These are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of his country … Tyranny, like hell, is not easily conquered; yet we have this consolation with us that the harder the conflict, the more glorious the triumph.
--Thomas Paine
The #4 top news story of the year is President Obama's sustained onslaught against a free economy. Below is just a small sampling of TIA Daily's coverage of this story, but the pieces all sum up to one idea: Obama is attempting to turn America into a banana republic, both in our economic system and in our legal system. He spent the first half of this year trying to put all of the elements into place: arbitrary exercise of government control over nominally private companies, leaving every businessman in fear that if he doesn't cooperate with the ruling clique, they will be crushed; a campaign to "cut down the tall poppies" by subjecting anyone who succeeds independently of the state—including the prosperous middle class—to ruinous taxes and fees; a vast welfare patronage system intended to feed a permanent bloc of supporters who are dependent on the party in power; a crushing and unsustainable level of debt to finance it all; and a vast explosion of printed money intended to inflate away the debt.
The only good news: note that most of the stories below are from the first half of the year. Up through July, it was one shocking attack against the free economy after another, with the predictable result: a "stimulus depression" in which panicked attempts at government "stimulus" just drove the economy deeper into a hole. But then it stopped. Why? You stopped it. In reviewing TIA Daily's coverage of this story, I was struck by how stark the cut-off is. After the July 4 tea parties and the beginning of "Town Hall Hell," the onslaught mostly stopped. President Obama thought he would shove through his health-care bill in a few weeks and then move on to his next attack on our liberties. Instead, we stopped him in his tracks and forced him to spend the entire second half of the year trying to push through that one measure. (For TIA Daily's extensive commentary on the health-care bill, see our Health Care Guide.) In the process, I think we have robbed the administration of some of the confidence required to keep setting up its banana republic.
That's why the Obama Banana Republic is only the #4 story this year, while the tea party movement—to no one's surprise, I hope—is story #1.
In keeping with my tradition of highlighting an underappreciated story from last year, the last item below discusses the factor that is actually causing a slow economic recovery: the thrift and industry of private individuals, who are making their own rational plans to bail themselves out of their own financial crises, one at a time, without benefit of press agents.
Finally, I was amused to notice a new pattern, something I hadn't consciously intended but which emerged out of our coverage of the financial crisis and the first year of the Obama administration: the formation of Tracinski's Laws—a body of principles and maxims I have formulated from my observations of this crisis. First there is the Law of Intended Consequences (referred to in item #2 below), then Tracinski's Law of Bailouts (see item #3) with its corollaries, "bailouts are for losers" (not included here, alas, but I think you get the idea) and "planning is chaos" (follow the last link in my commentary on item #3). But the most relevant, going into the election year of 2010, is Tracinski's Rule of American Politics: "The left must be suppressed, hounded, mocked, vilified, and made to feel ashamed of itself." In 2009, we made a good start on enforcing this rule. Let's keep it up through the next two big election days.—RWT
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Top Stories of the Year
What Will the Stimulus Stimulate?
The Law of Intended Consequences
Reality Sets In on Wall Street
The War on Prosperity
Economic Dictatorship
The Obama Banana Republic
Cutting Off the "Private Option"
The Savings Stimulus
Top News Stories
Commentary by Robert Tracinski
1. What Will the Stimulus Stimulate? January 29
A lot of us have been angry with the Republicans for the past decade because they have done too little to oppose inexorable increases in federal spending—and in fact, many Republicans have participated in the federal spending binge. But we are about to discover, in the form of an $825 billion "stimulus" bill, that Republican spending was mild compared to the orgy planned by the Democrats now that they are fully back in power.
The Democrats haven't been able to tax and spend as they would like for most of the past 30 years—so they are making up for lost time.
A Wall Street Journal editorial details the pork-barrel spending larded into this bill—particularly for such totally unproductive programs as the National Endowment for the Arts—and concludes that the stimulus was "written based on the wish list of every living—or dead—Democratic interest group." And the Journal also points out that this is not likely to be a one-time increase in spending, since it will be difficult for Democrats to cut back any of these programs from their new, increased levels.
There was at least a veneer of plausibility to last fall's bailout bill—it was not absurd to believe the pouring capital into the banks would stabilize the economy, just absurd to believe that the government could accomplish that task. By contrast, the new stimulus bill barely even pretends to stimulate. The majority of the spending is for welfare programs or congressmen's pet projects, not anything that has an important productive role in the economy.
So what will the stimulus stimulate? It is actually designed, not to stimulate the private economy, but to stimulate the growth of government. In that regard, the best analysis I've seen is the one below, which skips past the distraction of the pork-barrel projects and goes straight to the big picture: the bailout bill was fashioned in the image of the kind of government the Democrats want to create.
It is a major down payment—and given its size, I would say that it is more than a down payment—on transforming America into a Western European socialist welfare state.
"The European Social Welfare State Bill," Jim Manzi, National Review Online, January 27
[I]f this is a "normal" length recession, the spending bill will have the classic problem that fiscal stimulus does—namely, it comes too late to do much good, but right on time to help stoke inflation and mis-allocation of resources that are suddenly in high demand as the economy enters a recovery. And if this is a very long-lasting recession, more like a US 1930s Depression or Japan 1990s "lost decade," then the problem is so long-lasting that we're not really debating a stimulus bill, we're debating a near-permanent shift of control of resources to the government, which doesn't exactly have a sterling track record of success….
It's easy to go through a huge proposal and find what seem like fairly ridiculous line items, so I'll focus on as comprehensive a view as I can of the spending. The CBO reviews each Title (basically, spending area) of the bill, and calls out major items within each Title. Here are all the items that I saw them identify as individual programs with more than $10 billion of projected outlays….
I tried to go quickly through the spending for all categories and crudely map them to the OECD classification system that allows for the comparison of spending across governments in the developed world. The huge categories of spending under this bill that I could map to categories other than "General Spending" are in Social Protection (~$90 billion), Education (~$90 billion) and Environment (~$55 billion). Interestingly, Defense represents only about 3% of the spending in the bill (as opposed to 12% of US government spending overall, or about 3% of French overall government spending as a point of comparison) and Public Safety represents only about 1% of spending in the bill (as opposed to about 6% of US government spending overall, or about 2% of French government spending overall). In other words, the net effect of this bill is to shift the distribution of US government spending as a whole away from defense and public safety and toward social programs: for good or ill, to make the US into more of a European-style social welfare state. Because the amount of spending is so huge, this will be a material, not notional, shift.
