Obama’s bogus economics

via: reflectionsebi

President Barack Obama continues to insist that his stimulus plan will create or save 3.5 million jobs but he has not explained how he arrived at this number.  In fact, nobody has done that in a convincing manner because it cannot be done.  Mr. Obama’s stimulus plan is a pipe dream based on economic assumptions known theoretically and empirically to be false.

The 3.5 million jobs stem from an economic model built by Christina Romer, chair of the White House Economic Advisory Board, and Jared Bernstein, economic advisor to the vice president elect. The Romer-Bernstein model goes a long way to revealing why Mr. Obama would rather talk about the 3.5 million jobs than about how these jobs came into projected existence.

Romer-Bernstein is a Keynesian macroeconomic model based on the following critical assumptions:

1.  A multiplier averaging 0.82 for to tax cuts;
2.  A multiplier averaging 1.5 for government spending;
3.  Interest rates to be zero for four years;
4.  Government spending causes no crowding out.

Multiplier

The “multiplier” is a Keynesian concept used to quantify the effect of government policies on the GDP.  For instance, should it have a 1.5 multiplier, government spending equivalent to 1 percent of GDP would create a 1.5 percent increase in GDP.  Needless to say, socialist economists love the multiplier.

Oddly, Romer-Bernstein’s multiplier assumptions are not borne out by Mrs. Romer’s previous work.  In a paper published in March 2007, Mrs. Romer and her husband, David H. Romer, found that tax cuts have a multiplier of three in normal economic times but they are ineffective when used to offset a business cycle.  In other words, Romer-Romer found that tax cuts do not work during recessions – ostensibly, because consumers choose to increase their savings.

The Romer-Romer paper constitutes a major blow to Keynesian economics because its findings can be applied to government spending as well. Hence, Romer-Romer provides the best argument against Romer-Bernstein’s 3.5 million jobs, namely, that fiscal policies do not work during recessions.

In a recent paper, economists John F. Cogan, Tobias Cwik, John B. Taylor and Volker Wieland (Cogan-Taylor) assessed Romer-Bernstein with a Keynesian model that incorporates the major economics findings of the past 30 years, including rational expectations. They found that the multipliers for government spending was only one third of the multipliers Romer-Bernstein assumed and, most significantly, multipliers become negative in 2013 for several years thereafter.  The inescapable conclusion is that government spending will eventually impoverish the country.  This explains why countries that relied on government spending for growth became poorer.

It seems that Mrs. Romer and Mr. Bernstein disregarded reality and simply set their multipliers at levels that would ensure a predetermined outcome, namely, Mr. Obama’s 3.5 million jobs. Government spending multipliers of 1.5 are to economics what unicorns are to zoology: they are mythical.

Zero interest rates

Romer-Bernstein makes another outrageous assumption, i.e. that interest rates will be zero for four years. In theory and in practice, interest rates can only be at zero during a period of no or of very slow growth. As Romer-Bernstein projects strong GDP growth, it is inconceivable that interest rates would remain at zero for four years.

That assumption is even more problematic when one factors in the Federal Reserve’s inflationary activities of the past year. The combination of strong growth and the Fed easy-money will make it impossible for interest rates to remain at zero.

Romer-Bernstein’s interest rate assumption is, therefore, indefensible within the parameters of their model. It also contradicts basic interest rate theory.

No crowding out effect

Mr. Obama, while embarking on the largest peacetime government spending programs, pays lip service to the private sector and assures Americans that he wants a strong private sector.  Accordingly, Romer-Bernstein projects that the private sector will create 90 percent of Mr. Obama’s 3.5 million jobs. Economic history, however, does not bear that assumption out.

It is an empirical fact that government spending reduces—crowds out—private private sector economic activity. It is, therefore, hard to imagine how a government spending program that will crowd out private sector economic activity by hundreds of billion of dollars will, at the same time, get the same private sector to create 90 percent of the 3.5 million new jobs.

In contrast, the Cogan-Taylor model suggests that Mr. Obama’s stimulus plan will only create 600,000 jobs and that the private sector contribution will be minimal.  In other words, Mr. Obama will spend almost $800 billion to create 600,000 mostly-government jobs. That means each Obama job will cost American taxpayers over $1.3 million and will disappear soon after the spending is done.

