Irwin M. Stelzer

Irwin Stelzer: Congress may stifle recovery before it grows

There are times when the economic data point in one direction, and businessmen in the privacy of their boardrooms point in another. A case in point is the recent report that the recession is over: The housing and manufacturing sectors are recovering, and retailers have sheathed the hara-kiri knives they sharpened in anticipation of a gloomy holiday season as major categories of goods sell at the most robust pace in a year. "I'll believe it when I see it on my top line," seems to be the attitude of most businessmen, who are hoarding cash in record amounts. The Wall Street Journal estimates that corporate cash hoards now total over $1 trillion, or about 11 percent of assets,...

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Irwin Stelzer: Things look gloomy for long term

It has been a long time since the economic data have been flashing positive signals, and an equally long time since consumers, businessmen and occupants of the White House have been so gloomy. It's worth considering why this disjunction of fact and perception is dominating the economic news. Start with the data. The economy grew at a quite satisfactory annual rate of 3.5 percent in the third quarter. The Federal Reserve's survey of business conditions around the United States reports "either stabilization or modest improvements in many sectors. ... Reports of gains in economic activity generally outnumber declines." There follow the usual warnings that improvements are from low levels,...

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Irwin Stelzer: Dollar still world's favorite currency, for now

The Chinese are cross because the falling dollar means the stacks of U.S. IOUs they have in their vaults will be paid back in a devalued currency. The Americans are cross because the Chinese refusal to allow their renminbi to appreciate means goods made in Chinese factories will continue to displace made-in-America products and provide jobs for Chinese rather than American workers. The Europeans are cross because the strong euro threatens to abort the export growth they need to fuel their economic recovery. The British are cross because the weak pound is causing sticker shock when they travel abroad, and portends a spurt of inflation. In short, everyone seems to be very unhappy with...

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Irwin Stelzer: Dollar decline forcing debt showdown with China

Americans should be hoping that the Chinese will be kinder to us than we were to the Brits after World War II. They had spent themselves close to broke fighting Hitler, and asked us for a loan. We set loan conditions so arduous that sterling lost its role as a world currency, damaging the U.K. economy. Debtors don't have much negotiating power. Fast forward to today, and the plunging dollar. The Obama administration may mouth support for a strong dollar, but traders know better. In the short run, the White House hopes that a combination of protectionism and a cheap dollar will reduce the flow of imports and increase the volume of exports. That will create jobs "right here in America"...

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Irwin Stelzer: Double-dip recession may be ahead

"W." It's back, and sending tremors through the business community. Especially as it seems to be displacing "V." Recall: A "V" recovery is one in which a sharp drop is followed by an equally sharp rebound. The dreaded "W" describes an economy that plunges, then recovers, luring investors into the market and businessmen into new investments, only to drop again before a final recovery, with substantial losses all around for the prematurely optimistic. The optimism engendered by soaring share prices in the quarter just ended came to a screeching halt when the Labor Department issued a jobs report so grim that the Lindsey Group consultancy warned its clients not to read it "without a...

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Irwin Stelzer: Stubborn facts block green campaigns

"Facts are stubborn things," remarked John Adams 239 years ago. And so they remain. Which is why President Obama and the world's leaders can't agree on what to do to prevent the disastrous consequences of the global warming they have persuaded themselves is our fate -- unless they act together to cool things down. The first fact that has proved stubborn is that national interests, including the survival instincts of national leaders, trump international cooperation every time. Although the United States and other countries might set national CO2 emission limits, there is little hope of any legally binding international treaty to enforce those limits. Now that China and India...

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A giant walked humbly among us

Kristol We buried Irving Kristol in Washington on Wednesday, and now must cope with the fact that we, and others who had never been fortunate enough to know him, live in a world devoid of his wisdom, kindness, humor and plain common sense. Irving was 89 years old, the son of Jewish immigrants. He rose from a day laborer in Brooklyn to become perhaps the most consequential public intellectual of the latter half of the 20th century. To the world, Irving is best known as the godfather of neoconservatism, although the persuasive tools at his command were not those of Tony Soprano or Marlon Brando's godfather figures, but only those contained in his numerous essays, talks, columns and what...

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Irwin Stelzer: How will Obama handle this potential recovery?

Even before this week's report of a jump in retail sales and industrial production, Federal Reserve Board Chairman Ben Bernanke said the recession was "very likely over." This has central bankers around the world mulling over possible exit strategies -- ways to begin to withdraw cash and support from the economy and various players. And now President Obama and Treasury Secretary Tim Geithner are figuring out what policy modifications a nascent recovery requires. The president's strategy might best be characterized as including some exit, a dose of entry and more than a little standing still. The exit applies to the propping up of the financial sector. Here's Geithner: "As we enter this...