2. The Law of Intended Consequences, February 3
Every bank CEO who was foolish enough to accept TARP money did a grave disservice to his shareholders, and he and they are going to regret it. While the Bush Treasury Department swore that the money would not lead to government micro-management of the banks, the new Obama Treasury Department (which contains many of the same people) is quickly reneging on that promise.
Specifically, President Obama has announced that he will begin requiring banks who have Uncle Sam as their new business partner to increase lending, to the Treasury Department's satisfaction. The central economic activity of the banks is about to be taken over by federal bureaucrats.
How does Obama expect the banks to make a profit under these conditions? Here is the shocking answer: he doesn't. TIA Daily reader Mark Kalinowski brought my attention to the article below, and added these comments of his own:
"This past Thursday, Obama proclaimed to financial firms that 'there will be a time for them to make profits' and that 'now is not that time.' This should bewilder any individual with the slightest understanding of economics.
"Profits—and profit margins—measure the fundamental health of a company. The healthier a company is, the more profit/higher profit margin it generates. As such, what Obama is essentially—and openly—saying is that he wants banks to be unhealthy right now.
"This is a prescription for economic disaster. Whether this is a disaster Obama overtly desires (for example, to help him create more dependency on government), or whether he is simply an economic illiterate, I don't know."
I have criticized the conservatives' idea that government management of the economy fails because of its "unintended consequences." Instead, I argued, what we really need to worry about are the intended consequences of government coercion.
This is yet another example of that principle, the Law of Intended Consequences. Obama's "stimulus" will depress the economy, not by accident, but because he intends to stamp out business profits.
"Obama: Big Wall Street Bonuses 'Shameful'," Frank Ahrens, Washington Post, January 29
"Part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, some discipline and some sense of responsibility," Obama said. "The American people understand we've got a big hole we've got to dig ourselves out of. They don't like people digging a bigger hole even as they're being asked to fill it up," he said, working both ends of the metaphor.
"There will be a time for them to make profits and a time for them to get bonuses," Obama said. "This is not that time."
Even as Obama spoke, financial institutions trading on Wall Street lost share price.
He added a stern warning: "That is the message I intend to send directly to them and expect Secretary [Tim] Geithner to send to them. He already had to pull back one institution that had gone forward with a multi-million dollar jet plane purchase while receiving [bailout] funds," confirming earlier reports that Geithner had told CItigroup—which has received government bailout money—to pull the plug on a $50 million jet purchase….
This is far-reaching ground Obama and Geithner are treading on—telling private companies where they may set their bonuses and other compensation.
3. Reality Sets In on Wall Street, February 11
From an economic perspective, the place where reality is really setting in is on Wall Street, where traders pushed the Dow down by more than 300 points (and the S&P 500 by about 5%) as they listened to a speech by Obama's new Treasury Secretary.
The immediate reason for this reaction is summed up in Larry Kudlow's commentary on the speech:
According to Merriam-Webster, a "plan" is "a detailed formulation of a program of action; a method for achieving an end." But Mr. Geithner had none of this. As a result, stocks plunged about 250 points. Prominent investment strategist Ed Yardeni described Geithner as an empty suit with an empty plan.
The article below does an even better job of naming the exact reason for the new downturn: continued uncertainty. From the beginning, the biggest problem with the bailouts has been their ever-shifting, arbitrary character, as Treasury bureaucrats like Tim Geithner have decided ad hoc which firms get bailed out and which firms fail, and as Hank Paulson proposed bailout plans only to abandon them, seemingly starting again with some new brainwave every week.
Investors were no doubt hoping that the Obama administration would finally pick one plan and stick to it. Even if it was a bad proposal, it would be something that investors could plan around. There would be a stimulus bill and a new version of TARP, and then maybe the geniuses in Washington would stop coming up with new ideas for a little while, making it possible for investors to make rational calculations about where to put their money.
That is why Geithner's speech yesterday hit the market so hard. It was a clear message that everything will still be in flux for months to come. So Tracinski's Law of Bailouts still applies: government money drives out private money, because government decision-making thwarts private decision-making.
"Five Reasons the Markets Don't Like the Bank Bailout," Jeff Cox, CNBC.com, February 10
Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.
Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market….
For someone who ran last year as an agent of change, President Obama's plan for banks seemed to represent more of the same. While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.
And as one of Wall Street's oldest maxims goes, the market hates uncertainty….
With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.
"It's going to be fine-tuned many times over," predicts Quincy Krosby, chief market strategist at The Hartford….
The market is clamoring to know how the government will be able to help banks with their toxic assets while also protecting investors and taxpayers from getting blindsided if the fixes don't work….
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult.
4. The War on Prosperity, March 23
It was Dick Morris, of all people, who identified the essence of Barack Obama's economic policies. If Lyndon Johnson had the War on Poverty, Obama has launched a War on Prosperity—a constellation of policies that target anyone who succeeds, prospers, and makes money.
The number that sums up Obama's outlook is $250,000. In his tax policy and in his attempt to impose caps on salaries and bonuses for people who work at bailed-out banks, that is the number that keeps popping up.
The message coming out of the White House and Congress right now is: make more than $250,000 and you're fair game. You have no right to any income over and above that amount, so we have a right to tax it away or regulate it out of existence as we see fit.
So far, however, the president and Congress have been able to directly control executive pay only at financial institutions that were foolish and unprincipled enough to accept federal bailout money. Now the inevitable next step has come: the Obama administration has put forward a proposal to regulate executive pay at all financial institutions—and, by implication, all publicly held companies.
This is a moratorium on ambition and success.
"Administration Seeks Increase in Oversight of Executive Pay," Stephen Labaton, New York Times, March 22
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said….
Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system. It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules….
One proposal could impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other steps to ensure that compensation was aligned with the financial interest of the company.
The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.
During the presidential campaign, Mr. Obama repeatedly urged regulators to adopt new rules to give shareholders a greater voice in setting executive pay for all public companies. And last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses that exceeded one-third of their annual pay.
