Coyote Blog

MaxedOutMama echoes many of my thoughts on recent economic activity and the shameless way our President has been manipulating these issues:

In January, I was writing that fundamentals had taken an upswing, and that the US economy was going to try to resurge in the third quarter.

The numbers that came in for January and February did show what P-Nat projected, which was a gradual bottoming pattern overall and the beginning of some upticks. Bloomberg today:

Orders for U.S. durable goods unexpectedly rose in February on a rebound in demand for machinery, computers and defense equipment.
...
Combined with reports showing improvements in retail sales, residential construction and home resales, the figures indicate the economy is stabilizing after shrinking last quarter at the fastest pace in a quarter century. Stepped-up efforts by the Obama administration and Federal Reserve to ease the credit crunch may help revive growth later this year.

Last night Obama took credit for these events, but the stimulus package had nothing to do with it - the effects of that haven't even hit the economy yet. Very little of that package will be felt in the first half of 2009, in fact, and less than 25% of the effect will be felt in 2009. I would also like to point out that at the time the stimulus bill was being debated, the administration was claiming that the economic emergency was so dire that the representatives and senators shouldn't even be allowed to read the thing before they voted on it. Instead, this was what was really going on in the economy.

She also shares my concerns that the recovery may in fact be undone by recent government actions, not the least of which is the Weimar Republic-like printing of money to buy back government bonds and help fund a mushrooming deficit.  In fact, she and I must be fairly attuned, as she wrote:

Last week I was so sick at heart that I didn't think I could continue writing this blog.

I too felt almost exactly the same last week.  Never have I been so depressed about the direction of domestic policy (I might have felt about the same around 1978, but I was only 16 and had other things on my mind).  Every day last week there seemed to be a new policy directive crazier than the last.  I had a real feeling like I was living through the last half of Atlas Shrugged, where an increasingly desperate government initiates a series of policies with disastrous long-term effects crafted just to survive a little longer in office.  The only difference was several years in the book seemed to have been compressed into about a week of real time.

Fortunately, I am basically a happy soul and I seldom stay depressed long.  I just did what I always do when I despair for the world - spent some time with my family and concentrated on what I could fix, namely the health of my own business.

The Liberty Papers thinks we have become a lawless Banana Republic.  George Will is thinking along the same lines, snarkily observing that Sweden, China, and Mexico have all observed in one way or another that the Feds seem to be acting outside the rule of law.

I have opined in the past that what really extended the Great Depression was not any real underlying economic issue, or even vast increases in government spending per se.  It was that arbitrariness with which the Roosevelt administration dealt with economic matters.  With nutty programs like the Mussolini-inspired National Industrial Recovery Act coming and going, investors and businesses never knew from day to day what the rules of the game would be next year, or even next week.

I fear that this is exactly the climate Obama and Congress are creating today.

• When Congress reacts to CNN headlines by retroactively confiscating legal compensation that it had protected just weeks before, what will happen to my compensation?
• When government deficits soar by trillions of dollars, what will taxes look like next year?
• When the Administration says that Co2 will have to be reduced by 80%, what numbers do I plug into my forecasts for fuel and electricity?
• When the government decides on a whim to print a trillion dollars more money to pay off government debt, what will inflation look like in the coming months and years?

As of two months ago, my company was still investing.  We were still getting bank credit, particularly for equipment financing, though it took more work than in the past to secure it.  We still saw opportunity in our business, and in fact saw increased opportunity in the recession for low-cost recreation options and outsourcing of public recreation facilities.

But today, I am reluctant to make any new investments.  Investing $5000 now for $8,000 a year from now normally sounds good, but what happens now that the Feds have more than doubled the money supply?  How much will $8,000 really be worth a year from now?  What will my taxes be on the increase?**  What new costs or liabilities  might be retroactively placed on me for making the investment?  What happens if beltway pundits start thinking I am making too much money?

All this commotion of government intervention started when Paulson and other Bush appointees started screaming that the banking system was going to shut down and therefore crash the whole economy.  As my readers know, I believe to this day that this was all sky-is-falling over-reaction and panic-mongering, and most of the credit crunch resulted from uncertainty about the Treasury and its statements, not due to realities on the ground.   However, whatever tightening of credit we might or might not have avoided by government action, it pales in its effect on investment in comparison to the arbitrariness and trillion-dollar-plan-of-the-day that has been the first 60 days of the Obama administration.

** footnote: For those of you who have not lived through high inflation times, taxes and inflation are a deadly combination.  That is because the Federal Government, after creating inflation, then taxes each of us on its effects.  Here is an example:  Invest $5000 now at a fixed 10% a year.  Suddenly, inflation goes up to 8% a year.  In five years, I now have a bit over $8000.  In economic terms I have made a small profit of, since $8000 in five years at 8% inflation is worth $5,445 today.

But the IRS thinks I have made $3000, not just $445, and will tax me on the full $3000.  If they take a third, I only have $7000 at the end, or $4,764 in current dollars, meaning that after taxes, I actually lost money.

As has been the case for decades (the gun-to-the-head federal strategy to force 55 mph speed limits and seat belt laws come to mind), the feds are sending money to the states with many strings attached.  Apparently, Arizona is running afoul of one of those provisions:

Arizona's receipt of $1.6 billion in stimulus funding, including more than $300 million already being spent to help keep the state in the black, is at risk because a federal agency says the state is not in compliance with a prohibition against health-care rollbacks.

Arizona could lose the money if the federal determination stands or if state law isn't changed to eliminate a health-care requalification provision that was the basis of the determination, state officials said Monday.

According to Brewer's letter, the agency determined that the Arizona Health Care Cost Containment System's requirement that some enrollees requalify every six months instead of annually violated a stimulus-program prohibition against tightened eligibility standards, methodologies or procedures for a state's Medicaid program.

There is something supremely irritating about Federal bailouts to states that are tied to restrictions that make it more difficult for states to close their budget shortfalls on their own.  It's almost as if Congress wants to institutionalize dependency on the Feds  (where have we seen that before?)

Apparently, in the spirit of the retroactive tax-taking of the AIG deferred compensation payments, the restrictions are retroactive to state actions taken as early as July 1, 2008, meaning that Obama is asking states to roll back legislation that was passed months before he was even elected as a condition of getting the cash.

The actions causing problems for Arizona occurred in September, 2008, and were, according to our governor, the result of legislation passed in June of 2008.

A bit over a week ago, I forecast that we had passed the economic bottom and would soon be back on the way up.  The IBD lists a number of reasons why I may be correct:  (ht:  Carpe Diem)

"¢ A broad rally in stocks, confirmed last Thursday, continuing into this week and led by the beaten-down financials.

"¢ A surprising 22% surge in February housing starts to a seasonally adjusted annual rate of 583,000 units.

"¢ A back-to-back jump in retail sales ex autos, in both January and February.

"¢ A return to profitability at several major banks, including Citigroup, Bank of America and JPMorgan.

"¢ A doubling in the obscure but important Baltic Dry Index, a key indicator of global trade flows.

"¢ An upwardly sloping yield curve, which Fed research suggests all but ensures a rebound by year-end.

"¢ A Housing Affordability Index that has hit an all-time high.

"¢ A two-month improvement in wholesale used-car prices, measured by the Manheim Index.

"¢ A rise in Monster's Employment Index in February, suggesting a turn in the job market may be around the corner.

"¢ A 4 1/2-year high in the dollar against other major currencies, on a trade-weighted basis.

