Wisdom In Insecurity

More have joined us in sensing vigor ahead. GDP estimates, especially estimates for consumer activity are now being revised higher, an event we predicted earlier.

One estimate is Greenspan’s; he now predicts a much higher 3.5% for 2011. Knowing his track record, this gives us pause! Maybe a second take is in order. Well, suppose we’ll be alright despite this endorsement. Thus, let’s look for more positive surprises in the near term.

Speaking of Greenspan, speaking of false prophets, careful with all of this. The media is quick to manufacture seers. It’s good business but dangerous for the listener/viewer.

If there isn’t a track record it’s just noise.

Some individuals are indeed given to profound insight, an occasional blockbuster. Soros in one of these. Bacon is another. Roubini is another. Recall that Roubini predicted the housing crisis of Q4 ‘08. The rest were looking in the other direction. Yet all great strategists realize the power of insight is ephemeral. No one has it all the time. The very best are just that because they respect their limitations.

Problem is that Roubini or Nassim Taleb (of Black Swan fame) or others can be caught in a vortex if they are not careful. The media gains ownership, making them out to be something they are not. Ego may cooperate. When for example Roubini was taken in by the fanfare, he shed his power. He forgot that though gifted, his gift is not for all seasons. Others too have made major calls, had major triumphs but when they misread this as a sign of omnipotency, they invariably met difficulty.

In forecasting, wisdom resides in knowing one's limitations, in never being just too secure, in acknowledging that the business of the future is to be dangerous.


Robert Craven

Week In Review

How did events this week support or amend our anchor, that of surprising vigor ahead, especially in payrolls and discretionary spending?

Well, it’s been fun folks. Obama quit his attack on the rich, triggering the F word from one of his fellow Dems. In fact, these loonies should have praised the guy. The tax bill, as it is this pm is not much. We get a two year break but are nailed with a $57 bln, 13 month extension of unemployment benefits that’s not paid for. So not much here to support our anchor, won’t hurt much either, perhaps a wash.

Real sector data was encouraging. Consumer Sentiment rose to its best level since June. Sentiment fell sharply in July, but has now regained all of that decline. Exports rose 3.2% for Sep and are now 15.9% above their year ago level. Jobless claims dropped by 17M for the week ended Nov/27. After being little changed for most of the year, claims for benefits have broken to the downside past 5 weeks. All of this data supports our constructive view.

The Fed continues to disappoint with this QE II business. We don’t need any more liquidity. The charge, from us and others, that the Fed is merely an extension of the administration continues to gain support.

And Nobel laureate Joseph Stiglitz reckons US banks will simply put the $ offshore, investing in so-called emerging credits, driving up these currencies, triggering all sorts of mayhem, including asset bubbles. May be. A Wild card? Stiglitz knows more about these things than we do.

But this week’s rout in the bond markets (yields spiking, prices dropping) may be the investment world’s way of issuing an inflation warning. Much more of that and we’ll have to moderate our view. Balance sheets, especially housing will not be happy campers.

Finally, and of course key - momentum continues to build in Washington to repair damage done earlier by BO, his making a bad economic situation much worse. Nov/2 was about stopping the destruction. Next year is about rebuilding. We’ll start with the health heist. The future costs of this statist president’s social agenda are no longer a given. This has greatly cheered employer and consumer alike.


Robert Craven

Vigor Ahead

Our anchor set in mid Oct will continue to hold. US spending and employment activity will exceed Wall St estimates. Forecasters will continue to revise their estimates higher. For business planners or investors it is better to anticipate this event than react.

N. Behravesh, chief economist of IHS Inc recently noted, “There’s no question the consumer is playing an increasingly larger role. We’re seeing an improvement in the overall economic outlook.”

Morgan Stanley’s David Greenlaw, “Consumers will be a significant contributor to the growth outlook. More jobs mean we will see incomes grow by about 2.5 percent. You’ll get gains very similar to that on the spending side.”

As the new consensus continues to build it will carry with it the characteristic of self fulfillment. This is simply the way these things work.

PIMCO, which manages the world’s largest bond fund today raised its forecast for 2011GDP from 2 - 2.5% to 3 - 3.5%. Bill Gross, the founder, was a UCLA classmate. We addressed this bunch on strategy, years back. They should have called this time. The firm attributes sound fiscal and monetary policy for their change of heart. Fiscal yes but monetary, no way.

We don’t have a liquidity problem for goodness sake. We have a balance sheet problem. There is nothing more the Fed can do but make noise.

From Gerald O’Driscoll, “The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.”

And then we’re really off to the races.

Robert Craven.

As Loony As Ever

Lefty locals are in a tizzy that Obama finally called off his class warfare against the rich, by extending Bush tax cuts to all. Because they have so many fellow lunatics hereabouts, these types actually think they’re normal. We know they’re unhinged.

Concerning the trigger for their latest outburst, lets take a look.

Every grownup understands that one does not raise taxes during a recovery, that is, if one wishes for a recovery. Obama’s economic advisers agreed. Michael Boskin reminds us in a recent article that, “Former Obama adviser Christina Romer and David Romer of the University of California, Berkeley, estimate a tax-cut multiplier of 3.0, meaning $1 of lower taxes raises short-run output by $3.”

Gerald O’Driscoll, once with the Dallas Fed and now with the Cato Institute, also agrees. “The Bush tax cuts should not be allowed to expire. No matter how the administration spins it, their expiration would entail a large increase in marginal tax rates in the midst of economic weakness. That would further impede savings and capital accumulation, discouraging firms from expanding and hiring workers.”

Anyone who is familiar with historical data (which leaves out the left) knows that raising income tax rates on say the top 1% of income earners reduces direct tax receipts - that is the way it always has, and always will work out because these top 1% simply stand aside.

From Art Laffer, “Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.”

Curious is it not that the nursery crowd for example, whose bottom line has just been trashed by BO, is furious when BO finally does something right, something which will work to resuscitate their bottom line?

Once again looking for historical precedent (and thus again leaving out the left) we encountered the following:

“Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”

—President John F. Kennedy,

Oh, that.


Robert Craven

Too Big For Its Britches?

The Federal Reserve system was created under Wilson in 1913. Originally tasked with protecting the value of the currency its mandate was expanded in the 70's when the Federal Reserve Act was amended to promote the goals of, “maximum employment, stable prices, and moderate long-term interest rates,” (Section 2A).

“Stable prices,” means protecting the value of the $. The Fed is armed to do this by expanding or contracting the supply of $’s available - too many and they are worth less, too few and they are worth too much.

“Moderate long-term interest rates,” are not something the Fed controls very well, if at all. “Maximum employment,” are the two words however that can get the Fed in a lot of trouble.

At the moment critics claim that through the pursuit of this “maximum employment” mandate the Fed has been reduced to an extension of the administration, that is, Bernanke more the politician than the central banker.

We’ve all heard of QE2. This means that the Fed is buying practically everything under the sun in an attempt to quick start a recovery. The idea is to get medium-to-longer term rates lower, the dollar just a tad weaker in order to spur exports, all of this with employment in mind. This is not equivalent to addressing a crisis, to preventing a melt down. (Without the Fed’s emergency action Q4 ‘08, we’d all be paupers.) No, it is a completely discretionary, non rule-based activity and a mistake, one which first will have little to no impact on the pace of recovery and two, is corrosive to Fed independence, a necessary item, the heart of monetary control.

It is this trend at the Fed toward discretionary actions that is alarming to so many and who see this, correctly we believe, as just an attempt to bail out BO’s failed fiscal policy.

A group of 23 economists, money managers and former government officials issued an open letter to Bernanke on Nov. 15 saying the central bank’s planned bond purchases “risk currency debasement and inflation” and won’t boost employment.

Another critic is Fed governor Kevin Warsh, who noted recently that, "The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies.”

Apparently, Bernanke is not listening. We need only recall Hayek’s “Fatal Conceit” to know that a few individuals, no matter how gifted cannot replace in their judgement the complexities of a free functioning market. This applies to the FOMC as well as to Obama’s wanna-be planners.

We have followed the Fed closely for 20 years; never has it come so close to shedding its independence. Let us hope the new Congress re-writes the Fed’s mandate to confine its activities only to those of price stability.

Robert Craven

Lame Ducks Up To No Good

Just after the Nov election we highlighted a caveat to our otherwise constructive view. We might have listed this very same item as a wild card. That would be the odds that lame duck “progressives,” still welded to their twisted ideology despite, to borrow a phrase from Irving Kristol, having been “mugged by reality” will do significant harm to their Country, and simply out of spite.

We are referring of course to the left’s insistence that the rich pay up. Why the jealousy, who knows, but it can be nothing else but envy as all but the most economically illiterate now understand that tax cuts fire growth. They are in everyone’s best interest. So what if a guy making $500M gets to keep a little more. All the more likely he will plant a new garden, or maybe buy a vacation home and in so doing enrich others (nurserymen, realtors to name two of these).

From Paul Bedard of US News, “Failure by Congress to extend the Bush tax cuts, especially locking in the 15 percent capital gains tax rate, will spark a stock market sell off starting December 15 as investors move to lock in gains at a lower rate than the 20 percent it would jump to next year, warn analysts. . . .While it is unclear how bad the sell off could be, it could wipe out the year's gains......”

Not really. There will be no Dec/15 massacre as the market’s take on the odds of the lame duck tax event are already being priced in.

But there’s still no excuse for the Dem’s sordid behavior.

Pelosi and fellow partisans (not retards as they know exactly what they are up to) continue to pimp two falsehoods, the first that gov’t spending counts for something aside from union payoffs, and the second that tax cuts “must be paid for.” They’re not fools. They’re traitors.