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Irwin Stelzer: China worries about gold and greenbacks

Gold is up (over $1,000 per ounce), oil is up (over $70 per barrel), other commodities are up, and the dollar is -- down, a lot. Which is good news and bad news. As the world's economies recover, so does investors' appetite for risk, which means that they no longer feel they have to keep their funds in the dollar, a relatively safe place. So far so good. But there is another reason the dollar is at around its lowest level in a year. The Obama administration has no policy to prevent the dollar from sinking further. In fact, the administration's policy is a torpedo aimed at the dollar's strength and acceptability as the world's reserve currency. The president is in the process of taking...

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Irwin Stelzer: Unions need growth to save unfunded pensions

"We've lost touch with a whole generation.... The problem is that they [under-30s] don't think we have much to offer them," Richard Trumka, the incoming head of the 11-million-member AFL-CIO told the Wall Street Journal. He plans to rectify that by making union membership more attractive to the 30-and-under set by upping the benefits of union membership. And, of course, by eliminating the secret ballot that unions think reduces their ability to, er, persuade potential recruits of the virtues of membership. One tool in the kit of the 1,000 organizers Trumka plans to field in support of his 56 unions is the promise of great retirement benefits. Anyone finding that promise a lure to...

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Irwin Stelzer: Seven lessons of Cash-for-Clunkers' failure

It's over, finished, done. And quiet returns to the auto showrooms of America. Cash-for-Clunkers has outlived its funding. But left us with a host of useful lessons. First, government forecasters are really bad at their job. The program was originally funded with $1 billion of taxpayer money to cover rebates of $3,500-$4,500 on cars traded in for more fuel-efficient models, and the money was expected to last for about six months. It lasted for one week. The $2 billion added to keep the program alive lasted less than a month. No surprise, then, that the government just discovered that its forecast of the deficit in the coming decade is light by a mere $2 trillion, or almost 30...

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Irwin Stelzer: Obama needs a mid-course correction, soon

I have seen the future, and it won't work. Not unless there is a major policy change in Washington. We now know a lot more about what the administration and the Congress will be able to do. By year-end, some sort of health care bill will pass. It won't be as "transformative" as the president wants, nor "deficit neutral". And it surely won't do very much to stem the rise in health care costs. We know, too, that some form of cap-and-trade bill will emerge from the Senate, where Democrats will have to pass something to avoid embarrassing the president. Since Congress has responded to intense lobbying -- you remember, the sort of thing that would be banned from Obama's...

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Irwin Stelzer: Getting away from the Washington sickness

Washington is emptying out, trading congress and the army of lobbyists grown numerous and fat in exact proportion to the increase in the government's share of the nation's GDP for an army of camera- and mineral-water-toting tourists. They will see Washington at its best -- devoid of the crowd devoted to spending other people's money. Soon, the President and his family will take flight to Martha's Vineyard, the summer playground of wealthy, liberal Democratic politicians and their media allies. Flee the heat of Washington but not the political heat which has been turned up over his fight to "reform" the health care system. He will hopping around the country trying to cool that...

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Irwin Stelzer: Maybe there won't be a 'lost decade'

Perhaps the most important question being asked, now that we have avoided a melt-down of the world's financial system is, "Will America lead the world out of recession into a new era of economic growth, or will America have a "lost decade," which was Japan's unfortunate experience after its credit crisis?" The sort of decade in store for us, and for the world in which the America economy bulks so large, will be determined more by government policy than by economic forces. Economics will matter, but only as it is affected by government action. o Consider this: We are not trying to forecast whether General Motors can turn out cars that consumers will like, but whether...

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Irwin M. Stelzer: Sooner or later, the piper will be paid

Three inter-related forces are beating on the economy: Cyclical (the recession); secular (long-term trends), and presidential. Here are some guesses as to the shape of some of the industries that will emerge from the interplay of these forces. The housing industry's problems are cyclical, and will abate as a rising population and more reasonable pricing whittle down the unsold inventory of homes. Government will force some long-term changes, most notably the use of more insulation and energy-saving devices. But a few years from now things in this industry will be largely indistinguishable from pre-recession days, with the important exception of more stringent credit conditions imposed...

