Today’s WSJ editorializes, So Much for the Volker Rule. Seems that the lawmakers couldn’t quite define the Volker rule, so they passed the job to the bureaucrats. The bureaucrats, obviously influenced by the regulated Wall Street banks, are having trouble defining the Volker rule. They’ve used 298 pages, 1,347 questions, to state that they can’t define it! DO YOU SUPPOSE THAT THE BANKS DON’T WANT THE VOLKER RULE?

This would be so much humorous prattle if it weren’t so frickin serious. Note well this October 18th article in Bloomberg, BofA Said to Split Regulators over Moving Merrill Derivatives to Bank Unit. The derivatives are CDS (Credit Default Swaps) to Europe’s zombie banks covering European sovereign debt. That’s right, we taxpayers will be guaranteeing the Greeks! (Makes you want to Occupy Wall Street!) This is no small deal, over 20 Trillion Dollars in notional value; even at 20 to 1 discounting, this is a Trillion Dollars, your dollars!

The simple answer is to elect a conservative president and Congress, then to reinstate Glass-Steagall thus separating risky investment banking from the more conservative commercial banking. The remaining monstrosities of Dodd-Frank can be dealt with individually.

China for years operated its communist state after the USSR model with central planners controlling the marketplace deciding what is produced, how much, by whom and what the price should be. Well China watched while its model the USSR careened into bankruptcy and dissolved. Clever Chinese learn quickly and have by increasing degrees evolved to a quasi-capitalistic model while not abandoning socialistic central planning completely. Statism still flourishes in China.

Obama and his leftists, excuse me, progressives, are the intellectual elite. They are better than the unwashed masses. They by the shear force of intellect know more than you and I know. Thus they are the best central planners around. They know what’s best for society whether its ethanol production or medical service delivery.

There is no better example of this than Government Motors, the failed car company that Obama confiscated to wipe out bondholders and hand over to the employee union and us taxpayers. And, there is no better story on this than Patrick Michaels Forbes article, Chevy Volt: The Car From Atlas Shrugged Motors. Seems that Obama’s central planners after inserting their own management decided that GM should manufacture little green cars to improve the environment and reduce foreign oil dependence. The little green car of choice was to be called the Chevy Volt, because it ran on electricity. This was so wonderful, electricity not gasoline, that the central planers decided that this merited a tax subsidy, in this case a $7,500 rebate!

Central planner in chief Obama was so impressed that he went to the plant and had his new GM boss order the tripling of planned production. Oh, but then came the embarrassing news that Volt wasn’t the first ever all electric production vehicle, the Volt needed a premium gas engine! So it was really a hybrid. Ah no, the gas was only to recharge the batteries and it would still travel 50 miles without gas. Sorry, another surprise came out: the premium gas engine is needed to turn the wheels and it will only go 25 mile without gas.

The sticker price is $41,000 or $43, 700 with options to which is added a dealer prep charge of $5000, against which the $7500 rebate applies. “This is one reason that Volt sales are anemic: 326 in December, 321 in January, and 281 in February. GM announced a production run of 100,000 in the first two years. Who is going to buy all these cars?”

OK, in statist China, the government runs the production companies, just like Government Motors. But the government also influences other companies, call them dependent companies. The answer to who will but these Volts, is General Electric, a US dependent company.

Seems that GE is awash in tax subsidy dependent windmills. Obama needs a Volt buyer, GE needs windmill subsidies. So Obama appoints Jeff Immelt to chair his Economic Advisory Board and Jeff Immelt buys 50,000 Volts, provided he gets the tax rebate!

Voila! Problem solved! Who loses, after all? Just the taxpayers, the economy, the nation, that’s all. Turns out, Honda won’t lose: A 5 seat Accord gets 34 mpg vs. Volt’s 27 and costs less than half the cost of a Volt.  Hayek looks pretty smart….a lot smarter than Obama!

Patrick Michaels is senior fellow in environmental studies at the Cato Institute and author of Climate Coup: Global Warming’s Invasion of our Government and our Lives, which comes out April 22.

• has without Congressional oversight jurisdiction over credit institutions,
• is not subject to annual Congressional appropriations,
• sets its own budget by taking up to 10-12% of the Fed’s earnings,
• can call on an added $200 Million more per year from Congress,
• and, which can issue rules contrary to the Fed, IRS, Comptroller of the Currency and Treasury Secretary.

