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Preview: RealClearPolitics - Articles - Daniel Henninger

RealClearPolitics - Articles - Daniel Henninger

Last Build Date: Thu, 12 Mar 2009 00:26:44 -0600

Copyright: Copyright 2009

The Obama Rosetta Stone

Thu, 12 Mar 2009 00:26:44 -0600

As described in Mr. Obama's budget, these two economists have shown that by the end of 2004, the top 1% of taxpayers "took home" more than 22% of total national income. This trend, Fig. 9 notes, began during the Reagan presidency, skyrocketed through the Clinton years, dipped after George Bush beat Al Gore, then marched upward. Widening its own definition of money-grubbers, the budget says the top 10% of households "held" 70% of total wealth.

Alan Reynolds of the Cato Institute criticized the Piketty-Saez study on these pages in October 2007. Whatever its merits, their "Top 1%" chart has become a totemic obsession in progressive policy circles.

Turn to page five of Mr. Obama's federal budget, and one may read these commentaries on the top 1% datum:

"While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."

"Prudent investments in education, clean energy, health care and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected."

"There's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few. . . . It's a legacy of irresponsibility, and it is our duty to change it."

Mr. Obama made clear in the campaign his intention to raise taxes on this income class by letting the Bush tax cuts expire. What is becoming clearer as his presidency unfolds is that something deeper is underway here than merely using higher taxes to fund his policy goals in health, education and energy.

The "top 1%" isn't just going to pay for these policies. Many of them would assent to that. The rancorous language used to describe these taxpayers makes it clear that as a matter of public policy they will be made to "pay for" the fact of their wealth -- no matter how many of them worked honestly and honorably to produce it. No Democratic president in 60 years has been this explicit.

Complaints have emerged recently, on the right and left, that the $787 billion stimulus bill will produce less growth and jobs than planned because too much of it goes to social programs and transfer payments, or "weak" Keynesian stimulus. The administration's Romer-Bernstein study on the stimulus estimated by the end of next year it would increase jobs by 3.6 million and GDP by 3.7%.

One of the first technical examinations of the Romer-Bernstein projections has been released by Hoover Institution economists John Cogan and John Taylor, and German economists Tobias Cwik and Volker Wieland. They conclude that the growth and jobs stimulus will be only one-sixth what the administration predicts. In part, this is because people anticipate that the spending burst will have to be financed by higher taxes and so will spend less than anticipated.

New York's Mike Bloomberg, mayor of an economically damaged city, has noted the pointlessness of raising taxes on the rich when their wealth is plummeting, or of eliminating the charitable deduction for people who have less to give anyway.

True but irrelevant. Mayor Bloomberg should read the Obama budget chapter, "Inheriting a Legacy of Misplaced Priorities." The economy as most people understand it was a second-order concern of the stimulus strategy. The primary goal is a massive re-flowing of "wealth" from the top toward the bottom, to stop the moral failure they see in the budget's "Top One Percent of Earners" chart.

The White House says its goal is simple "fairness." That may be, as they understand fairness. But Figure 9 makes it clear that for the top earners, there will be blood. This presidency is going to be an act of retribution. In the words of the third book from Mr. Obama, "it is our duty to change it."

A Radical Presidency

Thu, 26 Feb 2009 05:14:14 -0600

Barack Obama is proposing that the U.S. alter the relationship between the national government and private sector that was put in place by Ronald Reagan and largely continued by the presidencies of Bill Clinton and the Bushes. Then, the private sector led the economy. Now Washington will chart its course. Mr. Obama was clear about his intention. "Our economy did not fall into this decline overnight," he said. Instead, an "era" has "failed" to think about the nation's long-term future. With the urgency of a prophet, he says the "day of reckoning has arrived." The president said his purpose is not to "only revive this economy." In fact, people would probably coronate Mr. Obama if he merely revived the Dow Jones Industrial Average. The Dow's fall since the Sept. 14 collapse of Lehman Brothers and sale of Merrill Lynch to Bank of America has eviscerated the net wealth of Americans across all incomes. Many are in the most dispirited state in their lifetimes. Yesterday, the post-Obama Dow lost another percentage point. No matter. In his worldview, "short-term gains were prized over long-term prosperity." His speech did include a plan to address the market crisis. It consists of a program to support consumer and small-business loans; a mortgage refinancing mechanism; and the "full force of the government" to restart bank lending. Mr. Obama delivered that last element with a rather crude pistol-whipping of the nation's bankers and CEOs, thousands of whom have been operating their companies in a responsible, productive way. This was just the prelude. Notwithstanding the daily nightmares of the economic crisis, now is the time to "boldly" rebuild the nation's "foundation." The U.S. budget he released today isn't just a budget. "I see it as a vision for America -- as a blueprint for our future." With it, Mr. Obama becomes the economy's Architect-in-Chief. This blueprint will reshape energy and health. With energy, it proposes a gradual tear-down of the existing energy sector and its replacement with renewables. This vision has foundered before on the price disadvantage of noncarbon energy. Mr. Obama says he will "make" renewable energy profitable. He'll do this with a cap-and-trade system for carbon. The goal here is to "make" renewables economic by driving up the price of carbon. The once-private auto industry, now run by federal "car czar" Steve Rattner, a reformed investment banker, is about to be ordered to produce "more efficient cars and trucks." Americans, like it or not, will buy these government-designed vehicles with government-supported car loans. Mr. Obama believes health-care costs cause a bankruptcy "every 30 seconds" and will drive 1.5 million Americans from their homes this year. Therefore, the budget's vision on health is "historic" and a "downpayment" toward comprehensive health insurance. This "will not wait another year," he said. He announced "tax-free universal savings accounts" as a solution to Social Security's crisis. This is a savings plan supported by federal matching contributions automatically deposited in individual accounts. Mr. Obama acknowledged that this spending -- which in the public sector's new vocabulary is always "investment" -- will be costly. His read-my-lips moment was that no family with an income under $250,000 will pay a "single dime" in new taxes to support the construction of this new federal skyscraper. If that's still true in 2015, Mr. Obama will be walking back and forth across the Potomac River. He told Congress he does not believe in bigger government. I don't believe that. It's becoming clear that the private sector is going to be demoted into a secondary role in the U.S. system. This isn't socialism, but it is not the system we've had since the early 1980s. It would be a reordered economic system, its direction chosen and guided by Mr. Obama and his inner circle. Gov. Bobby Jindal's postspeech reply did not come close to recognizing the gauntlet Mr. Obama has thrown down to the opposition. Unless the GOP can discover a radical message of i[...]

