Freedom Line Blog

From President Obama’s remarks earlier today defending his deal with Congressional Republicans to prevent tax increases:

I’ve said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people, and I was not willing to see them get harmed.

Not quite “we refuse to negotiate with terrorists.” Let’s hope the press conference wasn’t airing on Al-Jazeera.

Courtesy of a story from UK Reuters:

President Hugo Chavez blamed “criminal” capitalism on Sunday for global climate phenomena including incessant rains that have brought chaos to Venezuela, killing 32 people and leaving 70,000 homeless.

Worst hit is the coastal area of the South American OPEC member nation where millions live in precarious hillside shantytowns and mudslides have been toppling rickety houses.

Hmmm, an oil-rich nation with millions living in shantytowns? How often do you think that happens in capitalist societies, Senor Chavez?

I thought so too. Check out the Trenton Thunder as he takes a shot at the self-interested bureaucrats attempting to stymie his plans for education reform in the Garden State:

“The American people did not vote for gridlock”

That was President Obama following his White House meeting with senior congressional leaders (including heretofore marginalized Republicans) earlier today. A few things are wrong with this:

1. Of the many tasks for which Barack Obama is demonstrably unqualified, interpreting election results is clearly towards the top of the list.

2. To the extent that the 2010 midterm elections can be boiled down to a single trend, it wasn’t the American people voting for anything — it was them voting against Obama’s agenda.

3. The American people don’t vote for process. They saw the country headed too far to the left and wanted to stop it. While the electorate may not think gridlock is ideal, they would probably prefer it over another two years like the ones we just had.

4. It’s amazing how many Democrats are spinning the 2010 elections as a mandate for the two parties to work together (not that this is a particularly innovative narrative for parties that crawl back into the minority). The 2010 election saw disgust for the two major parties at an all-time high and faith in our political institutions at an all-time low. This is just a hunch, but I don’t think the resulting message was “we’d like to see more effective cooperation between the party we hate and the party we really hate”.

Senik’s Law of Subsidies: Subsidizing any industry into existence requires destroying its more efficient competitors. And that, ladies and gentlemen, is the story of green jobs.

Luckily, the Obama Administration hasn’t been able to get its hands on the noose with which it intends to strangle the energy industry (I’m sorry … the industry that produces energy that actually works): that would be cap and trade. Thus, it’s had to settle for the silver medal of plowing money into “green jobs” that can’t balance the books without a chunk of your paycheck to stem the tide of red ink. The problem, of course, is that since conventional fuel sources like coal and petroleum are still the most feasible energy sources, the government is underwriting jobs that serve no discernible demand in the consumer market. Consider this passage from a story in today’s Washington Post:

With nearly 15 million Americans out of work and the unemployment rate hovering above 9 percent for 18 consecutive months, policymakers desperate to stoke job creation have bet heavily on green energy. The Obama administration channeled more than $90 billion from the $814 billion economic stimulus bill into clean energy technology, confident that the investment would grow into the economy’s next big thing.

What could go wrong? After all, if the administration is “confident”, there’s no reason to doubt, right? The Obama White House is know for nothing if not its clairvoyance (we’ll leave aside the question of why the “next big thing” would require subsidies). Oh, Mr. President, we hate to interrupt your dance with delusion, but reality would like to cut in:

The industry’s growth has been undercut by the simple economic fact that fossil fuels remain cheaper than renewables. Both Obama administration officials and green energy executives say that the business needs not just government incentives, but also rules and regulations that force people and business to turn to renewable energy.

Without government mandates dictating how much renewable energy utilities must use to generate electricity, or placing a price on the polluting carbon emitted by fossil fuels, they say, green energy cannot begin to reach its job creation potential.

Forget Afghanistan. Energy policy is the administration’s real parallel to Vietnam. We must destroy our energy sources in order to save them.

An item from the Daily Caller:

Chubby elementary school children in Flagstaff, Ariz., have more than just bullies to worry about. If they’re too fat, their school will notify their parents.

Starting in the fall, students in the Flagstaff district will be weighed and measured at school. Students who are found to be overweight, marginally overweight, or underweight will have a letter sent home to their parents, which will include graphs showing a range of appropriate weights for a given age and height.

The Flagstaff District might want to consider placing a call to the TSA before implementing this policy. Americans have limited patience for inconvient and unnecessary big government. But when it’s humiliating and unnecessary … well, the pitchforks are on their way.

