Poverty and Taxation

Last night, I was in Palo Alto having dinner with many of the National Fellows at the Hoover Institution. On my left there was a woman from Beijing who is studying how miscommunication occurs between totalitarian regimes and democracies. She has flawless English--had I not known better, I'd have assumed she was born in California. We got in a discussion about how China is perceived in the United States, but in the process, I learned a lot about how the United States is perceived in China.

It started when she asked me an very straightforward question about the Romney "47%" gaffe. She said, "Is it really true that 47% of Americans pay no taxes?" She clearly found this to be astonishing. Luckily, I'd been blogging about this stuff, so I didn't feel as uninformed as usual. Yes, that's true, I said.

Well, what's their income? she asked.

Duh. I didn't know, but I did make a guess that turned out to be fairly accurate. I said, "I'm not sure, but  I'd guess around $35,000 or under."

Now, that turned out to be about right. 83% of nontaxable returns are filed by people with incomes of $30,000 or less. (But there are some people who make a lot of money who pay no tax; see the figures in this USA Today article:  Who doesn't pay taxes? )

She was again surprised. "You mean people make that much money and pay nothing?!"

The conversation went from there to what poverty means in the United States versus what poverty means in China. For instance, she couldn't fathom why Chicago School teachers would think they had a moral right to higher pay.

China's per capita income is about $5,400 dollars; the per capita income of the United States is about $48,400, according to IMF figures for 2010 to 2011. This, of course, doesn't give us the range. People in China, however, are happy to get a job at $5 an hour.

My Chinese friend is a very courteous person and did not say that the citizens of the United States had lost touch with reality. So I said it, and then she agreed. "Most poor people in the United States would be considered wealthy in China," she said. (She's not a new-comer to the United States, by the way. She has spent years here, and is a professor at Rice University.)

How wealthy is someone below the federal poverty line in the United States? see this digest of census information from the Heritage Foundation: What is Poverty in the United States

Here's the Abstract for the Heritage study: "For decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty,” but the bureau’s definition of poverty differs widely from that held by most Americans. In fact, other government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. Some poor Americans do experience significant hardships, including temporary food shortages or inadequate housing, but these individuals are a minority within the overall poverty population. Poverty remains an issue of serious social concern, but accurate information about that problem is essential in crafting wise public policy. Exaggeration and misinformation about poverty obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem."

I wonder if China will get around to loaning us another trillion and a half. I wonder how we'd ever pay it back. The sad fact is, fellow Americans, altogether we don't work hard enough, we don't pay enough to cover our benefits, and we seem to think the world owes us a living. The world, I'm finding out, has a different idea.

Obama and Romney on 60 Minutes

See the Romney and Obama interviews on 60 Minutes:

Obama and Romney on 60 minutes

Full Univision Interviews with Presidential Candidates Mitt Romney and Barack Obama

My first reaction to both of these interviews is admiration for Univision for doing a better job of getting at the issues than any other network.

My second is that these interviews are a good clue as to how Romney and Obama will perform during the debates. Univision did not toss softball questions.

(Full Univision Interview with Romney)

(Full Univision Interview with Obama)

Ben Stein on Tavis Smiley / Father Robert Barron on Catholic Social Thought

Ben Stein on the Romney Campaign, Why He'll Never Vote for a Democrat (Right to Life / Defense Budget), and Why He Has Doubts About Supply Side Economics.

Watch Economist Ben Stein on PBS. See more from Tavis Smiley.

Stein presents the most "Roman Catholic" position I've seen yet, not that I find everything has has to say persuasive.  His doubts about supply-side economics interest me, but when he says that we had very high marginal tax rates in the 50s and 60s, and enormous prosperity, he neglects to mention that we were the only major industrial power left standing after WWII. The causes of our prosperity had very little to do with high tax rates, and the effective rate of federal income taxation--given loopholes--is not that different than in the fifties and sixties. Although "subsidiarity" as a principle doesn't come up in Stein's interview--and I think it needs to--he puts his finger on the flaws in both Republican and Democratic social thought when it comes to "solidarity": not enough concern for the poor by either party, nowhere near enough concern for the unborn by the Democrats.

Robert Barron lays out the two main principles of Catholic social teaching:

The Funny for today from Russ Wood:

Appendix on Supply-Side Economics and Ronald Reagan:

Tax increases (11) during the Reagan Years:

Reagan Tax Increases / Bloomberg Business Week

Reagen Tax Increases / CNN

CBS Reagan and Tax Increases

Conservative Reaction to Romney's 47% Remark and What It Means

Since writing the entry about the Mitt Romney comments picked up by Mother Jones magazine --

Mitt Romney and Mother Jones

there has been plenty of reaction. First, conservatives and Republicans are clearly worried about this, and Romney, according to the NBC / WSJ poll, is slipping behind in the swing states that he must carry to win re-election. One of the most telling conservative reactions was on The O'Reilly Factor, by Charles Krauthammer, who, as usual, goes straight to the nitty gritty. See this link:

Krauthammer on the Damage of the Mother Jones Video

In The Weekly Standard, William Kristol had this to say:

It's worth recalling that a good chunk of the 47 percent who don't pay income taxes are Romney  supporters—especially of course seniors (who might well "believe they are entitled to heath care," a position Romney agrees with), as well as many lower-income Americans (including men and women serving in the military) who think conservative policies are better for the country even if they're not getting a tax cut under the Romney plan. So Romney seems to have contempt not just for the Democrats who oppose him, but for tens of millions who intend to vote for him.

It remains important for the country that Romney wins in November (unless he chooses to step down and we get the Ryan-Rubio ticket we deserve!). But that shouldn't blind us to the fact that Romney's comments, like those of Obama four years ago, are stupid and arrogant.

