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What’s Good for General Motors …

Being the hard-nosed and hard-hearted sorts of old-fashioned conservatives who embrace Adam Smith and Milton Friedman and their red-in-tooth-and-claw school of laissez faire capitalism, we’ve always voted against those damned Democrats for fear they’d arrogantly think they could run our incomprehensibly multi-trillion dollar economy better than the free markets comprised of the free men and women  who actually make it happen. Now we’ve got a Republican president who arrogantly thinks he better knows how to run both big and small corporations better than the executives who have made them successful, however, and at the risk of being called Republicans in Name Only we can’t say we like that any better.
The constantly feuding President Donald Trump’s latest feud is with the iconic and still-formidable General Motors Company, where the brains behind the operation have decided that their long-term fortunes require them to shut down five plants and lay off 14,000 workers in the United States, which Trump would prefer they not do, and he’s threatening whatever punishments he has at hand if they go ahead and do it. Most of those plants and workers are in some of the industrial midwest states that provided Trump his improbable electoral victory based on his promises he would protect manufacturing jobs, so we can well understand his political calculations, but Trump’s underlying economic theory is not so obvious.
General Motors’ explanation is that by shutting down those five plants and laying off those 14,000 workers they can reinvest the money they’re currently losing in more efficient plants with workers building more profitable products in the scarily looming days of self-driving cars and other high-tech automotive gizmos, and that if they don’t the whole company and all of its workers might eventually be out of business. We don’t know any more about the automotive industry than Trump seems to, but given General Motors’ long tradition of existence to its workers and customers we’re inclined to believe its executives have a better grasp of the company’s situation than we or Trump have. We’ve long observed that success of capitalism involves some creative destruction, and this looks like one of those situations.
We have sincere sympathy for those 14,000 thousand workers and everyone in those five communities that will see a major segment of their economy shut down, even if they don’t affect our non-existent political careers, but we’d hate even more to see the rest of General Motors’ hard-working employees eventually be put out of work in a futile effort to sustain an unsustainable status quo. We’ll always remember how our beloved Boeing executive Dad used to agonize over the layoffs he was sometimes forced to make to keep that company the world-beating entity it is today, Life is undeniably tough in the red-in-tooth-and-claw free market world, yet it does seem to get better over the long run, and so far we haven’t found any damned Democrats or damned Republicans who can credibly claim to make it better yet.
So far this Trump fellow’s meddling in the economy strike us as arrogantly intrusive as anything that even a self-proclaimed socialist such as Sen. Bernie Sanders or any damn Democrat might have done if they’d had the chance. Republicans used to complain that Democrats wanted to choose the winners and losers, but Trump’s trade wars have provoked retaliatory tariffs and thus chosen the steel-making sector of the economy over the steel-using sector that includes General Motors, the coal-mining industry over the many industries that would prefer to use less expensive and more environmentally-friendly sources of energy, and he also prefers the mom and pop Main Street retailers over an e-commerce giant offering better prices whose owner also happens to own that troublesome Washington Post. So far it’s worked out well enough, but recent trends and ancient history suggest it won’t last forever.
Trump is still feuding with the iconic and steel-buying Harley-Davidson motorcycle company, which shifted some work to Europe to get around Trump’s trade war with that entire continent, and now he’s threatening tariffs that would raise the cost of the Apple Computer Company’s hugely popular designed-in-America but made-in-China I-Phones by a hundred bucks or so, which probably won’t play well with young voters.  Apple dominates the huge high-tech sector of the American economy that has lately been taking a beating on the stock markets, which was helped wipe out all of the last year’s overall stock market gains, so the threat strikes us as both economics and bad politics.
Trump is currently blaming the stock market’s recent swoon on the guy he appointed to be Chairman of the Federal Reserve Board, which has recently nudged interest rates up slightly to a point that’s still far lower than historic norms in response to what Trump boasts is the great American economy ever, but we trust that the Fed knows more about monetary than Trump or we do. The inflation rate is a full 11 points or so lower than the worst we’ve seen since way back in the ’70s, but it is outpacing the modest gains in wages that Trump likes to brag about, and the Fed seems to be acting according to the time-honored economic principles that the free market has mostly thrived on. Lower or at least steady interest rates would be a short-term gain for the president, especially after two trillion dollars of debt that’s been racked up by his administration despite the best American economy ever, but in the long run we’ll better trust better than Trump the time-honored economic principles and the creative destruction of the free markets.
Nowadays that makes us Republicans in Name Only, and we have no faith any damned Democrat would do any better than Trump has, so for now we don’t have much say in the matter. Those immutable laws of economics and their awesome market enforcements are more powerful than  anything n the universe anything but God, however, and General Motors and Harley-Davidson and the Federal Reserve Board still hold some significant sway, and we expect they will eventually prevail over such puny forces as Trump or those damned Democrats.

