Graphic and quick meaning of yesterday's election. I do not post this to gloat but rather to point out when you live by the sword you can also die by it.Obama and his crowd gloated over their 2008 victory. They also misread it.
They thought the nation was ready for their extreme ideology, that we were ready to bankrupt ourselves in pursuit of worthy goals achieved through methods that were anti-democratic. Nothing was further from the truth.
American's are compassionate but they would rather be in control of their own destiny than to have the crushing reach of government dictate the solutions. That said, as more become dependent upon government and incapable of doing for self , for whatever reason, it will be very hard to disengage and disconnect.
Republicans must come up with practical solutions that will result in tangible evidence their way is the better one. Whether Obama will fight them tooth and nail along the way is the next episode in the unfolding saga.
And whether Republicans are willing to resist and not cave will be critical.
So stay tuned.
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More thoughts from others regarding the meaning of yesterday. (See 1, 1a, 1b, 1c, 1d and 1e. below.)
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Stoking the future flames of inflation. Will it work? If it works can it eventually be controlled without signifcant pain? (See 2, 2a and 2b below.)
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Dick
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1)GOP: Unlock the American Economy A genuine pro-growth economic agenda requires more than spending restraint.
By DANIEL HENNINGER
If the new GOP Congress doesn't do something fast to unlock the American economy, its most vulnerable members are going to be defeated in 2012. The consensus among economists is that unemployment will remain at 9% through 2011. A GOP with a 65-seat House majority and 47 Senate seats will not be immune to the surliest public mood any of us has seen.
It is conventional wisdom that what voters, tea partiers and talkers want the Republican Party to do is cut the spending. Yes, but . . . Republicans—into whose waiting laps control of Congress has fallen—are mistaken if they think the federal budget is what drove this historic upheaval.
Getting the spending under control matters a lot. John Boehner and Mitch McConnell want to push spending back to the 2008 baseline. It's a good idea. But that alone won't revive the economy.
It is important to place the matter of Washington's spending inside the broader context of the political upheaval we've just witnessed.
Congressional spending is the locus of Washington's power. They decide who gets reprocessed taxpayer money and who doesn't. This sustains the regulatory bureaucracies and all those orbiting Washington lobbyists. That is the solar system known as Inside the Beltway.
This is a crucial aspect of the tea party complaint, maybe its central insight. What voters are looking for is a party—and the GOP has the chance now to be that party—to reorder its relationship with the country in a way different than the 50-year-old Washington status quo. Not just a reversion to the norm. Something new.
The new GOP has to find an identity beyond the Beltway power game, a way to make the nation's most important activity not what is going on in Washington, as now, but what is done out in the country, among the nation's daily producers and workers.
The simplest way for the Republican Party to free itself and the economy from this unending Beltway hell is by reviving a core belief of one of the country's most successful presidents: If the government will get out of the way, Ronald Reagan argued, there's no limit to what the American people can achieve.
In his mini-apology news conference yesterday President Obama also said something about the wonders of the American people at work. But it is impossible to overstate the difference between whatever official Washington imagines "the economy" to be and life as it is really lived inside that economy.
You cannot understand the way any business functions and then pass a 2,000-page law to regulate the health economy and then a 2,000 page law to re-regulate the entire financial economy. You cannot—in one year—load 4,000 pages of limitless uncertainty on the back of the economy and expect it to grow without Washington life support.
The president stood there yesterday perplexed that so many voters didn't understand what he was trying to do. The Federal Reserve purports to be perplexed that the private economy isn't emerging from the recession as it should, so it decided yesterday to throw another $600 billion at it.
Rather than wait for Barack Obama or Ben Bernanke to figure this out, Congress's new Republicans should look to do whatever they can to unlock and liberate the American economy. If this means tossing over some cherished provision in the famously titled "Dodd-Frank bill," such as the Consumer Financial Protection Bureau, so be it. Whatever is causing the uncertainty crisis, get rid of it. One of Ronald Reagan's lasting insights (in truth it began under Jimmy Carter) is that federal regulatory intrusion can kill the economy. We are there.
This will be spun as "going back to the dangerous deregulatory era of the Bush years." In reply, Mr. McConnell should ask his rookie senator from Wisconsin, Ron Johnson, the Senate's only genuine manufacturer (how far we've come from the first Congress), to give his maiden speech explaining to faraway Washington the real world of the private economy.