From Michael Boskin, econ prof at Stanford, “My colleagues John Cogan and John Taylor, with Volker Wieland and Tobias Cwik, demonstrate that government purchases have a GDP impact far smaller in New Keynesian than Old Keynesian models and quickly crowd out the private sector. They estimate the effect of the February 2009 stimulus at a puny 0.2% of GDP by now. By contrast, the last two major tax cuts—President Reagan's in 1981-83 and President George W. Bush's in 2003—boosted growth. They lowered marginal tax rates and were longer lasting, both keys to success. In a survey of fiscal policy changes in the OECD over the past four decades, Harvard's Albert Alesina and Silvia Ardagna conclude that tax cuts have been far more likely to increase growth than has more spending.”

Robert Craven

Pause

Today’s key Nov Payroll release seemed to fly in the face of our long-held view that employment and spending activity would exceed expectations. For example, there was no change in the workweek, manuf employment dropped by 13M, private sector jobs increased only 50M vs 160M for Oct; finally, unemployment jumped to 9.8%.

Nothing moves in a straight line in this economy but in ratchet fashion. We have experienced nearly two months of results which have flattened estimates. It may be that forecasters, weary of being severely beaten about the head and body, figured it was time to reverse course, crowd fashion. Hiring instead took a time out and flattened these guys once more.

Our recommendation to corporate planners or investors would be to remain anchored; that is, the central flaw to street estimates over the intermediate term will be the under-estimation of vigor in payrolls and spending.

Robert Craven

Wall St's Mega-Miss

We’ve known from October that employment and spending numbers would far exceed forecasts. Most forecasters were, many still are looking in the wrong direction.

Witness today’s chain store sales result for Nov. Sales at the 30 chains tracked by Retail Metrics exceeded estimates, rising 5.3% compared with a consensus prediction of 3.5%. “Across the board, there was widespread strength,” said Ken Perkins, president of Swampscott, Massachusetts - based Retail Metrics. “The consumer is feeling better about their situation and is more inclined to spend on discretionary purchases.”

Next, the private ADP employment report showed this week that small businesses added the largest amount of workers in three years in November. No wonder the average shopper in the U.S. spent 6.4 percent more over Thanksgiving weekend than last year.

We have been able to anticipate these headlines before they come into print. There will be more. Economists will marvel at job growth, at discretionary spending just ahead.

There are two keys to Wall St’s mega miss: One is the failure to anticipate the results of Nov/2, that cheering of both employer and consumer. The other is lack of respect for the tenacity of a free America, where creativity and resourcefulness still thrive and this despite the occupation of the WH by the Great Leveler.

We wrote in Oct as follows: In the present situation a spark will be provided by the US masses, suddenly aware that they’ve been taken. That spark to be provided through the voting booth. This is not accounted for in forecasting models! Neither is the celerity with which the process will be accomplished, the overturning of BO’s agenda with the health heist first in line. Neither is the thoroughness in the de-lousing of an economy for two years contaminated by statists. All of this provides fire. Most see a rout by the Republicans but few understand the economic traction to come of it.



Robert Craven

Spending - An Update

We noted mid-Oct that the error to the consensus forecast for the US economy was a significant under-estimation of vigor, especially payrolls and related consumer spending, and especially spending on discretionary items. That is, the Wall St. forecasting crowd were all looking in the wrong direction.

We then reminded readers on Nov/9 - If we are right, discretionary spending will expand. Those whose income is linked to this sector may at this time purchase a case of medium-priced champagne, to be traded for the finer stuff perhaps once odds approach 85%.

Recent data has cooperated. Those who have found themselves gasping for oxygen past year, may now make the trade.

Look for economists to continue to revise their forecasts higher.

We will have Chain Store sales result for Nov., this Thursday (Dec/2), followed by the key employment report for Nov., on Friday (Dec/3). Look for these releases to cooperate, broaching expectations.

We also know now that retail activity for the Nov/26-30 period blew through forecasts. Thank you very much.

Business planners should not calculate for more of the same for H1, 2011. That warehouse, just too expensive, about to be sold? Don’t. Not yet. About to release another 20% of staff? Wait until after Christmas, then take a look.

Robert Craven

US Economy - An Update

With Obama’s agenda behind us, or at least stalled, businesses and consumers alike are cheered.

From the Wash Times, “The economic outlook has brightened noticeably in recent days, with a splurge of car-buying by consumers unexpectedly lifting retail sales and businesses putting some of their nearly $2 trillion in stashed cash to work buying other companies with an eye toward growth.”

From Irwin Stelzer in the Weekly Standard, “Nationally, sales at retail shops increased for the fourth consecutive month, and recorded their sharpest gains in seven months. Mid-priced retailers, Macy’s, J.C. Penny, and Kohl’s, report that sales are beating expectations, giving reason to believe that the fears that have kept middle-income shoppers out of the malls are dissipating. New York City’s mid-priced restaurants report that non-rich consumers are once again dining out.”

Bernard Baumohl, an economist at the Economic Outlook Group, said the surge in auto sales is a telling sign for the economy, showing that consumers felt confident enough to take out loans, increase their debt loads and buy new cars for the first time this year.
“Consumers also have been shelling out cash to dine out more, as well as indulge in their favorite sports, hobbies and gambling - key discretionary spending areas that usually do well only as the economy improves,” he said.

Jeffrey Kleintop, chief market strategist at LPL Financial explains that businesses were put off by the sweeping legislative and regulatory reforms enacted by the Democrat-controlled Congress. "Businesses had been hesitant to make the capital commitments to growth" before the elections, he said. Now, "business leaders are more likely to make the commitments to growth that drive the economy, including additional hiring."

Agreed.

Wild Cards

We remain optimistic re US growth, believing that it will exceed expectations, especially employment numbers. But we noted earlier the existence of “wild cards,” events presently off radar.

The business of the future is to be dangerous. So let’s take a look at the odds of significant damage; that is, the odds of an event that has not been priced in and which would retard US growth.

A strike on Iranian nuclear facilities is such a wild card. This event would spike crude prices, at least by 50%. That’s a retardant folks. The Iranians would strike both Saudi oil fields and the Israelis, and attempt to blockade the Straits. Odds for such an event - 40%.

Another wild card is related to the present crisis of peripheral European credits. At the moment Ireland may soon loose her sovereignty; Portugal is in miserable shape, Spain not far behind. This turmoil has been partially priced in. The EU has an emergency fund but more prosperous credits like Germany aren’t anxious to contribute (attesting to the stupidity of the EU in the first place and the accuracy of Thatcher’s prediction). The wild card here is not that Ireland or Portugal become EU protectorates, like Greece, but is for contagion on a grander scale - an EU/Euro collapse and then the bank pandemonium that may follow. From Jeremy Warner in today’s Telegraph, “There must come a point where bailing out the fringe threatens the creditworthiness of the core. We are not there yet, but it's plainly not beyond the bounds of possibility.” Odds - 35%.

Another wild card is a sudden strike by the Chinese on US debt. Odds - 25%.

Another, with the same result, is a rapid blow back of inflation/weak $ tied to recent Fed antics, requiring a sharp contraction by the Fed and/or a full blown currency/trade war. We put this one at 25%. (This is not to say that the Fed’s recent actions are constructive in any way; they aren’t and they’re damaging to the integrity of the Fed to boot.)

Another, contributed to this piece by our friend Christian de Ryss, is traction by the way of muslim thuggery, perhaps a lucky strike at major infrastructure in the UK or Germany; perhaps even in the US and the paralysis that follows. We don’t dare print the odds, even if we had a clue.

No doubt THE key wild card is there, right now, beyond our grasp, waiting in the sidelines for a trigger.

Cross the fingers.

Robert Craven

Spending

In spite of Obama throwing every constraint imaginable at the employer, in spite of doing all he can to discourage the consumer, the economy continues to exceed expectations. Today’s key Oct Retail Sales release printed + 1.2% vs expectations of +0.7%. Plus the past two months were revised higher. Retail Sales are still 1.8% below their Nov/07 peak but are 7.3% above their year ago level. Not bad, and in spite of our friend BO. Consumers are spending; they are less cautious. This speaks well for discretionary spending ahead.

We predicted earlier that economic vigor will blow through expectations, H1 11, that economists will continue to change their predictions, to revise those higher, ongoing. We know they will do that before they do.

Our prediction was made prior to the Rep sweep of Nov/2. There is some risk that the new Congress, in their enthusiasm for belt tightening, may retard growth. Some observers in fact predict a double-dip as a result. Nope. That won’t happen. There may be some slight dampening to vigor, but, short of a wild card event, our anchor will hold.

Robert Craven

Reality Ahead

Let’s keep our eye on the ball. We have predicted more vigor than is expected for 2011 and given the reasons why. We can actually narrow that window to H1.

If we are right, discretionary spending will expand. Those whose income is linked to this sector may at this time purchase a case of medium priced champagne, to be traded for the finer stuff perhaps once odds approach 85%.

Samuelson once said that, “to be published is to be found out,” referring to economists’ terror of what most of us call a track record; you know, a plumber whose joints leak, a physicist who can’t get his measurements straight, a doc who tossed out the wrong organ. Most of us are held accountable. Not economists. We want to separate ourselves from this bunch, which is why we will regularly visit this topic, to see if we are right or wrong in our earlier prediction.

Let’s stay ahead of the crowd if we can; let’s close the pattern earlier than most. If we’re wrong, we’ll find out pretty quick and print the same in caps. For now, we reported that the last payroll report cooperated with our view. And the Inst. For Supply Management Oct reports for manuf and services were above expectations. And vehicle sales have blown through expectations. From Larry Kudlow, “According to Auto Nation CEO Mike Jackson, rising pickup sales show that small businesses and entrepreneurs are going to work.” Thank you very much.

Finally, we noted earlier that company earnings are surprising to the upside.