"¢ A sharp increase in the money supply, as measured by M2 and M1. Weekly M2 growth has averaged 10.1% year-over-year since the start of 2009, while M1 has grown at a 14.6% rate.

"¢ A two-month rally in the Index of Leading Indicators.

"¢ A growing body of evidence that the "liquidity crunch" is dead. Data show nearly $14 trillion in liquidity on the sidelines of the markets, ready to boost consumer spending, credit growth or further stock market gains.

Of course, this makes the entire argument for the trillion dollar plus stimulus bill moot.  If my company had started spending itself into debt to fight some sort of emergency, and then found the emergency did not exist, you can bet we would be spending every hour of the day to stop as much of that emergency spending as possible.  Not so in Washington.  Despite now forecasting an improving economy, and basing his budget on this being a milder-than-normal recession, Obama has not even suggested any roll-back in the massive spending and debt-creation program.  Which just goes to prove that the "stimulus" bill had nothing to do with stimulus in the first place, but was a leftish spending plan sold based on panic, in exactly the same way the Bush administration sold the Patriot Act.

In fact, much of Obama's remaining legislative agenda (including nationalization of parts of the health care system and a Co2 cap-and-trade system) include what are effectively large tax increases that cannot realistically be passed in the depths of a recession.  So expect a lot of talking up of the economy to prepare the way for these tax increases, not to mention the tax increases that will be necesary, but have not yet been proposed, to pay for the servicing of the huge debt and new spending we just took on.

One final prediction:  As the economy improves enough for the average person to see the improvement, expect the Obama administration to be spinning like mad.  Their first objective will be to take credit for the recovery.  This is absurd, as it appears that the recovery will start long before the first dollar of spending occurs.  The media may, however, let him get away with this.  If it does not, his second story will be that the confidence exuded by the passing of the stimulus bill created the recovery.  This is also absurd on its face, given the crash in equity prices after the stimulus bill was passed and the extreme general skepticism about the stimulus in poll numbers.

Postscript: By the way, I would argue the whole story of this stimulus bill is a microcosm of the climate debate.  Extreme panic was generated based on a fear that their might be some possibility of a catastrophe (ie a second Great Depression) and that on the precautionary principle, we spent a trillion dollars just in case.  Remember that in January, Obama said there will be - not might be - another 5 million job losses, a number we will come nowhere near.

As it turned out, there was never a realistic chance of a catastrophe, but the costs will remain, and all the while the panic over the issue was used as cover to pass a whole range of freedom-reducing initiatives.   Naomi Klein was half right in the shock doctrine -- there are folks who use emergencies to successfully push for radical change, but it is almost always the forces of more government control who win out, not the supporters of laissez faire.

Update: A similar list here from Forbes.

The normal process for bureaucratic allocation of, say, highway funds, does not always work that well.  Seriously, you don't have to convince this libertarian of that.  But it is at least intended to try to balance priorities and allocate the funds marginally rationally.   Which points out the problem with earmarks -- they are overrides by Congress of the normal allocation and prioritization process for political ends.  By definition, the projects in earmarks would not have normally been funded by the usual operation of the prioritization process.

Which brings me, oddly enough, to AIG  (and to GM).  When companies can no longer meet all of their obligations, they generally file for chapter 11 bankruptcy. This is an extremely well-worn process, both in the courts and the business community, that attempts to save as much value as possible and to allocate that value, based on law and a set of rules everyone understands in advance, to the various stakeholders.   The folks who are involved in this process are pretty hard-headed folks, less out for revenge and retribution as for maintaining value and capturing as much as possible for whatever group one might represent.

Now Congress and the Administration are getting themselves involved in the bankruptcy process, by trying to avert actual chapter 11 filings by AIG and GM.  By doing so, they are effectively overriding the bankruptcy process.  Just as with earmarking, they claim this override is for some good of the country.  But, just as with earmarking, you can assume it is to benefit some politically-favored group.  At GM, the feds are saying that we don't want employees or the equity holders to take a haircut, as they would in Chapter 11, so we will transfer the loss to taxpayers, and perhaps bondholders (could there be any politically less favored group than taxpayers?).  Same at AIG.   Is it any surprise that the number one beneficiary of the Pauslon bailout of AIG was Goldman Sachs?  The Left thought they smelled a rat when the administrations contracted with ex-Cheney-run Haliburton in Iraq, but no one is going to bat an eye when the Treasury department, populated with ex-Wall Street types, is bailing out all its employees' old firms?

On the subject de jour, the AIG executive bonuses, many of these were just as guaranteed, contractually, as were payments on AIG policies and bond guarantees.  I don't know how such obligations are treated in chapter 11 (are they treated as more or less senior than other obligations?) but I do know the decision to keep them or ditch them would be made against a goal of maintaining long-term value, and not public witch-hunting.

This is the real problem, even beyond the taxpayer cost, of this new form of Congressional or Administration-led pseudo-bankruptcy:  Winners and losers are determined by political power and perceptions of short-term political gain, rather than against a goal of maintaining value and following well understood and predictable rule.  This process throws all the old predictable rules and traditions out the window.  Investors and folks with contracts used to know just how senior their obligations were in a corporate failure.  Now, they have no idea, as their position in the bankruptcy may in the future depend more on how much they donated in the last presidential election, or how good their PR agent is.

Via Reason:

Obama has promised that no family earning less than $250,000 per year will pay one dime in higher taxes. But the companies that have to pay for permits will pass that cost on to consumers in the form of higher prices for electricity and other products. So these families will pay $645 billion, only some of which will be returned in the form of lower income taxes, for a system that is terribly inefficient.

The solution, of course, would be a straight-forward tax on carbon, the proceeds to be refunded through the payroll tax system. But unlike the hidden tax of cap-and-trade, a carbon tax is out there for the voters to see. And given the choice between a stealthy tax and a visible tax, politicians will pick the former every time.

I try to never use "lie" or "liar" when discussing politics.  They have become perhaps the most abused and overused words in political discourse, and seldom do they add much to a discussion.

But I simply have no other way to reconcile Obama's promise that he is not raising taxes on 98% of Americans with his imposition of a cap-and-trade system for CO2.

For years, Al Gore supported a carbon tax on fuels as a way to fight CO2.  As I have written a number of times, if one really feels the need to reduce CO2 emissions (which I don't), then a carbon tax is far, far more efficient, fair, and effective than a cap-and-trade system.  There are only two advantages to a cap-and-trade system over a carbon tax, and neither has anything to do with Co2 mitigation or program effectiveness:

1. The tax is hidden, so politicians can pretend the did not really impose a tax.  The author of California's AB32 cap-and-trade system admitted as much to me in a face-to-face debate we had last year
2. There are numerous opportunities for politically favored companies to create dubious offset and measurement systems under cap-and-trade which don't exist under a more straight-forward carbon tax.  Which may explain why Al Gore, who sits on the board of over $2 billion in investments in such companies peddling various offset quackery, now supports cap-and-trade over the carbon tax

Here is the basic economics, a topic on which it is rapidly becoming clear that Obama is completely ignorant**.   First, we have to assume that whatever cap-and-trade system that is implemented is actually effective at reducing CO2 emissions.   This is far from an absolute given, as it can be argued that the European system has done all of about nothing to reduce Co2 emissions (they will claim that it has been effective, but the majority of European CO2 emissions have come from a) British coal-replacement strategy, initiated for reasons other than Co2; b) fall of the inefficient Soviet economies and the shut down of their worst polluting industries; and c) unification of Germany.