This is frightening stuff. Government by fiat! A bureau staffed by leftists like the former AFL-CIO counsel David Silbermann, answerable to no one! Today’s WSJ editorial, President Warren’s Empire, calls it a “bureaucratic rogue,”  and concludes:

“This is no way to run a government, especially not one that Madison envisioned. The consumer bureau is essentially a bureaucratic rogue. We’d like to see Congress kill the agency entirely. But at the very least Congress should remove it from the Fed, make it part of the Treasury and subject it to annual appropriations. No one elected—or even nominated—Elizabeth Warren.”

The principle of subsidiarity, the basis of America’s founding, is completely reversed in Europe. That organizing principle has two sides of the same coin: 1. That matters ought to be handled by the smallest, lowest or least centralized competent authority or unit of society. 2. And, that the central authority should perform only those tasks which cannot be performed effectively at a more immediate or local level. Thus our thirteen colonies joined to form a federal union with a government of limited powers, reserving most general power to the states or the people. States, counties, social groups, churches, families and individuals had responsibilities were important were “the people” from wince the central government derived its legitimacy.

In Europe the opposite is true.  ”The critical difference between the American and European unions has to do with the location of power. The U.S. was founded on what we might loosely call the Jeffersonian ideal: the notion that decisions should be taken as closely as possible to the people they affect. The European Union was based on precisely the opposite ideal. Article One of its foundational treaty commits its nations to establish “an ever-closer union.”

“The EU places supreme power in the hands of 27 unelected Commissioners invulnerable to public opinion.”

“The will of the people is generally seen by Eurocrats as an obstacle to overcome, not a reason to change direction. When France, the Netherlands and Ireland voted against the European Constitution, the referendum results were swatted aside and the document adopted regardless. For, in Brussels, the ruling doctrine—that the nation-state must be transcended—is seen as more important than freedom, democracy or the rule of law.”

Hannan warns because he doesn’t want to see America, which he considers the repository of traditional freedoms embodied in common law, go the way of his country and become more European. As a Briton he considers America the last bastion of British freedom which lives on in America. He points to the perils of greater regulation, higher taxes and centralized power both in an economic sense and in a human sense.

So our current president, is acting like the Brussels technocrats in growing the federal government, multiplying welfare systems, disarming, and passing the buck to supernational organizations. He is not a leader but a follower of a model destine to fail. Be warned.

Let Them Eat Chips

February 24, 2011

by Jerry O’Driscoll

In today’s Wall Street Journal, David Wessel (“Capital” column, A5) revisits the question of whether current Fed policy is inflationary. He correctly states the Fed’s position is that inflation is caused by expectations. Inflation will stay low if people expect it to stay low.  He quotes Fed Chairman Bernanke: “The state of inflation expectations greatly influences actual inflation and thus the central bank’s ability to achieve price stability.”

The Fed chairman of course has the causation precisely backwards. Fed policy systematically shapes inflation expectations. His statement is the product of the focus on the short-run and ephemeral over the long-run and permanent. In that, Ben Bernanke follows a long line of central bankers.

In A History of the Federal Reserve, Volume 1: 1913-51, Allan Meltzer summarizes the central bank mindset from the banking school writers like Thomas Tooke down to the Fed. Tooke “denied that money, credit, or base money bore any consistent relation to prices. Most Federal Reserve officials remained in this tradition in the 1920s. They denied that their actions affected prices” (57-58).

Unfortunately for defenders of Fed policy, today’s paper is filled with stories of rising inflation. In Singapore, consumer price inflation is running at 5.5%. In Vietnam, consumer price inflation is running at over 12%. There are food riots in India. In yesterday’s Wall Street Journal, George Melloan detailed the linkage between economics and turmoil in the Middle East. Consumer price inflation in Egypt rose to 18% annually in 2009 from 5% in 2006. In Iran, inflation rose from 13% in 2006 to 25% in 2009. As Melloan wryly observes, “about the only one failing to acknowledge a problem seems to be the man most responsible, Federal Reserve Chairman Ben Bernanke.”

Monetary policy is not the sole culprit in food price inflation. There have been supply shocks. Central bankers always point to supply shocks to explain rising prices. But it is not just food prices rising, but most commodity prices. Plus, as noted, broad measures of consumer prices around the world are signaling rising inflation.

