It really is Bush’s fault – Part 4: TARP

I have put up three posts explaining why the current state of the economy is genuinely the fault of George W. Bush (although not for the reasons usually aimed at him). I have mentioned the damaging effects of temporary tax cuts, loose money, and rampant spending.

However, it was the Troubled Asset Relief Program that encased the Bush-the-Younger record in Fringe-like amber.

Now, I have spent more than four years ripping TARP (a.k.a. “the bank bailout”), but it needs repeating: TARP misdiagnosed the problem (which was actually paper losses created by the mark-to-market rule), followed that up with the wrong solution (a massive government buy-back of “toxic” mortgage-backed securities), destroyed political accountability by giving the Treasury Secretary the right to switch gears with no oversight (he promptly redid the entire thing as a bank capitalization, and in some cases forced banks to sell the government stock to do it), and due to the aforementioned mistakes completely destroyed what was left of American confidence in the economy (healthy banks were forced to take TARP money, making the entire banking sector look sick, while Administration officials from Bush on down expressed levels of near-complete panic).

One can certainly talk about Treasury Secretary Henry Paulsen’s role in this debacle, or the fact that neither major candidate for president bothered to seriously challenge the “consensus” – although there were some in Washington who did challenge it. However, it was President Bush who essentially set the tone for the discussion by declaring the $700-billion bailout was a necessary – free market be damned. He holds to that position to this day.

As a result, the American people still have not recovered their confidence in the economy – or themselves. Limited government suffered a political hammer-blow from which it still hasn’t rebounded. Bush’s successor has essentially received a free pass whatever the economy does, because if it was so bad that the Republicans (led by Bush) violated their political principles, it’s certainly can’t be a normal recession.

Except that it was a normal recession, created by the burst of a bubble that had been fueled by loose money, rampant spending, and tax cuts with a time-limit that made them purely Keynesian in character. A bubble is merely concentrated inflation, and in the case of the “aughts,” the concentration came in resources (including land). Contrary to popular belief, this is more the norm than the exception for economic downturns (the recessions of 1819, 1837, 1854, 1857, 1873, 1893, 1929-34, and 1990-91 all had their cause in some bubble bursting – usually land).

In short, the economic record of the Bush era was one of Keynesian stimuli and government expansion on an unprecedented scale, with just enough of an appearance of conservatism to discredit the entire limited-government/supply-side point of view by the end of 2008. As a result, government’s size, scope, cost, and borrowing are all dramatically higher; the economy is weaker; and conservatives are forced to shoulder blame for policies that caused this – policies that were the actual antithesis of what they would actually recommend.

This is the Bush economic legacy – one which has haunted the country for years, and perhaps decades.

Cross-posted to Virginia Virtucon

It really is Bush’s fault, Part 3: Spend-and-spend

Mark Shields once joked in 1992: “for years, the Democrats were the tax-and-spend party, and the Republicans were the borrow-and-spend party.” The 1990s in general clouded the issue, but, sadly, in the aughts that comparison came back with a vengeance.

The Congressional Budget Office detailed the disaster that was Bush the Younger’s domestic spending record a couple years ago. I noted it here. The trouble actually began long before 9/11, Afghanistan, or Iraq. In President Bush’s first three years… (CATO):

…real non-defence (sic) discretionary outlays will rise 18.0% in his first three years in office (FY2002-FY2004). That growth far exceeds the first three years of any recent presidential term, including Ronald Reagan’s first term (-13.5%), Reagan’s second term (-3.2%), George H. Bush’s term (11.6%), Bill Clinton’s first term (-0.7%), and Clinton’s second term (8.2%).

Keep in mind, this was just with the proposed FY2004 budget. The actual budget was worse.

It was in FY2004 (late fall of 2003, to be exact) that the President pushed Medicare Part D through Congress – a major expansion of the entitlement program that came as the warnings about Medicare’s sustainability even without Part D were growing.

Two years later, Bush added deliberate market intervention into the mix with an Energy Bill that vastly increased subsidies, tariffs, and regulations to favor corn-based ethanol – a policy that so badly skewed the corn market that it caused grain shortages throughout the world during his second term in office.

