I really grasped the plight of reasonable people in the runup to the 2008 election.  In one of the early Republican debates with <sarcasm>powerful</sarcasm> figures like Sam Brownback, Rick Santorum and Mike Huckabee on the stage, the moderator asked for a show of hands of those who did not believe in evolution.  Of the 10 people on the stage, 9 hands went up if I recall correctly.  I knew the nation was screwed at that point.

So why is it that no one of any substance will take the plunge to lead the nation?  I think it is because they have to run the gauntlet of religious whack jobs.  People who live a daily shared fantasy about an evanescent force that allows them to believe all kinds of crazy notions without any reason behind them.  Religion.  The scourge of man.  Religion has given us plenty of beauty, don’t get me wrong.  Chorale music of sublime power.  Charity and love, yes.  But also war and pointless destruction on a mythic scale.  Christians have been largely pacified in recent centuries and now coexist with the notion of separation of church and state that is the signature historical achievement of the United States.  Muslims have taken up the banner of dogmatic intolerance.  Demographics favors them sadly.

But people who would relegate personal matters to the realm of personal choice, such as Mitch Daniels and a few others will not get involved.  Ralph Reed has long since organized the fantasy corps and set up a screen through which only crazy religious types may pass.  Romney stands out as an exception.  He is a billionaire and obviously made a deal with someone.  But he also professes some crazy religious ideas.  And he is really a North East liberal on the issues that matter: economic issues, the nature of the state and society.

And then there is Illinois.  In the 2010 election cycle, when Republicans swept nearly all of the offices nationwide, Illinois put up a candidate for Governor that was right out of the Ralph Reed playbook.  His top issue of course was abortion.  No abortions under any circumstances.  Not for rape.  Not for incest.  He spent election day in church praying.  He lost.  Everyone wanted to throw out the Democrats but still this moron lost because he was incredibly extreme and focused on the wrong issues in his extremism.  Abortion is ugly.  But the issue is settled.  It is not an issue for big stage politics as the top-heavy socialist state crumbles around us.  So we have Quinn.  And we immediately got a tax increase.  And the schools are still underfunded.  And there is rampant corruption and an intractable public pension problem that will drag the state down in the end.  Will Quinn and the idiots in Springfield do the right thing about it?  I am not holding my breath.  Could we have had a better candidate?  Not in a world organized by Ralph Reed and his minions and clones.  A face that needs a fist firmly planted in it.  Bile rises just looking at it.

Democrats are destroyers.  But Republicans will not be saving the day until they throw off the shackles of the religious.

Rahm’s daughter was on my daughter’s Lacrosse team this fall.  I chatted with his wife on the sidelines.  She seemed nice.  Strange she would be married to such a person.  Overbearing government puts Hizzoner, and the idiots in Springfield who voted for this outrage  on the list.

Let us briefly review Mr. Corzine’s history.  Head of the giant squid – Goldman Sachs – from 1994 to 1999.  Not sure how his tenure there was regarded but he was forced out as Paulson took control of the firm.  Next he went on to help destroy the United States as a Demunist Senator from New Jersey.  Not content to inflict pain and death at the national level, he then decided he had to further destroy New Jersey as its governor.  After his maladroit stewardship there, he was put in as the Key Man at MF Global, considered so important to that firm that the codicil to a bond offering by the firm provided for penalties to be awarded to bond holders in the event he left MFG for the US Treasury.  Yep, he was on his way to further destroy the US.  Fortunately for the country, he crashed MFG first.  Unfortunately for everyone who had any nexus with MFG, it seems the firm had the temerity to misuse client funds, leading to the missing $600Million or more.  Democrats are destroyers, but Corzine has a particular knack for it which has now crossed the line, probably, into outright illegality, to the extent that crimes by politically connected and powerful people are any longer considered wrong (see, Congress enriches itself by insider trading).

In the Percy Jackson series of books, the demigods have some kind of Mist they use to confuse mere mortals into seeing something other than what is real.  Somehow guys like Corzine get people to think they are a person to be entrusted with authority instead of sent straight to the nearest prison.  Amazing really.

