The Free Thinker

First Time Tragedy, Second Time Farce

The elections yesterday show that Americans are waking up after the crisis-numbed sleepwalking into the polls in November 2008. Christie's and McDonnell's victories are a tangible sign of what the polls have been showing for months: the ideological dominance of conservatism (whatever that means), the shifting of independents from the Democrats towards the GOP, the unpopularity of Obama's policies and of the Democratic Congress (and a rapid fall in Obama's own approval rating, which I expect will be lower than Bush's at every corresponding stage of his presidency). The American people are probably not such idiots as to fail to return fewer Dems and more GOPs in 2010, and a GOP takeover of Congress, as in 1994, seems likely. This should really be a no-brainer. It was the formula of the famous 1990s: as Brothers Judd slyly put it, the ideal might be a Democratic resident and a GOP Congress. Of course this is one of the thousand reasons why Americans were such idiots to vote for Obama in 2008: there was obviously going to be a Democratic Congress, and a President McCain was needed to check it, even aside from his superior judgment, experience, integrity, and intelligence. But the sheeple were in shock from the crisis, and did what CNN told them. Now they are beginning to get their wits back.

Maybe we'll be spared the tax-spend-and-regulate health care bill. Harry Reid hinted that it might not pass this year, and it's hard to imagine it will be easier to do so in 2010, an election year. On the other hand, the defeats in Virginia and New Jersey might convince some Dems that their careers are ending anyway, so why not make history while they have the chance. Of course, this was always the reason the Democratic leadership was focusing on health care this year in particular. It's obvious that, while it's tenable that our health care system is sub-optimal, this has little or nothing to do with the 2008 crisis or the high unemployment that is our main problem right now. A leadership confident it enjoyed real majority support would have focused on fighting the crisis now, and saved big structural changes until the economy was recovering, to avoid dumping a huge, gratuitous burden of political risk on entrepreneurs and investors at just the time they were least able to bear it. But the Democrats knew that their getting majorities this big was a sort of mistake, afforded them by the crisis, by the national BDS pandemic, and by the donation of most of the MSM's dwindling reputational capital to the cause. President McCain and a Democratic Congress would have had to focus on bipartisan issues. We might even have got the one thing that would stimulate the economy more than any other policy: immigration reform. But the Democrats had to use the one-party-rule moment to plow through the paleoliberal dream.

I think Marx said that "history repeats itself, first time as tragedy, second time as farce." The dictum expresses the relationship between Franklin D. Roosevelt and Barack Obama. Hoover-Roosevelt interventionism deepened and prolonged the Great Depression at home and worldwide, permanently altered America's economic constitution, largely discredited democratic capitalism in the eyes of the world, and opened a path for the rise of Hitler and the totalitarian Axis, culminating in World War II. Socialism, poverty, appeasement, retreat, war. Likewise, the comeback of Big Government under Obama has burdened business confidence, impeded recovery, and is altering the US economic constitution, while his weak, vacillating and cynical foreign policy has caused unease in allies from Poland to Israel to India to Japan to France while emboldening Putin-Medvedev and Ahmadinejad and the Taliban, and abetted the lethal blow to international law by letting Russia's thugocracy get away with the dismemberment of Georgia. But the difference of degree is so great as to be a difference of kind. America will not repeat the 1930s as France, to Marx's dismay, would not repeat the Revolution (the 1848 revolution, which led to a reaction and the rise of President-for-Life Napoleon III, was the "farce" to the "tragedy" of the 1789 revolution and Napoleon Bonaparte's world-historic career). Many of FDR's New Deal policies-- a top tax rate of 90%, show trials of leading industrialists and political opponents, an attempt to impose full-fledged planning on the economy-- amounted to very nearly an overthrow of the capitalist order. And it enjoyed strong public support as such. FDR was a formidable leader. By contrast, it is the essence of Obama to be the apotheosis of insubstantiality. "Hope and change" and "yes we can" succeeded not despite but because of their meaninglessness. How can meaninglessness be a virtue? To understand that, an interpretative glance at the past few years is needed.