At his news conference, Mr. Obama said something about compromising on the health-care plan's 1099 reporting requirement. That destructive 1099 provision is a perfect metaphor for how the new Republicans should be thinking about every corner of government—from EPA to HHS to Energy.
The GOP as been handed a rare chance to be the Party of Growth, instead of just another party in Washington. From its choice of committee chairmen to directors of its study groups, the GOP has to make clear its commitment to being the party of sustained, long-term economic growth. The Democrats' alienation from the real economy is an opportunity but also, if one may use this word in our politics without blushing, a responsibility. If the GOP doesn't get this right, no one else will.
Let's end on a note in tune with the mood of the country this week: If the GOP blows this, one would just as soon not go where a volatile and angry electorate will take the United States
1a)The Boehner Evolution
House Republicans and the challenge of divided government
John Boehner is no Newt Gingrich, which suits the current public mood. Americans have had their fill of triumphalism and revolution in a House Speaker. But Barack Obama is also no Bill Clinton, a President with a gift for tactical politics and compromise. And therein lies the drama of the next two years as we return to divided government. We're probably destined more for gridlock than accomplishment, which after the last two years is an accomplishment itself.
***
In his press conference yesterday, Mr. Obama did not sound like someone ideologically chastened by the rout of his fellow Democrats. He said he felt "bad" for so many careers cut short, and that he was thinking about his own role in the defeat. But he rejected the thought that his own policies were to blame, save for the fact that they haven't—yet—produced an economic recovery robust enough to make everything else he did popular. His concessions to defeat, in short, were limited to a reflective personal tone, not substance.
The message we take away is that Mr. Obama will continue to press his "transformative" agenda in any way possible. Even on cap and trade—an issue that West Virginia Democrat Joe Manchin literally shot in a TV ad to save his campaign—Mr. Obama said yesterday he would seek other means to accomplish the same goal of taxing carbon. We can only imagine what soon-to-be-jobless Democrats in the Coal Belt and Midwest thought of that one.
Which brings us to Mr. Boehner, who saw the Gingrich train wreck of 1995 up close as part of the leadership. He knows Republicans can't govern from the House, so his challenge will be picking the issues on which he might be able to succeed, or at least frame the agenda for the election of 2012.
This means focusing above all on policies for faster economic growth and job creation. In one sense, this is easier than it sounds: First, stop doing more harm. Merely putting an end to any new taxes or regulation will contribute to business confidence, removing the fear of new higher costs.
The immediate priority is extending the 2001 and 2003 tax rates, which expire on January 1. Democrats are already angling for some classic insider fudge, such as extending lower rates for the middle class permanently but only for a year for upper incomes and dividends. Or perhaps raising rates only on those who make $1 million or more.
The best growth policy and politics is to extend all of the lower rates permanently. Temporary tax cuts don't provide the same assurance for business investment or hiring, and the top marginal rates on income and capital investment are the ones that most affect economic growth.
Conceding the class war argument after picking up 60 or more House seats would also be a terrible signal of political weakness. If Republicans hold firm on tax cuts for everybody, they can force Mr. Obama and Senate Democrats facing re-election in 2012 to oppose an extension for the middle class simply to punish the rich. We think they will fold.
House Republicans will also find political running room to cut spending. President Obama will want to improve his own dreadful fiscal record going into 2012, and Mr. Boehner can use that leverage to reduce domestic discretionary spending to 2008 levels, or lower.
Here is where we'll find out how much Republicans in both the House and Senate have learned from their own failures of the last decade. The culture of spending runs deep in both parties, especially among the lifers on the Appropriations Committee. Rather than reappoint one of the spending cardinals, Mr. Boehner can send a message to the tea party by appointing a younger spending hawk as Chairman.
The same goes for ending earmarks, which is as much about political symbolism as it is saving money. If Republicans want the public to support their budget-cutting, they are going to have to show they can also discipline themselves. Presumptive Majority Leader Eric Cantor spoke yesterday about extending a moratorium on earmarks, and Mr. Boehner can underscore that message by naming an earmark critic like Arizona's Jeff Flake to the spending panel.
Republicans can also help the economy by shining the light of hearings on costly new rules and mandates. A friend of ours suggests that the GOP devote each week to highlighting one way that government is inhibiting investment and hiring—say, the slow-roll on Gulf drilling permits, or obstacles to exploring the Marcellus Shale gas deposits, or the next burdensome ObamaCare rule, or the FCC's re-regulation of the telecom industry.