William Kristol: Romney's Remarks Arrogant and Stupid

Two days ago the Wall Street Journal published the following editorial in which they construct a fictional speech for Romney, saying what they wish he would have said:

What Romney Might Have Said

Kim Strassel, a fine commentator, on the following video offers more advice to Romney ("a tall order," she says). Click on the video tab at the top of the editorial:

Making Lemonade from Lemons

Romney, of course, has had his own response. Romney's attempt to qualify what he said in the fundraiser:

As Krauthammer and others point out, there are many people in that 47% who are not paying income taxes who might well be Romney voters. And there are certainly people I know who pay income tax--and plenty of them--who will be voting for Obama. The best construction is that Romney oversimplified at a fund raiser to make a point. Cold comfort.

Conservatives have a legitimate concern that Clinton era welfare reforms are being destroyed by the Obama administration, that we are creating an ever larger class of unemployed and dependent people, and that Democratic policies make it harder and harder for business to expand and hire. Ironically, government policy interferes with the private sector's capacity to generate the revenues necessary to support a huge entitlement state. The consequences of Romney's remarks are that he may not now be able to successfully address those issues--or any others, such as the serious consequences of American foreign policy as they are now showing up in the Middle East. The debates are probably Romney's last chance.

During the last election, Obama referred to small town people as follows: they "cling to their guns and they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations." Poor fools. This is a typical version of academic and progressive arrogance. I don't know how you would rank Obama's v. Romney's comments, either on a scale of being out of touch or for contempt.

Appendix: 

As an aside on the politics of this, it's interesting that Jimmy Carter's grandson was the conduit for the Mother Jones Video! See this link:

Mitt Romney and Mother Jones

As Charles Krauthammer said with regard to President Obama's "You didn't build that clip," a political gaffe occurs when a politician actually says what he thinks. I like "gaffes" for that reason. They are at least refreshing moments of candor. The video clip that is said to have the Romney campaign "reeling" contains a lot of truth. The 47% / 47% split that Romney talks about is right on the money. The election will be decided by about 6% of the people. And yes, people who get the most assistance from the federal government are the ones most likely to vote Democratic. Is this a big surprise? The problem is that Romney implies that half of Americans are unproductive by choice, "entitled" to live on the dole. There may be a significant percentage of people that is true about, and it may be getting higher, but I doubt if it is true of 47% of the people, and if it is, there is nothing anyone can do to save this country.

The main truth is that most people's expectations of what the government ought to provide are way out of proportion to our willingness or ability to pay for them. The desire to get some free lunch--if only through out of proportion Social Security and Medicare benefits--extends throughout the population, and any solution requires a general lowering of expectations. No politician is talking about that in a straightforward way (although Paul Ryan comes close) because it would spell electoral death. They'll all be talking about it after the election, whether they are Democrats or Republicans.

At the beginning of Obama's first term, when the first stimulus package was being put together and debated, Rahm Emmanuel expressed this attitude toward Republican dissenters: "We've got the votes. Fuck 'em." That explains as much about the political failure to address the debt and recession as any comment of the last 4 years.

The 47 / 47 split is real, but when the campaign is over, and somebody has to govern this country, compromises will have to be made. The Democrats in 2008 thought they had such a huge mandate that they could dictate an agenda, and they tried. It seemed to work for two years, as they progressively alienated moderate Republicans. All the Republicans dug in, in response. Then came the mid-term elections and gridlock. As a result, our debt problem got worse and worse. Obama seems to hate business and the phrase "fat cat" has become a staple for him. Now this from Romney. What we need is a leader with the confidence in America of Ronald Reagan and the political skills of Bill Clinton. We need senators like Daniel Patrick Moynihan and Congressmen like Gerald Ford.

Where are these people?

"The Magnitude of the Mess We're In"

The Magnitude of the Mess We're In

The above editorial by George P. Schultz and other Hoover Institution fellows appeared in today's Wall Street Journal. It paints a dire picture indeed, both of our debt trajectory: nearly to $20 trillion within ten years. I'll be surprised if it doesn't go higher. A small increase in interest rates will make management of the debt virtually impossible.

Putting this column together with Bob Woodward's new book, The Price of Politics, which shows a White House that is unable to craft political solutions to the crisis, and our future looks bleak indeed.

The Hook-Up Culture

(TED TALK: The "Hook Up" Culture

I'm putting this up without further comment, just because it was so interesting to hear about the topic from a college student's point of view.

The Provost's Response to the Academic Senate Resolution on Cohort Hiring

Below, in Black type, is Provost Covino's response to the Academic Senate Resolution on Cohort Hiring, which passed in the Senate last semester by a vote of 35 to 10. Since it was a pdf that could not be copied, I typed it out by hand for this blog entry. 

I do not understand why a letter of such importance to the faculty as a whole cannot be distributed to the faculty as a whole on the date it is written--here, May 21. The letter was recently distributed to Senators. (I don't know the exact date, but will revise this when I get that information.) From what I can tell, it still has not been made available to the faculty as a whole and I do not see it on the Academic Senate site under "Senate Documents," although there I did find Chris Henson's response to the Provost's response.