What is not reported are the consequences for thousands upon thousands of people.  For one thing, all of the employees of the firm have been cashiered, losing any equity they had built up and without severance or benefits.  But more pernicious is what is happening to the clients of the firm.  And though I have never had any dealings with MF Global it has even affected me personally.  One of the clients of MFG, who probably had hundreds of millions of dollars parked there, is an interesting character who gives traders a chance to make their own fortune by sponsoring an account for them.  This persons business is now dead in the water.  But not only is his business dead in the water, all of the people employed by the more than 50 CTAs sponsored are also dead in the water, at least to the extent they depended on the funding they had via this program.  I was set to get some money via this program, literally as MFG was imploding.  That is now gone.

Maybe these people will get their money back and maybe they will not.  If not, and it turns out that MFG misused the customer segregated funds, as seems likely, it boggles the mind how it could be that Corzine is still free, unless his political connections are keeping it that way.  In any event, if that turns out to be the case, Corzine and anyone who shields him ought to be in the set of those that “just needs killing”  (see Consequences of Kerffufluous Tomfoolery below).  Full stop.

They believe, apparently, that the multiplier effect of a government dollar spent is greater than 1 over the medium to long-term. The reason they believe this is that the way we have chosen to measure economic output and growth is via Gross Domestic Product or GDP.  And GDP is defined thus:

GDP = private consumption + gross investment + government spending + (exports – imports)

See that “government spending” part of the equation? Tempting it is to just ramp government spending and – voila! – you have as much “growth” as you want!  Well hell, why didn’t someone tell us it was that easy?!  Of course it is because it is not that easy.  If it were that easy, you would have discovered the perpetual motion machine, we could all lie around all day fornicating and eating grapes because the government will just spend us up some GDP growth and we will all be fat and happy without having to lift a finger.

How would the government do that anyway?  Well I can think of only two ways the government (which remember is supposed to be us, the populace) can spend as much as they want.  Either you take the resources from someone who has them or you print up some money to spend.  You may object that we can borrow to spend – and we are borrowing to finance this attempted government contribution to GDP at a frightening pace – but that borrowing just represents a claim on future resources that have to be taxed from those who have resources, or will result in printing money to pay off the debts.

If the government relies on the confiscation of resources from the private sector, it should be obvious that total wealth of the society will be less than it otherwise would be as government does not have incentives to spend those resources efficiently.  After living through the last 100 years of political experimentation worldwide, the evidence is in and government allocation of resources does not in fact result in more aggregate wealth than private allocation.  Anyone still arguing otherwise needs to go on the list of those who “just need killing” (see below) as they represent a willful threat to the public safety and welfare.

This leaves money printing.  That too has been tried repeatedly throughout history and the result is inflation or its second cousin, hyperinflation.  Ask someone who lived through the German hyperinflation and its consequences what that does to a society (precious few left now).  Regular inflation is also pernicious as it robs savers and ultimately destroys the middle class.

It is clear then that GDP is a very flawed measure that is leading to absurd policies that are actually destroying our aggregate societal wealth rather than enhancing it.  John Tamny wrote a good piece about it at RealClearMarkets here recently.  First we must have a realistic discussion about the assumed multiplier for government spending and we must agree that it is in fact less than zero.  Then we can discount the government spending element in GDP to reflect its ultimately destructive contribution to GDP.

Having come to the belated realization that the size of government is the problem rather than the solution we can take sensible steps to reduce the size of government and bring down the debt.  What you will find is that contrary to the perceived wisdom, the world will not fall apart, it will heal.  And after some uncertainty, the economy will mend and the standard of living will rise.  If we fail to come to this collective realization, more pain lies ahead.  Austerity is not a curse, to the extent it shrinks the Government, it is a boon.

Mr. Bernanke needs to steal a page from the Volcker playbook. To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.

Nominal G.D.P. is just a technical term for the dollar value of everything we produce. It is total output (real G.D.P.) times the current prices we pay. Adopting this target would mean that the Fed is making a commitment to keep nominal G.D.P. on a sensible path.