But, assuming that cap-and-trade actually reduces CO2, then it HAS to increase costs for consumers.  There is no way around it.  It will do one or both of the following:

1. Raise prices due to increased producer costs.  An example is electricity generated from any sort of fossil fuel will simply have to be more expensive
2. Raise prices due to increased scarcity.  In industries where the supply and demand dynamics do not allow cost increases to be passed to consumers, then reduced production and scarcity will result.  In the electrical industry, older coal plants that can't afford to pay for the Co2 permits may need to shut down.

Recognize that this HAS to occur, especially #2, or the cap-and-trade system won't be working.  Another way to put it is 1 and 2 above are what designers of the system want and expect to occur.

So how is this not a tax?  Well, this is an old, old strategy.  Rather than tax consumers directly, the government taxes business.  When companies inevitably pass the cost on, it is not the government at fault, it is the business for being greedy and raising prices.  Politicians insulate themselves from criticism.

Further, Obama and the environmental crowd have been laying the groundwork over this for years by arguing that such "green" initiatives actually help the economy and improve efficiency.  They have no proof of this, but they repeat it A LOT.  Repeat something enough, and some people believe it.  This despite the fact that there is no way in the world that obsoleting perfectly good production capacity and requiring its replacement (e.g. coal plants) is a net positive for the economy.  (It can be a net positive for human well-being, but to say it is net positive for the economy is to fall into the broken windows fallacy).

So expect that when power companies inevitably raise prices due to cap-and-trade, politicians will respond by saying that the companies are being greedy and simple minded, and if they were really smart, the cap-and-trade system would not have cost them anything.  It would have made them more efficient.  it would have been a net positive.  And that this failure of theirs to see this probably will drive calls on the left for more government oversight and regulation of these industries.

Don't believe me?  Think this last paragraph is exaggerated?  Well, here are two things to think about.  The first is from our former Arizona governor, arguing that she got a bunch of government employees into a bull session in a conference room for an hour or so, and they all decided that cap-and-trade would be a net benefit to the power industry:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said...

Napolitano said there is "lots of data" to suggest that utilities eventually will be able to save money "by moving to a system of "˜green' energy.""¦

on a long-term basis, there may be cost savings.

So if utilities raise their rates, its obviously because they are greedy profiteers, because all of us here in government think it's obvious that paying for carbon allowances should result in cost savings.  If it doesn't, well, maybe we are smarter than they are, and have to provide more government leadership of the industry.

They would never go that far, you say?  So why has Obama created a government commission to restructure the auto industry on the implicit assumption that a couple of smart government guys in a room can do what the industry itself has not been able to do for 30 years?

** This is not to say that Obama does not have highly educated economic ad visors.  But the President's own knowledge, assumptions, comfort-level and outlook on a subject are critical, no matter what the quality of his advisers.  For example, even if I were crazy enough to want the job, I would never run for President because I know, by outlook and knowledge, I am not qualified to manage foreign policy or be commander-in-chief of the military.  Sure, I could surround myself with advisers, but there are proven limits to the "rely on advisers" approach.  I might argue that Bush's foreign policy is an example of such limits.

I just skimmed through Obama's speech.  I am not particularly good at parsing this political stuff, so I won't.  The speech had a lot of the typical politician's assertions about features of his programs that have no basis in their actual design.  For example, he asserts that home bailout money won't go to the irresponsible, but there is no such design element in his actual plan (homeowners are eligible for bailouts based on various hard-wired value formulas and ratios -- there is no step where their motivation for becoming overextended is or even could be assessed, nor any step where the government may exercise discretion).

Anyway, the one overriding sense I got from reading the speech was that I was totally correct when I wrote this:

So you ask, will we get any stimulative effect?  I would answer:  Just one.  Obama and Congress will now shut the hell up trying to panic everyone into battening down the hatches for the worst economy in history, and folks can get a bit of breathing space to look around them and see that business opportunity is still there.  This is $800 billion in hush money, a bribe we are paying Obama and Pelosi in the form of passing a lot of their pent up leftish wish list, in return for them taking some ownership interest in real economic health.

Well, while I was gone this week, GM asked the government for another $21.6 billion, on top of the $17.4 billion taxpayers handed them just two months ago.   Reading between the lines of GM statements, it is probably not crazy to assume they are burning cash at the rate of $5-$8 billion a month, which means this new infusion would likely get the company only through May or June.  This burn rate should not be surprising, as GM was burning $2.5 billion a month before the recession even really started, and they have really done nothing substantial to restructure the company.  By throwing the company to Congress to help save its managers and equity holders, the company has subjected its restructuring not to hard-headed bondholder representatives in a bankrupcy, but to the vagaries of the political process:

When the president's auto task force meets today to begin trying to fix the broken U.S. auto companies, it must balance dozens of competing demands.

Yeah, I am sure that will go well.  GM can have its money as long as it puts a factory in West Virginia and names it after Robert Byrd. The bondholders are pissed, as well they should be.  The senior debt holders have first claim in a bankruptcy, so another way to look at this political process is that it is the action of all the other constituents of GM (employees, equity holders, managers) who are trying to get Congress to interrupt the typical subordination of interests in a bankruptcy and allow them to get ahead of the senior debt holders in the line for what limited value remains in GM's shell.

I am tired of Keynsians and their assumptions setting the tone of the economic debate.  Here is the question I would ask them:

I understand that you Keynsians think that there are under-employed assets in the country, and that you think the government can redeploy prvate investment capital to more productive use.

Ignoring the individual liberties issues assosiated with this approach, as well as the fact it has never worked in the past, answer me this:  How are we going to turn around the economy by forcing capital to flow to the assets, industries, and management teams that have proven themselves to be the least productive?

We send money preferentially to the industry (autos) that has been showing some of the worst returns on capital in the entire country, and in particular to the company (GM) that has performed the worst in the industry.  If we really wanted to create auto jobs, wouldn't we send the money to the company that has historically invested money the most productively? It would be as if venture capitalists were about to complete their 27th round of financing to keep Pets.com afloat.  I have been in a company that eventually failed and couldn't get new financing.  At the time we were trying to convince the investors that they should give us just one more round, one more chance to prove the thing out.  In retrospect, I am embarrased they funded us as long as they did.  They should have pulled the plug way earlier.  Investors have a saying "your first loss is your best loss."

And don't even get me started on housing.  A deader, less productive investment asset can't possibly be identified.  A million bucks spent on a house produces 30 jobs for 6 months.  A million bucks spent on a factory expansion produces 30 jobs indefinitely.  For years, Democrats have hammered the Republicans over the jobless recovery of this decade, which in fact has shown a fairly unique jobs profile.  I wonder how much of this could be traced to the myriad incentives that were put in place to pour our available capital into these dead assets?  And now, with the bailout and the new mortgage bailout, the government is investing even more money to prop up the value of these non-productive investments.

We will be posting on the stimulus bill for months and years, because it will take that long to figure out what was in it.  Congressman who voted for it may never know what they actually voted for.  Veronique de Rugy takes a first swing at it:

Total spending amounts to $792 billion, with $570 billion in direct spending and $212 billion in tax provisions. These numbers don't include the massive amount of interest that will accrue on the increased debt. If we include that, the total amount comes to $1.14 trillion.