Obama's 'Hair of the Dog' Stimulus

Thu, 19 Feb 2009 00:32:00 -0600

This, incidentally, is why Democratic economists claim to oppose using income-tax cuts to revive an economy. If one returns money to people in a large lump, as with a tax-rate reduction, they're likely to save rather than spend most of it. In other words, what would be revived is the long-dead American practice known as "thrift." Under current logic, that's bad.

Short-term economic stimulus, somewhat like a recreational drug, seeks an immediate "injection" of money into the economy, not the slow, steady drip of normal investment.

The Obama people keep telling audiences how "smart" their government is going to be, and Making Work Pay is a clever way to overcome humanity's unfortunate impulse to save rather than spend in hard times.

The provision will cut the payroll tax in a way that on average puts an extra $8 in a worker's weekly paycheck. The genius behind this idea is that eight bucks is such a pittance that no one will take the trouble to save it. It will all get spent, and stimulus theory succeeds.

The Obama camp insists that Making Work Pay (the name itself is a mysterious paradox) merely helps workers scrape by in tough times. The tax credit phases out for individuals beyond $75,000 of income and couples at $150,000. In fact, Keynes didn't much care whether poor people or rich people spent heavily to reignite aggregate demand.

Still, it looks to me as if there is a Paradox of Virtue in the middle of the Obama stimulus.

George Bush tried stimulus last year by mailing out checks up to about $1,200, and human nature "defeated" that stimulus by saving too much of the check. The U.S. savings rate rose in 2008 to nearly 4%. That was bad. The smarter Obama team wants the savings rate this year and next to return toward zero. They want their billions spent, not saved.

Thus, frugality and prudence are suppressed and the compulsion to spend that got us into this mess is promoted as a necessity. This year and next, Thorstein Veblen's conspicuous consumption will be a virtue, and Max Weber's Protestant ethic may be regarded a vice. The world is upside down.

The Obama hair-of-the-dog strategy, however, may be running into a values-altering headwind. The people have been watching, and what they've seen are the wretched excesses of the subprime lending fiasco, the humiliation of Wall Street's clueless plutocrats, and the self-destructive ambition of Bernie Madoff's investors. This may force a change.

Vogue editor Anna Wintour commented in the Journal this week on the changing world of the spending ladies: "I don't think she is going to shop the way she used to in the immediate future." Ms. Wintour says "there's a very correct correction going on."

Indeed. Anxious parents might even introduce their children to ancient habits, such as a dollar-pinching weekly allowance or passbook savings accounts (if they still exist).

Another problem for the stimulus is that Mr. Obama himself is an unconvincing evangelist for spending our way to economic salvation. Bill Clinton could sell it. But Barack Obama's austere persona reminds me of a character who might inhabit an Ingmar Bergman movie. He calls to mind one of Max von Sydow's portraits of grim Lutheran self-denial.

I think the "correct correction" is upon us. The massive jolt to personal wealth the past year is likely to reverse the decades-long drop in the personal savings rate. The administration's hopes for a trillion dollars of Keynesian spending are going to be tripped up by a new mood of national sobriety.

As always, this assumes for the sake of discussion that the plan's spending is indeed about the American economy, not just the needs of the Democratic Party. It further assumes that the government's never-ending rescues of home "owners" and banks doesn't replace one era of moral hazard with another. No Keynesian paradox in that, however. Just politics as usual.

What Is Congress Stimulating?