The Bernanke’s response is two-fold. First, he questions the linkage between his policies and what is happening to global prices. Second, he argues other central banks are in a better position to mitigate the effects of Fed policy. Both arguments are disingenuous.

Commodities, plus most traded goods, are priced in dollars. The Fed creates base money. The more base money, the higher the dollar price of goods globally.

The Fed Chairman argues that foreign central banks can offset the Fed’s policy. As discussed here recently, this is true only to a limited extent if at all. Small, open economies have great difficulty in offsetting inflows of the global currency. If these central banks raise domestic interest rates and appreciate their currencies, they are likely to attract additional capital flows. If not, they risk sending their economies into recession.

Bernanke’s defense amounts to a restatement of Treasury Secretary John Connally’s quip to Europeans during the Nixon prequel to current dollar policy: “It’s our currency, but your problem.” The Fed inflates, and other central banks must mitigate.

Consumers purchase daily and weekly the goods whose prices are increasingly rapidly: food, energy and clothes. The goods whose real prices are falling, such as consumer electronics, are purchased infrequently.  But they keep measures of consumer prices subdued. Marie Antoinette famously remarked that the French peasants rioting over bread prices could eat cake. Policymakers apparently believe US consumers can do the equivalent of eating microchips: stop eating and driving, and just buy more electronics.  In reality, US consumers face the prospect of a falling standard of living.  They can’t eat chips.

Thanks to Jerry O’Driscoll

“Chaos,” “a headache,” “turmoil,” “craziness,” “confused,” “wild,” “uncontrolled” are just a few of the words the Washington press corps has used to describe the ensuing late-night debates. There’s a far better word for what happened: democracy. It has been eons since the nation’s elected representatives have had to study harder, debate with such earnestness, or commit themselves so publicly. Yes, it is messy. Yes, it is unpredictable. But as this Presidents Day approaches, it’s a fabulous thing to behold.”

Exercising their foremost and ancient power, descended from England, the power of the purse our elected representatives did their jobs. “There were amendments to prohibit funds for the mortgage-modification program (Darrell Issa, R., Calif.), for wasteful broadband grants (Jim Matheson, D., Utah), for further TSA full-body scanning machines (Rush Holt, D., N.J.), for the salaries of State Department envoys tasked with shutting Guantanamo Bay (Tim Huelskamp, R., Kan.). And amendments designed to cut off funding for IRS agents enforcing ObamaCare.”

Contrast this with the Pelosi-Reid-Obama RAILROAD. Bills drafted in back rooms by power brokers, put to a vote without reading or debate. Democrats offered amendments last night, something Republicans could not do under Pelosi. One such Democrat amendment was to continue funding road signs bragging about the stimulus. Republicans disagreed with one another, unheard of among Democrats in Pelosi’s House. Boehner even lost a major defense project for his own district, the second engine for the F-35 Joint Strike Fighter. Again, unheard of under Pelosi.

I received an email this afternoon announcing the results of a heated two hour part of that debate on an issue of concern to me, my taxpayer dollars going to fund abortions indirectly by grants to Planned Parenthood. “And today, the U.S. House of Representatives — by an
overwhelming majority vote of 240 to 185 — voted to DEFUND PLANNED PARENTHOOD!” Not exactly what you think of when you list the proper functions of government!

One might have asked long ago, why do our hard earned dollars pay for a lot of non-governmental functions. Things like NPR, ACORN and the National Endowment for the Arts. The point is that now, at least, our representatives are asking and as Kim Strassel concludes, “Long may that last.”

Today’s WSJ editorial, The Range Fuels Fiasco, gives a beautiful example of government “investments.” George Bush kicked off the opening act of the comedy in 2006 praising the benefits of “cellulosic ethanol from wood chips” as a way to break our addiction to oil. Range Fuels got a $76 million grant to build a plant to initially produce 20 million gallons and eventually 100 million gallons of this miracle fuel. The media applauded and the environmentalists gushed. Congress got in on the act in 2007 by mandating 100 million gallons by 2010 and 250 million by 2011. Range Fuels with all this hype raised $130 million from the private venture markets, funded in part by CALPERS. In 2008 without a drop of production the Department of Agriculture provided Range with an $80 million loan.

“In early 2010, the EPA said Range would finally produce some fuel in 2010—but only four million gallons, not 100 million, and of methanol, not cellulosic ethanol. So taxpayers have committed $162 million (along with at least that much in private financing) to produce four million gallons of a biofuel that others have been making in quantity for decades.” Range still is promising cellulosic ethanol but has had to lay off all but four employees while it raises more money.

