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TIA Daily • June 15, 2010
The Tea Party movement is already a de facto truce between secular pro-free-marketers and the more religious wing of the right. Now Mitch Daniels has openly stated this idea—and set off a fierce debate within the right.
Top News Stories
- Never Let a Crisis Go to Waste
- The Stimulus Depression
- The Depressed Stimulus
- The Law of Intended Consequences
- The Truce
- The Freedom Recession
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Top News Stories
Commentary by Robert Tracinski
1. Never Let a Crisis Go to Waste
President Obama's speech tonight on the Gulf oil spill was a pure example of his method and goals.
The method is "never let a crisis go to waste"—which means that he responds to any crisis by exploiting it to promote his predetermined agenda. And what is his predetermined agenda? That brings us to the central goal of his administration: to smash capitalism.
Thus, the basic message of Obama's speech—and the thing he was most passionate about—was that the Gulf oil spill should prompt renewed congressional efforts to pass cap-and-trade controls that will constrict our use of fossil fuels. In effect, we should respond to the oil spill by shutting down the whole oil industry.
The transcript of the speech doesn't quite seem to be up yet, but here's the video of that section of the speech, with an excerpt:
The president says the oil disaster "is the most painful and powerful reminder yet that the time to embrace a clean-energy future is now.""I am happy to look at...ideas and approaches from either party, as long they seriously tackle our addiction to fossil fuels," he said. "Some have suggested raising efficiency standards in our buildings like we did in our cars and trucks. Some believe we should set standards to ensure that more of our electricity comes from wind and solar power. Others wonder why the energy industry only spends a fraction of what the high-tech industry does on research and development, and want to rapidly boost our investments in such research and development."
In fact, Obama has already begun to shut down offshore oil production by declaring a six-month moratorium on new drilling licenses. Note that this is not a six-month review of licenses, but a six-month moratorium, which is already stopping the whole offshore oil industry cold. As the Washington Post reports from a shallow-water drilling platform in the Gulf :
On Friday afternoon, [oil rig manage Joe] Boop estimated that his rig, which is about half the size of a football field, had only 24 hours of work left and then would have to sit idle because of delays in permits and confusion about new safety regulations.President Obama has declared a six-month moratorium on drilling in deep water in the Gulf of Mexico in the wake of the Deepwater Horizon accident. In shallow water—up to 500 feet deep—he said drilling by rigs such as Seahawk's could continue.
But rig owners say that confusion over safety regulations issued last week by the Interior Department and uncertainty about additional rules Interior says are on the way could extend delays in the issuance of shallow-water permits, creating a de facto moratorium. And that could force companies to idle rigs and furlough thousands of workers. Since the April 20 accident, the number of rigs actively drilling in shallow water of the gulf has dropped by half.
The Post goes on to note that "It is not the new safety regulations that are causing problems for shallow-water rig operators. 'We can live with that,' said Randall Stilley, chief executive of Seahawk. But, he said, [federal Minerals Management Service] officials are now too nervous to issue new permits without approval from senior administration officials." So the entire Gulf oil industry is now being micromanaged from within the White House. Along with the banks. And the auto industry.
For more on this debacle, see the main story linked to and excerpted below.
This will have a devastating effect on the Gulf Coast economy: "'It used to be that if fishing was down, people would go work on the rigs,' Chiasson said. 'Now you've got fishing and shrimping gone, and now the drilling side of our economy is gone. It leaves us in a bad, bad situation.'" But the offshore oil drilling rigs won't go to waste. They're being moved to Brazil, where they will help that country exploit its massive offshore deep-water oil reserves.
If you keep Obama's method and goals in mind, it explains a lot of things about his response to the spill.
It explains why he hasn't bothered to meet with BP's CEO or with any technical experts on how to "plug the damn hole." I don't think he would have anything to offer in such a meeting—he knows little or nothing about science and engineering. But if stopping the leak and cleaning up the spill were his central concerns, that is what he would be focusing on.
But Obama doesn't really care about the spill, any more than he cared about the financial crisis. He cares about how it will help him promote his pre-existing, anti-capitalist political agenda.
Thus, when Obama first took office, we saw his administration dither for months about its plans for administering the TARP bailout programs—while he pushed through a stimulus bill that was a giant wish list of long-denied leftist spending. And we've seen him passive and on the sidelines in response to the oil spill—but eager and passionate in using it to promote the environmentalist crusade against oil.
It explains why he indulges in comically macho language, talking about how he's trying to figure out "whose ass to kick," without actually doing much of anything. Note that this, along with Obama's attempts to dictate BP's dividend to its stockholders, provoked a minor diplomatic crisis, for which Obama had to apologize to the British prime minister. "The angry words from Washington have produced a backlash in Britain, where BP is a corporate pillar. Millions of British retirees depend on BP dividends since pension funds are heavily invested in the oil company, the world's third-largest."
Karl Rove describes this seemingly chaotic response as Obama "voting 'present'" on a major crisis, but he gets closer to the truth when he observes that "Mr. Obama is an odd mixture of passivity and radicalism. He's happy to be a cheerleader for policies (like nationalizing health care) that many Americans find dangerously liberal. The country has had another president both weak and radical at the same time: Jimmy Carter."
That is not an odd mixture. Leftist demagogues are always radical when it comes to smashing capitalism—and passive and disengaged, chaotic and incompetent, when it comes to actual day-to-day management of the government or the economy.
That's because their priority is not to build a smoothly functioning government or a perfect state-managed economy. Does anyone really believe such a thing is possible? Does anyone really care? No, they don't, because that is not their goal. Their goal is to smash the capitalist system, as an end in itself.
"Another Stumble in the Gulf," John Hinderaker, Power Line, June 11
The administration has decreed a six-month moratorium on exploratory drilling in the Gulf, based on a report that Interior Secretary Ken Salazar wrote for President Obama. Salazar claimed that a panel of seven experts selected by the National Academy of Engineering had peer reviewed his report. It turns out, though, that the seven experts never saw the recommendation for a moratorium, and in fact oppose it:…"The experts, recommended by the National Academy of Engineering, say Interior Secretary Ken Salazar modified their report last month, after they signed it, to include two paragraphs calling for the moratorium on existing drilling and new permits."…
In fact, the expert panel made cogent arguments against the administration's moratorium:
"In a letter the experts sent to Salazar, they said his primary recommendation 'misrepresents' their position and that halting the drilling is actually a bad idea.
"The oil rig explosion occurred while the well was being shut down—a move that is much more dangerous than continuing ongoing drilling, they said.
"They also said that because the floating rigs are scarce and in high demand worldwide, they will not simply sit in the Gulf idle for six months. The rigs will go to the North Sea and West Africa, possibly preventing the US from being able to resume drilling for years."
So this looks like one more instance where the Obama administration is neither honest nor competent, and where its first instinct seems to be to pursue the course that will most damage our economy.
2. The Stimulus Depression
As I mentioned above, Exhibit A for the "never let a crisis go to waste" approach is the stimulus bill, which accomplished a lot of things for the left, but has failed to stimulate the economy. The most ominous figure on this—ominous enough to push the Dow Jones Industrial Average back below 10,000—was a recent employment report in which virtually all of the new jobs created in May were temporary government jobs working for the census.
Meanwhile, there are increasing signs of the possibility of a "double dip" recession, such as the report below about corporations accumulating record-high amounts of cash—rather than investing in new equipment or the hiring of new employees. It is a statement of their lack of confidence in the future.
Jack Wakeland sent me the main link below—I can't explain why it's a Wall Street Journal report linked via The Australian—along with the following comments:
"US corporations are moving 2011 profits into 2010 and accumulating record cash positions. This parallels investors' withdrawal of capital from the equity markets. Many investors have accumulated large cash positions.