— Bud Norman

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Trump at Long Last Considers a New Haircut

Presumptive Republican presidential nominee Donald J. Trump has long been notorious for paying his creditors less than promised and threatening  lawsuits more costly than the remainder if they objected, and while bragging about his untold and undocumented wealth has on four occasions resorted to bankruptcy filings to pay out mere pennies on the dollars owed for his failed casinos and strip joints. We’re told by his so-loyal-he-could-shoot-someone supporters that such ruthlessly unscrupulous business practices are precisely what’s needed to deal with those duplicitous Democrats and “establishment” Republicans and wily Chinamen and assorted other foreigners to make America great again, but even as we contemplate the horrible alternative of presumptive Democratic nominee Hillary Clinton becoming president we do not find the argument at all persuasive.
With our government already $19 trillion in debt and the shortfalls on all its grandiose entitlement promises rapidly approaching all-the-money-in-the-world levels, Trump has already proposed several you-can-believe-him-they’re-great solutions. He told The Washington Post that he could entirely eliminate the national debt within eight years with no tax increases just by renegotiating all of the country’s trade deals in a really great way, believe him, and then a couple days later he told Fortune Magazine that he’d never said he could eliminate all the debt within 10 years and only expected to reduce the debt a “percentage,” because of all the other great things he plans to do about infrastructure and such, and when asked what percentage he replied “It depends on how aggressive you want to be,” and that “I’d rather not be so aggressive.” More worrisomely yet, he also told the CNBC cable news network that he’d handle the debt of the casino and strip joint that America has lately become by the same means that have worked out so well for himself in the past, by asking the country’s creditors to accept less than what was promised.
Asked by his stunned interlocutor if he was really talking about renegotiating sovereign bonds already issued by the government of the United States of America, Trump replied in typically un-parsable English that “I don’t want to renegotiate the bonds, but I think you can do discounting, I think, you know, depending on where the interest rates are, I think you can buy back — you can — I’m not talking about with a renegotiation, but you can buy back at discounts.”
The presumptive Republican presidential nominee’s typically un-parsable English allowed him much wiggle room as he inevitably walked back his comments, as the notoriously straight-talking truth-teller so often does, so the very next day he was on CNN assuring another national television audience that “People said I want to go and buy and default debt, and I mean these people are crazy. This is the United States government. First of all, you never have to default because you print the money, OK?” None of which is at all reassuring.
Call us crazy, but our best reading of Trump’s earlier comment suggests that at least in one particular moment in time Trump was actually talking on national television about paying the country’s creditors less than was promised but somehow achieving this feat without a renegotiation. This is what’s known in economics as “crazy talk.” Any debt that is paid at less than what had been contractually promised has most certainly been renegotiated, whether acknowledged or not, the entirety of the financial and political world would surely regard it as a default by the world’s biggest-or-second-biggest-economy-depending-on-the-accounting-methods, and although this method has previously worked out to the benefit of Donald J. Trump there is simply no explaining how it might work out to the benefit of America or the rest of the world. Given the chance to print his own money, just as President Barack Obama has done during the past seven-and-a-half years or so while doubling the national debt, we aren’t at all certain that the failed casino-and-strip-joint owner would avail himself of the opportunity. It didn’t work out well for the Weimar Republic or Zimbabwe or any of the other casino and strip joint countries that tried to inflate their way out of debt, but we’re assured by his so-loyal-he-could-shoot-someone supporters that the oft-bankrupt Trump is such an exceptionally shrewd businessman that this time will surely be different.

Which is not to say, alas, that the most likely alternative is any better. The presumptive Democratic nominee has also pledged to keep her hands off those entitlement programs that are driving the country toward inevitable bankruptcy, which would involve a fight that neither of these self-described fighters have the stomach for, and unlike her most likely rival she’s not only ambiguously open to negotiations on taxing the public to keep the economy limping along even if those tax increases hinder economic growth and wind up reducing public revenues but is enthusiastically for them, so we take care not to endorse either of them. We’re still  looking around for some third  or fourth option that might be more appealing, and although haven’t settled on any yet,  and although we admittedly don’t hold out much hope that there is one, be assured we’ll keep trying.

