Americans overcharged no longer

When George W. Bush made his plea to Congress for his grandiose tax cuts back in 2001, he stated that "The people of America have been overcharged and, on their behalf, I'm here asking for a refund." (see here for the quotation). Bush was right, in a way -- the country was earning surpluses in the federal budget, and had been for a few years. With the economy in good shape but wobbling a bit, tax cuts seemed like a decent strategy to keep the good times going.

Of course things quite turn out as planned. Over the next while, the tech bubble burst, the attacks of September 11 occurred, and two money-sucking wars were started. And all this happened while regular pork-barrel spending in Congress continued unabated. Rather than surpluses, the country was racking up record deficits (at the time -- they're even worse now, of course).

In view of the original argument about being "overcharged", then, why oh why is it considered even among Democrats a mortal sin to let these tax cuts expire on schedule? Moreover, why do most media outlets treat the issue in the same way? The Economist, as expected, weighs in on the side of keeping the cuts in this article:

Some form of extension of the cuts for most households does seem prudent. America’s economy can ill afford a big fiscal blow. A return to recession is still unlikely, but the odds of one have recently increased.

Yet earlier the same article stated the following:

The tax cuts, which were supposed to last for only ten years, had their genesis in the 2000 presidential campaign, when both Mr Bush and Al Gore, the Democratic candidate, proposed to return a portion of the then budget surplus to voters. As the economy tipped into recession in 2001, stimulus became the rationale for the cuts, and for the 2003 law that phased them in more rapidly than originally planned.

Does The Economist not see that their argument for keeping the cuts going is simply another in this long line of excuses?

I seem to recall that things were pretty good in the post-recession 1990s, even if a good chunk of that wealth was later proven to be ill-invested in bad tech. Employment increased, wealth increased, stocks increased -- everything increased, all while income taxes were set at this supposed draconian level.  The 2000s?  Not so great, even with the cuts.

Perhaps a gradual reintroduction of the old tax rates might provide less of a shock to an unsteady economy. But why isn't there anybody coming even close to advocating this sort of plan? Income taxes can't keep coming down forever if there are no other revenue streams to make up the loss. The Economist talks about a VAT like it could ever happen in the U.S. It won't. So this is the one of the few other options.

The two for one speech

Even though yesterday did actually mark the date when President Obama had earlier stated that combat operations in Iraq would end, he still faced criticism for taking to the airwaves to announce this fact. The last combat troops had already left the country a while back, and recent economic news seemed to demand his attention. Obama's solution? To turn the speech into one about the economy.

You can read the full text here on MSNBC. But just listen to this opener:

I know this historic moment comes at a time of great uncertainty for many Americans.

We have now been through nearly a decade of war. We have endured a long and painful recession. And sometimes in the midst of these storms, the future that we are trying to build for our nation - a future of lasting peace and long-term prosperity may seem beyond our reach.

But this milestone should serve as a reminder to all Americans that the future is ours to shape if we move forward with confidence and commitment. It should also serve as a message to the world that the United States of America intends to sustain and strengthen our leadership in this young century.

Translation -- hang in there, I'll get to this economic stuff later!

To be fair, the President made some eloquent remarks about the war and the divisions it created within America. He did not shy away from the fact that he disagreed with it, nor did he ignore the painful price paid by the country in waging it.

But, come on, if you're going to talk about the war in Iraq - the war that so many of us opposed from the outset, the war that appears to have left the supposedly "freed" country on the verge of complete collapse - at least talk about the war and those who had to wage it. Give those people a minute of your time, and don't tweak the speech to match political goals.

Have a look at this particularly cynical bit at the end:

Unfortunately, over the last decade, we have not done what is necessary to shore up the foundation of our own prosperity. We have spent over a trillion dollars at war, often financed by borrowing from overseas. This, in turn, has short-changed investments in our own people, and contributed to record deficits. For too long, we have put off tough decisions on everything from our manufacturing base to our energy policy to education reform. As a result, too many middle class families find themselves working harder for less, while our nation's long-term competitiveness is put at risk.

And so at this moment, as we wind down the war in Iraq, we must tackle those challenges at home with as much energy, and grit, and sense of common purpose as our men and women in uniform who have served abroad. They have met every test that they faced. Now, it is our turn.

Now, it is our responsibility to honor them by coming together, all of us, and working to secure the dream that so many generations have fought for -the dream that a better life awaits anyone who is willing to work for it and reach for it.