"Arthur Laffer opines that this all is driven by the automatic income tax increase we're due for (the expiration of George Bush's temporary income tax and capital gains tax cuts). In TV interviews, Mr. Laffer has observed that corporate policies to book profits this year instead of next also reflects their fear of what kind of taxes will be imposed by the next couple of years in order to reduce the yawing federal budget deficit—a deficit of over $1.5 trillion per year that we cannot "grow out of" as long as our economy remains stagnant. In addition, there is considerable uncertainty created by gigantic new regulatory structures being created at HHS and the EPA. Corporations hold cash as a way to deal with uncertainty.
"But tax and regulatory fears aren't the only issue driving the hording of cash. It is also driven by fears of another liquidity crisis. US corporations are not confident that they can secure outside financing the way they used to prior to the crash of '08. This is the 'new normal' for our credit markets.
"The buildup of the corporate cash position further decreases the use of money as a tool of exchange, moving more of it into the 'store of value' column (money's other function). The reduced circulation of money occurred suddenly and precipitously during the financial freeze in the fourth week of September 2008. And it has not recovered yet.
"The rate at which a US dollar circulates (the number of times per year that M1, M2, M3, etc. changes hands) is the velocity of money. The fed increased the monetary base (euphemistically referred to as its 'balance sheet') from $0.9 trillion to $2.3 trillion in large part to counter the collapse of the velocity of money. This injection of liquidity into the credit markets kept them from totally collapsing and continues to maintain them in an uneasy state, sort of like a seriously ill patient in the ICU.
"But what happens if the US economy and/or the world economy picks up a little bit? Won't the velocity of money pick up, leading to rapidly rising general price levels?
"Since the Fed increased the monetary base by approximately 150%, one would expect the general price level would rapidly begin to rise 150%, but the Fed would rapidly begin to shed Treasury bonds and some of its less defective mortgage-backed securities in order to reduce the monetary base and stabilize the value of the dollar in response to the general inflation of all prices. One would also expect that this Paul Volker-style inflation-fighting process of reducing the money supply would cause another recession. The Fed has always been very good at creating inflationary bubbles followed by credit-contraction recessions—a necessary consequence of its crude, command-and-control 'adjustments' in the money supply.
"However, this conventional analysis misses something that my friend (and fellow power industry engineer) Hank Mentik observed in this excellent analysis:
'The money supply is the minor factor; money velocity is the major factor. Our current slowdown and deflation is due to a dramatic slowdown in money velocity. If people get the idea that their money will be worth less a year from now, they will suddenly start spending like crazy, resulting in a huge increase in money velocity. This is an unstable control system, and will cycle back and forth.'
"It is possible for the Fed to reel in its 150% expansion of the monetary base in an orderly manner? No.
"Hank's evaluation that we're in 'an unstable control system' is correct. Just as individuals and corporations are hoarding cash during this deflationary price environment, they will dump it like a hot potato the minute that we transition into an inflationary price environment.
"Welcome to stagflation, and the double- and triple-dip recession."
"US Firms Hoard Biggest Cash Pile Since 1952 as Recovery Fears Persist," Justin Lahart, Wall Street Journal via The Australian, June 11
US companies are holding more cash in the bank than at any point in the past 58 years, underscoring persistent worries about the sustainability of the economic recovery and the potential for a renewed financial crisis.The Federal Reserve reported yesterday that non-financial companies had socked away $US1.84 trillion ($2.12 trillion) in cash and other liquid assets as of the end of March, up 26 per cent from a year earlier and the largest increase on records going back to 1952.
Cash made up about 7 per cent of all company assets including factories and financial investments, the highest level since 1963.
While renewed confidence in corporate-bond markets has allowed big companies to raise a record amount of money, many are still hesitant to spend the money on hiring and expansion amid doubts about the strength of the recovery.
They're also anxious to keep cash on hand in case Europe's debt troubles lead to a new market freeze....
