships, the USS Keynes and the USS Draconian Climate Policy.

Modern American conservatism, he has written, “is, in large part, a movement shaped by billionaires and their bank accounts, and assured paycheques for the ideologically loyal are an important part of the system. Scientists willing to deny the existence of man-made climate change, economists willing to declare that tax cuts for the rich are essential to growth, strategic thinkers willing to provide rationales for wars of choice, lawyers willing to provide defences of torture, all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultra-wealthy families.”

Maybe he should check out what causes the Rockefeller, Carnegie, Pew, Hewlett and Packard foundations are actually promoting. It certainly isn’t climate change denial.

Mr. Krugman’s Nobel Prize for work in international trade and economic geography was widely praised. Early in his career he was a fan of markets and free trade, and attacked “popular” economists such as John Kenneth Galbraith, Lester Thurow and Robert Reich, who catered to economic misconceptions beneath a cloak of liberal good intentions. However, that cloak in the end proved too attractive not to try on.

Mr. Krugman’s affection for markets has declined as he has become obsessed with inequality, market instability and catastrophic climate change. He doesn’t think consumers can be trusted to make the “right” choices any more, and has taken to the remarkably annoying habit of condemning free marketers as people who believe that people are always rational and markets perfect. Then again, straw men are easy to torch.

Mr. Krugman’s take on the ongoing crisis is remarkable not merely for wishing to keep doing more of what has failed, but his blindness to the role of government policy in its creation. Fannie and Freddie? Mere bystanders who only decided to help blow up the system “late in the game.” Greece? It’s all the euro’s fault.

Anthropogenic global warming has become an article of religious faith for Mr. Krugman, which has required him to go through astonishing convolutions in the face of growing evidence of corruption. Climategate? A “fake scandal.” Remember those emails about a “trick” to “hide the decline”? According to Mr. Krugman this was an “anomalous decline.” Well, no. The decline was in actual temperature readings which failed to concur with the proxy data from tree rings. These had to be “hidden” because tree ring data were essential to the credibility of the poster child “hockey stick” graph that presented the twentieth century as a thousand year anomaly. The decline had to be hidden because it exposed fake science.

The former free trader now thinks that carbon tariffs might not be such a bad idea, and since cap and trade represents an alleged “market solution” to the catastrophe-to-come, the conservatives who (successfully) opposed it are, in Mr. Krugman’s view, hypocrites.

Mr. Krugman leans towards the global salvationist posturing of Lord Stern, whose climate review is a monument to perverted cost-benefit analysis. “Stern’s moral argument for loving unborn generations as we love ourselves may be too strong,” Mr. Krugman has written, “but there’s a compelling case to be made that public policy should take a much longer view than private markets.”

The problem is that it doesn’t.

The evil of Mr. Krugman’s opponents is all embracing. He has written that “[T]hose who insist that Ben Bernanke has blood on his hands tend to be more or less the same people who insist that the scientific consensus on climate reflects a vast leftist conspiracy.” You see the connection? Leaving aside the blood libel, if you oppose further corruption of the monetary system you are clearly also a climate denier. And why doesn’t America have universal public health care? Simple, it’s due to “The legacy of slavery, America’s original sin.”

Once Mr. Krugman’s intellectual inspiration was Adam Smith. Now it’s Naomi Klein.

[Crafty_Dog]

America's Troubling Investment Gap
For the first time in decades, America is on net losing, not attracting, growth capital.
By David Malpass And Stephen Moore
In June, President Obama celebrated a rare sliver of good economic news: Foreign investment was up 49% last year over 2009. The president says that this boost in capital shipped to the U.S. by international companies or foreign investors leads to more businesses and higher-paying jobs here at home. He's right.

But this isn't the economic success story that the White House is spinning. The real truth of the recession and limping recovery is that for the first time in decades America is, on net, losing, not attracting, growth capital. That may be the single most important explanation for persistently high unemployment and stagnant wages.