5. Economic Dictatorship, April 2
The big news of this week is another major stage in the arrival of economic dictatorship in the United States: President Obama using federal loans to GM and Chrysler as a pretext to seize de facto control over the automobile industry, replacing GM's CEO and rearranging its board of directors, and dictating that Chrysler negotiate a merger with Fiat.
He even announced US government policy toward the warranties on GM vehicles. As an incredulous blogger at RedState.com puts it:
Today, the President of the United States is expected to make significant announcements about GM's warranty policy. No, that's not a typo, and yes, it's remarkable. I didn't say the President of General Motors, I said of the United States.
Car and Driver's report that Obama had ordered GM and Chrysler to withdraw from participation in NASCAR turned out to be an April Fool's Day joke. But as Investor's Business Daily points out, who can tell any more what is real and what is a parody?
This story has been out there for a few days, so I found that by the time I got to it, a lot of very good things had already been said by the bloggers and a few newspaper columnists.
The main article linked to and excerpted below, from the Detroit News, names the overall pattern: Obama has set himself up as "CEO-in-chief" of America's corporations, with the ability to override and overthrow the CEOs selected by the corporations' actual shareholders. And as the article also points out, this control will be exercise for political rather than economic ends—particularly the promotion of environmentalism.
In the Detroit-based auto industry, a crisis crystallized by $4-a-gallon gas, the credit crunch, and plunging consumer confidence offers a Democratic White House with close ties to the environmental wing of its party a golden opportunity to turn the General "green"—even if doing so means beggaring the retiree health care promises of hourly workers.
As for the workers, though, Larry Kudlow points out who wasn't fired by the Obama team.
And why isn't Obama's special auto task force ordering a replacement for Ron Gettelfinger, the UAW's president? Weren't their oversized pay and benefit packages a big part of the problem? Well, that's never gonna happen. The election power of the union is too strong. But this does reveal the political nature of these government bailout operations.
The main feature of this takeover of the US auto industry is that it has no legal basis whatsoever. As Terence Jeffrey sums it up, "Because Congress did not authorize the president to spend money bailing out automakers, the president is not authorized to spend money bailing out automakers. Or as the Constitution puts it, 'No money shall be drawn from the treasury, but in consequence of appropriations made by law.'"
The most devastating—and wholly correct—conclusion is offered by economist David Henderson:
Sean Hannity and other critics keep criticizing Obama for his socialist leanings. But the more accurate term for many of his measures, especially in the financial markets and the auto market, is fascism.
He then quotes an accurate definition of the fascist approach to economics.
Where socialism sought totalitarian control of a society's economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the "national interest"—that is, as the autocratic authority conceived it.
That is the economic system we are now headed toward—and we're heading there very rapidly.
"Obama Effectively Becomes CEO-in-Chief," Daniel Howes, Detroit News, March 31
President Obama says he wants to save America's auto industry. He says General Motors Corp., under a new CEO, has 60 days to sharpen its restructuring or submit to bankruptcy. He's giving Chrysler LLC 30 days to complete an alliance with Fiat SpA of Italy lest Detroit's No. 3 carmaker find itself in a federal court.
But what the president didn't say Monday, as he detailed his administration's prescription for Detroit's two sickest automakers, is what he actually did—oust a sitting CEO, GM's Rick Wagoner, and begin the process of remaking a board of directors deemed to have done too little, too late to prevent GM's slide into the arms of the federal government….
In one swift act, the president effectively overruled the oversight and fiduciary responsibilities of GM's directors, duly elected by the automaker's shareholders, because he could—and the federal government, officially a lender of $13.4 billion to GM, doesn't own a single share of the automaker.
A chilling message? It should be if you run a bank recapitalized with Treasury money, lead an auto supplier likely to tap into a new $5 billion federal fund, are considering a pitch for a government bailout or are Fritz Henderson, the GM president-turned-CEO who has two months to accelerate the automaker's restructuring.
"Firing a CEO is usually what a board does," says Peter Henning, a law professor at Wayne State University who worked in the enforcement division of the Securities and Exchange Commission. "We now have a CEO-in-chief...overseeing large sectors of the economy. We are certainly in a brave new world."
And it looks like this: the federal government, in a bid to "save" companies determined crucial to the economy, is prepared to use whatever thin financial connections it has to them to broom management, void employment contracts, reload boards of directors and, if necessary, force bankruptcies….
The issue is principle and the lengthening arm of government into commerce. How can corporate governance and the fiduciary responsibility of directors to shareholders be so easily usurped to satisfy the political exigencies of the day? Stunning is too mild a word to describe the precedent set here.
6. The Obama Banana Republic, May 7
In yesterday's TIA Daily, I mentioned a lawyer's accusation that the Obama administration had threatened to abuse its power to ruin one of the firms that initially refused to accept the administration's terms in the Chrysler restructuring. That firm, Perella Weinberg, has issue an odd non-denial denial of this claim.
Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler's bankruptcy filing. In considering the President's words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.
We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors' money.
Remember that the "statement of the president" that swayed their decision was his condemnation of evil "speculators." No pressure from the White House there!
This is, of course, precisely the kind of denial a firm would issue if it really were threatened and was too frightened to testify against its tormentor. Translated into more familiar terms, this non-denial denial might read something like this:
Suggestions have been made that we chose to sell a majority interest in our casino due to pressure from Corleone family officials. This is incorrect. The decision was made after reflecting carefully on the statement of Don Corleone that those who refused to sell to him were "dirty rats." In considering the Godfather's words and exercising our best investment judgment, we concluded that the risks of potentially severe capital and personnel loss that could arise from fighting this outweighed any realistic potential upside.
Call it an offer they couldn't refuse.
The only good news is that everyone is now wise to the Obama administration's racket, and many people are naming it openly.
Michael Barone best captures the flavor of the thing when he summarizes the reason the TARP lenders caved in: "Nice little bank ya got there, wouldn't want anything to happen to it…. We have just seen an episode of Gangster Government."
In Forbes, Thomas F. Cooley puts it more dryly: "Many investors are sitting on the sidelines, as is much money. Why? Because it is impossible to know what the rules of the game are. And that's because the administration and the Congress keep changing the rules in capricious ways in pursuit of larger political objectives."
