A Measure of the Government Wealth-Taking

In May 2008, M2, a measure of the money supply, stood at $7,733.5 billion.  In April 2010 it was up to $8,595.5 billion.  The government had added $862 billion to the M2 money supply.  This is an 11.15% increase in about 2 years.  One consequence of this is that everything you own, when given a dollar value, was devalued by 11.15%.  This does not mean that the dollar value as given dropped, but it does mean that other things being equal, your assets lost 11.15% of their value.  Measuring their value in terms of other currencies than the dollar may not indicate this, since most other currencies have also been similarly inflated during this time.  But, when measured against a holdable and valuable commodity such as gold, platinum, and silver, it is only reasonable that this would mean that your asset lost value in terms of those valuable commodities.

The stock market in this period fell from 1409.34 on 1 May 2008 to 1186.69 on 30 April 2010.  This was a drop of 15.80%.  Of course other things are not equal, so a drop of 11.15% was exceeded.  Among other unequal factors, the U.S. GDP fell by 2.33% from 2008 to 2009, so that might simply be added to the 11.15% drop to create a drop of 13.48%.  Of course, if productivity is increasing fast enough, an increase in M2 may not result in a drop of stock prices, but during the recession with more money chasing few goods, it is not surprising that our stock market investments have lost value.  For the many Baby Boomers approaching normal retirement ages, this has been a disaster.  We can largely thank the federal government for this and attribute it to its influence on Fanny Mae, Freddy Mac, AIG, the Federal Reserve, and its many efforts to push financial institutions to provide sub-prime mortgages to people who could not afford them.

Howard Rich: Kicking the Can Right Off the Cliff

Howard Rich wrote an editorial at the Investor's Business Daily which rather long-windedly bemoans the spendthrift ways of politicians.  Most of us can appreciate his reasons for being upset, but we are fully capable of doing our own moaning and trashing about in pain.  But buried deep into his piece was this nice summary of some very foreboding financial figures:

According to a January 2009 paper from the National Center for Policy Analysis, the average European Union nation needs to place more than four times its current gross domestic product in the bank (earning interest) just to fund current obligations. In fact, the NCPA report found that by 2020, the average EU nation will have to raise its tax rate from 40% to 55% of the national income just to cover existing benefits.

In Japan — which has the world's highest percentage of debt to GDP — fiscal policy is "out of control," according to Harvard economist Kenneth Rogoff, who predicted the 2008 U.S. bank failures. According to the latest estimates from the International Monetary Fund, total Japanese borrowings will soar to 204.3% of the nation's economic output in 2011.

Meanwhile in America, total public debt will exceed GDP for the first time since the World War II era, part of a massive borrowing spree that has seen the nation more than double its debt over the last six years. "The U.S. is in a state of paralysis in its fiscal policy," Rogoff said last month. "When they start tightening monetary policy even a little bit, it's going to send shock waves through the system."

In addition to this brewing global and national crisis, U.S. states and municipalities are facing similar ticking time bombs. A March 2010 Northwestern University report discovered that the total unfunded liability of state government pension funds was $3.2 trillion — or more than $2.2 trillion higher than government officials estimated.

Note that last paragraph:  Government officials are claiming that state government pension fund liabilities are only 31% of what they really are.  To be that wrong, they have to be lying to the taxpayers.  That cannot be a mistake.  Of course, by now, one has to be really, really obtuse not to have come to understand that most of our politicians and bureaucrats have made it a standard practice to lie to us all of the time.  Clinton seemed to raise the commitment  to the lie to a new standard, but Obama has readily surpassed him in his commitment to lying.  Given the pitiful state of the planned economies and socialist states of Europe that Obama so much wants to transform the United States of America into, well .... you really must lie.  There is no truthful way to make those European Big Brother states palatable.

Some Objectivists tend to think that discussing mere matters of the amount of debt is not very important because it is not a matter rich in ethical content.  I disagree.  The Preamble of the Constitution noted our responsibility to our Posterity which was to be recognized by the very limited government of the Constitution. George Washington also reminded Americans that they had no right to saddle their posterity with debt.  He was very right and very wise.  Passing the debts of our governments today on to our children and our grandchildren is a heinous thing to do.  We have essentially been doing just this since the Social Security Act was passed in 1935.   The Medicare program has raised this practice to new heights.  Then came Medicaid, ObamaCare, and bailouts in TARP and now forever into the future with the Financial Industry Bailout and Consumer Spying Act which is said to likely be passed by Congress later today, and incredible subsidies to alternative energy firms who environmentalists will never allow to build any power plants.  There is no fun in spending money you actually have to earn, so the national governments prefer usually to just run the printing presses as long as need be.  Of course this drives down the value of everything the private sector does as productive work, but hardly anyone ever noticed as long as they were bribed with some goodies.  But, the number of necessary goodies kept escalating and now there is not more room for further escalating them.  The ever more meager productive private sector is now just too small in Europe, Japan, and the U.S. to support the Leviathan governments with all their redistributed goodies.

Speaking of which, Glenn Beck's 26 May 2010 show dwelt on the same Big Brother watching over the peasants bank accounts, credit card transactions, and ATM transactions that I discussed in the early morning hours of the 26th.

Senate Financial Regulation Bill Snoops on You

The Senate voted 59-39 on Thursday to pass a financial regulation bill, which was claimed to be aimed at Wall Street. The bill now goes to a conference committee in the House of Representatives, where differences between the House and Senate versions will be ironed out.

The bill creates the Bureau of Consumer Financial Protection and empowers it to “gather information and activities of persons operating in consumer financial markets,” including the names and addresses of account holders, ATM and other transaction records, and the amount of money kept in each customer’s account. Senator Shelby has warned Americans that the purpose of this is for Big Brother to watch over us to try to change our behavior and choices in using our money.  It appears that the Democrats' viewpoint is that Americans are incompetent to choose their own foods and incompetent to spend their own money.  Just as they would proscribe our eating sugar, saturated fats, and fast foods generally, they want to be in a position to limit any spending we may do that they do not like.

No doubt, they are also eager to have this information so they will have a better handle on who is operating in the black market or has largely cash income which is not being reported on income taxes.  By tracking everything someone is spending their money on which goes through their bank accounts, the feds can then figure out which likely spending is not being revealed in those transactions.  This will allow them to discover the likely candidates living in a substantially cash economy with unreported income.  For instance, suppose someone is buying all of their groceries with undeclared cash, because they are neither withdrawing enough money from the ATM for cash purchases of their groceries nor using a credit card or debit card to do so.

Big Brother is growing constantly more watchful.

A Good Flaw in the Hasty ObamaCare Bill

Greg Scandlen, a senior fellow at the Heartland Institute, noticed that the ObamaCare bill, the 2,400 page Patient Protection and Affordable Care Act, has a possibly fatal flaw.  Most Americans believe the mandate requiring that every American buy an approved health care insurance policy is unconstitutional.  Many, and perhaps most, believe that the federal government requiring that the states pay the greatly increased costs of Medicaid required in the bill as many more people are to be enrolled in the state-paid program, is a fundamental violation of federalism.  But even if these federal mandates were overturned by the courts, much of the awful bill with its multitude of infringements upon our individual rights would still be left standing.  Ordinarily.  But in this case, Scandlen has noted that the hastily written bill does not have a standard clause in it, which is found in almost every bill produced by Congress.  The bill does not have a "severability" clause in it.  What such a clause does is state that if some part of the bill is found to be unconstitutional, then only that part is invalidated, not the entire bill.

The Democrats haste to shove this choking bill down the throats of the unwilling American People may, possibly, backfire on them.  Unfortunately, the state of constitutional law is so emasculated, and so traitorously aligned with the forces of totalitarianism against individual rights, that most constitutional scholars believe that ObamaCare will survive court challenges.  Of course, most constitutional scholars are among those who have become traitors to the purpose of legitimate government, as defined in our Declaration of Independence.  They are foremost themselves in the unrelenting attack upon individual rights.  Possibly, Justice Thomas will be be able to carry the day and save the nation from this abominable law and surprise them, as they were probably surprised by the Supreme Court's upholding the Second Amendment in DC recently.  They were certainly surprised by the overturn of parts of the McCain-Feingold "Election Reform" bill, which was held to be an unconstitutional violation of freedom of speech and freedom of association.

It would be wonderfully ironic if the Democrats had to pass the bill in order to find out what they had left out of it and that omission led to the collapse of the complete monstrosity of a bill.

How is Obama's European Socialism Plan Working in Europe?