George W. Bush ran on ideas in 2000, and many of them-- tax cuts, the Medicare prescription drug benefit, the No Child Left Behind Act-- became law (Social Security reform didn't but Bush tried), while his foreign policy ideology, especially its liberationist side, seems to have been conceived in the wake of 9/11. Most importantly, Bush found a way to turn the illiberal imperatives of the War on Terror inside out. On domestic and foreign policy alike, Bush represented what might be called the radical center, and as such alienated the left especially, but also many on the right. He twisted America's ideological kaleidoscope. He ended up being unpopular, which is a rather less meaningful fact than might be thought. Suppose there are five issues, and person A is for B, for C, against D, against E, and for F, while person G expresses no views on B and C and leans in favor of D and E but is not sure and seems at various times to be both for and against F. A might be unpopular, if disagreement on one issue is reason enough to dislike him, for the set of people who agree on any position on all five issues is likely to be small, while G might be popular, managing by his vagueness and vacillation to leave a majority not antagonized, particularly if he has a pleasant face or manner. Of course, if G has to make decisions he must take stands and lose "popularity" or non-objectionableness. But the point is that A's unpopularity does not mean that a coherent coalition against him is possible. The Iraq War is a case in point. You can oppose the Iraq War because you are (a) totally pacifist, (b) a defend-the-borders-only type opposed to foreign entanglements, (c) a liberal internationalist of the kind that strongly believes in the "sovereignty" of other countries regardless of regime type, (d) a UN legitimist, (e) not opposed to overthrowing dictators in principle but unpersuaded that it's worth it in this case, (f) in favor of Saddam and other dictatorships for "primitive" non-Western peoples, (g) against all US intervention because you think the US is an incorrigible greedy capitalist imperialist hegemon. These seven groups (and others) might agree on opposing the Iraq War, but they wouldn't agree on any arguments against the Iraq War. So if they want to form a coalition, they'll need to be silent about their reasons for opposing Bush, since any discussion of reasons would shatter the coalition. How can they talk to each other then? By resorting to forms of communication that don't rise to the level of reason, i.e., sneering. If we want to claim we're the enlightened majority against the misguided Bush administration, we can't explain why Bush is wrong, lest we expose our own differences, but we can agree to call him dumb, over and over again. It takes a while to run out of epithets. And if we get tired of negativity, we can get some motivational-speakerish type to dress it up in language about "hope" and "change," by which we all know, however, that "not Bush," is meant. Thus Bush Derangement Syndrome metamorphosed into the Obama administration, and the intellectual poverty of the Obama administration is the intellectual poverty of the opposition to Bush. The word "disillusioned" seems too generous to apply to former Obama supporters; the promise of Obamism was so insubstantial as barely to qualify even as an illusion.

November 3, 2009 may mark the beginning of a return to commonsense, and the GOP takes Congress in 2010 and starts to clean up the mess (first order of business: the deficit), Great Depression II will be far shorter and less painful than Great Depression I. Nonetheless I think there is something irrevocable about America's lapse of judgment in 2008. At the end of the day, a nation capable of electing a man and a party so unfit to lead as Obama and the 2008 Democrats is unfit to lead the Free World.

Relative decline for America was always nearly inevitable and mostly desirable. The 5% of the world's population that are American citizens hold far more than their share of the wealth and power of mankind. This is not to say that Americans must become poorer: on the contrary, we can and may hope that the rest of the world will come closer to America's living standards, and this is not only feasible but will benefit America. A lot of people used to fulminated that the Bush administration was squandering America's moral standing in the world. I am not quite saying the opposite, namely that Obama is squandering the moral authority that the Bush administration won. Rather, as democracy spread, as foreign economies grew and developing countries grew more literate etc., America could no longer enjoy hegemony by virtue of its mere military and economic weight. If it were to lead at all-- and a group of people or nations can usually benefit from good leadership-- it had to articulate and champion an ideology with universal appeal that other nations could believe in and support. Democracy has, for the moment, just such a universal appeal. Under the Clinton administration the US was scandalously unwilling to risk the lives of US soldiers for the benefit of others: thus we pulled out of Somalia and relied wholly on air war in Kosovo and Iraq. The Bush administration broke this taboo, and showed how democracy could be spread not only passively and defensively, waiting for dictatorships to fall, but actively, and how dictators could be held accountable. The 2003 invasion of Iraq, though undertaken in support of UN resolutions and arguably essential to restore the UN's credibility in the face of Saddam's continued defiance and impunity, was at the same time a revolutionary strike against a notion of sovereignty that legitimized every thug who killed his way to the top. It was a risky yet potentially valuable precedent. Polls that showed a decline in favorable attitudes to the US and to Bush in the aftermath of the 2003 war belie the complexity of the world's attitude. Nowhere did a democratic electorate reject a government for supporting the Bush administration. On the contrary, Howard was re-elected, Blair was re-elected, Aznar's political heir Rajoy in Spain was on course for re-election until the Madrid bombings, while Bush adversaries Chirac of France, Schroeder of Germany, and Chretien of Canada lost elections in favor of leaders much more favorable to Bush and America. America's relations with Japan, India, and eastern Europe prospered; relations with western Europe recovered without any particular concessions on America's side. The war was a dangerous expedient; the world knew that and didn't particularly like it; but they didn't have a better alternative; and the fundamental presumption that America is uniquely trustworthy and beneficent which has defined the strategies of free nations since WWII was re-examined but was still, indeed was perhaps all the more, valid. The unholy alliance of Putin, Chirac and Schroeder that had tried to stop the war fell apart, with Chirac and Schroeder losing power and disgraced, while Putin withdrew his country into morbid paranoia. Diplomatically, the gambit succeeded. It seems to be succeeding on the ground in Iraq, too: elections were held, a constitution passed, Al Qaeda nearly sparked a civil war but was beaten back, and a new Iraqi democracy took shape, a development scarcely conceivable six years ago.