In order to create the promised 3.5 million jobs, Mr. Obama would have to increase the stimulus plan to $4.2 trillion. That would be 33 percent of the U.S. economy.

Models versus reality

Ultimately, models are as good as their assumptions. That is why Mr. Obama’s 3.5 million jobs will never materialize. The model upon which these jobs are based is so seriously flawed as to have zero credibility. Government spending will prove just as ineffective in this recession as it did in other recessions, in the United States and elsewhere. There is no empirical evidence that demonstrates that government spending creates prosperity. The opposite is true.

Plenty of countries, from Argentina to Zimbabwe, have repeatedly and over several decades tried to spend their way to prosperity.  The results have been consistent.  Government spending increases debt, shrinks the private sector and impoverishes the nation.

While the experiences of bankrupted states like North Korea and the former U.S.S.R. come to mind, one does not have to go far to observe failures similar to those in which Mr. Obama’s policies will result.  Some of our European allies were, for decades, ardent proponents of government spending. They moved away from such policies because they were going broke. Italy’s experience ought to be a lesson for Congress, the White House and the brand of economic theory they have embraced.

By pursuing discredited economic policies, Mr. Obama is putting the United States on the road to economic irrelevance. His upcoming budget, building on the stimulus plan, will bring America closer to destitution. Perhaps Congress will stop this madness before it is too late.

- Joseph Beaudoin holds degrees in economics and finance, and worked in the banking and investment industries for 20 years. He is a regular contributor to Reflections.

Defeating America from within

via: ebireflections

As the media obsesses about President Barack Obama on the Jay Leno show and his wife, Michelle’s new White House garden, the real story has gone virtually unnoticed. Namely, the Fed’s announcement that it will be pumping another trillion dollars into the economy. That’s one trillion dollars it will manufacture out of thin air.

Consider this: What would happen if you maxed out your credit cards, borrowed to pay your mortgage, spent all your savings and then went out and got a new loan, which you had no hope of repaying?

Ronald Reagan knew. He had the rare ability to recognize the obvious, being the sole voice predicting that the former Soviet Union could not possibly sustain its level of spending and would eventually collapse. It did. And all “experts” were surprised.

It doesn’t take an expert to predict what will happen when individuals, businesses, or countries spend beyond their means. Joe six-pack in flyover country knows better than most politicians that there are no free lunches, that actions have consequences.

Our elected officials remain blissfully unaware of these basic tenets. Whether through economic ignorance or a political lock-step mentality, both Republicans and Democrats not only continue the massive raid on our present and future tax dollars, they continue to enact policies that make an economic recovery virtually impossible.

While the media focuses the nation’s attention on the faux brou haha of the AIG bonuses, our elected officials lay plans to implement a costly cap and trade system to address the new “crisis” of global warming. The Heritage Foundation estimates this will add approximately $1,800 in energy costs to every American household.

Meanwhile, the popular “soak the rich” class warfare has resulted in a massive tax increase on those making over $250,000. Mr. Obama blithely states that “the rich shouldn’t mind paying their fair share.” Notice: It is now the government that defines what is “fair” and who is “rich.”

Noticeable only by its absence, is the historical fact that raising taxes in a recession is economic suicide. Not one of our elected officials has pointed out the obvious (which is also a proven fact) that lowering taxes fuels the economy while, at the same time, replenishes government coffers. Instead, most of our elected officials have opted to continue promoting class warfare as both an explanation and a solution to the current economic mess.

Between 70 percent and 90 percent of our economy is fueled by and dependent on small businesses, who routinely file taxes as “sole proprietors.” This means all their receipts are figured into their gross income, automatically placing them in the ranks of the “rich.” These are the people who are paying for the government’s largess. These entrepreneurs are the very ones who are being demonized, taxed to death and run out of business. These guys are our neighbors. And we are now all complicit in denying them the legitimate fruits of their labor. We are killing the golden goose.

One of the rare political hold outs against the prevailing tsunami, South Carolina Governor Mark Sanford was twice rejected by the White House when he humbly asked to use the “stimulus” money to pay down his state’s debt.

