Replay of the 1930's?

Investors Business Daily provided one of the more insightful analyses of Obama's oration at the DNC Convention here.  Any objective history of FDR's New Deal (and there are a few) credits all the deficit spending through the alphabet programs tried by New Dealers as abject failure.  It's well to remember at this time that the Great Recession started with the stock market collapse of 1929 and really only ended after WWII, although some claim at the onset of that conflict.  All of Hoover and FDR's interventionist programs (begun under Republican Hoover), served only to prolong the recovery making it in the end the longest in history by far.  It is not surprising that Obama, who has no clue how wealth and jobs are created, is reduced to dredging up the failed policies of the Democrats of another era.  Since Obama is at best a Keynesian, and since his sense of history is most likely the result of reading liberal historians like Harvard's Arthur Schlesinger and Yale's Paul Kennedy, how would he know how misguided those '30's economic nostrums were?  If one likes the current economy and votes for Obama, expect a repeat of the '30's and a recession/depression that will last 10 years or more.  Not much of a choice.

Huntsman?

George Will is a Reagan conservative who to some, me among them, comes across as stilted and often pedantic.  However that may be, in this opinion article he articulates the very real problem many conservatives (me among them) have with the two leading candidates for the Republican nomination.  Romney is a Dewey-like candidate (actually he seems more like Hoover) who is not very likeable, and whose platform seems to be to merely micro-manage every aspect of existing government programs and bureaucracies -- a kind of big time efficiency expert. Gingrich is a loose canon,  a "bull in a china shop who carries his china shop around with him" with a propensity to find macro solutions for some problems that may not even exist, when in real time a little less government would do the trick.  What caused many conservatives to have severe reservations about Romney was his interview with Bret Baer of Fox News last week.  When questioned about his changes of policy prescriptions over the years Romney lashed out at Baer using the regal "we" when referring to Baer in his answers revealing a condescending attitude that is most disturbing.  In effect Romney was telling Baer that answering difficult questions about his changing positions on matters in the past is not important, that what is important is his prescriptions for problems facing the nation going forward.  He seems not to understand that conservatives want to know why he changed his positions in order to determine whether he's a garden variety malleable politician or a Reagan-like leader with real, understandable convictions and principles, like theirs.  Recalling the history of the '20's and the beginning of the Great Depression, Herbert Hoover was a putative conservative who in the end turned out to be the architect of the New Deal.  Since conservatives believe the growth of government during and since the New Deal is at the heart of our current problems, another Hoover is not their answer. If  Romney can't reasonably articulate the changes in his positions over the years, the fear in this quarter is he may be just another Hoover.

FDR's depression

Most people are not aware that the Great Depression started with the stock market collapse in 1929, shortly after Herbert Hoover was elected president.  Hoover, a technocrat/businessman, began a series of make work and other government spending programs that FDR expanded upon once he became president in 1933.  Many of the New Deal programs were simply variations and amplifications of the Hoover Administration's attempt to create jobs with government projects and planning.  Walter Williams, a conservative economist, talks about the evolution and failure of some of these programs in this column here.  It's worth noting that there was at least as much unemployment, north of 20%, in 1939/40 as in 1931/33 long after the programs of Hoover and FDR were put into play.  Clearly they had no impact on the unemployment rate.  So why are so many keen on the leadership of FDR during this period?  Maybe because he introduced many programs that have come to be known as the social safety net the runaway costs of which have now driven us into bankruptcy.  Those who believe in a government directed economy that delivers the fruits of everyone's labors evenly are always keen on more and more government programs and regulations to effect this end.  Hoover and FDR started the ball rolling and their big government followers remain grateful to these two.

Elizabeth Drew of NYT Book Review provides the liberal view

Elizabeth Drew is obviously a garden variety liberal who shows no evidence of having read anything about past recessions and depressions and who is clearly unaware of George Santayana's classic admonition: "Those who do not remember the past are condemned to repeat it".  The past was Herbert Hoover's reaction to the onset of the Great Depression in 1929 to dramatically increase taxes and create government spending programs willy nilly. Things got much worse over the next three years and in 1932 FDR ran against these profligate big spending programs, won big over the incumbent Hoover and proceeded in the next several years to double down on all Hoover's misguided tax and spending programs. Only the onset of the second world war in 1941, twelve years after the Great Depression began,  put Americans back to work thus ending the longest and deepest economic correction in our country's history.  In short the high tax big spending government programs during the '30's did little other than to prolong a recovery and make a bad economy worse.  So here we have the example of another "pundit" essentially agreeing with Obama's position on raising taxes and continuing big spending government programs that history showed us did not work.  And so it goes in liberal circles today.

