Views on the News

May 30, 2009


Views on the News*

Has anyone noticed that none of the federal government economic recovery programs had the desired impact, other than to make conditions worse? The first two economic stimulus programs grew steadily larger in size and were intended to jumpstart the misfiring economy and to create long term private sector jobs. First quarter GDP results show a contracting economy and unemployment continues to rise, with no credible prediction when these trends will turn around. The $787 billion “porkulus” spending plan was designed to invest in “shovel ready” infrastructure projects, save or create 3 million jobs, and a large number of earmark spending. States hit hardest by the recession received only a few of the government's first stimulus contracts, even though the glut of new federal spending was meant to target places where the economic pain has been particularly severe. Nationwide, federal agencies have awarded nearly $4 billion in contracts to help jump-start the economy since President Obama signed the massive stimulus package in February, but, with few exceptions, that money has not reached states where the unemployment rate is highest. Remember Obama’s photo-op with the 25 Ohio policemen whose jobs he “saved,” well three months later they are being laid off over lack of funds since the stimulus was only temporary. Adding insult to injury at least 12,000 jobs “created” by Obama’s stimulus package have been revealed to be summer jobs for teen that expire at the end of the summer. The key thing to remember is that the stimulus effect is a one-time rise in the level of activity, not an ongoing change in the rate of growth. Whatever positive effect of the stimulus package is simply not large enough to offset the negative impact of dramatically lower household wealth, declines in residential construction, a dysfunctional banking system that does not increase credit creation, and the downward spiral of house prices. The $700 billion Banking Bailout was designed to stabilize the financial industry and fix the housing industry. Obama continues to shovel billions and billions of dollars on AIG and the largest banks and diagnoses their continued need for more funds. Two of the three largest car manufacturers that should have been in bankruptcy last year were bailed out with billions of dollars, and are now in the process of being taken over by the federal government and the United Autoworkers Unions and finally being forced into bankruptcy. A 1998 Congressional Joint Economic Committee study concluded the optimal size of government to maximize economic growth was about 18% of Gross Domestic Product. Even before today’s unprecedented debt and spending, all levels of government in the U.S. controlled 37% of GDP. Recent federal spending will drive up government’s share to more than 40%. Now the proposed federal health-care plan would gobble up another 16%, putting more than 50% of the economy in government’s hands. There is no end in sight to federal deficits so the Federal Reserve continues to print more and more money to cover commitments… eventually they will have to be repaid!


When a first-term president such as Barack Obama adopts risky policies and many of them fail, his prospects for sustained public approval and reelection diminish. One of Obama's first policies decisions was to close the Guantánamo prison within a year which has already gotten him in a jam, since he has no plan for relocating most of the 241 detainees, and Congress refuses to fund the shutdown until he produces one. Most presidents propose two or three risky policies in their first year, since there is a significant chance of failure to deliver what's promised. Obama has outdone Reagan or any president since Lyndon Johnson, perhaps even since FDR, in risk-taking, proposing eight or nine risky policies and has been criticized for trying to do too much in his first year rather than focusing on a few important issues. As a disciple of Saul Alinsky, no crisis can go to waste so his strategy has been to use the economic recession as a cover to accomplish the majority of his political agenda. Deficits or no deficits, debts or no debts, Obama sees no reason to cut back on his ambitious agenda despite the news that an additional tsunami debt wave is about to come crashing down on his presidency. But the size of Obama's agenda is less of a problem than the likelihood that much of it will be enacted, given the large Democratic majorities in the Senate and House. The difficulty is that some of his policies are likely to hinder others. Tax hikes, increased energy costs, and new regulations work against the economic recovery that soaring spending and peacetime deficits at historic highs are supposed to spur. A likely result will be stagflation, a simultaneous surge in inflation and interest rates. Obama has set "energy independence" as a goal, but his policies make that goal harder to achieve, since his administration has refused to open new areas in the United States and offshore for oil exploration and production. It favors lavish subsidies for renewable energy (wind, solar) that will do little in the foreseeable future to make up for the shortfall in domestic production of gasoline. His takeover of the Big 2 in Detroit, General Motors and Chrysler, poses another risk of downright failure, since the chance that either company will soon return to profitability is slim. Taken together, Obama's policies on energy, health care, and financial institutions are risky since they require more government control of the economy, which leads inevitably to a less dynamic and innovative economy and to less growth. The raft of new regulations should have the same effect. Obama's crackdown on the credit card industry may be justified on ethical grounds, but the more you regulate something, the less you get of it, and more credit is critical to reviving the economy and the new regulations mean we'll get less of it. Obama is also a fan of labor unions, and wants unionization of the workforce to grow, but unionization leads to higher wages for union workers but fewer jobs for everyone else. Obama is overreaching, and faces near certain failure which will be the first time in his career he will be judged on results and not just flowery intentions and rhetoric.