Senator Chris Henson's Response to the Provost's Response, Below

Date: May 21, 2012

To: Professor Lynn Williams

        Chair, Academic Senate

From: William A. Covino

             Provost and Vice President for Academic Affairs

Subject: Academic Senate Resolution on Cohort Hiring Through the Office of the Provost

I have carefully considered the Academic Senate Resolution on Cohort Hiring Through the Office of the Provost and wish to make the following observations:

The Resolution is based at some points on inaccurate information, assumptions, and implications:

First “Whereas”: the $900,000 to $1.2M gap that you cite is not a base budget gap; rather it is the estimated amount to be met through the use of reserves through 2011-2012. Please see the chart that I presented at the February Provost’s Forum, at

 http:www.fresnostate.edu/academics/documents/AcademicAffairsMidYear2.16.12pdf

Second “Whereas”: This is incorrect, as Dean Harper indicated during the Senate discussion of the Resolution, and as is evident in the January 28 AABATF Revised Recommendations, which call for the following:

Generate greater efficiencies in centrally funded programs and offices that report to you (original reduction 3). In making this recommendation we recognize the continuing and ongoing need for faculty development and support of critical initiatives in Academic Affairs. We also note that you have reduced the number of MPP positions by 11.

Third “Whereas”: This is correct, but is a condition that the cohort hiring initiative, along with non-cohort hiring, seeks to improve.

Fourth “Whereas”: The effects of further cuts have not been determined.

Fifth “Whereas”: As I explained to the Senate, the cohort categories were advanced by the School/College Deans as representative of areas that can encompass crucial needs in a number of departments.

Sixth “Whereas”: The first step in developing proposals for faculty has been  and continues to be consultation with the faculty. Cohort hiring is not intended to skip this step.

Seventh “Whereas”: Searches in areas of critical need have not been denied in favor of cohort positions.

Eighth “Whereas”: All current cohort searches have been confirmed as essential by the Deans and Department Chairs.

First “Resolved”: The suspension of future cohort searches would disrupt the process of filling positions determined as critical needs by Deans and Departments. To reiterate information I provided in somewhat more general terms on the Senate floor: I have at this point authorized 48 faculty searches for 2012—2013. Some of these (20) positions are positions requested as cohort hires for which I will provide partial funding; others (6) are positions requested as non-cohort hires for which I will provide partial funding; and the rest (21) are positions that will be funded by the School/College.

Second “Resolved”: The Level B funding model in place before cohort hiring began was not designed to allocate faculty positions and would distribute the amount available according to multiple formulaic inputs that may not be relevant to faculty hiring needs. In other words, as I explained to the Senate, formulaic distribution does not effectively take particular Department/College hiring needs into account (student demand, number of faculty lost in a particular area, programmatic sustainability, accreditation requirements, research and teaching priorties, etc.)

With these observations I would suggest that some elements of the Resolution were not fully consideration or verified, and note that no consultation was sought with me for clarification or to promote patient collegial dialogue and inquiry, apart from occasional questions from the Senate floor, whose answers prompted no revision or reconsideration of the elements addressed above.

I would also like to respond to some of the points and questions that were raised during discussion on the Senate floor:

The funding provided for cohort hires reflects base dollars, not one-time dollars. Therefore this funding will remain available for the life of the position, and will be reflected in the recurring annual budget of the School or College that holds the position. No School or College is expected or required to replace central funding provided for tenure-track faculty positions.

The Level B funding model currently under revision in consultation with the University Budget Committee will include cohort funding as a line item for the annual budget of each School and College, along with other line items for which the Schools and Colleges receive dedicated funding, in order to promote transparency.

I discussed the plan for cohort funding with the University Budget Committee on March 28. No concerns were raised by the Committee at that meeting.

My office has supplied supplementary funding for both cohort and non-cohort positions, as I indicated in the Senate, and in my response to the first “Resolved” above.

The cohort program is evolving, and will continue to take shape and improve as it matures.

The cohort categories currently speak to broad areas of interest that can accommodate much-needed positions, and address the priorities of the University Strategic Plan endorsed by the Senate.

Thank you for affording me the opportunity to respond to this Resolution. We will be moving forward with the searches authorized for 2012—13, if additional budget reductions do not warrant reconsideration.

c:          President John Welty

            Academic Deans

            Deans of Undergraduate Studies and Graduate Studies

            Associate Vice President for Continuing and Global Education

            Associate Vice President for Faculty Affairs.

The Endless Game of Thrones

I have a review of George R. R Martin's 5 volume series A Song of Fire and Ice with University Bookman. You can find it at this link:

The Endless Game of Thrones

"You Didn't Build That" and Why I'm Voting Republican

In a previous blog, I said that Obama's "You didn't build that" comment had been distorted, somewhat taken out of context, by the Republicans. I was wrong. I recant. [I had mixed it up with another blooper, Obama's statement that the private sector was doing just fine: see below.] No, when Obama said "You didn't build that," with regard to any businessman, he meant it. And it was just as bad and just as diagnostic as the Republicans make it out to be. Here is the clip with some analysis (yes, I know, it's Fox) which I think is accurate. But watch Obama's entire statement, listen to pundits, and see what you think:

Krauthammer nails it.

Of course people get help from the government. Of course the infrastructure that the government largely manages makes business possible. But it is just as accurate to say that businesses large and small provide a living--and all the taxes--that make government possible. It's a complex world. We need government, obviously. I don't want to fly without the FAA or eat a steak without the FDA. And obviously, we need a thriving private sector. It's absurd to put all the emphasis in one place, and when political campaigns do that, they are just setting up straw men and they know it.

So why do the Democrats worry me? Starting in 2008, we left Democratic politics as usual. Obama does not just stand for an extra measure of the Democratic welfare state, but for a philosophy that turns government into an idol, the god in charge of human happiness. The Democrats really do think that we belong to the government, instead of the government to us, and especially, that it is government which gives our lives meaning. The government is the key to our happiness. It provides hope and change--a virtual religious transformation. This is not the Democratic party of my youth that was mainly concerned with strong national defense and giving labor an even break. It is not a party that thinks government has an important role to play in national well-being. Instead, it is a party that thinks it has the fundamental role to play in enabling us to be happy.

