Detailed Abstractions

A mere 10 days ago, we were told by our President, that his recovery act has diverted a disaster (here):

Good evening.  Before I take your questions, I want to talk for a few minutes about the progress we’re making on health insurance reform and where it fits into our broader economic strategy.

Six months ago, I took office amid the worst recession in half a century.  We were losing an average of 700,000 jobs per month and our financial system was on the verge of collapse.

As a result of the action we took in those first weeks, we have been able to pull our economy back from the brink. We took steps to stabilize our financial institutions and our housing market. And we….

…passed a Recovery Act that has already saved jobs and created new ones; delivered billions in tax relief to families and small businesses; and extended unemployment insurance and health insurance to those who have been laid off.

Of course, we still have a long way to go. And the Recovery Act will continue to save and create more jobs over the next two years – just like it was designed to do. I realize this is little comfort to those Americans who are currently out of work, and I’ll be honest with you – new hiring is always one of the last things to bounce back after a recession.

As I wrote previously, I’m not sure what a “saved” job is or how one goes about calculating a figure, but we do know the unemployment rate is 2% higher than predicted.  Additionally, when one is contemplating whether this or any other President is truthful, we should ask if any of their other projections were correct in the first place.

From Bloomberg:

July 31 (Bloomberg) — The first 12 months of the U.S. recession saw the economy shrink more than twice as much as previously estimated, reflecting even bigger declines in consumer spending and housing, revised figures showed.

& for comparison, something we also know.  When Senator Kerry, then Senator Obama, and many other people, liberals and independents all, were dismayed by President Bush’s tax cuts during a recession and a war:

The revisions showed that the 2001 recession was less severe than originally estimated, reflecting a smaller decline in business investment. The economy actually grew 0.1 percent from the fourth quarter of 2000 to the third quarter of 2001, erasing the 0.2 percent drop previously reported.

Of course Bush started us down our current road with the first stimulus bill, because something just had to be done… which I guess presupposes that allowing 300 million people to work to bring back the economy is “nothing”…

Either way – lastly, and most importantly, we know that this has been tried before.  It took several decades to move beyond the blindness people had due to FDR’s almost cult-like status to revise the books written at the time, but the New Deal did in fact lead to a longer Great Depression that was necessary (here):

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a “new” New Deal to address the current crisis. But the facts do not support the perception that FDR’s policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

The goal of the New Deal was to get Americans back to work. But the New Deal didn’t restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32…

No worries though – I’m sure the government is telling the complete truth about how much health care will cost, what it will do to the current system (good & bad), and all the rest of it.  We just have to believe!

…Some other articles on this as well here @ Reason.com, article on economist research @ UCLA here, & detailed research paper here @ Cato.org.

As I’m sure everyone is aware, Obama is going to speak tonight on his health care plan and the current economic crisis.

I’m not sure about the public at large, but in the span of less than a year in office, I’m starting to feel the number of prime time Presidential addresses to the country has gone overboard.

However, the strategic decision that’s being made by Obama and his staff is completely understandable.

When you have a President that is such a gifted communicator, then you want nothing more for him to be in his natural habitat.  They just need to understand that in their arrogance of belief in the leader they continue to push, there will be a saturation point when he is out there too much.

Just like the Soities paradox, we don’t know which grain of sand will make a heap; we also don’t know when/if Obama will become over saturated.  What history does indicate, is that if his handlers don’t become more humble about their leader, over saturation will happen.

Having said that, the really nauseating piece of this so far was aleak about the speech itself.  From the UPI:

White House Chief of Staff Rahm Emanuel told The New York Times Obama intends to use the news conference as a “six-month report card,” to talk about “how we rescued the economy from the worst recession” and the legislative agenda moving forward, including health care and energy legislation.

The arrogance it takes to announce publicly that the TARP money positively impacted the economy is breath taking. To state they rescued the economy from the worst recession ever is simply a lie.

As written here earlier,  the administration announced loudly and proudly that without acting right now and passing more stimulus, we are in deep trouble.

Using charts and graphs, they warned – without stimulus money, the unemployment rate might go as high as 10%, but with it, will stay below 8%.

Of course, with hindsight, we know the current unemployment rate is verging on 10%, specifically 9.4% today with the additional billions spent.

They warned us that allowing GM to declare bankruptcy would be disastrous.  Now we are almost two full months from that exact thing happening and yet, somehow, the sky has managed to not fall.

So based on historical evidence, in just the very beginning of this presidency, every time they’ve spoken about economic issues, they’ve turned out to be wrong.

