Wednesday, November 30, 2011

Tom Sowell: Smart and Articulate!

I have always loved Tom Sowell. First, because he is smart and articulate, second because he is smart and articulate, third because he is smart and articulate. Understand why I like Tom Sowell?

Well here are some more reasons. He is a Black Conservative and his success stands as testimony to the fact, anyone can succeed in this nation if they apply themselves, are willing to pay the price of getting a serious education and are willing to act responsibly.

And then of course Tom Sowell is smart and articulate.

The only problem is that Tom Sowell did not write this some person in Knoxville, Tenn. did who used a Sowell quote at the end of it. But it's still a great letter. (See 1 below.)
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There will be a lot of predictions regarding Obama's chances for re-election between now and the time he is hopefully run out of town. I thought this article particularly insightful.

By any rational stretch of the imagination, Obama should be defeated for the obvious reasons Sowell articulates as well as the fact that most are not better off than they were when he was elected. If they were, why are they parading around the country expecting the 1% 'filthy rich' to wipe their noses?

Blacks are even much worse off but they are slaves to the Democrat Party and like Liberal Jews don't seem to know better.

Certainly the nation is dispirited and part of the reason is that Obama has been hard at work dividing us on the planned premise that is the way to conquer. Hopefully,that strategy should backfire because Americans have a habit of being optimistic. Otherwise we would never have discovered the West.

Finally, we should have gotten past the need to rid ourselves of self-imposed guilt now that we actually elected a Black to become President. We did and have paid an enormous price just as many cities have for electing Black mayors who, like Obama, were incapable of managing. My home town of Birmingham being the latest example.

But, as the article points out the best thing going for Obama is the Republican's ability to shoot themselves in the foot.

It could be that Republicans will nominate Gingrich on the premise he will destroy Obama in a free and open debate assuming Newt can catch up with Obama who will be running away holding onto his teleprompter. That is not a reason to nominate a person for the presidency because once the debates are over they have to govern and we have a bunch of problems that are going to demand a lot of sucking up time. That is not to say Newt is not up to the task.

If Republicans nominate Romney their own enthusiasm is likely to wane and what will motivate them is their burning desire to rid the nation of Obama. That could work but it is not the safest bet. As for Romney, he is capable for sure but is he tough and inspiring enough to lead us to the water and then whack us over the head if we do not drink? Don't think so.

Newt is so full of self confidence he probably believes he could poison the water and would still be able to make us drink.

The other Republican candidates have endearing qualities but not enough weight, though Huntsman is probably a diamond in the rough. (See 2 below.)

Meanwhile, I doubt the world will stand still so we can get our election angst out of our craw. So in the end, events we cannot control or might have somewhat better, had Obama not kept punting, will have a lot to say about what happens. I am confident of that more than anything else.

The rotund Governor of New Jersey really asked the right question when, speaking of Obama, he asked :'What the hell has he been doing to earn his salary? ' (See 2a and 2b below.)
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Dick

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1) Thomas Sowell (born June 30, 1930) is an American economist, social
theorist, political philosopher, and author. A National Humanities
Medal winner, he advocates laissez-faire economics and writes from a
libertarian perspective. He is currently a Rose and Milton Friedman
Senior Fellow on Public Policy at the Hoover Institution at Stanford
University. Sowell was born in North Carolina, but grew up in Harlem,
New York. He dropped out of high school, and served in the United
States Marine Corps during the Korean War. He had received a
bachelor's degree from Harvard University in 1958 and a master's
degree from Columbia University in 1959. In 1968, he earned his
doctorate degree in economics from the University of Chicago. Dr.
Sowell has served on the faculties of several universities, including
Cornell and University of California, Los Angeles, and worked for
"think tanks" such as the Urban Institute. Since 1980 he has worked at
the Hoover Institution. He is the author of more than 30 books.

Subject: Sowell on the Occupiers


The current Occupy Wall Street movement is the best illustration to
date of what President Barack Obama's America looks like. It is an
America where the lawless, unaccomplished, ignorant and incompetent
rule. It is an America where those who have sacrificed nothing pillage
and destroy the lives of those who have sacrificed greatly.

It is an America where history is rewritten to honor dictators,
murderers and thieves. It is an America where violence, racism,
hatred, class warfare and murder are all promoted as acceptable means
of overturning the American civil society.

It is an America where humans have been degraded to the level of
animals: defecating in public, having sex in public, devoid of basic
hygiene. It is an America where the basic tenets of a civil society,
including faith, family, a free press and individual rights, have been
rejected. It is an America where our founding documents have been
shredded and, with them, every person's guaranteed liberties.

It is an America where, ultimately, great suffering will come to the
American people, but the rulers like Obama, Michelle Obama, Harry
Reid, Nancy Pelosi, Barney Frank, Chris Dodd, Joe Biden, Jesse
Jackson, Louis Farrakhan, liberal college professors, union bosses and
other loyal liberal/Communist Party members will live in opulent
splendor.

It is the America that Obama and the Democratic Party have created
with the willing assistance of the American media, Hollywood, unions,
universities, the Communist Party of America, the Black Panthers and
numerous anti-American foreign entities.

Barack Obama has brought more destruction upon this country in four
years than any other event in the history of our nation, but it is
just the beginning of what he and his comrades are capable of.

The Occupy Wall Street movement is just another step in their plan for
the annihilation of America.

"Socialism, in general, has a record of failure so blatant that only
an intellectual could ignore or evade it."

Thomas Sowell
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2)The smartest guy you’ve never heard of
By Rachelle Cohen


An older fellow with a craggy New Hampshire face turns toward the camera and says, “Why haven’t we heard of this guy?”

The “guy” in question is Republican presidential contender Jon Huntsman — a former governor of Utah, a former U.S. ambassador to China — who finally this week hit double digits in a poll of likely voters in the first-in-the-nation New Hampshire primary.


While one loser after another has somehow captured the hearts of GOP voters — Michele Bachmann, Rick Perry, Herman Cain — the hands-down smartest kid in the class struggles for traction.

“We’ve got some real issues to discuss, not the latest bimbo eruption,” he said yesterday of the ongoing Cain scandals that have managed once again to suck all the oxygen out of the room.

Monday Huntsman introduced a financial plan aimed at cutting the nation’s biggest banks and financial institutions down to size so that they are no longer “too big to fail” and, therefore, would never again become a burden on the American taxpayer.

“There will be no more bailouts in this country,” he said, because taxpayers won’t put up with that kind of strategy again. “I would impose a fee [on the banks] to protect the taxpayers until the banks right-size themselves.”

The strategy, of course, is likely to be music to the ears of anyone who despised not just the bailouts but those proposed Bank of America debit card fees. And, of course, it gives Huntsman a good opening to make a punching bag of Mitt Romney.

“If you’re raising money from the big banks and financial institutions, you’re never going to get it done,” he said, adding, “Mitt Romney is in the hip pocket of Wall Street.” Lest there be any doubt about his meaning.

But it’s on foreign policy that Huntsman — who served not only in China and Singapore but as a deputy U.S. trade representative with a special role in Asia — excels, and not just because he’s fluent in Mandarin.

This is the guy anyone would feel comfortable having answer that proverbial 3 a.m. phone call Hillary Clinton once talked about.

On Afghanistan: “We’ve been at it for 10 years,” during which the U.S. “uprooted the Taliban,” secured free elections and “up-ended al-Qaeda. We don’t need to nation-build in Afghanistan; we need to nation-build at home.”

On Pakistan: “This is a transactional relationship . . . We have to tie future aid money to our immediate needs” including maintaining our drone bases and intelligence gathering.

On Iran: “If you can’t live with a nuclear Iran — and that’s where I come down,” he said, then all options have to be on the table.

Wonky? Sure, but in a spontaneous, unprogrammed way. No handler ever put words in this guy’s mouth. Which indeed gets back to that original question: Why haven’t we heard of this guy? And isn’t it time we did.

Rachelle Cohen is editor of the editorial pages.

2a)Please, Mr. President
By LEON G. COOPERMAN


President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Dear Mr. President,

It is with a great sense of disappointment that I write this. Like many others, I hoped that your election would bring a salutary change of direction to the country, despite what more than a few feared was an overly aggressive social agenda. And I cannot credibly blame you for the economic mess that you inherited, even if the policy response on your watch has been profligate and largely ineffectual. (You did not, after all, invent TARP.) I understand that when surrounded by cries of “the end of the world as we know it is nigh,” even the strongest of minds may have a tendency to shoot first and aim later in a well-intended effort to stave off the predicted apocalypse.

But what I can justifiably hold you accountable for is your and your minions’ role in setting the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as “class warfare.” Whether this reflects your principled belief that the eternal divide between the haves and have-nots is at the root of all the evils that afflict our society or just a cynical, populist appeal to his base by a president struggling in the polls is of little importance.

What does matter is that the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them. It is a gulf that is at once counterproductive and freighted with dangerous historical precedents. And it is an approach to governing that owes more to desperate demagoguery than your administration should feel comfortable with.

Just to be clear, while I have been richly rewarded by a life of hard work (and a great deal of luck), I was not to-the-manor-born. My father was a plumber who practiced his trade in the South Bronx after he and my mother emigrated from Poland. I was the first member of my family to earn a college degree. I benefited from both a good public education system (PS 75, Morris High School and Hunter College, all in The Bronx) and my parents’ constant prodding.

When I joined Goldman Sachs following graduation from Columbia University’s business school, I had no money in the bank, a negative net worth, a National Defense Education Act student loan to repay and a six-month-old child (not to mention his mother, my wife of now 47 years) to support.

I had a successful, near-25-year run at Goldman, which I left 20 years ago to start a private investment firm. As a result of my good fortune, I have been able to give away to those less blessed far more than I have spent on myself and my family over a lifetime, and last year I subscribed to Warren Buffet’s Giving Pledge to ensure that my money, properly stewarded, continues to do some good after I’m gone.

My story is anything but unique. I know many people who are similarly situated, by both humble family history and hard-won accomplishment, whose greatest joy in life is to use their resources to sustain their communities. Some have achieved a level of wealth where philanthropy is no longer a by-product of their work but its primary impetus. This is as it should be. We feel privileged to be in a position to give back, and we do. My parents would have expected nothing less of me.

I am not, by training or disposition, a policy wonk, polemicist or pamphleteer. I confess admiration for those who, with greater clarity of expression and command of the relevant statistical details, make these same points with more eloquence and authoritativeness than I can hope to muster.

But as a taxpaying businessman with a weekly payroll to meet and more than a passing familiarity with the ways of both Wall Street and Washington, I do feel justified in asking you: Is the tone of the current debate really constructive?

People of differing political persuasions can (and do) reasonably argue about whether, and how high, tax rates should be hiked for upper-income earners; whether the Bush-era tax cuts should be extended or permitted to expire, and for whom; whether various deductions and exclusions under the federal tax code that benefit principally the wealthy and multinational corporations should be curtailed or eliminated; whether unemployment benefits and the payroll tax cut should be extended; whether the burdens of paying for the nation’s bloated entitlement programs are being fairly spread around, and whether those programs themselves should be reconfigured in light of current and projected budgetary constraints; whether financial institutions deemed “too big to fail” should be serially bailed out or broken up first, like an earlier era’s trusts, because they pose a systemic risk and their size benefits no one but their owners; whether the solution to what ails us as a nation is an amalgam of more regulation, wealth redistribution, and a greater concentration of power in a central government that has proven no more (I’m being charitable here) adept than the private sector in reining in the excesses that brought us to this pass — the list goes on and on, and the dialectic is admirably American.

Even though, as a high-income taxpayer, I might be considered one of its targets, I find this reassessment of so many entrenched economic premises healthy and long overdue. Anyone who could survey today’s challenging fiscal landscape — with an un- and underemployment rate of nearly 20 percent and roughly 40 percent of the country on public assistance — and not acknowledge an imperative for change is either heartless, brainless or running for office on a very parochial agenda. And if I end up paying more taxes as a result, so be it. The alternatives are all worse.

But what I do find objectionable is the highly politicized idiom in which this debate is being conducted. Now, I am not naive. I understand that in today’s America, this is how the business of governing typically gets done — a situation that, given the gravity of our problems, is as deplorable as it is seemingly ineluctable. But as president first and foremost and leader of your party second, you should endeavor to rise above the partisan fray and raise the level of discourse to one that is both more civil and more conciliatory, that seeks collaboration over confrontation. That is what “leading by example” means to most people.

Capitalism is not the source of our problems, as an economy or as a society, and capitalists are not the scourge that they are too often made out to be. As a group, we employ many millions of taxpaying people, pay their salaries, provide them with health-care coverage, start new companies, found new industries, create new products, fill store shelves at Christmas and keep the wheels of commerce and progress (and indeed of government, by generating the income whose taxation funds it) moving.

To frame the debate as one of rich-and-entitled versus poor-and-dispossessed is to both miss the point and further inflame an already incendiary environment. It is also a naked, political pander to some of the basest human emotions — a strategy, as history teaches, that never ends well for anyone but totalitarians and anarchists.

With due respect, Mr. President, it’s time for you to throttle-down the partisan rhetoric and appeal to people’s better instincts, not their worst. Rather than assume that the wealthy are a monolithic, selfish and unfeeling lot who must be subjugated by the force of the state, set a tone that encourages people of good will to meet in the middle.

When you were a community organizer in Chicago, you learned the art of waging a guerilla campaign against a far superior force. But you’ve graduated from that milieu and now help to set the agenda for that superior force. You might do well at this point to eschew the polarizing vernacular of political militancy and become the transcendent leader you were elected to be.

You are likely to be far more effective, and history is likely to treat you far more kindly for it.

Sincerely,

Leon G. Cooperman

C.F.A. Chairman & Chief Executive Officer

Omega Advisors, Inc.