An America which exercised its power for the general good, to spread freedom and uphold international security, might be able to hold continued sway over the free world through moral suasion, initiative, and good example. Near the end of the Bush years this seemed to be taking place: al-Qaeda had been drawn into the trap of Iraq and self-defeated; no one questioned the legitimacy of the new Iraqi democracy; the bonds between the Western allies were being reforged with the Iraqi precedent unrepudiated; and the Free World alliance of the Cold War years had now been definitely expanded to eastern Europe and India, and was strengthened in Japan. A McCain administration might have made a cause celebre of Georgia as the Bush administration had done with Iraq, thus reaffirming the commitment to international law which the Iraq war had seemed to undermine-- but international law, please note, in the sense that democracies' borders are inviolable, not in the sense that tyrants are sacrosanct-- and immigration reform at home would have strengthened the foundations of American democracy from below, reaffirming America's egalitarian ideals and signalling its openness to the world. The scenario seems to have the force of destiny, but one can flunk one's destiny, one can miss one's moment.

I'm not sure that the moment can be recovered. Why should allies trust us again if we treat them as shabbily as the Obama administration has done to Poland and Georgia? Indeed, the Obama administration's manner of dismissing the war-- "a dumb war, a rash war"-- is an insulted to Tony Blair and all of America's most faithful allies. It would be an entirely different matter if he had limited himself to respectful disagreement. Obama's ignorant remarks about the impossibility of one nation imposing democracy on another have just enough of the flavor of a new false orthodoxy to make strategic thinking difficult going forward. The situation in Afghanistan is especially sad. The Democrats embraced Afghanistan as "the good war" opportunistically, as a means to outflank Bush's "war president" credentials, but Afghanistan never offered hopes of a conclusion as satisfactory as was possible in Iraq. Iraq is urban and literate and middle-class and densely populated and civilized modern enough to have a decent chance of making democracy work; moreover, Americans were in a position really to run the country for a while, and lay the foundations of a new politico-institutional matrix. In Afghanistan a democratic outcome always stretched the bounds of plausibility, which made objectives harder to define, since our ideology makes democracy obligatory. At this point, we should probably abandon objectives other than to avoid the disgrace of having the Afghans who allied with us be left at the mercy of the Taliban. Maybe we defend the cities; maybe we accept some Afghans as refugees in the US, as we did after Vietnam; maybe we try to negotiate some power-sharing federalist deal. But the Obama administration is far from having made it clear that they have a strategy and are determined to pursue it through to success. The contrast with the Bush administration in 2007 is striking. It seems likely to end in quagmire, attrition, retreat, compromises, a blot on our record.

We have ceased to be the comparative free-market paragon we were in the 1990s. It is not just that we've gotten worse; other countries have gotten better. Western European countries have been comparatively reformist; and now they almost all have right-leaning governments with an interest in fiscal discipline and/or market reform. Now our unemployment rates are above Europe's and may stay there for a while. Asia, not surprisingly, is showing a much more robust recovery from the 2008 recession. America is ceasing to be the cutting edge of prosperity. I think we'll recover, more quickly than in the 1930s, both economically and ideologically. There will be a shift back in the direction of supporting freedom abroad and limited government at home. But by that time the world will have begun to move on, to find ways to rely less on American leadership and example. We probably have decades of prosperity before us, and American ideas, not least the liberationist credo of the Bush administration which is now incarnate in Iraq, will continue to be influential, but the American people, the escapist rubes who voted for "hope" and "change," will cease to be the most important carriers of those ideas.

Obama calls health care "the defining struggle of this generation."  No, sorry, that was liberation of Iraq.  And then there's this:

Eliminating "waste and abuse" in the Medicare and Medicaid programs will help the government find money to cover most of the Americans now without insurance, he said.

If there's so much "waste and abuse" in Medicare and Medicaid, great, let's get rid of it and reduce the deficit. Surely, if government-run health care is so wasteful and abusive, the last thing we want is...  more of it!

"It's Still the Economy, Stupid" (Daniel Henninger):

It's been a long time since James Carville said the most famous thing he ever said: It's the economy, stupid. That famous phrase was in fact part of a sign hung in the Clinton campaign headquarters in 1992. There was a sense among the electorate in the fall of 1992, not entirely accurate, that the economy was foundering under George H.W. Bush. Bush lost control of the public's perception of the economy, and then he lost the presidency.

Why with unemployment heading above 10% was Barack Obama on TV last night draining a dwindling reservoir of presidential capital on health care? Redesigning the 17% of the economy that is health care appears to be the siren song of Democratic presidencies. Mr. Obama's crew has famously said it wouldn't make the mistakes the Clintons made on health care. How calling forth both houses of Congress in prime time to join him in betting the ranch on health care qualifies as smarter politics than the Clintons is a mystery.

Even more so now than way back in 1992: It's still the economy, stupid.

To save himself and his party from enduring another health-care debacle, Barack Obama should put his agenda on the back burner, bend his efforts to raising the economy, and rebuild his political capital by taking credit for the inevitable rebound. That just might minimize the impending loss of House seats and allow him to revisit his wish list in 2011. The alternative is promising big, accomplishing little and getting credit for nothing. This could be America's greatest failed presidency.