Mr. Boehner said yesterday he has a mandate to repeal ObamaCare, and we agree the House should vote to do so. Once that dies in the Senate or on Mr. Obama's desk, however, Republicans will have to pursue a strategy of attacking that destructive bill one part at a time. This, too, will take careful hearings and public education.
***
Which brings us to the tea party and political patience. One lesson of the big GOP victory is that voters are again open to a message of limited government, but they want messengers with the savvy and smarts to implement it. Voters swept dozens of newcomers to power on Tuesday, but they also rejected prominent tea party candidates who didn't seem up to the task. This cost at least two seats in the Senate, and it ought to chasten tea partiers who want House Republicans to perform immediate miracles. It should also inform the 2012 GOP Presidential nominating debate.
By all means, tea partiers should hold Republicans to their promises, while recognizing that Harry Reid still has a Senate majority and Mr. Obama still has his veto pen. Republicans did not win a governing majority on Tuesday. They were given a chance to build one in 2012, if they can show they deserve it over the next two years.
1b)Time for Republicans to Deliver
Voters understand that Mr. Obama is president for two more years and retains the veto, but they will insist the GOP at least fight for change
By KARL ROVE
Tuesday's election was epic. Republicans gained over 60 seats in the House and six in the Senate. They'll now occupy eight additional governors' mansions and at least 500 more seats in state legislatures.
The GOP picked up more House seats than in any election since 1938, leaving Democrats with the smallest number in the House since 1946. Republican gains in the Senate are roughly twice the post-World War II midterm average. When Mr. Obama took office there were 22 Republican governors: Now there will be at least 29.
Tim Phillips, President of Americans for Prosperity, explains the Republican wave.
Fifty incumbent Democratic congressmen lost, including 22 freshmen. An extraordinary nine senior Democrats with 18 years or more of service also went down, including three committee chairs: South Carolina's John Spratt, Missouri's Ike Skelton, and Minnesota's Jim Oberstar. Their offense was to back the Obama-Pelosi agenda.
Among the few vulnerable Democrats to survive were those, like Indiana's Joe Donnelly and Pennsylvania's Jason Altmire, who emphasized their opposition to policies like ObamaCare.
Some of the president's closest personal allies lost—including his pick-up basketball buddy, Alexi Giannoulias, who failed to keep the Senate seat formerly held by Mr. Obama. The GOP also beat many candidates whom Mr. Obama stumped for last week, like Virginia Rep. Tom Perriello and Ohio Gov. Ted Strickland. Apparently the president's presence so close to the election reminded undecided voters why they were upset.
Democrats didn't suffer as many losses in the Senate as many predicted. This was largely because Democratic candidates either trumpeted their opposition to Mr. Obama's policies (West Virginia Gov. Joe Manchin) or vilified their Republican opponents (Senate Majority Leader Harry Reid's final ad called his GOP competitor "pathological").
And Democratic losses could get worse in the next election. In 2012, three times as many Senate Democrats as Republicans face the voters—and many are from red states. Two more years of voting for the Obama agenda could do many of them in.
The public's deep dissatisfaction with the failed stimulus bill, uncontrolled spending and sweeping health-care reform gave rise to the tea party movement. This phenomenon provoked as much as an 8% increase in turnout, according to George Mason University Prof. Michael McDonald, who estimates turnout at around 90 million, up from 82 million in the 2006 midterm. Independents went 55% for the GOP, an 11-percentage-point gain from 2008 and a 16-point jump from the last midterm.
The damage to the White House and the Democratic Party is severe and will be long-lasting. On the eve of redistricting, the GOP controls more state legislative seats and chambers than it has since the 1920s.
In Ohio, Michigan, Pennsylvania, Indiana, North Carolina, Alabama, Wisconsin and Minnesota, Republicans gained control of both legislative houses and will dominate redistricting, adding to the number of states where the GOP will draw lines that will boost their numbers in the House for the next decade. In other states like Colorado, Republicans gained a seat at the table by winning at least one chamber.
Tuesday's results mean Mr. Obama no longer has the luxury of jamming through legislation solely with his party's support. A week after saying it was "time to punish our enemies," the president will have to find ways to reach common ground with them. In yesterday's press conference, the president mentioned earmarks and energy policy as two places to start.