Thu, 05 Feb 2009 07:31:11 -0600

Then after Tim Geithner scampered through the tax minefield and into a Cabinet seat, the Daschle tax bomb went off, laying open for public view the world of Washington's pay-for-favors that makes the average Wall Street banker look like Little Bo-Peep. Conventional wisdom holds that the Republican refuseniks shot themselves in the foot by staying off the House stimulus package. Real wisdom holds that congressional Republicans should consider putting distance between themselves and anything Democratic just now. The party's crypts are opening. The Democratic Congressional Campaign Committee, with an apparently recession-proof cash hoard, is running radio ads against 28 House Republicans. The theme of the ads is "Putting Families First." Families first? The only family standing at the front of the stimulus pay line is the federal family. Read the bill. Check your PC's virus program, then pull down the nearly 700 pages of the American Recovery and Reinvestment Act. Dive into its dank waters and what is most striking is how much "stimulus" money is being spent on the government's own infrastructure. This bill isn't economic stimulus. It's self-stimulus. (All sums here include the disorienting zeros, as in the bill.) Title VI, Financial Services and General Government, says that "not less than $6,000,000,000 shall be used for construction, repair, and alteration of Federal buildings." There's enough money there to name a building after every Member of Congress. The Bureau of Land Management gets $325,000,000 to spend fixing federal land, including "trail repair" and "remediation of abandoned mines or well sites," no doubt left over from the 19th-century land rush. The Centers for Disease Control and Prevention are getting $462,000,000 for "equipment, construction, and renovation of facilities, including necessary repairs and improvements to leased laboratories." The National Institute of Standards gets $357,000,000 for the "construction of research facilities." The Oceanic and Atmospheric Administration gets $427,000,000 for that. The country is in an economic meltdown and the federal government is redecorating. The FBI gets $75,000,000 for "salaries and expenses." Inside the $6,200,000,000 Weatherization Assistance Program one finds "expenses" of $500,000,000. How many bureaucrats does it take to "expense" a half-billion dollars? The current, Senate-amended version now lists "an additional amount to be deposited in the Federal Buildings Fund, $9,048,000,000." Of this, "not less than $6,000,000,000 shall be available for measures necessary to convert GSA facilities to High-Performance Green Buildings." High performance? Sen. Tom Coburn is threatening to read the bill on the floor of the Senate. I have a better idea: Read it on "Saturday Night Live." Such as the amendment to Section 2(3)(F) of the Longshore and Harbor Workers' Compensation Act, which will permit payments to guys employed to repair "recreational vessels." Under Incentives for New Jobs, we find a credit to employ what the bill calls "disconnected youths," defined as "not readily employable by reason of lacking a sufficient number of basic skills." President Obama is saying the bill will "create or save" three million new jobs. The bad news is your new boss is Uncle Sam. Senate Minority Leader Mitch McConnell says, "Everybody agrees that there ought to be a stimulus package. The question is: How big and what do we spend it on?" Sen. McConnell should reconsider. He knows that the Bush-GOP spending spree cost them control of Congress in 2006. Thus, "How big?" is not the question his party's constituents (or horrified independents) want answered. This is a chance for the GOP to climb down from its big-government dunce chair. Until that reversal is achieved, there is no hope for this party. I think that behind the bill's sinking public support is the sense that it won't work and its cost is dangerous. The bill's design, an embarrassment to Rube Goldberg, is flawed. Even [...]

America Needs Its Frontier Spirit

Thu, 04 Dec 2008 00:36:11 -0600

Every American absorbs the frontier experience from reading biographies of great Americans or from movies. Frederick Turner, however, made it clear that with this effort to transform the wilderness the Americans broke decisively with what he called, believe it or not, "old Europe." "Here is a new product," Turner wrote, "that is American." "From the conditions of frontier life," Turner believed, "came [American] intellectual traits of profound importance . . . coarseness and strength combined with acuteness and inquisitiveness; that practical, inventive turn of mind, quick to find expedients; that masterful grasp of material things, lacking in the artistic but powerful to effect great ends; that restless, nervous energy, that dominant individualism, working for good and for evil." These, he said, are "the traits of the frontier." Turner's ideas on the frontier lie at the center of many political fights today over domestic and foreign policy. It is hard to overstate how abhorrent Turner's frontier thesis became to the American left, especially its new historians. His paper has been called "notorious and troubling" and a "myth." Their problem with Turner's view of the Americans' tendency to "incessant expansion" needs no elaboration. His critics have called him a racist. This is unfair. Turner himself later described the political tensions in the new 20th century between Morgan's banks, Harriman's railroads -- "wealth beyond their power to enjoy" -- and the new forces of reform. If indeed the Democrats' intellectuals want to disown Turner, the conservative movement could profit from adapting what he admired on the frontier. Everyone's ancestors made the frontier, but if it's just a Republican thing now, so be it. Turner's purpose wasn't to idealize America but to try to understand the wellsprings of its remarkable and self-evident success. He found it, persuasively, in the lessons learned settling a continent. For our purposes, amid economic meltdown and fiasco, the telling phrase in his list of shaping frontier traits is "that dominant individualism, working for good and for evil." Individualism working for good is the story of America's entrepreneurs, the wonder of the world the past 100 years. This week Congress is producing the tragic final turn of three of the most famous -- Ford, Chrysler and General Motors. Most people would view the economic rubble before them as the result of individualism working for ill and evil -- Angelo Mozilo's mindless mortgage originators at Countrywide, Robert Rubin's bonus-addicted risk managers at Citigroup, the politically connected million-dollar managers who opened the vaults at Fannie and Freddie. The great danger now is that a depressed and angry people will allow the risk-taking American baby to be thrown out with the toxic-securities bathwater. The line of waiting washerwomen is long. France's Nicolas Sarkozy ("Laissez-faire capitalism is over") and our European friends propose a global regulatory body to monitor financial risk, which of course means it would corral America's cowboy capitalists. Barney Frank wants a "systemic-risk regulator." Some rethinking of the financial regulatory regime is inevitable. The abrupt September transformation of Goldman Sachs and Morgan Stanley into bank holding companies, most notably with their capital ratios regulated (intensely) by the Federal Reserve is a beginning, and arguably not much more is needed. What's worrisome is that Congress and an array of piling-on regulatory bodies -- the Fed, Tim Geithner's Treasury, the SEC, the CFTC, a new derivatives regulator -- will create too many designated drivers for American finance and business, producing a status quo of caution. The current crisis is the result of a world gone madly long on real estate. Daniel Boone, the famed American frontiersman, went belly-up speculating on Kentucky land. He moved on in 1788 and paid his debts. So should we, without losing sight of the Amer[...]

