They’re just on the other side.
Category Archives: Business
The Strategy Of Perpetual Crisis
That seems to be the Obama game plan:
White House chief of staff Rahm Emanuel gave the game away back in November with his observation that:
“You never want a serious crisis to go to waste. What I mean by that is it’s an opportunity to do things that you think you could not do before. This is an opportunity…And this crisis provides the opportunity for us, as I would say, the opportunity to do things that you could not do before.”
Emanuel even helpfully specified the issues where the opportunity would be most helpful to the new administration – “health care area, energy area, education area, fiscal area, tax area, regulatory reform area – things that we had postponed for too long that were long-term are now immediate and must be dealt with.”
Initially, Emanuel’s disturbing words were dismissable as just his own, but the president himself and most recently Secretary of State Hillary Clinton have since repeated variations on the theme. So it is clearly the Obama strategy to use the current economic crisis as justification for his radical agenda.
Call it policy-making by perpetual crisis.
This is a not a new phenomena in the political world, of course. One need look no further than North Korea’s “Dear Leader,” with his constant invocation of the illusory threat of U.S. military invasion to keep his suffering people in their chains.
Kim Jong il is not unique, only the most bald-faced about using real or manufactured threats to justify his dictatorial policies. Other examples from history quickly come to mind, including communist titans like Stalin and Mao continually warning of “imperialist aggressors” from the capitalist West.
What is different now is that we’ve never before seen an American president so explicitly invoke this strategy of using a domestic crisis to achieve long-term domestic policy goals.
Well, I’m not sure it’s unprecedented, but it is extremely dismaying.
Carl Pham proposed an interesting thought experiment yesterday in comments, that complements mine, in which I asked what the administration would be doing differently if they were deliberately trying to tank the economy:
I bet if the entire Obama Administration and Democratic Congressional Leadership were sentenced to hang on December 1, 2009, if the stock market were not above 9000 and unemployment were not below 7%, they would become raging tax-cutting pro-business libertarians overnight.
That is, I don’t believe they are so stupid and deluded as to believe their own hogwash right down to their core. They know very well they’re hanging a millstone around the economy’s neck, costing jobs and punishing capital markets. But they don’t care. They have ambitions — more government power for themselves, better status and pay for their supporters — and they actually don’t care that a bunch of plumbers and HVAC men are going to pay for it with their jobs, 401k’s, life savings invested in the new house. Can’t make an omelet without breaking eggs, y’know.
I think it’s a good bet. Unfortunately, we won’t get to find out. Also unfortunately, the electoral consequences are far more uncertain.
[Update a couple minutes later]
Instapundit has an appropriate quote from Milton:
Chaos Umpire sits, And by decision more imbroils the fray. By which he Reigns.
We’ve always been at war with Eastasia.
[Update at noon]
As Mr. Henninger points out, this is no ordinary budget: it is a morality play in which “fairness” (note the scare quotes)is pitted against “wealth.”
…So here we are then. Our prince has come. The dragon, Wealth, has been put to the sword, and everyone is gathered downstage to await the finale. It turns out, though, that many who bought tickets thought this entertainment was a species of Romance or Comedy that had a happy ending. Others of us knew that wasn’t what was advertised and said so. I suspect this particular drama is going to have a very limited run.
I hope so. I fear that it won’t.
A Better Stress Test For Healthy Banks
“Just look for the ones that are saying ‘no thanks’ to being run by Barney Frank.“
[Thursday morning update]
Related thoughts from Megan McArdle:
What to think of this? One’s first instinct is to say that this is an unalloyed good–the restrictions have made taking the funds costly enough that only truly troubled institutions will do so.
The problem is, that’s precisely what the Fed was trying to avoid. Central bankers have long made a practice of keeping it a secret who borrows from them at the discount window, because publishing the names of those who need a temporary cash infusion could trigger a bank run. In order to get the money into the banks that needed it to stave off a liquidity crisis, Bernanke and Paulson very deliberately asked banks that were widely believed to be sound to take the money too. Otherwise, the government bailout funds might have touched off the very crisis we were trying to avert.