As the lame duck Congress prepares to take up the issue of what to do about the expiring Bush tax cuts, liberal pundits are busy proving to the American people that no journalism school in America provides economics education. A few points to make with your liberal friends as you argue economics the next time you join them for a non-fat soy latte made from fair trade ingredients:

• Extending the Bush Tax Cuts Won’t “Cost” Anything — Liberals can’t stop carping about the $700 billion “cost” of extending tax cuts for Americans making over $250,000 a year. This is preposterous. The absence of tax increases isn’t a cost to the federal government. If it was, then every dollar kept in private hands instead of transferred to Washington would be a cost. Private businesses don’t account for imaginary revenues as costs, and there’s no reason for government to either. This is just an excuse for not bringing expenditures into line with “revenues” (i.e. money confiscated from you).

• A Shortage of Tax Revenue Isn’t the Root of America’s Fiscal Problems — The class warfare rhetoric at the heart of the tax fight is a red herring for the real issue at hand. Virtually all taxes kill economic activity. Of course, some tax revenue will always be necessary to finance the basic functions of government, but beyond that baseline taxes are actively destructive. Thus the real choice when it comes to upper-level earners’ tax rates isn’t whether they should be soaked or not. It’s whether you think the federal government is doing too little (in which case taxes need to increase and more private economic activity should be killed) or too much (in which case spending needs to decrease).

• Income Inequality is a Meaningless Metric — Proponents of aggressively progressive taxation who are prone to ideological rather than practical justifications of their beliefs have increasingly been leaning on an argument that America suffers from growing income inequality. This is specious for two reasons. First, it presumes that there is an ideal distribution of wealth that exists free of merit. The more free an economy is, however, the more income is a function of how much value one creates in the marketplace. So do we want a nation of C students (socialized mediocrity) or a nation where the highest achievers get A’s and the lowest ones are held back a year (with generous welfare benefits, we should add)? Also, these numbers are absolutely useless from a statistical perspective. Samples of income tiers measure groups, not individuals. So when we say that the rich are richer and the poor are poorer than 20 years ago, we ignore the dynamism of the American economy — and the resulting fact that many individuals who were on the lower rungs of the economic ladder two decades ago have moved up, and many at the top have moved down. This interpretation also ignores the fact that the gap is less important than the actual numbers. If you have $200 and I have $100, are incomes are closer to parity than if you have $1 billion and I have $1 million. But in the latter scenario, we’re both better off individually and society (if it consists of just you and I) is better off as a whole. Now imagine extrapolating that analysis to an entire nation

• Virtually Every Number You See About Poverty in America is a Lie — For one simple reason: government calculations of poverty do NOT factor in benefits conveyed by government. To prove the point using an unrealistic example, a family of four making $40,000 a year but receiving $60,000 in government assistance, would still be captured in government statistics as making $40,000 a year, even though their actual income would be $100,000.

• Unemployment Benefits are NOT a Form of Economic Stimulus — From Nancy Pelosi to Nicolas Kristof, every empty head on the left seems to have the idea that unemployment benefits are a form of economic stimulus rattling around inside it. The idea is that because the poor have the greatest need for liquidity (and will thus spend the cash the quickest) unemployment greases the wheels of commerce. This is a basic Keynesian fallacy: thinking of the economy only in terms of consumption. But if this is true, why wouldn’t the road to recovery be paved with every American emptying out their bank account for a trip to Nordstrom’s? Maximum economic efficiency is achieved by putting money to the use that provides the greatest benefit relative to the cost to the individual. In some cases, this will be consumption. But in others it will be investment or savings. Unemployment benefits can be justified on humanitarian grounds, but not on mechanical economic ones (indeed, excess unemployment benefits drive up unemployment — not a surprise if you remember that you always get more of what you subsidize). Paychecks generally provide the basis for a sounder economy than food stamps.

Regular readers know that Paul Krugman, Tom Friedman, and Joe Klein regularly jockey for the status of political pundit I most despise. Well, Dr. Krugman pulled into the lead with his stunning endorsement of “death panels” as the royal road to America’s fiscal health on yesterday’s edition of “This Week with Christiane Amanpour”:

H/T: NewsBusters

Ashton makes a good point about the geographic diversity of the GOP House leadership in comparison to its Democratic predecessor. Another interesting addition may be Kristi Noem, the incoming freshman who will serve as the At-Large Representative for South Dakota and who looks to be in line to fill a new position being created to give some leadership representation to the burgeoning ranks of Tea Party-affiliated conservatives. Noem is attractive, articulate, and has a compelling biography. She looks to be a definite rising star in the party.