So we are set pretty well we think. We don’t know exactly what numbers the economy will print, and really don’t care. All we care is that results eclipse expectations, blow through conventional wisdom. This will cheer the consumer. So far so good.

Robert Craven

Today's Key Payroll Release

We noted earlier that the error to the consensus forecast, both for economic activity in general and for payrolls particularly, is to the weak side. That is, there will be more vigor ahead than expected. This will be the trend.

Today’s payroll release for Oct cooperated nicely. Payroll rose 161M vs expectations of +60M. Importantly, private sector jobs rose by 159M, the 10th straight monthly gain.

Also of note this am was that the average workweek (a leading indicator for new hiring) rose to 34.3 hours vs expectations of no change from 34.2. This is its highest level since Nov/08.

We’re no where near recovering all the lost jobs naturally; in fact, many will never be recovered. They’re history. But the economy is generating sustained, modest increases in employment folks, a near miracle considering the hindrances placed upon it by Obama and other levelers.

We need only to get past the lame duck Dem’s, many of whom will be up to no good.

Employers and consumers alike will be cheered by what they hear from the new Congress.

Robert Craven

A Lesson From Abroad

If the masses were all fresh out of Econ 1-A, then Frank, Dodd, Clinton and Obama would have been hung by their thumbs for protecting the twins (Our Heart of Darkness), thus igniting a firestorm, one which came within an inch of consuming the world economy. If McCain could have made the point, he would have won.

But there is easier economic stuff that most of us now do understand; key among these - the massive spending to spark jobs; it was a flop.



Background: A few of us knew the stimulus would fail before the horse left the barn. Last year we called it a tragedy. These things don’t work; they can’t.

Recall that unemployment peaked at 9% two months after the Oct/29 crash, and then began to drift lower, down to 6.3% by June/30 when the first big federal intervention occurred. Within six months, the trend reversed and hit double digits in Dec/30. Hoover's interventions were followed by FDR's massive interventions and unemployment stayed in double digits for the rest of the decade.

BO got in the act and deja vu.



Most reasonable folk know the gov’t cannot and never has created jobs on net. We’ve explained just why in numerous past blogs. The left’s pandering helps out the unions big time, but not measured US unemployment.

However, others of the developed world are not so stupid, or in BO’s case, so cowardly. Chris Caldwell of the Weekly Standard notes that, “Germany has been scolded, even browbeaten, by Obama administration officials, from Treasury Secretary Timothy Geithner on down, for saving too much and spending too little. It has refused to stimulate its economy as the United States has done, on the grounds that the resulting budget deficits would not be sustainable and the policies themselves would not work.”

Germany got hit as bad or worse that we did, Q4' 08. But guess what? Germany is growing at roughly 9% / yr. It’s unemployment rate is 7.5%, the lowest in 18 years. Need we say more?

Kennedy had some idea, Reagan knew exactly - you inherit a recession, then cut taxes and stand back. Your job is to do what you know is right, to do your constitutional duty and to hell with the political consequences. As a leader, you’ve got to have courage to do this, to stand alone. BO didn’t.


Robert Craven

Employment - 2011

We know, you’ve already begun to doze off. Don’t. Stick with us. You need to know this stuff; then come 2011, tell the kids or spouse it’s how you had it figured all along.

We noted in an earlier sketch that the error to the consensus forecast for near term economic activity is to the weak side, our view. That is, there will be more vigor than expected in 2011, particularly more vigor in payrolls.


Let’s take a look at where we are now. The Fed recently surveyed all 12 of its districts so we don’t have to. The Fed compiles this survey ahead of each FOMC meeting.

Here’s what the districts reported: Overall economic activity continued to rise, but at a modest pace. Manufacturing continued to expand with production and new orders rising in most districts. Consumer activity was up modestly; even travel and tourism picked up a bit. (Did we not just read discretionary activity - travel and tourism? I think we did!)

Vehicle sales were up a tad. Housing remained weak with most districts reporting sales below year ago levels. Same for commercial construction.

Prices of goods and services - mostly stable. Wage pressures were minimal. No surprise as we know the labor market is weak (thanks, BO) which naturally dampens wage pressures. But the weak labor market does not reflect weak employers. Read on.

Reported company earnings for Q3 are blowing through expectations, both consumer and industrial related (ex, MacDonald’s & Caterpillar). And it’s not just due to cost cutting; it’s also due to increased sales. Granted, much of the sales improvement is offshore, esp emerging markets, but fine, we’ll take that too.

Companies are hugely more efficient now than they were two years ago. But the changes they have made will in fact reduce the number of employees needed to get the job done. Why not? There are too many BO-imposed burdens attached.

We read from this week’s UK Telegraph, “This lack of investment in new jobs isn't because companies lack the resources. Corporate America, as in the UK, has an embarrassment of riches on its collective balance sheet. But having come through the crisis lean and mean, chief executives intend to stay that way.”

The Telegraph continues, “When it comes to investing, the risk and reward equation is skewed away from creating jobs and more towards buying rival companies to boost growth (while often cutting jobs) or buying back a company's own equity to enhance shareholders' returns and management's own share-based incentive schemes. After all, according to corporate America, what's the point of starting a business to create jobs when it will be weighed down by health care costs, taxes and red tape?” Thanks again BO.

And this is exactly where Nov/2 comes in. Given the seers are correct (recall Harry Truman holding up the copy of the Chicago Trib to know that they might not be) then we will have a great wave of fiscal conservatism sweep the country. Efforts to slash perhaps $100 bln from the federal budget will commence in January. And personal initiative will be celebrated as 1) tax cuts are maintained and 2) business tax cuts initiated. Next, the health heist will be repealed. Cap & trade, comatose anyway, will be sent to sleep with the fishes. Employer and consumer alike will be cheered by all of this.

In short, already healthy employers will see the risk of government interference, the risk of sudden change to their operating theater, sharply reduced. Jobs will follow.


Robert Craven

Forecasts

It is true that the crowd is usually looking in the wrong direction. This occurred Q4, ‘08, when most were expecting more of the same - the good times.

Now, the majority of forecasters (to whom the crowd looks for direction) expect more of the same once again; that is, a sluggish and weak economy. For those who do see a light at the end of the tunnel, most fear it’s a headlight, or a “double dip.”

Times have been tough on these folk, these forecasters. The Q4 ‘08 crisis rolled them over, flattening them into crow bait. Now they’re about to get up but are about to be flattened again, wrong again in their forecast.



Background:

Research analysts and economic scholars create a barrier of intimidating words (a favorite trick of Greenspan, perhaps the worst forecaster ever) to hide their insecurity. The fact is they don’t have any better idea than most of us. And the greater the uncertainty, the more their predictions seem to cluster, the forecasters shouting out together in the dark. Thus, when there is another unexpected major event, the more the consensus misses the mark.

Most economic forecasters are, well..... economists. But they’re not trained for the task. They’re trained to analyze, not forecast. They cannot sense intuitively. They invariably miss major turns in the road because they’re looking in the rear view mirror.



The error to the present consensus forecast is an under-estimation of economic vigor just ahead, our view.

In the present situation a great spark will be provided by the US masses, suddenly aware that they’ve been taken. That spark to be provided through the voting booth. This is not accounted for in forecasting models! Neither is the celerity with which the process will be accomplished, the overturning of BO’s agenda with the health heist first in line. Neither is the thoroughness in the de-lousing of an economy for two years contaminated by statists. All of this provides fire. Most see a rout by the Republicans but few understand the economic traction to come of it.

There is a malaise which has settled on this country. Reagan righted the last one. The majority will see to this one, and sooner than most expect.



Robert Craven

November/2 - Implications

It is expected that we may all look for relief, for a break from the desultory polices of the far-left after Nov/2. That being the case, let’s consider the aftermath (leaving bond and equity prices, gold and the dollar to the seers).

Certainly major employers will be cheered as uncertainties and hindrances are removed, or appear likely to be removed. The more the odds increase in 2011 for this event, the more payroll will increase and the greater the transition from temporary to permanent help. That’s a good thing.

Next, US business investment spending (which for the last 2 qts has outpaced consumer spending, a good thing) will expand further because business confidence will grow. That’s a another good thing.

Next, consumer spending will increase. Recall that retail sales are not in the tank but have been fairly strong, considering. But consumers with a new job, or, at least relieved of the threat of higher near-term tax burdens might even buy a discretionary item or two or three, something they are not doing now.

Finally, major world credits will take note; most have come to understand that statism means failure. They learned the hard way and now they’re wondering what we’re up to, a one-time beacon now moving left as they’ve moved right?! Thanks to Obama they’ve lost respect.

Michael Boskin writes following the G-20 summit, “Obama was soundly rebuffed by Canadian Prime Minister Stephen Harper, Great Britain’s new prime minister, David Cameron, and German Chancellor Angela Merkel, among others, on his demand for additional fiscal stimulus (more government spending). They are instead pursuing fiscal consolidation...”

Once the paladin of free markets, once the world’s champion meritocracy we have become suddenly hostile to initiative and innovation, looking instead for bureaucrats, for levelers to plan our economy, and, as world leaders now predict, kill us with debt. Everyone else can see this is the road to serfdom except Obama. When his policies are thoroughly rejected Nov/2, when voters stop the damage and then look for repairs, foreign investors will once again flock to the US as a place for safe and sound investment. We will all prosper as a result.


Robert Craven

Retardant #1

We return to that primary retardant hampering this recovery. Those immune to economic cycles or those who may consider themselves so situated perhaps don’t care. For the rest of us, especially for those of us who depend on discretionary consumer activity for sustenance (restauranteurs, plastic surgeons, nurserymen) business is off; our guess, after our own crude survey - 40% vs H1, 2008 for this segment of the economy.