The True Meaning of 'Historic Vote'

Thu, 30 Oct 2008 00:44:57 -0600

The goal of Sen. Obama and the modern, "progressive" Democratic Party is to move the U.S. in the direction of Western Europe, the so-called German model and its "social market economy." Under this notion, business is highly regulated, as it would be in the next Congress under Democratic House committee chairmen Markey, Frank and Waxman. Business is allowed to create "wealth" so long as its utility is not primarily to create new jobs or economic growth but to support a deep welfare system. The political planets are aligned to make this achievable. In the aftermath of the financial crisis, prominent Democrats, European leaders in France and Germany and more U.S. newspaper articles than one can count have said that the crisis proves the need to permanently tame the American "free-market" model. P.O.W. Alan Greenspan is broadcasting confessions. The question is: Are the American people of a mind to throw in the towel on the system that got them here? This would be a historic shift, one post-Vietnam Democrats have been trying to achieve since their failed fight with Ronald Reagan's "Cowboy Capitalism." Of course Cowboy Capitalism built the country. More than any previous nation in history, the United States made its way forward on a 200-year wave of upwardly mobile, profit-seeking merchants, tradesmen, craftsmen and workers. They blew out of New England and New York, rolled across the wildernesses of the Central States, pushed across a tough Western frontier and banged into San Francisco and Los Angeles, leaving in their path city after city of vast wealth. The U.S. emerged a superpower, and the tool of that ascent was simple -- the pursuit of economic growth. Now China, India and Brazil, embracing high-growth Cowboy Capitalism, are doing what we did, only their cities are bigger. Now comes Barack Obama, standing at the head of a progressive Democratic Party, his right hand rising to say, "Mothers, don't let your babies grow up to be for-profit cowboys. It's time to spread the wealth around." What this implies, undeniably, is that the United States would move away from running with the high GDP, high-growth nations rising today as economic and political powers and move over to retire with the low-growth economies we displaced -- old Europe. As noted in a 2006 World Bank report, spending in Europe on social-protection programs averages 19% of GDP (85% of it on social insurance programs), compared to 9% of GDP in the U.S. The Obama proposals send the U.S. inexorably and permanently toward European levels of social protection. This isn't an "agenda." It's a final temptation. In partial detail: Obama's federalized medical insurance system starts the transition away from private medical care and toward Obama's endlessly promised "universal health care." This has always been the sine qua non of planting a true, managed-market economy in the U.S. Obama's refundable tax credits are direct cash transfers from the federal government. This would place some 48% of Americans, nearly half, out of the income tax system. More than a tax proposal, this is a deep philosophical shift, an American version of being "on the dole." His stated intent to renegotiate free-trade agreements such as Nafta is a philosophical shift. It abandons the tradition of a hyper-competitive America dating back to the Industrial Revolution, toward a protected, domestic workforce, as in Western Europe. The Democratic proposal to eliminate private union votes -- "card check" -- ensures the spread of a static, Euro-style workforce. Eliminating the ceiling on payroll taxes changes Social Security from an insurance to a welfare program. Obama's tax credits requires performing government-identified activities, the essence of a "directed economy." All this would transform the animating American idea -- away from creation and toward protection. Many voters -- progressive Democrats, the asset-safe rich, academics and college st[...]

Hatin' Palin

Thu, 23 Oct 2008 00:44:49 -0600

These rules have wasted the electorate's time the past three presidential elections, by filling the debates with such zero-support candidates as Dennis Kucinich, Mike Gravel, Al Sharpton, Duncan Hunter, Chris Dodd, Joe Biden (8,000 total votes), Wesley Clark and Alan Keyes. Out of this process has fallen a Democratic nominee who entered the U.S. Senate in 2005 fresh off a stint in the Illinois state legislature, with next to no record of political accomplishment. He may be elected mainly because, in Colin Powell's word, he is thought to be "transformational." One may hope so. By not bothering to look very deeply at the details beneath either candidate's governing proposals, the media have created a lot of downtime to take free kicks at Gov. Palin. My former colleague, Tunku Varadarajan, has compiled a glossary of Palin invective, and I've added a few: "Republican blow-up doll," "idiot," "Christian Stepford wife," "Jesus freak," "Caribou Barbie," "a dope," "a fatal cancer to the Republican Party," "liar," "a national disgrace" and "her pretense that she is a woman." If American politics is at low ebb, it is because so many of its observers enjoy working in its fetid backwash. The primary discomfort with Gov. Palin is the notion that she doesn't have sufficient experience to be president, that Sen. McCain should have picked a Washington hand seasoned in the ways of the world. Such as? Here's an opinion poll question: If as Joe Biden suggests the U.S. is likely to be tested by a foreign enemy next year, who of the following would you rather have dealing with it in the Oval Office: Nancy (of Damascus) Pelosi, Harry Reid, John Edwards, Joe (the U.S. drove Hezbollah out of Lebanon) Biden, Mike Huckabee, Geraldine Ferraro, Tom DeLay, Jimmy Carter or Sarah Palin? My pick? Gov. Palin, surely the most grounded, common-sense person on that list of prime-time politicians. The established political pros let the selection process come to this. Presidential candidates such as John McCain and Barack Obama have become untethered from the discipline of party institutions, largely because the parties have lost coherence. So we get celebrity candidates made famous, fundable and electable by dint of their access to the Beltway media. For voters, this election is a national Hail Mary. For nearly two years, all the major candidates have rotated through our lives as solitary personalities attended by careerist campaign professionals. Barack, Hillary, Rudy, Mitt, Mike, McCain. When the moment arrived to pick a running mate, input from the parties was minimal. That famous party boss, Caroline Kennedy, advised Barack Obama. They picked a three-decade denizen of the Senate. John McCain's obligation was himself and his endless slog to this big chance. The quick surge of party-wide excitement and campaign contributions after his selection of Sarah Palin made clear that the McCain candidacy was moribund and headed for a low-turnout debacle. If he had picked any of the plain-vanilla men on his veep short list -- Pawlenty, Sanford, Romney or Lieberman -- they'd have won approval from the media's college of cardinals, and killed his campaign. The stoning of Sarah Palin has exposed enough cultural fissures in American politics to occupy strategists full-time until 2012. We now see there is a left-to-right elite centered in New York, Washington, Hollywood and Silicon Valley who hand down judgments of the nation's mortals from their perch atop the Bell Curve. It seems only yesterday that the most critical skill in presidential politics was being able to connect to people in places like Bronko's bar or Saddleback Church. When Gov. Palin showed she excelled at that, the goal posts suddenly moved and the new game was being able to talk the talk in London, Paris, Tehran or Moscow. She looks about a half-step behind Sen. Obama on that learning curve. Lorne Michaels, the executive producer [...]