More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation is appropriate. So a reasonable target for nominal G.D.P. growth is around 4 1/2 percent.

God, where to start.  How about a little thought experiment.   So let us suppose the Fed targets nominal GDP.  Further, suppose real growth is 2%.  To get to her 4.5% nominal target, the fed has to engineer 2.5% inflation by expanding the money supply presumably.  Well, that doesn’t sound so bad.  Now suppose real growth drops to 0%, say because the country is deleveraging after a credit binge caused in part because Fed left credit too loose for years and fiscal policy was an abomination, and after we allowed the controlled economy of China into the world trading system, and after the demographic bulge of baby boomers started winding down their economic activity among other things.  Now the Fed has to engineer 4.5% inflation.  With inflation on the rise and real output stagnating, you start getting a higher misery index.  So real growth goes to -2%.  Now the Fed has to engineer 6.5% inflation with yet more money printing.  Starting to get uncomfortable?  Wages are now declining, but the price of living is rising at a pretty heady clip.  Growth drops to -5%.  The Fed responds by throwing money out of helicopters (they do not call him helicopter ben for nothing) to achieve their 4.5% nominal target by getting 9.5% inflation.  Now there are riots.  So for a brief period output drops to -10%.  The Fed jacks inflation up to 15%.  Now we are on the path to Argentina.  It is called stagflation.  And if there is a widespread loss of confidence in the dollar, that can become hyperinflation.  Finally people have had enough and we get a real Volcker in to shock the system after Bernanke slips away to South America to avoid the mob.

Aside from the informational and timing issues, which are considerable, where does Romer go wrong?  She seems to mistake cause and effect for one thing.  Do rising prices cause output to grow?  Or does rising output cause prices to rise (again ignoring for the moment whether inflation, which can be measured by prices, is a monetary phenomenon exclusively or can be caused as output exceeds capacity constraints)?  Romer seems to be arguing the former, which seems to me obviously wrong.  She turns Volcker on his head.  Her prescription is not a page out of Volcker’s playbook as she asserts but out of the Anti-Volcker playbook.  Volcker, remember, hiked rates to combat stagflation.  He did not ease rates to create it.

Peggy Noonan wrote a piece in the Wall Street Journal not long ago in which she decried the Maobama Administration for telling stories rather than generating substantive ideas.  Romer apparently has drunk the Kool-Aid.  If you tell people something is true they will believe it to be true.  Except I do not think people are that stupid. You have to have some credibility to get people to believe something that does not appear true.  And this administration  and this Fed Chairman has precious little.  Without that credibility, they will not be able to pull off GDP targeting.  They should not try, or we really will need a Volcker to pick up the pieces.

One of my favorites books of all time, and the only one I have ever read 4 or more times, is the Pulitzer Prize Winning geological exploration Annals of the Former World written by John McPhee. In it the author traverses the country on Interstate 80 or thereabout while discussing the deep time history of various sections of the terrain and terranes with various leading geologists. In the section dealing with the Rockies and the mountain interior West, we are introduced to one David Love, US Geological Survey adept and son of a Scottish immigrant and homesteader who also happened to be the cousin of John Muir, the founder of the Audubon society.

It is worth quoting extensively from this most excellently written tome:

From time to time, dust would appear on the horizon, behind a figure coming toward the ranch.  the boys, in their curiosity, would climb a rooftop to watch and wait as the rider covered the intervening miles.  Almost everyone who went through the region stopped at Love Ranch.  It had not only the sizable bunkhouse and the most capacious horse corrals in a thousand square miles but also a spring of good water.  Moreover, it had Scottish hospitality – not to mention the forbidding distance to the nearest alternative cup of coffee.  Soon after Mr. Love and Miss Waxham were married, Nathaniel Thomas, the Episcopal Bishop of Wyoming, came through in his Gospel Wagon, accompanied by his colleague the Reverend Theodore Sedgwick.  Sedgwick later reported (in a publication called The Spirit of Missions):

We saw a distant building.  It meant water.  At this lonely ranch, in the middle of a sandy desert, we found a young woman.  Her husband had gone for the day over the range.  Around her neck hung a gold chain with a Phi Beta Kappa key.  She was a graduate of Wellesley College, and was now a Wyoming bride.  She knew her Greek and Latin, and loved her horse on the care-free prairie.  The Bishop said he was searching for “heathen”, and he did not linger.