— Bud Norman

Trickle Down Revisionism

That was a humdinger of a speech that Hillary Clinton delivered last week, packing more nonsense into a 30-second sound bite than most politicians can manage in an hour-long oration. Speaking at a rally on behalf of Massachusetts’ Democratic gubernatorial nominee Martha Cloakley, which is outrageous enough by itself, Clinton warned an adoring audience “Don’t let anybody tell that, uh, you know, it’s corporations and businesses create jobs,” and added “You know that old theory, ‘trickle down economics,’ that has been tried, that has failed. It has failed rather spectacularly.”
Hearing such astounding ignorance from a woman widely presumed to be the next president of the United States was alarming enough, and the roar of the crowd was downright dispiriting. Given that it was a Democratic gathering in Massachusetts it is possible than a smaller-than-usual proportion of the crowd held jobs created by corporations and businesses, but even in that bastion of liberalism any crowd anyone anyone who was around in the ’80s should know better than to cheer that tired old trope about the failure of “trickle down economics.” For those too young to have experienced that halcyon age, “trickle down economics” was the derisive nickname that the left attached to President Ronald Reagan’s policies of aggressive tax-cutting and de-regulation and generally getting out of the economy’s way. Instituted after too many desultory years of “stagflation” the policies reduced a runaway inflation rate to a near-optimal level and then set off a record-setting run of economic expansion that lowered the the unemployment while increasing the labor participation rate, boosted median household income, brought down the poverty rate, launched revolutions in consumer electronics and telecommunications and other crucial industries, doubled federal revenues and financed a defense build-up that brought the Cold War to a victorious conclusion, and was agreeable enough to the American that Reagan won 49 states in his re-election bid and saw his vice president elevated to the top job four years later. It is true that there were deficits, although the numbers seem quaint by today’s red-ink-soaked standards, and there were all those videos bands with big hair and skinny ties, but it’s hard to see this record as a disaster. All true-believing liberals of the time regarded this as a spectacular failure, however, and have stuck to the story ever since.
Oddly enough, they’ve had considerable success in this effort. “Trickle-down economics” has long been a pejorative, to the point that its adherents insist on “supply side economics” or even “Reaganomics” to avoid the connotations, and by now most people have developed a clear recollection of its spectacular failure. We recall a a fellow patron at a local tavern who was still cursing “trickle down economics” as a failure, and when we recited all the same indices recounted above he said “Yeah? Well, I didn’t get rich,” and a similarly subjective understanding of economic history has given his self-serving theory wide currency. A large portion of the electorate is too young to recall the fall in the inflation rate and the rise is gross domestic product and the rest of what happened in the trickle-down days, and they’ve all been educated by public school teachers who also didn’t get rich in the ’80s, and by now any candidate promoting lower taxes and less regulation and getting out of the economy’s way will surely be be tarred with the slur of “trickle-down economics.”

Mark Twain would probably be sick of hearing it repeated by now, but he famously remarked that “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so,” and the mis-remembering of “trickle down economics” is an excellent example of the aphorism. There aren’t plenty of them, from the do-nothing policies of Herbert Hoover and how the New Deal ended the Depression to the military defeat America suffered in the Tet Offensive to the black teenagers gunned down on the streets by white racists freed by an uncaring justice system, but the nonsense about “trickle down” economics is especially troublesome. A public gullible enough to believe it is likely to also believe the upcoming narrative about the spectacular success of Obamanomics, and to elect a woman who doesn’t believe that corporations and business create jobs.