Our most urgent task is to restore our economy, and put the millions of Americans who have lost their jobs back to work. To strengthen our middle class, we must give all our children the education they deserve, and all our workers the skills that they need to compete in a global economy. We must jumpstart industries that create jobs, and end our dependence on foreign oil.

We must unleash the innovation that allows new products to roll off our assembly lines, and nurture the ideas that spring from our entrepreneurs. This will be difficult. But in the days to come, it must be our central mission as a people, and my central responsibility as President.

In one fell swoop, Obama blames the war for the current deficit, and then delivers his usual prattle about the "innovation" that will supposedly "unleash" a great new America.

To borrow one of the President's lines, let me be clear -- I was firmly against this war, aghast at the way it turned out, and glad to see so many American troops come home, hopefully to never return. Obama's hedge-betting is the problem here. He won't commit to a single issue and/or opinion, even in one little speech.  He heard the criticism about the timing of his speech given the country's economic problems, and changed the speech to make it about that.

Economist apparently considers foolish gambles and massive fraud as "fun"

Only the Economist, with its article "Bigger, safer but duller", could consider the changes taking place within the hedge fund industry as a bad thing.

Formerly, hedge fund took investors' money and took it for a wild ride, leveraging it to absurd degrees and sinking it into obscure financial instruments. For those who had smart and/or lucky managers, the bets paid off big. But losers far outnumbered winners, as the numbers indicate -- hedge fund returns plummeted 19% in 2008, and are only slowly starting to recover.

The solutions, to summarize the article, are as follows. Hedge funds are much more transparent about their activities. They have also made it easier for customers to pull their money out if they deem the risk in the fund to be too high. Finally, hedge funds are offering additional, safer products for investors to sink their money into.

Yet these changes seem to disappoint the Economist, which states the following:

The increased cost of meeting the demands of institutional investors and regulators is tilting the industry towards ever-bigger firms. Investors already favour the larger, older funds, which they perceive to be safer bets. Most of the new money allocated to hedge funds in the second quarter went to those with assets over $5 billion.

The smallest hedge funds will struggle under these conditions. Some may seek to share back-office costs with larger funds in return for a cut of their profits. Others will liquidate or put themselves up for sale. The industry is already consolidating. On August 3rd, TPG-Axon, a New York fund, announced a merger with Montrica, a London outfit.

Whether this bulking-up will be good for the industry as a whole is unclear. The most glittering returns have often come from smaller, younger outfits, which are now being sidelined. Giant funds often struggle to find ways to produce outsize returns, because they are too big to move nimbly in and out of markets. Mr Druckenmiller said one reason he decided to close Duquesne was its burdensome size.

The Economist seems to idealize the old days in the same way the we have mythologized the Old West. Yet the Old West was a mean, desolate, dangerous place, and the old world of hedge funds was only better in the sense that millions of dollars were lost instead of thousands of innocent lives.

Sorry, Economist, but those free-wheeling days of yore weren't as exciting as you might like to think. Or, rather, they were exciting until all the big, risky bets caught up with everyone.

Spend, but spend wisely

Howard Fineman, who usually writes well on the ups and downs of the Obama presidency, drops the ball a bit with his latest Newsweek column, in which he portrays Obama's recent speech in New Orleans as a defense of "big" government and the role it can play in people's lives.

If you rearrange Fineman's column a bit, however, the main problem with Obama's approach is vaguy alluded to:

The last 18 months have seen a hurricane of legislative activity by Obama and his Democratic allies in Congress. From bank and auto bailouts to health care to financial-services reform, the bill-passing season produced literally thousands of pages of new law.

...

More important, all of that macro-level legislating has done little, so far, to affect the economic lives of Americans as a whole. The unemployment rate is high, home prices and sales are shaky, the job market is bleak, and can-do confidence has gone missing.

And that's just the issue. What is odd is that Fineman doesn't consider Obama's approach to big government as the key problem here.

When the stimulus package was passed, the "Obama is a socialist" idea had not quite taken root. And, by all accounts, the stimulus did help the economy. The problem is that is was not large enough to actually stimulate additional economic growth. Rather, it provided a temporary palliative, as opposed to getting the machine running again.

Yes, the package was pared down in the Senate to appease Republicans. But one also has to wonder if Obama didn't push hard enough for a larger package because he had health care reform on the brain. No doubt he would he hesitant to spend too much knowing he had a trillion dollar policy program on the way.