Wall Street Plaza

88 Pine Street, 31 st Floor

New York, New York 10005





2b)Obama's 2012 Chances and Democratic Demographic Dreaming
By Sean Trende

The latest report from Ruy Teixeira and John Halpin of the progressive Center for American Progress contains a thoughtful examination of President Obama's re-election chances. There's an awful lot packed into the 60 pages of text, but the basic thrust is as follows: We should expect the non-white share of the electorate to grow at least 2 percent from the 2008 election, padding Obama's base line. If he can hold serve among either the white working class or college-educated whites, he should be able to pull out a victory, even amid troubled economic times.

In truth, the report is substantially less bullish on Obama's re-election chances than some of the articles analyzing it have suggested. It acknowledges the president has a “tight needle to thread” and “Americans will be open to replacing President Obama with an even-tempered, nonthreatening GOP leader focused on the economy.” In other words, the triumphalism of Teixeira’s “Emerging Democratic Majority” argument of the early 2000s is decidedly tempered throughout the report, and with good reason. After all, the GOP just won its second-largest share of seats in the House of Representatives since 1928, with an electorate that had the second-smallest share of non-Hispanic white voters in history. In retrospect, those repeated “last gasps” of the GOP coalition (1994, 2002, 2004, 2010) look a lot more like “steady breathing.”



But the optimistic tones in Teixeira and Halpin’s piece need to be tempered even further. The “demographics versus economics” debate that Teixeira and Halpin suggest will determine the outcome of the next election isn’t a 50-50 proposition. It is weighted heavily toward the economics side, and I think it’s unlikely that demographics will save the president. There are three critical observations here:

1. The minority population may not grow substantially from 2008 through 2012.

Probably the central feature of the Teixeira/Halpin argument is that the non white share of the electorate should have grown 2 percent by 2012, reducing the white share of the electorate to 72 percent (for simplicity’s sake, I’ll shorten “non-Hispanic whites” to “whites”). This is certainly possible, as the white share of the electorate has contracted by 2 percent, on average, in every presidential election since 1980.

But it hasn’t been a straight line. In 1992, the white share of the electorate actually increased by 2 percent, in response to H. Ross Perot’s candidacy and the economic contraction. In 2004, the white share of the electorate declined by 4 percent, in part due to the growth of the Latino population.

So why might we expect the demographic changes in the electorate to be more like 1992 than 2004? First, the Latino share of the electorate has actually remained stagnant for much of the past decade. In 2004, Latino voters comprised 8.24 percent of the electorate. In 2006, they were 7.94 percent of the electorate. In 2008, they were 8.38 percent of the electorate. In 2010, they were once again around 8 percent. In other words, for a variety of reasons, the surge in Latino population has not translated into a surge in Latino voting power (and remember, there was a huge registration and get-out-the-vote drive in 2008 among Latinos, both in the primaries and the general election).

And while the headline from the release of the decennial census was the surge in the Latino share of the populace, the lesser-known truth is that Latino immigration has largely stopped over the past several years. It may have even reversed. There are multiple reasons for this, including the United States’ deep recession and slow recovery, as well as the continued modernization of the Mexican economy. In other words, to the extent that Latino immigration is what accounts for the increase in the Latino share of the electorate from 1992 through 2004, we should not expect it to do so from 2008 through 2012.

But while the Latino share of the electorate was stable from 2004 to 2008, the white share of the electorate nevertheless decreased. Why would this be? The answer is simple: The increase in the non-white share of the electorate from 2004 to 2008 was largely driven by a surge in African-American voters. The African-American share of the electorate is typically between 9 and 11 percent. In 2008, it was 13 percent, by far the largest vote share in history.

The problem for the president is that he has probably maxed out among these voters -- the African-American share of the electorate in 2008 was about 10 percent more than their share of the population as a whole. In fact, I wouldn’t be surprised if the number of African-American voters declined somewhat in 2012. This isn’t because African-Americans are disappointed in Obama -- his approval among African-American voters remains stratospheric -- but rather because it will probably be much more difficult to energize marginal African-American voters with the prospect of re-electing the first black president than it was to energize them with the idea of electing the first black president.


But the bottom line is that we should be very surprised if the African-American share of the electorate increases further from 2008 to 2012. We likewise have good reason to believe the Latino share of the electorate will remain stable. This suggests a pretty strong argument that the minority share of the electorate will be roughly the same in 2012 as it was in 2008, and a decent argument that it might contract somewhat.

(2) Obama will have a difficult time winning either white working-class voters or upscale whites.


Even if the non-white share of the electorate does increase by an additional two points in 2012, Obama still faces an additional hurdle. As Teixeira and Halpin suggest, Obama cannot afford to lose white voters at the same rate Democrats lost them in 2010. In other words, he must hold serve among either upscale whites or downscale whites if he hopes to win.

But keeping the margin close, much less winning, among either group will be difficult. Remember, Obama enjoys a low-to-mid-40s approval rating right now for one reason: He maintains an approval above 80 percent among African-Americans. Among whites, it is a mere 33 percent. At that level, there are almost by definition very, very few subgroups of whites who approve of the job the president is doing.

So when we see, for example, that Obama’s job approval among all adults making more than $7,500 a month is 40 percent, we can probably imagine that his overall approval among upscale whites is a few points lower than that. His job approval among adults making $2,000-$7,500 a month is not much different, and his job approval among adults with “some college” or a “high school diploma or less” is also in the low 40s. Once again, we can pretty safely assume that his job approval among whites in those categories is somewhat lower.

In other words, Obama doesn’t just have some “tidying up” to do among various white groups. He has to either improve his image there by about a point a month over the next 11 months, or hope for a Republican nominee so unacceptable to the overall populace that Obama can convince a substantial number of voters who disapprove of him to nevertheless cast ballots for him. Right now, the latter looks much more likely than the former.

(3) Winning minority voters and white voters is something of a zero-sum game.

In a little more than a month, my book, “The Lost Majority,” hits the stands. The central argument of the book is that the famous permanent Republican and Democratic majorities that many commentators foresaw emerging in the 2000s were mirages, precisely because long-term, permanent majorities are almost always impossible in this country.

There are myriad reasons for this, but two are of particular importance here. First, as new issues emerge, the party that is in power will inevitably have to choose winners and losers on these issues from among its coalition. This is even more pronounced in a time of economic stagnation, when the question isn’t “who gets the new slices of pie?” but rather “who is going to have to give up their share of the pie?” Second, the party that is out of power will adapt, and will chase after groups that the other party either takes for granted or ignores.

So, for instance, Obama can try to shore up his support among Latino voters by embracing immigration reform and combating Arizona’s profiling law. But in doing so, he risks alienating white working-class voters and, to a lesser extent, upscale white voters. In fact, this is precisely what happened in Arizona in 2010. Jan Brewer won the state by three points more than John McCain, despite running about 13 points behind McCain among Latino voters. She more than made up for this decline among Latinos by increasing her share among whites (who are still three-quarters of the Arizona electorate) by three points. The idea that there is a zero-sum game at work here is an inherent assumption underlying the argument that Obama has to choose between a “Colorado strategy” focusing on upscale whites, or an “Ohio strategy” focusing on downscale whites.

To be clear, if Republicans win total control of the government in 2012, they’ll have to make similar tough choices. Holding together a party composed of semi-secular soccer moms in Loudoun County, Va., evangelical attorneys in Edmond, Okla., and Catholic auto workers in Youngstown, Ohio, is almost as difficult as holding together a coalition of blacks, Latinos, working-class whites, suburbanites and urban liberals. These types of difficulties run throughout history, and they help explain why parties almost never win the popular vote more than three times in a row.

But for now, Obama is the president. The state of the economy, as well as policy choices made early in his term, are forcing him to pick winners and losers among his 2008 electoral coalition. Republicans will craft their 2012 message based in large part around the choices he makes. Barring a gift from the Republicans in the form of their nominee -- and this is something we absolutely should not rule out -- the president will likely have a very difficult time holding it together.
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Tuesday, November 29, 2011

Never Met A Rally I Did Not Like - Can It Be Trusted?


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Continuing developments in the Iranian nuclear saga. (See 1 below.)

More from Israel regarding Syria. (See 1a below.)

Another sub for Israel. (See 1b below.)
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Victor Davis Hanson always worth reading. (See 2 below.)

Obama's efforts in the part of the world he wanted to charm have turned sour. (See 2a below.)
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The year end rally has begun as a result of co-ordinated efforts on the part of our Federal Reserve and Central European banks to flood the world market with worthless dollars in place of worthless EUROS.

The rally is more psychologically induced and time will tell whether these co-ordinated actions will keep the ship afloat. I continue to have serious doubts but it might help the ship to get to a safer port for the time being before another wave of debt washes ashore and does more damage. (See 3 and 3a below.)
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While the press and media are hot on poor old Herman's trail maybe they should look into this. (Sent to me by a friend,fellow tennis buddy and memo reader.) (See 4 below.)
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Dick
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1)A Second Iranian Nuclear Facility Has Exploded
By Sheera Frankel

An Iranian nuclear facility has been hit by a huge explosion, the second such blast in a month, prompting speculation that Tehran's military and atomic sites are under attack. Satellite imagery seen by The Times confirmed that a blast that rocked the city of Isfahan on Monday struck the uranium enrichment facility there, despite denials by Tehran. The images clearly showed billowing smoke and destruction. Israeli intelligence officials told The Times that there was "no doubt" that the blast struck the nuclear facilities at Isfahan and that it was "no accident."
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By Michael Ledeen

Maj.-Gen. (res.) Giora Eiland, Israel's form er director of national security, told Army Radio that the Isfahan blast was no accident. "There aren't many coincidences, and when there are so many events there is probably some sort of guiding hand, though perhaps it's the hand of God," he said.
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Israel Is Not Alone Against Iran
By Amos Harel

Former Military Intelligence chief Maj.-Gen. (res.) Amos Yadlin told the Institute for National Security Studies on Tuesday, "Once Iran decides finally to move forward in developing a nuclear weapon, a whole new range of opportunities will open up for a fight which the international community will fight." "Israel is not alone in the game," Yadlin said. "When the Iranians publicly reveal that they are pushing toward a nuclear weapon, Israel will no longer be the central player in the game." "This situation requires us to maintain good channels of dialogue and understanding with those who have better operational abilities than us," Yadlin added.
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Iran Is Developing Low-Flying Cruise Missiles
By Yaakov Katz

Iran is developing an advanced low-flying cruise missile that could potentially carry a non-conventional warhead, Arieh Herzog, director of the Israel Defense Ministry's Homa Missile Defense Agency, told the International Aerospace Conference in Jerusalem on Wednesday.

In 2012, the Air Force plans to begin deploying the David's Sling missile defense system to protect against medium-range missiles including cruise missiles.


1a)Katyusha fire on Israel was Syrian warning. Turkey ready for any scenario


Military sources report that the four-Katyusha rocket volley from S. Lebanon which hit Galilee in northern Israel in the small hours of Tuesday, Nov. 29, was initiated by Hizballah commanders in South Lebanon although it was claimed by the al Qaeda-linked Abdullah Azzam Brigades. Hizballah activated a Palestinian cell it controls in the Ain Hilwa refugee camp near Sidon on behalf of its ally in Damascus, arming the cell with the rockets and marking out their firing positions and targets in Israel's Galilee.

One Katyusha blew up near the border, two inside a Galilee moshav damaging a hen coop and a fourth in a wood outside Maalot, causing damage but no injuries.Israeli artillery returned the fire.

Officers in the IDF northern command familiar with the terrain across the border, assert that those firing positions are located in a sector under Hizballah's exclusive control. It is off limits to any outsiders without the Iran-backed Shiite group's permission and knowledge.

IDF sources read the rocket attack as the Assad regime's last warning to the US, fellow NATO members and Gulf nations that Israel would be first to pay the price for their planned intervention in Syria. It would trigger a Lebanese-Israel border clash followed by a massive rocket assault on Israel. More Katyusha incidents are therefore to be expected to emphasize the message.

In Istanbul meanwhile, Turkish Foreign Minister Ahmet Davutoglu said his government hopes that a military intervention in Syria will never be necessary "but is ready for any scenario."

A regime which tortures its own people has no chance of survival, he added. Turkey may consider setting up a buffer zone on its border in co-ordination with the international community in the event of a massive exodus of refugees from Syria, its foreign minister said on Tuesday.

This was the first time Turkey has publicly declared itself ready for direct military intervention in Syria in addition to providing bases in support of an allied operation.
Monday a group of military officers from NATO and Persian Gulf nations had quietly established a mixed operational command at Iskenderun in the Turkish Hatay province on the border of North Syria:

Hailing from the United States, France, Canada, Qatar, Saudi Arabia and the United Arab Emirates, with Turkish officers providing liaison, they do not represent NATO but are self-designated "monitors." Their mission is to set up "humanitarian corridors" inside Syria to serve the victims of Bashar Assad's crackdown. Commanded by ground, naval, air force and engineering officers, the task force aims to move into most of northern Syria.

Laying the groundwork for the legitimacy of the combined NATO-Arab intervention in Syria, the UN Independent International Commission set up to assess the situation in Syria published a horrendous report Monday, Nov. 28 on the Assad regime's brutalities. It documented "gross violations of human rights" and "patterns of summary execution, arbitrary arrest, enforced disappearance, torture including sexual violence, as well as violations of children's rights."

Syrian foreign minister Walid al-Moallem fought back by showing a press conference Monday photos of dismembered bodies of Syrian soldiers as proof of the atrocities he claimed were perpetrated by the anti-Assad opposition. He also complained that "the Arab League and others refuse to believe that there is a foreign conspiracy targeting Syria."

Western-Arab intervention in the Syrian crisis is in an advanced state of operational planning. It entails a buffer zone in northern Syria encompassing beleaguered towns, primarily Idlib, Rastan and Homs - but also Aleppo, Syria's largest city (2.5 million mostly Sunni and Kurdish inhabitants).