How bad did the spending binge get? Look at it this way: between FY2001 (Clinton’s last budget) and FY2007, federal revenue rose over 25% – yet we still fell from a surplus of over $100 billion to a deficit of over $150 billion, because spending rose by more than 40%.

The final year of the Bush Administration (2008) also included TARP, but that fiasco requires a s segment in this series all its own. Even by that point, however, the Keynesian high from temporary tax cuts, reckless spending, and monetary mayhem had run its course, leaving trouble in its wake.

Cross-posted to Virginia Virtucon

And the winner is . . . (part 2)

I knew George H. W. Bush would lose his bid for re-election on July 3, 1992 (never mind that he was leading in the polls at the time).

How did I know, you ask? Because those were the days of the release of the June unemployment numbers for that year.

Back then, every political candidate, consultant, activist, and junkie knew about the “unemployment rule.” Since 1948, if unemployment fell in the second quarter of an election year (between March and June), the incumbent party was going to win. If it stayed the same or rose, the incumbent party was going to lose. The lone exception all but proved the rule (Dwight Eisenhower’s re-election in 1956). There were two elections where unemployment was the same in June as it had been in March: 1968 and 1976. The incumbent party lost both times.

Since the 1990s, the rule has fallen out of favor and even knowledge . . . and yet it still holds. Unemployment fell from March to June of 1996, and President Clinton was re-elected. It stayed even between March and June 2000, and the Democrats lost. It fell from March to June of 2004, and President Bush the Younger was re-elected. It rose from March to June of 2008, and the Republicans lost.

So once again, in every presidential vote since World War II save for Ike’s re-election (and in every single presidential election for the last 52 years), if unemployment falls, the incumbent party wins. If it doesn’t, the incumbent party loses.

Unemployment in March of this year was 8.2%.
Unemployment in June of this year was 8.2%.

Mitt Romney will win.

You heard it here first.

Cross-posted to Bearing Drift

And the winner is…?

For the first time in weeks, President Obama took the lead in the Rasmussen tracking poll survey (by 2). As of this posting, he still leads in the Gallup tracking poll by 1. Most of the non-tracking, “snapshot in time” polls also have the president ahead. Worried Republicans are already starting to whisper about Election 2012 slipping away. It’s as if no one has paid attention to the last 25 years.

This is not to say I am certain Mitt Romney will win; in fact, I don’t know who will win at this point in time – and neither does anyone else. Predicting election results before the conventions is foolhardy. Full Stop.

Of course, it didn’t use to be this way. Based on Gallup’s historical numbers, between 1936 (when they first started polling) and 1984, the leader in the polls before the conventions won all but once (the infamous 1948 foul-up), and of the twelve who won, ten never lost their lead (Kennedy fell behind Nixon in 1960 before recovering after the first televised debate; and Reagan fell behind Carter in 1980 before his own post-debate recovery). So if one were basing their predictions on that 48 year span, the president is in fine shape.

Unfortunately for the president and his backers, things became much more unstable after 1984. Of the six front-runners going into the convention period between 1988 and 2008, only one was still in front coming out of it (Clinton in 1996, and even he saw 7 points shaved off his lead). Two of them (Dukakis in 1988 and Bush the Elder in 1992) fell behind and never recovered; two others (Bush in 2000 and Obama himself) were able to recover in September; one (Kerry 2004) managed a temporary recovery only to fall back again by Election Day.

In other words, being in the lead before the conventions start isn’t what it used to be.

This may surprise many political observers (and even a few activists and consultants) who have perceived conventions to be on the wane. Yet the 2008 conventions broke viewership records, and the GOP gathering actually topped the final American Idol episode from earlier in the year (a first in the AI era). Whatever one may think of conventions, they remain the best opportunity for the major parties to present their case to the American people.

This year the conventions begin and end later than ever before, meaning two vital pieces of information (how America reacts to them) are still unknown. Woe to (s)he who tries to guess the election winner without them.