The Financial Crisis Is McCain's Katrina

Thu, 16 Oct 2008 00:46:28 -0600

Call it Katrina Dysfunction Syndrome. The McCain camp should have seen the symptoms. On Wednesday Sept. 24, Mr. McCain announced he was suspending his presidential campaign to return to Washington, likening the financial crisis to 9/11. Newt Gingrich praised the decision as akin to candidate Dwight Eisenhower's dramatic "I will go to Korea" speech in October 1952. Arriving in Washington, Gen. McCain quickly discovered that his troops in the Republican Congress were in disarray. Congressional Republicans hadn't really been led by anyone for at least a year. It was no surprise that the Paulson Plan, which indeed was controversial, broke the GOP into factions. History in its wisdom may record who made the right and wrong calls through this period of financial ruin. But make no mistake: The infighting over the Paulson Plan among conservatives -- always looking for an excuse to bolt the McCain candidacy -- neutralized Mr. McCain at the exact moment that the U.S. electorate was focusing like a laser on the crisis. The need for immediate action was manifest and undeniable. On Wednesday Sept. 17, formerly rock-solid money-market funds began to collapse. Citing "market-wide liquidity issues," a big Putnam fund announced it would distribute its assets to customers. Other funds came under similar pressure. That Thursday, the U.S. credit system, the economy's most essential mechanism, began to lock up. A Journal headline Friday morning Sept. 19 read: "U.S. Drafts Sweeping Plan to Fight Crisis as Turmoil Worsens in Credit Markets." That weekend, Goldman and Morgan Stanley abandoned their status as investment banks. The next Thursday, the day after Mr. McCain's dramatic announcement, the government seized Washington Mutual Bank and sold it to J.P. Morgan, the "largest failure in U.S. banking history." That weekend, a run began at giant Wachovia bank. The U.S.'s financial levees had been breached. The foundation of its daily lending superstructure was being undermined. Amid all this, on Monday Sept. 29, House Republicans voted to defeat the rescue plan. Many of the GOP's concerns were legitimate, notably the difficulty of later scaling back the abrupt expansion of federal power. They did kill the Frank-Dodd slush fund for Acorn-like housing lobbies. In no sense, though, was this a normal legislative exercise, with the luxury of time to debate a federalized prescription drug benefit or a Supreme Court nomination. Flames were shooting out of the upper floors of the U.S. financial system. Elected officials simply cannot announce that because of flaws in a planned rescue effort, they refuse to participate in the bucket brigade. To a voter in Lorain, Ohio, this looked like an abdication. Conventional wisdom holds that John McCain damaged himself by arriving in Washington without anything to contribute. True. It is also true, however, that the dug-in GOP opposition froze McCain between the party's divided factions and their followers. Obama could simply watch; all eyes were on his opponent. Over that span, the terrified stock market cratered, wiping out individual voter wealth. Four very long days elapsed before Congress approved the plan, but as with Katrina, voters will only remember the days when the GOP didn't act. The last thing the McCain campaign needed (or Republicans in close races, such as Sen. Elizabeth Dole in North Carolina) was to be seen by the American people heading for the locker room at crunch time with disaffected House Members. The Real Clear Politics national poll average in the Sept. 22-24 period had McCain a mere three points behind Obama, who was at 48% -- a statistical dead heat. In the week since the congressional in-fighting, Sen. Obama's numbers have drifted above 50% for the first time, and Sen. McCain's have drifted downward. In politics, the Katrina catastrophe principle -- do something! -- trumps everything. R[...]

Welcome to 'Moral Hazard'

Thu, 02 Oct 2008 00:42:31 -0600

For behind it all sat Fannie Mae and Freddie Mac, running mortgage liquidity into the nation's neighborhoods like an open fire hydrant. Several years ago, when the Journal's editorial board met with Fannie Mae's top executives and pressed the issue of financial risks, we were told by way of ending the conversation that Fannie was merely fulfilling the "mandate of Congress" to spread home ownership across the land. Congress, of course, is a temple to moral hazard.

"Moral hazard" is an odd phrase. Its meaning isn't obvious though it does sound like something one ought to avoid. "Moral hazard" dates back hundreds of years in obscurity, but its use eventually settled inside the insurance business in the 19th century. The French call it risque moral.

Back then, it really was taken to mean that reducing risk too much exposed people to the hazard of poor moral judgments. If an insurer charged too little for a policy to replace farms in the English countryside, Farmer Brown might be less careful about cows knocking over oil lamps in the barn.

In time, the economists got their hands on "moral hazard," and the first thing they did was strip out the heavy moral freight to make the concept value-neutral. Now moral hazard became less about judgment and more about the economic "inefficiencies" that occur in riskless environments.

We're back to the original meaning. Losing tons of money for an institution is an economic inefficiency. Lose the nation's financial structure, however, and moral fingers get wagged.

John McCain and Barack Obama are ranting about greed. Congress is taking the air out of golden parachutes. Republicans in Congress are getting pushback from constituents on Main Street who object to "bailing out" banks and what's left of Wall Street.

With so much economic loss and ruin being booked on such a grand scale, it's normal to assign blame. Yes, politics ought to fight its way toward knowing how mortgage-backed securities led to this.

I'm wondering, though, if the U.S. hasn't arrived at a large Pogo Moment. With the greatest financial crisis since the Depression, have we finally met the enemy, and does it turn out that the enemy is us?

For all the wailing about the high price being paid now of ignoring manifest risk beneath the mortgage crisis, are we angry at bad decisions that must never be repeated, or just upset that it all blew up? Because if it's the latter, politicians will try to game the system again to get more risk-free benefits.