The protest movement never caught on in Aleppo, home to the moneyed classes who run the country's financial and trading sectors, and it was confined to the highway network feeding the city. Therefore, for the Assad regime, bringing Aleppo into the "humanitarian corridor" system under foreign military control will round of the damage caused by the economic sanctions approved this week by the Arab League. Losing Aleppo will fatally hammer the economy into the ground and rob the Syrian ruler of funding for sustaining his military crackdown to wipe out the unrest in the areas remaining under his control.

Aware of this threat, Foreign Minister al-Moallem accused the Arab League of declaring economic war on Syria


1b)'Germany approves subsidized sale of military submarine to Israel'
German official, speaking on condition of anonymity, says his country set aside $180 million to fund about a third of another Dolphin-type submarine.
By The Associated Press


A senior German official said Wednesday that the government has approved the subsidized sale of another Dolphin-type military submarine to Israel.

The official said Germany has set aside €135 million ($180 million) in next year's budget to pay for about a third of its cost.


Dolphin-class submarines are capable of carrying nuclear-tipped missiles, but there is no evidence that Israel has armed them with such weapons.

Israel already has three Dolphin submarines from Germany — one half-funded and two entirely funded by Berlin, a staunch Israeli ally.

The official, speaking on condition of anonymity because of the sensitivity of the issue, said Wednesday a 2005 agreement between the two nations included an option for another subsidized submarine which was now activated at Israel's request.
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2) Obama 101
Few presidents have dashed so many illusions as Obama.
By VICTOR DAVIS HANSON

In the last three years, the president has taught us a great deal about America, the world, and himself.

Before Obama, many Americans still believed in massive deficit spending, whether as an article of fairness, a means to economic growth, or just a lazy fallback position to justify an out-of-control federal government. But after the failure of a nearly $800 billion “stimulus” program — intended to keep unemployment under 8 percent — no one believes any more that an already indebted government will foster economic growth by taking on another $4 trillion in debt. In other words, “stimulus” is mostly a dead concept. The president — much as he advised a barnstorming President Bush in 2005 to cease pushing Social Security reform on a reluctant population — should give it up and junk the new $500 billion program euphemistically designated as a “jobs bill.” The U.S. government is already borrowing every three days what all of America spent on Black Friday.

Obama has also taught us that prominent government intervention into the private sector often makes things worse, and invites crony-capitalist corruption. Nearly three years into this administration, it is striking how seldom Barack Obama brags about Cash for Clunkers, the Chrysler and GM bailouts, or Solyndra. He either is quiet about them or sort of shrugs, as if to say, “Stuff happens.” Even creative bookkeeping cannot mask the fact that the auto-company bailouts (begun, to be sure, by the Bush administration, but made worse under Obama) will prove a huge drain on the Treasury. No one even attempts any more to convince us that we will like Obamacare once we read the legislation, or that it will save us costs in the long run, or that it will cheer up businesses so that they will invest and hire. All that was dreamland, 2009, and this is reality, 2011, when we hear only “It could have been worse.”

Obama has also taught us that a president’s name, his father’s religion, his ethnic background, loud denunciations of his predecessor, discomforting efforts to apologize, bow, and contextualize past American actions — none of that does anything to lead to greater peace in the world or security for the United States. And by the same token, George Bush’s drawl, Texas identification, and Christianity did not magically turn allies into neutrals and neutrals into enemies.

Israel, Britain, and Eastern Europe are not closer allies now than they were in 2008. Iran is still Iran — and may be even a more dangerous adversary after the failed Obama outreach. Putin’s Russia, despite “reset” (a word we no longer much hear), is still Putin’s Russia. China still despises the U.S., and feels in 2011 that it is in a far better position to act on its contempt than it was in 2009. North Korea never got the “hope and change” message. Europe is collapsing, reminding the world where the United States is headed if it does not change course. Outreach didn’t seem to do much for the Castro brothers, Hugo Ch├ívez, or Daniel Ortega. We are helping Mexico to sue our own states, but that does not seem to persuade its leaders to keep their citizens home. Muslim Pakistan went from a duplicitous ally to a veritable enemy. The more we bragged about Turkey, the more we could feel it holds us in contempt. We hope that the Libyan rebels and the Cairo protesters are headed toward democracy, but we privately admit that they seem to have no more interest in establishing it than we have in promoting it. In other words, Professor Obama reminds future presidents that the world will transcend their rhetoric, their pretensions, and their heritage. Other nations always calibrate their relations with the United States either by their own perceived self-interest, or by centuries-old American values and power, or both.

Barack Obama has taught us a great deal about dealing with radical Islam, an ideology not predicated on what presidents do or say. There will be no shutting down of Guantanamo as promised, and no end to either renditions or preventive detentions and tribunals. Khalid Sheik Mohammed will never be tried, as promised, in a New York courtroom not far from the scene of his mass murdering. The so-called Ground Zero mosque — once so dear to sanctimonious members of the Obama administration — will never be built; either liberal New Yorkers will quietly prevent it, or the architects of the scheme will be exposed as financial as well as cultural con artists. Obama will never again give an interview to Al-Arabiya expanding on how his own heritage will ameliorate relations with Arabs. The Cairo speech will go down in history not as a landmark creative effort to win over Muslims, but, to the extent it is remembered, as one of the most ahistorical constructs in presidential history. The Obama legacy in the War on Terror is as Predator-in-Chief — boldly increasing targeted assassinations tenfold from the Bush era, on the theory that we more or less kill the right suspected terrorists; few civil libertarians care much, apparently because one of their own is doing it.

We have learned from Obama that the messianic presidency is a myth. Obama’s attempt to recreate Camelot has only reminded us that JFK’s presidency — tax cuts, Cold War saber-rattling, Vietnam intervention — was never Camelot. We shall see no more Latinate presidential sloganeering (“Vero Possumus”), no more rainbow posters. Gone are the faux-Greek columns, the speeches about seas receding and the planet cooling — now sources of embarrassment rather than nostalgia. Chancellor Merkel won’t want another Victory Column address from someone who ducked out on the 20th anniversary of the fall of the Berlin Wall. Obama himself will not lecture crowds any longer about the dangers of their fainting when he speaks; Michelle will cease all the nonsense about “deign[ing] to enter the messy thing called politics” and finally acquiring pride in the U.S. when it nominated her husband. Even Chris Matthews’s leg has stopped tingling. There will be no more Newsweek comparisons of Obama to a god. Even the Nobel Prize committee will soon grasp that it tarnished its brand by equating fleeting celebrity with lasting achievement.

“Green” will never be quite the same after Obama. When Solyndra and its affiliated scandals are at last fully brought into the light of day, we will see the logical reification of Climategate I & II, Al Gore’s hucksterism, and Van Jones’s lunacy. How ironic that the more Obama tried to stop drilling in the West, offshore, and in Alaska, as well as stopping the Canadian pipeline, the more the American private sector kept finding oil and gas despite rather than because of the U.S. government. How further ironic that the one area that Obama felt was unnecessary for, or indeed antithetical to, America’s economic recovery — vast new gas and oil finds — will soon turn out to be America’s greatest boon in the last 20 years. While Obama and Energy Secretary Chu still insist on subsidizing money-losing wind and solar concerns, we are in the midst of a revolution that, within 20 years, will reduce or even end the trade deficit, help pay off the national debt, create millions of new jobs, and turn the Western Hemisphere into the new Persian Gulf. The American petroleum revolution can be delayed by Obama, but it cannot be stopped.

One lesson, however, has not fully sunk in and awaits final elucidation in the 2012 election: that of the Chicago style of Barack Obama’s politicking. In 2008 few of the true believers accepted that, in his first political race, in 1996, Barack Obama sued successfully to remove his opponents from the ballot. Or that in his race for the U.S. Senate eight years later, sealed divorced records for both his primary- and general-election opponents were mysteriously leaked by unnamed Chicagoans, leading to the implosions of both candidates’ campaigns. Or that Obama was the first presidential candidate in the history of public campaign financing to reject it, or that he was also the largest recipient of cash from Wall Street in general, and from BP and Goldman Sachs in particular. Or that Obama was the first presidential candidate in recent memory not to disclose either undergraduate records or even partial medical. Or that remarks like “typical white person,” the clingers speech, and the spread-the-wealth quip would soon prove to be characteristic rather than anomalous.

Few American presidents have dashed so many popular, deeply embedded illusions as has Barack Obama. And for that, we owe him a strange sort of thanks.

Victor Davis Hanson is a senior fellow at the Hoover Institution and the author most recently of the just-released The End of Sparta, a novel about ancient freedom.


2a)U.S. Relations Have Soured Worldwide
By Peter Wehner


Hundreds of enraged Pakistanis took to the streets across the country Sunday, burning an effigy of President Obama and setting fire to American flags after 24 soldiers died in NATO air strikes. Prime Minister Gilani said his country was re-evaluating its relationship with the United States. According to Army General Martin E. Dempsey, chairman of the Joint Chiefs of Staff, the average Pakistani’s respect for the United States is lower than ever. “[The average Pakistani who] doesn’t know the United States, doesn’t read about the United States or just watches something on television about the United States, at that level [the relations] are probably the worst they’ve ever been,” he explained. He added that the relationship between the U.S. government and Pakistan’s government is “on about as rocky a road as I’ve seen.”

Elsewhere in the world, our relations with Afghanistan and Iraq have frayed. Our relationship with Israel is at a low point, even as the Palestinian Authority ignored Obama and sought statehood through the United Nations. No progress has been made toward achieving peace in the Middle East. Our capacity to shape events in Egypt (where the Muslim Brotherhood seems to be gaining in power) and Syria (where innocent people are being massacred in the streets) is severely restricted. Iran views Obama with disdain as it continues on its march toward achieving nuclear weapons. North Korea also seems immune to Obama’s charm.

And there’s more. The efforts to “re-set” relations with Russia have failed. During the Bush presidency relations with Japan, China, India, Mexico, Colombia, Poland, the Czech Republic, and Great Britain (to name just a few countries) were better than they have been during the Obama years. Relations with France and Germany are worse now than they were in Bush’s second term (Sarkozy and Merkel doubt Obama’s seriousness on Iran and don’t see the U.S. as a reliable partner in the Eurozone crisis). America’s counsel to Europe, on dealing with its crushing debt, has been politely ignored. Sub-Saharan Africa received greater attention from the last president than the current one. Nothing significant has been done on the matter of global warming. Guantanamo Bay remains open. And polls show that the United States under President Bush was more popular in the Arab world than it is under President Obama.

With these developments in mind, I decided to re-read several of Barack Obama’s foreign policy speeches and transcripts from debates during the 2008 campaign. And what one finds are extravagant promises, from a stronger and more sustained partnership with Pakistan, Afghanistan, Japan, India, and China; to getting leaders of the biggest carbon emitting nations to join a new Global Energy Forum that would lay the foundation for the next generation of climate protocols; to ending our dependence on foreign oil; to deepening our engagement to help resolve the Arab-Israeli conflict; to closing Guantanamo Bay; to meeting (without preconditions) Fidel Castro, Hugo Chavez, and Mahmoud Ahmadinejad during Obama’s first year in office; to renewed respect for America in the Muslim world; to rapid economic growth in order to maintain our military superiority.

“Now it’s our moment to lead,” Obama said in an April 23, 2007 speech, ”our generation’s time to tell another great American story. So someday we can tell our children that this was the time when we helped forge peace in the Middle East. That this was the time when we confronted climate change and secured the weapons that could destroy the human race. This was the time when we brought opportunity to those forgotten corners of the world.”

Obama made these promises despite having no experience in foreign policy. No matter; his unrivaled intelligence, persuasive powers, and capacity to think strategically and anticipate events would lead to a “new era of international cooperation.”

It hasn’t quite turned out that way, has it?

Under Obama, we were supposed to see the flowering of diplomacy; what we’ve seen instead is a relentless (and welcomed) commitment to kill terrorists. As for the diplomatic failures we’ve experienced over the last three years, they cannot all be laid at Obama’s feet. The world is complicated; the problems we face are often vexing; and the United States cannot control how every country on earth conducts itself. Pakistan would be a tough nut for any statesman to crack.

Now in saying this, it should be pointed out, I’m extending significantly more grace and understanding to President Obama than he ever extended to his predecessor. Back when he was running for office, nothing was beyond Obama’s powers, or so Obama seemed to believe. Conflicts, intransigence and a burning hatred for America were easily fixable; the world would be as simple to shape as hot wax. After all, how difficult can stopping Iran’s nuclear program be for a man who said his election would heal the planet and reverse the ocean tides?

In Henry IV, Glendower says, “I can call spirits from the vasty deep.” To which Hotspur replies, “Why, so can I, or so can any man; but will they come when you do call for them?”

Obama has learned the hard way that he, like any man, can call spirits from the vasty deep — but often they will not come. And what then?

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3)How to Make Sense of the European Union Disaster
By T.S. Weidler


Everything you need to know to understand the European Union can be discovered by simply glancing at the location of its headquarters. Brussels is in Belgium, which is not a real country, does not have a government, and does not have any money.
Belgium has not had a government for a year and half, yet the capital city (to the degree that a country without a government can have a capital) is host to one of the largest government organizations in the world. The ironies and paradoxes of the EU are clearly seen in the microcosm of Belgium.

Belgium was invented in 1839, when the powers of Europe decided to carve out sections of the Netherlands and Luxembourg and assigned what resulted the name "Belgium." This despite the fact that the bit of land was inhabited by Flemish, Walloons, Dutch, French, various Germans, and several other minority groups that had been hostile to each other for centuries. A group of unelected European leaders stepped in and said, "Let there be Belgium," and suddenly, there was Belgium -- but it was not a nation. Decrees do not make nations. Belgium is a haphazard collection of once-independent states with no interest in joining together and substantial reasons not to.

