Classmate Scott Drum (a businessman) tries to explain reality to the liberals on our class email list:

Democrats have always had teenager’s approach to household economics. Someone else provides all of the money, and while they may have a vague understanding of how that happens, their primary focus is sparring over how it gets distributed and spent. These issues should be decided by who has the best ideas and who can build the most compelling and emotional stories — but Dad, EVERYONE has a car. It’s not FAIR! Think of all the good things I could do with it! Little thought is given to how it affects Dad’s ability or willingness to bring in more money or what might happen if he were to get sick or lose his job. Because, well, that’s HIS responsibility to us, isn’t it? And if he doesn’t come through, we’ll just scream “I hate you” and tell everyone how mean he is.

Except that in the real world Dad’s interest and ability to keep funding the family is affected by how he’s treated and how the kids spend his money. You simply can’t go on spending sprees, pile up debt, waste money on unproductive pork projects, vilify and punish the very people you’re depending on to produce the money you’re itching to spend. Economic growth and government growth are simply inversely correlated. I know that’s inconvenient, but it’s reality, and eventually people aren’t going to keep lending you more money when you ignore that. The other economic reality is that increasing taxation inhibits growth as well, so the circle of spending and taxing is counterproductive as well. The only way you succeed is with high levels of growth – which requires making it attractive to earn and invest and not spending money on satisfying, but unproductive things. Screaming at Dad, telling him he’s not being fair, and making life difficult for him might make you feel better, but it’s not going to get you where you need to go.

and, mocking the Obama federal spending freeze:

When I opened up my Visa statement, I discovered that my wife had charged a record amount on it last month. “Not to worry,” she told me. “I promise not to spend any more than I did last month – except of course what I have to spend on clothing, restaurants, groceries, home improvements, shoes, things for the kids and travel. My spending on cosmetics and aspirin will be absolutely frozen. Starting a year from now.”

Ouch! Business Insider reprints an illustrative graph from Seeking Alpha marking the progress of American decline.

In the just-so story of the evolution of our economy, our old manufacturing based economy has been replaced by an innovative knowledge economy. That’s not quite true.

In fact, the decline of the jobs in goods producing sectors of the economy–construction, manufacturing, mining and agriculture–has largely been met with an increase in jobs on the government payroll. We’ve gone from providing jobs in profit-making private industry to providing jobs in profit-eating government work. Toward the end of 2007, the total number of government jobs exceeded the total number of goods producing jobs. Welcome to the government payroll economy.

A Reason TV 8:43 video.

Hat tip to Glenn Reynolds (who always finds the good stuff first).

Barack Obama and the democrats in Congress did not turn the economy around with their massive spending stimulus package. Unemployment rates are high. They have not fixed the credit markets with bailouts. A new wave of foreclosures is underway. Home real estate prices are still in decline, nearly a quarter of American home owners are underwater on their mortgages, and the commercial real estate market is headed for complete disaster. Small businesses are experiencing a credit squeeze, which some economic authorities argue is attributable to government soaking up available credit for federal deficits.

As the US economy sinks, the democrats controlling Washington are attempting to hand it an anvil in the form of a staggering new health care entitlement. If a deficit burden reaching to the sky is not enough, we know that Congress has every intention of allowing the Bush tax cuts to expire, and proposals for new forms of taxation, a V.A.T. and even a special wartime surtax, have been floated. Coming up as well are plans for even yet another massive federal tax scheme involving mandatory purchases of carbon credits (at least for business not favored by federal exemptions) and dollar transfers to international bodies and/or Third World countries.

Most of us assumed that leftwing democrats want to do all these economically unfortunate things because they are clueless, childish, and subscribe to a worldview whose economic theories have everything backward. They are reckless, irresponsible, and just plain dumb.

But, it turns out there is a more sinister theory out there.

According to James Simpson, writing at American Thinker, democrat bad economics is deliberate. There is a conspiracy, and they have a plan.