I think the mix of the two parties may be reflective of what caused the Democrats to go astray in the past few years. Looking at the new Republican leadership, only Texan Jeb Hensarling comes from a state where Republicans are reliably strong in both federal and state elections. Democrats, on the other hand, populated their leadership ranks with figures from the deepest of the deep blue states. They governed that way too. And in so doing, they forgot all the lessons that gave them control of the Congress.

In the 2006 and 2008 election cycles, Rahm Emanuel in the House and Chuck Schumer in the Senate gave considerable flexibility to their recruited candidates, allowing them to run with conservative positions on a host of issues that allowed them to escape being tarred as liberals in the Midwest, the South, and the Mountain West. While they succeeded in getting a large percentage of those candidates elected, the Obama-Pelosi-Reid agenda then lurched so heavily to the left that the new members had to run for reelection in the shadow of a record that undermined all their pretensions of moderation.

The facile interpretation of this trend is that a party always has to govern from the center to keep its majority. That’s also the rationale for liberals like  E.J. Dionne, who hope that the new conservative majority’s stand on principle will alienate them from the electorate. In his most recent column, Dionne writes:

Give Republicans credit for this: They don’t chase the center, they try to move it. Democrats can play a loser’s game of scrambling after a center being pushed ever rightward. Or they can stand their ground and show how far their opponents are from moderate, problem-solving governance. Why should Democrats take Republican advice that Republicans themselves would never be foolish enough to follow?

This is what happens when a static mind attempts to comprehend a dynamic landscape. The problem with Dionne’s analysis is that he assumes the left and the right are equidistant from the center. This is false. When Gallup polled the question in June, 42 percent of Americans identified as conservative, 35 percent said they were moderate, and 20 percent said they were liberal. That means the self-identified center-right represents an astonishing 77 percent of the country. By contrast, the center-left at its theoretical apex is only a slight majority of Americans. When you then factor in that 56 percent of independents broke for Republicans this year — and that that represented a 36 point swing from 2006 — you see how steep the hill is for Democrats.

Dionne and his counterparts in Congress need to learn the lesson: in a center-right country, it’s more important for Democrats to moderate than Republicans. If you doubt that, ask Bill Clinton — he might remind you that he’s the only Democratic president to be elected twice since FDR.

The Wall Street Journal is among the news sources carrying coverage of the preliminary recommendations being produced by President Obama’s much-feted debt reduction panel. According to the Journal’s synopsis:

Among the controversial proposals, the plan in its current form would end or cap a wide range of breaks relied on by the middle class, including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.

For businesses, the plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions. It would make permanent the research and development tax credit. Overall, the plan would cut the federal deficit by $3.8 trillion by 2020.

… On Social Security, the plan would gradually raise the retirement age to 68 around 2050 and 69 by 2075. It would combine a cut in benefits with a rise in taxes on wealthier people’s incomes. It would also seek to rein in federal spending on health care beyond what’s called for in the recently passed health-care overhaul. This would be achieved by introducing further changes, including reform of medical-malpractice law, and by seeking to slow the growth of the Medicare program.

The plan would make significant cuts on spending over which Congress has direct control, beyond entitlements such as Medicare. It identifies $410 billion in discretionary spending cuts by 2015. It proposes cutting the federal work force 10%, at a further savings of $13.2 billion by 2015.

Congressional earmarks—provisions inserted into legislation for lawmakers’ pet projects—would be banned permanently, saving $16 billion.

This a surprisingly market-friendly recommendation, much of which — though politically very tough — is admirable. Hopefully, low-tax advocates will train their fire on the unnecessary increases in capital gains and dividend rates, as well as what looks to be a proposed increase on Social Security and Medicare taxes for the wealthy. While we don’t know what deductions are on the chopping block, if the home mortgage example is representative there’s actually a strong free-market case to be made in favor of the eliminations. By giving economic preference to activities like home purchases, these deductions lead to economic inefficiency (they either direct consumers to make choices that wouldn’t be rational without the deduction or subsidize purchases that would have been made regardless).

Elsewhere in the WSJ piece, the authors refer to the fact that the current recommendations rely about 75 percent on spending cuts and 25 percent on tax increases. Good, but not great. A recognition that taxes always hamper economic activity means that tax increases should never be considered instead of spending cuts unless (A) government is only doing the things that are its rightful responsibility and (b) it is doing all those things at maximum efficiency. At some point, the exigencies of politics may require compromising short of that ideal, but I’d like to see a comprehensive examination of spending in the executive branch before tax hikes are even considered.

