A song celebrating the Greek debt crisis by Merle Hazzard. 3:24 video.

(Isn’t that Iris standing on Athena’s palm?)

From Greg Mankiw via Bird Dog.

The economy is a disaster, the federal government is operating at a deficit unequaled in the history of the Republic, it is essential to find a way of coping with the National Debt in order to restore economic confidence, and the democrats naturally want to raise taxes.

Scott A. Hodge looks at the options for taxing our way back to a balanced budget.

To erase this year’s estimated $1.5 trillion deficit, we would need either to:

Enact a 25% VAT (Greece is still a mess with a 19% VAT);

or,

Take 130% of the taxable profits earned by U.S. companies this year (that’s what you call net opperating losses);

or,

Raise the top three tax brackets (28%, 33%, and 35%) to 100%. Actually, this would still not raise enough money to erase the deficit – of course, assuming all the wealthy taxpayers didn’t flee to Switzerland.

or,

Take 100% of the business income earned by individual taxpayers in 2008.

In other words, new taxes are not the solution to Washington’s deficit problem. That is, unless we want to wreck our economy for decades to come.

Hat tip to James Pethokoukis via the News Junkie.

When recovery actually begins to occur, this Brookings Chart shows that “If future job growth continues at a rate of roughly 208,000 jobs per month, the average monthly job creation for the best year for job creation in the 2000s, it would take 136 months (more than 11 years). In a more optimistic scenario, with 321,000 jobs created per month, the average monthly job creation for the best year in the 1990s, it would take over 57 months (almost 5 years).”

Hat tip to Ezra Klein.

The New York Times rejoiced in the passage of the massive and occult 2300-page Financial Reform Bill with its customary propagandistic progressive nonsense.

Congress approved a sweeping expansion of federal financial regulation on Thursday, reflecting a renewed mistrust of financial markets after decades in which Washington stood back from Wall Street with wide-eyed admiration.

The bill, heavily promoted by President Obama and Congressional Democrats as a response to the 2008 financial crisis, cleared the Senate by a vote of 60 to 39, largely along party lines, after weeks of wrangling that allowed Democrats to pick up the three Republican votes to ensure passage.

The vote was the culmination of nearly two years of fierce lobbying and intense debate over the appropriate response to the financial excesses that dragged the nation into the worst recession since the Great Depression.

The result is a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.

Over the last half-century, as traders and lenders increasingly drove the nation’s economic growth, politicians of both parties scrambled to get out of the way, passing a series of landmark bills that allowed financial companies to become larger, less transparent and more profitable.

Usury laws were set aside. Banks were allowed to expand across state lines, sell insurance, trade securities. The government watched and did nothing as the bulk of financial activity moved into a parallel universe of private investment funds, unregulated lenders and black markets like derivatives trading.

That era of hands-off optimism was gaveled to an end on Thursday as the Senate gave final approval to a bill that reasserts the importance of federal supervision of financial transactions.

The financial crisis, of course, had absolutely nothing to do with usury, banks expanding across state lines, selling insurance, or trading securities. The crisis had everything to do with mortgage lenders who, rather than being unregulated, were specifically federally required to make more risky loans to persons with dubious credit. At the center of the current financial crisis are the federally-created mortgage corporations and they are completely overlooked by the new legislation.

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As the Wall Street Journal explains our saviours are now going to protect us with a bevy of new agencies and a blizzard of yet-to-be-defined regulations, to be worked out later behind closed doors.

The bill, to be signed into law soon by President Barack Obama, marks a potential sea change for the financial-services industry. Financial titans such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. may be forced to make changes in most parts of their business, from debit cards to the ability to invest in hedge funds.

Congress approved a sweeping rewrite of rules that touch every corner of finance in the biggest expansion of government power over banking and markets since the Great Depression.

The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through.

Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. …

The legislation creates a council of regulators to monitor economic risks; establishes a new agency to police consumer financial products; and sets new standards for the way derivatives are traded. “These reforms will benefit the prudent and constrain the imprudent,” Treasury Secretary Timothy Geithner said in a press conference. “Strong banks, the well-managed financial innovators, will adapt and thrive under the new rules of the road.”

Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions.

The bill “is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies,” said Sen. Richard Shelby (R., Ala.).

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It’s all a farce, of course. The professional political class is simply taking advantage of the financial crisis it created itself to ride to the supposed rescue and carve itself out another huge chuck of power over the economy.

Well-connected people with the right kinds of background and education will regulate in collusion with the wealthiest and most influential financial industry players, friends of the system in Washington will get favors, their less-well-connected competitors will get the shaft, higher entry barriers will be put into place, and regulators when they leave office will move on to more lucrative positions and consultancies. The powers that be will prosper and the public will pay.

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Still the financial system will survive:

Kate Sullivan: One day we’ll smarten up and pass some laws and put you out of business.

Lawrence Garfield: They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don’t go away. I adapt.

—Other People’s Money (1991)

Neil Reynolds comments on the financial collapse of the European welfare state.

Democracies produced Nazi Germany and Fascist Italy, fulfilling the expectation of Socrates and Machiavelli that democracies end in tyranny. Now democracies are fulfilling the complementary expectation of Nobel laureate economist Milton Friedman that democracies end in bankruptcy. Put a democracy in charge of the Sahara, Mr. Friedman once said, and sand itself will become scarce. Democracies are indeed profligate trustees – or have been for the past 30 or 40 years. Mr. Friedman’s primary fret, though, was the tendency of democracy to centralize political and economic power in the same hands. Most critiques of democracy reflect this elemental distrust. “Democracy is two wolves and a lamb,” Benjamin Franklin reputedly said, “voting on what to have for lunch.”