According to Obama, the American story is now about the need to save everybody, and, thus, it is the “collective good” that matters, which sounds a lot closer to the Soviet Union collectivization plans. This, presumably, was part of what he was conveying during his campaign, when he promised “change” for America. And rest assured that a “change” in America’s governing philosophy is well underway, because collectivism is a philosophy that emphasizes human “interdependence” over the traditionally American notion of “independence,” and the “wellbeing of everybody” over the “wellbeing of the individual person.” So if the rights of a few hundred thousand individual investors get trampled on in the process of Obama ushering-in the “American collectivist era,” well, that’s no big deal. Such sacrifices are worthwhile, as long as the greater good - the “collective good” - is enhanced. President Obama has taken less than 100 days to name 18 czars, something that took the Russians close to 300 years to produce. The czar is a perfect technocratic role that appeals to Obama, since czars traditionally exercised total control over the lives of their subjects. The appeal of the czar rests on the belief that if we could just figure out the right smart, competent, well-intentioned person to put charge, everything would go more smoothly. In recent history “American czars” tend to wind up building or restructuring bureaucratic agencies, issuing a bunch of suggestions that may or may not be considered given the political climate, and then taking the blame when the problem isn't solved by the end of their stint as a czar. Every time and every country that attempted to collectivize their population ending us failing miserably, quality of life has plummeted, and fascism or communism has been the result!


On October 3rd, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the US government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of $700 billion to stabilize the nation's failing financial systems and restore the flow of credit in the economy. The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people. That $700 billion bailout has since grown into a more than $12 trillion commitment by the U.S. government and the Federal Reserve. About $1.1 trillion of that is taxpayer money--the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes twelve separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors. What cannot be disputed, however, is the financial bailout's biggest loser: the American taxpayer. The US government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. The newer bailout programs rolled out by Treasury Secretary Timothy Geithner give private equity firms, hedge funds and other private investors significant leverage to buy "toxic" or distressed assets, while leaving taxpayers stuck with the lion's share of the risk and potential losses. Here are six of the most blatant and alarming ways taxpayers have been scammed by the government's $1.1 trillion, publicly funded bailout:

·    By overpaying for its TARP investments, the Treasury Department provided bailout recipients with generous subsidies at the taxpayer's expense.

·    As the government has no real oversight over bailout funds, taxpayers remain in the dark about how their money has been used and if it has made any difference.

·    The bailout's newer programs heavily favor the private sector, giving investors an opportunity to earn lucrative profits and leaving taxpayers with most of the risk.

·    The government has no coherent plan for returning failing financial institutions to profitability or maximizing returns on taxpayers' investments.

·    The bailout's focus on Wall Street mega-banks ignores smaller banks serving millions of American taxpayers that face an equally uncertain future.

·    The bailout encourages the very behaviors that created the economic crisis in the first place instead of overhauling our broken financial system and helping the individuals most affected by the crisis.

The handling of the bailout makes at least one thing clear, that the government is mismanaging the very banks and lenders that threaten to deliverour economy to the brink of another Great Depression.


