How Obama got Keynes wrong

NEW YORK (Fortune) -- The Obama White House likes to say that the theories of John Maynard Keynes form the foundation for its fiscal policies. Most notably, it draws upon the legendary British economist's idea of spending big to pull out of a recession.

But one economist says the administration has gotten Keynes only half right. Allan Meltzer of Carnegie Mellon is one of the most influential monetarists of the past 50 years. He has served in the Department of the Treasury under President Kennedy and on the Council of Economic Advisors during the Reagan Administration. He also authored the book,Keynes's Monetary Theory: A Different Interpretation.

While the Obama team is laying out huge sums of money, Meltzer says it's neglecting a key part of Keynes' plan: You can't run up a debt without a way to cover it.

Meltzer recently sat down with Fortune editor-at-large Shawn Tully. Below are edited excerpts from their conversation.

If Keynes were alive today, what would he think of President Obama's fiscal policies?

He would roll over in his grave if he could see the things being done in his name. Keynes was opposed to large structural deficits. He thought that they chilled rather than stimulated the economy. It's true that we're stuck with large deficits now. The goal should be to reduce them, not to take on new spending that makes them worse.

Today, deficits are getting bigger and bigger with no plan to significantly lower them. Keynes understood what the current administration doesn't understand that the proper policy in a democracy recognizes that today's increase in debt must be paid in the future.

We paid down wartime deficits. Now we have continuous deficits. We used to have a rule people believed in, balanced budgets. And now that's gone.

An excellent article. Keynesian deficits were to be short lived. Not continuous and inter-generational. 

Read the whole article here.

From NRO's The Corner: 

Is Greece Our Future?   [Victor Davis Hanson]

I lived in Greece for more than two years, and one of my best memories is of a small hotelier at a seaside resort. He checked you in; he cooked; he did the landscaping at night; he did all the maintenance during the day. I asked him why he didn't hire more help, since his hotel wasn't all that small and he seemed to be going 24/7. What followed was a harangue about the cost of hiring a permanent worker in Greece, the difficulty of ever firing him if he proved worthless, and why he preferred to do everything himself rather than fill out all sorts of forms and hire unmotivated but tenured employees. Besides, he said, almost everyone was on some sort of pension, disability, or government benefit, and was unwilling to work, so his choices were either illegal immigrants or broke foreign students. Then he launched into a blast against socialism, and explained how he was forced to become an expert tax dodger, how he would barter for all the transactions he could, and why he hated the government. He finished by sighing that in Greece, the people spend their time either devising ways to get government money or scheming to avoid the tax collectors — or, preferably, both.

I think the medicine for Greece's current crisis will prove more unpalatable than the wasting disease.

From NRO's The Corner:

House of Peers   [Mark Steyn]

As Jonah and I have written here previously, "climate change" is not only a scientific scandal but also a massive journalistic failure. While the "Canadian Journalism Project" continues to insist that dissenting from the orthodoxy is "irresponsible journalism", Matt Ridley at The Spectator acknowledges the reality:

Journalists are wont to moan that the slow death of newspapers will mean a disastrous loss of investigative reporting. The web is all very well, they say, but who will pay for the tenacious sniffing newshounds to flush out the real story? ‘Climategate’ proves the opposite to be true. It was amateur bloggers who scented the exaggerations, distortions and corruptions in the climate establishment; whereas newspaper reporters, even after the scandal broke, played poodle to their sources.

Mr Ridley credits various British, Canadian and American bloggers, and then makes this observation:

Notice that all of these sceptic bloggers are self-employed businessmen. Their strengths are networks and feedback: mistakes get quickly corrected; new leads are opened up; expertise is shared; links are made.

The correcting mechanisms of competitive businesses are largely alien to America's unreadable monodailies, which is why they'll be extinct long before the polar bear. As an example of what Matt Ridley's talking about, consider this piece designed to prop up the increasingly discredited IPCC from ABC Australia's Margot O'Neill. It's a simulacrum of reporting rather than the real thing. It has quotes from impressive sounding experts, but, as Mr Ridley put it above, she is playing "poodle to her sources":

Here is how Queensland University's Professor Ove Hoegh-Guldberg, a world expert on coral reefs and climate change, describes what happened when he contributed a small slice of the 2007 IPCC report:

"The IPCC has one of the most rigorous review processes I have ever experienced. There are various stages of review. The first round involves the working groups picking over the text (hundreds of eyes and qualified expert opinions). If you have been involved in this process, it is a quite an experience which takes months and years - involving a lot of pedantic haggling over detail - but always using the peer-reviewed literature as the base..."