— Bud Norman

Liberty, Equality, Fries

A hamburger, like any other work of art, is judged by a purely subjective standard. Every person has his own peculiar preferences for this venerable American delicacy, but to our tastes it is best with a thick slab of ground beef and a thin slice of tomato, some onion, a bit of lettuce, perhaps a dash of relish if we’re in a fanciful mood, and most importantly with no ketchup or mayonnaise but plenty of mustard. This is our standard order on the rare occasions we find ourselves in a drive-thru line, always enunciated so clearly it cannot be mistaken over the tinny sound system we are shouting into, and we invariably arrive home to discover that even such a simple recipe is beyond the capabilities of your average fast food worker.
The incompetence, surliness, and general zit-faced stupidity of the average fast food workers are so widely acknowledged as t have become a staple stereotype of the popular culture, yet now they find themselves the celebrated heroes at the vanguard of the labor movement. A protest took place Thursday with picket signs outside a thousand of the big-name fast food joints in 50 cities demanding the right to collective bargaining and a substantial raise for the employees within, and the organizers at the Service Employees International Union are hoping it will eventually lead to an increase in the minimum wage for all workers to $15 an hour, force more raises for those just above that level of remuneration, and reverse the declining fortunes of the labor unions with thousands of grateful new members and their dues. They might just pull it off, as crazier things have happened, but we suspect the chances are about as good as getting the right items and correct change at a drive-thru window.
Fast food workers aren’t the grimy-faced miners or rosy-cheeked sweat shop seamstresses who were once the public face of the union movement, and although their lot in life is unenviable it is hardly the stuff of a Woody Guthrie folk song. They are often teenagers working part time for illicit beers, switch blade knives, rock ‘n’ roll recordings, or whatever else the young folks are spending their disposable income on these days, and in many cases they are people looking to supplement Social Security checks or other sources of income. News reports indicate that the modern economy has increased the average fast food worker’s age by several years, and that many are struggling to support family on the industry’s admittedly meager wages, but in any case they are not the most inspiring exemplars of the American work ethic. Worse yet, from a public relations point of view, fast food is shunned as a culinary evil by the same bossy bleeding-hearts that can usually be counted on to sympathize with a labor strike.
Should the fast food labor uprising win all of its demands, the victory will likely prove hollow. Many fast-food franchises will be forced to raise prices to pay for the higher wages, and the resulting decline in business will result in fewer jobs, while others will simply purchase labor-saving machinery that is suddenly cost-effective and actually knows the difference between mayonnaise and mustard. The inflation that inevitably follows a country-wide pay hike would eat up much of the increased wages of those who do get a fast food job, and those who don’t are unlikely to find work elsewhere in an economy further hampered by yet another will-intentioned law. With teen unemployment at record levels, this is a particularly inopportune time to insist on such job-killing measures.
On occasion we will encounter a fast food worker who is competent, polite, and seemingly intelligent, and we happily assume he will soon be doing something bigger and better. Denying these young people the opportunity to demonstrate these qualities to potential employers in order to over-pay their indolent co-workers seems a shame, like a hamburger with ketchup or mayonnaise.

