American Elephants


Obamanomics 101: Understanding How the Obama Economy Works by The Elephant's Child

The Great Obama Depression. by The Elephant's Child
July 2, 2010, 11:35 pm
Filed under: Capitalism, Domestic Policy, Economy, Progressivism | Tags: , ,

President Obama gave a speech to a town hall meeting in Racine,  Wisconsin this week. Straw men, not his fault, economy recovering, Recovery Act working, Bush’s fault, Republicans won’t help, stimulus worked, more straw men, border more secure than ever, not his fault, more straw men.  Promoting the “merits” of his stimulus bill, President Obama said:

Now, every economist who’s looked at it said that the Recovery [Act] did its job…The problem is, number one, it’s hard to argue sometimes, “things could have been a lot worse. Right?  So people kind of say, “Yeah, but unemployment’s still at 9.6 percent.” Yes, but it’s not 12 or 13 or 15.  People say “Well, you know, the stock market didn’t fully recover.” Yeah, but it’s recovered more than people expected last year.  So part of the challenge in delivering this message about all the Recovery Act accomplished is that things are still tough, they just aren’t as bad as they could have been..  They could have been a catastrophe.  In that sense [the stimulus] worked.

New claims for jobless benefits jumped last month by 13,000 to a seasonally adjusted 472,000.  The number of people continuing to claim benefits rose by 43,000 to 9.6 million.  The number collecting extended benefits fell by 376,000. Since unemployment figures count only those actively seeking work, the real number is said to be around 17 percent.

“Unemployment’s still at 9.6 percent.
But it’s not 12 or 13 or 25.”

Every economist certainly did not say that the Recovery Act did its job. Alan Meltzer, professor of economics at Carnegie Mellon, said in the Wall Street Journal yesterday “The administration’s stimulus program has failed.” as innumerable other economists have said.  Even Keynesian economist Jeffrey Sachs said that the stimulus failed.

Allan Meltzer added that “The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.  But they want new stimulus measures — which is convincing evidence that they too recognize that the earlier measures failed.”

Obama got somewhat of a chilly reception from world leaders at the G-20 summit over the past weekend when he pressed them to continue with spending to bolster the global economy. Many nations in Europe and elsewhere have had to grapple with their own debt crises, and have been forced to enact tough austerity measures.

In 1981, President Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending.  Recovery began about a year later.  After 18 months, the economy grew more than 9% and continued to expand above trend rates. The administration economists neglected the longer-term  consequences of their actions.

Economist Larry Kudlow says:

The economic power of business is the missing link in the faux debate that is now raging over spending and deficit policies. A brief look at the recent jobs report for June tells this story. After spending more than $1 trillion through so-called government stimulus, we are at best experiencing a grinding and anemic jobs recovery. Private payrolls are growing slowly. The workweek is again shrinking. And average hourly earnings have declined. The unemployment rate dropped to 9.5 percent, but that’s because 650,000 people left the labor force.

The economic power of business is the missing link in the faux debate that is now raging over spending and deficit policies. A brief look at the recent jobs report for June tells this story. After spending more than $1 trillion through so-called government stimulus, we are at best experiencing a grinding and anemic jobs recovery. Private payrolls are growing slowly. The workweek is again shrinking. And average hourly earnings have declined. The unemployment rate dropped to 9.5 percent, but that’s because 650,000 people left the labor force.

So what about all this stimulus spending? Well, it hasn’t worked.

Business, in order to hire, plan for the future, increase spending, needs more than vague hope.  They need some kind of certainty.  Right now, everything is up in the air.  There’s a new health care law, how much will it cost business? Nobody knows.  Will the Bush tax-cuts be extended? Will Congress enact new taxes?  What is in the new Dodd-Frank bill’s 2000+ pages and how will it affect business?  What new regulations are going to be imposed? Cap-and-trade would  be an enormous cost on doing business, will it pass, and what will it mean to business?  Are we in for a double-dip recession? How can a business, hoping to make a profit in an economy where everyone is reluctant to buy, reluctant to spend, know what to do?

Misdiagnosis of the problem, and a lack of understanding of the possible remedies has made the problem far worse than it needed to be. The far left blames “capitalism” for most of the world’s problems, but “capitalism” is simply the name Marx gave to the free market.

Unemployment is the problem.  Yet most policies adopted by the Obama administration increase unemployment.  Slapping a heavy tax on makers of medical devices means lower employment in that industry.  Unnecessarily shutting down all oil rigs in the Gulf creates huge unemployment as rigs leave the area.  Failing to take quick action to prevent oil slicks from reaching the coastline means unemployment all up and down the coast.  Requiring people to switch to CFL lightbulbs means that industry will take place in China.  Closing  federal lands to oil exploration means lost jobs. Putting too many regulations and taxes on business means businesses will move to somewhere where they are better treated. There are always consequences.