The methodology is known as the Cloward-Piven Strategy, and we can all be grateful to David Horowitz and his Discover the Networks for originally exposing and explaining it to us. He describes it as:

The strategy of forcing political change through orchestrated crisis. The “Cloward-Piven Strategy” seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

Richard Cloward and Frances Fox Piven were two lifelong members of Democratic Socialists of America who taught sociology at Columbia University (Piven later went on to City University of New York). In a May 1966 Nation magazine article titled “The Weight of the Poor,” they outlined their strategy, proposing to use grassroots radical organizations to push ever more strident demands for public services at all levels of government.

The result, they predicted, would be “a profound financial and political crisis” that would unleash “powerful forces … for major economic reform at the national level.” …

The real goal of “health care” legislation, the real goal of “cap-and-trade,” and the real goal of the “stimulus” is to rip the guts out of our private economy and transfer wide swaths of it over to the government to control. Do not be deluded by the propaganda. These initiatives are vehicles for change. They are not goals in and of themselves except in their ability to deliver power. They and will make matters much worse, for that is their design.

This time, in addition to overwhelming the government with demands for services, Obama and the Democrats are overwhelming political opposition to their plans with a flood of apocalyptic legislation. Their ultimate goal is to leave us so discouraged, demoralized, and exhausted that we throw our hands up in defeat. As Barney Frank said, “the middle class will be too distracted to fight.”

I was smiling ironically, as I began assembling what I thought would make an amusing posting identifying a colorful and extremist line of accusation. But, as I reflect on the peculiarly self-destructive aspects of recent democrat political behavior, their strange willingness to defy the polls and ram through controversial measures in defiance of public opinion, I wonder if looking upon what they are doing as a form of the Cloward-Piven Strategy does not make sense.

It was the stock market crash that doomed Republican chances to defeat a relatively unknown, radical democrat last year. Chaos, fear, and uncertainty were precisely the reason that independent voters were willing to vote for Change, any kind of change, and took a flyer on Barack Hussein Obama. Chaos and economic bad news have been Barack Obama’s friends so far. Rahm Emanuel is famous for observing that he saw an empowering opportunity for the left in a serious crisis and was resolved not to waste that opportunity.

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That Barney Frank “the middle class will be too distracted to fight” quotation may be a warning sign, though. I’ve been unable to verify it as a real statement made by the Congressman from Massachusetts. It turns up in large volume as a search result, but always from this same body of text.

Holman W. Jenkins, Jr., in the Journal, notes just how well the Obama Administration has done in turning the economy around.

Banks continue to fail at an alarming rate, the dollar is under assault, and Washington is looking at a future of trillion-dollar deficits. One might have guessed it would take a decade of Obamanomics to produce European welfare state levels of youth unemployment, but at 18.5% we’re there.

About the only positive sign is the price surge in normally uncorrelated assets—stocks, bonds, commodities, gold—as fund managers use cheap credit to play the carry-trade opportunity.

All this might be defensible if time were being bought to clean up an accumulation of past excesses. Instead, the president is creating a new one. It’s no exaggeration to say the Senate health-care bill taking shape is the equivalent of climbing aboard a train about to plunge into a canyon and deciding what it really needs is a bomb on board.

Judy Shelton, in yesterday’s Wall Street Journal, explains just how dramatically the National Debt has been recently expanded.

Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America’s financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it’s no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth.

It may be too soon to dismiss the dollar as an utterly debauched currency. It still is the most used for international transactions and constitutes over 60% of other countries’ official foreign-exchange reserves. But the reputation of our nation’s money is being severely compromised. …

Even with the optimistic economic assumptions implicit in the Obama administration’s budget, it’s a mathematical impossibility to reduce debt if you continue to spend more than you take in. …

By the end of 2019, according to the administration’s budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation’s entire annual economic output through 2019.

The U.S. is thus slated to enter the ranks of those countries—Zimbabwe, Japan, Lebanon, Singapore, Jamaica, Italy—with the highest government debt-to-GDP ratio (which measures the debt burden against a nation’s capacity to generate sufficient wealth to repay its creditors). In 2008, the U.S. ranked 23rd on the list—crossing the 100% threshold vaults our nation into seventh place.

If you were a foreign government, would you want to increase your holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus?