Europe started suffering from the oil price spike in early 2007 before we in the United States of America did.  Europe's energy prices, thanks to their socialist government's policies and taxes, were already much higher than those in the U.S.  In addition, the weight of the public sector on the private sector was even greater, making the private sector much more susceptible to the strain of the oil price spike.  As is very clear now, many of the countries of Europe are burdened with excessive debt.  In fact, Greece and Latvia are considered to be among the 7 governments in the world most likely to go into default.  Almost no one now believes the recent $1 trillion bailout of Greece is going to prevent that nation's default.  The regional government of Sicily in Italy is the 10th most likely governmental default.  Portugal, Spain, Italy, and Ireland are in very serious trouble.  Even Great Britain is said to be dubious.  There is now reason to believe that Germany is also.

As I noted in my last post, of the largest banks in the world to go under in this recession, one was a German bank.  The Sachsen LB bank had to be taken over by the Landesbank Baden-Wuerttenberg  with help from the Saxony government in December of 2007.  It turns out that there is reason to believe that part of the reason the German banks were so willing to help bailout little Greece with only about 2% of the GDP of the EU, was because many German banks are seriously over-extended.  Let us look at a bit of background history on what is going on in Obama's idea of a socialist utopia, socialist Western Europe.

Socialists do not understand economics.  They cannot because economics deals with the very complicated interactions of huge numbers of individuals trading huge numbers of values for other values.  The socialist assumes that all economic activity can be dictated, controlled, regulated, and governed by a central planning authority in government.  A real economy is much too complicated for that, but socialists insist in living in a Platonic dream world of pure economic forms.  In this world, the complex multivariate interactions of a private sector are almost always shoe-horned into some simple-minded governmental industrial and trading policy such as mercantilism.  Usually, the controlling government selects certain industries for their export potential and controls its currency to keep it artificially low in value in comparison with that of other countries in order to help keep its exports low in cost.  The selected industries may also have many effective subsidies as well.  This is what happened to Japan and brought its post-war recovery to an end in the 1980s and has left Japan in the doldrums ever since.  China has shown recent problems with this also.  So too does Germany show similar problems with its mercantilism policy.

Germany has a large export surplus with respect to most of the world and this includes the rest of Europe.  What should happen in such a case is that the German currency should become worth more and go up in value relative to other currencies.  The currency is rather like the stock in a country.  When it proves itself to be productive enough to do well in the export market, its stock should go up.  Imports from other countries then start to look very inexpensive and the country with the export advantage both starts losing that advantage and starts importing more.  This tended not to happen in Germany even before the euro became the common currency of most of the European Union.  The Germans had little choice but to put their money into savings, since it was too expensive to spend it on imports.  The banks in turn had to find ways to invest that money.  The German banks did this by loaning it to their many trading partners who had trade deficits with Germany.  Many of these countries do not offer many good investments, so the German banks have become very good at losing the money that Germans save with them.  The banks are under-capitalized.

Once most of Europe went to sharing a common currency, there was no longer even a possibility that the currency of Germany might go up in value relative to the currency of its net importers in other countries of Europe.  The trade imbalance issues have actually become more acute.  One of the reasons Germany was willing to put so much money into the Greek rescue plan was because French President Sarkozy furiously threatened German Chancellor Merkel with abandoning the common euro currency.  The Greeks also had more leverage in negotiations than one would have expected.  It turns out that a mercantile economy can be very fragile.  How fragile?

The German government has put a ban in place on short selling.  The mandate calls for a short selling ban in particular on 10 large German banks including Deutsche Bank, Commerzbank, and Allianz.  It also banned the purchase of naked credit default swaps of European Union government bonds.  This can be expected to have some negative effects:

• Large fixed income investors will be less able to adequately hedge their positions or be faced with insufficient market liquidity in the future to exit their positions.  They will be driven to invest in other markets.  The almost immediate stock market drop attests to this.
• The ban is a signal to the markets and investors that more bad news is coming. Investors are likely to lose even more confidence in European debt markets.  Spain recently had to reduce the amount of national bonds it could sell due to too few takers, so this may already be manifesting itself.

Germany, just as Japan and China have found, is not really in the catbird seat by virtue of having an export surplus.  It is highly dependent upon the health of the many countries which are running a trade deficit with it.  The old saying that one should neither a debtor nor a lender be has some solid truth in it.  One's country's exports and imports should be in balance.  If they are not, then the country to which one is lending should be growing rapidly so that one's investment is good.  On the other hand, if one is a debtor nation, one's economy had also best be growing rapidly.  This is not the case in Western Europe, where most countries have so immersed themselves in socialism that the public sector is seriously weighing down the private sector.

Obama's socialist heaven, Western Europe, is not feeling well at all.  Yet, it and Obama continue to criticize the free market of ideas, goods, and services that at one time characterized the U.S. and enabled it to become the economic superpower of the world.  The U.S. became an empire of wealth, created by free individuals voluntarily trading values with one another as they wished with little governmental interference.  This proven engine for economic growth is not in fashion in socialist Western Europe where unemployment rates of 10 to 20% have long been common, along with slow growth rates.  Nonetheless, it is this model that our lying leader wishes to dictate that we adopt.  This last week, he made major in-roads on this effort with the Dodd Financial Institution Take-Over.  Obama sure knows how to use an "emergency" to take a firm grasp on ever more totalitarian power.

Tracking U.S. Bank Failures

The count on U.S. bank failures for the years 2007, when much of the rest of the world was already beginning the current recession, was only three.  The 25 bank failures of 2008, when the U.S. was finally dragged into the recession, and those of 2009 (140 failures) and 2010 are given below.  Remember, the recession was started by a spike in oil prices in early 2007.  This chart plots the cumulative number of bank failures from the start of the year.  This gives one a sense of the relative failure rate for each year.  

As we can see, there is no evidence that hope and change as practiced by Obama and his cohorts in the Democrat Congress has had any salutary effect on failures in the banking industry.  Indeed, the Obama effect appears to be a great worsening of bank failures with all the attendant human misery.  Of course, Obama claims this is because Bush and the Republicans did not regulate the mortgage loan industry and the financial industry enough in general.  I have pointed out that the greater part of the problem has been that government has repeatedly pushed financial institutions very hard to make sub-prime loans to people who could not afford the homes they were buying and that local governments had often caused those homes to cost much more than they should.  The argument for too much government regulation is much stronger than that for too little.  These bad government practices were most strongly supported by the Democrats, including Obama when he was a Senator and a state senator.  The Democrats have controlled Congress, both the House and the Senate, since 2006 and their leadership preceded the crisis and continues even as the crisis has accelerated as seen by the increased number of bank failures in 2009 and then even more so in 2010.

The biggest bank failure in U.S. history, and in the world, was the Indymac Bank, which started as the Countrywide Mortgage Investment company.  It failed in July of 2008.  The only other banks that make the list of the top 20 bank failures in the world that have failed since the oil spike in early 2007 are the Netbank of Georgia in September 2007 at the 8th largest and the Sachsen LB of Germany which was the 9th largest failure in December 2007.  In each of these 3 cases, governments helped to transfer ownership of the bank to a new bank owner.  The total cost to the FDIC of the bank failures in 2009 was more than $30 billion.

How did Obama's Green Jobs Model Work for Spain?

Obama believes a "green economy" should be a principal goal of his economic and environmental policy.  He claims he will produce high quality jobs to put Americans back to work with his plans to subsidize alternative energy generation, while driving the coal industry into bankruptcy.  He also claims that this is a substantial path toward energy independence.  Eight times he has said that the model for his alternative energy economy is Spain.  So, let us see what the Spanish have concluded from their experiment in a green economy based on subsidized alternative energy such as solar and wind power.

The Socialist government of Jose Luis Rodriguez Zapatero has been behind the Spanish "green economy."  From 2004 to 2010, the subsidies for alternative power were increased by a multiple of 5.  In 2009, the subsidies were doubled compared to 2008.  These 2009 subsidies were about equal to the entire government budget for all research, development, and technological innovation for Spain.  Electricity from solar plants is 12 times more expensive than that from fossil fuel combustion.  The cost of electricity generated in Spain from traditional fossil fuel plants has been dropping, but the cost of the alternative fuels has been going up so fast that consumer bills have gone up, rather than down.  You see, most of the subsidy costs are charged to the consumer.  The government says that the alternative energy industry will receive 126 billion euros in the next 25 years.

The Spanish newspaper La Gaceta on 21 May 2010 reported on the developing consensus that Spain's alternative energy, "green economy" has failed miserably.  Gabriel Calzada and other authors from the Juan de Mariana Institute produced a study that the Spanish 'green economy" had failed.  The Socialist government bitterly denounced the study.  The Spanish Embassy in the U.S. got the Democrat Congress to denounce the Calzada study in an act of Congress!