The economy is Barack Obama's 9/11. If you're Mr. Obama, it must seem a little unfair. One year ago at the Labor Day turn toward the stretch, Mr. Obama and his team were on the cusp of one of the most thrilling wins in American presidential history. No matter that many Obama voters were looking past all the state-based initiatives in his politics; the air was filled with possibility.

Except that Obama wouldn't even have won the election without the financial crisis.  McCain was just overtaking Obama in the polls when the financial meltdown hit and spooked the sheeple into numbly doing what the MSM told them.  But I think Henninger's right: Obama should be trying to solve the country's problems, not creating more.  To deal with health care now is self-indulgent.  The bizarre timing of the health care drive is a function of the fact that the voters aren't likely again to make the mistake they did in 2008, so the Democrats want to (ab)use their power while they still have it.

Slogan for 2010

"It's the Deficit Democrats vs. Conservative Common Sense."

How Keynesianism Survives

"Why the Stimulus is Helping the Economy, But Not Obama" (Time)

Proving a negative is always a challenge, but there's mounting evidence that the controversial $787 billion stimulus bill is achieving one of its major goals: shortening the recession. Economists at Goldman Sachs say that the bill, officially called the American Recovery and Reconstruction Act, has resulted in a 2%-3% boost to annual GDP in the second and third quarters of this year, turning what could have been a worsening recession into potential growth. For President Barack Obama, whose poll numbers have dropped precipitously from around 65% to around 50% as Americans have become worried about government spending and health-care reform, that should be good news: he fought hard against Republican opposition to push the bill through Congress as one of his first legislative acts, and the fact that it's working should be a vindication.

But it's not that easy. Recent polls show widespread disapproval of the stimulus bill: 51% of Americans polled last month by USA Today and Gallup said they thought the government should be spending less under the plan, while 44% said they thought the government was spending the right amount, or should be spending more. If anything, it seems, the stimulus plan is hurting the President even as it helps the country.

The most obvious reason for that disconnect is jobs: despite the signs of a turnaround, unemployment remains stubbornly high at 9.7%, with employers cutting 216,000 jobs in August. While jobs always trail economic rebounds, the unemployment number is higher than economists thought it would be, even in the worst case scenario forecast by the Treasury department's "stress tests" last spring. The point is not lost on Republicans, some of whom have argued lately that no more of the stimulus money should even be spent. "The metric of this bill was job creation," says Don Stewart, spokesman for the Senate's top Republican, Mitch McConnell, "and it hasn't done that."

Still, one would think that the mere infusion in six months of $88 billion into the economy — that's how much the government has spent so far...

Journalists, it goes without saying, are not very smart (maybe they suppress it because it impedes their ability to slice a complex world into neat stories) but a cruder, more flagrant example of the post hoc ergo propter hoc fallacy would be hard to find than the above.  It seems quixotic, or Sisyphean, to remind people of the truism of economic history that it's normal for the economy to recover, that it always does so, even-- nay, especially-- when the government does nothing.  The last time the US government did nothing in a recovery-- in the recession of 1920-21-- the recovery was especially robust.  Again, in 1997-8, when the IMF forced East Asia to adopt austerity measures in the midst of recession, it earned itself the contempt of East Asians but rapidly restored growth to its former booming rates for another decade.  By contrast, Keynesian policies failed in the US in the 1930s, in Japan in the 1990s, and dragged post-WWII Britain down from being the world's economic leader to a desperate, stagflation-ridden basketcase in the generation after the British economics profession surrendered to Keynes, before it was rescued by Thatcher.

So how does Keynesianism survive?  Because of articles like the above, because of journalists committing the post hoc ergo propter hoc fallacy, while economists like Brad DeLong and Paul Krugman, who want bigger government because their values are different from the mainstream and want to use their technocratic credentials to sell big government to people who would not support it if they understood its true effects, back them up.  Keynesian economics is like fortune-telling: shrewdly vague, it exploits a perennial fallacy, namely people's chronic inability to understand that the economy can recover on its own.

In this case, the journalist provides the key fact that makes the "stimulus worked" case implausible: only $88 billion has been spent, just over 10% of the whole stimulus package, and only about 0.6% of GDP, and all of that after the worst of the crisis-- October 2008-- had already been mitigated.  By contrast, Ben Bernanke's Fed has bought hundreds of billions of dollars of private and federal debt, and the Bush administration "spent"-- albeit with a fair prospect of recovering-- $700 billion or so through the TARP program.  If any stimulus is working, it's that of Bernanke and Paulson, which was not mere Keynesian spending-for-spending's-sake but a timely intervention by highly competent technocrats (we won't see such expert competence from neophyte Obama, but fortunately, we might not need it) targeted to the specific problems at the heart of systemic failure.  That's not to give unqualified approval to Paulson.  He's a tragic hybrid of hero and anti-hero: he probably did save the US from a more shattering crisis, but the fallout from the Paulson Plan is likely to be a more politicized financial sector and hugely increased incentives and opportunities for rent-seeking for years or decades to come.  There's something to be said for the House GOP who voted against him, too.

For now, the American people seem to be displaying a sensible incredulity about the "stimulus is working" message.  But don't count on it to last.