Over the years, Belgian governments have maintained majority rule by offering entitlements and subsidies to every niche group they can find. This is the only way to get a majority in a country with eleven major political parties divided on ethnic and linguistic lines. Naturally, it leads to dangerous deficits. It all came to a halt in the general election of June 2010. No coalition has been able to strike a deal to create a majority. Parties join together to form majorities only when there is a significant handout being offered, but with a crashing economy, nobody is willing to continue this charade. Last week the interest rate on Belgian debt jumped into crisis levels. Belgium's credit rating has been systematically cycling downward for the past two years. There is a strong secessionist movement to break into at least two independent nations, while others push for a stronger central authority to enforce unification. So Belgium hasn't had a government for seventeen months running.

Aside from debt, secession, and anarchy, there is also the matter of national defense. The powers that breathed Belgium into existence did so on the condition that it remain neutral in military affairs. Neutrality ensured that France, Germany, and Britain would have a low-lying, centrally located piece of land on which to fight wars, rather than having to deal with the unpleasantries on their own land. Belgium is whatever Europe needs it to be: a buffer zone when things are hostile, a highway for tanks when you want to go on offense, and a shooting range when the war starts. It was created for the purpose of hosting other countries' wars and is required to remain neutral so as not to spoil the fun. It has served this purpose quite well over the years. It doesn't matter that the various factions that happen to be stuck inside its borders have no desire to run a country of their own. They have to do it anyway because it is convenient for the rest of Europe. Belgium would be a joke if it weren't a tragedy.

So it goes for the EU. Germany would rather not bail out Greece and Italy, and Greece and Italy would rather not be swallowed up by the European leviathan. Doesn't matter -- they have to do it anyway because Europe is all roped together now.
The EU is not a real country. It is a collection of independent states that have no national interest in joining forces, and substantial reasons not to. It does not have a functional government, but it does have just enough of a government to make everyone's life worse, and to run up enormous deficits. Like Belgium, it has no national defense to speak of and numerous factions that are hostile to one another.

All historical evidence suggests that Europe is a fragmented and dangerous place, with constant wars covering its entire history. It is the only continent on which something called "The Hundred Years' War" ever happened. In the last century, some of these constant small battles were saved up and unleashed as the two biggest wars in world history. But even WWI and WWII were not enough to satisfy the bloodlust haunting Europe. There was also the small matter of a Soviet occupation of half the continent and countless feuds within feuds. Italy just completed its 61st change in government in 66 years. Spain was ruled by a dictator up until 1975 and had its first democratic election in 1977. Germany, of course, tried to take over the world twice, and always followed the advice of bumper stickers by thinking globally and invading locally. The effort to make these nations suddenly join together in happiness and love is one of the most foolish ventures ever conceived. It is unraveling now. It would be a joke if it weren't tragic.

The EU is Belgium writ large. A group of unelected officials from around Europe got together and dreamed up the EU, then arbitrarily made it happen. Now it is in the position of managing the countless factions of Europe. Constant bailouts and subsidies are the only things that keep everyone happy. There isn't enough money to keep up the charade, and there are considerable efforts to break it up. Each nation of the EU is held together by nothing more than the selfish decrees of others. It is crashing as you read.

Europe has come full circle. The EU has taken over Italy and Greece and installed unelected puppet regimes there. Belgium, a puppet nation dreamed up by Europe with no history, no government, and no money, finds itself ruling puppet governments of the two foundational sources of European civilization because they have no money. In WWII Germany went through Belgium to take over France. Now Germany is going through Belgium to take over Italy and Greece.

This is all you need to know about the EU. It is a messy assortment of peoples haphazardly crammed together, with no functional government, saddled with extremely high debt. Belgium was created as a puppet nation with no historical roots. Now it's been converted into a base from which all of Europe is held together as a puppet nation with no historical roots. The EU, like Belgium, is not strong enough to govern its various factions, nor does any freedom-lover desire it to be. The cradles of European history, Athens and Rome, are swallowed up by a puppet newcomer. It would be tragic if it wasn't an outrage.

The next EU takeover will probably be Spain, and there will be more after that. At some point Europe will fall. The only question is the direction in which it falls. It may fall into totalitarianism, or it may dissolve back to its historical national divisions. There are mounting efforts in both of these directions already, and there will be tremendous instability either way. Do not be surprised if there is war. Watch what Belgium does.

T.S. Weidler is the editor of a $1.4-million line of research databases and the sole operator of hermancainfacts.com.


3a)Experts: Central Bank Move Doesn't Solve Core Problems, May Fuel Inflation
By Forrest Jones


Coordinated action from the world's Central Banks to inject liquidity into the European financial system may spark a global stock-market rally, but it won't solve the underlying issues plaguing the European economy such as a political unwillingness to carry out tough reform policies, experts say.

The U.S. Federal Reserve, the European Central Bank and the Central Banks of Canada, Britain, Japan and Switzerland have agreed to lower the cost of existing dollar swap lines by 50 basis points, a half percentage-point cut, a move that makes it easier for banks in Europe to get access to dollars.

The Central Banks say in a joint statement that cutting interest rates on swap lines — short-term loans in this case denominated in dollars — will prevent a credit crunch from striking the global economy.

Banks often borrow from one another in dollars mainly because U.S. interest rates are so low.

In Europe, where credit is tight due to sovereign default scares, banks need to tap the European Central Bank (ECB) for those dollars, and today's rate cut on the swaps basically makes it cheaper and easier to do so.

"In short, European banks were finding it too expensive to make dollar loans, which hurt their ability to lend dollars and encouraged them to sell euros. This depressed the value of the euro and restricted credit in Europe. The ECB arranged to borrow dollars more cheaply from the Fed, so it could ease this market," CNBC says in an analysis of the deal.


The move does not represent the U.S. government shipping taxpayer money abroad but rather, makes it easier for banks worldwide to tap and borrow from the pool of dollars flooding the global economy.

A side effect, however, could include inflation.

"The new dollars have the potential to spark inflation—which could result in higher interest rates and higher taxes as the government combats inflation," CNBC adds, pointing out that inflation is not yet a problem in the U.S. as of now.

The move is all well and good, says Mohamed El-Erian, co-head of Pimco, the world's largest bond fund. But it doesn't address fundamental spending and other issues that European governments need to confront, which include pooling bailout money together to prop up weaker economies.

"First, these monetary institutions feel that, again, they have to move because other entities have continued to be too slow and too ineffective; and second, they feel that they cannot, and should not ignore an actual or anticipated need to relieve acute pressures within the banking system," El-Erian writes in a Financial Times blog.

There are two ways to look at the move, one sees a glass half full and the other half empty, El-Erian adds.

"The hope is that central banks are acting because, looking forward, they feel confident that other policymakers will finally catch up with a big and spreading debt crisis that has serious implications for growth, jobs and inequality. The fear is that they are acting because they feel that they must again pre-empt yet another set of potential disappointments."

The Federal Reserve points out the move is necessary in that providing cheaper dollars to the ECB will alleviate a credit crunch there.

"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," according to a Federal Reserve statement.

U.S. banks, meanwhile, aren't threatened by liquidity issues, the Fed adds.

"U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses," the Fed's statement reads.

Other experts agree with the Fed that the move is a helpful one, but point out it won't steer the global economy towards greener pastures and add the ensuing stock-market rally night not last.

"More people just bought stocks than know what a central bank swap line is," writes Peter Tchir of TF Market Advisors, according to the Wall Street Journal.

Furthermore, while stock markets may be shooting up on a relief rally, the dollar could suffer.

"Global central banks are opening the spigots and the casualty has been the dollar," says Kathleen Brooks, research director at Forex.com, MarketWatch reports.

"The extension of the dollar swap lines essentially means that dollars will be available cheaply and on request for the next 15 months to Europe's troubled financial sector, which will probably greedily eat them up after being starved of much-needed dollar funding since the summer."

Other analysts applaud the move, pointing out that while it won't solve problems, it is a step in the right direction.

"This is something that is very welcome. This will not solve all deep-based funding problems which are due to the sovereign debt crisis," says Silvio Peruzzo, an economist at RBS in London, Reuters reports.

"But there is an issue with dollar liquidity, especially with foreign currency and this measure addresses that. This helps the margin and also shows that Central Banks remain at unease with what certainly is very significant distress."

Other experts add they hope to see more concrete steps to support the financial system in Europe to follow.

"This is not a game changer for the debt crisis. It's relieving some strains but it's not meant to tackle the actual sources of these problems. There I think there is still quite a way to go on the policy ground. There needs to come a credible package," says Nick Kounis, Head Of Macro Research At ABN Amro, Reuters adds.
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4)“Very Interesting Bit Of Detective Work”

1. Back in 1961 people of color were called 'Negroes.' So how can the Obama 'birth certificate' state he is 'African-American' when the term wasn't even used at that time?

2. The birth certificate that the White House released lists Obama's birth as August 4, 1961. It also lists Barack Hussein Obama as his father. No big deal, right? At the time of Obama's birth, it also shows that his father is aged 25 years old, and that Obama's father was born in " Kenya , East Africa ". This wouldn't seem like anything of concern, except the fact that Kenya did not even exist until 1963, two whole years after Obama's birth, and 27 years after his father's birth. How could Obama's father have been born in a country that did not yet exist? Up and until Kenya was formed in 1963, it was known as the " British East Africa Protectorate".

3. On the birth certificate released by the White House, the listed place of birth is "Kapi'olani Maternity & Gynecological Hospital ". This cannot be, because the hospital(s) in question in 1961 were called "KauiKeolani Children's Hospital" and "Kapi'olani Maternity Home", respectively. The name did not change to Kapi'olani Maternity & Gynecological Hospital until 1978, when these two hospitals merged. How can this particular name of the hospital be on a birth certificate dated 1961 if this name had not yet been applied to it until 1978?
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Monday, November 28, 2011

President Cool's results Are Chilling!

This Marine may have no regrets but he lost his limbs for what? So Obama can lose the entire Middle East because he lacks a cohesive plan to retain American influence.

Obama is all intellect and no passion. He may be cool but his results are chilling. (See 1 below.)
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Were Osborne a doctor he would suggest allowing the patient to heal thyself. What a novel thought. If only politicians were that smart. (See 2 below.)
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Our son was here for the holiday and he asked me whether our nation would make it through these difficult times.

I told him no president since Wilson,not even Reagan, had asked Americans to buckle down, to tighten their belt and do what was necessary. Carter asked us to wear a sweater and turn the thermometer down a notch. Ford told us to buy American. That's about it.

Johnson and GW told us we could fight wars and pay for them with someone Elsey's blood but not our cash.

I know Obama will not so this is why we need to throw him out and replace him with someone else. That said, the person we replace him with not only must lead us but also must force us to be what we have not been for almost a century - prudent.

Since I have doubts that Obama will be beaten, though I pray he will, and do not know who will succeed him if he is beaten, I was unable to answer my son with any conviction.

I wish I had confidence Americans were still a 'can do' people and I want to believe we are but I see little evidence that we are prepared to sacrifice. Sure we want the wealthy to sacrifice, in fact we want them to do all the heavy lifting, so the 99% can continue to sit on their duffs, complain, beg and destroy.

I am on record stating I expect a year end rally because I believe Europe's stronger nations will eventually stitch something together for the time being but I doubt it will hold because they too must demand sacrifice and Europeans seem unwilling if Greek riots, as well as those in Spain and Portugal, are representative of the general mood.

The America I grew up in and the Americans I mostly grew up with and know are 'can do' people. We proved we were and there is plenty of evidence to support that view. We grew up in a family structure that mostly insisted we learn, do our homework, take life somewhat seriously, get a job and be responsible for ourselves. We grew up with an education system that offered a core curriculum, ie. history, math,literature etc.. We grew up in a society not infected by the Politically Correct virus. We grew up in a society that respected authority. We grew up in a society that was patriotic and more cohesive. We grew up in a nation whose border's were secure.

We also grew up in a tainted society in terms of segregation so not all was just, sweetness and light and then the political structure decided we could lose a war, that maybe should not have even been fought, under the mistaken belief there would be no repercussions because it was 'over there.' The stains of Viet Nam linger to this day and still manifest themselves in subtle but powerful ways. We now have a president who believes losing wars builds national character and wins friends and respect world wide. How pathetic and naive.

I wish I could have answered my son in a resounding affirmative and not with a lot of qualifications but he deserved an honest answer and I was too uncertain to give him one .

Mohamed A. El-Erian has other issues that he presents regarding the economics of our problems. His biggest concern is that the politicians are driving the car, have no road map and seem to taking us over a cliff. (See 3 below.)

Former Sen. Gramm's speech at Hillsdale College about former President Reagan. (See 3a below.)
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It is all very long and even more taxing. (See 4 below.)
Dick
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1)The Psychological Foundation of Obama’s Political Problems
Justin Frank

In June 1985, Flora Lewis wrote in the New York Times that then-President Ronald Reagan said he had pounded the walls in frustration over the hostage crisis in Beirut. Given what we know about Reagan, it's not hard to believe that he would resort to such measures to express his rage.

Now try to imagine Barack Obama similarly venting his frustration at the Republicans taking his agenda hostage for political gain. Hard to visualize, isn't it?

That's no accident. Since being elected president, Obama has consistently displayed a cool demeanor, one that has confounded many of his former supporters. His detachment has led many to think that he is oblivious, disinterested, even frightened of direct confrontation. The latest instance has been his passive observation of the failure of the Super Committee, which has spurred pundits and politicians from both sides of the aisle to accuse him of lacking the fire to be president. MSNBC news host Chris Matthews, once one of the president's biggest fans, recently placed direct blame for the country's malaise on the President's lack of emotional leadership. “There's nothing to root for,” he complained.

The fact that the President has failed to address, hands-on, such a critical problem should make us realize that his reluctance to take charge is not a cognitive issue, but a psychological one. It's not that Obama doesn't understand what he ought to be doing—it’s that the structure of his personality won't allow him to constructively address the problem.

This is where psychoanalysis can be of benefit. By recognizing Obama’s behavior patterns we can illuminate the unconscious thought processes that might be influencing them. Fortunately, one needn’t treat Obama as a patient to undertake a thorough analysis of him. After all, there is plenty of public material available—not least, his autobiography Dreams From My Father—from which to sketch an outline of the President’s personality using a technique called “applied psychoanalysis.”