Fugitive criminals stopped at the ranch fairly often.  They had to – in much the way that fugitive criminals in lonely country today will sooner or later have to stop at a filling station.  A lone rider arrived at the ranch one day with a big cloud of dust on the horizon behind him.  The dust might as well have formed in the air the letters of the word “posse”.  John Love knew the rider, knew that he was wanted for murder, and knew that throughout the country the concensus was that the victim had “needed killing“.  The murderer asked John Love to give him five dollars, and said he would leave his pocket watch as collateral.  If his offer was refused, the man said, he would find a way to take the money.  The watch was as honest as the day is long.  When David does his field geology, he has it in his pocket.

People like that came along with such frequency that David’s mother eventually assembled a chronicle called “Murderers I Have Known”.  She did not publish the manuscript, or even give it much private circulation, in her regard for the sensitivities of some of the first families of Wyoming.  As David would one day comment, “they were nice men, family friends, who had put away people who needed killing, and she did not wish to offend them – so many of them were such decent people”.

One of these was Bill Grace.  Homesteader and cowboy, he was one of the most celebrated murderers in central Wyoming, and he had served time, but people generally disagreed with the judiciary and felt that Bill, in the acts for which he was convicted, had only been “doing his civic duty”.  At the height of his fame, he stopped at the ranch one afternoon and stayed for dinner.  Although David and Allan were young boys, they knew exactly who he was, and in his presence were struck dumb with awe.  As it happened, they had come upon and dispatched a rattlesnake that day -  a big one, over five feet long.  Their mother decided to serve it creamed on toast for dinner.  She and their father sternly instructed David and Allan not to use the word “rattlesnake” at the table.  They were to refer to it as chicken, since a possibility existed that Bill Grace might not be an eater of adequate sophistication to enjoy the truth.  The excitement was too much for the boys.  Despite the parental injunction, gradually the conversation at the table fished its way toward the snake.  Casually – while th meal was going down – the boys raised the subject of poisonous vipers, gave their estimates of the contents of local dens, told stories of snake encounters, and so forth.  Finally, one of them remarked on how very good rattlers were to eat.

Bill Grace said, “By God, if anybody ever gave me rattlesnake meat I’d kill them”.

The boys went into state of catatonic paralysis.  In the pure silence, their mother said, “More chicken, Bill?”

“Don’t mind if I do”, said Bill Grace.

Ah, vigilante justice.  At first blush, it feels so right.  I can think of long list of people today who “just need killing”.  The union thieves who teach for a day as substitutes and then somehow qualify to convert their years of union service to eligibility for a pension from the Teachers pension system far in excess of what teachers get.  Bankers who paid themselves fantastic bonuses out of the profits earned by borrowing at 0% due to federal policy and then lending back to the government at 2%, otherwise known as theft from taxpayers and savers on the back of the yield curve.  Those that make such policy by stripping savers of the money they need to live by keeping interest rates artificially low for an extended period.  Those who get political handouts for “green energy”.  Those who give political handouts for “green energy”.  Politicians who subvert the basic principles of fairness by giving favorable tax deals to some but not others.  Those who pressure ratings agencies to fire their leaders for telling the truth about the nation’s fiscal circumstances.  Those who destroy the climate for American employment by insisting on outrageously high and uncompetitive corporate tax rates and then do nothing for years as the policy causes businesses to shift jobs and investment overseas.  All those who feed at the public trough in exchange for political support.  The list can go on and on.