And, of course, there are the problems with the health care bill, which seems more like a way to force Americans to enrich the coffers of the big insurance companies than it does a method to provide fair and equal access to health services for all. Again, a flawed bill ends up looking like wasteful spending, and the "socialist" moniker sticks even further.

And let's not forget the cap-and-trade climate change bill, which the Democrats simply allowed to die on the Senate floor, their political capital spent.

Obama's problem is not that he prefers big government. It's that he does big government badly, and hesitatingly, and with unfocused priorities.

The disppointment that is Barack Obama

After sucking up to him for way too long, treating him as if he were the second coming of JFK (remember that Brian Williams' series on NBC News that was essentially a love letter to the President and his family?), we're finally getting some serious criticism of America's 44th, as evidenced by this Newsweek article written by Michael Hirsh.

It's about time that this happened. As the mainstream media (and the so-called "progressive" blogosphere) fawned over Mr. Obama, they allowed a shadow narrative to take over that depicted the man as a Muslim, a non-American, a Communist, a Nazi, and everything else under the sun. That is to say, by failing to provide reasonable and measured criticism, they opened up a vacuum for a much more pernicious form of criticism.

But Mr. Hirsh get many things right here. The best points come at the end of the article:

There was so much passion and ambition in Obama’s words about fixing the economy [when taking office], and so much dispassion and caution in his policy choices. Early in the Democratic primaries, in January 2008, Obama had stunned many of his supporters by praising Reagan as a transformational president—a contrast to the eight years of Bill Clinton, Obama added cuttingly. Reagan, Obama said, “put us on a fundamentally different path because the country was ready for it.” Yet at what would seem to be a similar historical inflection point—what should have been the end of Reaganism, or deregulatory fervor—President Obama seemed unprepared to address the deeper ills of the financial system and the economy. Several officials who have worked with the Obama team said the president’s heart was in health care above all else. “He didn’t run for president to fix derivatives,” says Greenberger. “And when he brought in Summers and Geithner, he just thought he was getting the best of the best”—good financial mechanics, in other words, who would “get the car out of the ditch,” to use one of Obama’s favorite metaphors.

...

All of these challenges required a fundamental rethinking of the U.S. and global economy. Yet those who were most aligned with the “progressive” side of the Wall Street reform issue remained, for the most part, on the outside of the administration looking in. Among them were Brooksley Born, the former chairwoman of the Commodity Futures Trading Commission, and Nobel-winning economist Joseph Stiglitz. Summers and Geithner, by contrast, had been acolytes of Bob Rubin, the former Clinton Treasury secretary who, along with then–Fed chairman Alan Greenspan, had presided over many of the key deregulatory changes in the ’90s. And they convinced Obama that the financial system they themselves had done so much to nurture was, on the whole, fine. As long as there were greater capital reserves, leverage limits, and more regulatory oversight, Wall Street could remain intact.

The thing is that anyone who was looking at the issues seriously at the time could see that Mr. Obama was pushing for health care reform at exactly the wrong time. Remember how he wanted the bill passed by the end of summer '09? He pushed way too far in the wrong direction while the dissident voices of the unemployed and underemployed grew stronger.

Health care reform is seriously needed in America (and it still is, since the bill that did pass was so flawed). Yet, in the midst of such a great economic crisis, it could have waited. If Mr. Obama had gone on television and said, "Look, I know I promised you health care reform, but the economy is in the gutter, so we need to deal with that so you can get working again," I guarantee you that 99.9% of the population would have agreed with him.

Now we have a flawed health care bill, a rather feckless financial reform bill, an economy that is still in the doldrums, and a president that has spent a huge amount of political capital to achieve little. Not impressive.

Nobody's borrowing, nobody's buying

There's a good article on MSNBC today about the dire state of the economy, written by John Schoen. The prognosis given is grim:

The economy is still growing, but just barely. The latest wave of downbeat economic data, including Friday’s report on gross domestic product, has renewed fears that we could be headed for the second half of a “double dip” recession.

It is even possible that the apparent economic recovery is a mirage, and that the recession that began in December 2007 never really ended.

Increasingly it seems that the unprecedented measures taken in 2008 and 2009 to revive the economy are not working because the recession is unlike any this country has seen in the past 60 years.