Like Mr. Reagan, Mr. Sanford has been predicting for years what will happen if the United States continues its present course. In virtually every public speech he makes, he includes this timeline of nations, learned from 200 years of history:

1.  From bondage to spiritual faith
2.  From spiritual faith to great courage
3.  From courage to liberty
4.  From liberty to abundance
5.  From abundance to complacency
6.  From complacency to apathy
7.  From apathy to dependence
8.  From dependence back into bondage

Mr. Sanford’s voice is being ignored—as are the voices of an awaking populace, only now realizing that the new Obama Messiah does not have the ability to wave a magic wand and replace reality with a blissful utopian paradise.

Our enemies have realized this all along. And now that the America is in appeasement mode, cutting military spending and believing that the war on terror can be ignored by redefining it, it is only a matter of time before some Islamic fanatics take advantage of our weakened economic status and our new pacifism.

Alas, they may be too late. The Obama administration, with the help of Republicans, has already inflicted more economic damage on this country than the terrorists ever did. And the media has done more to destroy America’s will to fight than legions of suicide bombers ever could. Our enemies may now rejoice that America appears to have been defeated from within.

-Nancy Morgan is a columnist and news editor for RightBias.com She lives in South Carolina.

Swinging right

via: reflectionsebi

To win elections, conservatives need to attract swing voters. Otherwise, conservatives will stand by, powerless to preserve the American system of government, free enterprise, and individual liberty. But winning without maintaining our conservative values creates no mandate.

For example, Newt Gingrich, in a speech to the Michigan legislature, proposed to pay children to read. This was a misguided and condescending attempt to appeal to an electorate that he does not understand. Such ideas reveal that Mr. Gingrich misjudges independent voters and the nature of potential swing states. Pay children to read?!

Karl Rove was much more astute. He studied where people live and their buying patterns to try to ascertain how they might vote. He then tailored messages in response to issues at hand in the hopes of binding persuadable swing voters to Republicans. This worked in 2004 when there were two major issues: the importance of continuity of leadership during wartime and anti-gay marriage initiatives.

In 2006, however, Republicans suffered at the ballot box because President George W. Bush was demeaned as a leader. Incessant Democrat and media attacks portrayed him as weak and wrong, and he did little to dispel that notion. The public, with help from his opponents, began to see his unchanging policies as a sign of inflexibility and stubbornness. Mr. Rove’s demographic analysis was not a viable technique once the party lost control of the debate and the issue became Bush’s perceived failures in the war and in spending, which undermined Republicans’ reputation as the “small government” party. After GOP losses in 2006, Mr. Bush said, “We got our voters out; they just didn’t vote for us.”

In the 2008 campaign, Senator John McCain, Arizona Republican, seemed to many to be the best candidate to attract swing voters. His compelling life story and heroism appealed to Republicans and his willingness to “cross the aisle” made him popular with Democrats (he was so acceptable to liberals that a high number of them switched over to vote for Mr. McCain in Republican primaries). But in the end, Republicans’ attempt to offer a candidate who might appeal to swing voters failed. Mr. McCain couldn’t even fill two minutes provided to him during the last debate to say why he should be president.

Swing or independent voters believe that ordinary citizens shouldn’t have to spend much time thinking about politics. Independents hope to be relieved of the burden of closely following politics, as was the intent of our founders, who expected a combination of virtuous leaders, checks and balances, and limited government to allow citizens to focus on their own lives between elections.

Many independent voters look for representatives who agree with them on issues of importance. A panderer, however, cannot be counted on. He can be persuaded by powerful forces and interests once he is elected, and a voter cannot be sure his or her opinion will be one of those forces.

Those independent voters who “vote for the person, not the party” seek the best leaders. Attempts to pander to these voters repel rather than attract their votes, because conservatives who water down their leadership qualities offer little to follow, and these people see through and resent the dishonesty involved in pandering.

Cynical independent voters believe that very few good politicians exist. Demonstrating desperation for votes at the expense of core values only confirms these voters’ belief that all politicians are dishonest.

Our hope is to explain to each of these groups why conservative ideas will work, not to try to figure out how to appeal to their possible liberal proclivities. Conservatives need to be strong leaders voters can believe in, even if they don’t agree on all issues.