"Death Panels"

Mickey Kaus:

So You Have A Death Panel in That Basket! Tom Maguire digs further into that April Bloomberg story--and the David Leonhardt NYT interview behind it--and discovers that Obama came a lot closer to talking about "death panels" back in April than I'd thought. Here's the key passage [emphasis added by Maguire]. It comes as Obama is talking about the hip replacement his grandmother got a few weeks before her death:

THE PRESIDENT: ... I don't know how much that hip replacement cost. I would have paid out of pocket for that hip replacement just because she's my grandmother. Whether, sort of in the aggregate, society making those decisions to give my grandmother, or everybody else's aging grandparents or parents, a hip replacement when they're terminally ill is a sustainable model, is a very difficult question. If somebody told me that my grandmother couldn't have a hip replacement and she had to lie there in misery in the waning days of her life - that would be pretty upsetting.

LEONHARDT: And it's going to be hard for people who don't have the option of paying for it.

THE PRESIDENT: So that's where I think you just get into some very difficult moral issues. But that's also a huge driver of cost, right?

I mean, the chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here.

LEONHARDT: So how do you - how do we deal with it?

THE PRESIDENT: Well, I think that there is going to have to be a conversation that is guided by doctors, scientists, ethicists. And then there is going to have to be a very difficult democratic conversation that takes place. It is very difficult to imagine the country making those decisions just through the normal political channels. And that's part of why you have to have some independent group that can give you guidance. It's not determinative, but I think has to be able to give you some guidance. And that's part of what I suspect you'll see emerging out of the various health care conversations that are taking place on the Hill right now.

Yikes. ... I'm sure the "not determinative" part was very important to Obama. Still!  He's talking about a panel of independent experts making end-of-life recommendations in order to save costs that have an effect at an individual level. And he thought it would be in the bill that emerges. ... It's also pretty clear that something like the "IMAC" panel is what he has in mind. Whether or not the IMAC would actually do this--Harold Pollack says end-of-life issues are well down the curve-bender's list, for example--Obama thought it would do it. . .

Now here's something I don't understand.  Palin's "death panel" rhetoric seems inspired from a political, or shall we say, propaganda point of view.  It even seems to be sort of accurate.  But of course, these decisions do need to be made, and if people are not going to be responsible for their own health care costs, they have to be made by third parties, unless the choice is made by the raw facts of technical feasibility regardless of cost.  Is this what opponents of "death panels" want?

This seems to tie into the debate about euthanasia, where I have to admit I've always been a little uncomfortable with the position of the "social right" even though I also sort of agree with it.  I agree with it because I think suicide is wrong.  But what qualifies as suicide?  You have to define it carefully to ensure that you don't turn Christian martyrs, or brave soldiers, into suicides (anathema to Christians).  What about a starving mother who gives the last of her food to her child, accepting death for herself?  Is that suicide?  If not, then what about an elderly person who thinks the insurance company's $100,000 (say) could be better spent than on keeping him alive another year, or month, or day?

I would want to encourage people to see a world where elderly Americans spent hundreds of thousands keeping themselves alive by uber-expensive treatments while African infants who could be saved for a few dollars die, in the same light as socialists used to look on a world in which millionaires gorged themselves in palaces while children starved outside.  It seems to me that justice says, given scarce resources, we should save more African orphans and fewer American elderly.  Does this view contradict the social right's agitation against "euthanasia," or not?  I really don't know.  If you do, enlighten me.

An "independent group" of "doctors, scientists, and ethicists" "guiding" a "conversation" about how "the country makes decisions" about end-of-life issues does seem like something that can be crudely and tendentiously but not inaccurately described as a "death panel."  It also seems like a reasonable idea, distasteful but necessary if the public is going to foot the bills for end-of-life care without bankrupting the country.  Am I missing something?  Is there some rational and/or ethically compelling basis for the outrage?

"The Democrats' senior problem" (Politico):

Democrats have a senior citizen problem.

Frustrated older Americans are packing the town halls on health care. They are incredibly passionate about their Medicare benefits. Polls show senior citizens largely disapprove of health care reform ideas so far.

And of course, they vote — in larger numbers than any other demographic.

But so far, Democrats have focused much of their health care sales pitch on middle-class Americans and the uninsured — a slight that has been noticed by senior citizens, who hold great influence with members of Congress.

At his Tuesday town hall event in New Hampshire, President Barack Obama made a point to reach out to seniors, noting the low support in polls for his health care proposals.

“We are not talking about cutting Medicare benefits,” Obama said, trying to assuage the audience.

But Obama is talking about finding hundreds of billions in savings from Medicare — cuts supporters say will trim fat from the program — including slashing $156 billion in subsidies to Medicare Advantage, a privately administered Medicare program.

“Seniors are one of the most attentive and engaged constituencies, especially on health care issues, and we’ve seen that in the Medicare Advantage programs,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.

A July 31 Gallup Poll found that just 20 percent of Americans aged 65 and older believe health care reform would improve their own situation, noticeably lower than the 27 percent of 18- to 49-year olds and 26 percent of 50-to-64-year-olds who say the same.