And on he yaks, in great detail. Like all the poodles of the environmental beat, Margot O'Neill repeats those magic words "peer review" every couple of paragraphs like a talisman to ward off evil deniers. But, in the course of invoking the phrase "peer review", she never bothers to look at whether the IPCC actually does it. By contrast, without benefit of the resources of a national TV news operation plus salary and benefits, lone blogger Donna Laframboise did a couple of text searches on the IPCC report and discovered multiple predictions of doom - on Himalayan glacier melt and much else - resting not on peer-reviewed science but merely on activist groups such as the World Wildlife Fund and Greenpeace. Miss Laframboise writes:

Nothing prevented Ms. O'Neil from taking a firsthand look at the IPCC report herself. She, like me, could have typed "WWF" (which stands for the activist group, the World Wildlife Fund) into a search box and found the 16 distinct WWF citations in the IPCC's 2007 report. Within a few minutes she could also have found the eight Greenpeace papers listed...

Instead, Ms. O'Neill - who has 25 years experience as a journalist - was utterly bamboozled by the PR machine which is the IPCC. She fell for their slick mirage. And then she passed it along to her viewers and readers.

For good measure, Miss Laframboise points out that Margot O'Neill was either suckered by or consciously misrepresented her expert witness:

In the process she might have noticed that one of her scientific experts - Professor Ove Hoegh-Guldberg (whom she quoted as saying: "I don't think you could have a more rigorous process") - is a co-author of one of those non-peer-reviewed Greenpeacepapers.

The poodles are heading for the endangered species list, and deservedly so.

Unsustainable

We are incentivizing financial unsustainability.

By Mark Steyn

 At the National Prayer Breakfast, Barack Obama singled out for praise Navy Corpsman Christian Bouchard. Or as the president called him, “Corpseman Bouchard.” Twice.

Hey, not a big deal. Throughout his life, the commander-in-chief has had little contact with the military, and less interest. And, when you give as many speeches as this guy does, there’s no time to rehearse or read through: You just gotta fire up the prompter and wing it. But it’s revealing that nobody around him in the so-called smartest administration of all time thought to spell it out phonetically for him when the speech got typed up and loaded into the machine. Which suggests that either his minders don’t know that he doesn’t know that kinda stuff, or they don’t know it either. To put it in Rumsfeldian terms, they don’t know what they don’t know.

Which is embarrassingly true. Hence, the awful flop speeches, from the Copenhagen Olympics to the Berlin Wall anniversary video to the Martha Coakley rally. The palpable whiff given off by the White House inner circle is that they’re the last people on the planet still besotted by Barack Obama, and that they’re having such a cool time starring in their own reality-show remake of The West Wing they can only conceive of the public — and, indeed, the world — as crowd-scene extras in The Barack Obama Show: They expect you to cheer and wave flags when the floor-manager tells you to, but the notion that in return he should be able to persuade you of the merits of his policies seems entirely to have eluded them.

But, since Obama’s mispronunciation is a pithier summation of the State of the Union than any of the dreary 90-minute sludge he paid his speechwriters for, let us consider it: Is America a Corpseman walking?

Well, we’re getting there. National Review’s Jim Geraghty sums up Obama’s America thus: “Unsustainable is the new normal.” Indeed. The other day, Douglas Elmendorf, director of the Congressional Budget Office, described current deficits as “unsustainable.” So let’s make them even more so. The president tells us, with a straight face, that his grossly irresponsible profligate wastrel of a predecessor took the federal budget on an eight-year joyride, so the only way his sober, fiscally prudent successor can get things under control is to grab the throttle and crank it up to what Mel Brooks in Spaceballs (which seems the appropriate comparison) called “Ludicrous Speed.”

Obama’s spending proposes to take the average Bush deficit for the years 2001–2008, and double it, all the way to 2020. To get out of the Bush hole, we need to dig a hole twice as deep for one-and-a-half times as long. And that’s according to the official projections of his Economics Czar, Ms. Rose Colored-Glasses. By 2015, the actual hole may be so deep that even if you toss every Obama speech down it on double-spaced paper you still won’t be able to fill it up. In the spendthrift Bush days, federal spending as a proportion of GDP average 19.6 percent. Obama proposes to crank it up to 25 percent as a permanent feature of life.

Read the whole thing.