Yet, they will go ahead, full force this evening, and loudly proclaim something they can’t possibly prove.  That is that the country is better off than had they not spent future generations’ money.

They can’t prove it, just as I can’t prove them wrong.  Logically, neither I nor the most intelligent economist in the world can prove what might have happened under a different hypothetical situation.

However, people should be smart enough to see that those telling you they did the right thing, have been more wrong than right.

This past Friday, the 25th of June, Democrats, with 8 Republicans in the House have passed sweeping environmental regulation known as Cap and Trade.

Democrats narrowly passed historic climate and energy legislation Friday evening that would transform the country’s economy and industrial landscape.

But the all-hands-on-deck effort to protect politically vulnerable Democrats by corralling the minimum number of votes to pass the bill, 219-212, proves that there are limits to President Barack Obama’s ability to use his popularity to push through his legislative agenda. Forty-four Democrats voted against the bill, while just eight Republicans crossed the aisle to back it…

Despite the numerous problems with the bill and still open questions remaining as to what the full financial impact will be on average consumers, Nobel prize winning economist, Paul Krugman is full of praise (here):

So the House passed the Waxman-Markey climate-change bill. In political terms, it was a remarkable achievement.

Which is perfectly fine.  I honestly tend to expect more out of an economist, like asking questions about cost versus benefits and the like, but I’ve gotten use to Mr. Krugman using his very large bully pulpit for his politics, and not economic principles.

As is his trademark for completely disregarding anything that fails to comport with his world view, he moved from praise directly into false logic:

But 212 representatives voted no. A handful of these no votes came from representatives who considered the bill too weak, but most rejected the bill because they rejected the whole notion that we have to do something about greenhouse gases.

And as I watched the deniers make their arguments, I couldn’t help thinking that I was watching a form of treason — treason against the planet.

So from the very beginning, he places everyone into two basic camps – those who voted for the legislation and those who are anti-science, treasonous bastards, how don’t understand the fundamental science behind climate change.

Instead of acknowledging the well known fact that many opponents of this legislation are not global warming deniers, he presents a false dichotomy in which there are only two sides – his side and those that don’t believe in global warming.

From this basic setup, his article flows smoothly as he defends the science behind global warming all the while pretending the strawman he is busy burning exists in real life.

As usual, outside of his partisan world, the issue is not nearly as cut and dry.  Many of the best argued positions come from people opposed to this bill have absolutely nothing to do with the science of global warming at all.  The generally tread a few main points:

1. What are the true costs of the bill to individual consumers? This question is almost impossible to ask as 300 additional pages were added to the 1000 page bill just a couple of hours before a forced vote.  None of Congress had time to read the additions prior to voting.
2. If we can detail a good cost estimate, do we fully know what benefits to expect in order to balance costs with benefits?
3. & lastly, the politics of the bill are being setup for corruption.  Instead of opening an exchange where the initial carbon offsets can be purchased through a free market system, the government will be handing out those directly to business.  They will get these carbon credits free of charge and be able to resell them on the market once that happens.  Allowing congress the ability to decide who gets free money is a system setup for corruption.

Critiques :Reason, Cato.org, and just a lot of additional BS on politics of the entire thing

Of course Mr. Krugman should know and likely does know exactly what he’s doing.  He frames the debate as a false dichotomy, only allowing two choices, then pretends to make one choice look completely stupid by comparison through the ceremonial burning of the strawman he invented.

Not terribly surprising from a columnist who was arguing in 2004 that the economy needed a housing bubble to get us moving forward again, only to completely reverse course and pretend he never did any such thing after the collapse of that market (here).

Is it really any wonder why the self proclaimed 4th branch of the government is trusted less and less everyday?

I’m not sure exactly when the voting public will start going directly to Congress to ask them to please stop hurting the economy, but I’m hoping really, really soon.

As most people with a passing understanding of economics are aware, we have recently hit economic hard times due to a collapsing housing market.  This market collapsed because it needed to contract.  There is no such animal in this world that will continuously forever increase in price by double digits.

So the mere fact houses were doing that for years, showed us that inevitably, it will have to stop and contract back to reality.

There were a variety of causes, loose lending practices, GSE’s implicit backing of all loans, corrupt lenders, idiotic consumers, etc, etc, etc – IMHO though, the GSE’s are the main culprits as their implicit backing allows for all the other pieces to be put into place.

Even if you don’t agree with that statement, one should at least be able to acknowledge our politicians mistakes with respect to Fannie & Freddie and how it certainly helped the current economic landscape to develop.