The senior citizen problem could pose a serious problem for the 2010 election cycle.

Obamacare will increase the deficit, so it will be good if it fails.  But the reason it's in trouble is disturbing.  This country is ruining itself by spending too much on seniors.  It would be good to see cuts to Medicare, just as it would have been good to get Social Security reform in 2005.  Hopefully the Republicans will not be opportunist and exploit a senior backlash.  But that might be too much to hope for.

"The Chinese Come Calling" (The Nation)

What a hoot. The Chinese Communists invaded Washington on Monday demanding not that we sacrifice our freedoms but rather that we balance our budget. Creditors get to make that kind of call. And the Marxists of Beijing, who have turned out to be the world's most prudent bankers, are worried about their assets invested in our banana republic.

"China has a huge amount of investment in the United States, mainly in the form of Treasury bonds. We are concerned about the security of our financial assets" was the way China's assistant finance minister put it. Briefing reporters at the US-China Strategic and Economic Dialogue, he added, "We sincerely hope the US fiscal deficit will be reduced, year after year." Quite sincerely, one suspects, given a US budget shortfall this year that is slated to reach $1.85 trillion.

Suddenly, it was US officials who were promising deep reform to their disgraced economic system rather than demanding it from incompetent foreigners. President Barack Obama's economic team of Clinton-era holdovers, who a decade ago had hectored China on the virtues of fiscal responsibility, now were falling over themselves to reassure the Chinese that their $1.5 trillion stake in US government-issued securities is safe, and that they should buy more at this week's $200 billion Treasury auction. If they don't, we're in big trouble.

US Treasury Secretary Timothy Geithner promised to behave, saying the US is "committed to taking the necessary measures to bring our fiscal deficits down to a more sustainable level once recovery is firmly established." Now let's hope that the Chinese Communists and their natural allies among congressional deficit hawks will be able to keep him to his word.

And don't blame any of this on peacenik liberals. The new conciliatory--nay, deferential--tone toward China precedes the Obama administration, having begun in bilateral talks during the last years of the Bush administration as the US economy began its ignominious downfall. It was George W. Bush's treasury secretary, Henry Paulson, who set the course when the former Goldman Sachs chairman realized how dependent were his Wall Street buddies on Chinese goodwill.

But from all of this adversity may come something good: recognition that the United States is not the repository of all wisdom. Maybe the Chinese have found a model different from ours that also works? Might there not be an Arab, Latin or Indian one that also qualifies and need not be overthrown?

"Overthrown."  Is that an obscure reference to the Iraq war?  One doesn't even know anymore.  And that's an indication (chosen more or less at random) of how Bush Derangement Syndrome has degraded our culture. 

First, let's give the question a straight answer to the question.  Yes, different countries have different ways of doing things, and that's just fine, and Bush would be the first to say so.  On economics, the Chinese way of doing things is, if anything, a bit better than ours, for one thing because the social safety net is far less generous, and because the system is designed to encourage savings (Bush tried a little bit to push us in that direction).  Perhaps The Nation is not aware of this, but no Indian or Latin  was not overthrown by the Bush administration.  Actually the Bush administration developed unusually good relations with India which the Obama administration is now, sadly, putting at risk. 

That said, the differences should not be exaggerated.  It would have been much truer forty years ago to say that China and India represented models "different from ours."  But those models didn't "work," and eventually evolved or were transformed into models that bore a much closer resemblance to Western capitalism.  India liberalized its economy after 1991, and it was a bit of an "overthrow," with reforms imposed by the IMF when India was on the brink of a currency crisis.  The results were splendid: India launched into two decades of booming growth after four decades of stagnation previously.  China's reforms were more home-grown, which may be partly why they worked so well, but they were certainly reforms in a capitalist direction.  There are still, however, strong moral grounds to object to the Chinese political, as opposed to economic model, as the massacres of Uighurs recently reminded us.

As for Latin models, there was a Latin model thirty years ago too, which led to debt crisis and the "lost decade" of the 1980s.  The most distinctive "Latin models" today are (a) Chile, one of the most neoliberal economies in the world, heavily influenced by Milton Friedman and other economists of the Chicago school, and (b) the socialist economies of Cuba and Venezuela, whose performance is disastrous except to the extent that Venezuela's has been buoyed by oil.  It is worth noting that Bush's plans for Social Security reform were modeled on the successful privatization of Chile's government pension program.

But to adequately deal with a remark like this, one must extract a certain vicious subtext and answer that.  The writer assumes that the Bush administration, and maybe the Clinton administration too, thought that America owns the political truth, that the only acceptable, workable "model" is that represented by America, and that other "models," wherever they appear in the world, must be relentlessly "overthrown," with the Iraq War being an expression of this view.  This view is ignorant to the point of idiocy.  It is a bit worse, indeed, than mere ignorance, since the writer is clearly intelligent enough to know better but chooses to write, and probably to some extent believe, as if this grotesque caricature were true. 