Cross-posted to Bearing Drift

1812: the culmination of a fourteen-year mistake

Two centuries ago this month, the United States of America completed a fourteen-year series of blunders by starting an unnecessary war that led to the destruction of the capital, embarrassing defeats in what is now the Midwest, a peace that solved none of the issues that started the war in the first place, and a battle (two weeks after the peace was signed) that inflicted Andrew Jackson upon the nation. The events from 1798 to 1815 are a clear-as-crystal warning from history of the dangers of geopolitical naivete, “non-intervention,” and general disinterest in foreign affairs that, sadly, still find favor in far too many classical liberals today. That their prominent political progenitors (Thomas Jefferson and James Madison) were forced to jettison nearly every belief they had in limited government to justify Adams’ mistake is an irony so painful it is clearly lost on them.

Normally, when it comes to a major foreign policy decision, it is about an action taken – usually a war. This is one of those rare instances where we can examine the effects of a war not undertaken: in this case, a 1798 war with France. Much of the arguments against war (outside of the ones openly sympathetic to the tyrannical “Republic” in Paris) became “non-intervention” mainstays: the risk of state expansion, the preference for a foreign policy based on commerce only, the value of diplomacy, and the danger of lost blood and treasure. What the events after 1798 reveal is that non-intervention does not take place in a vacuum. In fact, it is quite clear that the decision not to go to war with France made the very fears aforementioned come true – and then gave us a war with France’s enemy to boot.

For example: Government power growing and danger to commerce didn’t need a war with France to rear their ugly heads. Jefferson himself, in a desperate attempt to avoid the merchant marine getting slammed by both France and Great Britain, convinced Congress to pass the hideous Embargo Act of 1807, easily the most intrusive peace-time economic measure this side of Obamacare. Commerce was ground to a halt not due to war, but ostensibly to prevent one. Ditto the expansion of government power. By contrast, Great Britain would have certainly maintained and protected US trade had we been at war with France (lest we forget, Britain herself had been at war with France since 1793).

Meanwhile, diplomacy and concern for loss of men and resources in battle is essentially laid waste by the actual War of 1812, in which we took on a much more formidable enemy (Great Britain as she defeated Napoleon) than we would have faced in 1798 (a weakened French Directorate that had sent Napoleon to Egypt). A War of 1798 would have likely meant the easy seizure of Louisiana (instead of paying $15 million five years later) as well as American possessions in the Caribbean. Meanwhile, most of the reasons for war with Britain in 1812 would have been resolved quickly years before that. London would have hardly considered Royal Navy deserters to American ships as a mortal threat if said deserters were still fighting the French (albeit under different colors). Border issues in re Canada would have been transformed from interesting geopolitics to useless distractions drawing men and arms away from the common enemy. As mentioned before, Great Britain would now consider American commerce abroad as a value to be protected, rather than a problem to be fought.

Would the War of 1798 have been unpopular in some areas? Yes, including most likely Virginia. Would it have been worse than the controversy surrounding the War of 1812? Only those with no knowledge of New England would even ask the question.

In short, the alternative to war is not always “peace.” It can often be twisted policies that surrender the very things peace was supposed to protect and a different war against the wrong adversary. In the case of War of 1798, its avoidance led America to both, the latter being the lamentable War of 1812.

Cross-posted to Virginia Virtucon

Portsmouth Historical Commission Dedicates May as Southern Unionist History Month

For a whole slew of reasons, Southern Unionism during the War of the Rebellion is of special importance to me. Some time in 2010 (during the whole Confederate History Month brouhaha), I came up with the idea of Southern Unionist History Month. Late last year, a friend of mine (Greg Eatroff) who serves on the Portsmouth Historical Commission came across a memorial in Lincoln Cemetery built by the Silas Fellows Post #7 of the Grand Army of the Republic, in honor of local Unionist veterans who had gone to their greater reward.

That inspired us to push forward on SUHM. Greg took the ball and presented this resolution to the Portsmouth Historical Commission; the Commission passed it last Tuesday night:

Whereas the history of the Civil War has at times, understandably but mistakenly, been seen as a battle between regions . . .

Whereas in reality the dedication to Union and Emancipation was shared by millions of Americans north and south . . .