Some Republicans are tired of hearing about Ronald Reagan, but Mr. Reagan was consistent. Through the course of his campaigns he convinced people of the validity of his ideas. If this no longer works, then conservatives don’t have a mandate. They’ll be voted out. But at least they’ll be voted out honestly, and will provide an alternative for voters after liberal policies fail.

Conservatives may gain ground with voters by addressing the problem of lost manufacturing jobs, which Democrats have successfully blamed on Republican policies. The Border Tax Equity Act of 2007 authorizes the U.S. to charge a tax on imported goods commensurate with the tax charged on our exported goods. This bill would help other countries—not only the United States—because it encourages the development of the middle class that so strengthens an economy, not just a manufacturing class. Staunch advocates of free trade should be cautious of knee-jerk reactions to commonsense adjustments that could be beneficial to the American people and the countries we trade with, which, after all, is the goal of free trade in the first place.

Another commonsense goal that may attract swing voters is to make people aware that the consumer actually pays corporate income taxes, because manufacturers apply the cost directly to prices. America has the second highest corporate income tax rate in the industrialized world, and these taxes actually provide an incentive for manufacturers to move overseas.

If the GOP wants to win swing voters in 2012, it will have to enact these recommendations. Time is of the essence.

-Kerry W. McCarthy is a writer living in Indiana.

Are Republicans the stupid party?

via: ebireflections

I am privileged to spend three hours a day, five days a week behind a microphone. I love what I do, and I do it quite well. At times I laugh, but these days, more often than not, I get angry, very angry. I get angry because I take pride in informing and educating my listeners, but unfortunately, the same cannot be said for elected representatives in Washington whose charge it is to get the conservative message out. Ever since I can remember, the GOP and those on the right have been just plain lousy at communicating. They get run over by their counterparts on the left and let the mainstream media set the agenda. If the GOP and conservatism is to survive, this problem must be remedied.

The public needs to be made aware of what is happening under the Obama administration and the Democrat leadership in Congress. We need to stop assuming that the public knows. They don’t. From behind my microphone, I went on an extended rant over the accusations made by our Secretary of State Hillary Clinton. She claimed that we, the United States, bear a “co-responsibility” for the drug war in Mexico. On her way south of the border, Mrs. Clinton blamed America’s “insatiable demand for illegal drugs” and its “inability to prevent weapons from being smuggled across the boarder” for the deaths of Mexican police, soldiers and civilians. It’s our fault! So the Republican leadership took to the steps of the Capitol and expressed their collective outrage over these vulgar remarks, right? Wrong.

Do you think Americans are aware of the fact that Rep. Greg Harper (R-MI), who sits on the budget committee, proposed that nearly half of the $900 million slated in aid for Hamas and the Palestinians be given instead as a raise to our brave men and women in the armed services? Do they know that not one Democrat voted in the affirmative for this proposal? My listeners know this, but the leadership was AWOL on this.

So it turns out that Chris Dodd’s (D-CT) wife served as an “outside” director of IPC Holdings Ltd., a Bermuda-based company controlled by AIG! What did the great communicators who run the GOP have to say at their massive press conference on this? There was, of course, no such presser.

The three issues discussed above all became news on the very same day, Wednesday March 25, 2009. For those at the helm of the GOP and the conservative movement, it should have been a day at the beach. Instead, they were all missing in action. The problem is this is the norm, and it is nothing less than an abdication of responsibility, as well as dangerously poor politics.

Also on March 25, our new Homeland Security Secretary Janet Napolitano testified to Sen. Joe Lieberman’s (I-CT) committee and refused to use the term “illegal immigrant” during testimony on Mexican illegal aliens. This comes on the heels of the elimination of terms like “Global War on Terror” (replaced by “overseas contingency operation”) and “terrorism” (replaced by “man caused disaster”). The public would be outraged to learn this. It’s a winning point for our side. But of course, we let it slide.

One day earlier at his press conference, President Barack Obama exhibited unprecedented arrogance in claiming that anyone who contributes to charity in whole or in part for tax deductions, which he now wants to limit, is not in keeping with the spirit of charitable giving. This is extremely pompous and condescending. Yet I didn’t hear one word from our fearless leaders in response to this. If the GOP is to move forward, our message must be made clear not only by folks like me, but by the people running the real show. In addition, as we edge ever closer to the midterm elections, the Republican National Committee must do what it failed to do in the 2006 elections. They must nationalize them.