A Reminder: by The Elephant's Child
October 5, 2009, 11:53 pm
Filed under: Capitalism, Conservatism, Economy | Tags: , ,

From Henry Hazlitt’s Economics in One Lesson“You can’t raise living standards by breaking windows so some people can get jobs repairing them.”



Spinning the Numbers, by Your Government and Mine. by The Elephant's Child
August 7, 2009, 9:28 pm
Filed under: Capitalism, Economy, Progressivism | Tags: , ,

The much anticipated jobs report was released today.  247,000 more jobs have been lost, but “the rate of job loss has dropped from 9.5 percent to 9.4 percent”— because 422,000 quit looking.  This was heralded across the airwaves as a great sign of economic recovery.  This is known as spin.

The economy is still in the doldrums with 6.7 million jobs lost since December of 2007.  14.5 million are currently unemployed, with all sectors of the economy affected.

The president’s agenda, however, is focused not on jobs, but on passing, at all costs, a health care bill about which the biggest questions are how to pay for it, since the Congressional Budget Office has said bluntly that we can’t afford it.

Democrats are talking about a middle class tax hike (Robert Gibbs denies it, but they simply cannot squeeze enough money from “the rich” to pay for it).  They are talking about a value-added tax, which just raises the cost of everything.  They are trying to think of all sorts of things to tax, apparently unaware that people who do not have jobs aren’t able to pay a lot of taxes, and what taxes they do have to pay only harm them.

Democrats are also considering what taxes and mandates to inflict on employers, apparently unaware that raising the cost of doing business during a recession simply means more layoffs and more business failures.  But economics has never been one of the Democrats’ strong points.

And once they get the new airplanes approved, and the cash for clunkers out there to destroy the used car business, and the health care reform bill passed, then they want to pass a cap-and-trade bill which will raise not only the cost of energy, but of everything you buy.  They’re estimating that at something like $3,000 -$4,000 per household per year.

But you must take care, because they don’t want any criticism, and they don’t want to answer any unfriendly questions, and they especially don’t want to be told that they have to read the bills.



Wise Words From a Nobel Laureate by The Elephant's Child
July 29, 2009, 7:47 pm
Filed under: Health Care, Progressivism, Statism | Tags: , ,

Economist Greg Mankiw — whose blog I recommend unreservedly — posted this comment by the Nobel laureate Ken Arrow:

Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There’s no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It’s incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.

The Obama administration seems to have forgotten what health care is all about.  They think it is about power, and getting control of something that voters cannot do without.  It certainly is not about preserving life.  Free abortions are on the list, rationing care for the old folks is on the list, and (Page 354, Section 1177)  Government will RESTRICT enrollment of Special needs people.  I’d sure like to hear them explain that one.



How Much Will It Cost? Way More Than They Expect! by The Elephant's Child
July 29, 2009, 5:04 pm
Filed under: Capitalism, Economy, Health Care | Tags: , , ,

President Obama is trying to find someone to blame if his party is unable to pass a health-care reform bill before August 1.  His target is the Congressional Budget Office and director Douglas Elmendorf.  Remember that the office is intended to be completely non-partisan, and oriented towards giving congress good and responsible estimates of what a bill will cost.

The administration was so upset over the estimate that the CBO produced over the health-care bill that they summoned Elmendorf to the White House, a very improper step.  The CBO is expected to be free of interference from the administration and from congress.

Peter Orszag, President Obama’s Budget Director, was previously Director of the CBO.  He should know what the rules are.

Stephen Spruiell notes at National Review:

Last weekend’s outburst from Obama’s budget director, Peter Orszag, was the equivalent of a player upending the chess board and calling his opponent a cheater.

The irony is that, just a few months ago,  Orszag was on the other side of the board.  Before Obama appointed him to run the Office of Management and Budget, Orszag was in charge of the CBO.  And just before he left the legislative for the executive branch, he took measures to make sure the CBO would be well equipped to play its role in the health-care debate, expanding the number of health-care economists on staff and ordering a new computer capable of modeling the effects of complicated legislation.

In a Saturday post on his White House blog, Orszag implied that the CBO’s latest analysis was guilty of “exaggerating costs and underestimating savings,” and he said that the agency had “overstepped its bounds.”