The essence of progressivism is that there is no aspect of human life that cannot be addressed and improved by the right government policy. Life will get better and better as our policies get better and better and we asymptotically approach perfection.

If you do not think this is true, all I can say is, watch the convention speeches. That's how I read them, you may read them differently.

I have come to believe that this election is not just about bigger government versus individualism. It is about the place we give government in our lives at the metaphysical level. Can government really do, whatever its policies, what progressives think it can do? (And the label "progressive" means progression forever--no end to it.) I don't think so, and I suspect it corrupts community at the local level by assuming a national answer.

Since meaning in any individual's life comes out of our relationship with others, this election is also about national government versus local civil society. As de Tocqueville pointed out early on, much of America's strength derived from it's culture of thriving civic groups and organizations. My father's life was taken up with membership in the Lutheran Church, the Lion's club, a bowling league, and membership in the Verona Hills Country Club, which we just called "the golf course." People derived meaning in their lives from participation in many different groups, which in one way or another led back to civic involvement and service to the community. The main thing that any person builds is not a business--it's a life. I don't think that any government ought to see itself as in charge of that. Barack Obama and the Democratic party believe the United States government to be the fundamental factor of happiness in people's lives. This is really what is behind the "you didn't build that" comment, and it is scary.

But the implicit Democratic claim that government is the most important factor in enabling happiness is only half the problem. The other half is how the Democratic party views human flourishing, and it's calculus here is thoroughly materialistic. I only heard two real promises at the Democratic convention: one was that everyone would be taken care of in a more centrally managed economy; the other was that women of any age would be allowed to abort their children at any stage, and I was astonished at how much convention time was militantly devoted to "women's health issues." Happiness, according to that convention, is material comfort and being able to treat the unborn as material: cradle to grave security, sexual license, and pride in the government which provides it.

But it won't make people happy. Like Dostoevsky's Underground Man, they'll still want to throws rocks at the glass cathedral when they find out how dead it is.

The Republicans, if nothing else, are willing to allow a space for traditional civic society to exist, in its variety. Happiness flows from membership in a polis, not a colossus. I don't think that either party appreciates this enough, but under the Republicans, who at least claim to understand the limitations of big government, local civic society has done better.

Appendix: Private Sector Just Fine

(Private Sector Doing Just Fine)

(Obama Qualifies Private Sector Fine Remark)

I think Obama is entitled to his clarification.

Appendix 2: Daniel Henninger Editorial

The day after I wrote this entry, the following editorial from Daniel Henninger's Wonderland column appeared. He is in sync with much of what I said: The Obama Democrats

The Ben Stein Raise Taxes Page

I agree with Ben, as of now, though I plan to give the Arthur Laffer supply-siders a close look on another blog. In the final video on this entry, Stein says raise taxes on everyone. "Let everyone get some skin in the game." Yes. No candidate is running on that platform though, and as Stein says, "neither party is even close to reality."

The first time I remember hearing about the Laffer Curve was in Ferris Buehler's Day Off. Here we have a scene in which future voters learn about about economic issues:

(Introducing the Laffer Curve "Something DOO Economics" to Future Voters)

Ben Stein, mainly conservative, doesn't see that taxing the rich (starting at incomes of $1 million) more will slow the economy or result in a higher unemployment rate. Couldn't embed the video, but see it at this link. It's funny:

Ben Stein and Wayne Rogers Debate O'Reilly on Taxing the Rich

More from Ben Stein on taxing the rich:

(Ben Stein: The Super Rich Not Paying Enough; No Date Correlating Lower Tax Rates for Rich with Higher Economic Growth; The Whole Basis for Supply Side Lacks Data)

(6/26/11; If we don't raise taxes, we'll face a credit down-grade; Ben was right on that one.)

(Taxing the Super-Rich is Fair and We Need to Do It, But We Should Raise Taxes on Everyone)

Friday's Dismal Job Numbers

The biggest obstacle that Barack Obama faces for reelection is economic reality. During the Democratic  Convention, one after another, speakers said the same thing: this is a deep economic crisis, but have patience; give us another four years and we we will turn the corner. Joe Biden said we were now turning the corner.

But we are not turning the corner and there are no good signs, not according to Friday's job report from the Labor Department, whose statistics are nails in the coffin for Democrats.

The main facts are as follows for August: unemployment went from 8.3% to 8.1%. But everyone agrees that does not demonstrate a recovery of jobs but a loss of jobs, because people who give up looking for work are not counted in calculating the unemployment rate. The rate fell because 368,000 Americans dropped out of the work force. Moreover, hourly pay fell.  In 2009 President Obama pushed his $830 million stimulus with the prediction that it would reduce unemployment to 5.6% by providing 5 million more jobs than we have now.

Economists say the Fed will now come to the rescue. Are they kidding? What has the Fed got left? Negative interest rates? A new bond-buying program. Well, it bucked up the stock market.

Before going to editorials or news digests, go to the Labor Department's "Economic News Release: Employment Situation Summer of September 7, 2012, for the raw data: August Employment Summary by BLS

Here is reaction:

Morton Zuckerman Editorial:
Jobless Numbers Worse Than They Look

Wall Street Journal Report:
Jobs Data Weigh on Fed, Obama

(Succinct and Accurate Summary)

Kudlow on CNBC: Will Jobs Report Be Obama's Undoing?

There is disagreement about what would bring the country out of recession. There is almost no disagreement about how bad this is, and that may carry the day on November 6, 2012.