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Irwin M. Stelzer: immigration may be next up for Obama

Virtually unnoticed during the brawl over President Obama's efforts to get his health care and cap-and-trade programs through the Congress was a meeting convened by the President late last month to see whether the Hill is willing to tackle an equally knotty problem -- immigration. Sen. John McCain R-AZ, badly burned by his "base" for supporting reform, and facing a tough re-election fight next year, attended, as did Senators Chuck Schumer (the new chairman of the Senate's immigration subcommittee), Jeff Sessions of Alabama, and John Cronyn of Texas. White House Chief of Staff Rahm Emanuel says the President is prepared to move on reform if Congress has the votes to pass a bill....

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Irwin M. Stelzer on White House split on second stimulus

Say "I'm sorry", do nothing, or double down. Those are the choices facing President Obama as he focuses on the economy after apologizing to the Russians for our share in perpetuating the Cold War and hobnobbing with Silvio Berlusconi and friends at the G-8. We've already been treated to what passes for an apology from this administration. Both the president and the vice president have said how sorry they are for not realizing just how bad an economic mess they had inherited from President Bush. It was that mistake, made before they had full access to all the facts about the economy, that led them to predict that the $787 billion stimulus package they pushed through...

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Don't mimic the Massachusetts Way on health care reform

In 2006, Massachusetts governor Mitt Romney was hailed as a visionary for signing one of the most expansive health reform bills in the country. "MassCare" aimed to expand health insurance, achieve universal coverage, and bring down costs through a complicated set of government controls and subsidies. Just over three years later, many lawmakers are pointing to the Bay State as a model of success -- and pushing for similar policies at the national level. The reform packages put forward by both the President and Democrats in Congress contain many of the essential elements of MassCare, including an individual mandate requiring most residents to purchase insurance; a "pay or...

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Irwin M. Stelzer on too much, too soon, too far left

Death by a thousand cuts. Or in the case of the efficiency of the U.S. economy, by at least four: Energy policy, health care policy, trade union resurgence, and fiscal madness. Start with energy. Barack Obama says our entire energy sector needs a makeover. Never mind that we are fortunate to live in a country in which inexpensive energy has produced the world's most productive agriculture, a population capable of navigating America's huge spaces in air-conditioned comfort, and permitted the substitution of energy-plus-brain-power for back-breaking labor. Obama is going to fix it with wind that sometimes blows, solar power where the sun sometimes shines, and perhaps even nuclear power....

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Warning: Energy rationing ahead

Saudi officials use oil revenues to sponsor the global dissemination of their misogynist, anti-Semitic, jihadist version of Islam, including sponsoring a school in Virginia that it hopes to expand. Hugo Ch‡vez relies on oil revenues to support his statist, anti-American regime in Venezuela, as do the Mullahs in Iran. Iraq's oil reserves are such a large untapped source of revenues that Kurds and Iraqis in Basra are willing to kill each other to gain control of the area. Oil production in Nigeria, Peru and elsewhere impinges sufficiently on the environment to provide a rationale for the activities of rebel groups. God certainly gave us a mixed blessing when he endowed the world with huge...

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More change than most Americans expected

Some 85% of Americans have health insurance, and many who do not nevertheless receive health care. Gallup reports that 82% are satisfied with the quality of the health care they receive, and 73% with their insurance coverage, up from 79% and 69%, respectively in 2007. And over half are satisfied with the cost of care. Yet President Obama wants to spend a trillion or so to radically reform the system. All Americans have a wide choice of cars made in America by American workers at Ford, Toyota, BMW and other plants. Yet President Obama wants to spend billions keeping General Motors and Chrysler in business. The American energy system produces reliable power at prices that are the envy...

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Bad news and good news on Obama

The bad news is that President Obama is keeping his campaign promises to raise taxes on upper-income families, borrow-and-spend, bail out auto-company dinosaurs in an attempt to ensure their survival, take over the health care system, and otherwise pursue an agenda that it is an understatement to describe as ambitious. The good news is that President Obama is not keeping all of his campaign promises. There has been no precipitous withdrawal from Iraq, Guantanamo remains the home of terrorists and is likely to do so for some time, the new “transparency” is not so all-encompassing as to include pictures of the treatment accorded the bad guys we managed to capture, and we have...

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Just wait till Obama finishes reforming the economy

In the days when it was still necessary to explain to one’s parents just what an economist does, my first job was to crank out a forecast of economic activity, interest rates and other variables in the coming quarter. Get it wrong often enough, and you were gone. More senior employees assigned themselves the longer-term outlooks: their forecasts would be long forgotten by the time actual data became available. That was then and this is now. So I will exercise the prerogative of seniority and for this week at least leave it to others to decide whether the green shoots will bloom or wither. Instead, let’s take a look at what the world will look like when President Barack...