The author is really lying to us and perhaps to himself, but the trouble is that he doesn't assert, but insinuates.  Suppose I were to tell this author, "You're saying that the Bush administration thinks America has the only model and everyone that does not conform to it must be overthrown. This is false, as evidenced consistently by the statements and actions of the administration. You know perfectly well that such a characterization cannot by any stretch of logic be validly inferred from the Iraq War. You are lying."  He could easily answer, "I merely suggested that there are other models that do not need to be overthrown. Do you agree with me? Very well then. Do you say the Bush administration agrees with me? But that is neither here nor there. I didn't even mention Bush in the article."

And of course he would, in a sense, be right. He hasn't directly lied. Can a question be a lie? This is what is so sinister. To a reader not versed in Bush Derangement Syndrome, the question at the end of the above quote would seem merely bizarre. Might there be foreign models that need not be overthrown? Apparently Americans think so, since they have left nearly all the world's regimes un-overthrown in nearly every year in recent decades! Even those who have held onto their sanity are made complicit in Bush Derangement Syndrome.  It's become part of the vocabulary of cultural allusions that an intelligent person is supposed to have, just as anti-Semitic sneers were, no doubt, in Germany in the 1930s.

Anyway, I share the writer's glee at Geithner and Summers and the rest of them being humiliated by the Chinese.  I'm not sure it would be a bad thing if the Chinese don't buy our debts and there's a crisis of confidence in T-bills.  That might be just the thing to stop the growth of government.  The Fed can always buy the debt if foreigners won't.

"Obama Down, Stocks Up" (Rich Karlgaard, Forbes, via RealClearMarkets):

I am totally convinced we are reliving the 1970s. Barack Obama is the new Jimmy Carter. Global warming is the new global cooling. "Sustainability" is the new Small Is Beautiful. Cycling is the new jogging. Two constants: The CIA is under assault. Dollar devaluation is coming.

More echoes: The Dow dropped 48% in 1973-74, in line with 2008-2009's crash of 55%. Stocks have climbed impressively off the March 9 bottom. Likewise, stocks rose 38% in 1975 (though Gerald Ford, not Carter, was president) and 24% in 1976.

During the late 1970s, inflation roared back, finishing the decade at an annual rate of 13%. With crazily mounting deficits, we are likely to see something of a repeat, starting next year or in 2011. I say "something" of a repeat, because the actual CPI numbers might not go as high as the 1970 figures even though the underlying dollar devaluation could be worse. Much depends on unemployment, unused production capacity around the world and (maybe most importantly) government policy.

American government policy is the great unknown now. With Obama's signature issues hanging in the balance, market and economic predictions are very much clouded. One theory, which I expressed on Thursday's Kudlow Report, is that stocks have rallied of late because President Obama's signature issues, all of them anti-growth--union card check, cap and trade, and nationalized health care--are in trouble.

The best case scenario is that Obama turns out to be the next Bill Clinton, whose early liberalism has little effect on policy but provokes a strong conservative counter-reaction.  An ineffective or triangulating Democratic president can be an asset at home (not in foreign policy), serving to bottle up left-wing pressure for government expansion.  If we can get through this year without major, hard-to-reverse expansions of the state, Blue Dog Democrats and a Republican comeback in 2010 could steer us off the road to Eurosclerosis.

Things Fall Apart

"Politicized Capitalism" (Fred Barnes):

President Obama is ushering in an era of politicized capitalism. Since he took office, corporate heads and business executives more and more look to Washington as the wellspring of financial success. And politicians and government officials have much to offer them: grants, loans, loan guarantees, subsidies, contracts, tax credits, regulatory and legal advantages of one kind or another over competitors, even guaranteed profits. Tempting stuff, for sure, and businesses are increasingly unable to resist. This is not a healthy trend.

The distinction here is with America's traditional system of market capitalism, which requires companies and entrepreneurs to compete in the marketplace. Except with President Franklin Roosevelt's New Deal in the 1930s and during wartime--when government officials intervened aggressively in the economy--this has been the dominant form of capitalism in America. It's allowed Americans to become the most prosperous people in the world.

The two types of capitalism exist in stark contrast in the American auto industry. General Motors and Chrysler have survived thanks to billions from the Obama administration and forgiveness of billions more in loans and other obligations. GM and Chrysler are now wards of the federal government, which picks their CEOs, names their boards, and can tell them which cars to manufacture...

Politicized capitalism comes in many forms. The Troubled Asset Relief Program (TARP) has spent hundreds of billions to stabilize banks, including some that didn't need to be bailed out. TARP funds have also gone to insurance, finance, loan, and auto companies, among others. The Federal Reserve and the Federal Deposit Insurance Corporation, while nominally independent, have followed Obama's lead and backed hundreds of billions in home loans and debt issuance. All this money--and the deference to Washington that comes with it--has reached deeply into the economy.

And Obama is eager to bring still more of the private sector under the government safety net. Big banks have paid back billions in TARP loans they received last year, but the administration has decided against using that money to reduce the deficit. Obama would rather spend it.

This was the headline of a Washington Post story on July 11: "White House Eyes Bailout Funds to Aid Small Firms." No doubt many firms would like cheap, subsidized loans from Washington, and they've begun pressing members of Congress for help in getting them. But a program of aid to small business would be a significant departure from TARP's original mandate of rescuing shaky banks.