Supporters of the package describe the legislation as transportation and infrastructure investment, the idea being to use new spending to put America back to work while at the same time fixing decrepit infrastructure. However, only 17 percent of the discretionary spending in this package is for infrastructure items. More worrisome still, the final version lacks any mechanism to ensure that spending will be targeted toward infrastructure projects with high economic returns

De Rugy actually overestimates the infrastructure spending, because she looks at the spending over 10 years.  Since the stimulative effect of infrastructure spending in this recession is, at most, limited to 2009-2010 spending, and since the infrastructure spending is more back-end loaded, the percentage is much lower in the first 2 years -- something like 6-7% as I calculated here (I will go back through the CBO reports with an update when I get a chance, but Kevin Drum links them here, hilariously saying they "scored well."

Unfortunately, even this seems to wildly underestimate the true cost of the bill.  In creating the bill, Congress increased the general operating funds for zillions of departments and programs  (remember, 80+% of the spending is departmental budget increases, not infrastructure construction).  However, they show these increasing disappearing after a couple of years.  We all know that Democrats consider removing an increase to be "a massive cut" so we can assume that at some point, these budget increases will be extended for eternity.  If one makes this more realistic assumption, then the cost of the stimulus bill is over $3 trillion!  [update:  Carpe Diem demonstrates this with a nice set of graphs]

My other project I am working on is to look at some of the "shovel ready" projects on the mayor's list here  (warning!  600 page pdf!!) in the Phoenix area.  My incoming hypothesis is that any project on here either:

1. Is not shovel ready, as it takes years to get a project through planning, procurement, and environmental permitting, but once anyone in DC finds that out, they won't take back the money, -OR-
2. Is something that the local residents, who will enjoy the benefit, refused to fund, raising the question as to why the rest of us should fund it.

I won't spill the beans yet, but here are a few tastes from the Phoenix area:

• A major upgrade to the water system of the town of Paradise Valley, a small community embedded in Phoenix which is, by a fairly good margin, the single wealthiest zip code in the state.
• A lot of solar.  Solar is a particularly good choice for this list because 1)  Obama has a hard-on for it, so he is unlikely to question it  2)  Solar's problem is high capital cost vs. the amount of electricity produced, but if someone else is paying the capital cost....

Well, it looks as if the "stumulus" bill has passed, and its all over except for the conference committees (which will likely comprimise the House and Senate bills by adding a $100 billion or so).

There is just no way there can be a Keynesian muliplier above 1 for such spending.  Even if someone could show me a theoretical example crafted for a particular economic situation with the best of all governments, there is simply no way this real-world government is going to spend the money that well.   500 geniuses with perfect incentives couldn't do it, and certainly the folks in Congress are not geniuses and have far less-than-perfect incentives.

So you ask, will we get any stimulative effect?  I would answer:  Just one.  Obama and Congress will now shut the hell up trying to panic everyone into battening down the hatches for the worst economy in history, and folks can get a bit of breathing space to look around them and see that business opportunity is still there.  This is $800 billion in hush money, a bribe we are paying Obama and Pelosi in the form of passing a lot of their pent up leftish wish list, in return for them taking some ownership interest in real economic health.

It is good that everyone has made clear to me that Obama represents change because otherwise, I would have thought that the current stimulus bill was politics as usual, only on steroids.  The other day I hypothesized that panic-stricken statements of disasters from both the outgoing Bush administrations and the new Obama administration, generally crafted to help push "emergency" legislation, are having a substantial negative effect on the economy.  It turns out, this is not a new accusation.  From Newsweek, 1991:

Be afraid, be very afraid. That has been the message of President George W. Bush and his economic team ever since December, when they realized that for the first time in 112 years they couldn't use the normal argument of new presidents to push their program. Invoking "the will of the people" wasn't going to cut it this time.

So they did something risky and unusual--they poor-mouthed the economy to build support for their tax cut (which, as currently designed, would have almost zero impact on the economy this year) and to sprinkle a little blame for any recession on Bill Clinton. Even if Bush turns out to be right in his predictions of gloom, that doesn't mean he was right to make them. Not "prudent," as his father might say. Not helpful.

Yes, the power of any president over the economy is often exaggerated. This latest slowdown began last fall and was probably inevitable. The tech-stock bubble inflated and burst without much influence from Washington. But if the origins of economic trouble cannot be blamed on a president, the way it spreads psychologically is very much within his job description, if for no other reason than that the American people believe it to be. Consumer confidence is central to any soft landing (or, in the case of real recession, any recovery), and that confidence can be bolstered or eroded by the man in the White House.

Update: the Washington Times article I quoted in a previous post points me to another such statement from the NY Times in 1991:

Normally, presidents are cheerleaders for the nation's economy....

Now comes George W. Bush, who is presenting what an analysis in The Financial Times last week called ''the novel spectacle'' of a president ''urging citizens to ignore good economic news and focus on the bad.''

All week, the president talked about the economy ''sputtering,'' and he wrapped up the week on Saturday by beginning his weekly radio address to the nation this way: ''Good morning. For several months, economic indicators have pointed toward a slowdown, and now many Americans are starting to feel its impact. The stock market is causing worries, high energy prices are straining family budgets and some workers and small-business people have been directly affected by layoffs and slowing retail sales.''

At what point do politicians bear some public accountability for their public statements and the effect those statements have on the economy?  I almost want to ask Obama and Pelosi -- what is the minimum size of pork-spending bill you will accept so we can just go ahead and pay the money and get you and your cohorts to shut the hell up on trying to convince everyone we are in the Great Depression.  Because, to some extent, such statements can be a self-fulfilling prophesy.  Seriously, the biggest stimulative effect of passing this stimulus bill will be, almost without doubt, that it will end the felt need for Washington weenies to create an atmosphere of panic.

Now, I suspect that I would have a different observation if I lived in Detroit, but I ask every business owner or manager I meet for the personal evidence they have of economic cataclysm.  Is their business down?  And in a surprising number of cases, I get the answer that their business is doing OK, but they are cutting back because surely the worst is soon to come, based on everything they see in the media.  And do you know what?  I have done exactly the same thing.  I had one bad month, but since then things have been pretty steady, but I am cutting like crazy anyway, because I can't ignore the only other information source I have on the economy, which are pronouncements in the media.

I strongly believe that public pronouncements of doom, starting last October with Henry Paulson and continuing now to almost daily excess by Obama (today's statement:  the economy is in a "virtual free fall") have measurably contributed to job losses in this country.  Many people who are on the street without a job today can probably trace their unemployment to "just in case" cuts made more in response to government assurances of doom as on actual declines in output.

I can't prove this, of course, but I will present one pretty good pointer that I might not be totally full of it.  With the January jobs report, the recent recession has become one of the five worst since WWII in terms of jobs losses as a percentage of the work force (I know you may, from reading the paper and listening to Obama, think it is the worst, but it is still only the fourth or fifth worst).  Let me compare the job losses and the output declines at this point in the recession for these 5 recessions:

As you can see, we have had far more job losses relative to output losses than any major post-war recession.  This does not mean that more output losses are not coming, but it means that, perhaps unique to this recession, job losses are preceding rather than following output losses -- in other words, job losses are occurring more than in any other recession based on the expectation of output losses, rather than in reaction to them.  I wonder who it is that is setting these expectations?

Wow, using panic to achieve political aims and in the process accelerating job losses.  And they say we libertarians are heartless!

Data updated by the Minn. Fed here.  They actually have job losses through 13 months, but I jused 12 months because there are only quarters for the output numbers.

Update: Via the Washington Times:

Just Friday, Mr. Obama said a report that 600,000 jobs were lost in January meant "it's getting worse, not getting better. ... Although we had a terrible year with respect to jobs last year, the problem is accelerating, not decelerating." Last week he said, "A failure to act, and act now, will turn crisis into a catastrophe."

But he isn't the only Democrat ramping up the rhetoric while talking down the economy. House Speaker Nancy Pelosi of California said last month that our economy "is dark, darker, darkest." Rep. David R. Obey of Wisconsin said, "This economy is in mortal danger of absolute collapse." And Sen. Claire McCaskill of Missouri said of the economic-stimulus bill, "If we don't pass this thing, it's Armageddon."

Kevin Drum, quoting Joe Klein, hopes the press (which we know to be so terribly biased against leftish ideas and new government spending) doesn't smear Obama's economic plan like they did Clinton's.

I won't get into all that, but I want to ask a related question:  To what extent does current legislation actually represent an Obama plan at all?  Maybe the press coverage has been poor, but hasn't Obama really been forced to put a happy face on and accept the half-baked mess that comes out of Congress?  Hasn't Obama really taken the role as Majority Whip, trying to wrangle votes for an existing piece of legislation, rather than actually crafting its framework?

I would define one of the key aspects of Presidential leadership as bringing some adult supervision to Congress, and particularly his own party in Congress.  Bush CERTAINLY never was able or willing to do so, and I don't see evidence of Obama doing so either.  Congress is running amuck, and every week seems to add another $100 billion in random pork to the bill.  In content, my perception is that the stimulus bill is Nancy Pelosi's bill but Obama's blame.  Or am I missing something?  Has the Administration had more involvement in the crafting of this bill than it appears?

Update: Jane Hamsher at Huffpo (HT to a commenter) argues that my understanding above is a result of furious Administration spin:

The story of the morning seems to be that the Obama team is unhappy with Nancy Pelosi and the House committee chairs for delivering up such a liberal, pork-laden bill that they themselves really had nothing to do with.

"Anonymous staffers" are fanning out to fuel the fiction that "during the transition Summers, his deputy Jason Furman, and the White House's top Congressional liason, Phil Schiliro, laid out the broad principles they wanted the bill to adhere to, but when it came to actual content, they deferred to the chairmen."

Except that it's not true.  The Obama transition team has been working on the substance of the bill from day one.  Their first step was to go to the Association of Mayors, the National Governors' Associations and other non-congressional groups and say "give us all your shovel-ready projects."  That and other provisions written by the Obama team became the spine of the bill.  It went through only three committee markups, and moved through the House at lightening speed in a way that made many House chairs unhappy, with the notable exception of Dave Obey (now also under attack) who helped push it through quickly.

The House bill is notable not only for its size but also because it had no earmarks, which are the lifeblood of House members, the way they show their constituents what they're doing for them.  As one person knowledgable about the writing of the bill says, "if you're in the House why would you write a bill without earmarks unless you didn't write the bill?"

But with public opinion quickly turning against the bill, and the House Republicans claiming the moral high ground as they held formation to oppose him, how could Obama be distanced from responsibility for elements of the bill under GOP attack and remain above the fray?  That seemed to be the locus of White House concern, and according to those familiar with what happened, the "polarizing" Nancy Pelosi was designated to take the fall.

Interesting.  Well, I don't often comment on politics per se  (vs. actual proposals) because I am so naive about this stuff.  Hamsher could in turn be shilling for Pelosi.  I just don't know enough.

By the way Hamsher tends to imply that it is a good bill with bad PR.  Phhhth.  It is an awful bill, and I am willing to bet that I have read more of it and the CBO report than she.

Announced today:

President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with "executives being rewarded for failure."...

The pay cap would apply to all institutions that have negotiated agreements with the Treasury Department for "exceptional assistance." Those would include AIG, Bank of America and Citi.

Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.

I don't get too worked up about this one way or another.  Once the government is a part owner of these companies, it is perfectly reasonable to expect them to dabble with things like compensation policy, and no surprise that focus of such dabbling would fall on whatever particular hobby horses the party in power seem to obsess about.  Which is reason #4097 why government shouldn't be bailing these guys out.

In terms of executive compensation, options have fallen a bit out of favor as executives have sought more of a guaranteed payday, and changing accounting rules and more scrutiny have made that harder to do with options.  The concern is,  of course, stock prices can fall or even go to zero and that part of the compensation package would be worth zero.  Executives are generally happy to take risks but only with other people's money (people who take risks with their own money are called entrepreneurs).

But in this case, most of these companies' stock is at what is likely to be the bottom, and each has the commitment of the government now not to let them go bankrupt, so the danger of stock values going to zero is, well, about zero.   Would you take warrants in a company priced at the market trough and with the US government guaranteeing the floor beneath you?   I can't think of a better time to get equity or option-based compensation, and so expect to see a lot of it in order to circumvent the $500,000 limit.  And a lot of big paydays 5-7 years hence.

I have come to the conclusion that politicians believe Americans all have Alzheimers.  And, given the lamentable state of the media, they may be right.

Example 1

We can argue about stimulus and the Depression all we want, but I had, until the last few days, thought the absolute one thing we all 100% agreed on is that the Smoot-Hawley tariffs and the trade war they sparked were one of the leading causes of the worldwide economic death spiral in the late 20's and 30's.  Or not:

The stimulus bill passed by the House Wednesday contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package. A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Here is a nice story of another "Buy American" steel fiasco.

Example 2

Last year -- I am talking about just 3 months ago -- I thought it was fairly clear that the immediate cause for the financial meltdown for which the TARP bailout was being crafted was the systematic relaxation of underwriting standards that led to large numbers of loans (and their lenders, securitizers, etc) going belly-up.  Folks could argue whether this was because of deregulation or greed or government distortions and interventions, but I thought there was not doubt that poor credit judgment and excessively free credit were at the heart of the problem.  Or not:

House Financial Services Committee Chairman Barney Frank said President Barack Obama will require banks receiving government aid to lend more to businesses and consumers, saying the Bush administration "made a mistake" by not setting stricter rules for institutions getting funds from the $700 billion financial-rescue package.

"I think you're going to see the Obama administration, having learned from that, push for much more lending," Frank said today on ABC's This Week. "There are going to be some real rules in there."

So Frank and Obama are upset that the bailout of banks that were overgenerous on credit did not include provisions to force them to be more generous with credit?

Final thought: At the end of the day, businesses and individuals have a felt need to deleverage.  That is going to cause a recession, end of story.  The Congress's and Obama Administration's obsession with short-circuiting this sensible desire to reduce debt is not only counter-productive, it is offensive.  Banks are sensibly trying to strengthen their balance sheets, but the government wants to stop them.  Individuals are trying to cut back on spending, reduce debt, and save more.  Again, the government wants to stop them, by going to debt and spending for them if consumers won't do it on their own.

Radley Balko is justifiably happy that Obama is chucking the the theory that the President can detain people indefinitely at his whim:

President Obama yesterday eliminated the most controversial tools employed by his predecessor against terrorism suspects. With the stroke of his pen, he effectively declared an end to the "war on terror," as President George W. Bush had defined it, signaling to the world that the reach of the U.S. government in battling its enemies will not be limitless.While Obama says he has no plans to diminish counterterrorism operations abroad, the notion that a president can circumvent long-standing U.S. laws simply by declaring war was halted by executive order in the Oval Office.

Key components of the secret structure developed under Bush are being swept away: The military's Guantanamo Bay, Cuba, facility, where the rights of habeas corpus and due process had been denied detainees, will close, and the CIA is now prohibited from maintaining its own overseas prisons. And in a broad swipe at the Bush administration's lawyers, Obama nullified every legal order and opinion on interrogations issued by any lawyer in the executive branch after Sept. 11, 2001.

It's worth emphasizing again here these steps Obama's taking effectively limit his own power. That's extraordinary.

But here is my cynical side coming out:  It is easy to limit your own power in areas in which you have no desire to exercise it.  Obama is doing great work here that needs to be done, but he is also not really giving up anything he cares to have.  I could just as easily have written a story that said that Bush took brave steps to limit the power of the executive branch over CO2 emissions.

When Bush wanted to listen to phone conversations or to hold people incommunicado for years, he could have gone to Congress to seek such authority, or used the authority he already had but which was (rightly) limited by oversight from the judiciary.  But terrorism was "too important" to bother with that stuff, so he did it by executive fiat.

So the real test, in my mind, is to see Obama's attitude towards executive power in an area where he really wants to get something done, and might not have the patience to wait for Congress.   Obama is a different kind of guy, right?  He would never expand executive power and short-circuit Congress just because he was in the hurry for something, would he?

President Barack Obama signed an executive order to force the auto industry to produce more fuel-efficient cars, an act he says will begin a new era of global leadership for the U.S.

I thought this was particularly clever rhetoric for continuing to gut the 10th Ammendment.

"The days of Washington dragging its heals are over," he declared, saying it should be easier for states to adopt tough fuel-efficiency rules. "My administration will not deny facts; we will be guided by them. We cannot afford to pass the buck or pass the burden onto the states."

We are not grabbing power here in Washington, we are just relieving them of the burden of governing themselves.

Update: By the way, I do believe the current version of the CAFE legislation gives the NHTSA and the EPA the ability to change the standard, so technically the administration has this power.  However, typically changes to regulations must go through a public disclosure, comment, and review process, with a number of key requirements like economic impact studies.  The reasons for these requirements is to try to offset (imprefectly) the enormous power Congress is delegating to the Administration in these regulations.

Per Wikipedia (yeah, take it with a grain of salt) the CAFE legislation says:

Congress specifies that CAFE standards must be set at the "maximum feasible level" given consideration for

1. technological feasibility;
2. economic practicality;
3. effect of other standards on fuel economy; and
4. need of the nation to conserve energy.

Obama, impatient with following the process (where have we seen that before?) cuts through it with an executive order.   No one has gone through this process of making these tradeoffs -- Obama and a few advisors picked a number and ordered it into being.  By doing so, he is in effect violating the spirit if not the actual text of the legislation in which the power to set CAFE standards was delegated to the agencies under him.

Frequent readers will know that I do not buy into the Keynesian multiplier effect for government spending.  But there is an even better reason why the stimulus bill will never work:   it is simply impossible to break ground on any new government construction project in less than a year.

A year from now, any truly new incremental project in the stimulus bill will still be sitting on some planners desk with unfinished environmental impact assessments, the subject of arguments between multiple government agencies, tied up in court with environmental or NIMBY challenges, snarled in zoning fights, subject to conflicts between state, county, and city governments, or all of the above.  Most of the money will have been spent by planners, bureaucrats, and lawyers, with little to show for in actual facilities.

The couple of exceptions I can think of are:

• The project has already been proceeding for years, and thus is just about to start construction anyway.  Which implies the spending is not incremental and that we are just substituting federal dollars for local dollars in completing local projects, never a good idea.
• It may be possible to get a repair project going faster, but even that is probably impossible.  The contract award process alone can take up to 6 months, and it is probably no accident that federal highway funds are one of the few areas the government budgets multi-year.

To illustrate, let me tell a story.  We operate a marina and campground on a lake in Ventura County, California.  The marina office and store used to be a small floating building attached to the dock and floating on the lake (this is a fairly typical arrangement in small marinas).  The County decided it, for whatever reason, did not like having a floating store building any more, and it wanted the floating building closed and a new modular building put in a corner of the parking lot, on dry land.

So we get a modular building and park it in the parking lot near the dock entrance, as ordered.  Having been required by the county to take these steps, we were subsequently shocked to find that a variety of County offices refused to permit the new structure.  Eventually, it took nearly 4 months and $10,000 in fees to obtain the 8 County permits and approvals we needed to park a trailer in the parking lot.   And this does not include the cost of a fairly senior manager spending half his time chasing down all these approvals.  At one point, the County demanded a soil sample, and so we had to have a company come out and saw into the concrete parking lot to obtain a sample of the soil underneath.  God knows how long it would take to approve new construction on virgin land with water, sewer, etc.

Finally, some of you might be thinking that these government hurdles would be easier for the government itself to clear.  Wrong.  You have never, ever seen a government employee display as much energy as they will muster when they think another government agency is bypassing his or her authority.  I made a presentation a while back to a group of county commissioners in California, and it seems like most of their jobs involve dueling with various state agencies and local governments.

Well, I was cynical about Obama giving up executive power, as politicians generally have a different view of runaway government power once that power is in their hands.  But some good stuff has come out already:

• Obama rescinded Bush's 2001 executive order allowing former presidents, vice presidents, and their heirs to claim executive privilege in determining which of their records get released to the public. Even better, he's requiring the signature of both his White House counsel and the attorney general before he can classify a document under executive privilege.
• Issued a memorandum to all executive agencies asking them to come up with a new plan for open government and complying with FOIA requests. He is also instructing three top officials, including the U.S. attorney general, to come up with a new policy on open government. The new policy would replace the existing policy, infamously set by a 2001 memo from John Ashcroft that instructed federal agencies to essentially to take every measure they can to refuse FOIA requests.
• Put a freeze on the salaries of top White House aides.
• Suspended the military trials at Gitmo, and is expected to issue an order closing Gitmo as soon as today.

That's a really good start.  I am now more optimistic that we might actually get some rollbacks of government power vis a vis FISA and the Patriot Act.  The Fourth Amendment took a serious beating since 9/11, and hopefully it is not too late to roll back the precedents set over the last 7 years.

Of course, all of these activities are reductions of executive power in areas in policy areas Obama wants to undo actions by GWB.  The real test will be to see his approach to executive power in areas where he wants to go past GWB.  A good example is carbon dioxide regulation, where it has been suggested Obama should take the issue out of Congress's hands and establish a regulatory regime by executive fiat.

While we are on wish lists, I have often told my Republican friends that a fault of Bush's that did not get enough press was his apparent lack of willingness to provide adult supervision to Congress.  Congress needs to be shamed occasionally to stay on task and not drift off into feeding fests at the trough, and only the President can really do this.  Bush did not have the desire to face down a Republican Congress, and probably had lost all his credibility by the time he faced a Democratic Congress.  Harry Reid and Nancy Pelosi will take a lot of baby-sitting to avoid veering off into their worst behaviors, and it will be interesting to see if Obama will do so.  I think it is in his interest to do so.  Already, the ridiculous stimulus bill Pelosi has crafted threatens to embarrass him.  If I were Obama, I would be furious.  He expends his early political capital for a stimulus bill, and gets a total porked-up lobbyist's-fantasy from the House.

OK, I was really going to remain silent today, because no one seems to want to hear a rant about today's imperial coronation.  But as I sit here watching the press coverage and waiting for John the Baptist to show up, and as I observe the general cultish hysteria and the swooning of normally serious adult people, I just can't help myself.  For a libertarian like myself, it's like watching people line up at 3am to be the first to be in the store when McDonald's switches its fountain drinks from Coke to Pepsi.   Heck, I was creeped out by the cult following of Ron Paul this year, a politician I agree with a lot, so I certainly am going to get the willies from the love-fest for an admitted statist like Obama.

I am not enough of a historian to speak for much more than the last thirty years, but the popularity of non-incumbent political candidates has typically been proportional to 1) their personal charisma and 2) our lack of knowlege of their exact proposals.  Seriously, can you name any other difference (on the plus side) between Obama and Hillary other than these two?  We forget, but GWB was the unknown newcomer in 1992.  As was Clinton and Carter.  Reagan was an exception, but was running against an incumbent who really had a terrible four years, and Bush I was an exception as well, though he was running against one of the weakest candidates and campaigns the Democrats have fielded in 50 years.  Folks are excited about Obama because, in essence, they don't know what he stands for, and thus can read into him anything they want.  Not since the breathless coverage of Geraldo Rivera opening Al Capone's vault has there been so much attention to something where we had no idea of what was inside.  My bet is that the result with Obama will be the same as with the vault.

There is some sort of weird mass self-hypnosis going on, made even odder by the fact that a lot of people seem to know they are hypnotized, at least at some level.  I keep getting shushed as I make fun of friends' cult behavior watching the proceedings today, as if by jiggling someone's elbow too hard I might break the spell.  Never have I seen, in my lifetime, so much emotion invested in a politician we know nothing about.   I guess I am just missing some gene that makes the rest of humanity receptive to this kind of stuff, but just for a minute snap your fingers in front of your face and say "do I really expect a fundamentally different approach from a politician who won his spurs in .... Chicago?  Do I really think the ultimate political outsider is going to be the guy who bested everyone at their own game in the Chicago political machine?"

Well, the spell will probably take a while to break in the press, if it ever does -- Time Magazine is currently considering whether it would be possible to put Obama on the cover of all 52 issues this year -- but thoughtful people already on day 1 should have evidence that things are the same as they ever were, just with better PR.   For God sakes, as his first expenditure of political capital, Obama is pushing for a trillion dollar government spending bill that is basically one big pork-fest that might make even Ted Stevens blush, a hodge-podge of every wish-list of leftish lobbyists that has been building up for eight years.  I will be suitably thrilled if the Obama administration renounces some of the creeping executive power grabs of the last 16 years, but he has been oddly silent about this.  It seems that creeping executive power is a lot more worrisome when someone else is in power.

It has been suggested by some that today is less a cultish corronation but a big victory party in the battle against racism.  Well, I am certainly willing to accept it on those terms.  I have been arguing for years that it is time to declare victory on the worst aspects of race and gender discrimination, and move on to problems of interest to all races (like individual freedom or giving kids options to escape crappy public schools).   Unfortunately, I fear that too many folks in power are dependent on the race/gender/class wars continuing, so you and I may think we are declaring victory, but those with power over our lives have not.

Update: Just to be clear, I am not reacting to Obama per se, but to the reaction to Obama. Had someone pointed a gun at my head and forced me to vote for Obama or McCain, I would have voted for Obama. He is no worse than other politicians (I hope) and likely better than most.

I have argued for a while that the US appears to be regressing back to the 1970s.  George Bush is showing every sign of rivaling Richard Nixon for the award for most heavy-handed, misguided economic interventions by a President nominally espousing free market principals.  And there is no reason to think that Obama's outsider appeal and leftish economics will clean things up any better than did Carter.

Another sign the 1970's are back is Obama's appointment of Paul Ehrlich buddy John Holdren as his Science Adviser.   The Reference Frame has more on his work and "credentials", but suffice it to say there is very little there.

He is a strong practitioner of what I call post-modern science, where being fact-based and rigorous is far, far less important than coming to politically correct conclusions that are wrapped in just enough pseudoscience to wow science-illiterate media and most of the public.  His only highly cited works are Club-of-Rome type stuff with Ehrlich in the 1970s, and, not surprisingly, climate alarmist work today.   He is the type of scientist that is more comfortable (and better received) on an Oprah episode than in a detailed science debate.  He has a tendency to declare issues settled without having ever produced any evidence, and a history of eventually backing down from ludicrous positions he adopted without evidence in earlier phases of his life, only to then make the exact same mistake again in a slightly modified form.

The title comes from perhaps his most famous work, and is a great example of exactly what this guy is about.  I=PAT is supposedly an equation to measure man's impact (generally interpreted to be negative impact) on the Earth.  The letters stand for Impact (or Influence) = Population x Affluence x Technology **

The fact that he has an "equation" makes it look like science.  But in fact, it is not an equation at all.  He never tries to put any numbers to it, and in fact one cannot put numbers to it.  It is merely a political point of view popular on the left - that growth and technology and wealth are all bad - made to look like there is some science behind it.   It gives the scientific impremateur to something that is no such thing, so limits-to-growth supporters could yell back at their critics that is was "settled science."  Its a kind of voodoo, where activists could wave Holdren and Ehrlich at their critics, to try to keep the fact-Gods at bay.  Similar forces are at work in climate, though climate scientists have learned not to put their equations on paper (since then churlish outsiders can criticize it) but to bury them in a black box climate model.

In fact, even as a concept I=PAT fails.   Because at least two of the three terms have exactly the opposite relationship.  What do I mean?  Well, I guess I could be convinced that, all things being equal, rising human population has a net negative impact on the environment.   But affluence and technology should be in the denominator, not the numerator.  I won't bother with an extensive proof, since Holdren never proves his equation, but I will offer up a couple of thought experiments:

• Imagine 6-7 billion people on the earth today but with the wealth and technology of the pre-Jethro Tull 17th century.  It would be a freaking disaster.  The catastrophe, to humanity and the environment, would be unimageable.   We are able to have the P we have today only because it is offset by A and T.  Or, in a point made in an earlier post, poverty is not "sustainable."
• America is demonstrably less polluted and cleaner than in 1970, despite a higher population.  Many areas are cleaner than in 1920, and we have more untouched land and more forest coverage today than we did in 1920.  Why?  Technology and affluence.

If one really wanted to be scientific about it, and studied actual data, I think he would find that environmental impact follows a parabola with development.  Initial increases in population and industrialization lead to messy problems, which are then fixed with increasing wealth and technology.  There are many places in the world where halting growth would merely freeze the country at the top of this parabola.  China is a great example.  China's environmental problems will get solved through increasing wealth.  Stopping it from growing would actually increase the negative impact on the environment.

Anyway, I just spent more time on the proposition than it deserves.  If Holdren ever steps down, I suppose there's always Rosie O'Donnell to replace him.

** This is based on the popular interpretation of the equation.  In fact, in its original form, T was not technology but just a plug factor, something like impact per population-dollar.  At this level, the equation is certainly true, as mathematically it is hard to argue against the equation impact = population x dollars x impact per population-dollar!  So, at some level, the finding was not wrong but simply trivial.  However, in popular mythology, T was changed to technology, and the authors really did nothing to correct this interpretation, because essentially they agreed with it, even if they hadn't proved it.  (more here)  This approach, of proving one thing that is trivial and then claiming the proof is of something broader and more robust is now typical of climate science.

Obama has picked Arne Duncan of Chicago as Secretary of Education.  Unwilling to send his own kids to schools run by Mr. Duncan, he is never-the-less putting Duncan in charge of the rest of our schools.

My appointment for the Secretary of the Department of Education would have been the head of a liquidation firm.  As a libertarian, I can find fault just about everywhere in Washington, but nothing better illustrates the modern disregard for the Constitution and the 9th and 10th Amendments than the Federal education infrastructure.  My daughter asked me what I would do first if I were President.  I would put blowing up this department first (though its demise would be neck and neck with the Department of Energy).  I would even be willing to do it in a funding-neutral way, such that Federal funds currently allocated to education would still be so allocated, and simply distributed on some kind of per head basis to local districts.  Which, in fact, would actually increase real education funding, eliminating the great Washington leaky bucket as well as the cost of compliance with reams of rules and regulations that is born by local districts.

It is possible to find a few  (though very few, on a percentage basis) anecdotes of public schools that have been turned around  (in fact, I think there are few enough that a movie can and has been made about every one).  There are no examples that I know of a large school district being turned around.   As to this guy Duncan picked by Obama today --  I am willing to believe he had some point successes at individual schools.  But he certainly didn't turn around the whole district  (certainly not to the Obama family's standards, since they refused to send their kids to the schools Duncan ran).  So what hope does he have at a national level?  Answer:  none.  But I am sure he will ask for more money to do it.

Update:  Over the weekend, without comment, the Obama team pulled down the language below and put up new, vaguer language without the "required."  Discussion and a screen shot of the original is here.

How do you tax people with who have no money?  Why, you take their labor by force.  It worked when we dragged Africans over here against their will in the 19th century, and it can work today.  From the Obama transition site:

The Obama Administration will call on Americans to serve in order to meet the nation's challenges. President-Elect Obama will expand national service programs like AmeriCorps and Peace Corps and will create a new Classroom Corps to help teachers in underserved schools, as well as a new Health Corps, Clean Energy Corps, and Veterans Corps. Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year.

So what was that about no tax increase for people making under $250,000?  Because my guess is that most high school and college kids made close to zero, but here is Obama seeking to expropriate 50-100 hours of their labor.  Sure looks like a tax to me.  By law, high school kids, by DOL rules, can work up to 1200 hours per year.  For kid that works every hour she can, this is about a 4% tax.  Kids that work less pay a higher effective tax rate, up to infinite for kids not working at all  (hey, this tax is even regressive).  Also, richer kids trying to get into top colleges will be the least affected, as they are already volunteering at a level close to this, so most of the burden of this tax will fall on the poor.

I remember when I was slammed by Obama supporters during the election when I said that his call for "universal" community service meant that he was going to mandate it.  Carefully avoiding being clearer about what he meant before the election, Obama sure has not wasted any time making sure everyone understands he is talking about government coercion here, not volunteerism.

PS- I thought this site was fake, because it was amazing to me to see Obama's intentions stated so baldly after he so strenuously avoided clarifying his position during the election.  But the Huffpo and other sites link to this site as if it is real, so I will treat it as such.

PPS - Here is Obama's pledge on taxes from the same site:

Middle class families will see their taxes cut "“ and no family making less than $250,000 will see their taxes increase. The typical middle class family will receive well over $1,000 in tax relief under the Obama plan, and will pay tax rates that are 20% lower than they faced under President Reagan. According to the Tax Policy Center, the Obama plan provides three times as much tax relief for middle class families as the McCain plan.

OK, we are not going to take more money, we are just going to take your labor directly.

Update: Radley Balko adds the chilling speech implications of such a program:

So who gets to decide what constitutes "community service"?  Who gets to decide which causes and organizations will be credit-worthy, and which ones won't?

Something tells me that you'd be more likely to get one of Obama's vouchers by going door to door for one of ACORN's living wage campaigns than, say, volunteering for a libertarian nonprofit organization that advocates against things like government-mandated community service.

Obama supporters will say, no problem, we trust Obama.  Hmm.  The folks who wrote our Constitution designed our government assuming all politicians would be knaves.  Writing laws that depend on the good intentions, fairness, correct incentives, and intellectual capacity of the government folks who run it are doomed to failure.  Would Democrats have been happy to have GWB deciding what community service their kids were forced to endure?  I doubt it.  Well, we don't live in an autarky, and sooner or later GWB's party will be back and making exactly those decisions under such a program.

It's fascinating that our local paper, after months of positive Obama coverage, manages to express its first printed criticism of Obama on ... the day after the election.

With President-elect Barack Obama promising tougher government regulations on some sectors, including the financial markets, a handful of business leaders expressed concern Wednesday.

"The key thing is to not choke us to death with regulation," said Ioanna Morfessis, an economic-development consultant and Greater Phoenix Economic Council founding member.

With the faltering of the financial markets and a massive federal bailout this fall, Obama and congressional Democrats, who expanded their majorities with an upset electorate, have called for more federal oversight on Wall Street. Obama also has called for more regulation in the energy and health-care sectors, and Democrats could more strictly enforce environmental rules....

Morfessis said before lunch Wednesday, she received phone calls from 11 entrepreneurs concerned there would be a "higher premium for taking risks or entering new markets."

I think a lot of economists are of two minds about Obama.  When they look at his economics team, they are impressed with the talent and depth.  America could do worse than have economic policy guided by this team.  But when Obama opens his mouth to express his own opinions on trade or economics or finance, I get really nervous.  I keep wondering who will guide economic and energy policy -- his smart staff, or the Obama his smart staff keeps trying to hide. 

Ethanol is just one more example:

Robert Bryce, the author of Gusher of Lies, one of the best books on
global energy issues you will ever read, is also a co-editor of Energy
Tribune, a leading monthly. In the October edition, he takes aim at
ethanol calling it a scam and "pure, unadulterated lunacy."

Bryce
writes, "Barack Obama doesn't want to talk about corn ethanol. And it's
no wonder. In early August, his campaign Web site purged several
sections of his energy plan that talked about corn ethanol.

"Before
the purge, Obama was touting corn ethanol as a pivotal element in his
push for "˜energy independence.' His site declared that Obama "˜will
require 36 billion gallons of renewable fuels to be included in the
fuel supply by 2022 and will increase that to at least 60 billion
gallons of advanced biofuels like cellulosic ethanol by 2030."

By
August, however, Obama had come up with a new set of talking points on
energy and "All mentions of corn ethanol were removed," wrote Bryce.
"The word "˜ethanol' only appears once."

Do not be fooled. Obama
is a major proponent of ethanol. Bryce reports that, "In January 2007,
Obama and two other senators, Democrat Tom Harkin of Iowa and
Republican Richard Lugar of Indiana, introduced legislation called the
"˜American Fuels Act of 2007.' It aimed at promoting the use of ethanol
and provided mandates for the use of more biodiesel."

Obama's
national campaign co-chair is Tom Daschle, the former Senate majority
leader and longtime ethanol booster. Daschle serves on the boards of
three key ethanol companies. Obama represents Illinois, a state that
trails only Iowa and Nebraska in ethanol production capacity.

Ethanol is one of those political IQ tests.  It makes such bad energy and environmental policy, but such good pork, that support for it is a great bellweather for what is driving a politician.