& what does congress do about this?  Start  pushing other GSE’s, mainly FHA (Federal Housing Authority) to begin the same process over again.

That’s correct – our politicians are currently pushing FHA to make the same idiotic guarantees that Fannie & Freddie did, that helped cause the current mess we’re in.  It’s not like they can say they forgot what the real problems are – they know, and seemingly don’t care (here):

The demand for FHA mortgages has exploded during the past 14 months, increasing 314 percent nationally. In January and February alone, borrowers signed on for 670,000 FHA mortgages compared with 425,000 in all of 2007.

This has to be one of the most irresponsible moves in recent times.  It not only demonstrates a disregard for society as a whole, but also demonstrates most politicians’ apparent belief in the stupidity of the voting public.  Only with a belief that voters won’t out right reject the same corrupt politics, would anyone have the audacity to repeat the exact same mistakes in front of their bosses within side the same congressional session.

We’ll see if these politicians are correct in their belief in the phrase, “No one ever lost by underestimating the American public”… Or, maybe we’ll find out that in oppressive Iran, Iranians are more willing to protect their country from oppression and corruption than is the US public.

For another obvious example of government malfeasance, the LA Times has an article discussing several projects that were given TARP money designated as “stimulus” that are doing everything except stimulating the economy:

…Millions of dollars are going toward bicycle lockers, bike paths, walking trails and a skate park, Coburn said. One town in North Carolina is using stimulus funds to hire an administrator whose job will be to procure more stimulus funds, according to the report….

One project mentioned is the $3.4-million construction of a 13-foot tunnel near Tallahassee, Fla., that will allow turtles and other wildlife to safely cross U.S. Highway 27….

I guess since they’ve proven themselves so trustworthy, we might as well hand over the entire financial and health care systems to the US government.

Read whole thing here.

As you’ve undoubtedly heard from several sources, one of the problems with the sub-prime lending crisis was the scourge of racism.  Several studies showed that sub-prime borrowing occurred mostly in poorer metropolitan communities.

In March of 2007 USA Today (article):

…But Hispanics and African-Americans were far more likely to leverage the American dream with subprime loans — higher-cost products for buyers with impaired credit — that are now going bad at an alarming rate….

In March of 2007 on NPR (article):

…says Mary Moore, a spokeswoman from the Center for Responsible Lending…

…They’re less likely to have a college education and more likely to be a minority, especially black or Hispanic…

In July of 2007, the NAACP filed suit (here):

The NAACP filed suit in Los Angeles federal court against 14 of the country’s largest lenders, alleging systematic, institutionalized racism in sub-prime home mortgage lending.

December 2007 from Senator  Cardin (here):

…This is because statistics show that nationwide in 2005, more than 54 percent of loans to African Americans and 46 percent of loans to Latinos were subprime loans.

But minorities did not necessarily receive subprime loans because of lower credit scores or lower incomes.  Five years ago, the Center for Community Change, a non-profit consumer advocacy group, issued a report entitled, “Risk or Race?”  It demonstrated that subprime lenders target minority communities and that African-Americans and Latinos pay higher loan rates than whites with similar incomes.

This entire reaction was based upon faulty logic.  Some people and organizations had a certain belief and took some correlative studies to prove their preconceptions.  So they safely ignored that when you take things out of context such as “49% of subprime loans go to minorities” without asking further questions such as:

1. Was there a difference between minority buyers and white buyers with similar credit scores?
2. What percentage of total buyers where minorities at the time the studies were taken?

You are not really answering the question you think you are.

Not that this will stop some, but to actually find the truth, the NY Fed conducted their own study.

New York Fed report (WSJ here):

The paper addresses concerns regarding lenders that may have targeted minority borrowers, enticing them into costlier loans between 2004 and 2006, the peak period of subprime lending.

Based on a sample of 75,000 adjustable-rate mortgages, researchers at the New York Fed say they find “no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin.”

“If any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate,” the paper added.

However,  when people are already convinced about their preconceived notions and race-baters now having a monetary reason to continue the myth, I doubt any of those organizations or people will recognize the reality of the situation.

As much as they don’t want to admit it – the United States does not have the institutional racism they continue to claim.

Please note:  This doesn’t mean there isn’t any racism at all, because there obviously is.  Real racists should be mocked and ridiculed and shunned by normal society.  I can’t think of anything dumber than a racist.  Of course when you’re paying attention to made up racism – it’s very easy to lose sight of real racism.