It will be harder to pull the wool over American eyes this time around regarding Mr. Obama. The rotten state of the economy will see to it.
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Talk about economic elasticities. Equity and fairness can be defined to include more or less anything as a benefit. Under this calculus, a rule might pass Mr. Obama’s cost-benefit test if it imposes $999 billion in hard costs but supposedly results in a $1 trillion increase in human dignity, whatever that means in bureaucratic practice. Another rule could pass muster even if it reduces work and investment, as long as it lessens income inequality.
That is why, “No sooner had Mr. Obama told the bureaucracies to subject all regulations to a cost-benefit test than the bureaucrats began telling reporters that they are already a model of modern efficiency, thank you very much.” While the EPA has already adopted rules providing for the implementation of cap and trade by regulation that will proceed to carpet bomb the economy starting this year, “the Environmental Protection Agency said in a statement that it was ‘confident’ it wouldn’t need to alter a single current or pending rule.” The Journal rightly concluded, “This sounds more like the end of cost-benefit analysis than the beginning.”
This regulation Executive Order ploy will go down in the Calculated Deception Hall of Fame along with the “net spending cut” he promised us in the 2008 election campaign, which he followed up with a 25% increase in federal spending. Then there was the “PayGo” legislation adopted in 2009 with great fanfare at the White House signing ceremony, promising us that no legislation could be adopted again that was not fully paid for. That was followed by dozens of spending bills passed by the Democrat Congress exempting the legislation from “PayGo.” And remember, “If you like your health insurance, you can keep it”?
Another overhyped ploy is the appointment of William Daley from Wall Street as the new White House Chief of Staff. For the significance of that, witness former Assistant to the President for Economic Policy Larry Summers, whose widely cited academic work included the demonstration that extended unemployment benefits increases unemployment. With Summers at his side, President Obama has given us 99 weeks of extended unemployment benefits, to go with stubbornly high unemployment. But the titans of Big Business, where the real Homer Simpsons live and work, have already fallen for the same ploy.
2011 + 2012 = 1979 + 1980
With the tax and spending issues so decisively framed against President Obama and the Democrats for 2012, as explained above, developing severely adverse economic trends raise the possibility that the Democrats will be cast deep into oblivion in 2012. Indeed, despite the political relief Obama has won by embracing the Bush tax cuts in toto for two years, the underlying economic trends are dangerous enough that 2012 can still be dialed all the way back to 1967, with Obama forced out of the race as President Johnson was that year.
Just as the fear that the Obama tax tsunami would force the economy into a disastrous double dip recession compelled the extension of the Bush tax cuts in 2010, that tax tsunami now scheduled for 2013 will raise the same fears in 2012. What has not been widely recognized, but soon will be, is how disastrously vulnerable America is to another recession right now.
With a deficit already well over $1 trillion almost two years after the recovery supposedly began, a double-dip downturn would further skyrocket that deficit well over $2 trillion. Would we really be able to borrow that much? Gross federal borrowing as a percent of GDP is already nearly 3 times as large as for Greece, or any of the PIGS, because so much of the U.S. national debt is so short term, and has to be rolled over every year.
What happens when the U.S. Treasury announces one day that it is going to borrow $XY billion dollars the following week, and when that week arrives the market responds, “No, you’re not”? That was when Greece hit the wall. It was at least temporarily rescued by a trillion dollar bailout by the European Union. But who would bail out America? Who even could?
Not sufficiently appreciated are the implications of this for our national defense. America got the money to fight World War II by borrowing to send the national debt to 109% of GDP. But with the national debt already slated to soar over that on our current course, even before another recession, where would we get the money to fight another protracted conflict if such a recession further crippled our finances? Just the opposite of how Reagan’s Peace Through Strength won the Cold War without firing a shot, would the double-dip scenario invite War through Weakness? Would our collapsing finances entice our enemies to go on the attack?
Worst of all, the problem is not just Obama’s bull-headed devotion to massively redistributive tax increases. Further adding to the prospect of the double dip is the Fed’s disastrous return to the policies of the 1970s. The Fed’s quantitative easing on top of quantitative easing has already begun to reignite inflation. Indeed, Fed Chairman Ben Bernanke openly proclaimed last fall that he was explicitly adopting a policy of renewed inflation to revive the economy. His thinking was only such inflation could result in negative real interest rates, after two years of zero short term rates did not seem to be enough.
And that inflation is already appearing in commodity prices that have been soaring for several months now. And it has already appeared in developing countries around the periphery of the dollar-trading zone. This is where roaring inflation always first shows up.
Soon enough this year, that inflation will show up in the headline CPI. That in itself means big political problems for Obama and the Democrats. Much worse, however, is that the Fed, President Obama, and America, will then be trapped in a monetary policy conundrum.
If the Fed cuts back on its expansionary policies to shortcircuit the inflation, interest rates will soar, and along with the tightened monetary policy that itself will throw the economy into recession. Monetary policy does operate with long lag times, as Milton Friedman taught those of us paying attention. But that lag time places an inflationary resurgence into this year, from the beginning of quantitative easing two years ago. Will the Fed pursue a contractionary course this summer, threatening renewed recession in the summer or fall of 2012? Obama’s only hope may be that those long lag times may push any such recession into 2013. But coinciding with Obama’s now scheduled crushing tax increases, that recession would then be a historic doozy, crippling America and leaving Obama’s reelection worthless. Note: lag times may be shorter now because the markets at least have learned from the 1970s.
But if the Fed doesn’t contract to counter the rising inflation, then the inflation will feed and accelerate into 2012. That gives Obama and the Democrats the prospect of running that year with near double-digit unemployment, inflation, and interest rates, as in 1980. Staring into the dustbin of history is exactly where they will be then.
This is the policy conundrum that created the multiple recession, roaring inflation 1970s. It is what Obama and the Democrats so richly deserve. For as the prophet Santayana advised us, those who do not learn from history are condemned to repeat it.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?