Tax increases baked in the cake

From the WSJ is a partial list of tax increases thus far under the Obama regime.  Mind you, he want to increase taxes much more on the so-called wealthy and will accomplish an across the board tax increase when the Bush tax decreases expire in 2012.  Sounds like he wants to get us to the 50% of GDP rate of Sweden and other socialist states during his tenure.

Taxpayer cost over 10 years: $210 billion.

• Also starting in 2013 is a 2.3% excise tax on medical device manufacturers and importers. That’s estimated to raise $20 billion.

• Already underway this year is the new annual fee on “branded” drug makers and importers, which will raise $27 billion.

• Another $15.2 billion will come from raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%.

• Starting in 2018, the bill imposes a whopping 40% “excise tax” on high-cost health insurance plans. Though it only applies to two years in the 2010-2019 window of ObamaCare’s original budget score, this tax would still raise $32 billion—and much more in future years.

• And don’t forget a new annual fee on health insurance providers starting in 2014 and estimated to raise $60 billion. This tax, like many others on this list, will be passed along to consumers in higher health-care costs.

There are numerous other new taxes in the bill, all adding up to some $438 billion in new revenue over 10 years. But even that is understated because by 2019 the annual revenue increase is nearly $90 billion, or $900 billion in the 10 years after that. Yet Mr. Obama wants to add another $1 trillion in new taxes on top of this.

In addition to the above Steven Haywood offers the following:

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POSTED ON JULY 12, 2011 BY STEVEN HAYWARD IN FEDERAL BUDGET

“MISTER, WE COULD USE A MAN LIKE WARREN HARDING AGAIN!”

Baby-boomers and watchers of the TV Land channel will recall the line from “Those Were the Days”—the custom version written as the theme song for “All in the Family,” not the more familiar Charles Strouse/Lee Adams composition—which runs, “Mister, we could use a man like Herbert Hoover again!”  Norman Lear no doubt thought the invocation of Hoover, the Democratic Party’s go-to whipping boy for decades, would help hammer home his main purpose of mocking conservative middle class Americans.

Of course, he, like most liberals, had Hoover wrong.  For all of Hoover’s virtues, we cannot count sound economic policy among them.  As Dan Mitchell and others have pointed out, Hoover increased government spending 47 percent in his one term, raised taxes, and signed off on the disastrous Smoot-Hawley tariff, which first caused Franklin Roosevelt to run against Hoover’s profligacy, but later caused Rex Tugwell to say later that “practically the whole New Deal was extrapolated from programs that Hoover started.”

If Lear really wanted to raise hackles, he would have changed the lyrics to, “Mister, we could use a man like Warren Harding again!”  Now that would have raised some eyebrows and hackles alike.  No president is held in lower regard than Harding.  Yet watching the Obama Administration’s economic performance makes me think Harding is exactly the kind of president we need today.

I’ve been delving into Harding biographies and histories of his time for my current book project (more about this in due course as it gets closer to publication next year), and most everything you think you know about Harding is wrong, except for the bit about his assignations in a White House closet with one of his mistresses.

Did you know, for example, that Harding was the person most responsible for popularizing the now commonplace phrase, “the Founding Fathers”?  Or that he gave speech in Birmingham, Alabama that shocked the segregated audience when he called for racial equality?

There’s much more in this vein to recommend Harding, but what concerns us most acutely today is Harding’s economic policy, especially his response to the economic crisis of 1920-21 that can only be described as a depression.  World War I had left the nation with runaway inflation and a soaring debt.  The national debt had increased from $1 billion in 1914 to $24 billion by 1920—a spending growth record that Obama must surely envy.  The economic collapse of 1920 saw GDP shrink by a quarter, unemployment rise to about 15 percent (there were no official unemployment statistics in those days), and business bankruptcies soar.

So what did Harding do?  A “stimulus”?  A jobs program?  “Targeted” tax cuts?  Government bailouts for ailing companies?  Nope—he cut government spending sharply and rapidly (by almost 50 percent), began cutting tax rates across the board, and allowed asset values and wages to adjust freely as fast as possible.  Harding’s administration, Paul Johnson observed, “was the last time a major industrial power treated a recession by classic laissez-fairemethods, allowing wages to fall to their natural level . . .  By July 1921 it was all over and the economy was booming again.”  The Cato Institute’s Jim Powell offers a more complete summary of Harding’s soundness on economic policy, but suffice it to say that Harding’s traditional approach prevented the depression of 1920-21 from becoming a Great Depression, and in fact set the stage for the roaring twenties.