But now, the Minister of Industry, Miguel Sebastian, is worrying about the huge debt which is the result of the so-called investment in "clean energy."  Some in the Spanish cabinet believe the debt is worsening and delaying the recession for Spain.  An internal document of the Spanish cabinet has been leaked and its conclusions are even more pessimistic than the demonized Calzada study's.  The government now admits that every 'green job" created cost Spain more than 2.2 traditional jobs, in agreement with the Calzada report.  This is not good in a country with 20%, and still rising, unemployment.  The internal cabinet report backs every claim made in the Calzada study about the failure of the "green economy" experiment.

Obama, just last week, recommended that Zapatero change his strategy because it was hurting the Spanish economy and threatening the stability of the entire European Union, which is likely, with help from the U.S., to be asked to bail Spain out of its financial crisis.  One has to conclude that Obama knows the "green economy" model does not work.  Yet, this is the essential model of the newest attempt to create such an economy in the U.S., the Kerry - Lieberman version of carbon cap and tax which was just introduced earlier this week.  Obama is all for that.  This means he is knowingly putting his and the Democrats quest for power over the economy ahead of American prosperity.  He is knowingly seeking to create "green jobs" at a cost of more than 2.2 traditional jobs, he is knowingly seeking to add hugely to the national debt, and he is knowingly acting to greatly increase the cost of energy use in the U.S.

Is this guy Satan or what?

Mark Mix On the GM Loan Repayment

National Right to Work President Mark Mix has dug up a bit more information on the GM loan repayment I discussed in this previous post and this previous update.  The $5.8 billion paid back on 21 April was the balance of a $6.7 billion loan at 7% interest.  Obama praised GM for this repayment and its CEO Ed Whitaker touted it in an ad shown extensively on TV.  This was in fact repaid with part of $43 billion of taxpayer money it received in 2009.  Now, Mark Mix says this repayment was made in good part to secure a new loan for $10 billion at a lower interest rate of only 5%.

The government-chosen management and the UAW sure are demonstrating a knack for getting their hands on our money.  I do not remember choosing GM as an investment.  Did you?

Supreme Court Cites Unapproved UN Treaty

One of three Supreme Court cases whose decision was announced on 17 May 2010 was Graham v. Florida.  Graham was involved in an armed robbery when he was 16 years and 6 months old with two others, one of whom beat a restaurant owner with a pipe with two blows to the head.  Graham was tried as an adult and pleaded guilty to armed robbery with assault or battery and another crime.  The armed robbery with assault charge is punishable by life imprisonment under Florida law.  Graham was given probation while in adjudication was withheld and served the first 12 months in detention.  When Graham was 17 years and 11 months, he and two accomplices invaded a home and Graham held the owner at gunpoint for 30 minutes while his accomplices ransacked the house for valuables.  Graham's defense asked that the Supreme Court rule that any non-homicide crime committed by someone less than 18 years old be ruled "cruel and unusual punishment" and therefore unconstitutional due to the Eighth Amendment.  Six Justices agreed to this.  Justices Clarence Thomas, Scalia, and Alito dissented.

The majority basically argued that there is a predominance of opinion in our evolving moral beliefs that sentencing anyone younger than 18 years old to life imprisonment without possibility of parole for a non-homicide crime is cruel and unusual punishment.  Justice Kennedy held that youth's minds are sufficiently undeveloped that such punishment is disproportionate to any non-homicide crime.  The main opinion of the Court was written by Justice Kennedy, who made this argument and partially backed it with reference to the United Nations Convention on the Rights of the Child of 1989.  The U.S. has not ratified this treaty agreement, which considers the best interest of the child to be more important than the best interest of the parent.  In Sweden, it has been used to remove a child from his home because his parents were homeschooling him. Only the U.S. and Somalia have not signed this treaty, though a number of signers are known to be in violation of it.

Justice Thomas wrote a dissent, which presented two main lines of argument against the majority opinion.  First, he argues that the courts held that cruel and unusual punishment meant that methods of torture were prohibited and they stuck to this line of reasoning for 170 years.  Life imprisonment for those under 18 for non-homicide crimes without parole was never considered to fall within the cruel and unusual punishment prohibition.  In recent times, the Court has ruled in particular cases that the punishment had to be proportionate to the crime as the majority did here, but that is not a requirement according the Constitution.  The concept was known when the Constitution was written, because that requirement was found in 6 state constitutions of the time.  The Framers of the Constitution did not make proportionality a requirement in the Eighth Amendment.  But even when making this proportionality argument, Thomas says "Graham must establish not only that his own life-without-parole sentence is “grossly disproportionate,” but also that such a sentence is always grossly disproportionate whenever it is applied to a juvenile nonhomicide offender, no matter how heinous his crime."  Justice Scalia joined with this argument.  I would argue that such issues are very complex and probably ought to be left to the states and not be decided on the federal level.  This seems to be in agreement with Justice Thomas's viewpoint.

The second argument made by Justice Thomas was that:

According to the Court, proper Eighth Amendment analysis “begins with objective indicia of national consensus,” 3 and “[t]he clearest and most reliable objective evidence of contemporary values is the legislation enacted by the country’s legislatures,” .... As such, the analysis should end quickly, because a national “consensus” in favor of the Court’s result simply does not exist. The laws of all 50 States, the Federal Government, and the District of Columbia provide that juveniles over a certain age may be tried in adult court if charged with certain crimes.4 See ante, at 33–35 (Appendix to opinion of the Court). Fortyfive States, the Federal Government, and the District of Columbia expose juvenile offenders charged in adult court to the very same range of punishments faced by adults charged with the same crimes. See ante, at 33–34, Part I. Eight of those States do not make life-without-parole sentences available for any nonhomicide offender, regardless of age.5 All remaining jurisdictions—the Federal Government, the other 37 States, and the District— authorize life-without-parole sentences for certain nonhomicide offenses, and authorize the imposition of such sentences on persons under 18. See ibid. Only five States prohibit juvenile offenders from receiving a life-without parole sentence that could be imposed on an adult convicted of the same crime.6 No plausible claim of a consensus against this sentencing practice can be made in light of this overwhelming legislative evidence.

The sole fact that federal law authorizes this practice singlehandedly refutes the claim that our Nation finds it morally repugnant. The additional reality that 37 out of 50 States (a supermajority of 74%) permit the practice makes the claim utterly implausible. Not only is there no consensus against this penalty, there is a clear legislative consensus in favor of its availability.

Both Justices Scalia and Alito joined with Justice Thomas in this argument.

It is perfectly clear that the moral consensus that matters in the majority decision is simply that of the Democrat elitists.  Justice Thomas completely demolished their pretense in finding a moral consensus on cruel and unusual punishment being a categorical prohibition of life imprisonment without parole for any non-homicidal crime committed by anyone under 18.  The majority argument that their argument is respectable because it agrees with the U.N. Rights of the Child Treaty is also disturbing.  First, it has no applicability under U.S. law.  Second, the U.N. stated Rights of the Child is clearly a wrong theory of rights and one inconsistent with the rights of the individual in our American tradition.  Third, if the argument that all of these nations agreeing on this treaty produces a respected argument for their version of child rights, then one could as easily argue that the fact that none of these nations has adopted the U. S. Constitution means that we should not be obliged to abide by our Constitution ourselves.  This latter argument is in fact held to be true by many of the Democrat elitists.  But, Supreme Court Justices should be rational enough to recognize the several fallacies of using this argument.  I suspect that they were so aware of the weakness of their overall argument that they were simply desperate to do anything at all to try to bolster it.  The Democrat elitist mindset would be favorably impressed by this foolish argument, so it was used despite its real legal and logical vacuousness.

It is interesting that recent studies have been indicating that the human mind undergoes such development that the truly adult mind is not formed until many people are well into their 20s.  There has also been interesting work that shows that an expert in many areas takes about 10 years to optimize his brain structures and functions for his area of expertise.  An interesting question arises.  Is it possible that many more children would achieve much more adult-like mind development if our parental, education, and societal expectations pushed them to take on more self-responsibility at a younger age?  I was pushed to be more responsible and my brain development by 16 was much more adult-like than that of most of my contemporaries.  Compared to children today, that discrepancy would be even greater.  In any case, while there are many young people whose minds become adult-like only in their late 20s, there are still many who achieve that level of development much earlier.  Perhaps in time, the age for driving, serving in the military, and voting will be determined by a scientific examination of the individual's brain.  I wonder if the incentive to drive at 14 rather than 25, vote at 16 rather than 30, and serve in the military at 18 rather than 22 would be enough that more children would work harder to develop their brains?

Head Start -- Ineffective and Fraudulent

Early studies had found that the Head Start Program, started 45 years ago as part of the "War on Poverty," was effective in helping the children of the poor improve their performance in school.  However, in January a study revealed that the advantage of Head Start for these children had evaporated by the end of the First Grade.  That study was massive and examined a 10-year period of performance on 112 measuring meters.  This ineffective program under Health and Human Services usually has been funded at about $7 billion a year, but Obama had it given an extra $2 billion last year as part of the Stimulus Bill and wants it to have an extra $1 billion this year.  In this time of severe national indebtedness, the ineffectiveness of this program should result in its elimination, but the ever-wrongheaded Democrats are giving it extra money instead.  This is the equivalent of hiring thugs to run around and break people's windows on the theory that they will stimulate the economy by replacing the windows.  The reason is because taxpayer money is removed from productive uses and diverted into an ineffective government program.

A report in today's Washington Times tells the story of an investigation into fraud in the Head Start Program.  Fifteen program locations were visited and child enrollment fraud was found at 8 sites.  Investigating agents posed as parents wanting to enroll their children.  The results:

• In Wisconsin, a "grandpa" and "grandmother" presented their paystubs for proof of income and the school enroller decided to record only the "grandmother's" paystub, because it indicated the smaller income of the two.
• Children were accepted for enrollment with parents making more than $110,000 per year.
• 63 children were counted multiple times to make centers appear to be fully enrolled.
• Proof of employment was ignored.
• Extraordinarily high numbers of "homeless" children were found.  Homeless children are automatically eligible for enrollment.

This program is ineffective and it is run fraudulently as well.  This is a great program to cut.  Of course, doing so would expose any politician to cries that he was hurting the children.  With some guts, the politician can point to the fact that you cannot hurt a child by removing a program that is not helping the child.  This program is merely a pretense at helping children and is a Potemkin village built at great expense only for the benefit of those who run the centers.  We now know that many of those who run the centers are crooks.  So, more than half the real adult beneficiaries of our $7 to 9 billion a year of taxpayer money are crooks.

Are Democrats Illiterate?

I propose to answer this question scientifically.

All good science begins with careful observation of reality.  So, let us examine the easily observed facts of Democrat behavior with special attention to the ability to read and reading comprehension.

Let us take note that in the last few months, many instances have been documented of Democrat Congressmen indicating that they have no to little idea of the content of the rather short and easily read fundamental documents of the United States of America.  They have failed to attribute our acknowledgment of our equal and sovereign individual rights to life, liberty, and the pursuit of happiness to the Declaration of Independence, often mis-attributing that to the Constitution.  They have commonly referred to a General Welfare Clause in very confused ways and wrongly attributed powers to it, which are very, very far from its intent and context in the Constitution.  They have repeatedly made it clear that they do not understand the essays of the Federalist Papers which worked so hard to explain the purpose of the provisions of the Constitution.

They embrace socialism despite its failures among the Jamestown settlers and the early Pilgrims, in New Harmony, Indiana following 1825 when Robert Owen purchased it for his communitarian society, the failure of the socialist experiments in Italy, Germany, the USSR, Cambodia, China, North Korea, Nicaragua, and Venezuela.  The Swedes and the British had to back away from their more extreme adoption of socialism.  Yet, our Democrats are unaware of these problems.  Even in Canada, the more conservative recent management of the economy has allowed Canada a relatively quicker improvement in the recession than we have had in the U.S.  None of these facts are known or understood by the leadership of the Democrat Party, who so much want the U.S. government to duplicate those failed experiments.

The Democrats continue to claim that man is facing a global warming crisis, despite widely available accounts describing the huge failure of the science that was supposed to support that hypothesis.  They continue to believe that ethanol use mandates will help us achieve energy independence and give us cleaner air, though many easily read accounts inform us that this is not so.  They tell us that alternative energy will make America energy-independent and produce jobs, even as they destroy the coal industry and would provide unreliable electric power.  Again, many easily available accounts make it clear that alternative energy is not yet and will not probably be soon ready for prime time use.  They express ignorance of the many warming periods and cooling periods of the Earth's past, despite such records being easily available to the reader.

The Democrats still claim that minimum wage laws are good for those poor victims of discrimination that they, the Democrats champion, the young black male.  They have failed to read the accounts of how this minimum wage law proclivity has caused skyrocketing unemployment among inner city young black males.  They care not about those living in low cost-of-living rural flyover areas who are also badly affected by these thoughtless and cruel laws.

The Democrats have failed to note that the history books and economics have clearly shown that the life of the average man and the poor has been hugely benefited by the free markets of Capitalism.  Yet, they rail against it and the profit motive at every opportunity.  How many times have we heard Obama sneer at the profit motive and at those who have too much income, in his poor opinion.  Yet, the pursuit of wealth by the able has always created more jobs and more life security for the less able.  How has a college graduate and Harvard Law School graduate managed to be so completely ignorant of the literature of history and of economics?

Let us consider the Democrat Congressman in his home lair.  Bills are presented to him for his vote and he votes for them without reading them.  I suppose this could be an irresponsible act of laziness, but it may be that they are not able to read or if they do, they cannot understand what they have read.  In fact, a couple of Democrat Congressmen have actually said that they did not read the bills, such as the health care bill we call ObamaCare, because they would not understand it if they read it!  Given that one Congressman representing an Atlanta, GA district believes that islands float and that putting too many people on an island may make it tip over, the idea that there is a huge lack of reading comprehension takes on an elevated probability.  Obama himself has made many claims about the ObamaCare bill before it was passed and since he signed it into law, which are obviously wrong.  Now, we know he can read, because of his use of teleprompters.  But, this says nothing about his reading comprehension.  Either that is very poor, or he is lying to us almost constantly.

Another recent example of reading disabilities among Democrats is the short Arizona bill which carefully instructs the police to check for lawful presence in the United States when they are checking out another infraction of the law.  The bill clearly states that racial profiling must not be applied, and yet Obama says the law is bad because it will cause racial profiling.  Eric Holder, the Attorney General, says he is considering taking the state of Arizona to court over the illegal discrimination in the Arizona bill.  Yet, he has not read this short bill, so he is either hugely irresponsible or he has a very high threshold of dread for reading.  An Assistant Secretary of the State Department has apologized to the Chinese over and over about how the Arizona bill puts us on the same human rights plane the Chinese are on.  Apparently, he has read the Arizona bill and concluded that illegal aliens will be returned to countries where they will be shot as in Chinese returns of escaped North Koreans or that we will treat illegal aliens as the Chinese treat the Tibetans.  One wonders how he has read such actions into the bill.  Many, many thousands of other Democrats have made very negative assessments of the Arizona bill, implying that they either cannot comprehend what they read or they so dread trying to read and comprehend that they prefer to declare the law un-American to actually reading it.

Having come to the end of my observations on Democrats and reading, I must allow that in the total light of my understanding of human beings, those most complex and mysterious of all entities, I cannot be sure that Democrats cannot comprehend what they read.  The problem is that I know of counter-examples.  Being a scientist, I have worked with many a Democrat.  Some of them can read science and comprehend it, unless, at least in some cases, the science is said to have political and economic implications.  When these scientists read about topics infused with social and political implications, they suddenly have a selective loss of reading comprehension.  All things inconsistent with their allegiance to their dogma fall into their blind spot.  They simply cannot see them.  They cannot comprehend them.

So, I do believe there is a reading comprehension problem and even a thinking comprehension problem.  The Democrat problem is so deep an indoctrination into an ideology heavily laced with emotive feelings of envy, hate, cruelty, tribalism, group identity, self-loathing, self-victimization, guilt, uncertainty, dread, and other joyless feelings, that they cannot comprehend anything that does not fit into that negative worldview.  Where I see harmony, the satisfaction of individual needs and desires, a richness of choices, trades with mutual benefits, and equal opportunity in the free markets, they are only able to see exploitation, deprivation in not having something someone else has, having to make painful decisions about what they want, and any trade must have a winner and a loser.  This different worldview is so basic, I wonder if it is almost always embedded in most people while they are still children.  Thereafter, the Democrat simply cannot comprehend the world as it is so clear to me.