There is a problem however with vigilante justice, aside from the fact that there is ready access to a legal system today, where there may not have been on the frontier 130 years ago.  The problem is that some other idiot has a different list.  The problem is the one confronted by the French in the aftermath of their revolution, in the Terror.  The problem is that the rules can be made up by individuals and groups and would lead to chaos.  So we are left with Law.  The problem with Law is that  over time it has become so unreliable that confidence is beginning to wane.  There has been so much poor legislation by those who write the laws, so much bad or misguided discretion and misjudgment by those empowered to enforce the laws, and so much refusal to honestly discuss matters with those who should discuss the laws, that the very efficacy of Law is crumbling.  Viz the Occupy Wall Street protests.  These people really do not have a clue what they are talking about or what is wrong, they just know that something wrong is going on.  And that is the problem.  Too few in public life will do what is right.

OWS is the beginning stirrings of the lethargic American populace to shout out that there is something wrong.  Where will it lead?  Unless someone starts doing the right thing, it will ultimately lead to the mob.  At that point both the good and the bad will suffer.  My own assessment is we have a 50-50 chance of a poor outcome.  Hopefully things work out, but it is not a certain bet.

So lets take a look at one of the “facts” presented on the site.

“President Obama believes in common sense gun control laws compatible with Second Amendment rights”

Riiiigggghhhhht.  Got it?  There is a helpful check mark so you know it is a fact!!!  The truth has been posted on September 1, 2011!!!  Thank god we now know the truth about this “fact”.  Well, hold on a minute.  Is it a fact?  It is funny but I am reading a book called Wittgenstein’s Poker about a meeting between Karl Popper, the famous mentor to George Soros and Ludwig Wittgenstein, the famous philosopher of language.  I wonder what they would make of this assertion or the existence of this outrageous website by the Ministry of Propaganda.

So is it a fact?  I always chuckle when I see the sanctimonious ad for a show on MSNBC where it says “You are entitled to your own opinions but not your own facts”.  As a lawyer, I can tell you that one of the most important aspects of making a case is characterizing the facts.  Here we have a prime example of fact characterization in action.  The phrase “common sense” sort of presupposes things doesn’t it?  Also, the assertion is that it is something that Maobama “believes”.  Hard to check the veracity of that, unless you can actually get into his head, a frightening thought.  Finally, “compatible with Second Amendment rights” is also a conclusion, not a fact, and one with which many people would disagree, even if they were presented on the site with the actual laws (restrictions) contemplated, which they are not.

Slippery stuff.  An assertion masquerading as a fact (just look at the checkmark!!!) which is actually a bald faced lie, like nearly everything else asserted by this maniac.  I once had a chat with the mother of one of my daughter’s schoolmates right after the election in 2008.  She was pleased as punch (as I live in Chicago, 98 of 100 of the parents of the children in our school voted for Maobama and thought it was ticklishly neat I am sure).  She asked what I thought, assuming I was also a Demunist like everyone else.  I replied that I thought the election of Maobama was one of the most dangerous things to happen in this country since the Civil War.  The existence of a site such as this paid for by El Presidente himself proves the point I think.  “You should pass this law right away”.  Is it November 2012 yet?

Oh he touched a few random things he has tried before, he trotted out the tired old line about Warren Buffett and his secretary (note: I actually would support raising the cap gains rates toward ordinary rates, there really is no principled reason to favor capital income over labor income that I can think of), he exhorted the right by casting them up as a red herring to be knocked down by his luminant reason, and failed.  And that is the sum of things for Obama, FAIL.  He had the limelight in which he could have chosen too propose some kind of structural change for the better, but instead he proposed more of the same short-term, ad hoc temporary nonsense that costs real money to buy temporary change.

And what were all those lines about how “you should pass this bill right away” which he must have said 20 times.  How bizarre.  How un-presidential.   As I was listening from my kitchen I thought I was listening to an impersonation of Obama on SNL or something.  I almost feel bad for Obama as he has become a total joke as a leader.  So now we have to wait out the 14 months he mentioned until he can be removed peaceably from the high and venerable office that he somehow came to occupy.  November 2012 can not come fast enough.

A budget has two components – revenues and outlays. In the past three years revenues have fallen as a result of economic activity dropping in the wake of the housing implosion and resultant economic malaise, a malaise perpetuated of course by the country deciding that it would be good to put an economic idiot and his minions in charge of the executive function of our government, but that’s a story for another day. Such a reduction in revenues can be expected to recover along with economic activity to the 18 percent or so it has averaged over the last 70 years.