First, some psychological preliminaries. The President's detractors are suggesting that he doesn't feel enough passion or emotion. But a basic tenet of psychoanalysis is that everyone has rage. The question is what one does with that rage, and why.

On a psychoanalytic level, Obama is someone who tries to disconnect himself from fury through intellectual exertion and by strenuously trying to keep matters in clear focus. He doesn’t simply contain his rage or hold it inside his mind; he dissociates–a psychoanalytic term for disconnecting thought from feeling. This allows him to operate in a purely intellectual state, protected from the disruptive influences of excessive passions.

The 1789 French Revolutionary saying, “The tongue is the enemy of the neck," describes the approach Obama has always lived by. He turns a blind eye to his own rage; he seems almost sleepwalking when others would be screaming. This is not simply a matter of the president’s public persona pushing aside the private, enraged one. It is a profound ability to disconnect himself from feeling the full force of his own rage.

Ultimately, this is an expression of his fear of abandonment. In fact, what appears as detachment is the latest manifestation of a long history of removing himself from the fray in idiosyncratic ways. Growing up as a mixed-race child of two broken homes, and living in two dramatically different countries, Barack Obama learned to survive by carefully noticing everything around him while at the same time not allowing himself to feel the full emotional impact of his experience.

He dealt with loss without protest. He didn't complain when his mother abandoned him to pursue her passion for anthropology on far-flung expeditions, or when she removed him from the home of his stepfather in Jakarta when he was ten. Instead, Obama focused on surviving by getting along. He pursued inclusion relentlessly, even when circumstances repeatedly cast him in the role of the outsider.

It's not an accident that one of the strategies he developed to maintain his membership in groups was to keep his mouth shut. Indeed, his autobiographies show that he was repeatedly taught as a child to keep his feelings to himself. His stepfather Lolo told him regularly never to complain if he were hurt or in trouble. His high school basketball teammates reinforced that message some years later. And so by keeping careful and cautious watch of his surroundings, he learned to be at home in different groups, easily shifting from one to the other.

This kind of dissociation is at the core of some his greatest political strengths. It helped him become intellectually nimble, and acutely alert to his surroundings. It's only by adapting this kind of psychic position his entire life that Obama was able to easily joke at the White House Correspondents Dinner while knowing there was an active mission underway to kill Osama bin Laden.

But assuming this perpetually peripheral role has also taken a lasting toll. The anxiety of not belonging has grown to occupy an ever-greater part of his psyche. He writes in Dreams From My Father that when, as an adult, he was walking through the most dangerous parts of Chicago late at night, the greatest fear he had was the fear of not belonging. But now there is a new tension, between his need to belong and the demands of standing up for what he believes. The former is driven by his related fears of not belonging and being abandoned; the latter carries the risk of alienating others irrevocably.

In material reality, his concern with alienating conservatives is wholly unproductive: it is unlikely that he can be more hated by the Tea Party than he already is. Nonetheless, he continues to relentlessly pursue compromises with Republicans that will never happen. Indeed, so concerned is he with his own degree of belonging that he jeopardizes the sympathies of those who actually have felt a natural and authentic connection to him. Whatever other political and personal advantages it confers, Obama's observational caution doesn’t give jobless participants in “Occupy Wall Street” or Wisconsin’s striking public employees the sense that he is concerned.

Again, it's not that the President lacks passionate emotions. Indeed, given the onslaught of personal provocations doled out by his political competitors, his stores of rage are sure to be filling up. But the question of what will happen with that anger will likely be closely bound with his reelection campaign in 2012. Previously, he has found an outlet for aggression on the campaign trail: The only times he has felt comfortable being truly rhetorically confrontational are when he's standing behind a teleprompter or a podium and before a cheering audience.

There are hints of this campaign persona in the unusually blunt talk coming from the president recently, as when he warned that there “will be no easy exit ramps” for Congress as it tries to escape painful spending cuts. But it remains to be seen whether this is merely a temporary ventilation of Candidate Obama, or a more lasting change in the psychology of the President.

Of course, Obama's detachment is a pattern, and patterns aren't broken easily. In ordinary circumstances it might take years of analysis for someone so well defended to express his anger fully. As President neither he nor our nation can afford the psychoanalytic time that takes.

In the meantime, he will likely fail to see the greatest irony of his current position. As sensitive he is to group dynamics, as the President of the United States, he is now the sole member of an exclusive group of one. And he's going to need to push through his fears in order to avoid joining the only other group available to him—that of the ex-presidents.

Justin A. Frank, MD is a psychoanalyst, clinical professor of psychiatry at George Washington Medical Center, and the author of Obama on the Couch.
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2)A daring idea to fix the economy: try doing less
The best thing the Government can do to restore growth is to stop imitating Labour, and get out of the business of running things.
By Janet Daley

Gosh, what a parcel of goodies George Osborne is about to present to us in his Autumn Statement. Already promised last week were a government programme to underwrite the mortgages of first-time buyers, as well as a nifty £200  million “green deal” to encourage families to insulate their homes. Then there was a billion-pound subsidy to employers who give young people work experience that will lead to jobs. And who knows what more bounty is to follow in the speech itself?

Now where have I seen the like of this beneficence before? Oh yes – it was under Gordon Brown. As Chancellor (and then later when he was Prime Minister, through his half-hearted proxy Alistair Darling), Mr Brown would stand at the Dispatch Box and shower us with government spending projects. There were injections of cash into house-building, and grants for scientific research, and God knows how many initiatives to create “training” and engineering apprenticeships. All that micro-management: new “start-up” schemes and “one-stop shop” outreach services funded by this department and that department, and then re-packaged and re-announced so that they sounded less tired and predictable.

Maybe you thought we had got past this. Not just because additional public spending is now supposed to be anathema, but because the myth of government activism – the idea that intervention by the state is the answer to every economic and social problem – had been definitively routed. Apparently not: Mr Osborne and, we must assume, his boss still seem to believe that any unacceptable national situation must require direct action from them.

Or maybe they don’t believe that at all. Perhaps they just lack the political courage to admit that, in our present crisis, the best thing that the Government can do is to get out of the business of running (or subsidising, or initiating, or incentivising) things altogether – not just in the interests of saving money, but because the effects of such interference are counter-productive. What the economy is suffering from is not an insufficiency of overweening, fussy, bureaucratic initiatives that inevitably unleash an avalanche of unintended consequences, but a lack of cash in the hands of people who might spend it in ways that would actually create wealth and stimulate (in the proper sense of the word) economic growth.
If ever there was a time for radical proposals by a governing party, this is it. Rather than the imitative, mealy-mouthed shuffling of dollops of money from one departmental scheme to another, in what will inevitably look like panic in the face of rising youth unemployment and disappointing growth figures, what we need is a display of real insight and nerve.

Under black economic skies, political battle awaits 19 Nov 2011
Paradoxically, it is in times of crisis that the public (especially the British public, who are peculiarly brave about these things) are most receptive to audacious pronouncements and drastic remedies. Knowing that a situation is genuinely parlous makes people more inclined to accept what seems like necessary risk-taking, especially if it is presented to them with honesty and conviction.

Couldn’t we have a statement, then, of what most struggling voters know to be true: the economy is failing because people cannot (or are afraid to) spend money. It is no use offering to “underwrite” mortgages for first-time buyers who may not be in a position to repay them. Nor will bribing employers to take on young trainees help firms to expand: if they cannot increase their turnover, they will not be able to retain those fledgling staff. The effectiveness of both these programmes relies on precisely the kind of economic recovery that they are designed to stimulate. If that stimulus fails, the recipients of this state largesse will be left high and dry.
What the economy needs is more customers who are willing and able to buy. What the state needs to do is to give those potential customers more disposable income to spend. To this end, it has tried printing more money. Unfortunately, most of that cash ended up sitting in bank vaults instead of circulating through the system. In fact, the only way to encourage more spending without increasing personal debt is to let people keep more of what they earn in the first place, and to make sure that they are not being overcharged for necessities like fuel and energy. Certainly there will be a few nods in this direction, with a widely predicted freeze on fuel duty and a proposal to hold down increases in rail fares. But such tiny ameliorations in the cost of living are unlikely to make a dramatic impact on most people’s lives.
Instead of finding new, ingenious ways to use your money that might give a brief appearance of nibbling at the edges of problems such as unemployment and property prices, the state needs to withdraw from hyperactive job-creation and mortgage-lending, and become much more vigilant in ensuring competition in the productive parts of the economy. The deregulation of the 1980s and 1990s would be coming in for much less criticism now if it had not funked the matter of competitiveness: nationalised industries too often gave way to private monopolies and cartels. If people are taxed less and fleeced less, they will be happy to stimulate the economy in the good old-fashioned way.

As David Cameron used to say before he took fright: we need a smaller state that does less and spends less. Mr Osborne used to say that, too, in terms that were at least as stark as any Tory backbencher. Maybe a generation of Treasury officials who came of age under the Brown Terror got to him with the electrodes. Or else, his role as election campaign manager for the Conservatives is conflicting with what should be his better judgment as head of the nation’s finances. After all, it should be his function as Chancellor to tell his party’s political strategist that voter-appeasing initiatives are unaffordable, and that economic reality must take precedence. Presumably, Mr Osborne would have had to carry on that argument with himself. (If he did, we know which side won.)

There is an urgent need now to rethink the whole relationship between government and populace while there is still the possibility of discussion. In Britain, Europe and America, the questions are remarkably similar. Can a free-market economy support an infinitely growing state? We will have to choose, quite soon, between liberty and the “security” of a society in which government controls the levers of economic life. Washington politicians are getting a terrible drubbing for failing to resolve their implacable differences over the size of the state (to the extent that they are unable to agree a federal budget). The US national debate may seem rough and ready to European ears – but at least they are engaging in the real argument.
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3)When economic ‘unthinkables' become reality
Pacific Investment Management Co. CEO and Co-CIO Mohamed A. El-Erian says recent turbulence in the financial markets is “not just normal volatility. … [I]t’s “unsettling.”
By BRIAN CALLE

When the chief executive of a global investment firm that manages assets in the neighborhood of $1.4 trillion calls current economic goings-on "unsettling," it is probably wise to take heed. That's precisely what Pacific Investment Management Co. CEO and Co-CIO Mohamed A. El-Erian told an audience of more than 200 people at the Big Canyon Country Club in Newport Beach. This is "not just normal volatility," he said referring to recent turbulence in the financial markets, it's "unsettling."

El-Erian's address Nov. 17 was a diagnosis of current economic woes, their causes and general observations about what might create laudable economic growth and quell global markets.

What concerns El-Erian and his colleagues at Newport Beach-based PIMCO are what the company terms "unthinkables," those worst-case scenarios of economic upheaval. Some "unthinkables" became reality in the third quarter of this year, El-Erian observed, such as the United States losing its AAA credit rating and U.S. policymakers flirting with a technical default.

Many of the problems are political, some are social. But the problems have been a long time coming and recent social discontent manifested through global social movements further highlights challenges facing the global economy.

El-Erian identified politicians and policymakers as major barriers for economic growth. He noted that American society has "transferred enormous power to the politicians and policymakers." And unfortunately, "politicians are driving." He said it is like policymakers are driving the car without a map on an "unfamiliar road and all of us are sitting in the back seat." "They haven't told us where we are going" nor have they provided a "vision for the U.S. economy." Instead the politicians are "arguing amongst themselves;" there is "no clarity." His observations exemplify broader public angst towards policymakers and politicians at virtually all levels of government.

BAILOUT FALLOUT

The PIMCO chief discussed some government policies that have led to increased social discontent, most notably when he called United States bank bailouts a form of "socialism." The bailouts were sold to the world promising to "restore growth and employment," he said, but "neither occurred." This is one source of social unrest in the U.S. because, as El-Erian has noted, previously, it is the perception of the public that government "privatized massive gains and socialized massive losses." Growing numbers of people throughout the world are beginning to "believe the capitalist system is not fair."

In addition, knee-jerk government efforts at economic intervention have largely failed at a time when long-term, multi-year planning and vision are necessary. "The West," he said, has been unable to grow its way out of this recession "despite massive stimulus." He listed a number of "impediments" such as the depressed housing market, labor market problems and structural, long-term unemployment, as well as limited access to credit.

Trouble spots

Two areas El-Erian highlighted as being particularly troublesome are "unhealthy balance sheets" of government and homeowners, and youth unemployment. He said that the "unhealthy balance sheets are dictating the future of Europe, possibly the U.S., too," a dangerous economic proposition. Also, unemployment rates for those between the ages of 16 to 19 are staggering. "That scares us the most," he said, because when young people are unemployed for long periods of time they run the risk of becoming unemployable.

For a substantial U.S. economic recovery, El-Erian says the nation needs its economic "Sputnik moment" – a societal coming together for a "common purpose" and shared vision. "We need our political system to come together and understand that we have structural problems, and we need a multiyear plan" to address them. "Social movements pull the parties further apart" at a time when "coming together is necessary."
For Europe, El-Erian, like many scholars, contends that Germany is the key. "Europe needs its moment of truth," he said. "Germany is the most powerful country. They have the checkbook, and they must act before things will get better." He said that Germany should make one of two decisions: either decide all 17 eurozone countries are a fiscal union and in solidarity, pay for the other countries (much like the German reunification solidarity tax used to rebuild Eastern Germany) or not pay, and move towards a "smaller, less-imperfect union." From El-Erian's view, one of those must occur to solve the challenges in Europe.