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Bernanke may need Rosy Scenario's help to stem inflation

Batten down the hatches. America is about to be overwhelmed by an inflationary wave that will threaten the value of the dollar and its ability to remain the world’s reserve currency. Or not. Much of the news of late has been a lot cheerier than the reports that descended on us only a month ago. Which is not entirely good news for Ben Bernanke and his colleagues on the board of the Federal Reserve Bank. Until now, they had an unambiguous goal: avoid a collapse of the financial system, and pump cash into the economy. Bernanke did what he had to do and, most observers agree, did it very well. He drove interest rates down and devised one gambit after another to prop up the...

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'Green shoots' of economic optimism for this week

President Obama’s economic team is cautiously celebrating the appearance of so-called “green shoots,” and trying to figure out whether they will grow into sturdy oaks. Fed chairman Ben Bernanke, Treasury Secretary Tim Geithner, and White House adviser Larry Summers, among others, are digging into the components of the reported 6.1% drop in GDP in the first quarter of 2009. And wondering whether to sign on to the Goldman Sachs view that the GDP report is “supportive of future growth despite the deep decline.” They can see that consumption rebounded by 2.2% as consumers rushed to the malls to unload $200 billion in tax refunds and $100 billion in...

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Are Obama's apologies good for America?

“If I made you cry, I’m sorry. From the bottom of my heart, I apologize if I caused you pain, I know I’m to blame…. I apologize….Please let me make amends….” So warbled Billy Eckstine many years ago, and so sings our President today. The Obama team feels compelled to express regret for most of American history. We must say “sorry” for on-going racism, never mind that we now have a black President; for Hiroshima, never mind that Truman saved millions of American soldiers’ lives by using a nuclear weapon to make it unnecessary to invade Japan; for inattention to the wishes of our European allies, never mind that our troops...

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Europeanization of America is Obama's plan

Budgets are more than numbers. They are statements of intent, of priorities. So to understand what Barack Obama has in mind for America, don’t start by fussing with the numbers. Start with his theory that inside every crisis there is an opportunity. The crisis is the current recession; the opportunity within is the chance to convert America into a social democracy. The covering fog is provided by the word “stimulus,” which conceals the fact that a good part of the President’s spending will be on programs he would have pursued even if he inherited an economy running at full throttle. Obama’s critics have allowed themselves to be distracted by their...

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Lots of clouds obscure crystal ball

When economics was just economics, analysts and forecasters had a difficult job. Now that economics has reverted to its original calling, Political Economy, the chore is well-nigh impossible. We are now forced to guess what politicians, long ago described by Adam Smith as “that insidious and crafty animal … whose councils are directed by the momentary fluctuations of affairs…,” will do if prices rise, or foreclosures increase, or some favored industry heads for the rocks. We do know that unemployment is high and rising, in response to an economy described by economists at the Fed as exposed to “downside risks to an outlook for activity that was...

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Little to hail from President's first economic summit

(London) - It is 60 years to the day since President Harry S. Truman signed the Marshall Plan into law to give much needed aid to a prostrate Europe. It is one day since the Europeans told President Barack H. Obama that they have no intention of helping him to stimulate the world economy. German Chancellor Angela Merkel, presiding over an economy that was saved by America 60 years ago, and that has been supported by American consumers ever since, wouldn’t play. Neither would French President Nikolas Sarkozy, whose nation’s memory of the liberation of the Paris they so easily surrendered has, er, dimmed with time. Instead, we get Lisa Doolittle’s...

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U.S., China headed toward becoming the G2

Barack Obama heads into the G-20 meeting in London next week having been told by his top advisers that the US economy is showing signs of recovery. New home sales rose by 4.7 percent last month, applications for mortgages are soaring in response to low mortgage rates, and durable goods sales increased last month. A few brave souls think the real economy might lead the financial sector out of recession, rather than the other way around. The President also travels to London confident that his decision to push for a budget that splatters trillions in red ink across the government’s ledgers won’t depreciate the dollar or trigger inflation. He is sticking with his plan to...