The Fed reported yesterday that net lending by the financial sector fell at a seasonally adjusted annual rate of $US1 trillion in the first quarter from fourth quarter, the fifth straight quarterly decline....
Meanwhile, US household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession's fallout.
3. The Depressed Stimulus
The failure of the stimulus bill has had at least one good effect: it has reduced the incentive for Congress to vote for new stimulus spending.
Obama's latest plan is totally consistent with that jobs report showing that the only activity being "stimulated" is government spending. The new stimulus is designed, not to increase private employment, but to save the jobs of people employed by the state governments. Think of it as a bailout for California and New York and other state governments that binged on taxpayer money during the boom times.
This is facing resistance from Democratic congressmen who realize that the first stimulus bill was enormous unpopular. But rather than reject a bailout for spendthrift state governments, they are instead suggesting that the money for these government workers could be diverted from unspent funds left over in the first stimulus bill.
"Dems Balk at Obama's Call for $50 Billion in New Stimulus," Susan Ferrechio, Washington Examiner, June 14
It's no surprise that Republicans are denouncing a new request by President Obama that Congress pass $50 billion in new stimulus spending aimed at boosting the economy and avoiding widespread government layoffs. But even top Democrats seem less than enthusiastic about pushing a new stimulus bill to deficit-wary lawmakers and signaled they may not able grant Obama's wish.House Majority Leader Steny Hoyer, D-Md., appearing on ABC's "This Week," said he has asked the White House to look for unused money in the $800 billion stimulus bill rather than ask Congress for new spending….
Hoyer told Tapper, "I think it's accurate that there's spending fatigue, not only on Capitol Hill, but around the country."
President Obama sent a letter to House and Senate leaders, asking Congress to pass legislation that includes $50 billion in aid to state and local governments that he said will otherwise have to lay off teachers, firefighters, and other critical workers….
House Republican Conference Chairman Mike Pence, R-Ind., said on CNN's "State of the Union" that Obama needs to come up with a new tactic for solving the nation's economic crisis.
"We need to abandon this spending approach to stimulus, adding to deficits and debt, and we need to provide immediate across-the-board tax relief for working families, small businesses, and family farms," Pence said.
4. The Law of Intended Consequences
If you think I was exaggerating about how the left's goal is to smash the private economy—paying no heed for how the government is going to actually provide health care or energy or other goods and services after the capitalist economy has been destroyed—well, here's more evidence.
I've linked before to stories about the impending collapse of several major private non-profit insurers in Massachusetts after they were subjected to price controls on their premiums by the state's chief insurance regulator, acting under the orders of Massachusetts governor and Obama ally Deval Patrick.
Now there's new evidence that the regulators were warned about the crisis they were about to create—and chose to suppress the warning. According to the Boston Globe:
The official in charge of monitoring insurer solvency at the state Division of Insurance sent an internal e-mail this spring warning that the rates the division imposed on health plans "have no actuarial support'' and could lead to "a train wreck'' in the industry.Shortly after the division rejected proposed double-digit rate increases for small businesses and individuals, Robert G. Dynan, the division's deputy commissioner for financial analysis, wrote to members of his staff on April 6 that "our jobs of monitoring solvency just got exponentially more difficult'' as a result of "artificial price caps.''
Dynan also complained that "this action was taken against my objections and without including me in the conversation.''
But the big picture is the impact of ObamaCare, which is turning out to vindicate all of our warnings. What did we say? We said, "You Will Lose Your Private Health Insurance." And now we find that the majority of the existing policies that were supposed to be "grandfathered" under the new law will in fact fall under the new regulations, which effectively means that your existing policy will be canceled and re-written by federal bureaucrats.