The California State Budget Shortfall

The state of California had disappointing tax revenues in April, which were $3.6 billion or 26% below the estimate.  Earlier, California had expected an $18.6 billion shortfall of revenue for their 2010-2011 budget, but this has now grown to $19.1 billion.  The 2007-2008 budget was $103 billion.  Then California had a $60 billion shortfall on the budget in the 2009-2010 budget.  California increased sales and income taxes on a temporary basis.  It also made "payments" with IOUs.  Gov. Schwarzenegger has called for budget cuts for the last three years and did win some in 2009-2010 after a hard-fought battle.  On Friday, he called for $12.4 billion in cuts and called upon the federal government for much of the remaining $6.7 billion.  Part of that remainder is to be covered with "funding shifts" according to the Wall Street Journal, but other sources claim that federal payments are hoped to be as high as $6.9 billion, though the federal government has so far only guaranteed payments of $3 billion.

Schwarzenegger's proposed cuts will produce a state general-fund 2010-2011 budget of $83.4 billion, which is 81% of the 2007-2008 budget.  Education spending is nearly 50% of the budget.  Health and Human Services spending is 25%, and Corrections and Rehab is 9%.  The Governor wants pension, budget, and tax reform in the new budget.  He is not calling for tax increases, which will only drive more businesses out of the state already known for its high taxes.  He says he wants to eliminate the CalWORKS welfare program to save $1 billion and eliminate child care funding except for pre-school and after-school programs to save $1.2 billion.  Many earlier attempts to save money in the Health and Human Services part of the budget were ruled against by courts.  The Democrats are criticizing the Governor for being anti-child, while claiming he should increase taxes and eliminate $2 billion of planned corporate tax breaks.  Of course, this ignores the fact that children survived before California got heavily into the child care business and that California has a great problem with businesses leaving the state.  Of course, we know that a school voucher program would save California a huge sum of money over the next few years given the post on wasteful government-run schools of 12 April 2010.

California's tax revenues break down as 52% from personal income taxes, 28% from sales and use taxes, and 11% from corporation taxes.  The share of the corporation tax has fallen to about half of what it was in 1981.  Corporations faced with high taxes will find ways to operate that minimize those taxes.  In California's case, this has often meant that corporations have fled the state.  The collapse of the real estate and financial markets has been particularly severe also in California.  As I have often pointed out, this is in good part due to the widespread restrictions on land use and building in California, on which Dr. Thomas Sowell agrees.

All of this is very important, because California is now considered to be one of the top ten most likely to default governments in the world!  Financial experts are saying it has a 20.07% probability of defaulting over the next 5 years.  Their evaluation is given in the table below:

The last time a state of the United States defaulted was in the 1840s!  It might be very chaotic if California defaults.  The Mid Spread rating means that if you hold $10 million of California bonds and you want to fully insure them against loss for 5 years, the annual insurance premium will be ($10 million) (254.1/10,000) = $254,000.  For a much less risky state, the corresponding cost might be about $25,000.  It is a very sad commentary that Hezbollah has not managed to make Lebanon quite as risky as the Democrats have managed to make California.  On the other hand, with so many Democrats admiring Hugo Chavez, they may have their sights set on the lofty 50.79% default probability estimated for Venezuela!

Global Cooling is Underway Says Geologist Don Easterbrook

Dr. Don Easterbrook, Emeritus Professor of Geology at Western Washington University and author of 8 books and 150 journal publications, says we are already in a 20 to 30 year cooling period, which will be much more harmful to man than the warming expected by the global warming alarmists. He presented his analysis at the 4th International Conference on Climate Change in Chicago on May 16, 2010.

Prof. Easterbrook says:

Numerous, abrupt, short-lived warming and cooling episodes, much more intense than recent warming/cooling, occurred during the last Ice Age and in the 10,000 years that followed, none of which could have been caused by changes in atmospheric CO2 because they happened before CO2 began to rise sharply around 1945. This paper documents the geologic evidence for these sudden climate fluctuations, which show s remarkably consistent pattern over decades, centuries, and millennia.

Among the surprises that emerged from oxygen isotope analyses of Greenland and Antarctic ice cores was the recognition of very sudden, short-lived climate changes. The ice core records show that such abrupt climate changes have been large, very rapid, and globally synchronous. Climate shifts, up to half the difference between Ice Age and interglacial conditions, occurred in only a few decades.

Ten major, intense periods of abrupt climate change occurred over the past 15,000 years and another 60 smaller, sudden climate changes have occurred in the past 5000 years. The intensity and suddenness of these climatic fluctuations is astonishing. Several times, temperatures rose and fell from 9-15° F in a century or less.

The dramatic melting of continental glaciers in North America, Europe, and Asia that began 15,000 years ago was interrupted by sudden cooling 12,800 years ago, dropping the world back into the Ice Age. Continental and alpine glaciers all over the world ceased their retreat and re-advanced. This cold period, the Younger Dryas, lasted for 1300 years and ended abruptly with sudden, intense warming 11,500 years ago. The climate in Greenland warmed about 9° F in about 30 years and 15° F over 40 years. During the Younger Dryas cold period, glaciers not only expanded significantly, but also fluctuated repeatedly, in some places as many as nine times.

Temperatures during most of the last 10,000 were somewhat higher than at present until about 3,000 years ago. For the past 700 years, the Earth has been coming out of the Little Ice Age and generally warming with alternating warm/cool periods.

Both Medieval Warm Period and Little Ice Age have long been well established and documented with strong geologic evidence. Georef lists 485 papers on the Medieval Warm period and 1413 on the Little Ice Age for a total of 1,900 published papers on the two periods. Thus, when Mann et al. (1998) contended that neither event had happened and that climate had not changed in 1000 years (the infamous hockey stick graph), geologists didn't take them seriously and thought either (1) the trees they used for their climate reconstruction were not climate sensitive, or (2) the data had been inappropriately used. As shown in the 1,900 published papers, the Medieval Warm Period and Little Ice Age most certainly happened and the Mann et al. 'hockey stick' is nonsense, not supported by any credible evidence.

The oxygen isotope record for the Greenland GISP ice core over the past 500 years shows a remarkably regular alternation of warm and cool periods. The vertical blue lines at the bottom of the graph below show the time intervals between each warm/cool period. The average time interval is 27 years, the same as for time intervals between Pacific Ocean warm and cool temperatures as shown by the Pacific Decadal Oscillation (see below).

Global warming is real, but it did not begin in 1945 at the time of greatly increased CO2 emissions. Two periods of global warming (1915-1945 and 1977-1998), and two periods of global cooling (1880-1915 and 1945-1977) occurred in the 20th century. Atmospheric CO2 began to rise sharply right after WWII in 1945 but was accompanied by global cooling for 30 years, rather than by warming, and the earlier warm period from 1915 to 1945 took place before CO2 began to rise significantly.

During each of the two warm periods of the past century, alpine glaciers retreated and during each of the two cool periods glaciers advanced. The timing of the glacier advances and retreats coincides almost exactly with global temperature changes and with Pacific Ocean surface temperatures (PDO).

The Pacific Ocean has two modes, a warm mode and cool mode, and regularly switches back and forth between modes in a 25-30 year repeating cycle known as the Pacific Decadal Oscillation (PDO). When the PDO is in its warm mode, the climate warms and when it is in its cool mode the climate cools. Glacier fluctuations are driven by climatic changes, which are driven by ocean surface temperatures (PDO).

During the cool PDO mode, ocean surface temperatures in the eastern Pacific are cool. This was typical of the global cooling from 1945 to 1977. During the warm PDO, ocean surface temperatures in the eastern Pacific are warm. This was typical of the global warming from 1977 to 1998. The abrupt shift of the Pacific from the cool mode to the warm mode in a single year (1977) and the beginning of the last warm cycle has been termed the "Great Pacific Climate shift." There is a direct correlation between PDO mode and global temperature.

The ocean surface temperature in the eastern Pacific off the coast of North America was warm in 1997. In 1999, the PDO switched from its warm mode to its cool mode and has since remained cool as shown by satellite imagery. Adding the PDO record for the past decade to the PDO for the century provides an interesting pattern. The PDO 1915-1945 warm mode, the 1945-1977 cool mode, the 1977-1998 warm mode, and the switch from warm to cool mode in 1999 all match corresponding global climate changes and strongly suggest:

1. The PDO has a regular cyclic pattern with alternating warm and cool modes every 25-30 years.
2. The PDO has accurately matched each global climate change over the past century and may be used as a predictive tool.
3. Since the switch of the PDO from warm to cool in 1999, global temperatures have not exceeded the 1998 high.
4. Each time the PDO has changed from one mode to another, it has stayed in that mode for 25-30 years; thus, since the switch of the PDO from warm to cool in 1999 has been entrenched, it will undoubtedly stay in its cool mode for another several decades.
5. With the PDO in cool mode for another several decades, we can expect another several decades of cooling.

In 2000, the Intergovernmental Panel on Climate Change (IPCC) predicted global warming of 1° F per decade and global warming of about 10° F by 2100. The red line on the graph below is their predicted temperature curve for 2000 to 2050. Note that by 2010, temperatures should be 1° F warmer than in 2000. That didn't happen so their climate models failed to predict even 10 years ahead.

The blue curves of projected cooling are based on the past PDO patterns for the past century and temperature patterns for the past 500 years. Three possible scenarios are shown: (1) global cooling similar to the global cooling of 1945 to 1977, (2) global cooling similar to the cool period from 1880 to 1915, and (3) global cooling similar to the Dalton Minimum from 1790 to 1820.

The possibility of temperatures dropping to the level of the Dalton Minimum is suggested by the recent passing of the sun from a solar grand maximum to a solar grand minimum similar to that of the Dalton Minimum. The unusually long sun spot cycle 23 and the solar magnetic index suggest that a solar minimum similar to the Dalton is very possible. A fourth possibility is that we may be approaching another Maunder type minimum and another Little Ice Age. Time will tell which curve is correct.

This text was provided by Marc Morano of Climate Depot.

As I have observed a number of times, the modest global warming wrongly predicted by the global warming alarmists of the UN IPCC in the AR4 report of 2007 would have been more beneficial to man than harmful.  This cooling period, with a large world population increase since the last cooling period, will make it harder for man to stay warm and feed himself.  The surge in the wildlife population I have seen in the Maryland suburbs over the last 30 years will be reversed by a harsher climate.  If the cooling period is worse than the relatively mild one from 1945 to 1977, as it may well be, then the hardship may be very severe indeed.

In the face of this, the Democrats are still claiming that we face a catastrophic man-made global warming period.  Because of this, they have had the EPA declare CO2 a pollutant and are about to crank down hard on American commerce and industry with tough regulations against its emissions.  Senators John Kerry and Ben Lieberman have also introduced the most recent version of carbon cap and trade, called The American Power Act, which is really the federal government putting its boot on the neck of every American.  They falsely claim that these government mandates and taxes will help to make us energy independent.  This assault on our liberty to use energy will do nothing substantial to reduce our need for imported oil and that is really not a matter of primary importance in any case.  With a cooling climate, we will have a very great need for the very extensive American coal reserves, but the Democrats are determined to crush the coal industry with high taxes on CO2 emissions.  Increased taxes are a wrongheaded move in any case, but to apply them to the source of 50% of our electricity when we do not have an economically viable alternative and when our energy needs may well be going up to cope with a cooling period, is just one more instance of the Democrat determination to ignore the facts and take off with flights of rhetoric into other-worldly realms known only to fanatically committed socialists.  Socialism demands a constant determination to damn reality.  We see it here once again.

Ragnar, Sink that Relief Ship Going to Greece!

With our national debt of nearly $13 trillion, huge shortfalls looming for Medicare, Medicaid, and Social Security, certain losses on GM, Chrysler, and many lending institutions, further losses for Ginny Mae and Freddy Mac, large losses for AMTRAK and the Postal Service, bailouts for many underfunded union retirement funds, and looming bailouts for U.S. states such as California, New York, and Rhode Island, the U.S. has recently guaranteed $56 billion of loans to Socialist Greece through our involvement with the IMF.

The loan guarantees to Greece are expected to be insufficient to save the Greek government from insolvency.  The Greek economy is only about 2% of the GDP of the European Union, but its insolvency has been a major threat to the weak economies throughout the EU.  About one-third of all workers in Greece work for the government.  They have retirement for hazardous occupations at age 58 and for women at age 50.  The hazardous occupations include musicians, news announcers, and hairdressers.  Greece worked its way into this insolvency by flouting the EU's rules on deficit spending and misrepresenting their indebtedness.  This was long recognized, but the EU did not enforce its rules, which have been widely violated in other nations in the EU also.  Portugal appears also to be on the verge of collapse.  Spain, with its wildly profligate spending on alternative energy, among many other popular socialist programs, is not far behind.  Italy and Ireland are also in sad shape and even the United Kingdom is in worse shape than the U.S.  We are likely to be expected to bailout all these countries whose socialist policies have brought them to the brink of failure through our contributions to the IMF.

The U.S. itself is near the brink of failure, if not quite as close as Greece, Portugal, Spain, Italy, Ireland, and the United Kingdom.  This is because the Progressives have so long worked so hard and so successfully to transform the U.S. into their European ideal of a socialist state.  We are now driving ourselves even faster into irrecoverable insolvency by sending relief ship after relief ship to Europe.  Where are you Ragnar?  You are needed.

Real life is working very hard at replicating Ayn Rand's great novel Atlas Shrugged.

Deciding Who Lives and Who Dies

Thomas Sowell has just written a column called A 'Duty to Die.'  As is always the case, he makes a good point, in this case about nationalized medical systems.  His main point is that when he grew up in poverty in the Southeast, his family took in an old aunt and cared for her for a while.  The old aunt moved from family to family so no one family was too much burdened, but they all willingly took their turns.  Now, he points out that we live in a culture in which very many of the best educated have learned that the old simply have a duty to die so they will not be a burden on the rest of us.  He points out that this harkens back to primitive societies so strained in resources and so marginal in their survival, that the old had to wander off into the wilderness alone to die.

This issue has long been bothering me.  Those who claim that they are so concerned about their fellow man and his welfare that they believe it is right to use government force to manage scarce medical services resources to provide for the poor or for those who simply do not choose to buy their own health insurance, have taken it upon themselves to make the decisions of who will live and who will die.  In the not too distant past, this decision in the United States was made by a combination of the following filters:

• A lifetime of hard work and savings by an individual provided sufficient money or a substantial part of the money needed for either adequate health insurance or savings for medical care.
• Family members volunteered to help financially or with direct care services.
• Friends did the same.
• Many physicians volunteered their services to those in medical need who could not afford to pay, as my own grandfather did for thousands of patients, especially during the Great Roosevelt Depression.
• Charities provided financial aid and medical services.

As Great Britain  is already doing and we will have to do under ObamaCare, decisions are being made more and more by medical and governmental bureaucracies about who will live or die.  The socialists who favor this approach like to say such things as:  The life and death decisions are now made scientifically by specialized panels on the basis of broad categories of cost, the likelihood of success, and the social worth of the patient based on the patient's age.  These decisions are made in the light of day and reviewed by the democratic vote of the citizens in general elections.  This, they say, is so much better than decisions made by soulless health insurers.  Now, note that they leave out the role of the individual in how he lived his life, the role of his family and his friends, and they assume that doctors do no volunteer work and that taking private charity is somehow demeaning, while taking government charity is not.

In a nationalized health care system, all those who either love the patient or who are voluntarily disposed to help the patient are removed from the decision-making process.  A "scientific" decision of how to spend the limited funds of the government medical program takes the place of all these people who may actually know the patient or who may evaluate the patient as an individual to determine if he or she is worthy of their voluntary help.  The government must make some kind of pretense of providing medical aid equally, so it must do so with no regard to individual character.  One of the easiest ways to do this is with the now inevitable rule of the form:  You are older than 70 years old and you have cancer which is expensive to treat, so you will not be treated.  Is this a more moral system for determining who gets medical treatment and who does not?  To me, it is clear that this system is designed in Hell.  The people who choose this system have no heart and are disloyal to every person of good character that they know.  They are betrayers of those they claim to love.  They are supporters of government-run death panels.

Obama Chooses NHS Admirer to Head Medicare

Obama has chosen Dr. Donald Berwick to be the new head of the Center for Medicare/Medicaid Services.  Berwick gave the talk shown in the video below in 2008 in the United Kingdom and bowed in praise to the altruists' shrine of the British National Health Service (NHS).  He loves the political system of rationing health care and redistributing the costs from those not poor and not unhealthy to the poor and the unhealthy.  He claimed that health care decisions made in the free market are made in the dark, while those made in the bowels of a gigantic government are made democratically in the public light.  That huge government makes democratic decisions in the light of day is certainly laughable in the light of understanding how ObamaCare came to be.  The backroom deals with big companies to gain their support or at least to prevent their opposition, the backroom deals to enlist the aid and enthusiasm of labor unions, the backroom deals to get the votes of certain reluctant Senators, the willful trampling of the well-expressed opposition of the People, and the order to pass the bill so we would find out what was in it, all make a lie of the Berwick idea that the political process is democratic and performed in open daylight.