SPEND, CHINA, SPEND

Finally, he said, the Chinese government could take measures to encourage spending by its middle class, which he said has the capacity to spend but not the will. If China changed policies to encourage spending "it will open up a huge market."
For the individual investor, El-Erian called for "general defense and selective offense," as well as "intellectual agility."
While global volatility amplified by social, political and economic unrest in the United States and abroad has made for "unsettling" times, these challenges are not insurmountable.
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3)Reaganomics and American Character
By Phil Gramm (CURRENTLY vice chairman of the investment bank division of UBS, Phil Gramm served as a member of the U.S. House of Representatives from Texas’s sixth congressional district from 1979-1985, and as a U.S. Senator from Texas from 1985-2002. Prior to his career in public service, he taught economics at Texas A&M University from 1967-1978. Sen. Gramm earned both his B.A. and doctorate degrees in economics from the University of Georgia.)

The following is adapted from a speech delivered at Hillsdale College on October 3, 2011, during a four-day conference on “Reagan: A Centenary Retrospective,” sponsored by the College’s Center for Constructive Alternatives.

What was the American economy like in the decade prior to the Reagan presidency? The 1970s, for a myriad of reasons, were not a happy time. They featured a combination of stagnation and inflation, which came to be called “stagflation.” The inflation rate peaked at just over 13 percent, and prime interest rates rose as high as 21-and-a-half percent. Although President Jimmy Carter did not use the exact words, a malaise had certainly set in among Americans. Many wondered whether our nation’s time had passed. A Time magazine headline read, “Is the Joyride Over?” Did we really need, as Jimmy Carter told us, to learn to live on less?

Ronald Reagan did not believe America was in decline, but he did believe it had been suffering under wrongheaded economic policies. In response, he offered his own plan, a program for creating economic freedom that came to be known as Reaganomics. Of course, most of Reaganomics was nothing new. Mostly it was the revival of an older understanding that unlimited government will eventually destroy freedom and that decisions regarding the allocation of scarce resources are best left to the private sector. Reagan explained these old ideas well, and in terms people could understand.

But there was also a new element to Reaganomics, and looking back, it was a powerful element and new to the economic debate. It was the idea that tax rates affect a person’s incentive to work, save and invest. To put it simply: lower tax rates create more economic energy, which generates more economic activity, which produces a greater flow of revenue to the government. This idea—which came to be known as the Laffer Curve—was met with media and public skepticism. But in the end, it passed the critical test for any public policy. It worked.

To be sure, there were a couple of major impediments to the economic success of Reagan’s program. First, the Federal Reserve Bank clamped down on the money supply in 1981 and 1982, in an effort to break the back of inflation, and subsequently the economy slipped into the steepest recession of the post-World War II period. Second, Soviet communism was on the march, the U.S. was in retreat around the world, and President Reagan was determined to rebuild our national defense as part of a program of peace through strength. All of these factors worked strongly against Reagan in the battle to revive the American economy. Nor was it a forgone conclusion that his program would get through Congress. We shouldn’t forget that it was a tough program. For example, it eliminated three Social Security benefits in one day: the adult student benefit, the minimum benefit, and the death benefit. Reagan’s program represented a dramatic change in public policy.

With his great skill in communicating ideas, Reagan got his program through Congress. And despite Fed policies and large expenditures for national defense, his program succeeded. I don’t want to bore you with statistics, but I will have to present some to make my case. Most importantly, I hope I will succeed in demonstrating what a difference good policies make to the average citizen.

The evidence is, I think, overwhelming: the Reagan program, when fully implemented in 1983, ushered in a 25-year economic golden age. America experienced very rapid economic growth and only two minor recessions in those 25 years, whereas there were four recessions in the previous 12 years, two of them big ones.

What exactly did Reagan do? For starters, he cut the top tax rate from 70 percent to 28 percent. And yes, high income earners benefitted from these cuts. But as I used to say in Congress, no one poorer than I am ever hired me in my life. And despite lower rates, the rich ended up paying a greater share: In 1979, the top one percent of income earners in America paid 18.3 percent of the total tax bill. By 2006, the last year for which we have reliable numbers, they were paying 39.1 percent of the total tax bill. The top ten percent of earners in 1979 were paying 48.1 percent of all taxes. By 2006, they were paying 72.8 percent. The top 40 percent of all earners in 1979 were paying 85.1 percent of all taxes. By 2006, they were paying 98.7 percent. The bottom 40 percent of earners in 1979 paid 4.1 percent of all taxes. By 2006, they were receiving 3.3 percent in direct payments from the U.S. Treasury.

In the 12 years prior to the Reagan program, economic growth averaged 2.5 percent. For the following 25 years, it averaged 3.3 percent. What about per capita income? In the 12 years prior to the Reagan program, per capita GDP, in real terms, grew by 1.5 percent. For the 25 years after the Reagan program was implemented, real per capita income grew by 2.2 percent. By 2006, the average American was making $7,400 more than he would have made if growth rates had remained at the same level as they were during the 12 years prior to the Reagan program. A family of four was making $29,602 more. During the 12 years prior to Reagan, America created 1.3 million jobs per year. That number is pretty impressive compared to today’s stagnant economy. But during the Reagan years, America added two million jobs per year. That means as of 2007 there were 17.5 million more Americans at work than would have been working had the growth rates of the pre-Reagan era continued.

Inflation, which had been 7.6 percent for the previous 12 years, fell to 3.1 percent. Interest rates plummeted. The average homeowner in America had a monthly mortgage payment of $1,000 less as a result of the success of the Reagan program. Poverty, which had grown throughout the 1970s despite massive increases in anti-poverty programs, plummeted despite cuts to these programs. The poverty level fell from 15 percent to 11.3 percent. These results are tangible evidence that government policy matters.

This is not to say that no mistakes were made. In order to secure lower tax rates, it became good politics to raise the number and amount of income tax deductions, thereby removing about 50 percent of Americans from the tax rolls. In my opinion, that was a mistake, and I think we are suffering for it today. I believe everyone should pay some income taxes. Nevertheless, the net result of the Reagan program was good for all Americans.

So how does the Reagan recovery compare to the recovery going on today? In sum, this is the most disappointing recovery of the post-World War II period by a large margin. I don’t think people understand what an outlier this recovery period is. If the economy had recovered from this recession at the rate it recovered from the 1982 recession, which was roughly the same size in terms of unemployment, there would be 16.3 million more Americans at work today—in other words, all those who say they are unemployed plus almost 60 percent of “discouraged workers” who have dropped out of the labor force. If real per capita income had grown in this recovery at the same rate it grew during the Reagan recovery, real per capita income would be $5,139 higher today. Both the Reagan program and the Obama program instituted dramatic changes. One program worked. The other is failing.

In the end, government policy matters. The truth is, Americans are pretty ordinary people. What is unique about America is an understanding of freedom and limited government that lets ordinary people achieve extraordinary things. We have been getting away from that view recently, but if we can get back to that understanding, which was Reagan’s, our nation will be fine.

Let me conclude by saying that the argument I am making is not just about money or GDP. It’s an argument about character.

If you want to see the effect of bad government policy on character, simply turn on the news and see how Greek civil servants have been behaving recently. They are victimizers behaving like victims. Greek government policies have made them what they are. But what made Americans who we are is a historically unprecedented level of freedom and responsibility. The real danger today is not merely a loss of prosperity, but a loss of the kind of character on which prosperity is based.

I occasionally hire a man to do bulldozer work on my ranch. He doesn’t know a lot about foreign policy, but he knows a lot about the economics of the bulldozing business. In his freedom to pursue that business and to be the best he can be at it, he’s the equal of any man. He’s proud, he’s independent, and he knows his trade as well as anybody else in America knows theirs. That’s what America is about. For me, today’s battle, as it was in 1980, is not just about prosperity or goods and services. It’s about freedom, and it’s about the kind of character that only freedom creates.
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4) It’s All Very Taxing
By Howard Marks

The issue is simple: the U.S. government generally spends more than it brings in . . . and recently, a lot more. For years Congress was willing to serially raise the federal debt ceiling and monetize the deficit. But this past summer, some legislators balked. When the early August deadline for an increase in the ceiling arrived, our elected officials kicked the can down the road, but less far than usual. They created a Congressional supercommittee with unprecedented power to propose solutions, and they designed automatic spending cuts in case no proposal won approval.

With the committee working under a November 23 deadline to find ways to reduce the federal deficit by $1 trillion-plus over the next decade, and with a presidential election less than a year away, the subject of taxes is all over the headlines and likely to remain there. Thus I've decided to provide a background piece on the issues.

What form will the deficit-cutting action take? In fact, the possibilities fall into only four categories:

• cut discretionary spending,
• reduce expenditures on entitlements,
• cut waste and fraud, or
• increase tax revenues.

Given the magnitude of the problem, the limited number of potential solutions, and the differences between the parties on the subject, there's already debate regarding the fourth of those listed above. Democrats generally feel tax increases should be part of any solution, and Republicans often insist that while they're open to overhauling the tax code, total taxes must not rise.

What's Fair is Fair

This memo got its start as an excuse for me to write about one of my greatest pet peeves: the so-called "fair share."

Ask your typical Democrat or liberal about the idea of increasing taxes on upper-bracket earners, and what will they say? In my experience, the answer's always the same: "We're not out to soak the rich. We just want them to pay their fair share." We've seen it over and over for years. For example:

"Were [the politicians levying taxes on Americans] seeking to redistribute wealth, to recast society along more egalitarian lines? Or were they simply trying to ensure that rich people paid their "fair share"? The answer, predictably, is both. . . .

"If poor and middle class Americans were going to be asked [by President Roosevelt], of necessity, to shoulder much of the fiscal burden, then they needed assurance the rich were paying their share. . . .

"No one made the case more succinctly than Rep. Cordell Hull, legislative father of the 1913 income tax. 'I have no disposition to tax wealth unnecessarily or unjustly,' he explained in his memoirs. 'But I do believe that the wealth of the country should bear its just share of the burden of taxation and that it should not be permitted to shirk that duty.' "

("Soaking the Wealthy: An American Tradition" The Wall Street Journal, January 29-30, 2011)

The rhetoric remained unchanged in the late twentieth century:

" 'We will lower the tax burden on middle class Americans,' [Bill Clinton] pledged in 1992, 'by asking the very wealthy to pay their fair share.' " ("The Middle-Class Tax Trap" The New York Times, April 17, 2011)

More recently, President Obama carried on the tradition.

"I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share." (The New York Times, September 20, 2011)

And here's another reference from just a month ago:

"In proposing a 5 percent surtax on incomes of more than $1 million a year to pay for job-creation measures sought by President Obama, Senate Democratic leaders on Wednesday escalated efforts to strike a more populist tone and to draw Republicans into a confrontation over how much affluent Americans should pay to help others cope with a struggling economy. . . .

" 'It's interesting to note that independents, Democrats and Republicans and even the Tea Party agree it's time for millionaires and billionaires to pay their fair share of taxes,' [Senate Majority Leader] Reid said Wednesday."

(The New York Times, October 6, 2011)

But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, "it's time for millionaires and billionaires to pay their fair share," he implies they haven't been doing so thus far. How does he know? What's the standard? If there's an objective standard for one's fair share, why does it only seem to be those from the left side of the political spectrum who say it's not being paid? And if there isn't an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder, and "get them to pay their fair share" seems like just another way to say "raise their taxes."

There's probably only one element of fairness that's beyond discussion: those with higher incomes should pay more in taxes. After that, everything is up for grabs.

• For example, we have a progressive system of taxation, meaning that higher earners don't merely pay more in terms of dollars; they generally pay a higher percentage of their incomes in taxes. Most people agree that this is fair. But is it? Why should success be penalized through greater taxation? And if the tax rate for those who earn more should be higher, how much higher? Should the top marginal tax rate be double that applicable to lower-income taxpayers? Triple? What's fair?

• Are some forms of income more desirable to society and thus deserving of taxation at lower rates?
• And should we encourage certain expenditures by making them deductible from taxable income?

The fairness of all of these things is subject to discussion and disagreement. They come under the heading of tax policy.

Is Taxation Progressive? Progressive Enough?

Under the U.S. system, people in higher income brackets pay tax at higher rates. (However, Mark Twain said, "All generalizations, including this one, are false." For an exception to the generalization above, see the discussion of the "Buffett Rule" on page 5.) In large part, the question of fairness primarily surrounds whether the higher rates are high enough.

Talk about "the eye of the beholder." There's evidence on both sides of this debate:

• The top 1% of U.S. taxpayers pay 38% of all individual federal taxes. The top 10% pay 70% of all taxes, the top 25% pay 86%, and the top 50% pay 97%.
• That leaves the bottom 50% of all taxpayers paying only 3% of the total.
• About half of Americans pay no federal income tax, and almost 25% pay no federal taxes at all.
• The average federal income tax rate for the top 1% of Americans is 23% (and for the top half it's 14%), while the average rate for the bottom half is 3%.

Notwithstanding the rhetoric, there's no doubt about the fact that America's top earners are taxed more heavily than the rest. On the other hand, they pay at lower rates than they used to (when I was a boy the top marginal rate was 94%), and it seems progressivity has declined.

". . . the effective federal tax rate, including payroll taxes, for the wealthiest 0.01 percent of earners fell to 31.5 percent in 2005, from 42.9 percent in 1979 [for a decline of 26.6%], according to data from the Congressional Budget Office. Over the same time, effective rates for taxpayers in the center of the range fell to 14.2 percent, a decrease of just 4 percentage points [or 22.0%]." (The New York Times, September 21, 2011)

Total revenues from income taxes have declined in the U.S. – they "are at a historical low of 15.3 per cent of the gross domestic product, compared with a postwar average of 18.5 per cent" (Financial Times, September 25) – and they've declined more for top earners than for the rest. This is because of both specific rate cuts that have been enacted and the fact that the rates applied to dividends and capital gains – which clearly flow more to people in the upper income brackets – have declined relative to the rates on salaries and wages.

On average, higher earners absolutely do pay a higher percentage than those who earn less. But the decision as to whether the differential is just right, too little or too great is highly subjective and certainly a valid topic for debate.