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Borrowing money from foreign competitors, even friendly competitors, carries serious risks, as Jeffrey Karabell explained in Tuesday’s Wall Street Journal.

Eventually, when your creditor has you over a barrel, the next loan may require surrendering the role of leading economic power as part of the deal.

Most people are now aware that China is the largest creditor to a heavily indebted U.S. government. It holds close to a trillion dollars of U.S. Treasurys and has invested hundreds of billions more in private enterprises in America. Even though these facts are plainly acknowledged, policy makers and experts continue to underestimate the full ramifications of this relationship.

Consider what happened in 1946, when a cash-strapped Great Britain turned to the U.S. for a loan. For 30 years or more, the British had been consumed by the threat of a rising Germany. Two wars had been fought, millions of lives had been lost, and the British treasury was dramatically depleted in the process. Britain survived, but the costs were substantial.

In spite of its global empire, a powerful military, and an enviable position at the center of world-wide commerce, in early 1946 the British government faced a serious risk of defaulting on its financial obligations. So it did what it had done at various points over the previous decade and turned to its closest ally for assistance. It asked the U.S. for a loan of $5 billion at zero-interest repayable over 50 years. As generous as those terms seem today, such financing had been almost routine in years prior. To the surprise and shock of the British, Washington refused.

Unable to take no for answer, Britain explained that unless it received funds the government would be insolvent. The Americans came back with a series of conditions. They would lend Britain $3.7 billion at 2% interest, and the British government would have to abide by the 1944 Bretton Woods plan, which made the dollar rather than the pound sterling the reference point for global exchange rates and required Britain to make the pound freely convertible. Even more significantly, Britain had to end its system of imperial preferences, which meant no more tariffs and duties on goods to and from colonies such as India. These were not mere financial penalties: Taken together, they meant the end of the British Empire.

Within two years, Britain had left India and was on its way to decolonizing throughout Asia and Africa. Unable to compete with the United States economically and no longer able to reap the benefits of colonial trade, Britain’s military shrank and its commerce contracted. It quickly receded from its dominant global position and entered several decades of economic malaise. In the 1980s, Britain finally emerged as a prosperous country, but it was a shadow of what it had been in its heyday.

Charles Gasperino, in the New York Post, describes how a large portion of the New York financial industry’s senior management fell for Barack Obama’s tone of moderation and failed to look at the democrat candidate’s actual political record. They’re sorry now, experiencing the Obama Administration’s economic naïveté and unrelenting commitment to leftwing radicalism.

In the depths of the financial crisis last year, people like Morgan Stanley’s John Mack, BlackRock’s Larry Fink, Greg Fleming (then of Merrill Lynch), JP Morgan’s Jamie Dimon and Goldman Sachs’ Lloyd Blankfein were telling everyone that candidate Barack Obama was a “moderate,” and moderation was what this country needed.

What a difference a year makes. They won’t admit it in public — but in private conversations, the top guys on Wall Street are feeling burned.

The guy who seemed like such a steady voice — vowing to curb runaway spending and restoring order to the banking system and the economy as a whole — is instead so driven to achieve his big-government policy goals that he and his policy people are ignoring their own economic advisers on the severe economic costs that his agenda will cause.

I’m told that Treasury Secretary Tim Geithner and chief economic adviser Lawrence Summers have both complained to senior Wall Street execs that they have almost no say in major policy decisions. Obama economic counselor Paul Volcker, the former Fed chairman, is barely consulted at all on just about anything — not even issues involving the banking system, of which he is among the world’s leading authorities.

At most, the economic people and their staffs get asked to do cost analyses of Obama’s initiatives for the White House political people — who then ignore their advice.

It’s almost the opposite approach, the Wall Street crowd complains, from the last Democratic president, Bill Clinton, whose main first-term achievement — deficit reduction — was crafted by his chief economic adviser, Robert Rubin.

Like Obama, Clinton and Rubin promised to raise taxes on the “rich,” and they did. But Clinton didn’t raise taxes to embark on a wild-eyed redistribution of wealth and massive programs. In the early Clinton years, Rubin convinced the president that he needed to avoid the grim consequences of runaway spending — and after the Republicans took Congress in ’94, it was no longer an option.