Whereas there were many in the states that formed the Confederacy “who in the darkest hour of slavery kept alive in their souls a love of manhood rights, justice, and the unity of the United States of America”

Whereas these men and women who risked everything to preserve the Union are rarely remembered as much as they should . . .

Whereas in Virginia especially, support for Union was so pronounced that the state split itself in two . . .

Whereas many of the people of present day Virginia can also look to the family histories of Unionism of which they can be proud . . .

And whereas the city of Portsmouth was, for much of the war, a haven for Virginia’s Unionists, both black and white . . .

Be it resolved that the City of Portsmouth through its History Commission. . .

Declare May of this year to be Southern Unionist History Month,

Encourage other localities in Virginia and the Commonwealth itself to join in this declaration, and

Provide for various events and information during May to make Virginians more aware of Civil War Unionism in and around Portsmouth, Virginia.

The resolution will be present to the Portsmouth City Council next week.

Cross-posted to Bearing Drift

Ken Cuccinelli for Vice President

As of 2AM, the Virginia Republican primary ballot was finalized. The choices are Mitt Romney and Ron Paul; no one else made the ballot. As far as I’m concerned, if you don’t make the Virginia primary, you won’t be the nominee. Virginia has held primaries for President on the Republican side since 1988, and the winner has been the nominee every single time. In 2000 and 2008, the Old Dominion was a critical stabilizer for nominees Bush and McCain, respectively.

In other words, the choices are Ron Paul and Mitt Romney. I sincerely doubt Paul will win, and I prefer Romney based on foreign policy (he’s better on Communist China than Paul is). That said, Romney will be one of the weakest – if not the weakest – party nominee in recent memory. The base doeesn’t trust him; he will be the obvious last choice for a number of primary voters; and his persona, while reassuring to many, will be bland (at best) to others.

In short, Mitt Romney will need a game-changing running mate, from a critical swing state, and with the ability to win over conservative voters unsure about the guy at the top of the ticket. Marco Rubio could fit the bill, but Florida – even in 2008 – was better for the GOP than the national results were. Virginia, by contrast, was a carbon copy of the national numbers.

So Virginia would be a better place to find a running mate, and there is in fact a statewide politician who could solve several of Mitt Romney’s problems at once: Attorney General Ken Cuccinelli.

For those worried about “Romneycare” and Mitt’s on-again, off-again relationship with mandates, nothing would reassure them quite like a running mate who led a lawsuit against Obamacare, especially if the case hits the Supreme Court during the campaign season.

Given Virginia’s proximity to the national capital (and Cuccinelli’s career in Northern Virginia politics), his conservative credentials would be apparent almost immediately, providing an excellent “balance” to Romney.

Finally, a Romney-Cuccinelli ticket would, if victorious, bring us the first ever Italian-American Vice President. In addition to the historical importance of that, it could also make New Jersey competitive again.

Oh, and Cuccinelli would have two-and-a-half more years of executive branch experience than the entire Democrats’ ticket had in 2008.

I understand that most of the Virginia running-mate talk has centered around Bob McDonnell, but his persona is too close to Romney to be very effective. Cuccinelli, by contrast, could complement the ticket in all of the ways above noted.

So, yes, I will vote for Mitt Romney for president on March 6 (and no, it won’t be very much fun), but I consider it critical for Romney to pick the right running mate; and I am convinced that is Ken Cuccinelli.

Cross-posted to Virginia Virtucon

Oh no, Newt

Once again, as he always seems to do when he is at the cusp of serious political accomplishment, Newt Gingrich ate his own foot – and I’m being kind.

Gingrich took an acceptable concern - a state of judicial power that even lefty historian Sean Wilentz called “judicial supremacy” – and made a complete hash of it.

Here are his comments courtesy of Fox News:

referring to historical instances in which Jefferson, Lincoln, and FDR disregarded the Supreme Court, he explained there are two scenarios where the President has the “unique authority” to overrule the court. The first, he said, would be during times of war; he called the 2008 Boumediene Supreme Court case that ruled a Guantanamo prisoner has the right to habeas corpus a “direct assault” on the president’s powers to protect and defend the U.S.