— Bud Norman

All the universities are back in session, which is mainly of interest because it signals that college football will soon resume, unless the liability lawyers get an injunction, but it also means the beginning of the presidential speech season. President Barack Obama has long preferred to address college audiences, which still regard him as a sort of rock star, and now he apparently wants to repay the affection by seizing control of the higher education system.
Speaking before a typically adoring crowd of empty-headed students at the University of Buffalo on Thursday, President Barack Obama outlined a proposal that he promises would lower costs, raise standards, and generally work the same wonders for college that Obamacare has brought to the health care system. The plan would have the federal government rate every college and university in the country according to such criteria as tuition, the number of low-income students enrolled, graduation rates, and average student debt load, then dole out federal aid accordingly. Although the typically adoring crowd of empty-headed students seemed to love the idea, their faculty and administrators were probably less pleased.
University faculty and administrators are ordinarily as enamored as their chargers of anything Obama has to say, but this plan is such a plainly bad idea that even the average intellectual won’t buy it. There are already a number of organizations that assess colleges and universities according to much the same criteria that Obama would use, most notably the U.S. News & World Report rankings that provoke howls of outrage from school administrators every year, and all of them are presumably less susceptible to political pressure, more experienced and expert in the pursuit, and nonetheless widely disputed. Any attempt to rate all the colleges in America will be pointlessly subjective, as the right school for one student will be the wrong school for another, and in any case that one student should be better able than the government to make the correct choice. If a student needs information to help decide, it can be easily found even by the average recent high school graduate.
Meting out the almighty federal dollars according to such rankings is an even worse idea. A certain percentage of low-income students are college material and would benefit from continuing their educations beyond high school, but even the government cannot state with any certainty what that number would be, and any attempt to impose an arbitrary quota will inevitably result in luring some students who would be better served by a technical education at a for-profit school, and perhaps at the cost of excluding some middle-income student who made better use of the seat. Other colleges might calculate that they can better improve their ranking by excluding lower-income students, even if they are among the ones who would have done well in school and benefited from the experience, in order to improve the average student debt load numbers. Some schools will try to improve graduation rates by taking fewer chances on students that might succeed, while many others will simply make it much easier for even the most dim-witted but federally-subsidized students to graduate.
Whatever incentives the plan might offer to induce colleges to lower their tuitions will certainly be overwhelmed by the money that would keep flowing in, which is the reason for the ridiculous rise in the cost of a college education in the first place. The cost of college has outraced the overall inflation for the past four decades, even as the value of most diplomas has declined. A degree in engineering or science or something that attests to a similarly marketable skill might still pay for itself over the years of a long career, but degrees in history and English and the like which once told an employer that the bearer had some minimal smarts no longer offer that assurance, and those who major in gender studies or conflict-resolution or such faddish disciplines will soon find that all the gender studying and conflict-resolving jobs have been shipped overseas so that some corporate fat cat can get a tax break. If the oil companies or Big Pharma had hiked their prices at the same rate while offering such diminished products they would be dragged before Senate subcommittees like Michael Corleone and burned in effigy at whatever’s left of the Occupy encampments, but university professors and administrators somehow remain a favored segment of the liberal coalition and should thus be offered federal money to offset whatever losses their price-cutting measures entail.
There’s also the nagging worry that colleges will feel coerced by those federal funds to offer a curriculum in keeping with the current administration’s ideological predilections. Anyone who would dismiss this concern as far-fetched should read up on the recent activities of the Internal Revenue Service, Justice Department, or National Security Agency, or even go back to the early days when the National Endowment for the Arts was rewarding artists according to their enthusiasm for the administration’s agenda, and it’s hard to think of any government in history that hasn’t coveted control of its universities. Most professors and university administrators are quite happy to go along with most of the Obama agenda no matter the financial rewards, of course, but there’s always the off-chance that another Republican might someday be elected president and in any case they have the natural human aversion to regulation. Professors and university administrators are quite fond of regulating everybody else, but subjecting them to the same treatment is rank anti-intellectualism.
Early reports indicate that House Republicans aren’t likely to let any of this happen, and it will be great to fun to watch all the academics siding with them for a change. They’ll no doubt be embarrassed by the company they’re forced to keep, and eager to be back on the other side, but they’ll do it for the sake of dear old ivy-covered U and their phony-baloney jobs.

— Bud Norman

Crying for Argentina

The Catholic church on Wednesday chose Cardinal Jorge Mario Bergoglio as its new leader, henceforth to be known as Pope Francis, and one immediate consequence is that San Antonio Spurs shooting guard Manu Ginobili is no longer the world’s most famous Argentine. The 76-year-old pope probably can’t drive the lane with the same acrobatic derring-do as his celebrated countryman, especially in those long robes favored by the Catholic clergy, but we’re sure he’ll bring other valuable skills to the job and we wish him well.
With Argentina enjoying a rare moment in the international news, it seems a good time to take note of a few other stories emanating from that troubled and often overlooked land.
One is the nation’s recent decision to stiff American bond holders out of about $1.3 billion of sovereign debt. A United States court has ordered the Argentine government to pony up the money, but its lawyer told the panel of judges last month that it doesn’t much care what a United States courts says. The move has left international financial markets worried about the possibility of a massive government default, which would be the heavily-indebted country’s second in the past 11 years, but the Argentine government is also unconcerned with the financial markets have to say.
Nor is the government concerned with the opinions of the Spaniards, who are vigorously protesting the Argentine government’s recent nationalization of the Spanish oil company YPF. Argentina paid a bargain basement price of no money at all for the company, which is the largest business in the country, and plans to run it as a state-owned corporation. Given the government’s notorious record of inefficiently running its many state-owned corporations, one can expect that the oil company will soon be worth what the country paid for it.
In a related development, the Argentine economy is in a shambles. The country has boasted of some impressive increases in its gross domestic product the past several years, mostly on the strength of rising commodity prices, but no one really believes the government’s boasts. Particularly dubious is the government’s claim of a 10 percent annual inflation rate, which sounds awful enough but is well below the 26 percent that more objective observers are reporting. The International Monetary Fund has grown impatient with the government’s statistical legerdemain and threatened to expel Argentina, but once again the Argentines don’t seem to care.
Firmly in charge of all this mess is President Cristina Fernandez de Kirchner, a more comely version of the late Venezuelan dictator Hugo Chavez. The widow of a past president and the current heir to the party of Juan and Eva Peron, which is somehow the only explicitly fascist party in the world that still enjoys the approval of the international left, Kirchner has cracked down on political dissent and anyone who questions the government’s economic statistics. Like all Latin American leftists she has also clashed with the Catholic church, which has an annoying habit of insisting that government is not the highest power over individuals, as she has sought to make contraception a universal entitlement and legalized same-sex marriages.
All of which might explain why the Obama administration has been taking such a painstakingly neutral stance on Kirchner’s saber-rattling threats to take the Falkland Islands away from the British. The tiny specks of land off the Argentine coast have been under British rule for 180 years, are almost entirely populated by English-speaking people of British descent, and by a landslide margin of 1,518 to three the country recently voted to remain a part of the British empire. These facts and a “special relationship” with Britain were sufficient for the Reagan administration to offer all its help to Margaret Thatcher when she had to tack the islands back from the Argentines in 1982, but the Obama administration has been so careful not to back Britain that in its statements of neutrality refers to the territory by its Argentine name. This has not played well in Britain, but neither Obama nor Kirchner cares about that, and any debt-ridden, numbers-fudging, dissent-quashing government that wants the Catholic church to help dispense birth control is unlikely to take a strong stand against another.
The new pope was reportedly a staunch critic of Kirchner during his years as Argentina’s bishop, which bodes well for his papacy. If he can drain the occasional three-pointer, he might go down in history as one of Argentina’s greatest men.