George Will simply describes the Obama administration as a "capricious government," while Megan McArdle invokes the same banana republic analogy I used:
[I]t's now clear that the worry many of us had at the time of the bank bailouts has come true: the government is using its intervention in the banking system to pressure banks to give special deals to the government's special friends….
We are hardly Zimbabwe, or even Venezuela. But if we keep using TARP to create a sort of "Most Favored Borrower" status, we'll erode the safeguards that keep election to office in America from being the kind of giant spoils system that's common in much of the world.
But the best overview of the Obama administration's economic policies is the one below. Dick Morris is far from being a staunch pro-free-marketer. His political ideal is also his most famous client: Bill Clinton in 1992—a non-ideological pragmatist who offers a "third way" between capitalism and socialism. Yet Morris is proving to be a very sharp-eyed critic of Obama's socialism, which is apparently too ideological for him.
But he stops short in one respect. He correctly describes Obama's policy as a "balance of government control and private nominal ownership." There is a name for this combination, for a system in which the government does not officially nationalize companies but gives them orders telling them what to do. This is the economics of fascism.
"How Obama's Socialism Works," Dick Morris and Eileen McGann, Jewish World Review, May 6
President Obama's vision of the future is, apparently, an economy guided, steered and—when the occasion demands—commanded by the federal government. Some of the companies will remain private. Washington will take others over. But all will look to the White House, as to an orchestra conductor, for signals as to how and when and where to proceed.
This summary is the vision that emerges from the Chrysler bailout….
[T]his little vignette shows exactly what the new rules of the game will be under this administration. It won't be Soviet style socialism or Reaganesque capitalism. The system will more resemble the Japanese arrangement where MITI, the Ministry of Trade and Industry, informally guided companies and told them what to do. In Japan, a nod usually suffices to command. In the United States, one has to use a hammer. But the result will be the same: compliant capitalism.
Companies will not look out for their shareholders or their employees or even their customers so much as watch the smoke signals from Washington to decide what to do. The markets won't control decisions. Washington will….
The strong-arming that obviously led up to the Chrysler deal will also be typical of the Obama industrial policy…. While terrorists need not fear any violation of their constitutional rights, CEOs of Fortune 500 companies will not be so fortunate.
7. Cutting Off the "Private Option," May 12
The great danger of Obama's first year in office is that the left is moving forward on so many fronts that we will be hard pressed to fight and win every battle—and losing even one of them means losing an enormous amount of our liberty.
Thus, while we are trying to fight off total control of the economy in the name of environmentalism, the Democrats are also attempting to make us dependent on the state in another crucial area of human life: medical care.
The Wall Street Journal editorial below describes the means by which government-controlled medicine is about to be forced upon us. Democrats have proposed a "public option," which allows individuals who meet certain criteria to "choose" government-provided, government-subsidized health insurance.
But as the Journal points out, once this "option" is established, it will expand until it crowds out private insurance, cutting off any "private option"—and making us all dependent on the state.
So here is the future proposed by President Obama: when you get a job, you will be pressured to join a labor union backed by the government; if you want to take a mortgage to buy a house, you will borrow from a bank backed and controlled by the government; you will send your kids to a public school and finance their college education with student loans provided by the government; and when you get sick, you will rely on government funding and be treated at government-funded, government controlled facilities.
Comprehensively, in one aspect of life after another, government is taking over and the "private option" is being eliminated.
"Republicans and the 'Public Option'," Wall Street Journal, May 11
This new entitlement—like Medicare but open to all ages and all incomes—would quickly crowd out private insurance as people gravitated to heavily subsidized policies, eventually leading to a single-payer system. So Democrats are trying to seduce diffident Republicans with a Potemkin compromise. A "soft" public option would limit enrollment only to the uninsured or those employed by small businesses, or include promises that the plan will pay market rates….
The truth is Democrats know that any policy guardrails built this year can be dismantled once the basic public option architecture is in place. The White House strategy is to dilute it just enough to win over credulous Republicans. That is what has always happened with government health programs.
When Medicare was created in 1965, benefits were relatively limited and retirees paid a substantial percentage of the costs of their own care. But the clout of retirees has always led to expanding benefits for seniors while raising taxes on younger workers….
Any new federal health plan will inevitably follow the same trajectory, no matter how much Republican Senators might claim they've guaranteed otherwise. The Lewin Group consultants estimate that 119 million people who now have private insurance could potentially be captured by the government under the Obama public option. This is on top of the 90 million already in Medicare or Medicaid. This would guarantee a spending explosion that would over time lift federal outlays as a share of GDP into the upper 20% range or higher. Republicans would spend the rest of their days deciding whether to vote for tax increases to finance this, or stand accused of denying health care to the middle class….
This health-care debate isn't like the "stimulus" bill, which was largely about short-term spending and deficits. This one is about whether to turn 17% of the U.S. economy entirely and permanently into the arms of the government. For Republicans, this is about whether they still stand for anything at all.
8. The Savings Stimulus, June 23
Meanwhile, the American people are, as usual, setting a good example for their leaders. As the article below describes it, the American people have spontaneously adopted a radical new strategy for solving their own financial crises: "To generate the savings, consumers ratcheted down their spending faster than their incomes were falling." What will they think of next?
This is the real "stimulus" that will eventually make an economic recovery possible: the increased savings of the American people as they make rational plans for their own individual economic well-being.
"Tapped Out Consumers Rediscover Savings," David M. Dickson, Washington Times, June 22
The personal savings rate has been rising steeply this year as formerly profligate consumers frantically try to recoup part of the $14 trillion in losses they suffered since mid-2007 from the bear market and the bursting of the housing bubble….
What a difference a year makes. In April 2008, four months after the recession began, Americans were saving none of their after-tax incomes. A year later, after an additional 5 million jobs were lost, after home prices continued to plummet and after the stock market recently hit a 12-year low, the savings rate jumped to 5.7 percent in April—its highest level in 14 years.
To generate the savings, consumers ratcheted down their spending faster than their incomes were falling….
"Americans have learned a cruel, cold, hard lesson. People are scared. And that's led them to replenish their savings because they now realize that their retirement nest eggs will no longer increase on automatic pilot," Mr. Baumohl said….