The other situation, Gingrich argued, would be when the court makes a ruling “so egregious” — referring to Judge Biery — that it’s legitimate. He said that this kind of a system is “checked” by the principle of “two out of three,” which is how President Obama wouldn’t have the authority to overrule the Supreme Court if they ruled the Affordable Care Act unconstitutional.

Now, let me say, there are ways Congress can react to judicial overreach. Article 3, Section 2 is a perfect example – one Gingrich did not care to mention. Instead, he went with this bizarre “two out of three” nonsense.

Until this point, I had narrowed my choices for the Republican nomination to Romney, Gingrich, and Santorum. Now, Gingrich is with the rest of the self-disqualified crew. For me, it’s down to Romney and Santorum now.

Steve Jobs: Only in America

The passing of Steve Jobs has led to a lot of commentary. Most, as expected, focuses on his later life: the innovations he spawned, the consumer tech revolution he led, the fact that his vision came without government regulations or subsidies, etc. Kevin Williamson – over at NRO - summarizes it better than anyone:

Mr. Jobs’s contribution to the world is Apple and its products, along with Pixar and his other enterprises, his 338 patented inventions — his work — not some Steve Jobs Memorial Foundation for Giving Stuff to Poor People in Exotic Lands and Making Me Feel Good About Myself. Because he already did that: He gave them better computers, better telephones, better music players, etc. In a lot of cases, he gave them better jobs, too. Did he do it because he was a nice guy, or because he was greedy, or because he was a maniacally single-minded competitor who got up every morning possessed by an unspeakable rage to strangle his rivals? The beauty of capitalism — the beauty of the iPhone world as opposed to the world of politics — is that that question does not matter one little bit. Whatever drove Jobs, it drove him to create superior products, better stuff at better prices.

This is how most will remember Jobs, and I can understand why. However, there was more to it than that. Steve Jobs wasn’t just a great success story, he was arguably one of America’s greatest failure stories as well. His success speaks well for him, but the fact that he could recover from the depths to which he fell speaks more profoundly for America (and, I hope, to America as well).

Lest we forget, at age 30, Steve Jobs was an abject failure. Fired from his own company, bested by rival Bill Gates, he was – in 1985 – just another visionary who had a hand in the computer age, but was laid low by his own hubris. The 1980s Steve Jobs was a tragic story about the rough-and-tumble world of American business (the best depiction of this comes from a now long-forgotten 1998 TNT TV Movie, Pirates of Silicon Valley). That said, at least the 1980s Jobs was a noble failure. By contrast, the 1997 version was a joke: a last gasp move by a desperate and dying Apple; a has-been who needed funding from Gates himself retake the tech version of the Titanic. Those who remembered and admired Jobs shook their heads as he talked about moving Apple into consumer products. What could he be thinking?

Fourteen years later, the joke’s on us. Hardly anyone remembers (and no one under 30 is even knows) the events of the paragraph above. But I think they should, because while Jobs’ success is praiseworthy, his recovery is a remarkable and stunning tale that should provide hope and inspiration to every American.

We’d like to think that Steve Jobs could only succeed here, but success stories circle the globe these days. However, I genuinely believe there is nowhere else on Earth where someone could fail as spectacularly as Jobs did and come back to be such a great success and pivotal person. Jobs “had it all,” lost it all, and earned it all back.

That happens only here, in the land of the second chance; the land where we still let the market pick winners and losers; where we still let the market turn yesterday’s winner into today’s loser and – if justifiable – tomorrow’s winner once more.

Steve Jobs began his second act in technology at 42; in just fourteen years he rescued his company, restored his reputation, and revolutionized how we work, live, and play. As I said, he could have “made it” just about anywhere. But plumb to the depths he fell and still come back to do all he did?

Only in America; only in America.

We were all Keynesians once

One thing about the debt-ceiling debate that completely threw the chattering classes was the victory (however temporary) for opponents of tax increases. Every previous “bipartisan” deficit reduction plan, save one, since 1982 included a hefty tax increase – and the execption (the 1997 deal) involved a Democrat in the White House who had rammed a massive tax hike through a friendly Congress in 1993.