This is not a complex issue (although lefty economists want you to believe that it is). Banks are not the answer; they have nothing to do with it. Corporate liquidity in not a problem. Nor is consumer demand moribund; that won’t work for an excuse either. Of course they're not buying vacation homes or new plants or getting face lifts, that's for sure, but in fact consumers’ core retail spending is 4.8% ABOVE its year ago level, its tenth straight year-on-year increase. What’s that you say? Can’t be? Yes it can. It's spending on necessary items. Retail sales may be 3.5% below their 7/08 peak, but they’re not in the tank. Key - there is enough there to encourage employers.

So what is it? Simple. Major employers are unwilling to sign permanent help, even though they sense the demand, domestic and foreign. But it is only permanent employees who really spend $. There is no trickle down without them.

There are two reasons for the employers' reluctance: First, the very real burdens placed on the employer by Obama -something we and others have detailed endlessly. Next, and carrying even more horsepower, the major uncertainty that goes with a bona fide statist in the WH. Even the IMF senses BO’s fiscal recklessness. What might be next?

This conclusion is not ours (although most any fool could figure it out). No, we have it from the employers directly.

We can’t call every major employer although we have quoted the likes of Intel, GE and most recently, Federal Express. Their message is the same. But to gather more in just one call we spoke today to the owner of a major employment firm in CA, actually in Marin. This guy talks to the employers so we don’t have to. His business is booming, but, for temps only. And from every single major employer, from LA to Redding, Dem or Rep, the message is the same. Until BO’s agenda is reversed, we’re not doing a thing.

Now if this doesn’t tell you something folks then you live under a rock.

Most of these potential employers look as we do to Nov for relief. Anybody who owns a business - perhaps our nursery pals - had better hope they’re right.

Robert Craven

Off To Your Room Kids

In the US, it's all about jobs. So you might think that the rest of the developed world has a jobs problem. It doesn’t.

Let’s take a look. What can we learn from this?

In an earlier sketch (World Order Reversed) we noted that election results in the UK and Europe have moved decidedly right, this after lessons learned the hard way. From that piece: “If you look across Europe, the political center of gravity has clearly moved to the right,’ notes Charles Kupchan, sr fellow at the Council on Foreign Relations, ‘There were deep and broad structural problems of the economy that Europeans had to tackle.” The nearest role model was the UK under Thatcher. “Now that process,” continues Kupchan, “of undoing large state-centered economies is moving to the Continent.”

Europe, the UK and Australia (5.1% unempl.) are already looking to be in reasonable shape after the crisis, at least if measured by joblessness, which is most cases is now at pre-crisis levels. But of course not the US. Why?

From the recent IMF annual meeting, the mood as one headline suggested is that, “ Jobless American threatens to bring us all down.”

My goodness sakes alive folks, they’re looking at us as cripples! The IMF is lecturing the US? This can’t be true! Ah, but yes it is. With policies that look reckless in comparison with the rest of the developed world, why not?

There is nothing new under the sun. Rich Rahn at the Cato Institute: “Mankind seems to be programmed not to remember the reasons for economic success and failure - and these lessons seem to need to be relearned every few years. The normal course of events is for free and prosperous economies ... to move toward less freedom - more government spending, taxation and regulation - until the burden of government brings growth to a halt or near-halt.”

Well Rich ol buddy, maybe not “mankind” but certainly the US left, suffering as they do from amnesia. So like children at the dinner table, making nothing but noise and a mess, they were scolded; they are now being put to their room.

But guess what? The kiddies rarely learn a thing.

This dear readers explains the cycle; this in fact is why progress is retarded, moving only in ratchet fashion yet with slippage along the way. We all suffer for it.

A party controlled by radicals at the national level, gained traction; the rest is history. Using gov’t in the fields of stimulus and health, and with union payoffs BO, Pelosi, Frank and the rest are simply repeating early errors of the UK and Europe (errors now being reversed).

But then we all know that don’t we? Yes indeedee, there must be something else and there is. BO’s gang, being not completely stupid understood that neither health nor stimulus would deliver in the conventional sense anyway. That wasn’t what this was about. It was about leveraging a crisis for a long hibernating statist agenda, an agenda so firmly welded to the far left’s consciousness that many where willing to self destruct - hari kari sytle, off the cliffs - to see to its fruition.


Robert Craven

Employment

Today’s Sep Payroll number surprised to the weak side, down 95M. There was another huge decline in census workers, and a large decline in state and local gov’t workers (which can’t be a bad thing!).

Private sector jobs rose a tad (+64M). After falling steadily between Dec/07 and Oct/09, private sector employment has increased modestly every month this year, averaging 95M per month. Translation - sustained but modest increases in these jobs.

Employment is now 7.6MM below the Dec/07 peak level.

The unemployment level was unchanged (9.6%) vs expectations of 9.7%. This was due to a smaller increase in the labor force (+48M) than in household employment (+141), resulting in a decline in unemployment (-93M). There are now 14.8MM people unemployed.

Naturally this release will provide fuel for conservatives in November.

Weakness in job creation simply did not have to be; it was not baked in the cake following 2008 or any other downturn for that matter. Most of us knew that limited gov’t interference, and lower tax burdens both on consumer and business, will do the trick. It worked for JFK and it worked for Reagan.

Finally, some of us knew that it is impossible for gov’t “stimulus” plans to create jobs on a net basis. Most of Obama’s people knew it too. We must ask, have they no decency?

No, none of this had to be. It is such a tragedy.


Robert Craven

JOBS

Friday we have the employment report for September. Formally known as the Non-Farm Payroll report, the BLS gives us a monthly read for payroll in all categories except farm, domestic help, general gov’t employees and some non-profit types.

Key concern nowadays - jobs. Thus, this release carries the potential to move voter attitude significantly +/- if the result varies from consensus.

Observers expect a lift in the unemployment rate to 9.7% from August’s 9.6%. Employment is expected to be unchanged after a 54M drop in August.

The length of the average workweek is expected to remain unchanged (34.2 hours); total hours worked are expected to increase 0.1% from an unchanged figure for August.

Finally, hourly earnings are expected to rise by 0.2%, putting the Sep level at just 1.8% above its year ago level, one of the smallest increases of the last 6 years.

“General gov’t employees” could care less what numbers pop up on Friday. For working Americans, and especially for the rest of us who are in markets tagged to discretionary spending we know payroll activity is key - trickle down.

The US economy is firing on 5 or perhaps 6 of 8 cylinders. Wonder why?

That is what the November elections are about. To the extent Obama’s agenda can be reversed and significant uncertainties plaguing the employer can be eliminated, Payroll numbers will trend higher, 2011. It’s that simple.

Most Americans understand that it's critical that we do away with all that a statist president has placed in front of a meaningful recovery - tax & nationalized energy scheme, the health heist, the stimulus tragedy, GM/union bailout, the risk of much higher taxes, corp and individual, the threat of even more gov’t control of even more segments of this economy.

With this dread ahead, no one will hire. You kidding me?

We return to our slogan: First, stop the damage. Next, make repairs.


Robert Craven

US Economy Ahead - A Layman's Guide

Let’s expand a tad on the Sep/20 sketch.

In explaining the delayed recovery there’s no need to get tangled up in page-long equations and econ mumbo jumbo. (Others, more qualified, have already done the heavy lifting.)

Observers have highlighted the parallel - this experience and the Depression. Great sums of $ were spent by FDR and Obama. In both cases, the employment situation worsened significantly soon after.

Readers will recall from an earlier sketch that unemployment peaked at 9% two months after the Oct/29 crash, then headed downwards, to 6.3%, June/30. Then came the first federal spending spree. Unemployment hit double digits, Dec/30.

Phil Gramm recounted this experience in today’s WSJ. Gramm also quoted FDR’s treas secty, Henry Morgenthau, just as we did several months ago. Morgenthau summarized as follows when before Way and Means, Apr/39: "Now, gentleman, we have tried spending money. We are spending more than we have ever spent before and it does not work . . . I say after eight years of this administration we have just as much unemployment as when we started . . . and an enormous debt, to boot.”

We called gov’t spending a “tragedy” and noted the exercise would be at best a wash, likely a retardant. It proved to be a retardant.

It never works folks. If you didn’t take our word for it two years ago, do it now. The stimulus deal was a scam. Obama is not entirely stupid. He knows this the same as we do. He just figured he’d take in the masses (who in fact excused FDR but won’t BO, not for this nor the health heist).

The other similarity between the two experiences is that in both cases the presidents refused to cut taxes. We know from Kennedy / Reagan that this works. Since Obama is more concerned with not offending far-left zealots than seeing to the welfare of America, he won’t do that.

And this brings us to Oct/2010. Where now? First, tune out the TV prophets, the ex -spurts.

Next, put your ear to the ground. We did. We listened to major employers. Sure, they are risk takers yet there is just too darn much legislative-driven uncertainty ahead for even them to do anything but sit on their cash. Why? A statist at the helm is a death threat.

What then will provide the spark to potential employers and consumers alike? We all know the answer, not tough at all. First comes Nov/2010 when major harm being inflicted is stopped (with our 40% risk that Dem lame ducks will twist the knife). Next will be the period of resuscitation, that of 2011, when the health heist is reversed, tax cuts ironed in, cap & trade put to bed. By that time the economy - short of a major international wild card event - will be moving along very well.

Our plastic surgeon pal will be doing more lifts. Our nursery pals will be selling more plants. And, the Maui vacation-home market will come alive!


Robert Craven

World Order Reversed

Background from the Hoover Institution’s Thomas Sowell: “One of the ideas that has proved to be almost impervious to evidence is the idea that wise and far-sighted people need to take control, and plan economic and social policies so that there will be a rational and just order, rather than chaos resulting from things being allowed to take their own course. It sounds so logical and plausible that demanding hard evidence would seem almost like nit-picking.”