Some economists emphasize the "paradox of thrift," a concept first developed during the Great Depression by John Maynard Keynes. If everybody consumes less to save more, then nobody will be better off because falling consumption will lead to declining output, which will lead to decreasing wages and rising unemployment. In the end, savings will not have increased—thus the paradox.
Over the long run, however, economists agree that a rising American savings rate produces huge benefits.
More savings could be channeled into greater business investment, which raises productivity, the basic building block for a rising standard of living.
Robert Tracinski writes daily commentary at TIADaily.com. He is the editor of The Intellectual Activist (TIA) and contributor to The Freedom Fighter's Journal
The only good news: note that most of the stories below are from the first half of the year. Up through July, it was one shocking attack against the free economy after another, with the predictable result: a "stimulus depression" in which panicked attempts at government "stimulus" just drove the economy deeper into a hole. But then it stopped. Why? You stopped it. In reviewing TIA Daily's coverage of this story, I was struck by how stark the cut-off is. After the July 4 tea parties and the beginning of "Town Hall Hell," the onslaught mostly stopped. President Obama thought he would shove through his health-care bill in a few weeks and then move on to his next attack on our liberties. Instead, we stopped him in his tracks and forced him to spend the entire second half of the year trying to push through that one measure. (For TIA Daily's extensive commentary on the health-care bill, see our Health Care Guide.) In the process, I think we have robbed the administration of some of the confidence required to keep setting up its banana republic.
That's why the Obama Banana Republic is only the #4 story this year, while the tea party movement—to no one's surprise, I hope—is story #1.
In keeping with my tradition of highlighting an underappreciated story from last year, the last item below discusses the factor that is actually causing a slow economic recovery: the thrift and industry of private individuals, who are making their own rational plans to bail themselves out of their own financial crises, one at a time, without benefit of press agents.
Finally, I was amused to notice a new pattern, something I hadn't consciously intended but which emerged out of our coverage of the financial crisis and the first year of the Obama administration: the formation of Tracinski's Laws—a body of principles and maxims I have formulated from my observations of this crisis. First there is the Law of Intended Consequences (referred to in item #2 below), then Tracinski's Law of Bailouts (see item #3) with its corollaries, "bailouts are for losers" (not included here, alas, but I think you get the idea) and "planning is chaos" (follow the last link in my commentary on item #3). But the most relevant, going into the election year of 2010, is Tracinski's Rule of American Politics: "The left must be suppressed, hounded, mocked, vilified, and made to feel ashamed of itself." In 2009, we made a good start on enforcing this rule. Let's keep it up through the next two big election days.—RWT
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Top Stories of the Year
What Will the Stimulus Stimulate?
The Law of Intended Consequences
Reality Sets In on Wall Street
The War on Prosperity
Economic Dictatorship
The Obama Banana Republic
Cutting Off the "Private Option"
The Savings Stimulus
Top News Stories
Commentary by Robert Tracinski
1. What Will the Stimulus Stimulate? January 29
A lot of us have been angry with the Republicans for the past decade because they have done too little to oppose inexorable increases in federal spending—and in fact, many Republicans have participated in the federal spending binge. But we are about to discover, in the form of an $825 billion "stimulus" bill, that Republican spending was mild compared to the orgy planned by the Democrats now that they are fully back in power.
The Democrats haven't been able to tax and spend as they would like for most of the past 30 years—so they are making up for lost time.
A Wall Street Journal editorial details the pork-barrel spending larded into this bill—particularly for such totally unproductive programs as the National Endowment for the Arts—and concludes that the stimulus was "written based on the wish list of every living—or dead—Democratic interest group." And the Journal also points out that this is not likely to be a one-time increase in spending, since it will be difficult for Democrats to cut back any of these programs from their new, increased levels.
There was at least a veneer of plausibility to last fall's bailout bill—it was not absurd to believe the pouring capital into the banks would stabilize the economy, just absurd to believe that the government could accomplish that task. By contrast, the new stimulus bill barely even pretends to stimulate. The majority of the spending is for welfare programs or congressmen's pet projects, not anything that has an important productive role in the economy.
So what will the stimulus stimulate? It is actually designed, not to stimulate the private economy, but to stimulate the growth of government. In that regard, the best analysis I've seen is the one below, which skips past the distraction of the pork-barrel projects and goes straight to the big picture: the bailout bill was fashioned in the image of the kind of government the Democrats want to create.
It is a major down payment—and given its size, I would say that it is more than a down payment—on transforming America into a Western European socialist welfare state.
"The European Social Welfare State Bill," Jim Manzi, National Review Online, January 27
[I]f this is a "normal" length recession, the spending bill will have the classic problem that fiscal stimulus does—namely, it comes too late to do much good, but right on time to help stoke inflation and mis-allocation of resources that are suddenly in high demand as the economy enters a recovery. And if this is a very long-lasting recession, more like a US 1930s Depression or Japan 1990s "lost decade," then the problem is so long-lasting that we're not really debating a stimulus bill, we're debating a near-permanent shift of control of resources to the government, which doesn't exactly have a sterling track record of success….
It's easy to go through a huge proposal and find what seem like fairly ridiculous line items, so I'll focus on as comprehensive a view as I can of the spending. The CBO reviews each Title (basically, spending area) of the bill, and calls out major items within each Title. Here are all the items that I saw them identify as individual programs with more than $10 billion of projected outlays….
I tried to go quickly through the spending for all categories and crudely map them to the OECD classification system that allows for the comparison of spending across governments in the developed world. The huge categories of spending under this bill that I could map to categories other than "General Spending" are in Social Protection (~$90 billion), Education (~$90 billion) and Environment (~$55 billion). Interestingly, Defense represents only about 3% of the spending in the bill (as opposed to 12% of US government spending overall, or about 3% of French overall government spending as a point of comparison) and Public Safety represents only about 1% of spending in the bill (as opposed to about 6% of US government spending overall, or about 2% of French government spending overall). In other words, the net effect of this bill is to shift the distribution of US government spending as a whole away from defense and public safety and toward social programs: for good or ill, to make the US into more of a European-style social welfare state. Because the amount of spending is so huge, this will be a material, not notional, shift.
2. The Law of Intended Consequences, February 3
Every bank CEO who was foolish enough to accept TARP money did a grave disservice to his shareholders, and he and they are going to regret it. While the Bush Treasury Department swore that the money would not lead to government micro-management of the banks, the new Obama Treasury Department (which contains many of the same people) is quickly reneging on that promise.