Maybe it is not too late to look at how well government does when they run businesses that compete in the free market. Decades ago the U.S. government took over control of passenger rail service. The National Railroad Passenger Corporation (Amtrak) is a government-owned corporation. Despite the promise of becoming self-sufficient, Amtrak continues to be heavily subsidized by the U.S government. After decades of subsidies, Amtrak has proven to be incapable of operating as a business and has been described as a "mobile money-burning machine."     Now consider Social Security (a government-controlled retirement program), Medicare (a government-controlled health insurance program for seniors and others that meet other special criteria), Medicaid (a means-tested government-run health program for eligible individuals and families) and SCHIP (a government program that provides matching funds to states for health insurance to families with children). All of these government programs compete with the private sector and are insolvent (bankrupt) and are dependent on government subsidies to survive. Government now has controlling interest in two of the country's auto companies and many banks and investment firms. The federal government also controls the K-12 education process which we have seen spiral downward. Through the EPA, the federal government controls access and use of your land, water and air. The Postal Service is another example how the government can mismanage a potentially profitable enterprise into one that requires perpetual subsidization. But the government's intrusion into the private sector isn't over yet. Currently there are plans to take over the financing of college tuition, take total control of the health industry, control speech on talk radio, take control of the energy industry through a cap and trade scheme, and Congress has even stuck its nose into college and pro sports. Considering their lack of success managing businesses, why do we think they will be any more successful in the ever expanding Obama portfolio of federally run failures?


The “American Clean Energy and Security Act” (Waxman-Markey) would impose a cap primarily on carbon emissions, with permits for emitting carbon auctioned by the government, and businesses could then buy and sell them among themselves, which is why the legislation is called “Cap-and-Trade.” The goal of the bill is to bring U.S. greenhouse gas emissions 17% below 2005 levels by 2020 and ultimately 83% below 2005 levels by 2050. It does nothing less than calls for a major restructuring of the U.S. economy. Chairman Waxman wrote the bill in secret and skipped the subcommittee process, avoiding scrutiny by adding close to 300 pages of legislative text at the last minute, and in true Democrat style, shutting down the meeting with Republicans still holding hundreds of improvements to the bill.

The signature program of the Waxman-Markey legislation is a National Energy Tax, in the form of a “Cap-and-Trade” program, which mandates reductions in greenhouse gas emissions requiring permits which can be traded to another company that can more easily and less expensively cut emissions. Supporters of Waxman-Markey ended up giving away 85% of the permits, with coal utilities, oil refineries and energy intensive industries like steel getting huge handouts to win support. American consumers would still wind up paying more for goods and energy and is predicted by 2035 to raise gasoline prices 74% and electricity rates 90%. Skyrocketing electricity rates will cause American families and businesses to reduce their electricity usage by 36%. Cap and trade is like a massive tax on productivity. Backers acknowledge the effect on consumers, which is why it includes a provision for states to route money from the permit revenue to low-income households which is yet another wealth transfer scheme by this administration. The legislation also includes a mandate that utilities buy 12% of their electricity from renewable sources such as wind and solar power. The U.S. Energy Information Administration estimates that by 2030 wind and solar power would supply just 5% of the nation's electric power. The worst part of this bill is even if the optimist projections are true and U.S. greenhouse gas emissions are reduced 83% by the year 2050, all of our economic anguish will only lower global temperatures by nine hundredths of a degree Fahrenheit. It is ironic that lawmakers raced to pass a so-called stimulus package that would supposedly pull the country out of its first deep recession in two decades. Yet today they’re trying to pass a bill that would destroy jobs, year-in and year-out, for decades, and will become like a self-imposed, rolling recession. Waxman-Markey is a huge, convoluted tax system based on utterly unrealistic expectations about technology developments with unforeseen and possibly disastrous economic consequences and all based on seriously flawed science and an environmental hoax!