Thank you Tom. Indeed, we have all studied control of the violent variety: French, other revolutions. Even of the less violent flavor, the planners are high IQ types; they have all the facts at their disposal and naturally the power of enforcement. And almost everybody has to try it just once.

Friedman and others saw the central flaw. Most charged ahead, which includes of course the USSR in the extreme sense, the UK after WWII and Europe to one degree or another. The US took the other course, with a needed mid-stream correction applied by Ronald Reagan.

The USSR’s experiment folded, Thatcher resuscitated the UK, yet most of Europe continued to surrender decision making to gov’t types. Meanwhile, the US remained a beacon.

Until now. We have witnessed a drastic and rapid reversal of world order. Past two years most of Europe have moved center right, this after years of witnessing the destruction to society effected by planners. It was the crisis of Q4 ‘08 (for which we thank the Democrats) which accelerated the process. As reported in today’s Washington Times, “If you look across Europe, the political center of gravity has clearly moved to the right,’ notes Charles Kupchan, sr fellow at the Council on Foreign Relations, ‘There were deep and broad structural problems of the economy that Europeans had to tackle.” The nearest role model was the UK under Thatcher. “Now that process,” continues Kupchan, “of undoing large state-centered economies is moving to the Continent.”

Thus, as the balance of the free world moves right, embracing personal initiative and personal freedoms, we under BO have moved decidedly left.

Another needed mid-stream correction is soon to be applied.

Robert Craven

Economic Reality Ahead

Let’s review economic reality ahead.

First, a background:

- The Dem’s refusal to reform the twins (in an effort to buy black votes) sparked the crisis of Q4 ‘08. That is, Bush attempts at regulation were thwarted by the likes of Obama, Dodd, Frank and Pelosi, to name a few. This resulted in ground zero.

- Ironically, the crisis along with his being half black got BO elected, even though he had a hand in creating the mess!

Left-wing legislation enacted since has stalled any meaningful recovery.

Now where?

- Voter revulsion after extremists gained traction speaks well for Nov results. The so-called tea party movement represents more than a spark, maybe even a rush for the economy. To the extent these types gain office, economic optimism will grow as uncertainty is put to bed.

We tell our lefty friends - ok, want to continue with a miserable bottom line; fine, vote Democratic. Walk the walk. You were happy before to pay the price of pulling the trigger.

Not so much fun now guys? More interested in your business, and 401K?

Good. First, deep 6 the latest chant fed to you by the DNC. Next, read a book or two. Finally, vote for responsible government come Nov.

This is not partisan, simply reality.

Robert Craven

Careful Which Hand You Bite

The anointed are having a great time witnessing the explosive energy as Tea Party folk cross country begin something new. To the media, faculty lounge types, tenured elites, it’s entertainment. To our lefty friends who are small business owners, it had better be something more than that.

Our nursery pals for example (the poor guys, they provide a default, and we beat them up almost daily) better leave the derision to the postal workers; they’ve got something on the line; criticizing this movement is the equivalent of bitting the hand that is about to feed them.

Obama is obviously bad news for the economy. His statist agenda won’t cut it. There is no need to explain, or elaborate; we already have. Tea Party types want to do away will all that BO has placed in front of a meaningful recovery - tax & nationalized energy scheme, the health heist, the stimulus tragedy, GM bailout, the risk of much higher taxes, corp and individual, the threat of even more gov’t control of even more segments of this economy. With this dread ahead, no one will hire.

We have known that the Nov elections held some promise for the economy. With recent results providing a propellant to free market ideals, the elections may provide more than promise, maybe an explosion. From Larry Kudlow’s column today quoting a recent WSJ piece, “Raul Labrador, the tea-party-backed House candidate from Idaho, says he opposes all government programs that help one segment of business over another. ‘I’m against all of them,’ he tells the Journal. ‘I don’t think the government should be picking winners and losers. We should have taxes low for everybody, and not just for a particular industry or segment.’”

Now this is about as close to a reincarnation of F.A.Hayek as we’ll get, for it is not only about prosperity, but the gov’t “picking winners and losers,” as Labrador puts it is a direct road to serfdom.

Let's return to Mar/4/1925 and the first US presidential inaugural to be broadcast. Cal Coolidge had this to say that day; working Americans may find some application: “I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. That is the chief meaning of freedom. Until we can re-establish a condition under which the earning of the people can be kept by the people, we are bound to suffer a very distinct curtailment of our liberty.”

Through BO the chatterers found for the first time in their lives that notions discussed in the abstract are just plain no fun when experienced in the concrete.

The Tea Party may provide an out for these poor souls.

Robert Craven

Those Dog Gone Pesky Facts

We were scolded this pm by the nursery crowd for not highlighting today’s signing by BO of a bill providing small business tax breaks, something to crow about apparently. Well, we know facts can be very pesky critters, so let’s take a look at this little dandy.

The bill contains $12 bln of tax cuts for little guys, such as a 100% exclusion of cap gains income for certain small start ups, expensing for certain capital expenditures, and new deductions for start-up expenses. Whoa now!

One little problem. Only a fraction of businesses will be eligible, and the write-offs last for only one, maybe two years. What is that Obama?

As the WSJ asks, while in fact granting the WH is correct that a cap gains tax cut will help small businesses raise capital, is “why raise that tax rate to 20% from 15%on Jan/1 for everyone else?” And as these folks illustrate, “This bill isn’t even a net business tax cut, because the temporary small business cuts are offset by permanent corporate tax increases. Obama is promising $12 bln of cuts with his left hand while proposing to collect about $300 bln in tax increases from this bill, and others, with his right.”

Gosh, guess that’s why we didn’t highlight this deal.

Robert Craven

Things Economic and the Masses

Obama continues to self-immolate. In Milwaukee today he 1) blamed the economic mess on Republicans and 2) pimped another spending program. The first year he could get by with this nonsense. No longer. The masses, bored to tears by things economic in days past, have caught on.

CBS reported this weekend that Democrats are distancing themselves from BO. “Not only are they running away from...Obama, they’re running away from being Democrats in some cases,” reports Nancy Cordes, Congressional correspondent. Well ya. Most of these Democrats are not handicapped as is Obama. They listen.

We all know a cure for the economy - cut taxes, then stand back. Kennedy and Reagan proved that works.

Trouble is, most elected officials haven’t learned to sit on their hands; the left doesn’t even try. Now that radicals are at the helm, the US electorate has had enough. Simple.

While BO was busy force-feeding a phony health solution down our throats, bribing opposition along the way and aiding the enemy in Afg by promising a withdrawal date (to gain health heist votes), the masses saw the economy go nowhere.

Now, it is true that the average voter didn’t know up front that gov’t stimulus doesn’t work, that it can’t work (unless you’re a union bloke). Most have jobs; few have time for scholarship. We knew, but then they don’t all read our blog. Now they know.

But BO doesn’t know they know. His background is incestuous, a closed system of a few self-appointed elites living an abstract, shouting out, holding hands together in the dark.

That’s unhealthy behavior.

Robert Craven

Caught Flat Footed

In our sketch of Aug/22 we noted that the Fed has done about all it can. On reflection, that statement is perhaps not accurate; we were a tad hasty; we should have known better given our background. Let’s take a look. (No yawning now. Stick with us.)

Alan Blinder, once vice chair of the Fed and now a Princeton prof said that, “The heavy artillery has already been fired.” We have a letter from Alan dated Jan/96 thanking us for supporting his in-house battle with Greenspan. That was a pleasure. Still, dear Alan represents a certain class of economist - lefties. It so happens that the chorus that the Fed is finished is from this school, which represents perhaps 70% of major names in the trade. We joined them Aug/22. That was a mistake. (Not thinking, watching videos of our granddaughter.)

Blinder, Roubini, Krugman and others may not be completely neutral in their prediction of Fed impotence. All are supporters of Keynesian witchcraft. All now go by the prescription that the ball is in the fiscal court. Most of us know that means more debt and a crushing burden for our kids.

In fact, as a few tethered thinkers have disclosed, “The Fed has an arsenal of neutron bombs if it wants to use them...,” according to Ambrose Evans-Pritchard in today’s Telegraph. He lectures the rest of us to, “Get a grip, the lot of you. While there is no easy way out for the US after stealing so much prosperity from the future through debt, there is no excuse for this dead-end defeatism. Clearly, the ‘canonical New Keynesian' model that holds such sway on America's elites is intellectually exhausted.” Hah! Refreshing stuff from this Brit.

And of course he is right. In grad school, we all had to memorize the so-called aggregates, the expanding components of money supply. M1 is the core; M2, M3 include a broader scope. No need on this occasion to delve into particulars. In the article we hear from Tim Congdon, from International Monetary Research that, “Bernanke continues to babble on about futile credit easing: neither he nor his staff seems to appreciate the difference between purchases of assets from non-banks and from banks.” Congdon knows that nowadays banks sit on the money and that others use it, or might.
This means huge bond purchases by the Fed but outside of the banking system; it means buying from pension funds, public bodies, insurers, etc. This is the broader M3; these folks might actually spend it. (Where does the Fed get the $? Out of thin air naturally, but we won’t worry about that right now.)

So for all you readers out there who have been distraught, fretting that the Fed’s desultory firing of popguns is all that's left, take heart. We know this topic eclipses all others at dinner time. We know you ponder the aggregates endlessly. Don’t worry. There's a few "neutron bombs" left.

Robert Craven

Today's Aug Payroll Release

Unemployment rose to 9.6%, as expected. What happened is that there was a larger increase in the labor force (+550M) than in so-called household employment (+290M), resulting in an increase in unemployment (+260M). That’s how it works.

The headline result, overall jobs declined 54M, not quite as bad as expected. The private sector job gain, at +67M was a tad better than expected.