— Bud Norman

The Rising Cost of Living and Chili

A recent cold snap induced an appetite for our famous homemade chili, with “famous” being an honorific bestowed on any decent pot of chili in these parts, and that in turn led to our latest measurement of the inflation rate.
The folks in the federal government measure inflation in one way, some economic contrarians figure it another way, and it seems that everyone else uses a methodology of their own. We go by the Chili Index, which is pegged to the price paid at a nearby grocery store for the necessary ingredients for a large pot of the stuff, and it suggests the country has yet another economic problem to worry about.
Lest anyone doubt the scientific validity of the Chili Index, we would note that its findings are corroborated by more familiar data. Even the folks in the federal government have noticed a steady rise in prices, for among the slew of dispiriting economic statistics that were released just after the election — odd timing, that — was an uptick in the official inflation rate to 2.2 percent. That’s not a particularly worrisome number to most economists, who apparently enjoy regular cost-of-living raises, but it’s the third increase in as many months and rapidly approaching a rate that would cause policy-makers to reconsider all the quantitative easing that’s been propping up the slumping economy.
There’s also reason to believe that number significantly understates the economic reality. Shortly after the bad old days of stagflation in the ‘70s the government revamped its formula for determining the inflation, including the use of “hedonic” pricing to account for the supposedly improved quality of some of items, and running the same information through the earlier formula would put us right back in the bad old days of stagflation. Given that the quality of ground beef, onions, bell peppers, jalapeno peppers, crushed tomatoes and chili beans has not improved noticeably in recent years, the Chili Index reflects on the price charged at the register.
We’re not the only ones who perceive a higher rate of inflation than the government statistics would suggest. An exit poll conducted by NBC News during the election found that 37 percent of the respondents cited rising prices as the biggest problem they face, just one point shy of the number who cited unemployment, and other studies have shown that most Americans guess the inflation rate is higher than the official figure. Women tend to see even more inflation than men, and low-income people more than the higher earners, but almost everyone is seeing higher prices than the bureaucrats are reporting. That likely reflects a widespread skepticism about all manner of government economic statistics, including unemployment rates that sometimes drop because of all the people who have given up looking for work, but it’s not because the government knows better than the skeptical individuals about the prices of the things they buy.
Should the inflation rate continue to rise, even the official one, expect to hear a lot of pontificating in the media about the advantages of inflation and how brilliant the federal government has been in staving off the dread deflation. They’ll note that inflation is beneficial to debtors, among its many other virtues, but they’ll probably not mention that the biggest debtor in the history of the world is the federal government. Let us hope that the government doesn’t print up enough money to pay off the current $16 trillion of debt and tell its creditors to use it for a pot of chili.

— Bud Norman

Easing Into Darkness

The Arab spring has turned to a brutal fall, the president can’t quite decide if the Egyptian government that he helped bring into power is a friend or foe, and there seems to be a similar question in the president’s mind about Israel as it readies for a war with Iran. The folks down at the stock market are happy, though, because the economy’s so lousy that the Federal Reserve has decided to hand it a whole lot of newly-printed money.