Republicans must not delude themselves: The voters didn't throw out the Democrats because they are enraptured with the GOP. The polling data suggest that many voters, while warming to the party, still remain nervous about it. Republicans are on probation. And whether they get off of it depends on whether they do what they said they would on the campaign trail.
Voters want Republicans to press for reform—regardless of the obstacles placed in their way by Mr. Obama. They understand Mr. Obama is president for two more years and retains the veto, but they will insist Republicans at least fight for change.
Republicans should be willing to compromise on details. Ronald Reagan was right when he said, "I'd rather get 80% of what I want than to go over the cliff with my flag flying." But voters will not tolerate compromise on fundamental principles.
Americans clearly want the new Congress to focus on economic growth and creating jobs in the private sector. Real spending reductions, an extension of the Bush tax cuts, ending earmarks, using the returns from the bailouts to reduce the debt, and turning Fannie and Freddie into private companies should all be at the top of the GOP's agenda.
Republicans must also tackle ObamaCare. They must try to repeal or defund it. But they should also present conservative alternatives—such as permitting Americans to buy health insurance across state lines, allowing small businesses to pool their risk to get the same discounts that big businesses get, giving the tax advantage of having insurance to the individual as well as the employer, and passing medical-liability reform to end junk lawsuits.
The GOP should also take up entitlement reform. Voters will not judge them to be fiscally serious if they avoid the issue.
All of this needs to be advanced by a party that is seen as hopeful and optimistic about America while remaining humble about itself. The next speaker of the House, John Boehner, hit just the right notes on Tuesday night.
President Obama brought on the worst thumping a party has received since the middle of the 20th century by offending America's conservative instincts. The public has spoken. Now it's up to the Republicans to deliver.
1c) Republicans Won Bigger Than You Think
The GOP will have operational control of the Senate more often than Majority Leader Harry Reid will
By FRED BARNES
Republicans are better off after their landslide victory in the midterm election than even they imagine. Democrats are worse off. This situation could change quickly, but chances are it won't.
For starters, Republicans will continue to have issues on their side. The election reaffirmed that America is a center-right country and that a sizeable majority is anxious about government spending and debt, President Obama's health-care plan, and jobs. Those issues won't go away now that Republicans control the House and are in a strong minority position in the Senate.
Republicans have the ability to block Mr. Obama's agenda, whatever it may be in 2011, but that's not the point. What matters more is their ability to do positive things with help from Democratic senators wary of bucking the conservative mood in the country.
Tim Phillips, President of Americans for Prosperity, explains the Republican wave.
.Ten Democrats whose seats are up in 2012 come from right-leaning states or saw their states scoot to the right this week: Ben Nelson of Nebraska, Bill Nelson of Florida, Herb Kohl of Wisconsin, Kent Conrad of North Dakota, Claire McCaskill of Missouri, Jim Webb of Virginia, Bob Casey of Pennsylvania, Debbie Stabenow of Michigan, Jon Tester of Montana, and Jeff Bingaman of New Mexico.
It's a good bet that some or all of them will be sympathetic to cutting spending, extending the Bush tax cuts, scaling back ObamaCare, and supporting other parts of the Republican agenda. With Democratic allies, Republicans will have operational control of the Senate more often than Majority Leader Harry Reid and Mr. Obama will.
Congressional Republicans will also benefit from very low expectations. They're not expected to achieve much. Yet by proposing a series of rescissions in this year's budget and actual cuts in next year's, Republicans can come up with the $100 billion in year-one reductions that they promised in their Pledge to America. And they can do it without ripping apart social programs or tackling entitlements.
Mr. Obama may be counting on Republicans not to underachieve but to overreach. He shouldn't get his hopes up. Almost all Republicans know that the brief shutdown of the federal government in 1995 was a tactical disaster. They also know that the Republican embrace of higher spending and earmarks helped lose them the Congress a decade later, in 2006.
Republicans now understand that you can't govern from Capitol Hill. So they won't try. And they know it's safer to keep their leaders from overexposure lest they become Democratic targets, like Newt Gingrich in the 1990s and Tom DeLay in the 2000s.
The Republican plan is to stress ideas, not personalities. This, they hope, will set the stage for the election of a Republican president in 2012. Trying to pass major policy breakthroughs would either be futile or risk painful backfire.