Joe Biden Receives Cornpone Award

(Cornpone Award Winner, Joe Biden)

The Huron County Extract with great humility presents the first Presidential Election Cornpone Award to Joe Biden.

The Cornpone Award is given to the politician who most exemplifies the rhetorical standards of the greatest fighting military strategist the Confederacy ever knew, Jubiliation T. Cornpone. The awardee must demonstrate the highest standards of political oratory, including dramatic pauses that go just a little too long, the capacity to tear-up at appropriate points in the speech, and no notion of when enough is enough.

It was hard for the judges at Huron County Extract to choose between Bill Clinton and Joe Biden. Clinton 's use of the crooked finger almost put him over the top in the voting, as did the excessive length of his speech. But other judges pointed out that Clinton used the crooked finger repeatedly in claiming he hadn't had sex with Monica Lewinsky, and so, as a rhetorical gesture, it was becoming threadbare. In addition, to get the Cornpone Award, a speech has to have an old-timey quality reminiscent of ward heeling and Tammany Hall. Clinton's speech was too wonkish to meet that standard, as it actually came close to addressing policy issues. The Extract is proud to give this year's award to Joe Biden.

Republicans were just not in the running for this one.

(This song is dedicated to Joe Biden)

Democratic Convention Speeches, Night 3

(Jennifer Granholm, former Governor of the Great State of Michigan)

(John Kerry)

(Joe Biden)

(Barack Obama's Acceptance Speech)

Fact Checking the Convention Speeches

Washington Post Glenn Kessler highlighted some of the most misleading statements in Obama's and Biden's convention speeches. The most blatant lie of the night was Obama's claim to cut deficits by $4 trillion over an unspecified number of years by not spending money he doesn't have. On a much smaller scale, I too plan to save $10 million dollars over the next few years by not spending money I don't have. I think my wife will be very proud of me. If I get ambitious, I may save to a billion.

See the Washington Post fact check article at this link: Fact Checking Obama's and Biden's Speeches

Kessler fails to pick up on the biggest distortion in Obama's or Biden's speeches, which is the implication that a tax on the rich can solve the problem of a $16 trillion debt. Neither party is confronting the logic so persuasively laid out by the Bowles-Simpson task force that taxes must go up and spending down.

Now, turning Kessler loose on Romney, he picks up on some whoppers, like the idea that the price of gasoline doubled under Obama--even my failing memory goes back to $3.5 per gallon gas four years ago--or that he raised taxes on the middle class, which Obama hasn't done and claims he will not do in the future. I don't see some of Romney's statements to be as misleading as Kessler, particularly when Romney claims that the economy "does not provide the jobs needed for 23 million people and for half the kids graduating from college." Kessler sees this as implying that they cannot find jobs at all. I don't see that. Romney claim is that 23 million people can't find the job they need--which are full-time jobs.

Romney has a plan to create 12 million jobs. Great. Who can dispute it if he says so. I have a plan to make $12 million dollars in the next year. If Mitt tells me his plan. I'll tell him mine. (Try this on your spouse tonight, and see if you get a round of convention magnitude applause. I'll let you know how I make out with mine.)

See the Washington Post fact check on Romney's acceptance speech at this link: Fact Checking Romney's Acceptance Speech

Paul Ryan's mistake--I suspect some of his staff got into trouble over this one--suggesting Obama was somehow responsible for the closing of the GM plant in Ryan's home town, which Obama said would remain open for a hundred years. Well, it was dumb for Obama to say that, but he had nothing to do with shutting up the plant, which happened before he took office.

The Republican claim that Obama said government ought to get the credit for building businesses rather than the people who had built them is a distortion of what Obama said, but that's a subject for a blog by itself. (The Republican construction of Obama's statement reminds me of the first political campaign I paid attention to, LBJ v. Goldwater. Goldwater said, "I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue!" I still think that's a snappy line, and true. But it was used like a rope to hang Goldwater in a campaign in which LBJ promised we'd never get more deeply involved in Vietnam.

See the Washington Post fact check on Ryan's acceptance speech at this link:
Fact Checking Paul Ryan's Speech

Democratic National Convention Speeches, Night 2

For my money, the angriest speech of the night came from 31 year old George Town law student Sandra Fluke, who has been an activist on abortion since her undergraduate days at Cornell. Her speech roused the audience, and by that measure, was one of the most effective of the night. Clinton started out great but went for 50 minutes. It could have been a great speech at 30 minutes.  (I wonder if Barack Obama enjoyed waiting in the wings?)  Elizabeth Warren concentrated on the miserable state of society, and so seemed to be urging people to vote against the incumbent--that was a little weird.

(NARAL President Nancy Keenan)

(Cecile Richard, President of Planned Parenthood)

(Sandra Fluke)

(Elizabeth Warren)

(Antonio Villaraigosa, Mayor of Los Angeles)

(Bill Clinton(

Democratic Convention Speeches, Night 1

(Julian Castro)

(Rahm Emanuel)

(Michelle Obama)

Barack Obama and The Great Recession

President Obama began his presidency with the worst economy since the Great Depression. He inherited the Great Recession at its height, and lately, he has spent a lot of time reminding the public, still mired in financial distress, that he didn't create the problem. On the other hand, the Republicans have been saying: Barack, you've had four years, you didn’t keep your promise to fix the economy, your policies have made matters worse, and now you own it. So the politicians are juggling the hot potato and blaming each other, which reminds me of one of my favorite L'il Abner lyrics:

Marryin' Sam: "Them GOPs and Democrats each hates the other one."

Li'l Abner: "They's always criticizin' how the country should be run."