Specifically, President Obama has announced that he will begin requiring banks who have Uncle Sam as their new business partner to increase lending, to the Treasury Department's satisfaction. The central economic activity of the banks is about to be taken over by federal bureaucrats.
How does Obama expect the banks to make a profit under these conditions? Here is the shocking answer: he doesn't. TIA Daily reader Mark Kalinowski brought my attention to the article below, and added these comments of his own:
"This past Thursday, Obama proclaimed to financial firms that 'there will be a time for them to make profits' and that 'now is not that time.' This should bewilder any individual with the slightest understanding of economics.
"Profits—and profit margins—measure the fundamental health of a company. The healthier a company is, the more profit/higher profit margin it generates. As such, what Obama is essentially—and openly—saying is that he wants banks to be unhealthy right now.
"This is a prescription for economic disaster. Whether this is a disaster Obama overtly desires (for example, to help him create more dependency on government), or whether he is simply an economic illiterate, I don't know."
I have criticized the conservatives' idea that government management of the economy fails because of its "unintended consequences." Instead, I argued, what we really need to worry about are the intended consequences of government coercion.
This is yet another example of that principle, the Law of Intended Consequences. Obama's "stimulus" will depress the economy, not by accident, but because he intends to stamp out business profits.
"Obama: Big Wall Street Bonuses 'Shameful'," Frank Ahrens, Washington Post, January 29
"Part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, some discipline and some sense of responsibility," Obama said. "The American people understand we've got a big hole we've got to dig ourselves out of. They don't like people digging a bigger hole even as they're being asked to fill it up," he said, working both ends of the metaphor.
"There will be a time for them to make profits and a time for them to get bonuses," Obama said. "This is not that time."
Even as Obama spoke, financial institutions trading on Wall Street lost share price.
He added a stern warning: "That is the message I intend to send directly to them and expect Secretary [Tim] Geithner to send to them. He already had to pull back one institution that had gone forward with a multi-million dollar jet plane purchase while receiving [bailout] funds," confirming earlier reports that Geithner had told CItigroup—which has received government bailout money—to pull the plug on a $50 million jet purchase….
This is far-reaching ground Obama and Geithner are treading on—telling private companies where they may set their bonuses and other compensation.
3. Reality Sets In on Wall Street, February 11
From an economic perspective, the place where reality is really setting in is on Wall Street, where traders pushed the Dow down by more than 300 points (and the S&P 500 by about 5%) as they listened to a speech by Obama's new Treasury Secretary.
The immediate reason for this reaction is summed up in Larry Kudlow's commentary on the speech:
According to Merriam-Webster, a "plan" is "a detailed formulation of a program of action; a method for achieving an end." But Mr. Geithner had none of this. As a result, stocks plunged about 250 points. Prominent investment strategist Ed Yardeni described Geithner as an empty suit with an empty plan.
The article below does an even better job of naming the exact reason for the new downturn: continued uncertainty. From the beginning, the biggest problem with the bailouts has been their ever-shifting, arbitrary character, as Treasury bureaucrats like Tim Geithner have decided ad hoc which firms get bailed out and which firms fail, and as Hank Paulson proposed bailout plans only to abandon them, seemingly starting again with some new brainwave every week.
Investors were no doubt hoping that the Obama administration would finally pick one plan and stick to it. Even if it was a bad proposal, it would be something that investors could plan around. There would be a stimulus bill and a new version of TARP, and then maybe the geniuses in Washington would stop coming up with new ideas for a little while, making it possible for investors to make rational calculations about where to put their money.
That is why Geithner's speech yesterday hit the market so hard. It was a clear message that everything will still be in flux for months to come. So Tracinski's Law of Bailouts still applies: government money drives out private money, because government decision-making thwarts private decision-making.
"Five Reasons the Markets Don't Like the Bank Bailout," Jeff Cox, CNBC.com, February 10
Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.
Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market….
For someone who ran last year as an agent of change, President Obama's plan for banks seemed to represent more of the same. While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.
And as one of Wall Street's oldest maxims goes, the market hates uncertainty….
With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.
"It's going to be fine-tuned many times over," predicts Quincy Krosby, chief market strategist at The Hartford….
The market is clamoring to know how the government will be able to help banks with their toxic assets while also protecting investors and taxpayers from getting blindsided if the fixes don't work….
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult.
4. The War on Prosperity, March 23
It was Dick Morris, of all people, who identified the essence of Barack Obama's economic policies. If Lyndon Johnson had the War on Poverty, Obama has launched a War on Prosperity—a constellation of policies that target anyone who succeeds, prospers, and makes money.
The number that sums up Obama's outlook is $250,000. In his tax policy and in his attempt to impose caps on salaries and bonuses for people who work at bailed-out banks, that is the number that keeps popping up.
The message coming out of the White House and Congress right now is: make more than $250,000 and you're fair game. You have no right to any income over and above that amount, so we have a right to tax it away or regulate it out of existence as we see fit.
So far, however, the president and Congress have been able to directly control executive pay only at financial institutions that were foolish and unprincipled enough to accept federal bailout money. Now the inevitable next step has come: the Obama administration has put forward a proposal to regulate executive pay at all financial institutions—and, by implication, all publicly held companies.
This is a moratorium on ambition and success.
"Administration Seeks Increase in Oversight of Executive Pay," Stephen Labaton, New York Times, March 22
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said….
Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system. It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules….
One proposal could impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other steps to ensure that compensation was aligned with the financial interest of the company.
The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.
During the presidential campaign, Mr. Obama repeatedly urged regulators to adopt new rules to give shareholders a greater voice in setting executive pay for all public companies. And last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses that exceeded one-third of their annual pay.
5. Economic Dictatorship, April 2
The big news of this week is another major stage in the arrival of economic dictatorship in the United States: President Obama using federal loans to GM and Chrysler as a pretext to seize de facto control over the automobile industry, replacing GM's CEO and rearranging its board of directors, and dictating that Chrysler negotiate a merger with Fiat.
He even announced US government policy toward the warranties on GM vehicles. As an incredulous blogger at RedState.com puts it:
Today, the President of the United States is expected to make significant announcements about GM's warranty policy. No, that's not a typo, and yes, it's remarkable. I didn't say the President of General Motors, I said of the United States.