Yet there are useful things Republicans can do besides paring spending. With their subpoena power, Republicans can summon Obama administration officials to Capitol Hill to explain what they're doing to implement ObamaCare, financial-market reform, curbs on greenhouse gases, and other policies.
They can trim around the edges of ObamaCare and delay its start-up without stirring complaints from anyone but the White House and liberal Democrats. And they can expand oversight of bureaucrats who are now writing rules based on the thousands of pages of health-care and banking-reform legislation.
Many media commentators have wondered if Republicans realize the election was a repudiation of Democrats rather than an endorsement of the GOP. Of course Republicans do. How could they not? Every poll for months has shouted it from the rooftops. Republicans know they have ground to make up with the public.
The biggest problem for Democrats is the new wedge issue—spending, the deficit and debt. It divides them, and Tuesday's losses only deepen the divides. Mr. Obama indicated at his press conference on Wednesday that he wants to preserve practically everything he's done in the past two years, including the spending. A bloc of Democrats disagrees.
Hope springs eternal among Democrats that Republicans elected with tea party support will cause a ruckus by demanding sweeping action. But I think Democrats will have more trouble dealing with their own brethren who agree with John Boehner's advice that Mr. Obama change course.
When your best hope for recovery is that your opponents screw up, you're in bad shape. And Democrats are. They've been all but expelled from the South, while Republicans are competitive again in the Northeast and dominant in the Midwest. That's a long-term problem. When Democratic ideas and policies have been so soundly rejected, it's also an emergency.
Mr. Barnes is executive editor of the Weekly Standard and a Fox News commentator.
1d)A Way Forward for Obama
What the president can do if he wants to remain relevant
By DOUGLAS E. SCHOEN
Tuesday's election results represent a historic repudiation of the president. Yesterday, Mr. Obama acknowledged the severity of this loss and said that he assumes "direct responsibility" for our stalled economic recovery. He also said he was "eager to hear good ideas wherever they come from." This is progress. He should now propose an agenda that goes a long way toward meeting GOP demands, while preserving a key number of his goals and priorities.
First and foremost, the president could grant a permanent extension of the Bush tax cuts on incomes of $250,000 a year and below. For those making more than $250,000, Mr. Obama could at the very least grant a two-year extension of the cuts, as his former Office of Management and Budget Director Peter Orszag proposed in a New York Times op-ed in September.
Beyond that, the president could also agree to postpone any increase on the capital-gains tax and dividend tax as a means of demonstrating his commitment not to take any steps that would retard economic growth. He could begin to engage in meaningful dialogue with Republicans about estate tax reform, a hot-button issue that concerns Americans across the board.
More generally, he could work with the Republicans to implement an agenda that focuses on what the American people primarily want: a sustained economic recovery and more private sector jobs. Tax incentives and not more spending should be the principal tools used to achieve this goal.
Specifically, he could make permanent the option for businesses to fully expense capital costs, expand the research-and-development tax credit, and put forth a broad-based payroll tax holiday for at least a year. This may increase the deficit in the short term, but in the medium- and long-term it will stimulate private growth and increase revenues.
Rather than pushing for additional infrastructure spending, Mr. Obama could build consensus with Republicans on an infrastructure bank to make loans to fix our crumbling roads, bridges and public-sector buildings.
On spending, the president might compromise with Republicans by agreeing to an immediate freeze on discretionary spending rather than a return to the 2008 levels, as GOP leaders have proposed. Secretary of Defense Robert Gates has already voiced his support for significant cuts in defense spending, and the president should tie his support for a spending freeze to a streamlining of the defense budget.
The administration also could work with the Republican leadership to support free trade agreements around the world, particularly with South Korea and Colombia. This would display a commitment to open markets that's been lacking, and send a message to China and others around the world that we have no intention of resorting to protectionist policies.
Further, the president could acknowledge that the health-care bill is flawed and much too expensive. He could then begin working with the Republicans on a series of initiatives to emphasize cost containment while preserving popular provisions such as guaranteed coverage of pre-existing conditions. He could also underscore the need for more medical innovations, at least some form of medical-malpractice reform, and expanded interstate insurance purchases.