Why did overall jobs fall? Due to another huge decline in temp census workers and another drop in state and local gov’t employment.

In conclusion, the economy is generating a modest number of private sector jobs, firing on 5 of 8 cylinders. Only BO’s policies stand in the way of a full blown recovery.

Miscl: The workweek and total hours worked were unchanged as expected. Hourly earnings at +0.3% were better than expected. We don’t know if this indicates future trend or not. Probably not.


Robert Craven

Learning Experience?

We have the key employment report on Friday, this for the month of August. The near term value of every 401K or small business hangs in the balance. We better take a look at this thing.

Formally known as the Non-Farm Payroll report, the BLS gives us a monthly read for payroll in all categories except farm, domestic help, general gov’t employees and some non-profit employees. Why BLS types are afraid of cows or maids, we’re without a clue.

Past years, the market-moving potential of this release was huge. We know. We used to trade each release. With the general dampening of bond-price change, past decade, interest rates are not so vulnerable. Stock prices have replaced bond prices in that regard.

First, the likely result. Let’s take a layman’s look at the components: 1) Overall Payroll is expected to have dropped by 100M, due primarily to census bureau layoffs. Private sector employment is expected to have increased by some 40M. 2) The Average Workweek and Total Hours Worked are expected to be unchanged. 3) Unemployment is expected to hit 9.6%. 4) Hourly Earnings rose a tad, maybe 0.1%.

That’s the guts of the thing. Anything a lot worse and your 401K will tank. Any discretionary spending that might have been coming your way will vanish.

Now let’s think with our pocketbooks. We know that employers are scared to death of Obama. We know this because they’ve told us so. Witness Paul Otelinni, head of Intel, two weeks ago at the Technology Policy Institute’s Aspen Forum. From the IBD, “The Intel chief was harsh on the massive spending by the White House and Congress — and on the failure to extend the Bush tax cuts, the takeover of the health care industry, and the threat of new taxes on businesses to remove carbon from the atmosphere. ‘I think this group does not understand what it takes to create jobs,’ he said. ‘And I think they're flummoxed by their experiment in Keynesian economics not working.’”

OK, that is established, and, it is key to the prolonged slowdown.

And so this reading carries double the horsepower. Not only is it a reading on an economy in isolation, but a reading of an economy, for the first time in our lifetime, hanging on the whim of hamstrung employers (who by the way are cash rich).

So here is what you do, all our lefty-small-business-owner pals out there. If this release blows through estimates to the upside, you can celebrate. Buy a new Volvo or tie-dyed shirt. It means more discretionary spending in the future; folks will buy your flowers and spend for new breasts once again. If the release is below or at expectations, then be prepared to vote Republican in November. You don’t have to tell a soul, not even your spouse. But if you care about the bottom line, it’s a good move.

Face it lefties. You screwed up big time. Before you were insulated - ok for everyone else but you. It felt good to talk up the typical abstract notions. Now the hens have come home to roost because for the first time in recent memory, you guys actually gained traction by the way of BO.

How’s it feel now, making the personal sacrifice?

Try making it a learning experience while you’re at it.

Robert Craven

The Noise Industry

We looked at the media a little bit this pm. My goodness! Noise is everywhere. Folks are desperate to be heard; they clamor endlessly for spots on TV (we were one of these, once upon a time). The competition in the noise industry is intense, both for an appearance, and in debate. It’s big business. But it’s not necessarily information.

Excess is also the norm with the written word. There are too many words, too many stories, too many diatribes that aren’t worth a trip to the outhouse. We are suffering from a sever case of inflation in word usage, verbiage re-defined.

All of this particularly irritates when applied to economics. You think these witch doctors, prognosticating on the stock mkt and the economy have any idea about what they’re talking about? As the chief economist of Northern Trust (and a friend) once told us, “We’re just entertainers.” Think these guys provide insight? You come home, have a Jack, let some barker tell you what happened and why today, and then you sleep better. That’s it. They know it. That’s where the $ comes from. Ask them, as you would a plumber for example, for their track record and there is only silence.

Humility is key in trying to close the economic pattern ahead. Most of us have our hot moments. Key is to recognize the not-so-hot, that is, our limitations. We all have the power of insight. That is what this blog is about. We don’t need authority figures, economists (who continue to earn salaries given a track record south of 50%), or anyone else. All we need is judgement, common sense.

Our last sketch presents in distilled form just what is needed to fire this economy. Let’s leave it at that for the moment. The rest is noise.

Robert Craven

US Economy Ahead

In financial markets the business of the future is to be dangerous. Most of us have found that out the hard way, past quarters. Those whose income is dependent on discretionary spending - landscapers, plastic surgeons, restauranteurs, vacation-home realtors for example have especially taken it on the chin as the US economy remains in creep mode following the shock of Q4 ‘08.

Most have some idea of how we got here but little idea of how or when we’ll get out. Neither current economic numbers nor surveys of consumer or business attitudes are reassuring.

Few can insure against wild card events; surely there are more on the way but most of us can at least obtain some kind of tether, a modest leg up in anticipating economic reality ahead. That is the purpose of this sketch and those to follow.

Understanding near-term Fed policy is generally key to correctly anticipating growth. Not this time. The Fed has done about all it can. Liquidity is ample; corporations are cash rich. Instead, it is business attitude that needs to change. If we can anticipate that change we can to a large extent anticipate our own financial situations.

Problem #1) Employment is on hold. Large employers are afraid of the threat of well-advertised new burdens planned for them by the administration, all detailed in past blogs. Small businesses are afraid of the threatened tax hike - the Obama-Pelosi-Reid plan which will raise taxes on those making over $200M. As most small businesses are S-corps (tax pass through to the individual) these potential job creators have no reason for optimism. (Nor are investors encouraged as additional hikes on capital gains and dividends are planned by this trio.)

Problem #2) Washington’s spending spree. First the “stimulus” bill. As we predicted last year, gov’t spending did not create jobs on net. It is merely smoke. Next, the health heist and the financial regulation bill. Folks know enough now to reject the health bill; nobody knows what’s for certain in Dodd’s bill (one scary provision gives federal agencies powers to dictate pay at financial firms).

Not only are private-sector employers worried about new burdens, they are worried about anemic growth in general, looming deficits and tax hikes never ending. In the larger sense, private enterprise does no relish a future for the US as a social democracy, in the fashion of an economically stagnant Europe. Yet the perception by private enterprise is that this is where Obama and extremists in control of both houses, are taking us.

So understanding Fed policy ahead won’t help but understanding political reality ahead sure will. We’ve all got to become political strategists.

No one any longer argues that this administration and those in control of Congress are job killers. Thus, the greater the odds that Republicans take over the House and win enough Senate seats in November to ensure the ability to block legislation and block tax hikes, the more likely free enterprise will take heart and the engine will fire.

James Shirk of the Heritage Foundation summarizes for us: “Congress must recognize that a strong recovery and new hiring depends on the confidence businesses have in the future. Uncertainty is a fact of life for all businesses, but when Washington adds materially to that uncertainty, businesses invest less and hire less. The most powerful, no-cost strategy Congress can adopt is to stop threatening those in a position to hire—no more taxes, no cap-and-trade legislation, no government takeover of private health care, and no massive increase in the public debt.”


Robert Craven

Wisdom From A Rocker

Ted Nugent’s an icon out there; what he can do with the Gibson most only dream of. His 6000th concert was in 2008; 30MM records and he’s still going strong. There’s many who claim these music types are a hopeless lot, that they’ll never learn, a burden of the rest of us. Certainly PP&M lend credence to that theory, but then again Baez gained an anchor and in spite of the company she kept. Nugent never had that problem - he had a grip from the get go.

Ted writes in today’s Washington Times. He demonstrates a keen grasp of the US financial situation, showing evidence of scholarship that perhaps only those of us who have taken the effort really appreciate. He reminds us at the beginning that when you’re in a hole, stop digging. Nugent notes that we are in hock to the tune of $14 trl (maybe $100trl if Medicare, Medicaid and S Sec are included). “This gigantic level of borrowing and spending is unsustainable by any measure, by any means,” Nugent explains. “The only real reason Fedzilla would do such a thing would be that those currently in charge want to destroy America and turn us into a Third World nation.”

Well, not sure we can agree that the average Democrat actually understands that by their vote they are destroying America; most are blissfully ignorant of the policy implications. The hard core - Obama and his type, yes, they are out to destroy a way of life, certainly that is so.

Nugent continues, “America is in a deep financial hole. Obama’s solution to this hole: Keep borrowing and spending. Dig, baby, dig. We shouldn't expect anything different from a president and administration who don't have a clue about how private industry works or how Fedzilla's policies stifle growth. At least from my research, I still can't find anyone on the president's closest team who has actually started a successful business. I can however find Che Guevara and Mao Zedong fans. Phenomenal.” Indeed.

Nugent may not be the world’s best writer but he does have the bull by the horns - accurate and direct. For support he quotes Erskine Bowles who heads BO’s debt commission, who told the National Gov’s Assoc the other day that, “This debt is like a cancer. It is truly going to destroy the country from within.”

Nugent’s solution: “The very first thing we need to do is elect a fiscally conservative House and Senate this fall to serve as a dam against the Fedzilla tsunami of spending. Then we need to hold them accountable. We need tax relief across the board, from businesses to individuals. Nothing will get the economy moving faster than keeping money in the hands of American businesses and people who earned it. America should have the most pro-business tax structure on the planet. We do not. My home state of Texas has the best economy in America. Interestingly, Texas has no corporate income tax, capital-gains tax or personal income tax. Don't tell me that reducing taxes across the board will not put people back to work.”

Well put Ted.