Our modern economy is underpinned by two activities -- borrowing and buying. Financial institutions make money off of the borrowing. Businesses make money off of the buying. Increasingly, the burden of borrowing and buying has fallen on the consumer. Consumer spending makes up the vast majority of the American economy, and, as the events of the past few years have shown us, it's pretty important that they borrow - and borrow prudently - as well.

Yet in both of these areas, the American economy is coming up short. On the consumption end, Mr. Schoen states the following:

There are other reasons to suggest that this recovery may not be like any since World War II because the causes of this recession were different — both in the nature and scope of the contraction. Other postwar recessions typically were characterized by drops in demand. In time, lower consumption created pent-up demand which brought higher levels of output, increased hiring and an upward cycle of growth.

The current recovery has been marked by an unusually weak pickup in demand. And the latest GDP data show that pickup is fading.

...

Consumer spending, which has typically led recessions to recovery, has been further dampened by the persistently high unemployment rate.

On the borrowing end, the Fed seems to be running into what is apparently called a "liquidity trap". This interesting and alarming conundrum is explained as follows:

"A liquidity trap it's basically when you try to push people to take more risks; you try to push banks to lend more; you try to push companies to to invest more and and they tell you no thank you," he [Mohamed El-Erian, 'CEO of PIMCO, the world's largest bond investor'] said. "So you're pushing on a string. Monetary policy can no longer force people to do things."

In other words, neither of the economy's two primary functions are operating as they should in order for a normal recovery to take hold.

Seriously, though, what did the business media really expect was going to happen? American consumers were falling increasingly into untenable debt during a decade when employment and average income barely moved. While federal relief packages have since removed some of the debt burden, far too much of it remains. Meanwhile, the employment situation has become markedly worse.

It's amazing how the media's portrayal of this recession has evolved. First is was the Second Great Depression. Then suddenly we were supposedly in a typical recovery phase. Now the mood is gloomy again. This erratic narrative only tentatively matches up with the actual state of the economy. But things are bad now. At least they have that right.

Mainstream media does not understand the Palin threat, again

Eager (and rightly so) to knock her out of the spotlight, pundits from most mainstream media sources (Fox News being one obvious exception) have repeatedly been predicting Sarah Palin's political demise.

Back when she resigned from her position as Governor of Alaska a year ago, most such media sources assumed that she'd soon disappear into oblivion. Of course now she is more popular than ever, and is a serious contender for the 2012 Republican Presidential nomination.

But now Newsweek is running this article that basically states that Ms. Palin's reputation is in danger because, uh, her daughter is going to appear on the reality television hit Dancing With The Stars.

Let me repeat that last part -- they believe that Bristol appearance on a hit television show is going to hurt Ms. Palin's reputation. I don't watch the show myself, but millions of Americans do. And from what I have seen and heard of it, it's essentially harmless fun. Yet somehow this appearance is going to do damage to Sarah's run for the presidency?

The article does go on to detail Bristol's more "scandalous" activities -- her pregnancy, her on-and-off engagements to Levi Johnston, and so forth. It then states the following:

In the end, family values matter a great deal to GOP primary voters. And, sooner or later, if Palin contemplates a White House run, they are likely to contrast Bristol’s antics with the wholesome image of Chelsea Clinton or, say, Mitt Romney’s five sons.

First off, I don't think GOP voters are thinking too much about Chelsea Clinton. But, more importantly, Newsweek clearly demonstrates that it does not understand the modern political landscape.

Yes, Mr. Romney might have a sweet-as-pie gaggle of sons, and you never see them on the covers of any gossip magazines. But that's the point -- you never see them. Many may find Bristol's antics unpalatable, but they keep her - and more importantly, her mother - in the media spotlight.

Barack Obama had his problems during his primary run with regards to his relationship with the Reverend Jeremiah Wright. It was an embarrassing situation. But you know what else the controversy did? It took the media's focus off of Hillary Clinton for long, long stretches. It reminded us that President Obama was an important candidate for the presidency.

Bristol's problems, moreover, are of the gossipy sort that few GOP voters would find as offensive as they did the words of Rev. Wright. Even if they do preach about family values, many Republican voters certainly enjoy indulging in the world of celebrity culture, as do so many Americans across the political spectrum. And whenever Bristol pulls off another stunt, we're all reminded that Sarah is around, just waiting to jump into the 2012 election pool.