Dems Haunted by Revived Stereotypes

Election Day 1988 was only days away. Ronald Reagan was headlining a rally in Nevada. He said the options were the same as "when I stood before you." Reagan framed the Democratic "choice" as one for "liberal policies of tax and spend, economic stagnation, international weakness, accommodation, and always, always blame America first."

Reagan-era framing is regaining its relevance. Fair or not, liberalism's worst stereotypes have returned from the dead to haunt Democrats. "Tax and spend liberal," it's back with the charge of being soft on security threats – a claim that dogged Democrats from debates over crime to the Soviets to terrorism.

Interesting.  Read the whole thing.

From NRO's The Corner: 

Full Coverage   [Mark Steyn]

A couple of years back, I wrote:

The other night at dinner, I found myself sitting next to a Middle Eastern Muslim lady of a certain age. And the conversation went as it often does when you're with Muslim women who were at college in the sixties, seventies or eighties. In this case, my dining companion had just been at a conference on "women's issues," of which there are many in the Muslim world, and she was struck by the phrase used by the "moderate Muslim" chair of the meeting: "authentic women" — by which she meant women wearing hijabs. And my friend pointed out that when she and her unveiled pals had been in their 20s they were the "authentic women": the covering routine was for old village biddies, the Islamic equivalent of gnarled Russian babushkas. It would never have occurred to her that the assumptions of her generation would prove to be off by 180 degrees — that in middle age she would see young Muslim women wearing a garb largely alien to their tradition not just in the Middle East but in Brussels and London and Montreal.

That's an anecdotal observation. So now look at these two pictures: First, the Cairo University class of 1978, with every woman bare-headed; second, the Cairo University class of 2004, hijabed to the hilt.

Whenever I give a speech on Islam, some or other complacenik always says, "Oh, but they haven't had time to Westernize. Just you wait and see. Give it another 20 years, and the siren song of Westernization will work its magic." This argument isn't merely speculative, it's already been proved wrong by what's happened over the last 20 years. Compare the Cairo University class of 1959 with those of the 21st century, and then see if you can recite your inevitablist theories of social evolution with a straight face. The idea that social progress is like the wheel or the internal combustion engine — once invented, it can never be uninvented — is one of the laziest assumptions of the Western Left.

Class of 1959

Class of 1978

Class of 1995

Class of 2004

Hat tip to the Shanghai Stringer:

From CATO Institute

Five Decades of Federal Spending

The chart below shows federal spending in three component parts over the last five decades. It includes Obama’s proposed spending in 2011. Here are a few thoughts on the recent spending trends:

Defense: In the post-9/11 years, defense spending bumped up to a higher plateau of around 4 percent of GDP. But now we have jumped to an even higher level of around 4.9 percent of GDP.

Interest: The Federal Reserve’s easy money policies reduced federal interest payments in recent years. That is coming to an end. Obama’s budget shows that interest payments will start rising rapidly next year and hit 3 percent of GDP by 2015. And that’s an optimistic projection.

Nondefense: This category includes all other federal spending. After a steady decline during the Clinton years to 12.9 percent of GDP, President Bush pushed up nondefense spending to a higher plateau of around 14.5 percent. Then came the recession and financial crisis, and the Bush-Obama tag team hiked spending to an even higher level of around 19 percent of GDP. That level of nondefense spending is almost double the level in 1970 measured as a share of the economy.

A great point is made at The Instapundit:

More Washington

As Obama sees it, whatever the problem, the solution is more Washington.

By Mark Steyn

The world turns.

In Indonesia, the principal of a Muslim boarding school in Tangerang who is accused of impregnating a 15-year-old student says the DNA test will prove that a malevolent genie is the real father.

In New Zealand, a German tourist, Herr Hans Kurt Kubus, has been jailed for attempting to board a plane at Christchurch with 44 live lizards in his underpants.

In Britain, a research team at King’s College, London, has declared that the female “G-spot” does not, in fact, exist.

In France a group of top gynecologists led by M. Sylvain Mimoun has dismissed the findings, and said what do you expect if you ask a group of Englishmen to try to find a woman’s erogenous zone.

But in America Barack Obama is talking.

Talking, talking, talking. He talked for 70 minutes at the State of the Union. No matter how many geckos you shoveled down your briefs, you still lost all feeling in your legs. And still he talked. If you had an erogenous zone before he started, by the end it was undetectable even to Frenchmen. But on he talked. As respected poverty advocate Sen. John Edwards commented, “After the first hour, even my malevolent genie was back in the bottle.”