Republican Rep. John Boehner—likely to be the new speaker of the House—was a supporter of the No Child Left Behind Act, while the president has voiced his support for merit-based teacher pay and charter schools. This opens the door for a bipartisan push to renew the No Child Left Behind policy by moving away from its current emphasis of teaching to the test and toward improving the quality of our teachers. This needs to be done to keep America competitive, particularly in math, science and technology. There could also be greater emphasis on vocational education in light of current economic conditions that require workers to have different skill sets than current graduates typically have.
The president should also welcome a bipartisan discussion on various initiatives to promote energy efficiency. Electric cars and renewable energy ideas hopefully can reduce carbon emissions on their own, without the need to revisit the contentious debate over a cap-and-trade policy that is effectively dead.
Overall, the president should make it clear that his administration has gotten the message of this election by demonstrating a commitment to economic revitalization, job creation, fiscal discipline and broad-based engagement economically and politically with our allies overseas.
Mr. Obama faces a historic choice. He can become marginalized and largely irrelevant—as was Jimmy Carter in much of his last two years in office. Or he can return to the promise of his campaign when he offered to eschew partisanship and pursue the centrist agenda that the American people elected him to advance.
Mr. Schoen, who served as a pollster for President Bill Clinton, is a political strategist and co- author, with Scott Rasmussen, of "Mad as Hell: How the Tea Party Movement Is Fundamentally Remaking Our Two-Party System" (Harper, 2010).
1e) A recoil against liberalism
By George Will
Unwilling to delay until tomorrow mistakes that could be made immediately, Democrats used 2010 to begin losing 2012. Trying to preemptively drain the election of its dangerous (to Democrats) meaning, all autumn Democrats described the electorate as suffering a brain cramp, an apoplexy of fear, rage, paranoia, cupidity - something. Any explanation would suffice as long as it cast what voters were about to say as perhaps contemptible and certainly too trivial to be taken seriously by the serious.
It is amazing the ingenuity Democrats invest in concocting explanations of voter behavior that erase what voters always care about, and this year more than ever - ideas. This election was a nationwide recoil against Barack Obama's idea of unlimited government.
The more he denounced Republicans as the party of "no," the better Republicans did. His denunciations enabled people to support Republicans without embracing them as anything other than impediments to him.
He had defined himself as a world-class whiner even before Rahm Emanuel, a world-class flatterer, declared that Obama had dealt masterfully with "the toughest times any president has ever faced" - quite a claim, considering that before the first president from Illinois was even inaugurated, seven of the then-34 states had seceded. Today's president from Illinois, a chronic campaigner and incontinent complainer who is uninhibited by considerations of presidential dignity, has blamed his difficulties on:
George W. Bush, Rush Limbaugh, Fox News, the Supreme Court, a Cincinnati congressman (John Boehner), Karl Rove, Americans for Prosperity and other "groups with harmless-sounding names" (Hillary Clinton's "vast right-wing conspiracy" redux), "shadowy third-party groups" (they are as shadowy as steam calliopes), the U.S. Chamber of Commerce and, finally, the American people. They have deeply disappointed him by being impervious to "facts and science and argument."
Actually, as the distilled essence of progressivism, he should feel ratified by Tuesday's repudiation. The point of progressivism is that the people must progress up from their backwardness. They cannot do so unless they are pulled toward the light by a government composed of the enlightened - experts coolly devoted to facts and science.
The progressive agenda is actually legitimated by the incomprehension and anger it elicits: If the people do not resent and resist what is being done on their behalf, what is being done is not properly ambitious. If it is comprehensible to its intended beneficiaries, it is the work of insufficiently advanced thinkers.
Of course the masses do not understand that the only flaw of the stimulus was its frugality, and that Obamacare's myriad coercions are akin to benevolent parental discipline. If the masses understood what progressives understand, would progressives represent a real vanguard of progress?
Of course the progressive agenda must make infinitely elastic the restraints imposed by the Founders' Constitution and its principles of limited government. Moving up from them - from the Founders and their anachronistic principles - is the definition of progress.
Recently, Newsweek's Jonathan Alter decided, as the president has decided, that what liberals need is not better ideas but better marketing of the ones they have: "It's a sign of how poorly liberals market themselves and their ideas that the word 'liberal' is still in disrepute despite the election of the most genuinely liberal president that the political culture of this country will probably allow."
"Despite"? In 2008, Democrats ran as Not George Bush. In 2010, they ran as Democrats. Hence, inescapably, as liberals, or at least as obedient to liberal leaders. Hence Democrats' difficulties.