Car and Driver's report that Obama had ordered GM and Chrysler to withdraw from participation in NASCAR turned out to be an April Fool's Day joke. But as Investor's Business Daily points out, who can tell any more what is real and what is a parody?
This story has been out there for a few days, so I found that by the time I got to it, a lot of very good things had already been said by the bloggers and a few newspaper columnists.
The main article linked to and excerpted below, from the Detroit News, names the overall pattern: Obama has set himself up as "CEO-in-chief" of America's corporations, with the ability to override and overthrow the CEOs selected by the corporations' actual shareholders. And as the article also points out, this control will be exercise for political rather than economic ends—particularly the promotion of environmentalism.
In the Detroit-based auto industry, a crisis crystallized by $4-a-gallon gas, the credit crunch, and plunging consumer confidence offers a Democratic White House with close ties to the environmental wing of its party a golden opportunity to turn the General "green"—even if doing so means beggaring the retiree health care promises of hourly workers.
As for the workers, though, Larry Kudlow points out who wasn't fired by the Obama team.
And why isn't Obama's special auto task force ordering a replacement for Ron Gettelfinger, the UAW's president? Weren't their oversized pay and benefit packages a big part of the problem? Well, that's never gonna happen. The election power of the union is too strong. But this does reveal the political nature of these government bailout operations.
The main feature of this takeover of the US auto industry is that it has no legal basis whatsoever. As Terence Jeffrey sums it up, "Because Congress did not authorize the president to spend money bailing out automakers, the president is not authorized to spend money bailing out automakers. Or as the Constitution puts it, 'No money shall be drawn from the treasury, but in consequence of appropriations made by law.'"
The most devastating—and wholly correct—conclusion is offered by economist David Henderson:
Sean Hannity and other critics keep criticizing Obama for his socialist leanings. But the more accurate term for many of his measures, especially in the financial markets and the auto market, is fascism.
He then quotes an accurate definition of the fascist approach to economics.
Where socialism sought totalitarian control of a society's economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the "national interest"—that is, as the autocratic authority conceived it.
That is the economic system we are now headed toward—and we're heading there very rapidly.
"Obama Effectively Becomes CEO-in-Chief," Daniel Howes, Detroit News, March 31
President Obama says he wants to save America's auto industry. He says General Motors Corp., under a new CEO, has 60 days to sharpen its restructuring or submit to bankruptcy. He's giving Chrysler LLC 30 days to complete an alliance with Fiat SpA of Italy lest Detroit's No. 3 carmaker find itself in a federal court.
But what the president didn't say Monday, as he detailed his administration's prescription for Detroit's two sickest automakers, is what he actually did—oust a sitting CEO, GM's Rick Wagoner, and begin the process of remaking a board of directors deemed to have done too little, too late to prevent GM's slide into the arms of the federal government….
In one swift act, the president effectively overruled the oversight and fiduciary responsibilities of GM's directors, duly elected by the automaker's shareholders, because he could—and the federal government, officially a lender of $13.4 billion to GM, doesn't own a single share of the automaker.
A chilling message? It should be if you run a bank recapitalized with Treasury money, lead an auto supplier likely to tap into a new $5 billion federal fund, are considering a pitch for a government bailout or are Fritz Henderson, the GM president-turned-CEO who has two months to accelerate the automaker's restructuring.
"Firing a CEO is usually what a board does," says Peter Henning, a law professor at Wayne State University who worked in the enforcement division of the Securities and Exchange Commission. "We now have a CEO-in-chief...overseeing large sectors of the economy. We are certainly in a brave new world."
And it looks like this: the federal government, in a bid to "save" companies determined crucial to the economy, is prepared to use whatever thin financial connections it has to them to broom management, void employment contracts, reload boards of directors and, if necessary, force bankruptcies….
The issue is principle and the lengthening arm of government into commerce. How can corporate governance and the fiduciary responsibility of directors to shareholders be so easily usurped to satisfy the political exigencies of the day? Stunning is too mild a word to describe the precedent set here.
6. The Obama Banana Republic, May 7
In yesterday's TIA Daily, I mentioned a lawyer's accusation that the Obama administration had threatened to abuse its power to ruin one of the firms that initially refused to accept the administration's terms in the Chrysler restructuring. That firm, Perella Weinberg, has issue an odd non-denial denial of this claim.
Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler's bankruptcy filing. In considering the President's words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.
We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors' money.
Remember that the "statement of the president" that swayed their decision was his condemnation of evil "speculators." No pressure from the White House there!
This is, of course, precisely the kind of denial a firm would issue if it really were threatened and was too frightened to testify against its tormentor. Translated into more familiar terms, this non-denial denial might read something like this:
Suggestions have been made that we chose to sell a majority interest in our casino due to pressure from Corleone family officials. This is incorrect. The decision was made after reflecting carefully on the statement of Don Corleone that those who refused to sell to him were "dirty rats." In considering the Godfather's words and exercising our best investment judgment, we concluded that the risks of potentially severe capital and personnel loss that could arise from fighting this outweighed any realistic potential upside.
Call it an offer they couldn't refuse.
The only good news is that everyone is now wise to the Obama administration's racket, and many people are naming it openly.
Michael Barone best captures the flavor of the thing when he summarizes the reason the TARP lenders caved in: "Nice little bank ya got there, wouldn't want anything to happen to it…. We have just seen an episode of Gangster Government."
In Forbes, Thomas F. Cooley puts it more dryly: "Many investors are sitting on the sidelines, as is much money. Why? Because it is impossible to know what the rules of the game are. And that's because the administration and the Congress keep changing the rules in capricious ways in pursuit of larger political objectives."
George Will simply describes the Obama administration as a "capricious government," while Megan McArdle invokes the same banana republic analogy I used:
[I]t's now clear that the worry many of us had at the time of the bank bailouts has come true: the government is using its intervention in the banking system to pressure banks to give special deals to the government's special friends….
We are hardly Zimbabwe, or even Venezuela. But if we keep using TARP to create a sort of "Most Favored Borrower" status, we'll erode the safeguards that keep election to office in America from being the kind of giant spoils system that's common in much of the world.