Like any gifted orator, the president knows how to vary the talk with a little light and shade. Sometimes he hectors, sometimes he whines, sometimes he demands. He hectored the Supreme Court. He whined about all the problems he inherited. He demanded Congress put a jobs bill on his desk. Or was it a desk job on his bill? No matter. He does Nixon impressions, too: “We do not quit,” he said.

Boy, you can say that again!

So he did: “We don’t quit. I don’t quit,” he said. Throughout the chamber, Democrats were quitting. “I quit,” says Rep. Marion Berry of Arkanas, declining to run this November. “I quit,” says Sen. Byron Dorgan of North Dakota, doing likewise. “I quit,” says Beau Biden of Delaware, son of Vice President Joe Biden, choosing not to succeed to his father’s seat in America’s House of Lords.

But not Barack Obama: “I don’t quit.” So on he went. As my colleague Rich Lowry put it after the Massachusetts vote, the public thinks Obama doesn’t get it, and Obama thinks the public doesn’t get it. And as he’s got the microphone, he’s gonna keep talking at you until you do get it.

The ever tinnier, more perfunctory sophomoric uplift at the start and finish can’t conceal the hope-killing, jobs-slaying, soul-sapping message in between, which is perfectly consistent, and has been for two years. As President Obama sees it, whatever the problem — from health care to education, banking to the environment — the solution is more Washington.

Page 2 here.

The Roots of Obama Worship

Auguste Comte’s Religion of Humanity finds a 21st-century savior.

The confluence of the Religion of Humanity with the Obama campaign has every appearance of being a providential event. It was prepared by the advent in the 1990s of an ongoing world public opinion, something that had never previously existed. The focus was on views and attitudes about America, a symbol that was constructed under the guidance of the intellectual vanguard. This symbol, known as anti-Americanism, was given a human face in the first decade of this century when it was joined to the personage of George W. Bush. It was invested with every element deemed to be retrograde: the primacy of the nation, a claim of exceptionalism, and a set of principles—“nature and nature’s god”—grounded in theology and metaphysics. The world was depicted as comprising two fundamental “substances,” Bush and non-Bush, that were locked in a cosmic conflict. 

Barack Obama’s coming served as the galvanizing force to carry the day for the cause of progress. Although Obama never conceived himself as playing a universal role when he launched his presidential bid, he awakened at some point in the campaign to the realization that he was no longer running merely for president of the United States. He was being selected for the much grander “office” of leader of a new world community. His credentials for this position were impeccable. Humanity as a concept formally includes everyone, but it is especially favorable to those who have previously been excluded from full recognition. (The old aristocrats, in Comte’s description, were hardly part of Humanity.) 

Having decided as a young man to identify himself as African-American, Obama was in the category of the dispossessed, a member of a race against which some of the greatest crimes in history were perpetrated. This fact immediately commended him to Western intellectuals at the same time that it enabled him to be the plausible representative of the teeming masses of the Third World. No one from a privileged race could ever have fulfilled this role. Just as important was the fact that Obama is not purely African-American, but a product of amalgamation, what the French approvingly call métissage and Harry Reid describes less felicitously as being “light skinned.” Obama is postracial or, as he himself put it, a “mutt.” This look, favored among international fashion models, represents physically the common denominator of humanity. Religiously, too, Obama, though a Christian, has ties through his father to Islam, a fact he proclaims on some of his overseas trips. He was the embodiment of all men. Finally, while holding these biological qualities of both the dispossessed and of humanity, Obama is a member of the clerisy of the Religion of Humanity, having been credentialed at Columbia, Harvard, and Chicago and stamped as one holding progressive views. 

In what measure has Barack Obama as president embraced this other role of leader of Humanity? Americans are now wondering. These concerns first came to light in unsympathetic reactions to Obama’s foreign policy speeches, especially those delivered on foreign soil, that made a point of apologizing for American missteps and wrongs. Realists and pragmatists dismissed these criticisms, arguing that the new approach served America’s interests by lowering the strident tone of the Bush years, thereby opening doors to engagement with other leaders and defusing anti-Americanism. In addition, it was said that Obama could leverage his position as a leader of humanity to help solve general problems like nuclear proliferation and the Israeli-Palestinian conflict. Obama’s two offices complemented one another, promoting the goals of Humanity while serving America’s interest. By standing above or outside America, he could best help America.

Read the whole thing.  Permalinked on the right.