Of course, the Clinton tax hikes came at a cost — before the tech boom ignited the economy in 1995, growth was mediocre at best. But government spending remained under control, and lower interest rates followed, as did an economic recovery.

Obama, according to Wall Street people who regularly deal with his economic and budget officials, is acting as if he has a blank check to do what he wants, while ignoring the longterm costs of his policies.

As one CEO of a major financial firm told me: “The economic guys say that when they explain the costs of programs, the policy guys simply thank them for their time and then ignore what they say.”

In other words, the economic people feel that they have almost no say in this administration’s policy decisions.

Rembrandt van Rijn, Belshazzar’s Feast, c. 1635, London, National Gallery

The phrase they are probably going to need most will be: “And would you like fries with that?”

Electing radicals from the democrat party’s Marxist fringe has consequences, and the Telegraph reports that the Obama Administration’s “Just turn on the printing presses!” economic policies are probably going to have some very nasty ones.

The Telegraph quotes a new report from Hongkong and Shanghai Banking Corporation (HSBC)’s currency chief that says the handwriting is on the wall for the United States.

“The dollar looks awfully like sterling after the First World War,” said David Bloom, the bank’s currency chief.

“The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK – debt is racing up to 100pc of GDP,” he said

Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia’s “mercantilist mindset” of recent decades is about to be broken by the spectre of an inflation spiral.

The policy headache was already becoming clear in the final phase of the global credit boom but the financial crisis temporarily masked the effect. The pressures will return with a vengeance as these countries roar back to life, leaving the US and other laggards of the old world far behind.

A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.

What is occurring is an epochal loss in the relative wealth and economic power of the old G10 bloc of rich countries compared to rising regions of the world. The euro, yen, sterling, Swiss franc and other mature currencies will be relegated along with the dollar in this great process of rebalancing, but the Greenback will bear the brunt.

Yes, Virginia, we’re talking about the End here: the end of the US dollar as world reserve currency, the end of the whole post-WWII era of American economic, cultural, and military ascendancy, including economic decline, retreat from no longer sustainable overseas responsibilities, the inability to support a first class military, and a whole new American way of life centered on decline, pessimism, and yearning for the permanently vanished good old days.

They may not have understood it at that time, but that is what they voted for.

The left commentariat has been burbling happily about the “success” of the democrat Cash for Clunkers program. It turned out Americans with an active interest in a new car, who happened to have an eligible, low value trade-in on hand, were happy to take some free money to do perhaps slightly more rapidly what they were going to do anyway.

Bruce Yandle points out that the relevance of Cash for Clunkers to one of the best known economic fallacies.

University of California-Berkley economist Christopher Knittel has developed a rigorous assessment of the implied cost of carbon emissions under the clunker program. (“The Implied Cost of Carbon Dioxide Under the Cash for Clunkers Program” [pdf], Center for the Study of Energy Markets, Berkeley, The University of California Energy Institute.) Knittel made plausible assumptions about the average life remaining in vehicles removed from the road, the average fuel economy associated with those vehicles, and the resulting levels of carbon emission that would have survived in the absence of clunkers. Eventually, of course, the clunkers would have died a natural but less dramatic death. Knittel then estimated the carbon reduction gained when the large fleet of clunkers was replaced by a new fuel-efficient fleet. When he ran the numbers, Knittel found the cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. And what does this tell us? The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it.

Frédéric Bastiat’s brilliant parable of the broken window reminds us that a street hoodlum throwing a brick through a window generates a series of job-generating transactions that might raise GDP by a trivial amount, if it could be measured. Indeed, the idea seems so compelling that people today often speak of the silver lining found in the clouds that create hurricanes. Think of the roofers that become employed. But Bastiat’s key lesson is that a window has been destroyed—and it had value. Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”

Finally, over the eons, human communities have contrived all kinds of devices to transmit critical survival skills and compatible behavioral norms. One of these has to do with conservation of wealth. “Waste not, want not,” we are told. “A penny saved, is a penny earned,” we are reminded. Using politics to pay people who destroy valuable vehicles, or to hold crops off the market, or to produce ethanol that may use more energy in production than it adds when burned, teaches a lesson of anti-matter and wealth destruction. When all these considerations are made, Cash for Clunkers sounds like a sorry idea that should not be the model for future policy.