Politicized capitalism inevitably leads to crony capitalism, the rewarding of friends and supporters with economic favors. The bailout of GM and Chrysler was a boon to the United Auto Workers, which contributed lavishly to Obama's presidential campaign. His cap and trade energy program, which has passed the House, would reward favorites of the administration and congressional Democrats with valuable allowances to emit greenhouse gases.

"An Open Letter to the Obama Administration from Central and Eastern Europe" (Radio Free Europe):

We have written this letter because, as Central and Eastern European (CEE) intellectuals and former policymakers, we care deeply about the future of the transatlantic relationship as well as the future quality of relations between the United States and the countries of our region. We write in our personal capacity as individuals who are friends and allies of the United States as well as committed Europeans.

Our nations are deeply indebted to the United States. Many of us know firsthand how important your support for our freedom and independence was during the dark Cold War years. U.S. engagement and support was essential for the success of our democratic transitions after the Iron Curtain fell twenty years ago. Without Washington's vision and leadership, it is doubtful that we would be in NATO and even the EU today.

We have worked to reciprocate and make this relationship a two-way street. We are Atlanticist voices within NATO and the EU. Our nations have been engaged alongside the United States in the Balkans, Iraq, and today in Afghanistan. While our contribution may at times seem modest compared to your own, it is significant when measured as a percentage of our population and GDP. Having benefited from your support for liberal democracy and liberal values in the past, we have been among your strongest supporters when it comes to promoting democracy and human rights around the world.

Twenty years after the end of the Cold War, however, we see that Central and Eastern European countries are no longer at the heart of American foreign policy. As the new Obama Administration sets its foreign-policy priorities, our region is one part of the world that Americans have largely stopped worrying about. Indeed, at times we have the impression that U.S. policy was so successful that many American officials have now concluded that our region is fixed once and for all and that they could "check the box" and move on to other more pressing strategic issues. Relations have been so close that many on both sides assume that the region's transatlantic orientation, as well as its stability and prosperity, would last forever.

That view is premature. All is not well either in our region or in the transatlantic relationship. Central and Eastern Europe is at a political crossroads and today there is a growing sense of nervousness in the region. The global economic crisis is impacting on our region and, as elsewhere, runs the risk that our societies will look inward and be less engaged with the outside world. At the same time, storm clouds are starting to gather on the foreign policy horizon. Like you, we await the results of the EU Commission's investigation on the origins of the Russo-Georgian war. But the political impact of that war on the region has already been felt. Many countries were deeply disturbed to see the Atlantic alliance stand by as Russia violated the core principles of the Helsinki Final Act, the Charter of Paris, and the territorial integrity of a country that was a member of NATO's Partnership for Peace and the Euroatlantic Partnership Council -all in the name of defending a sphere of influence on its borders.

"Geithner's task: selling debt" (RealClearMarkets):

Timothy Geithner, architect of bank, auto and economic rescue plans, has another high-stakes job these days: traveling bond salesman.

The recession, financial crisis and two wars have pushed the federal deficit above $1 trillion, a record level that makes the Treasury secretary's role as chief marketer of U.S. debt tougher than any of his recent predecessors'.

Geithner, who traveled last week to the Middle East and Europe, has to convince foreign investors to keep buying Treasury bills, notes and bonds; they hold nearly half of the government's roughly $7 trillion in publicly traded debt.

"He's a smart guy but it's a very, very big task," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington think tank.

If foreign demand for U.S. debt sags, that could drive up interest rates and spell big trouble for an economy hobbled by 9.5 percent unemployment. Higher rates would make it more expensive for consumers to buy homes and cars, and for businesses to finance their operations.

In the worst case scenario, a rush by foreigners to sell their U.S. debt could send the dollar crashing and inflation soaring. Because that would also hurt the value of their remaining holdings and the U.S. economy — a key market for their exports — private analysts believe such a scenario is not likely to occur.

With the risks in mind, Geithner last week visited Saudi Arabia and the United Arab Emirates, whose vast oil wealth gets recycled into Treasury holdings.

Last month, he visited China, the largest foreign holder of U.S. Treasuries. That trip was marked by an extra dose of drama. In March, Chinese Premier Wen Jiabao said his country was concerned about the "safety" of the large amounts of money it had lent to the United States.

Throughout these trips, Geithner very much stuck to his sales script, at least in his public pronouncements. He said the Obama administration was committed to guarding the value of the dollar and, once the economy improves, shrinking the deficit.

The deficit has been driven higher in part by the $787 billion economic stimulus package and $700 billion financial system bailout approved by Congress over the past year.

The deficit-cutting proposals the administration has so far revealed would fall far short of what is needed.

"If the Obama administration has a credible plan to bring the deficits down, they are keeping it a deep secret at the moment," said Michael Mussa, senior fellow at the Peterson Institute and former chief economist at the International Monetary Fund.

With nearly three months left in the budget year, the Obama administration forecasts that this year's deficit will total $1.84 trillion, more than four times the size of last year's record tally.