All together: "But neither tells the other what the other's gone and done, as long as no one knows where no one stands. THE COUNTRY'S IN THE VERY BEST OF HANDS!"

I want to try to do 4 things in this entry:

1. Look at some events and statistics that indicate the size of the United State’s economic problem.

2. Examine the origins of the problem.

3. Try to determine whether Obama's economic policies have made the problem better or worse.

4. See if anything has been done to correct the mistakes that led to the Great Recession.

My conclusion will be that the United States is in enormous economic difficulty; that Republicans and Democrats, in trying to please each party's special interests, collaborated so intimately to produce the Great Recession that it's hard to assign either party a greater share of the blame; that Obama's policies have probably made the economic situation worse, just given the debt increase; that virtually nothing has been done to correct the legislative and policy mistakes that made the Great Recession possible.

I. The size of the United State's economic woes, as of September 5, 2012 (Awaiting this Friday's employment statistics, which I expect to throw a cold bucket of water on Democratic National Convention)

1. The net worth of the median family dropped 40% from $126,400 in 2007 to $77,300 in 2010, most of this in loss of home value. Median family income dropped from $49,600 in 2007 to $45,800 in 2010. Washington Post, June 11, 2012

2. Federal debt is nearing 16 trillion and is projected to hit 20 trillion by 2016. (These figures are so widespread and easy to check, I'm not going to offer a citation.)

3. As a percentage of GDP, the Federal debt is about 67%, the highest since World War II. Wikipedia: United States Public Debt 

4. For the first time in history, the United States had a downgrade in its sovereign debt. S & P Strips U. S. of Top Credit Rating

5. Federal spending is at 25.2% of GDP, the highest since World War II. See the indicated table at this link OMB Table 1.2

6. The budget deficit of 9.9% of GDP is the highest since World War II. History of the United States public debt  The reasons given by Wikipedia for the 2009 deficit show the difficulty of pointing the finger only at the Obama administration: 

"In October 2009, the Congressional Budget Office (CBO) gave the reasons for the higher budget deficit in 2009 ($1,410 billion, i.e. $1.41 trillion) over that of 2008 ($460 billion). The major changes included: declines in tax receipt of $320 billion due to the effects of the recession and another $100 billion due to tax cuts in the stimulus bill (the American Recovery and Reinvestment Act or ARRA); $245 billion for the Troubled Asset Relief Program (TARP) and other bailout efforts; $100 billion in additional spending for ARRA; and another $185 billion due to increases in primary budget categories such as Medicare, Medicaid, unemployment insurance, Social Security, and Defense – including the war effort in Afghanistan and Iraq."

7.  Employment (58.4% of population working) is the lowest since 1983. (Part of this may be the result of an aging population, where the workforce would naturally shrink; but a lot of it is certainly due to the recession.) Seeking Alpha: Reading the Jobs Data

8. The current unemployment rate is 8.3% and according to some calculations, higher. (An “unemployed person” is basically one who has looked for work in the preceding 4 weeks but has not been able to find it.) It does not measure the number of people who have quit looking for work entirely. (i. e., the person who during week five, for whatever reason, quits looking for employment.) Adding in this component raises the rate, according to the Bureau of Labor Statistics, to 9.6%. If you add in the underemployed—people working part-time jobs, even though they want full-time—this increases unemployment to about 15%, and this is where the Romney campaign gets its figure that 23 million Americans are unemployed (the Labor Dept’s U-6 rate) which is about twice the number of 12.8 million calculated by the 8.3% rate. BLS News Release for July 2012  (By the end of this week, we'll have updated figures.)

See also

Jobs Worse Than You Think

Time Business: Long-Term Unemployment is a Crisis

9. Long term unemployment. If you’ve been jobless for 27 weeks or longer, but you are still trying to find a job, you enter the category of “long-term unemployed.” In July 2012 5.2 million Americans fell into this category, or 40.7% of the unemployment rate. See above "BLS News Release" link.

10. The percentage of income tax filers not paying taxes is about half of Americans (though they do pay other federal taxes, such as FICA.); on the other hand, people receiving one or more federal benefit payments is the highest in American history at 47%. (You'd expect a disproportion, given the unemployment statistics.) For a comment in The Atlantic, see this link, which goes at this statistic from a moral standpoint. I think the important thing is to recognize it as a signal of economic distress: 47% Don't Pay Taxes? No Big Deal In fact, that 47% of Americans don't pay taxes is an extremely big deal as an economic indicator, whatever your thoughts about tax justice.

II. The Origins of the Great Recession

Before Barack Obama became president, the Bush Administration was running up the Federal debt to record levels. You can track this easily, year by year and administration by administration, at the following link: Presidential Debt Year by Year.  But to summarize quickly, the debt was 5.6 trillion when George W. Bush took over from Bill Clinton in 2001. In 2007, on the eve of the Great Recession, the debt had reached 9.2 trillion, and by the end of 2008, 10.7 trillion. The main factors in producing the deficit during the Bush years were the one two punch of expensive wars in Iraq and Afghanistan combined with tax cuts: spend a lot more, take in a lot less. But there was also an expansion of Medicare and the inability to get the program's costs under control. (Controlling Medicare costs and so saving the program is perhaps the single biggest issue in this election.) So during the eight years of George W. Bush's administration, the country added about 5 trillion dollars worth of debt. The Congressional Budget Office breaks down the increase between 2001 and 2011 by category. See the breakdown at Wikipedia's article on United States public debt. United State Public Debt: Change in Debt Position Since 2001 It is interesting that the wars in Afghanistan and Iraq are estimated to have contributed a proportion that is smaller than the Bush tax cuts. 