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Europe has a different definition of 'cooperation'

Sighs of relief at George W. Bush’s departure from the White House could be heard from London to Paris to Rome and throughout Europe, the former Soviet satellites excepted. And the sense of joy as Barack Obama took the oath of office was palpable in most European countries. Now, the days of rancor are to be replaced with a new era of good feeling and cooperation. Cooperation, as defined by our European friends. First, say the Europeans, we want Obama to spend trillions to get the American consumer/buying machine revved up again so that our export industries will be rescued from the current recession. No, we don’t intend to spend our own taxpayers’ money to pump...

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Should we believe Obama's words or actions?

President Barack Obama calls for an end to earmarks and then signs a budget for the rest of this year containing over 8,000 such congressional raids on taxpayers’ purses. He calls for a new era of fiscal responsibility and then sends to Congress a ten-year plan for deficits as far ahead as the eye can see. He calls for sacrifices from all and then proceeds to give 95% of American families a tax cut. He promises to revive the housing industry and then asks Congress to reduce the deductibility of mortgage interest. He calls for the reform of the education system and then signs a budget that eliminates funds that keep a few poor kids in private schools, and out of the clutches of...

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Four big problems with cap-and-trade

The world is delighted: America is going green at last. President Obama’s budget includes billions for renewable sources of energy and the transmission lines necessary to get power from the windy, sunny, remote sites where windfarms and solar collectors are located, to where people live. He also wants to fund a “smart” grid to enable consumers to reduce their energy consumption, give low-income consumers money to insulate their homes, and fund mass transit so that people will give up their cars. But he also wants to spend billions on the roads and bridges that make driving more pleasant, and on other shovel-ready projects that were on states’ wish lists long...

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Lessons from a stripper for Geithner

Gypsy Rose Lee was a classy stripper who kept her audiences on the edge of their seats as she shed layer after layer of clothes. But they never got to see the real, unclad Gypsy, who knew that it was best to leave them wanting more -- and ever-hopeful, buying tickets for another performance. Enter Tim Geithner. And Barack Obama. To the music of groans of disappointed investors, and the moans of masses of Americans, they appear repeatedly, only to unveil a plan to announce a plan. A sort of policy strip-tease in the manner of the great Gypsy Rose Lee. Except that she knew what she was trying to do -- sell more tickets -- and they don’t. Well, that’s a bit unfair. They know...

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No one knows for sure if economic stimulus will work

We now have the stimulus package, a flawed mixture of tax cuts, spending, pork and, dare it be said, the earmarks that Barack Obama had promised to consign to the dustbin of history. And we have the cheers of the spending-will-save-us Keynesians, and the derisive hoots of the spending-will-break-us monetarists and traditionalists. All this chortling and groaning despite the fact that no one really knows what the effects of the package will be. We do know that those effects will be late in coming: it will take two months to review bids for repair work on bridges and roads -- much longer for new infrastructure projects -- and an additional four months to get the work started and the pay...

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Obama loses opening skirmishes on economy

Not all skirmishes are good predictors of the outcome of a war. But the brawl over the so-called stimulus bill, and the Obama administration’s performance in the battle to repair the financial system might be two such skirmishes. Start with the latter. One reason even conservatives who voted for George W. Bush were not upset by his departure for Texas was the sheer incompetence of his administration. With one important, very important exception: he kept the homeland safe after 9/11. Along comes Barack Obama. Above all, competent, witness the success of his tightly organized campaign. But governing is different from campaigning. And the Obama machine remains in campaign mode. So...

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Abuses made exec-pay cap inevitable

If you take the government’s money, in “exceptional” amounts, you shouldn’t live high on the hog. So spake Barack Obama this week as he set a limit of $500,000 on the compensation of senior executives of “companies receiving exceptional financial recovery assistance.” After all, the President can’t ask Congress for more billions to shore up financial institutions without bowing to populist pressures. Not that Americans are class warriors. Obama says “we believe success should be rewarded.” Few begrudge Bill Gates or Warren Buffett their billions. After all, Gates built a great company that has changed Americans’ lives, and...

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Geithner's China blunder could spark trade war

Tim Geithner has by now settled into his new job at the Treasury. It no longer matters that he was the Fed’s man on Wall Street while the excesses and chicanery reached their peak. Or that he decided to avoid paying his income taxes, despite repeated notices of his liability from his then-employer, the International Monetary Fund. Or that it was Geithner, along with Hank Paulson, who decided to let Lehman Brothers go under, bringing the financial system to the verge of collapse. That’s all behind him. What might be ahead is a trade war. At least, that’s what many observers believe Geithner had in mind when he brought smiles to the face of New York senator and...