Let’s stop Cash for Refrigerators before the idea spreads further.

Thomas F. Cooley and Peter Rupert discuss, in Forbes, the recent triumphant claims heard widely on the left that “the stimulus is working.”

The bloviators of the blogosphere have been in full roar the past few weeks over the claimed success of the economic stimulus program. Much of this was ignited by Christina Romer, chair of the President’s Council of Economic Advisors, in a speech addressing the question of whether the stimulus was working–and concluding that it was, “absolutely.” …

The recent economic news has been encouraging. The pace of contraction of output and the rate of job losses has declined. This is evidence enough for many people to conclude that the stimulus is working. Writing in The New York Times, Robert H. Frank concludes that the stimulus is working, and that we need more of it. It is perfectly reasonable to have that as an opinion but it isn’t supported by either facts or reasoning.

Now understand that, no matter what point of view you start from–whether you believe stimulus is effective or that it is the voodoo economics of the new millennium–the Economic Recovery Act is a grand fiscal experiment. It is a bit like throwing the baby in the swimming pool to see if it swims.

At some future time, after careful parsing of the data and studying people’s decisions, we may have a much better estimate of the effectiveness of debt-financed government spending of this sort. One should keep in mind, however, that the effectiveness (or ineffectiveness) of the programs to combat the Great Depression in the 1930s is still a matter of great debate. Of course it would be a lot easier if the stimulus programs were better designed and more focused.

To claim, however, that the evidence suggests it is working–and that we need more of it–is nonsense for two reasons. The first, which ought to be obvious, is that we only get one observation on events. To draw a causal connection between the stimulus and the fact that we haven’t plunged into another Great Depression seems bold, to say the least. Since we don’t have a parallel universe in which to play out events without the stimulus, we can’t refute it. …

The other reason why it is illogical to claim a boost from the stimulus is that, for the most part, it hasn’t gone out the door yet. …

Doug Elmendorf, director of the Congressional Budget Office… estimates that by the end of fiscal year 2009, which falls on Sept. 30, just a month from now, 32% of the income transfers for things such as food stamps and extended unemployment benefits will have been spent and 31% of the tax cuts will have been disbursed. And by the end of fiscal year 2010 just 73% of the money allocated to these programs will have been spent.

Even Christina Romer concedes that this part of the stimulus hasn’t done much. …

..the most important stuff–the discretionary spending on infrastructure–has hardly started. By the end of the fiscal year, only 11% of the budgeted discretionary spending on highways, mass transit, energy efficiency and medical infrastructure will have gone out the door. …

There has been remarkably expansionary monetary policy in place for the last year. And there is the promise of massive spending, most of it in the future. If you, the reader, had to pick one as the key fact, would you pick the one that has already occurred and that clearly re-capitalized the banking system and restored liquidity, or the one that hasn’t hit yet?

There is nothing like data to kill a good story.

With or without stimuli, economies do recover from recessions, even great ones.

Warren Buffett spouts conventional pieties in the New York Times, but in the middle of Warren’s bromidal call for fiscal responsibility, the astute reader will find a shrewd assessment of what is really going to happen.

With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

José Guardia quotes a King Juan Carlos University of Madrid study which contends that every government-subsidized “green job” costs more than two ordinary jobs.

For every new position that depends on energy price supports, at least 2.2 jobs in other industries will disappear, according to a study from King Juan Carlos University in Madrid. …

The premiums paid for solar, biomass, wave and wind power – – which are charged to consumers in their bills — translated into a $774,000 cost for each Spanish “green job” created since 2000, said Gabriel Calzada, an economics professor at the university and author of the report.

“The loss of jobs could be greater if you account for the amount of lost industry that moves out of the country due to higher energy prices,” he said in an interview.