The main link below lays out the facts more clearly, but even the New York Times is forced into a weasel-worded admission:
In some respects, the rules appear to fall short of the sweeping commitments President Obama made while trying to reassure the public in the fight over health legislation.In issuing the rules, the administration said this was just one goal of the legislation, allowing people to "keep their current coverage if they like it." It acknowledged that some people, especially those who work at smaller businesses, might face significant changes in the terms of their coverage, and it said they should be able to "reap the benefits of additional consumer protections."
I considered filing this under the heading "We Told You So," but it's more appropriate to describe it as an example of the Law of Intended Consequences. The destruction of private health insurance is not an incidental, blundering result of poorly cobbled together legislation. It was the purpose of the left's health-care crusade from the very beginning.
"Administration: 51% Of Companies' Health Plans Won't Pass Muster," Sean Higgins and David Hogberg, Investor's Business Daily, June 11
Internal White House documents reveal that 51% of employers may have to relinquish their current health care coverage by 2013 due to ObamaCare. That numbers soars to 66% for small-business employers.The documents—product of a joint project of the Labor Department, the Health and Human Services Department and the IRS—examine the effects new regulations would have on existing, or "grandfathered," employer-based health care plans….
Under interim regulations, current employer-based coverage would not be grandfathered and hence subject to the health care laws' consumer provisions if…
According to the report, by 2013 51% of all employers—66% of small employers (3-99 employees) and 45% of large employers—would have to relinquish current coverage. In a worst-case scenario, 69% of firms would lose their grandfathered status.
5. The Truce
I've observed that the Tea Party movement is already a de facto truce between secular pro-free-marketers and the more religious wing of the right, who have joined together and agreed to overlook their differences on the "social issues" in order to fight against a government takeover of the economy.
Well, now someone has openly stated this idea of a truce and set off a fierce debate within the right. The Weekly Standard has a long and very worthwhile profile of Indiana Governor—and potential 2012 presidential candidate—Mitch Daniels, which contains this passage:
And then, he says, the next president, whoever he is, "would have to call a truce on the so-called social issues. We're going to just have to agree to get along for a little while," until the economic issues are resolved.
The Weekly Standard article is too good to excerpt—go read the whole thing. Daniels looks like an excellent standard-bearer for Tea Party ideals. The main link below is to a shorter follow-up article, which indicates that Daniels is not backing down in the face of criticism.
Leading the charge in criticizing Daniels is former Arkansas governor and 2008 presidential hopeful Mike Huckabee. This makes sense, because Huckabee campaigned on exactly the opposite platform: he wanted to stick the economic issues onto the back burner—or worse, he wanted to appease the left on economic issues, abandoning the fight for the free market—in order to focus more energy on promoting a religious agenda.
Consider Huckabee's rejoinder to Daniels:
"The issue[s] of life and traditional marriage are not bargaining chips nor are they political issues. They are moral issues," Huckabee said in response to Daniels, the governor of Indiana. "I didn't get involved in politics just to lower taxes and deficit spending, though I believe in both and have done it as a governor. But I want to stay true to the basic premises of our civilization."
Huckabee implies that taxes and debt—the eating of the productive by parasites and of the future by the present—are not moral issues. He certainly implies that they aren't worth getting into politics for. And the "basic premises of our civilization," in his view, have to do, not with liberty, property rights, the rule of law, free markets—but with what? Abortion and gay marriage?
This is exactly backwards, and it is what got us into the financial crisis that we're still digging our way out of. Under the leadership of people like Huckabee, the right abandoned the case for capitalism. But limited government, free markets, and property rights are at the basis of our civilization and our system of government, and they are the pressing moral issues of the day.
Daniels is not totally consistent on this, but I do think he starts from the right perspective in this passage from the Weekly Standard profile:
"Never take a dollar from a free citizen through the coercion of taxation without a very legitimate purpose," he said in an interview last year. "We have a solemn duty to spend that dollar as carefully as possible, because when we took it we diminished that person's freedom."
A "very legitimate purpose" is far too vague a criterion. But what I like is the fact that Daniels recognizes that taxes are an abridgment of freedom, and that freedom is a moral issue. Which puts him way ahead of Huckabee.