On the other hand, health care decisions made in a free market are made where they matter in the light of day.  First, the government does meddle extensively with the free market in medicine, with many limitations on health insurance due to state mandates and many government limitations on competition between hospitals and among doctors, such as severe limits on their numbers.  The government has also stacked the cards in favor of having employers choose the health care insurance options for their employees, thereby reducing the employee's choice in the matter.  Still, the employee does evaluate his own compensation package in choosing employers and the employer will sometimes offer multiple choices.  The market, if it were free, would offer more choices.  But, even after all this, the decision that really counts is one made by the individual, who can decide which compensation plan best meets his individual needs.  In the Berwick and Obama system, bureaucrats will make many more of these decisions than they now make.  Dr. Berwick thinks this is great.  Listen to him:

Fanny Mae and Freddy Mac Steal Again

The gang that cannot shoot straight, has come galloping into Washington, D.C., and robbed the Treasury, the People's Bank once again.  Sheriff Obama and his hooligan crew of law enforcers carried the loot out to their horses for them and invited them to a good dinner.  They are still in town, living it up!  Why not?  In the past, Fanny Mae and Freddy Mac always provided the Democrats and Obama in particular with great campaign contributions.  The more money the sheriff lets them steal, the more money they give him to remain sheriff.

Fanny Mae has just asked for another $8.4 billion from the Treasury after First Quarter losses this year of $13.1 billion, including $1.5 billion in dividends paid to the government on its preferred stock.  The government took control of Fanny Mae, a government-sponsored corporation, in September 2008.  Fannie Mae ended the First Quarter with a net worth of -$8.4 billion dollars.  This government-run business lost $15.2 billion in the Fourth Quarter of 2009 and $23.2 billion in the First Quarter of 2009.

Just four days earlier, Freddie Mac asked for a $10.6 billion handout.  Its First Quarter loss was $8 billion.  Freddy Mac had previously received $50.7 billion in bailouts, while Fanny Mae had previously received $76.2 billion.  Fanny Mae had already been given $15.3 billion of taxpayer's money as recently as 31 March 2010.  In December 2009, the Obama administration removed a $400 billion cap on gifts to Fanny Mae and Freddy Mac and promised unlimited support in 2010.  The total taxpayer money given them since they were taken over by the government, including the current requests, is $145.6 billion.

In the First Quarter, Fanny Mae purchased or guaranteed about $191.4 billion in loans.  Its credit losses were $5.1 billion, which was up from $4.1 billion the previous quarter.  The number of loan defaults was up in the first quarter.  5.47% of Fanny Mae mortgages were delinquent in the First Quarter, which is up from 5.38% in the Fourth Quarter of 2009.  The single-family foreclosure rate was up from 1.03% in the previous quarter to 1.36%.

Obama and the Democrats have refused to include Fanny Mae and Freddy Mac in any financial industry reform bill effort, since they are using them to reduce home foreclosures with loan modifications and will not admit their guilt in weakening the entire financial system of the U.S.  In the First Quarter, Fanny Mae made 94,000 mortgage modifications, after making 42,000 in the Fourth Quarter of 2009.  Together, Fanny Mae and Freddy Mac own or guarantee almost 31 million home mortgages worth about $5.5 trillion.  This is more than 40% and close to half of all home mortgages.

It is common to say that the recession began in the United States and was caused by too much easy credit.  Republicans go on to say government-sponsored Fanny Mae and Freddy Mac caused the recession and Democrats say an unregulated Wall Street caused it.  In fact, it was triggered by the sharp increase in oil prices.  After May of 2004, the price of oil went up in real terms, dropped briefly in late 2006, and then spiked upward beginning in early 2007.  By July of 2007, production in Canada had dropped.   It dropped  in Italy in August 2007, in France in October 2007, and the Euro area as a whole in November 2007. Japan's production reached a peak in October 2007, though it had a one-month uptick in February 2008. The decline in the U.S. was in February 2008.  In January 2008, the OECD leading indicators were down from a year before by 4.1 points in Ireland, 2.8 points in Japan, 2.6 points in Korea, 2.3 points in Sweden, but only 0.8 point in the U.S. Stock prices are another leading indicator. Stock prices peaked in Japan and in the Euro area four months before they peaked in the U.S. and the U.K. in October 2007!  In the 4th quarter of 2008, real GDP was lower around the world than it had been 1 year before, but it had dropped by much less in the U.S. than almost anywhere else. The dollar value of imports into the U.S. did not fall until August 2008 and the consumer purchases did not fall in the U.S. until September 2008.  The U.S. was the last economic engine to sputter to a stop and it took the combination of the oil price spike, the recession already underway in the rest of the world, Fanny Mae's and Freddy Mac's vulnerability, and the Wall Street over-extension combined to put us into this severe recession.

While we cannot blame the entire recession on Fanny Mae and Freddy Mac, they were the most egregious weaknesses and the most easily avoided ones in the U.S. economy.  They were following a foolish policy of easy credit for people who could not make their loan payments under almost any condition of strain and they with the easy credit Federal Reserve were the starting point for much of what went wrong in the private sector.  Government regulation of Freddy Mac and Fanny Mae did not keep them out of trouble and there is no reason to believe more federal regulation would have helped on Wall Street.  In fact, some of the problems on Wall Street turned out to be due to too much regulation and too cozy a relationship with the federal government.  The biggest backers of the unwise lending practices through the years were the Democrats.  Obama had contributed once he was in the Senate and he had worked on a lawsuit against Citibank himself to force them to lower their lending standards before that.  Meanwhile, President Bush had warned a number of times that the easy credit policies of Fanny Mae and Freddy Mac were a major risk for the economy.  McCain also joined in with warnings.  These were all ignored by Congress, which in 2007 and 2008 was controlled by the Democrats.

Fanny Mae and Freddy Mac could not be more controlled by the federal government.  We have only to examine how badly run they are to see the looming disaster as the Democrats try to gain more regulatory control over the major financial institutions of America.  We will be turning investment company after bank after insurance company into the next Fanny Maes and Freddy Macs.  This is exactly what the Democrats want to do.  Imagine how easy it will be to extort money from these more regulated companies and how easy it will be to command many of them to self-destruct.  Even as Fannie Mae had collapsed, Obama and the Democrats had been able to milk it mightily for campaign contributions.  This is the fate of the entire financial industry, if they get their way.

Another FCC Power Grab Attempt Over the Internet

For a decade, the Internet was classified by the FCC as an information service.  Following the declaration on 6 April 2010 by the U.S. Court of Appeals in D.C. that the FCC had failed to show that it has the authority under Title 1 of the Communications Act of 1934 to tell broadband Internet providers how they could manage their finite bandwidth issues, the FCC has now reclassified the Internet's broadband lines so they can regulate them under rules written in the 1930s for telephone lines.  FCC Chairman Julius Genachowski claims this will "allow the agency to move forward with broadband initiatives that empower consumers and enhance economic growth, while also avoiding regulatory overreach."  He claims that the broadband companies will only be subject to a few of the phone regulations.

As the Wall Street Journal editorial notes, this is not reassuring.  This administration has a unique voraciousness for power and never limits itself with less than it thinks it can get away with at any given time.  The point here is to establish by hook or by crook that the FCC can regulate the Internet.  Once it can, it will, Chicago gangland politics style, get to pick the winners and the losers in business and by having that power, politicians will be able to extort money from those companies at risk for campaign donations, future jobs, and present jobs for friends and family.  The claim is always made that such regulations are needed for the general public, but the actual advantage always winds up in the hands of the politicians and the few large companies that are most savvy at buying their influence.

There is no valid reason for the FCC to regulate the Internet.  It is doing just fine.  Certainly it is doing much better than it will once the FCC regulates it.  The Supreme Court ruled in a 2005 Brand X decision that cable broadband was properly classified as an information service.  The FCC reclassification will recreate business uncertainty for years as this FCC action is challenged in court. 

This puts huge investments at risk and will have the effect of making further investments more risky.  In the last 5 years, U. S. companies have invested $576 billion in communications equipment and structures.  Overall U.S. spending on information technology since 2005 is $2.2 trillion.  Communications and electronic and optical information exchange investment is 47% of all non-structure investment in the U.S.

If the FCC gets away with this power grab, it will not be long before we see government campaigns against political viewpoints it does not like.  The left will act to squelch any viewpoints it claims are racist, or bigoted.  Given that it claims that Fox News and the Tea Party movement induce violence and prejudice, it is clear that those with such opinions as voiced on Fox News and at Tea Party protests are likely to be suppressed in the future.  The socialists will act to suppress the sale of foods it does not like, such as beverages with sugar in them or fast foods with too much fat.  Only those organizations which force enough employees to contribute their time to leftist causes will be favored.  When the Right gains controls, they will be tempted to suppress the sex on the Internet.  They may also mount campaigns against those who claim a woman's right to an abortion.