It is true that foreign direct investment rose to $236 billion in 2010 from $159 billion in 2009. But that was still well below the $310 billion invested in 2008. The White House also neglected to disclose that in the first quarter of 2011 foreign investment fell by 51% from the first quarter of last year, according to data released last month from the federal Bureau of Economic Analysis. Foreigners of late have not found the U.S. to be a receptive, high-return home for investment.

Much more worrisome is that Americans are taking their investment dollars abroad at a faster pace than foreigners are bringing capital to these shores. In 2010, for example, U.S. investment abroad was $351 billion—$115 billion higher than foreign investment here. Economic recoveries are periods when investment capital usually surges into a country, but since this weakling rebound began in the middle of 2009 the U.S. has lost more than $200 billion in investment capital. That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India.

This is a recent and dramatic reversal of fortune. Huge net inflows of productive capital into the U.S. in the 1980s and '90s helped finance the 25-year boom in jobs and broad-based prosperity from 1982-2007. Over that period, foreigners invested just over $6 trillion more in the U.S. (in total capital) than Americans invested abroad, according to the Bureau of Economic Analysis, with most of it going into businesses.



That tidal wave of funds provided the capital to finance new American companies, while increasing the value of other assets, such as real estate. It also underwrote new factories owned by foreign companies like Honda. All of this investment contributed mightily to the 35 million new jobs in the 1980s and '90s. By 2008, the average job created with foreign investment paid $71,000 a year, about 30% above the U.S. average, according to a report issued in June by the White House Council of Economic Advisers, "U.S. Inbound Foreign Direct Investment."

So why did the investors put their money in the U.S. in those years? We'd say it was a combination of low tax rates, a strong dollar, low inflation and other free-market reforms. Capital flows to where it is most highly rewarded, and low marginal tax rates on the returns to capital and business income create a gravitational pull on global funds. A strong and stable currency allows businesses to invest in innovation, employees and productivity rather than inflation hedges. It also encourages investors to wait longer to cash in their profits without worrying about the losses of a depreciating dollar. In the high-tax, high-inflation 1970s, the U.S. was a net exporter of risk-taking capital. As we are now.

That's only part of the story behind the disappointing recovery we now face. To be sure, foreigners still park a huge amount of money in this country, but in the last several years they've shifted their investment toward U.S. Treasury securities and government-guaranteed bonds, and away from the private-sector staples—corporate bonds, intellectual property, ownership of businesses—that create sustainable jobs. Since 2009, foreigners have invested just over $1 trillion in U.S. Treasury bonds, according to the Bureau of Economic Analysis.

Some economists argue that investing in low-interest-rate government bonds works fine for America because it allows the government to boost spending on programs—the latest doozies are windmills, high-speed rail and 99 weeks of unemployment benefits. The low interest rates, this argument goes, prove there is no negative "crowding out" from America's near $1.5 trillion deficit.

That misses the point. To produce rapid growth, most capital must be allocated by markets. The effect of $4.5 trillion of borrowing since 2009 is that foreigners and Americans are buying Treasury bills instead of investing in the next Google, Oracle, Wal-Mart or biomedical company. Today, foreigners are financing food stamps and the next bridge to nowhere while Americans are building state-of-the-art production systems abroad. This is the real pernicious "crowding out effect" of the federal government's borrowing.

The free flow of capital across borders is unquestionably a positive sum game for everyone—in the same way free trade is—but the U.S. can only retain its status as a high-wage dynamic economy if we are enticing capital for new operations to these shores. The U.S. is still by far the world leader in the cumulative stock of foreign investment, which now stands at some $3.3 trillion. But the composition of that investment is tilting toward government securities.

Meanwhile, the best related measure of our competitiveness as a nation—the balance of foreign direct investment into the U.S. versus the investment capital going abroad—is a red flag.

Mr. Malpass is president of Encima Global. Mr. Moore is senior economics writer for the Wall Street Journal editorial page.