Let’s consider the cabinet departments. The Departments of Justice, Defense, Treasury, and State are the originals and unquestionably justified under our scheme of federal government. There are others that have probably grown into necessary organs in years since. We’ll need Health and Human Services as long as we have a federal welfare state, Interior as long as we have public lands and a National Park system, Transportation at least for the interstate highway system and air travel and, though its probably in need of some pruning, Homeland Security. Veterans Affairs seems like it could be folded into either Defense or HHS. As for the Departments of Education, Housing & Urban Development, Energy, Agriculture, Commerce, and Labor (apart from its statistical work), I’m at a loss for what useful purpose (or more importantly, results) justifies their existence. I’d be more than willing to scrap each of them, keep the few parts we still need, and re-check the ledger before considering higher taxes for even a single American.

It’s been clear ever since President Obama’s irritable East Room press conference the day after the midterm elections that the White House is in deep denial over its refutation by the American electorate.

What’s shocking, however, is just how much the bunker mentality is getting noticed even in Democratic circles. A new Politico story by Mike Allen & Jim VandeHei entitled “President Obama Isolated Ahead of 2012” brings an administration dead set on standing athwart reality into sharp relief. The piece, well worth reading in its entirety, is filled to the brim with damning testimonials about the Obama White House’s incompetence on basic politics. One of the more glaring quotes:

Whether or not you think he’s a viable presidential candidate in 2012, there can be little doubt that — on his best days — former Speaker of the House Newt Gingrich is one of the most intelligent, articulate defenders of conservative thought around (full disclosure: I used to write radio spots for the Speaker). Last night Newt delivered a tour de force performance on Fox News’ On the Record with Greta Van Susteren, analyzing the midterm elections and their effects on President Obama. Some video highlights can be seen below. Newt’s best line of the night, however, didn’t make it into the highlights reel. Scroll down beyond the video for the line that had the Fox camera crews cracking up on air:

VAN SUSTEREN: But I just don’t get it, I mean, because he did run on change. And he delivered change. And now the American people — and they told him almost from day one they didn’t like his change, and he didn’t even notice it, and he’s still (INAUDIBLE) and so now he comes (INAUDIBLE) today — I don’t get it!

GINGRICH: Greta, Greta, Greta, Greta, if somebody offers you a chance to go to Disney World and you get all excited, and they promise to take you to Disney World, and then they didn’t quite tell you that, by the way, the way they’re going to get there is they’re going to crash the plane into the park…(LAUGHTER)

GINGRICH: The fact that they were going to take you to Disney World may not have been quite as attractive as you thought. Nobody in America thought we were going to elect a president who would be this far to the left, pass this much spending, build up this big a deficit, try to impose Washington on every doctor’s office, every hospital, every medical decision in America. And the American people now said, Got it. If that’s the change you meant, we’re going to send you a signal that that’s the wrong change.It’s all right to be for change, but you ought to be for the right change, and he didn’t get. Now, what worries me is with two more years, I wonder what it’s going to take for him to begin to realize it’s not about us, the American people, it’s about him.

If ever anyone deserved the title “the speaker” … 

Politico usefully rebukes the conventional wisdom about money in politics with a look at this year’s self-financing candidates:

…

The one winner in the group is Republican businessman Ron Johnson, who beat Sen. Russ Feingold (D-Wis.), one of the Senate’s most ardent champions of campaign finance reforms that would limit the role of big money in federal races.

In Connecticut, Republican Senate nominee Linda McMahon spent $47 million of her own money. In Florida, Jeff Greene dropped $24 billion attempting to get the Democratic nomination for the U.S. Senate. In California, Carly Fiorina invested $5.5 million out of her own accounts for a shot at the upper chamber, though that number paled in comparison to the $143 million ponied up by the GOP gubernatorial nominee, Meg Whitman. What do they all have in common? They all lost.

For the professional fretters who rent their garments in support of McCain-Feingold and gnashed their teeth over the Supreme Court’s Citizens United decision, there’s a valuable lesson here: money buys you the means to make your case, not the right to have that case accepted by the voters. Big money in political races can be just as much a drawback as an advantage. And if you don’t believe that, just ask the organized labor establishment, whose investment in this year’s races turned out to be a toxic asset.

So says John Steele Gordon in a characteristically insightful post on Commentary’s Contentions Blog. Per the G-man:

Wilson was, at heart, an academic, the author of several books, (including Congressional Government, still in print after 125 years). He thought and acted like a professor even after he entered politics. Wilson always took it for granted, for instance, that he was the smartest guy in the room and acted accordingly. Does that sound familiar? Wilson was a remarkably powerful orator. (It was he who revived the custom of delivering the State of the Union message in person, a custom that had been dropped by Thomas Jefferson, a poor and most reluctant public speaker.)