The Internet has been a remarkably free market of ideas, goods, and services.  It is hardly surprising, given our last 100 years of history, that the government wants to gain regulatory control of this huge market, which offers too much to individuals and too little to politicians and the friends they choose on the basis of their support financially and at the polls.  This is why the FCC, which looked to be willing to live with the recent April court ruling, suddenly changed its mind after a host of liberal lobby groups made a fuss about that ruling.  Overnight, the FCC came up with this new reclassification tactic to satisfy these lobby groups.

This is the way excessive government becomes yet more excessive.  The result is always the same:  The People lose their equal individual rights to vicious politicians and large special interest groups.  The politicians reward those who pay them the most and damn the General Welfare of the People.

U.S. Effective Corporate Tax Highest in OECD

A new study by Duanjie Chen and Jack Mintz, School of Public Policy, University of Calgary, shows that the U.S. effective corporate tax rate on new investments is the highest among all OECD countries.  They studied the effective rate for corporations on new investments, averaging over sub-national rates, such as the U.S. has at state and local levels, and found that only Argentina, Chad, Brazil, India, and Uzbekistan have higher effective corporate tax rates.  Japan, which used to be in a virtual dead heat with the U.S., has slightly reduced its effective corporate tax rate.

Our extremely high effective corporate tax rates on new investments are one of the important reasons why our recovery from the recession is painfully slow and U.S. corporations are still not hiring many people.  Our tax rates are much higher than the average of the G-7 nations, which are Canada (28.0%), the United Kingdom (27.5%), France (34.4%), Germany (24.4%), Italy (27.2%), and Japan (33.5%).  So, only France and Japan have rates nearly as high in the G-7 countries.  The German economy exports heavily and has only a 24.4% corporate tax rate compared to our 35.0% tax rate.  This gives German corporations a big advantage in competing with us for exports.  Sweden used to be the most socialist of the West European countries, but it now has a corporate tax rate of only 19.5%.  Switzerland has a rate of only 16.8% and the Netherlands' rate is only 16.3%.  China charges its corporations only 16.0%!  And why have many U.S. corporations set up companies in Mexico near the border?  Well, not only is labor less expensive there, but the corporate tax rate in Mexico is 15.8%.

Israel's rate is 15.1%.  Hungary is 13.6%, Poland is 13.6%, Czech Republic is 13.4%, Chile is 13.3%, Ireland is 12.3%, the Slovak Republic is 12.2%, Vietnam is 12.2%, Greece is 12.0%, Croatia is 9.8%, Iceland is 9.6%, Obama's birthplace Kenya is 9.1%, Romania is 8.9%, Singapore is 8.8%, Bulgaria is 4.1%, Latvia is 3.8%, Ukraine is 3.7%, and Belgium is -6.5%.  A negative tax rate!  Belgium actually subsidizes its corporations, which I do not recommend!

There should be no corporate income tax rate, except zero.  Most of the rest of the world has substantially reduced their effective corporate tax rates, but not the U.S.  State and local sales and asset-based taxes on capital add about 7% to the U.S. effective tax rate, but only 2% to that rate in other countries.  Our federal statutory rate is 35.0%.  The broad reductions in the statutory rates of other countries in recent years have not been matched in the U.S., which has responded only with a narrow 2005 tax break for "domestic production activities."  In 2009, this shaved about 2% from the U.S. effective rate.  Congress did enact some temporary "bonus" depreciations for certain capital investments, which were not included in the U.S. effective rate calculation due to their temporary nature.

In comparison, the average statutory rate in the European Union dropped 9.6% since 2000.  Canada, our largest trading partner, cut its federal corporate tax rate from 43% to 31% since 2000.  Other taxes were also reduced since then.  In 2012, the average statutory corporate tax rate in Canada is going to be 26.4% and the effective rate will be 19.5%!  The Canadian economy has been growing better than the U.S. economy for some time now as a result.  China has similarly been reducing its corporate taxes.

During the 1980s, the U.S. had more direct investment inflow than outflow.  In the 1990s and 2000s, the outflow of investment exceeded the inflow.  This slows growth and job creation.  As the monthly tables I have been doing on unemployment show, the failure of the U.S. economy to create new jobs, while worse during the current recession, has been going on ever since 2000.  The high effective corporate tax rate is a major contribution to this problem in poor job creation.

Another problem with our taxes on corporations is that we tax the overseas operations of multinational corporations.  In other countries, the multinational corporations can bring profits home from their out-of-country investments without being taxed on them.  Those governments are content to tax that money when it is distributed to the people and when it is spent.

Studies have clearly shown that corporate tax rates above 25% result in tax avoidance behavior that actually reduces government revenues from the taxes.  The only reason for tax rates higher than 25% is the appeal to ignorance and the let's-soak-the-fat-cats mentality.  It is perfectly clear that if we want to create jobs again and continue to have a rising standard of living, we must reduce the effective corporate tax rate.  It is best to reduce the statutory corporate tax rate substantially.  A reduction to no more than 25% is badly needed.

Free Trade vs. Fair Trade

A debate is underway on the Economist website in which the proposal has been made that it is more important to pursue fair trade than to pursue free trade.  You can read the initial pro argument by Ngaire Woods, International Political Economy Prof. and Director, Global Economic Governance, Oxford University and con argument of  Jagdish Bhagwati, Economics and Law Professor, Columbia University and Senior Fellow, Council on Foreign Relations, here.

My comment was:

Ngaire Woods sometimes uses the word fair to indicate that trade was really not free trade when the restrictions in the "free trade" agreements actually belied free trade.  At other times, unfair seems to mean that we simply do not like it when unskilled workers or some industries with particularly heavy regulatory or labor union burdens or old technology lose out to competitors in less developed nations.

People in the less developed countries may have a trade advantage in being paid less and a particular industry there may have fewer operational expenses for pollution controls, but they almost always have a great many disadvantages that their competitors in the developed countries do not have.  We conveniently forget these when we talk about fairness, which it is extremely unfair for us to do.  For instance, most underdeveloped countries have workforce educational, health, property rights infringement, unstable and capricious governments, transportation, supporting industry, telephone system, and computer system disadvantages.  Pollution may cause sickness and even impose some production costs of its own.  In China, the one-party system is a disadvantage.  In India, such issues as the untouchables, the criminal tribes, and some discrimination against women are disadvantages.  In the Muslim nations, the discrimination against women and their frequent lack of education is a disadvantage.  So, when we push for fair trade, are we actually pushing to change all of these disadvantages in the less developed countries or is the push for fair trade only one to increase the costs of business in these less developed nations?  It generally seems to be the latter.

It is a myth that there is any universal agreement on what is fair.  But, the concept of free trade is clear, though it is heavily abused in politics.  Free trade is one of the equal rights of each individual to life, liberty, and the pursuit of happiness.  Each of us has the right to enter into free associations and contracts with others and legitimate government does not impose barriers to our doing so, except perhaps in war.  Freedom of trade is essential to each of us in securing our lives, exercising our freedom of action, and because each trade we make is generally done to add to our happiness.  Living by this principle that government is legitimate to the extent that it protects our sovereign, equal individual rights is what made the USA and generally Great Britain, at least within their own countries, as wealthy and secure as they are today.  But, we can do better by more fully protecting such individual rights as the right to trade freely between all nations.  If we will do this, then the living standards of many other nations will rise and wage differentials will diminish, as will pollution differentials.  There is no way to really invert this development process.

Some people may not have sufficient on-the-job value to be up to living well in the well-to-do countries where more highly skilled workers are needed to sustain that level of productivity that makes the country well-to-do.  This fact is not unfair of itself, but we may add elements of unfairness if we almost force workers into labor unions that destroy the companies they work for, or we impose regulations and costs by governments which are irrational upon their company or industry, [we impose tax burdens that prevent his company from making needed equipment purchases, providing training, or doing R&D,] or we put them out of their job with a minimum wage increase.  But if he loses his job because a worker in Kenya can make the same widget as well and for less even after the transportation costs from there to here are paid, well, I see no unfairness in that.

[While there are some Americans who have or will lose their jobs to international competitors, free trade has helped many industries by reducing their costs and it has helped many workers to stretch their income further by being able to buy less expensive goods.  In addition, U.S. companies often make considerable income from supplying their subsidiaries abroad with goods and services, allowing them to hire more American employees.  Prof. Bhagwati discusses some aspects of this in a paper on his website (the link is above) called The Critiques of Capitalism After the Crisis:  Myths and Fallacies.]