The point is that, even before we got into bailouts and stimulus packages in response to an economic emergency, we were endangering the economic stability of the country by accumulating astounding levels of debt. I'm sure there's more to say about George W. Bush and spending; very few Republicans would give him an award for fiscal responsibility.

Now let's get personal and look at some of the other contributors. 

Alan Greenspan: Cutting interest rates to rock bottom levels goosed the economy, creating two bubbles, the dot.com bubble and the housing bubble. Low interest rates encouraged people who did not have the financial wherewithal to buy homes, to the point that people were getting mortgages even if they had no job, no income and no savings. Greenspan apparently never saw it coming. In 2005, he said "at a minimum, there's a little 'froth' (in the U.S. housing market) ... it's hard not to see that there are a lot of local bubbles." The Economist magazine, writing at the same time, go the magnitude of the problem right: "the worldwide rise in house prices is the biggest bubble in history." (It knocks me out that the Economist saw the crash coming in 2005!)

Frothy quotation: David Leonhardt: Frothy

Economist Article: Global Housing Bubble

Bill Clinton: No kidding. Democrats tout him as the most fiscally responsible President of recent times, but his mistakes just had an 8 year incubation period. Clinton agreed to repeal the Glass-Steagall Act, which had separated investment from domestic banking. The combination of these two different banking institutions produced the banking behemoths who bundled worthless mortgages into bigger and bigger securities, selling them again and again, thus leveraging the country into the worst financial crisis since the Great Depression. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act (1999) by bipartisan votes in the Senate 90 to 8, and the House 362-57. (Wiki) The story that the deregulation of the banking industry was a Republican affair motivated by the donations of lobbyists is just not true. It was a bipartisan affair motivated by the donations of lobbyists, but it seems Phil Gramm led the way on behalf of Sandy Weill of Traveler's Insurance and John Reed of Citicorp, who needed Glass-Steagall out of the way to bring about the merger of their two companies to create Citigroup. Citigroup was the biggest banker in the world in 2008 and was bailed out because it was too big to fail: it received an astonishing $476.2 billion in cash and guarantees. See Citigroup Tops List of Banks Who Received Federal Aid

Under Clinton’s watch, both sides of the mortgage business were encouraged to be irresponsible, lenders and borrowers. With regard to borrowers, Clinton further liberalized Jimmy Carter’s Community Reinvestment Act (1977) forcing banks to give more sub-prime mortgages. Thus, not just more deregulated bankers were put into contact with more sub-prime customers, but thanks to regulatory architects of the Clinton period, bankers were required to grant more sub-prime mortgages. 

For a good article about how all of this worked, and some others who have responsibility, see The Atlantic: Hey, Barney Frank, the Government Did Cause the Housing Crisis

You could spread the blame even farther, to people without money who took mortgages they couldn't afford. But if banks will lend money to people, they will borrow it, and in the 2000s, I had three calls a day or more, sometimes, from banks wanting me to take out a second mortgage. "Pre-approved" credit cards arrived in the mail in a constant stream. When I bought my house in 2003, the sub-division builder asked me if I wanted to buy two or three! It was insane. If you throw temptation enough times in the way of enough people, a lot of them will give in. I blame the tempters more than the tempted.

III. Did the Obama Stimulus and His Other Policies Work?

In late 2008 and early 2009, it might have satisfied both Tea Partiers and Occupiers to march some of the people named above, as well as the heads of the big financial behemoths and auto companies, over a cliff. I have complete sympathy with Tea Party anger over bailouts of banks and auto companies. Unfortunately, the bailouts seem to have been necessary to prevent financial panic, destruction of credit, and permanent economic damage. A lot of odious people got away with gross financial malfeasance and probably made money.

One of the first programs put into effect was the Troubled Asset Relief Program (TARP), enacted while President Bush was in office (October, 2008) and continued into the Obama Administration. TARP allowed the U.S. Treasury to purchase or insure up to $700 billion of bad mortgages or instruments based on bad mortgages, such as the notorious collateral debt obligations. In other words, the government was frantically trying to correct the mistake of repealing Glass-Steagall and liberalizing the Community Reinvestment Act. Much of the TARP money has been paid back. It's purpose was to prevent the failure of the banking / credit system, which it seems to have accomplished.

I think that TARP had to be enacted. Paul Ryan has gotten some flak from the Tea Party for supporting it, but he helped to make TARP a better piece of legislation, and I believe, acted intelligently and responsibly. Here is his argument in the House, miss-labelled "pathetic" by detractors:

(Paul Ryan argues for the passage of TARP)

      The policy decisions which the Obama Administration has to own include:

1. The $825 billion stimulus
2. The bailouts of GM and Chrysler
3. The Public-Private Investment Partnership to buy toxic assets from banks.
4. Cash for Clunkers
5. The Home Buyers Credit
6. Deficits which increased, in four years, the federal debt another $5 trillion
7. Five versions of foreclosure relief
8. Energy subsidies

I think that Republicans can accurately point to a general expansion of government under Obama, the creation of an uncertain business climate, the failure of a green energy policy, and a distribution of stimulus money aimed at Democratic Congressional districts.