There was, however, one major difference between all of those deals and this one: the academic environment. If that sounds strange (and I know it does), just keep reading.

Behind the various political back-and-forth on political economics was the overarching Keynesian consensus – confirmed in no uncertain terms by Richard Nixon, who famously declared himself a Keynesian in 1971. Keynesian economics was a mathematical construct that essentially favored government spending over tax reductions, tax increases over spending cuts, paper money (and lots of it) over hard money, and in general, more intervention over less intervention. It was also the unquestioned dominant school of thinking in academia in the 1960s, and in politics once Nixon signed up in 1971.

Clearly, some folks still cling to the spirit of ’71, such as the folks behind the new Better Choices in Virginia crew, an amalgam of left-of-center groups who are calling on Virginia to raise taxes should a shortfall occur during the next budget cycle. Here’s Michael Cassidy’s take on things (WaPo):

If Virginia chooses to close this future budget shortfall with a cuts-only approach, it will impede our economic recovery and cost jobs in both the public and private sectors. We need to preserve what works in Virginia and get the state back on course.

If you bend your ear, you can even hear George Harrison’s “My Sweet Lord” in the background. However – as much as I hate to break it to Cassidy - it hasn’t been 1971 for a long time.

Keynesian economics started losing the professors almost as soon as it conquered the Republicans. Nixon hadn’t even left office before Thomas J. Sargent began building the Rational Expectations Theory. By the end of the ’70s, Keynesianism was fighting RET and Monetarism in the academic world and supply-siders in the political world. As the latter shifted from an economic argument about Aggregate Supply to a political one about the financial effect of tax cuts, it slowly lost steam, while in academia, “New Keynesianism” joined the battle.

Through it all, however, Keynesians’ greatest argument – the one that still trumped its rivals – was the idea that government spending was “multiplied” throughout the economy (Keynesians themselves call the effect “the mutliplier”). So long as that multiplier was left unchallenged, politicians in both parties gravitated towards more spending and away from low taxes. This was the case throughout the 1980′s, 1990′s, and even the aughts. Arguments against tax increases were largely political; arguments for them were financial; and most importantly, the government spending that caused the argument in the first place always seemed to occupy the high ground in economics.

That is, until 2009.

In what can only be described as an irony no literary artist would dare to conceive, economists began probing the real-world effect of the Keynesian multiplier just as the most ardent Keynesian president in 40 years assumed office. What they found eroded the basis for Obamanomics in a way no one could have guessed during the 2008 campaign.

In truth, anti-Keynesians always had trouble with the “multiplier.” The biggest problem they had with it was the fact the government spending (particularlky deficit spending) meant the feds were taking investment money awy from someone else. In other words, a project paid for via taxes or bonds takes away money that could have been invested in new or expanding businesses, thus negating any initial benefit to the economy. The effect of this “crowding out” of private investment was a raging debate between Keynesians and their opponents . . . until empirical examinations of the multiplier started coming in.

What they found was eye-opening. The OECD economists found crowding out to be so heavy that it drove the multiplier below 1. Stanford economist John Taylor found a similat multiplier-turned-divider (his was 0.5). Harvard economist Robert Barro determined through his research that the multiplier was effecitvely zero, i.e., government spending’s benefit to the economy was nonexistent.

Suddenly, the economic arguments behind Keynes’ theory – even to those who accepted the constructs behind it – were turned on their heads. If government spending had such a weak effect, then tax cuts were better, while raising taxes were worse than cutting spending. Sure enough, when the president initially unveiled the stimulus of 2009, several leading economists whacked it, including Taylor and Sargent themselves.

This is the new divide that was reflected during the debt debate. The Teabrewers are not crazy, out-of-touch loons; they are the political force behind the greatest economic challenge to Keynesianism that the old school has ever faced – but if you’ve kept yourself stuck in 1971, you wouldn’t know anything about it.

Thus the disconnect from Cassidy, Obama, MSM, and others. The ground has shifted beneath their feet, yet the don’t understand why they’re falling.  All they need to do is look at a calendar.

Cross-posted to Bearing Drift