Obama’s health care plan is to throw Medicare open to everyone, and then over time force everyone into it. Initially if you have employer-provided insurance, you can keep it, but that choice will be up to the employer, not you. As the government forces costly regulatory burdens, like guaranteed issue and community rating, onto private insurance, employers facing the soaring premiums will just dump their workers into Medicare. These costly regulatory burdens, plus the taxpayer subsidies for Medicare, will eventually drive out all private insurance alternatives. Medicare is already hopelessly bankrupt and we don't know how we are going to pay for all the Medicare promises we have already made. The Trustees Report estimates that the unfunded liability for Medicare alone is $89 trillion. Social Security adds another $15.1 trillion in unfunded liabilities, for a total of $104 trillion, and that doesn't even count Medicaid. By 2018, less than 10 years from now, Medicare Part A alone will be running a deficit of close to $100 billion. General revenue contributions for Medicare Parts B and D that year are now projected to be $364 billion. Consequently, the deficit for Medicare alone that year will be close to $500 billion. Medicaid will also be costing the federal government close to $500 billion per year by then, with another $300 billion spent on the program by the states. Medicare Part A will run out of funds to pay promised benefits by 2017, with a 20% shortfall in revenues. Medicaid, which pays for health care for the poor, shows where Medicare for seniors is headed. Medicaid promises free health care for the poor, but then refuses to pay the doctors and hospitals for it, or at least pay them enough to provide quality health care for the poor. As a result, about 40% of doctors and hospitals already refuse to take Medicaid patients. Patients have to scramble to get appointments with the doctors who will see them, and the doctors give them shorter appointments and less attention to fit what the government is willing to pay for them. Patients have to wait longer to see the essential specialists or for admissions to the hospitals willing to take Medicaid patients. The end result studies show is that the poor get less adequate health care, and suffer worse health outcomes, including more and earlier deaths from heart disease and cancer. This should be no surprise, because it is the inevitable result of all government-run health care throughout history the world over. Medicare is already headed down this same road. The fees it pays are not as bad as Medicaid, but already doctors and hospitals are starting to opt out of the program, and it will be a lot closer to Medicaid after the 20% cut for doctor and hospital reimbursements now scheduled for next year. With the already intractable financial gaps in Medicare discussed above, more cuts in payments for doctors and hospitals serving seniors are inevitable. That means less quality health care for seniors. When everyone is then dumped into Medicare under the perspicacious "Medicare for All" reforms, what is going to happen then? Since we already can't pay for Medicare as it is, the result is going to be government health care rationing for all, just as happens everywhere such government-run medicine has been tried. The government will pay even less to doctors and hospitals for care under the program. The doctors and hospitals will all be working for the government that is paying them, not you. The government will decide what health care for you is worth paying for, and when you are going to get it. Leading liberals are already calling for such government health care rationing. A national health plan also reduces supply, further increasing costs. A government monopoly taking over health care is not exactly going to inspire a new influx of human and physical capital into the health industry to meet the increased demand. Quite to the contrary, the government's long policy of underpaying doctors and hospitals under Medicare and Medicaid will be extended to the entire health care system under a national health plan. Barack Obama says his health care reforms are all about preserving choices. The only choice you will have left after Obama’s reforms is the much heralded "Medicare for All," with your health care choices made by the government for you.


If Ronald Reagan was the Great Communicator, Barack Obama is the Great Deceiver, because from the beginning of his presidential campaign, Obama has taken a strong stand on issues only to reverse himself. Obama has more power than any modern president to enact his agenda. His party has control of the House of Representatives and an almost-filibuster-proof majority in the Senate, and yet he chooses to disregard his promises. During the campaign, Obama pandered to anti-trade union members by attacking free trade with gusto, but now Obama had discussed NAFTA with the Mexican president and "they don't believe we have to reopen the agreement now." He spoke movingly as a candidate about the need to overturn the "don't ask, don't tell" policy on gays in the military, but has failed to act as president. On climate change, Obama once argued that all carbon permits issued in a "cap-and-trade" system must be auctioned off, but now the administration hands most of the permits out for free, mostly to big polluters. A pattern has been established. Obama seems to be a politician who has made the calculation that he can't acquire political power without pandering to the far left. But he also recognizes that he can't keep political power if he actually pursues the left's policies. When the talk is moderate, the actions are liberal; when the talk is liberal, the actions are moderate; which may be good short-term politics, but at some point, voters are going to notice the deception.