It doesn’t do us much harm to put taxpayer funds into banks that don’t need it–we’re borrowing at low rates right now, and the banks that don’t need the money are the ones with very low default rates.
It’s also possible that some of the measures that express our collective rage at the bankers could tip the banks over the edge. It’s satisfying to make AIG cut out junkets for independent insurance agents, but it also probably means that fewer AIG policies will be sold. Since we now own the company, we probably cost ourselves money in order to express our outrage.
But it feels so good. And feelings, not thought, are what counts with the new regime.
[Bumped]
Another Twelve-Step Guide
…to destroy the economy. There are a lot of other good suggestions in comments.
Seriously, if he really wanted to destroy the economy, what would he be doing differently?
[Update a few minutes later]
Now you own it, Mr. President:
The Dow Jones industrial average, actually, has reacted to Obama by plunging nearly 20 percent since he became president. That’s an obliteration of wealth that no stimulus bill will recoup. Since Election Day, the market has lost nearly 30 percent of its value—trillions of dollars, not from CEO bonuses, as you may have hoped, but from your 401(k) and the private sector.
“The stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong,” Obama recently explained.
You know, Mr. President, not everything is like politics.
The market is a forward-looking entity, indeed, but it is driven by the decentralized actions of millions of investors every second. It’s the opposite of politics. And this setup surely offends the sensibilities of the statist planners occupying Washington. Unlike politicians, markets don’t lie. And this market has been in freefall for a year.
So, what to do? Obama, who promised not to raise taxes during a recession, now plans to raise nearly $1 trillion in new taxes directly from the investor class. He plans to raise capital gains taxes (a disincentive to investment), corporate taxes (for you, the consumer, ultimately to pay) and on the “rich” (which the nonpartisan Tax Foundation estimates will affect 1.3 million small-business owners).
This recession already has passed the 15-month threshold, the historical average for downturns. Most presidents helped ease us out of those tough spots by easing the burden on Americans. Obama has engaged in the opposite. That’s his gamble.
He forgot to mention the carbon tax, which will hit everyone, including the poor, in a quite regressive manner. I really am starting to think that Barack H. Obama stands for Barack Hoover Obama.
[Update a little before 2 PM Eastern]
Aunt Nancy says $1.6T isn’t enough.
These people bring to mind medieval doctors and leeches. Except they’re the leeches.
[Late afternoon update]
From Eric Cantor’s web site:
Just three weeks after President Obama signed his ‘stimulus’ bill into law, Congressional Democrats are already conceding that it will fail to achieve its objective. As the Speaker knows, the only reason to craft a second stimulus bill would be if the first one failed. Every Republican in the House voted against the first stimulus bill because we believed that Congress could do better, and we had a plan to achieve that goal. America does not need another massive spending bill, what we need is to create jobs.
Republicans developed an innovative plan to preserve, protect, and create twice as many jobs as the bill that Speaker Pelosi rushed to the floor last month. If Democrats believe that their stimulus bill has fallen short, then we should work together on the Republican Economic Recovery Act, which would revitalize struggling small businesses, help middle-class families, and immediately rekindle America’s economy and create jobs.
Don’t hold your breath.
One Of The Ways The Government Caused It
Holman Jenkins explains:
Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It’s not so fine for regulatory purposes. It doesn’t just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform.
What happens next is exactly what we’ve seen: Their share prices collapse; government feels obliged to inject taxpayer capital into banks simply to achieve an accounting effect, so banks can meet capital adequacy rules set by, um, government.
But wait! I thought that the problem was all of the (non-existent) “deregulation” and “tax cuts” of the Bush years!
It would help if we could get rid of, or at least reform Sarbanes-Oxley, too, but little hope of that with this gang in charge.
[Update mid afternoon]
Stop favoring the short sellers.
[Update a while later]
Michael Barone: “Ad hoc Fed, Treasury Actions Caused Crisis, Not Deregulation And Tax Cuts.”
Well, duhhh. But reality didn’t fit the Messiah’s message.
Shut Up, She Explained
Tom Maguire on Jane Hamsher’s economic ignorance and Stalinist impulses.
The End Of The Secret Ballot
No More Ken Burns For GM
Apparently, GM has been underwriting Ken Burns’ documentaries for years. It is no longer doing so.