All of this comes to mind noting how just about every policy of the Obama Administration has chosen has extended the economic doldrums of the moment.  The Wall Street Journalreminds us again this morning about how Obama recently expressed bewilderment that the housing market “hasn’t bottomed out as quickly as we expected.”  One of the principal reasons for this was Obama’s $8,000 home-buyer tax credit in 2009 and 2010 that, like all Keynesian-style narcotics, juiced the market temporarily, but had the effect of prolonging our pain by delaying the necessary adjustment of housing values to their intrinsic level.  Now the Administration is said to be “ramping up talks on how to revive the housing market.”

Here’s a suggestion.  How about just staying out of the way.  Just stop.  And follow Harding’s lesson in reducing debt, too.  I know, the thought Obama could be half the president Harding was is too much to ask.

FINALLY YET MORE ON TAXATION FROM JENIFER RUBIN ON REP. RYAN'S PLAN

Once again, Paul Ryan takes on Obama

By Jennifer Rubin

Rep. Paul Ryan (R-Wis.) again and again has proved himself to be the most effective proponent of conservative economic principles.

Last night he sent around to budget committee colleagues a memo, a copy of which was obtained by Right Turn, setting forth some key facts and arguments. His central point is that “balance” doesn’t require tax hikes. As he puts it, “The House already passed a budget that puts us on the path to balance, and will vote next week on a Balanced Budget Amendment. To get to fiscal balance, the two critical elements required: spending restraint and economic growth. Tax hikes adversely undercut both of these key ingredients.”

The memo then provides some much needed context for the arguments on the debt ceiling:

A “Balanced Plan”?

l During the past two years Democrats enacted huge tax increases (see today’s Wall Street Journal editorial, “Taxes Upon Taxes”), which were accompanied by unprecedented increases in spending, deficits, and debt.

l While insisting on additional tax increases, the Obama Administration opposed revisiting the huge spending increases in the new health care law or implementing fundamental entitlement reform that would get spending on these programs under control.

l The last time there was a bipartisan budget agreement, it balanced the budget by cutting spending and cutting taxes. The 1997 bipartisan budget agreement between President Clinton and a Republican Congress balanced the budget by bringing spending down to 18.2% of gross domestic product.

Taxes and Revenues (Americans are not under-taxed)

l Expiration of 2001/2003 Tax Relief. Taxes will rise by $3.5 trillion if the 2001/2003 tax relief, the AMT patch, and the estate tax compromise expire at the end of 2012 as scheduled under current law.

l Health Care Law’s Tax Increases. The health care bill adds another $813 billion in taxes over 10 years. In addition to these taxes, other legislation has increased taxes (the SCHIP extension law included tax increases of $75 billion).

l Tax Engineering. The Obama Administration wants to extend the one-year temporary payroll tax cut (total cost of $112 billion), while increasing taxes on small businesses.

l Tax Increases and the Top Rate. As a result, these tax increases push the effective top rate from 35% today to 44.8%.

l Current Tax Burden. Under current law (before expiration of 2001/2003 tax relief and implementation of the new health care taxes), the top 1% of income taxpayers (over $380,000 in annual income) already pay 38% of income taxes. The bottom half of income taxpayers pay 3% of income taxes.

l Revenues Growing Without Tax Increases. Despite a weak economy and the temporary reduction in Social Security taxes, according to CBO, revenues grew by 8.5% through the first 9 months of this year and expect revenues in 2011 will be $75 billion to $85 billion higher than they estimated in March.

l Republican Budget & Revenues. Under the House Republican budget, which extended tax relief and repealed tax increases in the new health care law, revenues still grow by nearly $2 trillion over the next 10 years.

l President’s Budget & Tax Increases. The President’s budget increases taxes by $1.2 trillion.

Democrats and the left punditocracy often argue that “all” President Obama wants is to go back to the Clinton tax rate. If only. And if we are to take Sen. Kent Conrad (D-N.D.) seriously, Senate Democrats want a$2 trillion tax increase.

Ryan makes the case that the problem is spending and the ensuing debt, neither of which Obama is willing to seriously address:

Spending is the Problem

l 24% Increase in Base Spending. Non-defense discretionary spending grew by 24% for the first two years of the Obama Administration, adding $734 billion in spending over the next 10 years.

l Health Care Law Spending Increases. The new health care law included $1.4 trillion increase in spending, including expanding eligibility in Medicaid by one-third and creating a brand new health care entitlement.

l Stimulus. CBO currently puts the stimulus bill’s cost at $821 billion.

l Record Total Spending. The Federal government will spend $3.6 trillion this year, 24% of gross domestic product (GDP) and the highest burden on the economy since World War II. Spending has historically averaged a little over 20% of GDP.

l President’s Budget & Spending. According to CBO, the President’s budget never spends below 23% of GDP and by the end of the decade is right back at 24% of GDP.

l Republican Budget. The House Republican Budget would cut $6.2 trillion in spending from the President’s budget.