Righteous Income

In the U.S., different types of income are taxed at different rates, suggesting some are considered more virtuous than others. For example, profits on investment assets held for more than a year, so-called "long-term capital gains," are taxed less than "ordinary income" such as salaries and interest. This has been the case for so long that we consider it the norm, and what we're used to often becomes the baseline for "fairness."

Long-term capital gains are taxed at reduced rates because of a judgment that long-term investment in things like securities, companies and real estate is beneficial for the economy and should be encouraged. Right now, the top tax rate on long-term investment profit is less than half that on short-term gains and ordinary income. And in recent years, the taxes on dividends have been reduced to similar levels, in part to mitigate double taxation of corporate profits but also because of a judgment that the equity investments that give rise to dividends are good for our society.

Is it appropriate to tax profits on long-term investments at rates below those on other forms of income? Certainly we should encourage investment, but there's no consensus that the tax code is the place to do it. Some foreign jurisdictions don't tax capital gains at all, while others tax them at the same rate as all other income.

What about interest? Why are dividends taxed at preferential rates and interest at ordinary rates? The explanation may lie in the fact that interest is deductible for corporations, while dividends aren't. Interest is paid out of pretax income, while in theory dividends are paid out of after-tax income – although the existence of corporate deductions and credits means dividends may, in fact, be paid out of income that hasn't been taxed by the U.S. Alternatively, the difference in tax treatment may be the result of a desire to encourage investment in "risky" equities rather than "safe" debt. But some companies' dividends are no doubt safer than some other companies' interest payments, so this distinction is questionable. If the goal is to encourage risk bearing, is dividend versus interest the right criterion?

While on the subject of gains from investments, it's interesting to note that, not long ago, dividends were included with interest under the rubric "unearned income." This pejorative phrase implied that income on capital, not requiring labor, was less virtuous than that stemming from labor, so-called "earned income." Thus unearned income – primarily dividends and interest – was taxed more heavily than wages.

But now things have turned 180 degrees, and returns on capital are taxed at lower rates than wages. It's worth noting that the Democrats – commonly considered the party of labor – controlled the government for much of the period 1928 to 1980, when earned income was favored. On the other hand, the Republicans – the party of those with capital to invest – have been in control more of the time since 1980, and the taxation of returns on capital has declined in relative terms. The definition of virtuous income that should be encouraged through lower taxes clearly is subjective, impermanent and subject to change with the winds of politics.

One debate that has arisen recently surrounds the so-called "Buffett Rule." For the last few years, Warren Buffett has been speaking about the fact that he pays a smaller percentage of his income in taxes than does his secretary. Presumably this is because his income consists primarily of long-term capital gains and very little of salary, bonus and interest.

(As an aside, it should be noted that Buffett's lower tax rate, while not unique, is far from the norm. According to The New York Times of September 24, "The number of people who fall under the Buffett Rule is quite small, only 60,000" out of 450,000 taxpayers who make over $1 million. "And the amount of revenue that would be generated [by the Buffett Rule] over the next 10 years is equally small – just $13 billion. . . .")

Buffett's tax status is a function of policy choices made by the people who wrote our tax laws. According to The New York Times of September 21, "President Obama's proposal for a new tax on millionaires . . . would counteract decades of tax reductions for most Americans that have given the wealthy the most benefit. . . ." Do we consider these decisions appropriate in principle and Buffett's just an extreme case? Or do we want to change things so returns on capital are less favored and big earners can never pay overall taxes at lower rates than those who earn less? (And, as an aside, are all long-term profits truly beneficial to society? How, for instance, does society benefit when someone buys a bar of gold?)

Deductions, Loopholes and Tax Incentives

Speaking of gold, in "All That Glitters" on that subject, I quoted from a speech by Mississippi state legislator "Soggy" Sweat that showed his ability to simultaneously praise and condemn whiskey with equal conviction. Outdoing Soggy, depending on who's talking, Washington politicos use the three very different terms above to describe the same thing: offsets to taxable income.

The drafters called them deductions: provisions that reduce the net income on which taxes are levied. Critics call them loopholes, suggesting there's something underhanded about those provisions. And politicians use the laudatory-sounding term tax incentives to describe tax code provisions that reduce tax revenues in order to encourage certain behavior. It all depends on your point of view.

Let's take a look at one of the most popular deductions: interest on mortgages. For as long as I can remember, interest on home mortgages has been treated as a desirable expenditure that should be encouraged. Because home ownership is considered part of the American dream, the tax code subsidizes it by reducing the after-tax cost for those who borrow to buy homes (and are able to itemize rather than take the standard deduction). While everything else may be arguable, certainly this seems fair. But is it?

• Are homeowners more virtuous than renters? If mortgage interest is deductible but rent isn't, we're requiring renters to subsidize owners. Is that appropriate?
• On average, homeowners are from the middle and upper income brackets. Is it fair that poorer renters provide a benefit for richer owners?
• And is it desirable that those able to buy more expensive homes should get more of a subsidy than those consigned to cheaper ones?

As with the taxation of dividends, judgments on these matters change over time. Until 1987, there was no limit on the amount of mortgage interest that could be deducted. If you could afford to own ten homes with multiple million-dollar mortgages on each one, taxpayers would collectively share the cost by reducing your income taxes due. Today interest is deductible on only a maximum of $1.1 million of debt, and only on first and second mortgages, and only on a primary residence and a second home. So the tax treatment of owners of many homes and more expensive homes has become less generous. But it's still better than that of renters. Is that proper?

What about the tax deductibility of charitable donations? As I travel the world visiting with clients, I see that two things about the U.S. are quite uncommon: (a) Americans give a lot of money to charity and (b) donations to charity are deductible in calculating taxable income. Everyone tells me the latter is the main reason for the former. In particular, these things are part of the explanation for the existence of the many private, non-state-supported colleges and universities in the U.S., the best of which are so good at least in part because of their significant donor-provided endowments. For example, Harvard and Yale are only half as old as England's Oxford and Cambridge, but they benefit from endowments that are far larger.

Part of this is true because legislators decided at some point to subsidize non-profits by encouraging contributions through the tax code. That's certainly understandable. And yet, changes were made in recent years to limit upper-bracket taxpayers' use of deductions in order to ensure that they pay some minimum tax rate.

What about the unevenness of the subsidy? The cost of giving $1 to charity is reduced by the amount of taxes it saves the donor, which is equal to $1 times the person's tax rate. So today, speaking simplistically, it costs a top-bracket taxpayer 65 cents to give a dollar to charity, while it costs a bottom-bracket taxpayer 85 cents. Is that fair? Should the bigger earner receive a greater reward for a dollar of philanthropy than someone who can afford it less easily? And should those who aren't inclined to give to charity be required to subsidize those who are?

Finally, what about state and local taxes, the third of the significant deductions? Here tax deductibility isn't due to a decision to encourage people to pay non-federal taxes, but rather to cushion the effect of being taxed in multiple jurisdictions. Texas, Florida and five other states have no personal income tax, California has a heavy one, and someone living in Manhattan pays tax to both New York State and New York City. Deductibility on the federal tax return somewhat evens out the burden and ensures that (a) the states get first crack at taxing income and (b) the federal government can only tax what's left, in line with federalist principles.

This raises a number of questions. Is the deductibility of state and local taxes fair? As with other deductions, the key question is "fair to whom?" Some people pay more state and local taxes than others, meaning they get greater deductions than others. As a result, while a person with a given income who lives in a high-tax state pays higher total taxes, he or she pays less federal tax than someone in a low-tax state. Is that fair?

Further, what all of this means is that by providing more benefits to its residents (or at least spending more money, whether beneficially or not), a high-tax state creates a deduction for its residents and thus reduces the federal government's total tax take. Is this right? Should the federal government subsidize spending on the part of high-tax states? That is, should residents in low-tax states bear part of the expenses of high-tax states? There's nothing simple about these matters.

While the source of an exemption rather than a deduction, what about interest on "municipal bonds" issued by states, counties, cities and local agencies. This is exempt from federal taxation, under the legal doctrine that the federal government mustn't tax the operations of the states. ("The power to tax is the power to destroy," one of our great Supreme Court decisions held.) But here again, we're talking about a federal benefit (in the form of a lower cost of capital) for the biggest-spending local governments and their citizens, and a tax break for people who lend to them.

And what about property taxes? These are deductible without limitation. Thus the owner of a mansion – or ten mansions – receives more of a tax benefit than a low-income earner. And it's another subsidy for homeowners versus renters. Is this right, or should it be changed?

To date, it has been deemed fair for state and local income tax to be deductible on federal tax returns. But is this immutable? Sales tax used to be deductible, too (meaning the buyer of a Rolls Royce got assistance from the federal government). Now it's not. More fair?

What if the deduction for state and local taxes and the exemption for muni interest were ended? This would increase the cost of financing for state and local governments and most impact the highest-spending states, potentially requiring higher taxes causing people to move away. This would reduce those states' revenues and require them to raise taxes further (and drive away still more taxpayers) in a painful cycle. And are those states profligate or just burdened (like California by a substantial low-income population) or natural-resource-poor (lacking Texas's oil)?

So even in "small" matters like the tax deductibility of mortgage interest, charitable donations, and state and local taxes, there are lots of difficult questions. While on their face the deductions seem fair to homeowners, philanthropists and residents of high-tax states, they're simultaneously penalizing renters, non-donors and residents of low-tax states (as well as taxpayers in low tax brackets and those without enough deductions to itemize).

How about the biggest exclusions of all: employer-provided health care and the deferral of taxation of contributions to pension plans? In both cases, those receiving these employer-paid benefits enjoy a substantial benefit not shared by those not fortunate enough to participate. For instance, is it fair that many better-paid workers get thousands of dollars a year in untaxed health-care benefits, while other workers enjoy no such subsidy?

Fairness turns out to be quite an elusive concept.

Reasons for Increasing Taxes

As U.S. leaders wrestle to reduce the budget deficit in the coming months and years, spending cuts are a certainty. But the question of whether taxes should be increased is sure to be hotly debated. A number of justifications for doing so are advanced:

• Some people want wealth to be redistributed throughout society by taxing the rich and giving to the poor. They want the government to do more for those who are less fortunate (or less able), and that means having the rest pay for it.
• There's an argument that for the deficit solution to be equitable, all citizens should contribute to it. Though some government spending benefits all citizens alike, such as national defense, national parks and the administration of justice, much spending disproportionately benefits lower earners, in the form of public education and transportation (which are supported by the federal government), unemployment insurance, food stamps, Medicare and Medicaid, etc. Thus the effect of the coming spending cuts will fall more heavily on the poor. Some argue that since they receive less in benefits and are therefore less likely to experience their loss, the wealthy should share the burden of reducing the deficit through increased tax payments.
• As opposed to the ideological arguments reviewed above, tax increases are among the limited number of possible contributors to deficit reduction listed on page 1. Thus, in the simplest terms, we can cut more from the deficit if we tax more (all else being equal).
• The ultimate practical point is that spending cuts alone won't do much to eliminate the deficit.
• Viewed another way, promises of entitlements have been in place for decades, people have relied on them, and those promises have to be kept. This is clearly impossible without increased taxes and/or exploding deficits.

Is redistribution a valid goal? To some people, it is part of the process of helping every citizen in the "pursuit of happiness." To others, it's akin to socialism and contrary to the American ethic in which rewards follow ability and hard work.

Should everyone contribute to deficit reduction, including bigger earners through the biggest tax increases? Or should the savings come primarily through sacrifices on the part of those who to date have been the primary beneficiaries of excessive government spending? I have no doubt that we'll see fireworks on these topics.

Reasons for Not Increasing Taxes (or for Lowering Them)

Before concluding that the above points are persuasive, you should consider the equally numerous arguments to the contrary.

• Many believe our massive deficit stems from a government (and an entrenched army of government employees) willing and able to spend all available cash (and more). A bureaucracy will always find uses – many of them wasteful – for available revenues. Thus the only solution is to "starve the beast": only tax cuts and restraints on borrowing will force the government to limit spending.
• It is argued that by decreasing the after-tax proceeds from a dollar earned, tax increases reduce people's incentive to work, and thus cut into a nation's overall productivity. From 1974 to 1979, Britain's top marginal rate was 83% (although with a 15% surcharge on interest and dividends, it could rise to 98%). I remember reading about a banker who took time off without pay to paint his house. Society benefits when each of us does the things we're best at. But if a banker who earns $20,000 a month only gets to keep $3,400, he's better off forgoing a month's salary to avoid paying a painter who gets $5,000 a month.
• Research into the "elasticity of taxable income" (ETI) shows that "when marginal tax rates go up, the amount of reported incomes goes down," suggesting higher taxes do reduce productivity. (The Wall Street Journal, March 30, 2010). Of course, it's also possible that when rates go up, the incentives for failing to report income also go up. Thus part of the ETI effect could come from under-reporting, as opposed to reduced effort.
• Taking the above a step further, the "Laffer curve," named after economist and presidential adviser Arthur Laffer, posits that by discouraging work (and thus reducing incomes), raising income tax rates actually reduces income tax collections. Thus, by increasing taxable income, rate reductions bring revenue gains.
• Last but especially timely is the classic Keynesian argument that raising taxes and thus reducing after-tax incomes shouldn't be done at a time when the economy is weak and spending should be encouraged, not inhibited.

For me the bottom line – the real reason why many people don't want rates to go up – is that they don't want to pay more taxes. I think people tend to "vote their pocketbooks," meaning many people with incomes to tax will vote for the candidate who promises lower taxes. But the economic theories discussed above certainly lend validity and even nobility to the pursuit of higher after-tax income . . . and the fact that their supporters are self-interested doesn't make them wrong. Finally, for whichever reason, a good portion of the electorate buys these arguments. And The New York Times reported on November 2 that "Americans for Tax Reform, a taxpayer advocacy group . . . says that 41 senators and more than 235 House members have pledged in writing to oppose all tax increases."