President Obama vowed to do a better job than President Bush by using diplomacy instead of wielding a big stick in dealing with hostile nations like Iran, North Korea and Syria, but it isn’t working. Obama pleaded with them to "unclench their fists" and promised to reward them with a softer, more deferential United States eager to atone for past bullying tactics.  The president's charm offensive is out of touch and increasingly dangerous: a tougher, more belligerent tone, coupled with ominous muscle-flexing by the likes of Tehran and North Korea, and the Taliban also is been riding high, while Pakistan falters. North Korea announced that it has conducted a "successful" nuclear test, which came at the heels of its recent test-firing of an advanced, long-range rocket over Japan. Obama referred the matter to the toothless United Nations Security Council where Chinese and Russian emissaries, brandishing veto threats, warned against “punitive” sanctions. Iranian President Adhmadinejad ruled out negotiations with Washington over his nuclear program. Tehran in the meantime rattled more sabers by demonstrating that it could reach Israel, U.S. troops in the Mideast and portions of Europe with a new 2,000-kilometer-range missile. Obama’s offer of “quiet discussions” with the Taliban has yielded a spring “jihad” that threatens to overwhelm the Pakistani army and put Islamabad’s nuclear arsenal at risk. In the Middle East, Syria is reasserting itself, fearing no adverse reactions from Washington, while Obama's diplomats returned empty-handed from Damascus.  President Assad, who was supposed to be weaned away from Tehran, instead insists that Syria's close alliance with Iran's regime is non-negotiable, as are his harboring of Hamas's terrorist leadership and his supply of weapons and other support to Hezbollah in Lebanon. An emboldened Hezbollah, with full backing from Syria and Iran, is making a determined bid to emerge stronger than ever from upcoming Lebanese elections and recently planted terrorist cells in Egypt to challenge President Mubarak's hold on power and his alliance with Washington. Closer to home, Obama has reaped nothing but snooty responses to his conciliatory gestures from the likes of Venezuelan President Chavez.  Cuba's Raul Castro pocketed Obama's concession in easing travel restrictions, and now demands more such gestures as the price of normalizing relations. Wherever Obama has tried to woo bellicose adversaries with his benign I'm-not-George-Bush strategy, he has been met with ever-more ominous rebuffs and direct challenges to American influence and interests. Naivete, idealism and belief in one’s rhetoric have proven ineffective in dealing with hostile nations, but Obama is very slow to learn these important lessons!

The only qualification that counts for the Supreme Court is how well they understand the United Stared Constitution and how well they can impartially interpret its meaning and intent. Sonia Sotomayer had no more a “compelling life story” than Clarence Thomas, so their early history should be treated alike as an interesting footnote with little judicial selection relevance. Obama’s use of “empathy' is code for liberal activism, treating the Constitution as malleable clay to be kneaded and molded in whatever form justices want. It represents an expansive view of the judiciary in which courts create policy that couldn't pass the legislative branch or, if it did, would generate voter backlash. Judge Sotomayor is unabashed in claiming license to judge, and, indeed, to make law, in accordance with her feelings and her politics, which are decidedly leftist. For her, the nation’s appellate courts are the places “where policy is made” by judges, not the places where policy already made by the public is applied by judges. Sotomayor's claim of Latina judgmental superiority is pure racism: "I would hope that a white male with the richness of his traditional American values would reach a better conclusion than a Latina woman who hasn't lived that life." Republicans should not forget that Senate Democrats, then in the minority, spent 28 months successfully blocking Honduran-born Miguel Estrada's 2001 nomination to the U.S. Court of Appeals for the D.C. Circuit by President Bush. Republicans have an opportunity to “bork” Sonia Sotomayer as an incompetent judge who allows her personal prejudices to influence interpretation of the law, and is not qualified for the high office she is nominated.


The latest Pew Research Center report shows that fewer than 25% of voters identify with the GOP, the lowest rating for the party in almost 20 years, but the voters who no longer identify as Republican haven't all gone to the Democrats because most have become independents, the highest proportion of independents in 70 years. Even in the midst of a recession and banking crisis, a majority of voters said the "federal government controls too much of our daily lives" and "government regulation of business usually does more harm than good." 72% of voters said that "poor people have become too dependent on government assistance programs." 46% of respondents said they were "concerned about the government becoming too involved in health care." 76% of respondents said that "the strength of this country today is mostly based on the success of American business." The percentage of voters who agree that "free trade agreements are a good thing" for the United States has actually increased to 44% in the last year. Only 49% of respondents said that "people should be willing to pay higher prices in order to protect the environment." New, charismatic figures could arrive on the scene and when they do, they are likely to encounter a voting public skeptical of big government, and ready to embrace a politics of personal freedom and fiscal responsibility.


* There is so much published each week that unless you go out of your way to find it, you will miss important breaking events. I package the best of this information into my “Views on the News” each Saturday morning for your reading pleasure and to fill in factual vacuums.


If you are sick and tired of government and politics as usual, read my web site with its individual issue analysis and recommendations sections at: http://www.returntocommonsensesite.com . Individual issue updates this week include:


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David Coughlin

Hawthorne, NY