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Energy reality soon to intrude on Obama’s enviros

Environmentalists, or at least some of them, have fired a warning shot across the bow of Obama’s mighty ship of state as it sails “to the shores of need, past the reefs of greed,” as Leonard Cohen’s perversion of Wordsworth would have it. They have expressed extreme unhappiness with the failure of the stimulus package to include many of the 800 items they had hoped to see in it when they sat down in their office to unwrap it. There is, from the green point of view, worse. During the campaign and the transition, Joe Biden promised that there would be no more coal plants built in the United States; greener-than-green Henry Waxman wrested the chairmanship of the...

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Seeking a haven for scribblers

The Animals had it right: “We gotta get out of this place If it’s the last thing we ever do We gotta get out of this place ‘cause…there’s a better life for me and you.” The immediate reason to flee Washington is the onrush of visitors headed here to participate in the inauguration of Barack Obama as the 44th President of the United States. Whether the number of visitors turns out to be a mere two million, or the four million that has police teeth on edge, matters not. In any event, the transport facilities will be overwhelmed, the traffic a nightmare, and the number of portable personal comfort facilities inadequate. But that is to carp. The...

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Obama knows where he wants to take U.S.

We have reached this point in America. Once, we rounded $9.99 up to $10. Now, we round $775 billion up to $1 trillion. So rather than talk about the two-year, $775 billion stimulus package that Barack Obama laid out yesterday, we call it the $1 trillion package. The rounded number is easier to remember; it includes the over-runs that are likely to occur in the new president’s fiscal stimulus spending; and reflects the probability that congressional Democrats, who are calling for a $1.3 billion stimulus, will get some of what they are demanding. We are defining fiscal deviancy down, to borrow from the late senator and scholar, Daniel Patrick Moynihan. Trillion is the new...

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Tax Hikes Coming For 2009

As if last year wasn’t bad enough, most forecasters are expecting an even bleaker 2009. The unemployment rate is expected to climb into double digits, output to drop by five to 10 percent, repossessions of homes to soar, more and more firms to file for bankruptcy -- fill in your own predicted horror to round out the list. I am less certain than most that models of past behavior have great relevance for the new year in which we find ourselves -- a year in which government policies -- some new, most of unprecedented magnitude -- will drive events. Disciples of the late, great John Maynard Keynes believe that deficit spending contemplated by President-elect Barack Obama will trigger...

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A Christmas Glass Half-Full, or Half Empty?

We are paying about half as much for a gallon of gasoline as we did a few months ago. Mortgage rates are lower than in almost four decades, so applications for mortgages are soaring to levels not seen in five years. The unemployment rate is 6.7%, not bad by historic standards. Consumers who benefited from 65%-off on cashmere sweaters at Neiman Marcus are finding even bigger post-Christmas bargains. Anyone heading overseas is ahead of the game: we once had to shell out $2 to buy £1, and about $1.60 to purchase a single euro; we can now buy those currencies for less than $1.50 and $1.40, respectively. A new, dynamic, and best of all, black, president is about to move into the White...

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Tough Road Ahead for Obama, U.S.

President-elect Barack Obama is well aware that he is inheriting a very difficult economic situation indeed. Economists with whom I have spoken -- and these are the people listened to at the highest levels in both parties and at Ben Bernanke’s Federal Reserve Board -- believe that the unemployment rate, now at 6.7%, will hit double digits sometime in 2009, and stay there well into 2010. They expect house prices to drop another 15% and share prices at least another 10% before finding a bottom. Worse still, they are predicting an extraordinarily sluggish recovery. The Obama team sees the crisis as an opportunity to push through a reformist domestic agenda as comprehensive and...

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Bailouts Shouldn’t be Used to Stifle Competition

With all the policy emphasis on too-big-to-fail, let’s not forget one thing: Our future prosperity depends less on the lumbering behemoths who have stumbled so badly, and more on the small firms that are job-creators, and on firms that are still only a gleam in the eye of some entrepreneur. That is not to say that in the current crisis the Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson have got it all wrong as they try to cope with the danger of a collapse of the financial system. It would have been risky indeed to allow egregiously managed Citigroup to follow Lehman Brothers into capitalism’s graveyard, or to let AIG collapse. Sometimes a policymaker has to...

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Real Power Now in Washington, Not Wall Street

I’m sure you’ve noticed that the economic news is not exactly designed to start you off to work in a good mood. Unless, of course, the fact that you have work to go to is cheer enough. On the international scene, Islamic terrorists slaughter innocent people in Mumbai, targeting especially Americans and Jews; Vladimir Putin shreds the Monroe Doctrine by sailing his ancient warships into South American waters; Angela Merkel, leader of Europe’s largest economy, decides she is not enthusiastic about joining a worldwide stimulus effort; and parts of Africa remain killing grounds. On the national level, house prices continue to decline, unemployment continues to rise as the...