Even as it passes through the greatest moral-hazard demonstration in history, Congress this week approved, and President Bush signed into law, a $25 billion "loan" to the auto industry. Without a peep of objection from anyone.

Because no creditor will run the real risk of lending Detroit money, Washington will not only make another $25 billion liar loan but do it so the industry can somehow conjure up Congress's mandated alternative-fuel cars. Are we nuts? Absent the discipline of normal risk, why won't this blow up too?

This subject -- risk and political moral hazard -- should be at the center of our derailed presidential campaign and its debates. Liberals don't like to hear moral-hazard arguments raised against social-policy goals. The current mortgage nightmare, however, grew primarily from Congress's insistence on increasing home ownership by reducing its risks.

Barack Obama's core proposals on health insurance, trade policy and tax credits all seek to reduce an array of economic risks. John McCain's ideas on health, education and the tax code tilt toward "choice," or letting individuals make judgments about economic risk-taking.

Most of the time, moral hazard is simply academic. Not after this week. Our presidential candidates should have a talk about it.

Will McCain Waste Palin?

Thu, 18 Sep 2008 00:56:52 -0600

Once Mr. McCain picked Mrs. Palin as his running mate, he demoted "experience" and elevated a government "reform" message. It was the right thing to do. Presidential voters are ambivalent about Beltway-marinated senators like Mr. McCain and Joe Biden. John McCain's edge is his famous reputation as a reform maverick. So far, though, he is not casting his reform message in large enough terms. Washington is arguably at its lowest ebb in the public mind since before World War II. Join that fact to Sarah Palin's personally gutsy and professionally strong reform credentials, and Mr. McCain has the chance to offer voters a reform presidency in historic terms. Yes, the Obama campaign is trying to hang the Bush presidency around his neck. Mr. McCain knows -- and should give -- the answer to that: Voter disgust with Washington goes far beyond George W. Bush. In the 2006 off-year election, voters threw out the Republican bums and turned over control of Congress to the Democrats. In an odd thank-you, the Democratic Congress earned the lowest approval ratings ever recorded in opinion polls. This decline is not part of the normal ebb and flow of politics. The fall, the malfeasance, is deeper. It's bipartisan. It's endemic. The most acute comment on what Washington has become -- and what the American public knows it has become -- was a federal judge's Sept. 4 sentencing statement for convicted Beltway favor-meister Jack Abramoff. Standing before federal Judge Ellen Huvelle, Abramoff said, "So much that happens in Washington stretches the envelope, skirts the spirit of the law and lives in loopholes." Agreed, said Judge Huvelle, who hammered Abramoff with an additional 48-month sentence, more than prosecutors had asked. She said simply: "The true victims are members of the public who lost their trust in government." Forget the Tina Fey SNL mockery and all the marginalia being written about Sarah Palin now. She did four real things in Alaska that make her fit for anyone interested in a reform presidency. She took on: her party's state chairman, her party's state attorney general, GOP Gov. Frank Murkowski's tainted gas pipeline project, and then she supported a GOP candidate who ran against Alaska's "untouchable" GOP congressional earmarker, Don Young. One way or another, each episode involved severing the sleazy ties that bind public officials to grasping commercial interests, something even the Democratic left purports to favor. It isn't just Washington and Juneau. You could open the nozzle on the same reform fire hose to wash the public-private slime out of the capital hallways of New York, New Jersey, California, Illinois and onward. You say Sarah Palin doesn't have enough "experience" to run Washington? Washington is barely fit to be run. The problem isn't standard political corruption. The problem is that the $2.8 trillion federal budget is a vast ocean of Beltway pilot fish feeding off scraps from the whale -- lawyers, lobbyists, ex-Members of Congress. No one runs the Sea of Washington. It's too big, too deep. Barack Obama wants to dig a deeper hole. John McCain should ask the American people if they want this to go on, because it's nonsense to vote for government to do "more" and then whine when it doesn't work or degrades into sweetheart-deal hell. Unfocused "reform" rhetoric from Mr. McCain isn't enough. The public has been there, heard that. Sen. McCain should talk about what he knows -- fat Fannie and Freddie, farm-bill bloat, the ethanol subsidy fiasco, the federal procurement mess. Show people Gov. Palin's 18 single-spaced pages of 2007 vetoes. Then identify Congress's bipartisan supporters of the Legislative Line-Item Veto Act and ask the voters' support. Appear with GOP congressman from Sarah's new generation who want to help -- Eric Cantor of Virginia, Paul Ryan of W[...]

What's So Special About Sarah?

Thu, 04 Sep 2008 00:59:10 -0600

When John McCain announced in Dayton, Ohio that his vice presidential running mate would be Gov. Sarah Palin of Alaska, he looked respectable but a little stiff -- a bit like his campaign. Then Sarah spoke. And after lying dormant across two years of presidential campaigning, the Republican faithful exploded. It would be an exaggeration to say one had never seen anything like it, but the public take-up on the virtually unknown Alaskan governor was phenomenal. Attribute the surge in the GOP base, if you wish, to Rush Limbaugh's concise Friday afternoon summary: "Sarah Palin: babies, guns, Jesus. Hot damn!" But even that probably won't get you 270 electoral votes. The really interesting reaction to Sarah emerged just beyond the base. A lot of us picked up real enthusiasm Friday from people, notably women, who've never spent one moment with or talk radio. News columns now are overflowing with doubting women, but wait 'til the real campaign starts. This is going to be good. One can't subtract politics from a woman who is running for vice president, but Sarah Palin's manifest appeal at the moment is about something larger than retail politics. If it holds up, the Democrats have a problem. The Sarah Palin story doesn't fit the standard liberal model the past 30 years of what defines a high-achieving woman. The impulse in acceptable political society to condescend to lovely, ebullient Sarah is palpable. If the TV commentators tried to sound any smarter dismissing her qualifications, their big brains would burst. Who is she? I mean after all, prior to whatever passes for politics up there in Alaska, all she seems to have done was play sports, go to a no-name university and have lots of babies? She's a beauty queen! This isn't even close to your standard East Coast über-woman. Sarah didn't go to Harvard Law and clerk for some legendary judge; her first job was as an Alaskan sportscaster! A great roar has arisen this week from Manhattan (New York, not Kansas): "Look at her standing there with John McCain, thinking she's Little Miss Perfect. My God, she almost sounds like an Alaskan Valley Girl. This can't possibly work, can it??!!!" We'll find out. For starters, a lot of women voters don't live in New York, Boston, L.A. or San Francisco. Maybe Sarah Palin from Wasilla is a lot closer to the way many women today see themselves than the standard feminist model. Gloria Steinem, one of the many mothers of that ideal, is 74. Sarah Palin is 44. Times change. Many younger women didn't learn what it means to be an achieving woman from dormitory feminism. She didn't abandon her hometown for the big city. She stayed home, had babies, helped her snowmobiling husband with his commercial fishing business and with him, tried to assemble a life. She got into politics in Wasilla with zero connections -- no famous father, no financing husband, no mentor, nothing. She got elected mayor. She got into politics to improve her community, not to launch herself on some career path she had figured out while in college. Then came the interesting part. Under the standard model, you deploy your superb IQ to maneuver upward around the oppressors. Sarah Jock, learning her self-discipline in such weird pursuits as morning moose-hunts with her dad, ran at the system. Doing something few women and no males would do, she went after the men who run Alaska's inbred politics, the machine. And cleaned their clocks. The people elected her governor. I asked a number of women this week to account for Sarah Palin's sudden appeal. Here are the common threads. The angry woman-as-victim drives them nuts. They hate victimology. As one woman said, "The point is that across the ages women have been doing pretty much what Sarah Palin has been doing: bearing children, feeding families[...]

Barack Obama: Leap of Faith

Thu, 28 Aug 2008 00:40:25 -0600

Jimmy Carter, the previous holder of the most mysterious candidate title, served four years as a reform governor in Georgia. Bill Clinton, though little known beyond Arkansas, was a governor for 12 years. The U.S. presidency is a political office, and nearly all nominees for it had a record in politics to offer a basis for shaping a view of how they might conduct the nation's highest office. By this most traditional of measures, the Obama candidacy is a leap of faith. A New York Times article on his years at Harvard Law, where he was editor of the law review, said, "In dozens of interviews, his friends said they could not remember his specific views from that era, beyond a general emphasis on diversity and social and economic justice." A similar piece on his years teaching at the University of Chicago Law School said he notably did not participate in its intellectual debates. Barack Obama raises the prospect of a candidate for the first time being elected into the presidency almost wholly on the basis of a compelling persona. It is no surprise this could happen in an age tugged by the siren song of celebrity. The 2008 election is almost certainly going to be decided by white, lower-middle-class voters -- the people who voted for Hillary Clinton this year and before that for Ronald Reagan. If these voters don't swing behind the Obama candidacy in Ohio, Michigan, Florida and Missouri, he will lose. Yet amid a universally described lack of clarity about Sen. Obama's experience and core political beliefs, it is now being said that if the people in blue-collar counties don't vote for him, they, and their nation, remain racist. This is false. If they don't vote for Barack Obama, it won't be over his personal roots, but because they're confused about the roots of his politics. The assertion that workaday white people in Ohio's Mahoning Valley, Altoona, Pa., or Macomb County, Mich., won't vote for a black man reveals more about the race-based obsessions of the intellectual elites making these claims than the reality of this campaign. Bear in mind that these voters didn't become an explicit concern of the Obama campaign until after Super Tuesday. Before the primaries arrived in Ohio and Pennsylvania, Sen. Obama's biggest wins were Iowa, South Carolina, Minnesota, Kansas, home-state Illinois, Georgia, Delaware, Connecticut, Colorado, Virginia, Maryland and Wisconsin. Amid the Obama jubilation, Hillary was winning California, New Jersey, Massachusetts, New York. Sen. Obama accumulated his victorious lead early with a liberal coalition willing to vote for him mainly for reasons of faith - upper-middle-class whites, black voters and young idealists -- all attempting to complete the civil-rights promise, answer the post-partisan appeal, or vote against the war and George Bush. Hillary's wins in the big states above were portents. His coalition's limitations hit the wall in Ohio. Here Sen. Clinton discovered her Rosie-the-Riveter persona, and it worked. I watched her sell bread-and-butter policy before blue-collar crowds in Youngstown, Akron and Cleveland. She was tremendously good at it. He just wasn't. The Sunday before the Ohio vote, Sen. Obama abandoned Ohio. The way Hillary won in these crucial November swing states may have fatally damaged his candidacy. Does a candidate for the U.S. presidency have to be able to connect somehow with white working-class voters who didn't attend college to win? The answer, 40 years after the Civil Rights Act of 1964, is no longer about race. It's about the most fundamental question a plain-thinking voter asks: Does this guy get me? Sen. Obama's biography is as compelling as his supporters claim. His problem is that there is nothing in it to suggest he has spent any significant time thinkin[...]