Outlays on the other hand have ballooned from 20% of GDP to 25% of GDP as a result of having the two worst presidents in modern history in a row and Nancy Pelosi, who is in fact insane, and Harry Reid, who is in fact a scumbag who thinks congress can take whatever it likes, in charge of the Legislative function from 2006-2010. The Wall Street Journal warned at the time that Congress was ratcheting baseline spending up 3 times as fast as growth in the economy that later on they would say “Well, there is nothing for it but to raise taxes”. That was the plan all along.

The economist has a piece in their most recent weekly edition which is basically a head-scratching piece wondering why Americans hate taxes so much.  They attribute this to people near the bottom of the economic pile not wanting to see those just below them helped so that they are now equal with the bottom of the pile.  I find this pretty cynical.  In light of the blowout in spending in recent years it is more that people are a little miffed at the mismanagement of the budget.  So let us be plain. The idiots in charge need to come up with something like $1 Trillion in ANNUAL spending cuts first. Then and only then will people be willing to say “OK, now that REAL spending cuts are on the board, we can talk about making up the difference with some revenue.” The recent compromise that got us past the debt ceiling problem cuts a few tens of billions in the first two years. It is NOTHING like what is necessary. Spending cuts first, then taxes to fill any gap. Say it again: Spending cuts first, then revenue to fill any gap.

The Simon Johnson piece on Bloomberg recognizes that growth is the problem on the revenue side but then posits essentially that we just need new taxes and all will be well, otherwise we are giving succor to millionaires and billionaires and sticking it to the poor. To paraphrase Al Gore, b*llsh*t. Bring the troops home from Europe. Untangle ourselves from Afghanistan, where we have been for more than 10 years(!!!) and Iraq where we have been for 8 years (!!!), cut the Department of Energy in half, cut the Education Department in half, fire the czars and one could go on. This does not stick it to the poor.

Another article was written by Warren Buffett somewhere pleading for higher taxes on rich people. The guy who used to be known as the Oracle of Omaha, but is now known as the old guy who got bailed out by taxpayers and screwed his children out of their inheritance, has become a soft peddler of collectivist ideas in his support of the Great Lefty we elected in 2008 as noted above. On the other hand, to address Warren’s points, I would see nothing wrong with making capital gains taxable at ordinary rates. Why does income from capital get taxed a preferential rate compared to income produced from labor anyway? Maybe have a threshold taxed at lower rates, like $100k or something so you do not stick it to pensioners. If you do that though, the tradeoff is that losses need to be able to be taken against income as well. And dividends should not be taxed at all.

Finally, we would all do well to realize that there has been a widening disparity in the percentage of national income going to capital rather than labor, and that this is unhealthy. Largely this has resulted from the globalization of labor and goods markets which tilted the playing field in favor of capital. Labor has had very little leverage to press for wage increases in the face of the Chinese export juggernaut. A couple of thoughts on this. First, a new equilibrium is forming as the cheap labor abroad is becoming less cheap. So the problem is not going to get much worse. Labor in China has actually been increasing demands for higher wages.  As a result capital has been looking for other labor pools, like Viet Nam, but honestly, China was the big deep pool and it has been tapped.  Of course the other big bottleneck for growth which is causing stagnation in the US is the high and rising cost of regulation at both the federal and local level.  At the federal level we could relieve a great burden by having a top to bottom review of regulation by all departments with the goal of thinning the federal register by half.  At the local level, well heeled interests have succeeded in greasing enough palms in the state legislatures that more and more activities that were once open for people to pursue as sources of income are now behind walls of licensing requirements and fees.  I am not sure how we can attack this but until it is attacked, the wage disparity and general malaise will continue.  But there ARE ways to ameliorate the problem without resorting to the expedient of raising taxes to confiscatory levels.  I would really like Republicans to ask when pressed on the revenue issue “After all Mr. Demunist, how much is enough for the government to take? 30%, 40% 50%, more?”