The Washington Times chimed in last week to point out that the CBO had vastly underestimated the number of small businesses and the number of people from that source who would switch to the government plan.  They said:

CBO — incredibly — assumes that only 3 million people will switch from employer-provided coverage to government insurance.  But the Lewin Group, a health care policy research and management consulting firm, estimates that 119 million Americans will switch from their current private insurance to government insurance.  If these figures are accurate, the program’s cost could easily be $4.5 trillion over 10 years, not the $1.04 trillion CBO is claiming. That new financial burden would be a disaster for the deficit.

The House bill, however contains: (Pg. 50, Section 152) Health Care will be provided to ALL non U.S. citizens, illegal or otherwise.  I wonder if the CBO is including in its estimates the entire non-citizen population? Intelligent guesstimates suggest around 1.3 million illegal immigrants. I don’t know if the CBO  includes adding them the the health insurance rolls.

Government bills or policies that come in costing less than estimated are as rare as an occasion when Obama did not blame the Republicans.  This is his mess, and at some point he will have to own up to misleading the public.



Global Warming Meets a Basic Cost-Benefits Test, and Loses. by The Elephant's Child

Bjørn Lomborg is director of the Denmark-based think tank The Copenhagen Consensus Center, author of The Skeptical Environmentalist and Cool It: The Skeptical Environmentalist’s Guide to Global Warming.  He gave a talk today at the Manhattan Institute. The transcript was published in The New York Post. Lomborg is a professor of statistics, and was at one time, a member of Greenpeace.

Here, he has some important information for politicians, and the rest of us:

IN the heart of a financial crisis, most of us carefully consider every last purchase. It is important that politicians do the same when making vital policy decisions.

Instead of focusing on initiatives with the greatest benefits, they tend to be swayed by those with the most vocal advocates. Take the Kyoto Protocol. Its $180 billion annual global cost would perhaps be worth the investment if it made any substantial difference to global warming. But even if Kyoto were implemented for the rest of this century, it would cut temperatures by just 0.3 degrees Fahrenheit.

This doesn’t pass a basic cost-benefit test. The investment would cause more immediate financial hardship than eventual good. There are many better uses for the money.

That point was underscored by Copenhagen Consensus 2008, a project I designed to champion the use of economic tools in international aid and development policy.

For two years before Copenhagen Consensus 2008, teams of experts wrote papers identifying the best ways to solve the world’s biggest problems: air pollution, conflict, disease, inadequate education, global warming, malnutrition and hunger, sanitation and water challenges, subsidies and trade barriers, terrorism and gender-disparity issues. They identified the investments that would best tackle each challenge and outlined the costs and benefits of each.

A group of prestigious economists — including five Nobel laureates — gathered and examined this research. They took the long menu of investments and turned it into a prioritized list of opportunities. At the bottom — the least cost-effective investment the world could make to respond to any of these problems — was dealing with climate change through immediate CO2 cuts, as the Kyoto Protocol attempts.

At the top was the provision of micronutrients — particularly vitamin A and zinc — to undernourished children in South Asia and Sub-Saharan Africa.

For just $60 million annually, we could reach 80 percent of the world’s 140 million or so undernourished children. The economic gains from improving their lives would eventually clear $1 billion a year.

For another $286 million, we could iodize salt and fortify basic food with iron for 80 percent of the children who are at risk of stunting and poor development because they’re going without.

Interestingly — and perhaps predictably — many of the economists’ top-ranked solutions were to problems that don’t attract many headlines or much celebrity attention. The simple act of deworming children in developing countries, for example, would improve nourishment and allow some of the world’s most disadvantaged kids to learn more and get better jobs later.

Copenhagen Consensus 2008 showed that we know how to stop people from dying from malnutrition, pollution, HIV/AIDS and malaria. Solving these problems would open a world of opportunities, including allowing a disadvantaged community to grow, develop and care about longer-term issues like global warming.

What we need to do now is cheap and simple. It’s mostly a question of getting what’s needed (micronutrients, cleaner forms of fuel, free condoms and mosquito nets) to those in need. Death tolls remain high because we have limited resources, and these problems are not considered our biggest concerns.

Economic tools such as cost-benefit analysis and prioritization will never offer the last word in public policy debate — and nor should they — but they can provide a vital input for decision-makers.

The process that worked for Copenhagen Consensus 2008 — and that encouraged philanthropic organizations to invest more in malnutrition — is also relevant for national and state governments and city administrations.

Prioritization is difficult for any politician, whether a member of the Obama team or a city administrator. The project would give a city like New York the opportunity to focus on the spending priorities that achieve the most. Vested interests and lobbying groups create a lot of noise. Copenhagen Consensus sets aside that noise, so that the costs and benefits of competing options can be seriously considered side-by-side.

The recession that has made life more difficult also offers an opportunity for us all to rethink our priorities — and ensure that each dollar spent achieves as much as possible.




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