Putin's Rules, or Ours

Thu, 14 Aug 2008 00:29:07 -0600

The New Russians now in Georgia are shaping a new world with rules based on the old Russian brutalisms. Their political instruments include the eternal silence of murder, routine energy-supply blackmail, and this week a revival of the massed-tank strategies of 1956 and 1968. Deafening is the sound of scales falling from Western eyes, though it's worth noting how few commentaries about the post-Georgia reality have mentioned the wolves already inside the West -- the terror brigades of radical Islam. Iran's mullahs watch and wait; they'll grab the Gulf once it is clear the West won't resist. Soon? There is an alternative to this dark opposition, whose goal is to displace the order that served the world well in the 60-year postwar era. The alternative is Georgia. After Mikheil Saakashvili was elected president of Georgia in 2004 at age 36, he and his young colleagues began a crash program to integrate their nation into the global world order. Georgia has tried to become both a democracy and free-market economy. It's worth noting that like Mr. Saakashvili, a Columbia Law graduate who came to the U.S. from Georgia on a State Department Muskie Fellowship, many of his young ministers were schooled at places like Duke, Southern Methodist, Indiana or in Tel Aviv, Israel. Surely many such foreign students must ponder the evident success of the U.S. The young Georgians did. They returned to Tbilisi and with Mr. Saakashvili began to erect, piece by piece, a political, economic and financial system that could plug itself smoothly into the ones already running in the West. On balance, they've succeeded. Growth last year was about 12%. Foreign investment flows have been high. Much of what they did to make Georgia fit with the world seems pedestrian. They passed laws to enhance property rights. They joined international conventions and institutions affecting arbitration, accounting and ownership. They changed their securities law so corporate insiders couldn't expropriate minority investors. They have pursued free-trade agreements with their regional trading partners. Naturally they want to join NATO. Georgia isn't John Locke's England yet -- the judicial system is notably weak -- but the trajectory is set. In historical terms, this is essentially what Gen. Douglas MacArthur did for Japan after World War II and Konrad Adenauer did in West Germany. Both were explicit efforts to reorganize a nation to participate in the political and commercial life of the West. "The West," of course, is only a phrase that describes the civilized world's rules of the road during the postwar period. Russia opted out, adopting the Soviet gulag model until 1991. Georgia is a microcosm of a world of nations now emerging from old systems. In that former, preglobalized world, the West's great powers were on top, and everyone else muddled below. What Georgia represents is an independent nation that has worked hard to be part of the established civilized order, rather than contribute to the chaotic and violent frictions that seem on the verge of constantly overwhelming the world. Putin's Russia is a manufacturer of frictions. Some argue that Georgia is not a primary American interest. They see Georgia as ultimately a place that transits oil and gas through pipelines from somewhere else to Turkey or onto Europe. Georgia is unlucky geography. This is false. When this crisis ends, Georgia will be either a model for a world that works or a world whose members do business with knives. Ask BP oil, bereft inside Russia. If the world's foreign ministries, CEOs, investors and policy intellectuals can't see the implications for their world in Georgia's fate, it's time to reorder our best efforts to playing by Mr. Putin's rules. Many of t[...]

Will Obama Let the Sunshine In?

Thu, 10 Jul 2008 00:30:18 -0600

Thus spake Sen. Barack Obama, b. 1961: "There is no doubt that we represent the kind of change that Sen. Clinton cannot deliver on. And part of it is generational. Sen. Clinton and others, they have been fighting some of the same fights since the '60s. And it makes it very difficult for them to bring the country together to get things done." Sen. Clinton "and others" would include House Speaker Nancy Pelosi, various Senate and House Committee chairmen, DNC Chairman Howard Dean, and much of the Congressional Black Caucus whose political formation started and stopped in the civil rights movement of the 1960s. Insofar as many of the people running Sen. Obama's own party have spent the past four decades playing the Hatfields to the conservative McCoys, can one truly say he has freed himself from those times? As someone might have said back then, sort of. A phrase born in the '70s out of the feminist movement held that "the personal is political." As an epigram for the age, she got that right. Back then, it seemed to make sense. Neither Barack Obama nor others of his generation can fathom the fantastic emotional intensity of 1968. It was a year submerged in physical and emotional violence. After the Martin Luther King assassination in April, many American cities erupted in violence and arson, most notably Washington, D.C. The smash-face antiwar movement screamed alongside. For the then-young men and women of the liberal left, politics became, and remained, unapologetically personal. The falling away of restraint on personal behavior required that the new ethos had to be codified by politics and the courts. Fighting for the right to hang erotic art in a Cincinnati museum became their idea of crucial struggle. Their counterparts on the right were appalled. The point is that for both sides, 1968 was a political furnace; it forged belief systems that drive many in politics today, especially Democrats. Hillary Clinton came out of this intensely fought milieu. Barack Obama did not. When Obama criticized the fights born back in the '60s, he was severing the personal from the political. He is personally very different from these people. (I wouldn't say this about Michelle Obama.) What has struck me most about Obama's personality is that it conveys nearly no sense of irony. Hillary in stump speeches would respond to applause for her tales of woe by bobbing her head and forming her mouth into a knowing smirk. Obama doesn't do "knowingness." He's earnest and emotionally quiet. Making un-ironic earnestness seem charismatic is hard, but he's doing it. His recent flip-flops on guns, the death penalty and Iraq suggest he is less inclined to belief-based '60s style activism than to pragmatic opportunism. The old school wanted to triumph. He wants to succeed. The Democratic bloggers, truly a tribe descended from 1968, hate Obama's easeful flexibility. But it explains in part how he is slipping by with a standard liberal policy-set no one seems to notice. A lot of moderate Democrats and younger voters, who consider themselves mainly achievers rather than activists, are OK with this. They would rather vote for a flexible opportunist than a committed man of the left. So that's what they're getting. If he wins, though, the country would have a president who lacks personal and political clarity. This would give the politics of hope new meaning. What precisely do voters think they're getting? You don't have to wait for an answer. It will be supplied in January by Nancy Pelosi, Harry Reid, the House caucus and many others who turned professional after the '60s and know what to do with a big governing majority in Congress. For Democrats who think 1968 was yesterday, the next four look good[...]