Responding to Alter, George Mason University economist Don Boudreaux agreed that interest-group liberalism has indeed been leavened by idea-driven liberalism. Which is the problem.
"These ideas," Boudreaux says, "are almost exclusively about how other people should live their lives. These are ideas about how one group of people (the politically successful) should engineer everyone else's contracts, social relations, diets, habits, and even moral sentiments." Liberalism's ideas are "about replacing an unimaginably large multitude of diverse and competing ideas . . . with a relatively paltry set of 'Big Ideas' that are politically selected, centrally imposed, and enforced by government, not by the natural give, take and compromise of the everyday interactions of millions of people."
This was the serious concern that percolated beneath the normal froth and nonsense of the elections: Is political power - are government commands and controls - superseding and suffocating the creativity of a market society's spontaneous order? On Tuesday, a rational and alarmed American majority said "yes."
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2)Milton Friedman vs. the Fed
The Nobel laureate would never have endorsed increasing inflation to stimulate the economy
By ALLAN H. MELTZER
Would the late Milton Friedman have endorsed the Federal Reserve's plan to make large-scale purchases of long-term Treasury bonds? The idea here is to pump more money into and thus jump-start the economy, reducing unemployment. Some people, including this newspaper's David Wessel in a column last week, believe the great Nobel laureate would favor this inflationary program. I am certain he would not.
Friedman's main message for central banks was to maintain a monetary rule that kept the growth of the money supply constant. In his Newsweek column, "Inflation and Jobs" (Nov. 12, 1979), for example, Friedman emphasized that "unemployment is . . . a side effect of the cure for inflation," so that if a central bank "cured" unemployment by inflating, it "will have unemployment later." In other words, don't try it.
Friedman's Newsweek column for July 28, 1980 ("Improving Monetary Policy") came with the unemployment rate rising past 7%. His proposals for improving policy made no mention of using monetary expansion to reduce unemployment. He proposed rules for stable growth to achieve target "dollar levels of monetary aggregates."
Friedman served on President Reagan's economic policy advisory board. His memos on monetary policy repeat the themes he made familiar to Newsweek readers and others all over the world. There is not a word suggesting that monetary policy should try to raise the inflation rate in order to reduce the unemployment rate.
This is unsurprising, as he had explained many times in the past that any such reduction would be temporary and last only until people caught on to the higher inflation. At that point, they would demand higher wages and interest rates.
Friedman made an exception to his rule about steady-state monetary policy in case of deflation. When prices fell, as they had during the Great Depression or in Japan in the 1990s, he urged the central bank to increase money growth. I served as one of two honorary advisers to the Bank of Japan in the 1990s. With short-term rates close to zero, I gave the same advice, urging the bank several times to buy long-term bonds or foreign exchange to increase money growth until deflation ended.
All this is not relevant now, since there is no sign of deflation in the United States. The Fed's claim that there is a risk of deflation should embarrass it.
In the late 1980s, former Fed Chairman Alan Greenspan encouraged everyone to watch the core deflator for personal consumption expenditure—the PCE deflator. Since then, the Fed has used that measure as its inflation target. Recently, without much publicity, the Fed switched to the consumer price index (CPI). The reason? From 2003 to 2009, the two measures moved together. In 2010, they diverged—and the CPI shows substantially less inflation than the PCE.
Even so, the most recent PCE deflator shows inflation running at around 1.2% annually, about where the Fed says it wants to hold the inflation rate. And it has been between 1.5% and 1.8% for a year. There is no sign of deflation.
The two measures diverged because they give different weights to their components, especially housing prices. The CPI gives almost double the weight to housing prices, especially the rental value of owner-occupied houses. This is not a number that government statisticians sample in the market. They make an estimate. The new long-term bond purchase program puts a lot of weight on a weak foundation.
Paul Volcker and Alan Greenspan restored much of the credibility that the Fed lost in the great inflation of the 1970s. The Fed's plan to increase inflation puts this credibility at risk and is a large step away from the policy that Milton Friedman favored.
Mr. Meltzer is professor of economics at Carnegie Mellon's Tepper School of Business, a visiting scholar at the American Enterprise Institute, and the author of "A History of the Federal Reserve" (University of Chicago Press, 2003 and 2009).