I supposed the gut response is a big “Duhhhh…” The company is going broke, and can’t afford it, right?
Well, maybe. This seems to me akin to the stupid, stupid demagoguery about corporate jets (from people who ride them themselves at taxpayer expense).
Look, is the company in business, or is it out of business? If it’s in business, it has a CEO with great responsibilities, and only so many hours in a day, and it doesn’t make sense for him to waste time with TSA and sitting in Dallas for layovers (or stupider still, driving from Detroit), despite how bad it appears when he shows up in Washington with his hand out.
And if it’s in business, it is presumably (at least theoretically, even if it looks more like a finance company, pension and health-care provider that just does it on the side) in the business of manufacturing and selling cars. In order to sell cars, one has to market them. One of the traditional ways one does this is by sponsorships, to provide brand recognition.
Now one can argue that perhaps this is an ineffective form of marketing, particularly for a company that has been around as long as General Motors, but one could have argued that during boom times as well. Unless it was purely viewed as philanthropic (in which case they certainly should cut back, since they have no available funds for pure do-goodery), it was presumably previously justified as part of their marketing budget. If it was justified then, why wouldn’t it be now, when marketing is more critical than ever? The problem with marketing, as the old saw on Madison Avenue goes, is that only half of it is effective, but no one knows which half.
My question is, does this mean that, after all these years, some analyst did an analysis and said, “Hey guys, it turns out that the Ken Burns stuff doesn’t sell cars! Sorry I didn’t let you know twenty years ago — I could have saved the company a lot of money.” Or is it just one more sign that the company is bankrupt, but won’t admit it?
It’s Not Just Flint
Here’s a blog that tracks businesses closing in Saginaw, thirty miles up the road.
Now here you have functional commercial real estate, at bargain prices, close to scenery and abundant recreation just to the north, and a work force looking for work. Why aren’t businesses flocking there from other parts of the country?
Might the problem be fifty miles to the southwest, in Lansing? The state is spending a lot of Michigan taxpayers’ money trying to attract them — I’ve seen the television ads. What the ads don’t say is that in order to pay for the ads, it’s got high taxes, particularly on businesses, and that it’s not a right-to-work state. But Jennifer and the legislature will no doubt continue to point fingers everywhere else.
Logical Disconnect
Some of my commenters attempt to make the illogical argument that because the top marginal income tax rate was almost forty percent during the Clinton era that there is no harm in raising it back to that now. Jim Manzi dissects this foolishness. I doubt if they’ll understand it, though.
[Update a few minutes later]
Victor Davis Hanson — Oh What Debts We Will See:
Athens in the fourth century B.C. chose to mint “redheads”, silver coins with bronze cores that were quickly exposed once the patina around the coins’ imprinted busts wore off. Rome did the same thing, and by the fourth century AD simply flooded its provinces with money of little real value. Germany paid off its war debts to France in the 1920s, with deliberately inflated German marks. I lived in Greece during the oil-embargo hyperinflation of 1973, and remember buying individual eggs with three or four inked-in price figures crossed out, as the store-keeper kept upping the price each day. (And I remember farming in the early 1980s when full-strength Roundup herbicide seemed to go from $60 to $70 to $100 a gallon in a single year).
I don’t think any one knows what is quite going on. I recently gave a lecture, and a Wall Street grandee afterwards approached the dais, asking me for advice (me, who could not even turn a profit growing raisins, and was a lousy peddler of family fruit for years at Farmers’ Markets), saying in effect something like the following: “Mr. Hanson—Consider: Real estate bad—not going to put money there when I’m not sure where the bottom is. Stocks worse—had I got out at New Year’s, I’d have thousands more than I do now. Cash pathetic—the interest doesn’t even cover what’s lost to inflation. So what’s left—the dole?”
I had no advice, of course, other than some vague warning that we are in a war against capital, sort of similar to what Sallust and Cicero claim that Catiline and his band of dissolute and broke aristocrats were planning, with his calls for cancellation of debts and redistribution of property.
It seems less than vague to me.
[Evening update]
How to wage a war on business. Any resemblance to current administration policies are purely coincidental, of course.