But despite the above criticisms, economists disagree widely on whether the recession was alleviated by the stimulus spending or whether the United States threw money down the drain and only put itself deeper in debt. Here, as a voter with little technical expertise in economics, I am at the mercy of expert opinion, which goes in all different directions. An article which shows the almost impossible complexities of the issue appeared in the Washington Post and reviewed several studies; six said the stimulus helped, three said it mainly did not:

Did the Stimulus Work? A Review of 9 studies

Many commentators, even on the left, believe the stimulus was poorly designed. Stimulus packages stimulate when people spend the money they are given, but in-debt and worried Americans saved about 30% of it, or paid off debt. The trouble with social engineering is that people often don't act the way that policy-makers and bureaucrats expect them to. (Policy makers should all have to read Notes from Underground a couple of times a year.) The solution of people like Joseph Stiglitz, Paul Krugman, and Bill Bradley (see his book, We Can All Do Better) is to pump another stimulus into the economy, about as big as the last one, which they feel was inadequate. Maybe people would spend the money this time--or maybe they wouldn't. The problem of individuals who have suddenly become financially responsible extends to corporations as well, who trust the business climate so little they are sitting on about $1.5 trillion rather than investing it and hiring people. So go the best laid plans of Keynsians and the Federal Reserve . . .

What about Cash for Clunkers and the rest? Some analysts say Clunkers generated car sales, and others that it just moved them ahead a couple of months. There is disagreement among economists on most of what Obama did.

With brilliant economists in disagreement, but divided along clear party lines, the responsible voter doesn't get much help, despite hours of reading. All the claims, by both parties, to know what they are doing are cast into deep suspicion as one gets into the basic data and what various professors make out of it--Chicago and Harvard liberals taking one stance, Stanford Hooverians another. The claims and the charges at the national conventions become absurdly over-confident when seen against the pattern of complexity and uncertainty that really exists.

Bill Bradley, in We Can All Do Better, gives a summation of the Obama stimulus which I think is half right:

First, the right part: “In 2008-2009, in response to the worst financial collapse since the 1930s, the federal government used its economic tools to keep the nation out of a depression. The Federal Reserve injected a massive amount of liquidity into the economy so that banks could resume lending and businesses could resume hiring, creating three times as much money in one year as it had since it came into existence. In addition, Congress passed a $700 billion bailout of banks and a $787 billion dollar spending [stimulus] bill, most of which stretched over 2009 and 2010. Still, unemployment remained above 9 percent. Might it have gone to 11% without the stimulus? No one really knows. [my italics]”

Now, just when Bradley is doing well, he takes a leap off planet earth into the economic twilight zone: “President Obama chose to go with what he could get. In retrospect, it appears that the stimulus should have been bigger. If we had done as much as China did with its 2009 stimulus as a percent of GDP, ours would have been $1.9 trillion [a truly Krugman sized stimulus] The lesson is clear. China has bounced back from the downturn. We’re still stuck in it.”

Well, no Mr. Bradley. The lesson is not clear. Your assumption is all that matters is the amount of the stimulus as a percent of GDP, but why wouldn’t the structure of the stimulus matter, and how can you predict what people would have done with that stimulus? They sure didn’t perform as expected the first time. We are not China, and China may still be heading into a recession. We are a different people in a different context. Even if it turns out that China’s stimulus was more than a short term fix, there’s no guarantee that a whopper stimulus would have worked for us. Location, location, location: it's not just for real estate.

The lack of certainty among economists about economic engineering ought to make them as well as us uncertain about what to do, yet Krugman and Siglitz on the left or supply-siders on the right speak with a certainty that is almost absolute, and all out of keeping with the disagreement in their profession. That we should engage in wild policy bets on the basis of their predictions of what will happen if their policies are adopted or what would have happened if they had been is reckless. Engaging in government expansion and more stimulus spending seems a wild bet. Likewise, keeping taxes low with the supply-siders seems a wild bet. 

This is the fact that makes me a conservative to begin with--the doubt that schemes for mass social engineering can really work, especially when they are counter-intuitive. It is why I'd like government to have a smaller role in my life than a larger one.

Close the loopholes in the 72,000 page tax code, consider slightly raising marginal rates, and reduce government spending. This is the commonsense answer that with steady application would bring the country back as an economic dynamo, but it would require us to disciple ourselves.

Lets say that on this one Obama gets a pass, barely. His programs may have alleviated some unemployment, but whether they were worth the money that eventually will have to be paid is hard to say.

The following interview of Joseph Stiglitz is interesting as an appendix to the above. He identifies the weaknesses in the Obama stimulus, and forges into the unknown with great confidence:

(Stiglitz on Fora TV)

IV. Has anything effective been done to solve the problems that led to the Great Recession?

The answer to this question is “no.”

Again, I’ll go to Bradley, who gives a succinct one-paragraph analysis of how little we’ve done to prevent 2008 from reoccurring:

“The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was supposed to prevent another financial meltdown. Instead it risked turning the financial sector into a government monolith. The bill punted on breaking up the too-big-to-fail banks. Far from it, Dodd-Frank bolstered them against failure and encased the whole thing in a four-hundred-thousand word web of complexity that will serve as a full employment act for many members of the Washington club. The act provided for an orderly dissolution when a too-big-to-fail institution got into trouble. But no one knows how orderly dissolution will work. As Henry Kaufman pointed out in a speech to the Foreign Policy Association on December 6, 2011, ‘Untangling these credit relationships will affect prices and other market relationships. Who will take the losses? Who will take over the assets and liabilities as the dissolution proceeds? . . . [A] good portion of the assets and liabilities will be acquired by other institutions that are too big to fail. . . . Either way, the entire process will increase financial concentration.’ There is only one answer to this dilemma: Shrink the big financial institutions. You could spin off the credit-card and consumer-loan divisions into a new company. You could do the same with the mortgage division or the insurance division. You could even put the investment banking and trading operation in a new company. After these behemoths have been downsized, they will no longer be a systemic risk. Small businesses will find easier financing. Conflicts of interest will end. Large corporations will no longer receive a privileged flow of funds. The economy will be more resilient and stable." from We Can All Do Better, pp. 59--60.  

I don't notice either Obama or Romney talking about this.

 

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