But the best overview of the Obama administration's economic policies is the one below. Dick Morris is far from being a staunch pro-free-marketer. His political ideal is also his most famous client: Bill Clinton in 1992—a non-ideological pragmatist who offers a "third way" between capitalism and socialism. Yet Morris is proving to be a very sharp-eyed critic of Obama's socialism, which is apparently too ideological for him.
But he stops short in one respect. He correctly describes Obama's policy as a "balance of government control and private nominal ownership." There is a name for this combination, for a system in which the government does not officially nationalize companies but gives them orders telling them what to do. This is the economics of fascism.
"How Obama's Socialism Works," Dick Morris and Eileen McGann, Jewish World Review, May 6
President Obama's vision of the future is, apparently, an economy guided, steered and—when the occasion demands—commanded by the federal government. Some of the companies will remain private. Washington will take others over. But all will look to the White House, as to an orchestra conductor, for signals as to how and when and where to proceed.
This summary is the vision that emerges from the Chrysler bailout….
[T]his little vignette shows exactly what the new rules of the game will be under this administration. It won't be Soviet style socialism or Reaganesque capitalism. The system will more resemble the Japanese arrangement where MITI, the Ministry of Trade and Industry, informally guided companies and told them what to do. In Japan, a nod usually suffices to command. In the United States, one has to use a hammer. But the result will be the same: compliant capitalism.
Companies will not look out for their shareholders or their employees or even their customers so much as watch the smoke signals from Washington to decide what to do. The markets won't control decisions. Washington will….
The strong-arming that obviously led up to the Chrysler deal will also be typical of the Obama industrial policy…. While terrorists need not fear any violation of their constitutional rights, CEOs of Fortune 500 companies will not be so fortunate.
7. Cutting Off the "Private Option," May 12
The great danger of Obama's first year in office is that the left is moving forward on so many fronts that we will be hard pressed to fight and win every battle—and losing even one of them means losing an enormous amount of our liberty.
Thus, while we are trying to fight off total control of the economy in the name of environmentalism, the Democrats are also attempting to make us dependent on the state in another crucial area of human life: medical care.
The Wall Street Journal editorial below describes the means by which government-controlled medicine is about to be forced upon us. Democrats have proposed a "public option," which allows individuals who meet certain criteria to "choose" government-provided, government-subsidized health insurance.
But as the Journal points out, once this "option" is established, it will expand until it crowds out private insurance, cutting off any "private option"—and making us all dependent on the state.
So here is the future proposed by President Obama: when you get a job, you will be pressured to join a labor union backed by the government; if you want to take a mortgage to buy a house, you will borrow from a bank backed and controlled by the government; you will send your kids to a public school and finance their college education with student loans provided by the government; and when you get sick, you will rely on government funding and be treated at government-funded, government controlled facilities.
Comprehensively, in one aspect of life after another, government is taking over and the "private option" is being eliminated.
"Republicans and the 'Public Option'," Wall Street Journal, May 11
This new entitlement—like Medicare but open to all ages and all incomes—would quickly crowd out private insurance as people gravitated to heavily subsidized policies, eventually leading to a single-payer system. So Democrats are trying to seduce diffident Republicans with a Potemkin compromise. A "soft" public option would limit enrollment only to the uninsured or those employed by small businesses, or include promises that the plan will pay market rates….
The truth is Democrats know that any policy guardrails built this year can be dismantled once the basic public option architecture is in place. The White House strategy is to dilute it just enough to win over credulous Republicans. That is what has always happened with government health programs.
When Medicare was created in 1965, benefits were relatively limited and retirees paid a substantial percentage of the costs of their own care. But the clout of retirees has always led to expanding benefits for seniors while raising taxes on younger workers….
Any new federal health plan will inevitably follow the same trajectory, no matter how much Republican Senators might claim they've guaranteed otherwise. The Lewin Group consultants estimate that 119 million people who now have private insurance could potentially be captured by the government under the Obama public option. This is on top of the 90 million already in Medicare or Medicaid. This would guarantee a spending explosion that would over time lift federal outlays as a share of GDP into the upper 20% range or higher. Republicans would spend the rest of their days deciding whether to vote for tax increases to finance this, or stand accused of denying health care to the middle class….
This health-care debate isn't like the "stimulus" bill, which was largely about short-term spending and deficits. This one is about whether to turn 17% of the U.S. economy entirely and permanently into the arms of the government. For Republicans, this is about whether they still stand for anything at all.
8. The Savings Stimulus, June 23
Meanwhile, the American people are, as usual, setting a good example for their leaders. As the article below describes it, the American people have spontaneously adopted a radical new strategy for solving their own financial crises: "To generate the savings, consumers ratcheted down their spending faster than their incomes were falling." What will they think of next?
This is the real "stimulus" that will eventually make an economic recovery possible: the increased savings of the American people as they make rational plans for their own individual economic well-being.
"Tapped Out Consumers Rediscover Savings," David M. Dickson, Washington Times, June 22
The personal savings rate has been rising steeply this year as formerly profligate consumers frantically try to recoup part of the $14 trillion in losses they suffered since mid-2007 from the bear market and the bursting of the housing bubble….
What a difference a year makes. In April 2008, four months after the recession began, Americans were saving none of their after-tax incomes. A year later, after an additional 5 million jobs were lost, after home prices continued to plummet and after the stock market recently hit a 12-year low, the savings rate jumped to 5.7 percent in April—its highest level in 14 years.
To generate the savings, consumers ratcheted down their spending faster than their incomes were falling….
"Americans have learned a cruel, cold, hard lesson. People are scared. And that's led them to replenish their savings because they now realize that their retirement nest eggs will no longer increase on automatic pilot," Mr. Baumohl said….
Some economists emphasize the "paradox of thrift," a concept first developed during the Great Depression by John Maynard Keynes. If everybody consumes less to save more, then nobody will be better off because falling consumption will lead to declining output, which will lead to decreasing wages and rising unemployment. In the end, savings will not have increased—thus the paradox.
Over the long run, however, economists agree that a rising American savings rate produces huge benefits.
More savings could be channeled into greater business investment, which raises productivity, the basic building block for a rising standard of living.
Robert Tracinski writes daily commentary at TIADaily.com. He is the editor of The Intellectual Activist (TIA) and contributor to The Freedom Fighter's Journal
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