2a)More Monetary Cowbell
"I got a fever, and the only prescription is more quantitative easing
In a famous "Saturday Night Live" skit, Christopher Walken plays a legendary rock music impresario whose advice, his only advice, to a young band is "more cowbell." The actor Will Ferrell furiously pounds away on a cowbell but it's never enough for Mr. Walken, who ultimately shouts, "I got a fever, and the only prescription is more cowbell!"
Federal Reserve Chairman Ben Bernanke must be a fan of that skit because he is applying the same logic to monetary policy: The economy isn't growing fast enough, and the only prescription is more money.
That's the only way to interpret yesterday's plunge by the Fed's Open Market Committee into another round of quantitative easing. This refers to the Fed's purchase of Treasury debt and other assets such as mortgage-backed securities to flood the economy with more money. The Fed's traditional policy tool of short-term interest rates has been fixed at near-zero for two years, so this is Mr. Bernanke's version of dropping dollar bills from helicopters.
The Fed first tried QE, as it's called, with $1.75 trillion of bond purchases starting in December 2008, but that was at the height of the financial panic when markets were frozen. The Fed's justification for this current round is that inflation is too low and growth too slow to reduce unemployment. The Fed promised to buy $600 billion in bonds for starters, and to keep buying until the rate of inflation rises, presumably above its 2% target.
This is a terribly risky strategy for what we expect will be little economic gain. The Fed hopes the policy will have the effect of reducing long-term interest rates by 25 to 50 basis points or more, but the 10-year Treasury bond is already near historic lows. Marginal business borrowers aren't worried about the price of money; they're worried about the vagaries of economic policy. QE2 only adds to this uncertainty, as the Fed expands its role into fiscal policy and credit allocation.
Meanwhile, Mr. Bernanke's monetary cowbell will flow into higher commodity prices and other assets, perhaps leading to more bubbles. It has already caused havoc around the world, as investors flee the dollar for other currencies. Dollar-bloc countries are already seeing an increase in their price levels and several are contemplating capital controls.
Where this all stops nobody knows, including, we suspect, the Fed itself. In our experience, central bankers who demand more inflation usually get it, sometimes more than they wanted.
2b)Pimco's Gross: Dollar May Drop 20 Percent on Fed Easing
Wednesday, 03 Nov 2010 08:55 AM Article Font Size
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said.
"I think a 20 percent decline in the dollar is possible," Gross said on Monday, adding the pace of the currency's decline was also an important consideration for investors.
"When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory — that is a debasement of the dollar in terms of the supply of dollars on a global basis," Gross told Reuters in an interview at his Pimco headquarters.
The Fed will probably begin a new round of monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, what investors and traders refer to as QE II, according to a Reuters poll of primary dealers.
"QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices," Gross added.
To a certain extent, that is what the Treasury Department and Fed "in combination" want, said Gross, who runs the $252 billion Total Return Fund and oversees more than $1.1 trillion as co-chief investment officer.
"The fundamental problem here is that our labor and developed economy labor relative to developing economy labor is so mismatched — China can do it so much more cheaply," he said.
Many Americans believe that the Chinese government is manipulating its currency and in effect stealing away American jobs and throwing the U.S. in an ever-deepening trade deficit. But Gross said this is a byproduct of a globalized economy.
"It is a globalized economy of our own doing for the past 20-30 years. We encouraged all of this, but it is coming back to haunt us. To the extent that Chinese labor, Vietnamese labor, Brazilian labor, Mexican labor, wherever it is coming from that that labor is out competing us and holding down our economy," he said.
Gross added: "One of the ways to get even, so to speak, or to get the balance, is to debase your currency faster than anybody else can. It's a shock because the dollar is the reserve currency. But to the extent that that is a necessary condition for rebalancing the global economy overtime, then that is where we are headed."
"Other countries and citizens are willing to work for less and willing to work harder — and we forgot the magic formula somewhere along the way," Gross said.
In that regard, Americans should be investing a lot more overseas than they are to find growth as the U.S. remains in a slowish-growth environment, he said.
"Pension funds and Americans, in general, have a problem because their liabilities are dollar-denominated. It's probably worth the risk of getting out of dollars and getting into emerging countries and going where the growth is. All of which entails risk relative to the home country. But there's probably a bigger risk in simply staying comfortably within the confines of dollar-based investments."
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