Deficits and Debt

l $1 Trillion Deficits. The deficit is on track to exceed $1 trillion this year, the third year in a row that deficits have exceeded $1 trillion.

l President’s Budget & “Framework.” According to CBO, under the President’s budget, annual deficits never fall below $700 billion and end the decade exceeding $1 trillion. When asked about the President’s April 13th new budget framework, Director Elmendorf testified, “We don’t estimate speeches.”

l Debt Explosion. Since President Obama took office, the total debt has grown from $10.6 trillion to $14.3 trillion, nearly a $4 trillion increase. This year total debt will exceed the size of the economy.

l Republican Budget. The Republican budget reduces the deficit by $4.4 trillion, puts the budget on a path to balance, and begins to reduce debt held by the public as a burden on the economy by 2014.

The president in public wants to operate on platitudes and generalities.Work together. A balanced approach. Eat your peas. The White House is avoiding specifics for a reason: The facts reinforce the public’s sense that the real issue is that we are spending too much. Republicans would do well to speak in specifics and to emphasize that real “balance” means spending at a slower rate (you’d think Ryan’s plan would actually halt the upward climb in spending; it merely restrains it a bit more than Obama’s) and keeping the size of the public sector in check so the private sector can grow and create jobs.

Once again we see that Ryan is the most effective spokesman and advocate for Republicans, in part because he is thoroughly versed in the details. Imagine if he were to debate Obama. In the fall of 2012. On national TV. With the presidency at stake. Is there any doubt who would come off better?

2012 Election prospects

Soon, and hopefully people will be analyzing and deconstructing Obama and his administration after the fact.  The likely comparison that will come to mind is Jimmy Carter and his failed administration of the late '70's.  It's hard to think of much Carter did right, especially in foreign affairs, but to his credit he did get one thing right on the economy: deregulation.  By all rights, he should get a great deal of credit for starting the deregulation ball rolling that eventually freed up the US economy from the rigid controls that inhibited competition and therefore growth especially in transportation and communications. Affordable airfares, telephone service and shipping costs all contributed positively to the fabulous growth of the economy that occurred during the '80's and 90's.  Unfortunately Obama has no understanding of the workings of our modern economy as is apparent from this article, and sees the commercial world largely through the prism of the 18th century mercantilism that Adam Smith debunked and buried once and for all in  "Wealth of Nations".  Obama also has no idea of the significance of the Austrian School of Economics and its emphasis on the incentives that drive free markets in the creation of wealth.  This latter shortcoming in Obama's education is particularly unfortunate for had he been aware of all the failed policies of Herbert Hoover in his attempt to promote recovery from the onset of the Great Depression in 1930 and 1931, he would have understood that the democrat party's Keynsian deficit financing effort and the various bailouts were not going to work.  Long before FDR's great spending debacle, Hoover tried them all, including large tax increases on income and capital and the infamous Smoot-Hawley protectionist tariff law that killed all export markets for US producers. In fact, for those who are familiar with the Hoover presidency, it is his administration that Obama's most closely resembles and will most likely be linked with not Carter's which at least gave us deregulation.

2012 Election prospects

Soon, and hopefully, people will be analyzing and deconstructing Obama and his administration after the fact.  The likely comparison that will come to mind is Jimmy Carter and his failed administration of the late '70's.  It's hard to think of much Carter did right, especially in foreign affairs, but to his credit he did get one thing right on the economy: deregulation.  By all rights, he should get a great deal of credit for starting the deregulation ball rolling that eventually freed up the US economy from the rigid controls that inhibited competition and therefore growth especially in transportation and communications. Affordable airfares, telephone service and shipping costs all contributed positively to the fabulous growth of the economy that occurred during the '80's and 90's.  Unfortunately Obama has no understanding of the workings of our modern economy as is apparent from this article, and sees the commercial world largely through the prism of the 18th century mercantilism that Adam Smith debunked and buried once and for all in  "Wealth of Nations".  Obama also has no idea of the significance of the Austrian School of Economics and its emphasis on the incentives that drive free markets in the creation of wealth.  This latter shortcoming in Obama's education is particularly unfortunate for had he been aware of all the failed policies of Herbert Hoover in his attempt to promote recovery from the onset of the Great Depression in 1930 and 1931, he would have understood that the democrat party's Keynsian deficit financing effort and the various bailouts were not going to work.  Long before FDR's great spending debacle, Hoover tried them all, including large tax increases on income and capital and the infamous Smoot-Hawley protectionist tariff law that killed all export markets for US producers. In fact, for those who are familiar with the Hoover presidency, it is his administration that Obama's most closely resembles and will most likely be linked with not Carter's which at least gave us deregulation.