And here’s the corker: “As for current Range CEO Mr. Aldous, he’s blaming this failure on—brace yourself—Washington’s failure to impose a tax on carbon via cap and trade. “The critical issue is really that there’s no mechanism to price carbon today,” he told a Colorado newspaper. He also blamed “public apathy toward green fuels.”

Notice the common elements of this fraud: A Pool Table, as in the kind the Music Man used to sell the boys band. That is a perceived threat, here foreign oil dependency, to create demand. A fawning press of decidedly liberal bent. Environmentalists pushing the government agenda. A large pile of free government money to be taken by corporate welfare rent-seeking types. And a paternalistic government that knows what’s best for all of the rest of us!

I recently drove through California’s major wind farms on the way to Palm Desert. Of the hundreds of acres of wind mills, hundreds of thousands of expensive towers and generators, not one was turning at any speed. I’ve taken this drive many times before and viewed the same tragedy. These monuments to leftist folly are a tragic waste of taxpayer money, a misallocation of capital on a scale seldom seen. Yes, that’s right, your hard earned dollars go to fund the tax credits and mandates without which these gigantic eyesores would not exist.

There is simply no economic justification for wind or solar power. Without tax credits they would not exist. Nor is there any economic justification for bullet trains. Obama is pushing both. He knows what’s best for you…….much better than you do! “Ya got trouble, my friends, right here in River City……TROUBLE with a capital T and that rhymes with P and that stands for Pool!”

Of course, it has done none of that. But it has added another Trillion dollar entitlement program that our grandchildren are going to be paying for with the meager compensation they receive from their Chinese employers.

It has also supplied the rulers with another discretionary plumb with which to grant waivers from its 2000 pages of rules and regulations. Until now, these waivers have been granted or denied on the basis of political pull. So the unions regularly get waivers as do those political organizations like AARP who supported Omabacare. But those gutsy or principled enough to oppose the Obamacare leviathan are denied these plumbs.

Part of the financial farce of the legislation was to expand Medicaid enrollment by 25% and push the costs of that expanded welfare onto the states, so the costs would not count against the financial costs charged against the unsustainable program. Apparently if you add a new unsustainable entitlement to an existing almost bankrupt entitlement, you get Obama’s dependent but bankrupt society.

Well the states are starting to squawk. Governor Mitch Daniels’ WSJ op-ed, An Obamacare Appeal From the States, sets it out pretty well. He correctly points out that the law is a massive mistake amplifying the big drivers of over consumption and excessive pricing. “Why not, it’s free? Reimbursement…and, The more I do, the more I get. Provider payments.

Daniels hopes for legislative repeal or judicial strike down of the monstrosity but as the governor of a state cannot rely on that. He and 20 other governors have written to HHS Secretary Kathleen Sebelius requesting relief from some of the law’s worst strictures. He correctly points out that the law not only increases Medicaid costs by 25% but also commandeers the states’ employees to enforce the new law with insurance exchanges and police powers. If a state refuses, the federal government will operate the exchange within the state. Thus opening Pandora’s box!

Daniels has written Sebelius conditioning Indiana’s participation of several conditions:
• Flexibility in deciding which insurers offer insurance in the state.
• Freedom of choice in coverage, thus not forcing only single costly policies.
• Elimination of discrimination against consumer driven plans, like HSAs.
• Freedom to move Medicaid beneficiaries into the exchanges.
• Reimbursement of the full costs of Indiana’s administration of the law.
• An independent projection of expected enrollment, given the law’s incentives to employers to off load employee insurance programs.

Daniels recognizes the chances are slim to none that Sebelius will grant this effective rewrite of the legislation. But he argues that she should recognize that the paternalistic, command-control nature of the legislation should be recognized as a failure. This because one small part of it, the high-risk preexisting condition pools, have been a failure. A majority of the states refused to participate in these pools, leaving the task to the Feds. Sebelius failed miserably at it with costs far above projections used to get the law passed. Daniels called it a “fiasco.”

Let’s pray that the Supreme Court accepts certiorari on an expedited basis from the various lower court Obamacare cases. Mitch Daniel’s op-ed only scratches the surface of all the wasted economic activity—public and private—attendant to this fiasco that is Obamacare.