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It's Not 1932, Or Even 1982

An odd thing is going on beneath the surface of the economic news. Several odd things, in fact. There is no question that all, or almost all, of the economic news is grim. New claims for unemployment insurance soared above the half-million mark last week. The housing market shows no sign of recovery, and one government estimate is that the oversupply won’t be worked off for several years. Consumers have holstered the plastic, driving retail sales down by record amounts. Once-mighty General Motors can only hope that Barack Obama takes the oath of office and pushes a rescue package through congress before it runs out of cash. Share prices fluctuate wildly, but always seem to end up...

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Financial System Needs Reform, Not a Straitjacket

Representatives of some 20 nations arrive here tomorrow to erect a new architecture to house the world’s financial system -- “a new global order”, is the description British Prime Minister Gordon Brown uses for this project. To prepare for this meeting of the G20 industrialized and emerging nations, Europe’s leaders set down the principles they intend to have President Bush sign onto. And -- get this -- they gave America a 100-day deadline to agree to their plans. France and Germany want the International Monetary Fund (IMF) to become a global supervisor of regulators, and Brown wants the G20 to agree to a coordinated stimulus package. The Europeans want the IMF...

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Obama Will be Bad News for Wealth Producers

It won’t be as bad as those who fear we have put a socialist in the White House, or as much fun as those who put him there are hoping. Obama will certainly take from the not-so-rich to give to the not-so-poor. That’s what his plan to raise taxes on families earning more than $250,000 per year in order to fund payments to those earning $50,000 or less (who don’t pay income taxes, but do pay social security taxes) is all about. But word is that Obama is not eager to add fuel to the recessionary fires, and so might wait until January 1, 2011, when the Bush tax cuts expire, and just let them die a natural death. Call that a tax increase if you like. To him, it is simply...

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Too Early to Know if a Depression is Coming

November is almost here, a month much celebrated in 1954. On the 23rd of that month, the Dow Jones Industrial Average for the first time closed above the level it had reached at its peak on Sept. 3, 1929. Are we in for another 25-year wait before share prices match their October 9, 2007 peaks? Only a brave man or a fool would attempt to predict the course of share prices, which have been gyrating at a rate that would be the pride of any belly dancer. And it would take an even braver and more foolhardy one to venture the prediction that the situation in which we find ourselves is not going to deteriorate to levels last seen in the depression of the 1930s. So here goes. A bit of...

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The New Capitalism's Sunlit Uplands

"We are suffering just now from a bad attack of pessimism. It is common to hear people say that the epoch of enormous economic progress … is over; that the rapid improvement in the standard of life is now going to slow down…; that a decline in prosperity is more likely than an improvement in the decade ahead. I believe that this is a wildly mistaken interpretation of what is happening to us." So wrote John Maynard Keynes in 1928. Actually, the pessimists had a point, since 1938 found many countries still on the cusp of recovery from the great depression. But that is to niggle: Keynes' main point, that "we are suffering, not from the rheumatics of old age,...

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Obama’s character counts, just ask Nixon, Clinton

Silly me. I thought that when Barack Obama won the Democratic nomination we had finally entered the post-racism era in America, with the Revs. Jackson and Sharpton consigned to the dustbin of history, replaced by a new man, willing to abandon confrontation and claims of victimhood. Then a new Reverend appeared on the American scene, damning white, genocidal America while serving as spiritual mentor to Obama for 20 years. Still, it came as a shock when Obama played the race card, maligning none other than Bill Clinton, “the first black president” and longtime friend of the African-American community. Now it seems that any critic of Obama reveals himself a racist. Back to...

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Obama is bad news for free trade

Some, but only some, of the damage wreaked by the current turmoil in financial markets is visible. Anyone owning a home knows that it is worth less than it once was. Anyone trying to buy a home knows that mortgages are harder to come by. Anyone out of work knows that the banks’ problems are his problems. Anyone with a job knows what it is like to wake up in the morning hoping his job will still be there. But there is one consequence of the upheavals in the credit markets, and now in the “real economy” that is less visible, and will be with us even after the recovery takes hold. The era of ever-free trade has ended. Any lingering hopes that free-trade advocates might...