Topics in the News – Income Inequality

One of the outstanding characteristics of the U.S. economy at this time is the rising dispersion between incomes. The percentage of total income going to higher earners has been increasing dramatically, whether because of (a) the rising importance of education and technological literacy or (b) the movement of work offshore, the declining availability of blue-collar jobs and the reduced power of private-sector unions to garner wage gains. And given the pattern of tax cuts and the special treatment given to income on capital, the tax system has magnified the divergence.

A recent report from the Congressional Budget Office provided dramatic evidence of the divergent trends in income. It outlined the percentage gain in average inflation-adjusted after-tax income of various income groups between 1979 and 2007:

• Top 1% of the population in terms of income: 275%
• Next 19%: 65%
• Middle 60%: 40%
• Bottom 20%: 18%

According to the CBO:

• The share of income going to higher-income households rose, while the share going to lower-income households fell.
• The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
• Most of that growth went to the top 1 percent of the population.
• All other [quintile] groups saw their shares decline by 2 to 3 percentage points.

An October 26 article in The New York Times reported the following conclusions:

". . . the report said government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

" 'The equalizing effect of federal taxes was smaller' in 2007 than in 1979, as 'the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,' the budget office said.

"Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income. . . .

"Also cited as factors contributing to the rapid growth of income at the top [in addition to federal tax and spending policies] were the structure of executive compensation; high salaries for some 'superstars' in sports and the arts; the increasing size of the financial services industry; and the growing role of capital gains, which go disproportionately to higher- income households."

The implications for tax discussions are obvious. Upper earners have moved further ahead relative to lower earners, and tax policies have contributed to this trend. For those who think progressivity should be bolstered, income should be redistributed, and those most able to pay should contribute more heavily to solving the deficit problem, upper-bracket earners make a most attractive target.

Topics in the News – The Sputtering Economy

In early 2011, there was a growing consensus that the U.S. economy was on an upward trajectory – that recovery had taken hold. Reported growth in GDP was accelerating. Orders, sales and profits were strong. Cash was piling up in corporate coffers. The Fed gave increased thought to increasing interest rates to cool off the economy and prevent the rekindling of inflation.

But in the summer it was reported that the economy had cooled, and earlier estimates of GDP were revised downward. A possible double-dip recession became the topic of the day. At the same time, an unseemly political confrontation regarding the U.S. federal debt ceiling exposed a flawed, unconstructive political system at work; produced a downgrade of long-term Treasury debt on the part of Standard & Poor's; seemed to take us to the brink of a default; and sapped confidence at all levels.

Despite the economy's weakness, further government aid for the economy has been rendered untenable by widespread negative feelings about the stimulus programs of 2007-08 and the popular view that the government took care of Wall Street but not Main Street, combined with the nearness of the next presidential election. Especially with stimulus unlikely, government actions that discourage growth should be viewed skeptically.

In the U.S. – just like in Greece and elsewhere in Europe – the answer to problems of excessive deficit and debt can be summed up in one word: austerity. Everyone's after debtor nations to practice austerity; that is, to spend less and tax more. The problem is that such behavior will reduce citizens' incomes, discourage consumer spending and slow or reverse economic growth. While on paper austerity will cut deficits, it may actually add to them by reducing government tax collections. In this way, it would necessitate further borrowing.

There's no doubt that, along with spending cuts, tax increases would have a detrimental impact on the prospects for economic recovery. Thus even people who are open to tax increases may not want them to be effective until the economy is out of danger. As the Financial Times put it on October 29, "Many households are so badly overleveraged that a balanced federal budget would ruin them."

But our economic problems aren't just cyclical. There are worrisome secular trends, many surrounding the scarcity of new jobs, the movement of manufacturing overseas, and the low level of business investment in the U.S. The best cure for our cyclical and secular difficulties would be growth based on industrial expansion. This would put people to work, support increases in spending, reinvigorate the housing sector, increase tax revenues and shrink the deficit. But for this to happen, we need (a) tax rates that allow successful entrepreneurs to retain a substantial percentage of the resulting profits and (b) confidence that the tax system won't be made more confiscatory after they've made their investments. At the present time, the latter, in particular, is very much lacking.

Topics in the News – Flat Tax

It's interesting to note that writers of tax law have two main routes to a given revenue total: low rates without deductions, exemptions and credits, or high rates with them. To date they have chosen the latter course. An article in The Wall Street Journal of January 29, 2011 marked down this choice to pure politics:

"Why did [Roosevelt's high tax rates] last so long . . . beginning their long steady decline only during the Kennedy administration? . . . In part to fund the Korean conflict and the Cold War, but also to grease the skids of modern politics. Lawmakers were able to blunt the effect of high statutory rates by handing out tax preferences to their friends, constituents and contributors. Steep rates preserved the appearance of progressivity (and, to be fair, some of the reality), while supplying politicians with their stock in trade: favors."

There are periodic calls for lower "flat" income tax rates and the elimination of deductions and other wrinkles, and we are hearing them today. The main goal is tax simplification. I commend this. (I have to admit that I, with my MBA in accounting, stopped being able to understand my own tax return decades ago.) But of course we cannot convert to a flat tax system without altering people's relative taxes. A change would require sweeping policy decisions.

Flat tax proposals are often accompanied by calls for a national sales, consumption or "value added" tax on spending, such as many other nations have. The problem here is that those with low incomes spend most or all of their earnings on life's necessities, and as incomes rise, people gain the possibility of spending less of their incomes and saving more. Thus sales taxes tend to take a higher percentage of income the lower one's income. That's why, in contrast with progressivity, sales taxes are described as "regressive."

Last month, Republican presidential candidate Herman Cain announced his "9-9-9 plan," which features a flat 9% income tax rate, 9% national sales tax and 9% business tax. Let's take a look at it. The Tax Policy Center is a non-partisan joint venture of the Urban Institute and Brookings Institution. The St. Petersburg Times's politifact.com summarized the results of the TPC's analysis as follows: "83.8 percent of tax filers would get a tax increase . . . compared with current tax policy. On the other hand, most of the tax filers who make more than $1 million would get a tax cut . . . about 95.4 percent of this high income group."

Would it be right to make poor people pay income tax at the same rate as rich people and pay a higher percentage of their incomes in a national sales tax? Anything's fair game, I guess, but if the TPC's analysis is correct, this plan would represent a step away from progressivity and further skew after-tax income toward the wealthy. Yet we're likely to hear a lot more about flat tax during the coming campaign. When confronted with complex problems, people often welcome simple solutions.

Topics in the News – Political Posturing

A Democratic politician I know decided not to run for president in 2008 because he expected a rising tide of populist rhetoric to be required. He was right: classist speech rose substantially. And the rise continues unabated.

Democrats tend to lean toward bigger entitlement programs, greater governmental involvement in the economy, deficit spending, progressive taxation and income redistribution. These things are in contrast to Republicans' averred traditions of small government, individual self-sufficiency, free markets, balanced budgets and tax reduction. At the present time, with the economy performing poorly, Democrats are glad to describe Republicans' laissez faire policies as having contributed to joblessness and economic hardship. With difficulty more prevalent than prosperity today, populism – appealing to disadvantaged economic classes based on claimed inequities – represents a compelling brand of politics.

Thus in recent months we've increasingly heard Democratic politicians sneer at "millionaires and billionaires" (see Senator Reid on page 2), an epithet aimed at a group that's supposedly been getting away with something. (In the past, I seem to recall, it was instead a group most people wanted to be part of.) To date, the preferred Republican label for people with money has been "job creators," although this line of defense may be tough to maintain in the current climate.

The Financial Times of October 29 carried an article headlined "Obama takes high-risk stance against the rich." It described a decision to emulate Roosevelt's Depression-era rhetoric and point an accusing finger at the Republicans as the party of wealth.

"Throwing out the standard presidential playbook dictating an aspirational approach to centrist voters, the White House is cementing a message that strikes at wealth and privilege.

" 'There is surging sentiment among voters that the economy is weighted towards the wealthy,' said a senior White House official.

"The White House strategy will make the 2012 election a generational test of the Republican push of the last three decades for cutting taxes, in ways their critics say have been constantly skewed towards the highest earners."

However, the article goes on to say Republicans may respond in kind to this tactic, joining in support of the common man rather than standing up for wealthier supporters:

". . . Republicans are tweaking their public message, with the hardline [H]ouse majority leader, Eric Cantor, recently acknowledging the need to address the rich-poor gap.

"Mitt Romney, the frontrunner in the race to challenge Barack Obama in 2012, has taken to saying that he is standing up for the 'middle class' because the rich 'can look after themselves.' "

With candidates in both parties competing to sound less pro-wealth, top earners and their supportive tax policies should expect to be rhetorical targets in the coming election. Whether this will extend to Republican candidates dropping their resistance to tax increases remains to be seen.

The Ultimate Worry: Tyranny of the Majority

The elements that contributed importantly to America's success included economic aspiration, upward mobility and a tax system that encouraged labor and risk-taking. In short, we all could get rich. As a result, both those with money and those hoping to make money were attracted to the idea of low taxes. This made tax reduction a very popular theme over the last few decades.

But when people without money start to believe they can't make money, there's little to keep them from taking it from those who have it. This represents a threat to our way of life.

As I've written before, I was very impressed when, as a young man, I heard an interesting explanation for America's economic progress relative to Great Britain: "When the worker in Britain sees the boss drive out of the factory in his Rolls Royce, he says ‘I'd like to put a bomb under that car.' When the worker in America sees the boss drive out of the factory in his Cadillac, he says ‘I'd like to have a car like that someday.' " This tale says a lot about how we achieved our success . . . and also about what we'd better retain if we want to keep it.

The truth is, in a democracy, the lower-earning majority is perfectly capable of voting to confiscate the wealth of the minority. A lot of people have written about this and associated threats to our system:

" 'If Sparta and Rome perished,' asked Rousseau in his Social Contract, 'how can any state hope to live forever? The Body Politick, like the body of a man, begins to die as soon as it is born; it contains the seeds of its own destruction.' " (Financial Times, October 29)

" 'When men get in the habit of helping themselves to the property of others,' warned the New York Times in 1909, 'they are not easily cured of it.' " (The Wall Street Journal, January 29, 2011)

"Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon." (Winston Churchill)

"As Margaret Thatcher famously said, the problem with socialism is that sooner or later 'you run out of other people's money.' " (New York Post, January 12, 2011)

The risk is exacerbated today by the fact (as noted earlier) that about half of all Americans pay no federal income tax. This makes me wonder whether our democracy can make good decisions about taxation when half the people are outside the system.

Obviously, it's tempting to many to increase taxes on the rich, seeing it as a harmless way to enhance the welfare of the many at a small cost to the few. But the damage to the U.S.'s success machinery could vastly outweigh the sums confiscated from those who are targeted. The "fair share" taken from upper bracket earners has to be kept as small as possible if the tax system is to benefit all of our society. The coming debate over tax increases will be very important in this regard.

There can be no easy solution. Social programs and tax policies have been put in place that will combine with demographic and income trends to create challenging conditions. "The Middle-Class Tax Trap" (The New York Times, April 17, 2011) outlined the consequences:

"[Consider] the 'current law baseline,' a Congressional Budget Office projection in which the Bush-era tax rates aren't renewed in 2012, the Alternative Minimum Tax (which is supposed to hit only the rich but increasingly bites into middle-class paychecks) isn't indexed for inflation, and Medicare payments to doctors are slashed 20%.

"With these changes, the deficit drops away in the next 10 years, and more important, it stays manageably low for the decades after that. . . .

"This is how the 'current law baseline' cuts the deficit: Thanks to inflation and bracket creep, its tax code generally subjects more and more Americans to rates that now fall only on the wealthy.

"Today, for instance, a family of four making the median income . . . pays 15% in federal taxes. By 2035, under the C.B.O. projection, payroll and income taxes would claim 25% of that family's income. The marginal tax rate on labor would rise from 29% to 38%. Federal tax revenue, which has averaged 18% of G.D.P. since World War II, would hit 23% by the 2030s and climb ever higher after that.

"Such unprecedented levels of taxation would throw up hurdles to entrepreneurship, family formation and upward mobility. . . .

"They could have ugly political consequences as well. Historically, the most successful welfare states (think Scandinavia) have depended on ethnic solidarity to sustain their tax-and-transfer programs. But the working-age America of the future will be far more diverse than the retired cohort it's laboring to support. Asking a population that's increasingly brown and beige to accept punishing tax rates while white seniors receive roughly $3 in benefits for every dollar they paid in (the projected ratio in the 2030s) promises to polarize the country along racial as well as generational lines.

"The Republican vision for entitlement reform, President Obama said last week, would lead to a "fundamentally different America" than the one we inhabit today. He's right: asking the elderly to pay more for their health care, as [Representative] Paul Ryan proposes to do, would transform the American social contract, and cause no small amount of pain.

"But what Obama doesn't acknowledge is that the alternative path could lead to a different country as well – a more stagnant and balkanized society, in which our promise to the elderly crowds out the fundamental promise of America itself." (Emphasis added)

Will we keep the promise of entitlement programs or cut them back? Given the prominence of entitlements in the U.S. budget, in large part it comes down to that.

Over the last 80 years, politicians in the U.S. created entitlement programs that we cannot afford. Likewise, to varying degrees citizens throughout the developed world have been given promises their governments can't keep. That a day of reckoning would arrive is not news – credible observers have warned of our current problems for decades – but few politicians have been willing to fall on the sword of unpopular solutions.

Whatever action is taken now, it will not be pain-free. The unpayable debts run up in the past will have to be dealt with. And as for the future, there are only three possibilities: the promises will have to be scaled back, the tax burden will have to grow, and/or the deficits will have to be permitted to increase. If nations are to limit deficits – and it seems they may be forced to – there is no alternative to the first two of these. This fundamental truth will constitute a major portion of the public debate in coming years.

Tax policy consists of deciding who to take from (and how much) and who to give it to. There are no easy answers. We should all throw our support behind the common good and not just our individual interests.
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