Robert Craven

Hope For Change

There is hope for the US real sector given change that is expected this November. Certainly employers will be heartened if the election ushers out the majority. Democrats are bad for business. Obama is death for business.

Most of us know at this juncture what it is that ails this “recovery” - employers’ reluctance to hire given the obstacles, both real and perceived to be placed on their books by the Obama agenda. This is straightforward. We have it from them directly. The great mystery is why business owners, particularly small business owners who are registered Democrats are not in revolt. Everything about their party, especially about its leader blocks any meaningful chance for a rapid recovery, for renewed vigor. The only answer must be that these are willing to pay the price of Obama’s social-democratic ambitions out of their own pockets, like our nursery pals.

The rest of us must wait for November. But even then, even when the little darlings are herded out the door there is a wild card. As some observers remind us, those Democrats defeated in Nov aren’t going anywhere for a bit; they’re lame ducks. They could vote for anything; they have nothing to loose. This is a very real threat.

From Krauthammer, “As John Fund reports in the WSJ, Sens Jay Rockefeller, Kent Conrad and Tom Harkin are already looking forward to what they might get passed in a lame-duck session. Among the major items being considered are card check, budget-balancing through major tax hikes, and climate-change legislation involving heavy carbon taxes and regulation,” every one anti growth, anti recovery we might add. “Perhaps shame will constrain the Democrats,” notes Krauthammer, but warns that, “this is not to be counted to on. It didn’t stop them from pushing through health-care reform the public didn’t want by means of ‘reconciliation’ maneuvers and without a single Republican vote in either chamber — something unprecedented in American history for a reform of such scope and magnitude.”

There’s hope for change alright folks. The masses have recognized their error and part of it will be rectified this November. It’s then up to defeated Democrats to behave honorably. Can we count on it? We’ve got a call in to Charley Rangel.

Robert Craven

Economic Literacy - Stick With It

Now that we’re all enthused about economic literacy, let’s stick with it. It’s fun folks. Come on! Mark the next FOMC meeting on you calender (8/10). Get excited! Tell the kids! Sit down at dinner tonight and say, “OK, that’s it. We’re sick of being treated like dummies when it comes to things economic, and, we’re not going to take it anymore!” Good, that’s a start.

OK. Now. Have we been hoodwinked by the pres? Would he lie to us? Let’s see.

Mike Boskin is a prof of economics at Stanford. Bob Barro is a prof of economics at Harvard. Lee Ohanian is a prof of economics at UCLA.

Boskin starts out for us in an easy-to-understand bit in today’s WSJ, entitled Obama’s Economic Fish Stories. “..Obama says ‘every economist who’s looked at it says that the Recovery Act has done its job.’” Boskin’s response - “That’s nonsense.”

Boskin continues, and again, with up front, simple stuff for all of us: “The stimulus bill is mostly a tragic waste of money ..... the permanent government expansion and higher tax rate agenda is a classic example of what not to do during bad economic times. Worse yet, all the subsidies, bailouts, regulations and mandates are forcing noncommercial decisions on the economy, which now awaits literally thousands of new diktats as a result of things like ObamaCare and the financial reform bill. The uncertainty is impeding investment and hiring." Right.

Bob Barro, after exhaustive research,offers this: “The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.” Right again.

Finally, Ohanian’s research indicates that gov’t stimulus cannot be stimulus at all, by any definition. We have reflected Lee’s view earlier - where in the world does the money come from? From the grasp of private enterprise. Barro’s research dovetails with this.

Aren’t you just a tad pissed that BO threw all of your $ down the john? Just a tad? And doesn’t all of this make a lie out of every word BO uttered about the stimulus heist?

And now Obama threatens to allow the Bush tax cuts to expire. His own eco adviser Christina Romner notes in the most recent issue of the American Economic Review what any fool knows, that "tax increases are highly contractionary . . . tax cuts have very large and persistent positive output effects." Their estimates imply the tax increases would depress GDP by roughly half the growth rate in this so-far-anemic recovery.”

Better listen up Obama.

Robert Craven

Homework

If economic literacy were a requirement for entering the voting booth the Democratic party would be doomed. If the economic implications of BO’s agenda for example were to register with most who voted for this guy, then after kicking themselves in the rear, they’d vow - never again.

Unfortunately, the masses are slow to pick up on this stuff. So what literally happens is that those of us with a handle take a time out so that those without, can catch up. It’s frustrating.

The left and most of their kind ignore history, particularly economic history; no such thing actually exists in their exquisite, tiny little minds. It’s a pleasant case of amnesia.

Operatives of the left know this; BO knows this; all play to it. They knew most registered Democrats could not get their arms around the culpability of those who protected the twins, the original act of sin which precipitated the crisis of Q4 08. And they know that many still cannot get their arms around today’s ground zero - that key to understanding the “slow” in slow recovery, the #1 voter concern. Dodd, Obama, Frank, Boxer and others have their fingerprints all over the first; BO alone is responsible for the second.

You can demonstrate the key to the soft economy in a direct way, quoting business leaders for example. It doesn’t register with our lefty friends. That, or the left just cannot look in the mirror and say the words - “I am responsible”. But indeed, business leaders agree that in the Obama world of high business taxes, income taxes, payroll taxes, capital gains taxes, and workers compensation taxes, the key to success is to avoid employees. The only way to survive as a business owner today is by keeping the payroll very low and by hiring only independent contractors or part-time employees provided by temp agencies. This takes the “trickle” out of trickle down.

But wait! For our progressive pals maybe this is the price they are willing to pay. Obama’s statist agenda, repulsive to potential employers may be music to them. To each his own. Sure their business is in the tank, but being principled, stand up guys and not hypocrites, they are very happy to be able to pay for BO’s enlightened agenda, out of their own pockets. Something they are doing at this very moment.

For most of the rest of us, certainly for independents and even many moderate Democrats there is the understanding that with pocket book issues, BO remains the extremist he always was - a far-left ideologue bent on gov’t control of as many productive resources as he can get his hands on. Only the willfully blind didn’t “see” that up front.

Want a brighter economic picture? Bone up on a little economics before you vote next time.

Robert Craven

Ground Zero

Again, let us visit that which plagues this nation - a crawling economy. Is there a ground zero, a heart to the darkness? Of course there is, and it's easy for all of us to understand. The tough part is accepting responsibility, the baggage of the left.

A gracious partner in debate is our nurseryman friend. His business could not be more discretionary. Thus, it is suffering. When we delicately pointed to the cause he instead blamed it on, naturally, Bush and the banks. But this is an impossibility; the two are not related.

We have featured quote after quote from business leaders answering the question - Why are you not hiring? Their answers share a thread AND IT IS NOT LACK OF DEMAND; it is the perceived burdens to be placed on them by BO. Easy. Yet our friend can’t admit it, or at least won’t, even if he heard it, and he did, from the horses mouth. He cannot bring himself to admit that he voted for an extremist.

Patience. OK, let’s try again.

We have another friend who with his family owns a large employment company in Marin. His told us last week that his business is booming - not for full time, but for temps. Know why? Right. Temp workers don’t get health insurance or other benefits and as Tom Sowell reminds us, “working existing employees overtime doesn’t add to the cost of their benefits.”

Businessmen are not fools. They might have a ton of cash on hand, and most do, but they’re not about to spend any of that on full time help. Businesses don’t know what to expect from BO, who seldom lets a day go by without some new anti-business law or policy.

So you may wonder why things are still slow. But you now have the answer. Why is it necessary to put down 2500 words when a few will do? For those who tell you, “No, it is just not that simple,” recall the old maxim, that complexity provides the last refuge for the scoundrel. In this case, that’s the left.

Robert Craven

Dem Governors - Expecting Something From Nothing

By now we’ve all heard Democratic governors sound off, every one critical of Obama’s stimulus effort. “I’m disappointed in Washington,” said Ill gov Pat Quinn. “They don’t understand how you fight a recession. The federal government has to run a deficit in recessionary times because we’ve got to get out of the ditch.”

It is Quinn who does not understand how to "get out of the ditch."

“I think the bottom line is they’re not seeing the jobs that should have come from it,” says West Virginia gov Joe Manchin. “They oversold the job creation part of it,” says Colorado gov Bill Ritter.

Sorry Manchin and Ritter but there are no jobs to come of it, not on a net basis anyway and that is true no matter how much $ BO throws down the drain.

Review: Where in the world does the “stimulus” money come from? A slush fund of some sort, held in reserve all these years for just such an emergency? No, it comes from 1) taxes or 2) borrowing or 3) inflation. Higher taxes mean less spending, business, all of us.. US gov’t borrowing means crowding out the private sector, the employer. Inflation (accommodative Fed) means pain for all.

It’s that simple. There is not one drop of evidence that FDR’s or any other gov’t spending programs created jobs on a net basis and plenty that they have not. We have cited many of these in past blogs. BO’s programs are at best a wash.

But at least the Democrats are consistent. Their signature failure is to always and everywhere take what appears to be the easy way out, or pretend to. Their followers take the bait. Now it’s come back to haunt them.

Robert Craven

Bringing It Home

It’s awfuly slow going now days, especially for those unfortunates whose income is linked to discretionary products - picture frames, vacation homes, new plants all come to mind.

We’ve highlighted just why this recovery is so retarded. Few argue with us. And most don’t care, figuring it’s out of their hands; or more likely, figuring they fouled up big time at the voting booth and no sense dwelling on that little mistake. OK, forgive them Lord. Now what?

Let’s see what we can all agree on. We all know that the Kennedy and Reagan recoveries were rapid. Since both these guys lowered taxes and then stepped aside, it’s reasonable to assume that had something to do with it. If anything else had something to do with it, we haven’t heard.

OK, and Reagan’s recession was a tad more severe than this one. But presto, we were up and away. We can all agree on that. What about this time? Why the frustration?