Citing all the familiar economic doom and gloom, a statement from the Fed on Thursday announced that it will buy $40 billion of mortgage-backed securities every month for an indefinite period of time as part of a third round of “quantitative easing” that will wind up increasing the money supply by more than $3 trillion. Given that the Fed also signaled its intention to keep interest rates at their current historical lows for the foreseeable future, making bonds and other fixed-income investments a mug’s game, much of that money will quickly make its way to Wall Street.

This made for a big rally on the big boards, naturally enough, but it’s hard to see how it will do much for a real economic recovery on less fashionable roads. The first two rounds of quantitative easing clearly didn’t work, or there wouldn’t be any need for a third one, and there is no convincing theory to explain why this effort will be any more successful. There’s an old adage that the third time’s a charm, but we can find no scientific basis for this notion, and our thrice-married friends assure us that it’s bunk.

What’s troubling the economy is not a lack of pieces of paper printed with green pictures of federal buildings and former officials, as these are already in greater abundance than ever, but rather a lack of incentives for people to start moving them around. Until the tax codes, regulations, and prevailing political climate all signal that Americans can expect to keep most of what they earn, the Fed can roll out the dollars at a Weimar-era rate and the smart money will still be seeking a safe haven far offshore.

The Fed’s actions entail considerable risks, too. One of the reasons that people are sitting on their money is a reasonable expectation that the government’s about to go broke, and although Fed Chairman Ben Bernanke said in a Thursday news conference that his plan won’t affect the budget it is unlikely that it will induce any non-Tea Party politicians to cut back on their spending. Should the plan actually stimulate the economy, whatever goods and services are created will be chasing so much money that a ‘70s-style inflation rate might prove a best-case scenario. More dollars mean a weaker dollar, as well, and could even threaten the reserve currency status.

None of the negative effects will be immediately apparent, however, unless you’re a retiree who was suckered into bonds and other traditional retiree-age investments, and by the time the worst of it hits the election will be long past. Any short-term benefits that might occur will be more immediate, on the other hand, but surely it would be paranoid to think that politics had anything to do with it.

— Bud Norman

Hold the Champagne

Various news media have been so relentlessly cheery about the economy lately that it was almost a relief to hear Federal Reserve Chairman Ben Bernanke offering such gloomy words to congress on Wednesday. It’s not a desire to see the American economy falter that made his testimony so welcome, of course, but rather the reassurance it offered that someone else out there is also anxious.

Bernanke can hardly be considered an Obama-bashing right winger, but neither can his comments to the House of Representatives’ Committee on Financial Services be considered cheerleading for the administration.

He told the congressmen, and skittish investors everywhere, that while a recovery has been occurring, “the pace of expansion has been uneven and modest by historical standards.” While acknowledging the much-ballyhooed employment figures of the past few months, he added that “… continued improvement in the job market is likely to require stronger growth in final demand and production. Notwithstanding the better recent data, the job market remains far from normal. The unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high.”

Pouring more metaphoric cold water on the recent giddiness, Bernanke noted the continued distress in the housing market, a decline in export activity as Europe’s economy tanks, and “strains in global financial markets.” He also reported that the inflation rate has increased to more than 3 percent, a figure that will seem suspiciously low to anyone who has purchased gasoline or ground beef recently, and conceded that rising crude oil prices will exacerbate the problem in the short term.

Bernanke was more upbeat about the long prospects for the inflation rate, which is what the stock marketeers most care about. So long as the inflation rate can be manipulated to a tolerable level, and the overall economic improvement isn’t overstated too dramatically, many investors will expect the Fed to keep quantitatively easing huge amounts of money into the markets. The lack of an explicit promise to keep the presses running at the mint has restrained market enthusiasm so far, but Bernanke might yet pump up another bubble in time for the election.

There was no mention in Bernanke’s testimony of the recent drop in durable goods orders that followed the expiration of yet another temporary tax credit, or the increasing likelihood of Middle Eastern tensions wreaking further mischief on oil prices, or the possibility that a sooner-than-expected debt crisis will panic the bond markets into a disastrous interest rate increase. By our estimation Bernanke also had an unrealistically rosy view of Europe’s chances for a quick recovery. Even so, it was enough to reassure the pessimists among us that they might just be on to something.

— Bud Norman