… Both Wilson and Obama were the subjects of remarkable public adulation, and both won the Nobel Peace Prize for their aspirations rather than their accomplishments. In Wilson’s case, at least, it only increased his sense of being God’s instrument on earth. Although the Republicans had won majorities just before Armistice Day in November 1918, in both houses of Congress — and the Senate’s consent by a two-thirds majority would be necessary to ratify any treaty — Wilson shut them out of any say in the treaty he went to Paris to negotiate with the other victorious powers. Obama, of course, shut the Republicans out of any say in both the stimulus bill and ObamaCare.

Lest conservatives get too excited, we should remember that Wilson was a two-term president. Lest liberals get too cocky, his name has also been something of a political epithet ever since.

For reasons surpassing understanding, the White House seems to have decided that the immediate run-up to a catastrophic mid-term election is the time for a series of insider press portraits of an asphyxiating presidency. The latest such installment comes in a profile of White House Press Secretary Robert Gibbs in the new issue of GQ. Buried among many gems in the piece is this new nugget about President Obama’s initial reaction to the Gulf Oil Spill:

As we ramp up to the midterm elections with liberals claiming that the threat of Iran is overstated, that all we need to accomplish peace in the Middle East is for Israelis to stop building condos, that terrorism is better defined as “man-caused disasters”, and that Afghanistan can be won with a publicly-defined date for withdrawal, it’s worth remembering a time when Democrats produced some of the fiercest of our cold warriors.

Forty-eight years ago today, we were in the midst of the Cuban Missile Crisis. At the time, Adlai Stevenson — the failed presidential nominee of the Democratic Party in both 1952 and 1956 — was serving as President Kennedy’s Ambassador to the United Nations. In recent years, Stevenson’s name has been most frequently invoked in comparison to President Obama — another liberal Illinois politician with a reputation for haughtiness. But Obama’s arrogance could be forgiven if he could ever produce a moment like the one Stevenson generated in Turtle Bay on October 25, 1962:

Oh, for just one more national Democrat (Joe Lieberman doesn’t count) like this.

How is the most powerful man in the world spending the week prior to the midterm elections, while the economy is in turmoil and the public is revolting over expansive government programs that his administration initiated? According to CNN, he’ll be chatting with Jon Stewart on the Daily Show.

It’s bad enough that Obama is a feckless president. But he’s an awful pedestrian one too.

Last month, we profiled how federalism is alive and well in economic policy — as exemplified most explicitly in the sharp contrast between California and Texas (a topic we’ve been exploring for nearly a year).

As John Steele Gordon points out in the Contentions blog over at Commentary’s website:

It is often pointed out that the states make great laboratories for political-science experiments. And an experiment has been underway for quite a while testing the liberal model — high taxes, extensive regulation, many government-provided social services, union-friendly laws — against the conservative model — low taxes, limited regulation and social services, right-to-work laws. The results are increasingly in. As Rich Lowry reports in National Review Online, the differences between California and Texas are striking. Between August 2009 and August 2010, the nation created a net of 214,000 jobs. Texas created more than half of them, 119,000. California lost 112,000 jobs in that period.

California has always prided itself on being a leading indicator for the rest of the nation. We’ll see how well they like that designation when it turns out to mean being the canary in the coal mine.

Further proof that the Beltway Keynesians have taken us down the economic rabbit hole: it’s now falling to Europeans to warn us that inflation and stimulus are tanking the dollar. Consider the following from the Financial Times:

Increasing expectations the Federal Reserve will pump more money into the US economy next month under a policy known as quantitative easing sent the dollar to new lows against the Chinese renminbi, Swiss franc and Australian dollar. It dropped to a 15-year low against the yen and an eight-month low against the euro …

A senior European policy-maker, who asked not to be named, said a further aggressive round of monetary easing by the US Federal Reserve would be “irresponsible” as it made US exports more competitive at the expense of its rivals…

Russia’s finance minister Alexei Kudrin, in a meeting with European Union officials, blamed the US – and others – for global currency instability.

He said one reason for exchange rate turmoil “is the stimulating monetary policy of some developed countries, above all the United States, which are trying to solve their structural problems in this way”.

The entire justification for the creation of the Federal Reserve was to ensure that monetary policy would be insulated from political pressure. If Ben Bernanke chooses to act as a handmaiden for the profligacy of the Obama Administration, then he deserves to be cleaning out his desk just as much as the president.

A nice jab from the folks over at Politizoid: