There is little to add to the Weiner fiasco. Sexting is now a very descriptive new word in the digital lexicon.  The winner in this lurid tale is Andrew Breitbart.  His objective was not Anthony Weiner but the Media Complex (his term). Again he proved that the Media Complex (i.e. the MSM) is far more reluctant to report news that reflects poorly on the left.  Rather than research the truth they faulted the truth teller, Breitbart.

Breitbart did the same in his strategy to release the O’Keefe videos that destroyed ACORN.  He offered the story to ABC who rejected it, before offering it to Fox News.  Weiner and his enablers, which are many, have much to answer for.  But the real villain here is a media that is held to no accountability but their own.

Last night in a meeting with a few local business people, we discussed our prospects and it was a bit depressing.  Ridiculous regulations have over ridden any common sense and it is squelching growth.  Wealthy people in this group cannot get a mortgage loan because they do not have the ‘right’ kind of income.  The very people who can readily buy apartments and real estate to absorb the excess capacity are unable to borrow any money to do it.

Businesses do not grow and investors do not invest in order to pay taxes or hire people; they do so to make a return on their investment.  The more burdens you place on realizing that return the less tax revenue and employment you will generate. This bears repeating.

Every regulation, tax increase or even the threat of a tax increase, every mandate and every word supporting class warfare reduces the expected return on investment and thus reduces the tax revenue and employment outlook.

The longer the poor economy drags on the harder it will be to revive it.  Those who have closed businesses are not likely to reopen them.  Without a long term consistent set of rules that we can trust are in place, the remaining businesses will not respond quickly to a pickup in business.

In some parts of the country entire neighborhoods are vacant.  Newly constructed homes are deteriorating.  Why don’t we give these home to returning veterans.  Create a pool to buy them at a steep discount and give them to the vets who can fix them up and just by living in them build their value.  I am sure a lot of private citizens would contribute to the pool.

Does the post office really need to deliver on weekends?  Why is it free for them to bring my mail to my house, yet I must pay for a box to go to the post office to pick it up?

The lack of certainty is a common refrain from business people and investors today.  But it is not a satisfactory explanation. Business people always face uncertainty.  There are always unforeseen problems, new competitors and products, and risks in investments.  Without risk and uncertainty, opportunities would be rare and investments would yield very little.

There is even a constant risk of economic changes, inflation, and legal problems. This is  nothing new to this administration.

Part of what is different is just the degree and the effect of an accumulation of regulations that has caused our economic sclerosis.   Uncertainty such as figuring the costs of the health insurance bill on employment is still an issue.  It is killing employment because the expectation is that the cost will be much much higher, in spite of political assurances to the contrary.

But the uncertainty we complain about is not the uncertainty  we normally face.  Today we no longer know the rules. Once we spend time and money figuring them out they are going to change.

My HR guy asked about going to a seminar to learn the new health insurance rules.  I said not to bother until we knew what the rules would be.

We would all enjoy a game of Monopoly and understand the risk of the roll of the dice.  But we would also understand the rules.  Who would play if a roll of the dice would entitle you to make whatever change in the rules you desired?

We can handle uncertainty.  What is much harder is the constant change in the rules. It makes for a game nobody want to play.

Monetary policy seeks to promote economic growth through the proper management of the currency. The trick is to create enough money to provide growth without losing control of inflation. This is no small task. We are a nation addicted to growth, and we are not a patient people.  In the past it was complicated by foreign trade and the relative value of currencies.  As long as all currencies were tethered to a fixed value such as gold it was easier, but even that did not eliminate complicated problems in foreign exchange.

Monetary policy used the tools of money and credit creation such as buying and selling treasury securities and raising and lowering interest rates.  As complicated as the single task of monetary stability and controlled growth is, it is complicated enormously by the additional mission of providing full employment.

It is the addition of full employment to the mission of the Fed that crosses the line from monetary policy to fiscal policy.  The Congress controls fiscal policy through taxation and regulation. The challenge is to provide the revenue needed without taxing so much that the incentive to produce the revenue is inhibited.

Presidents have long realized that higher tax rates did not necessarily produce higher tax revenues. Calvin Coolidge noted this long before the well known Laffer curve was drawn on a napkin for Donald Rumsfeld and Dick Cheney by its namesake Arthur Laffer, who was simply, yet brilliantly, explaining the work of Robert Mundell (later awarded the Noble prize in economics.)

Part of the reason we have reached the economic pain we are at is because of the success of the Federal Reserve to mitigate the accumulation of bad fiscal policies with offsetting monetary policy.  Alan Greenspan was considered the Maestro because he seemed so adept at using the tools of the Fed to counter problems created in the Congress that the lawmakers were insulated from the results of their own foolishness.

As long as the Fed was able to stimulate the economy with lose money and credit then Congress did not have to face the outcome of higher minimum wages ( higher unemployment, especially among the lowest income brackets), higher taxes and stifling regulations.

We have now reached a point where the accumulation of bad fiscal policies has exceeded the ability of the Fed to mitigate.  Decades of bad policies have accelerated with the addition of terrible bills and policies passed during the first two years of the current administration.  We have been unable to recover from the last bailout before the next bailout is required.  Too many problems accumulate in too short a time frame and the classic responses of inflation and deficit spending no longer work.  Debt is never a problem during the boom, but it is lethal during a bust.

What once worked no longer does.  Success- knowing what worked yesterday- has led to failure.

Then the outcome of higher minimum wages rears its ugly head and the unemployment is no longer hidden by Fed policy.  The effects of onerous regulations and higher taxes brings production to a stop.  Hallow financial instruments collapse.  Money poured into housing no longer supports ever increasing prices.

When we realize that monetary policy can no longer hide fiscal mismanagement we are faced with making adult decisions.  Over generous benefits must be rescinded. Government expenses must be cut. Common sense must return to fiscal management.

Laffer’s mentor, Robert Mundell, warned of the use of the Fed to enact fiscal policy. It is healthy to realize the limits of the power of the Fed, but this entails that the Government must realize the consequences of its policies without the Fed hiding the results with loose money as it has for decades.

Nicholas Kristof writes in the New York Times April 27, 2011

Great Leap Backward

Excerpt:

Ms. Cheng was arrested on what was supposed to have been her wedding day last fall for sending a single sarcastic Twitter message that included the words “charge, angry youth.” The government, lacking a sense of humor, sentenced her to a year in labor camp.

So I tried to interview her fiancé, Hua Chunhui, but it turns out that Mr. Hua was recently arrested and imprisoned as well. That’s the way it goes in China these days. The government’s crackdown is rippling through the country, undercutting China’s prodigious growth and representing the harshest clampdown since the crushing of the Tiananmen democracy movement in 1989.

The reason? Surprising as it may seem, the government is worried that China could become the next Egypt or Tunisia, unless security forces act early and ruthlessly.

HKO comment:

The required oxygen for capitalism is freedom. Without it economic growth will wither and die. China’s economic miracle will be very short lived until the initiatives that have been top down become bottom up. It will not happen when such freedom is oppressed.

Economist Scott Grannis writes in his excellent blog, The Calafia Beach Pundit, Coach Obama still doesn’t understand the game.

Excerpts:

If he learned anything in the past two years, it was that the public doesn’t like the concept of stimulus spending, and it doesn’t like a lot of new government programs. Solution? Call the stimulus spending something else, and don’t say it’s government that is taking over healthcare, energy research, high-speed rail and education, just say it’s all about investments that will make our economy stronger. That may sound great to other liberals, but to those working in the trenches it’s just more spending, more regulations, and more suffocating government presence. Competitiveness comes from the bottom up, not from the top down: from entrepreneurs, inventors, risk-takers, and just about anyone who is willing to work and wants to improve his standard of living. Policymakers’ ability to influence things is limited to setting the ground rules that in turn maximize the private sector’s growth incentives. The chances are slim that Coach Obama can direct tens and hundreds of billions of dollars to the companies and industries that are going to revolutionize the future; there are millions of people at work all over the world trying to do this already, and there is no shortage of capital ready and willing to finance economically viable projects.

If Obama really understood the economy, he would have showed much more interest in cutting spending. Proposing to freeze discretionary spending while also proposing to spend a whole lot on “investments” is not going to avoid the fiscal train wreck we are headed for, and it’s not going to help the economy. Federal spending has increased hugely under his watch, and is scheduled to absorb an unprecedented amount of the economy’s resources in the future. This is sapping the economy’s strength by allowing inefficient government programs and bureaucrats to waste the economy’s scarce resources. Cutting spending now is the best way to strengthen the economy, since it returns money to the private sector where all true growth originates. Cutting spending also reduces expected future tax burdens, which in turn encourages more investment and work effort.