In 2006, I launched daily pleas which fell on deaf ears. The party needed to run national TV and radio spots featuring the remarks made by the likes of Sens. John Kerry (D-MA), Richard Durbin (D-IL), Harry Reid (D-NV), and Rep. John Murtha (D-PA), who trashed our men and women in uniform.

Since Mr. Obama’s swearing in, he has been a gift for the GOP that keeps on giving. The library of video and sound bites that exist on the president, Mr. Biden, Mrs. Pelosi, Mr. Reid, Mrs. Clinton, et al, can provide the GOP with more than enough ammunition with which to put together multiple winning spots for November 2010. But based on past and current performance, or should I say the lack thereof, I have serious doubts that they are up to the task. Sometimes, I just think they don’t want to win.

-Steve Malzberg is a nationally syndicated talk show host on the WOR Radio Network and a frequent guest on many of the television cable shows. He can be reached through www.worradionet.com

The end of the American moment?

via: ebireflections

Barack Obama’s presidency marks the decline and fall of America as the world’s last superpower; it is the end of the American moment, the period from 1945 in which the United States walked on the world stage like a military and economic colossus. Like ancient Rome, America has lost its civilizational will to maintain its great-power status. The country has become stripped from its Judeo-Christian moorings and founding principles. Our liberal ruling elites no longer believe in American exceptionalism or its historic mission as the defender of democracy and liberty.

This was evident during Mr. Obama’s recent trip to the Summit of the Americas, the gathering of all the heads of state in the Western Hemisphere. Instead of championing American national interests and values, the celebrity-in-chief rushed to cozy up with Latin America’s two worst dictators: Venezuelan President Hugo Chavez and Cuban strongman Raul Castro (the younger brother of the ailing Fidel). Mr. Obama engaged in several high-profile photo-ops with Chavez, publicly shaking his hand and calling the Bolivarian despot his “amigo.” Mr. Obama’s actions disgraced the United States, undermined human rights and emboldened the region’s leading anti-American demagogue to further export his brand of revolutionary socialism.

Mr. Chavez has dismantled Venezuela’s democracy. His regime routinely murders and imprisons political dissidents, cracks down on media freedoms and systematically harasses opponents—including leading members of the Catholic Church. He has centralized power, using class warfare to decimate the country’s middle class and erect an authoritarian socialist state. He is following the Marxist model of Castro’s Cuba.

Moreover, Chavez has emerged as the region’s most dangerous threat to U.S. security interests. He is using Venezuela’s vast oil wealth to prop up anti-American, socialist autocracies—like Bolivia and Cuba. His regime funds the leftist FARC terrorists in neighboring Columbia. He actively supports drug trafficking—especially, into the United States, poisoning our nation’s youth. He has fostered close ties with Iran’s mullahs, backing their drive for a nuclear bomb.

Yet, Mr. Obama refused to stand up to this tin pot dictator. He didn’t defend Chavez’s countless victims, who are rotting in the jails of Caracas. Instead, the leader of the free world sent a powerful signal: Washington prefers being liked by odious regimes than champion human rights and democracy. Mr. Obama’s cowardly actions betrayed not only the suffering people of Venezuela, but fundamental American principles.

On Cuba, Mr. Obama is slowly tilting toward a policy of engagement and appeasement. He has relaxed prior policies on remittances and travel to the island dictatorship. Telecommunications companies are lining up to do business with Castro’s apparatchiks. But Castro is not interested in opening up Cuba’s political system and economy: any such moves would result in the same thing that happened in the former Soviet bloc—the collapse of communism.

Mr. Obama’s embrace of Chavez and Castro should come as no surprise. Like them, our celebrity-in-chief is a transnational socialist, who believes America is to blame for much of the globe’s problems. He shares many aspects of their worldview—state control over the economy, soak-the-rich redistributionist policies, massive public spending, a neutered U.S. foreign policy, direct diplomatic negotiations and closer ties with Iran, China and Russia, and the end of an American unipolar international system. Mr. Obama, of course, is a democrat; they are tyrants—and that is a fundamental and all-important difference. He can be replaced at the ballot box; they can’t.