In several past blogs we have explained the discrepancy. So have others. Let’s consider some, these from the front lines.

Few would argue that Jeff Immelt, chairman and CEO of GE is 1) an eccentric, or 2) stupid or 3) partisan. Immelt said the following, “Business did not like the US president and the president did not like business,” this from a recent Heritage report.

Verizon CEO Ivan Seidenberg said, “By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.”

And then from the left's Washington Post, a columnist asked business leaders what in the world is wrong. Here is what he got back: “Business leaders told Zakaria that it comes down to economic uncertainty surrounding new laws, regulations and taxes; the expansion of federal agencies' authority; and the unknown implications of Obamacare, financial reform and cap-and-trade.”

Now friends, if you’re willing to make the obvious trade off, fine. That is, you voted for a statist with the most partisan voting record of any other individual in the Senate. Any fool knew that and so did you. You knew exactly who you were voting for. Now, your nursery business is in the tank. But you’re an up front guy, not a hypocrite; that’s how you are doing your bit for a better America. You’re no more just talkin the talk like most of your kind here in Marin. You’re walkin the walk. And with your own money.

Robert Craven

Fear of Free Markets

Certainly the shanghaiing of health care was center stage in Washington. Yet there is something more we can extract, something even profound, something freighted with more gravity than this mere perfidy - that would be the chilling instinct of so many to fly to government for security, for protection from the workings of free enterprise. Why?

Gary Becker and Milton Friedman founded the Chicago School of Economics. Both are Nobel laureates. We lost the great Friedman but Becker at 79 is still very active. The WSJ carried an interview with Becker at Stanford’s Hoover Institution.

When asked about the health deal, "It's a bad bill," Becker replied. "Health care in the United States is pretty good, but it does have a number of weaknesses. This bill doesn't address them. It adds taxation and regulation. It's going to increase health costs—not contain them." Thank you.

But on pondering our key consideration - why for example capitalism has produced the highest standard of living in history and yet its beneficiaries sometimes forget that and look to government for protection, from higher health care premiums for example - Mr. Becker explains: "People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we're always up against a kind of in-built suspicion of markets. There's always a temptation to believe that markets succeed by looting the unfortunate."

Many of the left tend to feed exclusively on the bottom; like catfish or carp they feel secure down there. And they want the rest down there with them. But the notion that free enterprise is bad, that it spawns inequality of opportunity, is a myth. The easy way out, that chorus that the rich exploit the poor, or, to update, that insurance companies exploit consumers is utterly false IF government’s role is limited to preserving the rule of law. High health insurance premiums are no secret for goodness sake. But when a free market is permitted to operate then it is in everyone’s best interest, and, in all arenas including health.

And so we see that absent the left’s hijacking of the health sector, the fix would have been easy. As Becker explains, "Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets."

Instead, BO artfully exploited the groundless fears of capitalism and the instinct of many to look to government for a fix. He understands the indolent nature of a good portion of our population, those whose library is stuffed with past issues of People, Newsweek and Cosmo but never an Adam Smith, John Stuart Mill, Buchanan, Stigler, Hayek or Friedman.

Robert Craven

Role Model

Well shoot, good ‘ol Barney (T. F.) Frank, Dodd, BO and Clinton are darn lucky they weren’t N. Korean politicians. The "Dear Leader" there just executed his finance chief, one Pak Nam-gi for fouling up on currency reform. Whoa now. Since Barney, Dodd, BO and Clinton were smack dead center at ground zero, they’d have been toast. For the folks who put us in this economic mess, we here in the US are pretty darn forgiving are we not?

Maybe we should in the fashion of our own Dear Leader be more prone to adopt foreign ways. He may have something there. Poor Nam-gi merely stirred up a cesspool; BO, Dodd, Frank and the rest went big time - they fouled up an entire world economy.

Robert Craven

Planners A Threat To Liberty

What we’ve all witnessed, past months, has been nothing short of stunning. We have a radical at the helm with the single intent of ironing his agenda smack into the fabric of America.

Consider health. Most now understand that Obama’s health plan is only incidentally about health; he’s made little secret of it. And even if the plan or parts of the plan had merit, to force, gestapo-style, the whole thing on all of us, most find repelling (he called the democratic process "unfortunate" in a recent interview). This all reeks of something not quite right underfoot does it not?

But as citizens we may wish to consider a larger side, the implications beyond the auto industry, beyond education, health and the economy to that of government planning itself. This consideration eclipses all others, our view.

What can history tell us? What can great thinkers tell us? Are we worry warts with this blog, or is there is real threat from Obama and his kind - the far-left - to our actual liberty?

If we re-read the lessons of those who inspired our Founders, of Adam Smith, John Stuart Mill, of Francis Hutchinson and Edmund Burke, and of Jefferson himself, and finally more contemporaneously, von Mises, Hayek and Friedman then we become immediately alarmed. What they all saw was that every step away from a free market and toward government planning represented a compromise of human freedom.

One need only return to England after WWII. She embraced socialism. I was there in 1967. It was all malaise; all was gray, bleak, seemingly without hope. There was no individualism by the way of thought or action. In their planned society, Brits found life less liveable, less free, less prosperous and less hopeful, and most damning of all, devoid of dignity. They had shed capitalism in the search for the easy, less messy way out.

Yet Hayek tells us that capitalism is the only system of economics compatible with human dignity. And to the extent we move away from that system, we empower the worst people in society - Obama & Co in the present case - to manage what they do not understand.

Smith and Jefferson saw it. From Friedman’s Free To Choose, "Smith and Jefferson alike have seen concentrated gov’t power as a great danger to the ordinary man; they saw the protection of the citizen against the tyranny of gov’t as the perpetual need." Jefferson expressed this in his first inaugural address (1801), stating that his ideal was, "...a wise and frugal gov’t, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement." Political freedom and economic freedom went hand in hand.

Indeed, Adam Smith explained that a complex, organized, smoothly running system can develop and flourish without central direction; he demonstrated how coordination can be achieved without coercion.

The US followed Smith fairly closely coming into the 20th century. But then policy makers began to take our prosperity for granted. The great depression caused a flight to security in the US as intellectuals finally found traction; that is, they resurrected, in spite of past failures (and in personifying Einstein’s definition of a dunce) ideas which had never worked but sounded good every time. They, like Obama and Woodrow Wilson were the best and the brightest, having greater powers of insight and discernment than us mortals. Of course it all ended badly.

But perhaps all is not lost. As Friedman reminded us 30 years ago, private ingenuity can overcome the deadening effects of government control. True, but private ingenuity can only do so much. If we do not stop now that statist agenda, that poison in Washington then as Friedman warned, "Sooner or later - and perhaps sooner that any of us expect - an ever bigger gov’t will destroy both the prosperity that we owe to the free market and the human freedom proclaimed so eloquently in the Declaration of Independence."

(This blog is too confined to explore this topic thoroughly. Ponder it a tad further folks, on your own. For our lefty friends, the exercise may change your orientation, going forward.)

Robert Craven

Fleeced

Worried about your kids’ welfare, given Obama’s health plans? Relax. No need. Forget the little darlings. BO’s not waiting for your kids.

The health heist is at center stage. This monster will 1) protect trial lawyers, the left’s bankers, 2) raise you health bills and 3) cost your kids plenty. Oh, we forgot; and then finally lead to rationing. But heck, you don’t need to wait for your kids to get screwed. You can enjoy it too.

You’re being fleeced right now. That would be the stimulus fraud and the taxes necessary to pay for it.

Many of us with a background in economics know by instinct that gov’t spending programs do not create economic activity on net. Others have gone a step further to document this reality. Scholars at UCLA have shown that the New Deal created nothing - a wash. Now Robert Barro, a prof of economics at Harvard and a fellow at Stanford’s Hoover Institute brings us forward. "Viewed over five years, the stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal." Oh, that.

For the curious, here is the article http://www.hoover.org/pubaffairs/dailyreport/archive/85033172.html.

An economist or two (exactly two) support this government interference. Paul Krugman is one. Krugman ignores economic history at his followers' peril. The Japanese government tried this foolishness in the 1990's. Didn’t go too well did it Paul? Unless of course you call nearly two decades of economic stagnation a success.

The other would be Robert Frank (rhymes with crank, no just kidding), a Cornell University econ professor and (surprise!) also a columnist for the NYT’s. Here is what he had to say about those of us who opposed the so-called stimulus package: "The fact that stimulus opponents are far less numerous, have less distinguished academic credentials, on average, and are far less ideologically diverse than their counterparts does not guarantee they're wrong. But these factors should make rational consumers and investors less likely to side with them. And since this is really an argument about expectations, that's probably enough." My, my Bob but you’re special.

The reality that 5 Nobel laureates have joined us in declaring stimulus to be nonsense is merely an inconvenience for Bob. (Heck, I don’t need that stinking medal!) The fact is that every time "rational consumers" listen to the likes of Bob they shed the rational part. Bob and his kind never saw a tax or levy or program they didn’t like; they never saw an arm of government that wasn’t soft and furry; they never saw a job that wasn’t secure and privileged. Bob and the rest of the sophisticate elite see the real world - how the unwashed are led, fooled and mesmerized - as their flock, in need of constant herding.

Well, know what? Most of the left understand, at least those in Congress. They know that a dollar spent on a new lawnmower at the hardware store does not generate a single vote but a dollar spent on a new job mowing grass along an interstate highway certainly does.

And unlike most of their flock, they are posted in American history. They read. They’re twisted sure but not stupid. They knew what they were up to - 100%. But in the case of stimulus they also knew that if the masses didn’t do their homework (and economics puts most everyone to sleep) they could slip this one by. This is why this legislation is more than a tragedy; it is an act of deceit.

Robert Craven