"Mitch Daniels Is Dead Serious About His 'Truce'," Mark Hemingway, Washington Examiner, June 15
I got a call this morning from Indiana Governor and rumored presidential candidate Mitch Daniels. In my column yesterday on his remarks about a "truce" on social issues, I left the door open to the possibility that the Governor's remarks may not have been a "rhetorical misstep."Of course, if you know anything about Mitch Daniels in this respect he's the anti-Obama. He's far more concerned about communication than rhetoric, he's thoughtful and rarely speaks without consideration. Rhetorical missteps are exceedingly rare.
And indeed, Daniels called me to say that he's dead serious about the need for the next president to declare a truce. "It wasn't something I just blurted out," he told me. "It's something I've been thinking about for a while."
He's emphasized the need to focus like a laser beam on the existential threats facing the country -- the two big issues he's previously identified being the war on terror and the country's precarious fiscal position. "We're going to need a lot more than 50.1 percent of the country to come together to keep from becoming Greece," he said….
Many Republicans might regard a "truce" as a non-starter, but Daniels' social conservative bona fides and impressive gubernatorial record might mean he's the rare politician that deserves the benefit of the doubt as he continues to explain himself.
6. The Freedom Recession
The one-year anniversary of the stolen election in Iran was met with small-scale demonstrations, but it is clear that the Iranian opposition is still crushed under the jackboot of overwhelming force wielded by the regime.
To put this in Cold War terms, it's 1981 (the suppression of the Solidarity movement in Poland), not 1989. Or maybe it is 1989—but in China, not Eastern Europe.
There have been a variety of retrospectives on this anniversary, from the hopeful—observing that the Iranian regime has lost all pretense of having the support of the people, which is a very material weakness—to the despairing. The best overview I've seen is the one below, which sums up the positive and negative, and succinctly and accurately describes how history will view the current administration and its role in a kind of global recession for the cause of freedom.
"Iran and the 'Freedom Recession'," Fouad Ajami, Wall Street Journal, June 11
Those expecting a quick deliverance for the people of Iran never fully took in the power of the regime and its instruments of repression. This wasn't Leipzig and Budapest and Warsaw and Berlin in 1989 when the Communist despotisms gave way; this was China after Tiananmen Square.In retrospect, it could be said that the first Islamic Republic (1979-2009) had fallen, and that a second republic, more cruel and unapologetic in its exercise of power, had risen….
The truth of this Iranian state is straightforward: It is a petrocracy. Oil income sustains it, enables it to defy the opinions of its own people, and of people beyond. In the past year, Mahmoud Ahmadinejad and his allies in the bureaucracy and parliament have been pushing for a "streamlining" of the country's extensive system of subsidies—in effect for a phasing out of price subsidies for bread, electricity, water and gasoline.
The system in place is inefficient and costly (it takes an estimated 40% of the budget to sustain the subsidies). But it isn't a true desire for reform or economic progress that motivates President Ahmadinejad. What he and his supporters seek is a targeted system of rebates and cash transfers that would give the rulers yet greater powers to reward and to punish. This is the sword of Damocles over the opposition—an administered economy in the hands of the regime and of the Revolutionary Guard.
Freedom House tells us that there is a "freedom recession" in today's order of nations….
Meanwhile, America's new standard-bearer, President Barack Obama, had come to a conviction that the pursuit of freedom in distant lands was not a legitimate American concern. From his first days in office, Mr. Obama signaled his resignation toward the despotisms of the Greater Middle East….
There is no guarantee that categorical American support would have altered the outcome of the struggle between autocracy and liberty in Iran. But it shall now be part of the narrative of liberty that when Persia rose in the summer of 2009 the steward of American power ducked for cover, and that a president who prided himself on his eloquence couldn't even find the words to tell the forces of liberty that he understood the wellsprings of their revolt.
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