But Mr. Obama is a revolutionary leftist, who is slowly transforming America into a post-modern, post-national, nanny state. In foreign affairs, he has gone to Europe and apologized for the United States’ past “arrogance—despite the fact that, at tremendous cost in blood and treasure, it was America that liberated the continent from Nazi occupation and the menace of Soviet totalitarianism (During the 1990s, while genocide was taking place on their doorstep in the Balkans, the Europeans did nothing until—you guessed it—Uncle Sam intervened). Mr. Obama seeks a rapprochement with Iran’s apocalyptic Islamist mullahs. He has called for unilateral nuclear disarmament. He has failed to punish North Korea for its illegal missile launch. He is back-pedaling on Washington’s pledge to install missile-defense sites in Poland and the Czech Republic in order to pacify Russia’s revanchists. And he has publicly demanded that Red China be treated on an equal footing with the United States, elevating the status of a belligerent, militaristic and ultra-nationalist regime to the level of a co-equal hyperpower. In short, he is systematically undermining America’s international prestige and standing, attempting to erect a multi-polar world order—where America is only one of many great powers.

At home, Mr. Obama is implementing the most ambitious leftist agenda in our history. He has passed a nearly $1 trillion stimulus package. His administration is nationalizing the big banks and the insurance companies. They are bailing out key sectors of the economy—including the automakers, to the point where Washington is picking who runs General Motors. He supports government-run health care, federally subsidized day care, pouring billions into public works projects, expanding funding to unemployment insurance and Medicaid, granting amnesty to 12-20 million illegal immigrants, creating a new “green economy,” mandating draconian cap-and-trade environmental regulations and imposing a nearly $1 trillion tax increase. The non-partisan Congressional Budget Office states the Obama administration will add $9.3 trillion to the national debt over the next ten years—accumulating more red ink than all the previous 43 administrations combined. The Federal Reserve is printing money to underwrite these massive levels of deficit spending and government commitments. Bailout Nation is leading to Bankrupt Nation. No country can sustain this kind of fiscal irresponsibility and social engineering—not even the land of milk and honey.

America is not immune to the laws of economics or history. Civilizations rise and fall. Our Founding Fathers understood this; in fact, they were deeply learned students of history. Their entire mission was to erect a republic—an experiment in individual freedom and self-government—that would endure the test of time. Upon leaving the Constitutional Convention, Benjamin Franklin was asked, “What kind of government have you given us?” Franklin’s response: “A Republic if you can keep it.” We are, however, in the process of losing our republic. We are going the way of ancient Rome.

Rome collapsed because of internal decay and the abandonment of its animating principles. It was the great superpower of its age, spreading peace, order, commerce, art, literature, culture, roads, prosperity and the rule of law. Yet, over time, its civilizational will to lead and survive was sapped. It no longer could protect its borders. Its politics was slowly undermined by factionalism, vicious infighting and the relentless centralization of power. It no longer could stand up to its external enemies. Patriotism and civic virtue were gradually extinguished. Its economy was strangled by crushing taxation and a burdensome, bloated bureaucracy. Sexual permissiveness, obsession with fame and entertainment, homosexuality and hedonism became rampant. The Romans lost more than their self-respect. They lost their sense of historical patrimony: What it meant to be a citizen, and the sacred rights and responsibilities that came with it. Their civilization slowly crumbled and died—going out not with a bang, but a pathetic whimper.

The Obama presidency represents an historic watershed: The time in history where the United States repeated the tragic pattern of Rome. We now have a commander-in-chief, who no longer believes in the American mission or in the foundational values that propelled the United States to global preeminence—limited government, free-market capitalism, traditional morality, national sovereignty, a distinct cultural identity and the unrivalled champion of freedom, democracy and human rights. His socialist internationalism not only emboldens our enemies, such as Chavez and Castro, but signals the loss of American power, American will and American self-confidence. Obama’s America is characterized by national confusion, moral self-loathing and civilizational paralysis. Once those qualities enter the bloodstream of a body politic, they are almost impossible to cure. And they lead to only one end: decay, decline and eventual ruin. It happened to Rome. And it is happening to us.

-Jeffrey T. Kuhner is president of the Edmund Burke Institute and a columnist at The Washington Times.