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Europe delights in U.S. economic ills

LONDON - If you think our current economic difficulties are all about subprime mortgages, securitization, the drying up of credit, falling house prices and the like, think again. That’s not how the rest of the world sees it. Yes, all of these problems are on the list. But more important, foreigners see this as the end of what Henry Luce memorably called the American century. America caused the world’s economic problems; America will pay a terrible price. “The origin and center of gravity of the problem is clearly in the USA,” German finance minister Peer Steinbrück pronounced. He is not alone. British Prime Minister Gordon Brown says that his nation’s...

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Bail-out will mean new kind of capitalism

No matter what deal is cut today between Paulson and the Democrats on one side, and conservative Republicans on the other -- politics does indeed make strange bedfellows -- market capitalism as practiced in the United States will never be the same. More precisely, it won’t be the same for a very, very long time. We are witnessing a radical modification of capitalism. Some of this is obvious. We know that the old view that some banks are too big to fail has been augmented by the view that some financial institutions are too interconnected to fail. So Freddie Mac, Fannie Mae, AIG and others are bailed out by one device or other, although no depositors were directly threatened by the...

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What now for last two investment banks?

It’s not a good idea to stand in front a stampede and try to talk the cattle into stopping, or to argue with a bunch of lemmings headed for a cliff that follow-the-leader is not a good idea. Still, we ink-stained wretches of the fourth estate do have responsibilities. So before investors and policy-makers sign onto the idea that bigger is better, that the last two investment banks left standing should find shelter in the arms of big, commercial banks, let me try to make a few contrarian points. First, and most important, this is not a very good time to make decisions about the future structure of the financial services industry. Calm heads have yet to prevail; the ordinary...

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Fannie, Freddie takeovers spawn budgetary gloom

While politicians debate the identity of the “pig” at whom Barack Obama took a poke, the nation has stored up another problem for whichever candidate is unfortunate enough to inherit the White House come 2009. Hank Paulson did what he had to do, or at least what he thought he had to do, when he ordered a government takeover of Freddie Mac (a client) and Fannie Mae. Unless the government made explicit its guarantee of the two agencies’ debt, foreign holders of their IOUs would dump them. Indeed, in recent weeks Asian central banks sold off $27 billion of these agencies’ securities. The two government-sponsored enterprises, GSEs as they are best known, support about...

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Candidates are hopeless on energy

There is a reason I chose “Abandon Hope All Ye Who Enter Here” as the subtitle of a study of energy policy I just completed under the auspices of the Hudson Institute. That reason: Decades of listening to political leaders of both parties promising “energy independence” and an end to America’s “oil addiction.” I have bad news for all those who think that the retirement of George W. Bush will somehow initiate a golden -- or green -- age in America. It won’t. Just take a close look at the promises being made by the two men who were just formally nominated as their parties’ standard-bearers in the fight to control the White House. Barack...

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Undecideds still up for grabs

If you’ve been watching the Democratic National Convention, you now know the shape of America. The nation consists largely of uninsured people struggling to pay the health care bills of their sick kids, people whose homes have been snatched from them by hard-hearted bankers, a massive army of the unemployed, women discriminated against in the workplace, greedy lawyers in big firms (plaintiffs’ lawyers excepted) who refuse to become community workers, rich people unwilling to pay their fair share of taxes, and returning veterans denied benefits by none other than John McCain. And teachers eager to do their best for our kids, but adamantly opposed to letting parents pick the...

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Beware the Obama/Pelosi Trojan horse

Beware the capitulators. Republicans are chortling over the fact that their “drill, drill, drill” campaign seems to have forced Barack Obama and Nancy Pelosi to backtrack and agree to relax the ban on offshore drilling. Beware what is contained in the Trojan horse the Illinois senator and the congresswoman from San Francisco are offering as a peace token to the Republicans and to Americans who are appalled that the Congress continues to prevent the development of our oil resources, while crude oil and gasoline prices, although softening in recent weeks, remain high enough to contribute to the forces that are pulling the economy perilously close to recession. Obama and Pelosi...

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Irwin M. Stelzer: Conflicting economic views might all be right

Here’s a bit of comfort as you start the work week: Don’t worry if you find the economic news confusing. It is confusing.Last week, stock prices took a beating. But share prices are still ahead of where they were a year ago, and the economy grew at a rate of 3.4 percent in the last quarter, the fastest rate since early 2006. Treasury Sec. Hank Paulson, who knows something about the real world, says he has never seen so robust a global economic boom. So relax.Consider the recent plunge of......

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