A must read article.

The most affluent Americans are “less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest” and are with increasing frequency ceasing to make mortgage payments.

One in seven mortgages of over a million dollars is currently in default. NYT. The overall default rate is 9.2%.

John Maudlin looks at the economic situation and sees nothing but bad news piled upon bad news.

Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.

As noted last week, the data suggests we could see weak growth in the last half of the year. Over two-thirds of the past quarter’s 2.7% growth was from inventory rebuilding, which surveys seem to show is abating as inventories begin to stabilize.

I was on Larry Kudlow’s show (links below) last Tuesday, and he gave me some time to air my views. My main concern, as readers know, is that we may have a weak economy in the latter half of the year and then introduce a large tax increase, which my reading of the economic studies on tax increases suggests will throw us into recession. Recessions are by definition deflationary. (Not to mention what another one would do to unemployment and the stock market!) With inflation at less than 1%, could we see the central banker’s nightmare of outright deflation? We very well could. I think that is what the bond market is saying.

Beyond the threat of economic destruction via deflation, we have additionally the reality of dishonest and irresponsible regulation.

“Why don’t you reform yourselves? That task would be sufficient enough.”
РFr̩d̩ric Bastiat

I’ll finish with this thought. This financial reform bill should be thrown out and they should start over. So much has been tagged onto this bill that has nothing to do with reform but is all about political agendas. It is also far too vague. Essentially, they create all these new committees or empower the bureaucracies that missed it last time to come up with the actual details of regulation. For all intents and purposes, a small number of unelected individuals will be given almost total control to write new rules overseeing a huge part of our economy. No matter how well-intentioned, this is not something that should be done in closed rooms.

We need major reform, of course. And when are we going to get to Freddie and Fannie, which are totally ignored but will cost the taxpayer the most? Local Congressman Jeb Hensarling has it right. He estimates there are about 3 unintended consequences on every page of that 1,200-page bill.

2:45 video

Hat tip to Amy Alkom.

American Solutions has the answer.

This is the form letter American Solutions provides:

To: Rahm Emanuel
Chief of Staff to President Obama

PS: How about an Ambassadorship? I didn’t donate any money to the campaign, but I love foreign travel.

George Will observes that the spectre of real world consequences is haunting Barack Obama and his democrat allies.

Concerning the job numbers from May, one can almost echo Henry James’s exclamation after examining letters pertaining to Lord Byron’s incest: “Nauseating perhaps, but how quite inexpressibly significant.” Except that the May numbers’ significance can be expressed: A theory is being nibbled to death by facts.

Private-sector job creation almost stopped in May.

The Progressive attempt to change America into a European-style Socialist Welfare State in the midst of an economic crisis has, it is increasingly becoming clear, prevented the recovery that should now be well underway, and deepened the misery.

Americans are experiencing hard times, wholesale bank and business failures, joblessness, and home foreclosures in a fashion not seen since the Great Depression.

All this coincides with state government bankruptcies and a European crisis caused by exactly the same policies. Governments everywhere are discovering the truth of Margaret Thatcher’s dictum that “the problem with Socialism is that, sooner or later, you run out of other people’s money.

Democrats are going to be annihilated in next November’s elections.

Times are hard and crime is down. How can that be? Liberals have always understood that crime is produced by economic hardship and deprivation. More government assistance, more redistribution, liberals have consistently argued, are essential. Otherwise, the victims of structural injustice will probably revolt. Yet the most dramatic economic downturn since the Great Depression, though producing plenty of hardship, unemployment, and misery, has failed to produce the crime wave liberal social theory inevitably ought to expect.

Richard Cohen, at the Washington Post, reflects on the situation.

For liberals, this is bad news. …

From 2008 to 2009, violent crime was down 5.5 percent overall and almost 7 percent in big cities. Some of those cities are as linked with crime as gin is with tonic or as John McCain is with political opportunism. In Detroit, for instance, with the auto industry shedding workers, violent crime was down 2.4 percent. In Washington, D.C., murder was down 23.1 percent, rape 19.4 percent and property crime 6 percent. …

[I]t now seems fairly clear that something akin to culture and not economics is the root cause of crime. By and large everyday people do not go into a life of crime because they have been laid off or their home is worth less than their mortgage. They do something else, but whatever it is, it does not generally entail packing heat. Once this becomes an accepted truth, criminals will lose what status they still retain as victims.

As the world economy lurches toward an increasingly likely double dip, Monty Pelerin sees one decidedly positive result from this financial crisis.

The end of democratic socialism is at hand. The welfare states of the U.S. and Europe are financially out of control, spent and unsustainable. They have reached the point that Margaret Thatcher defined as the end of socialism: They have run out of other people’s money. These areas of the world are about to change dramatically.

Victor Davis Hanson has a piece in National Review Online focused on Europe. His comments, while directed at Europe, are also applicable to the United States. Hanson states:

Five years ago, the European Union’s account of itself resonated with end-of history triumphalism. In organic fashion, democratic socialism would spread eastward and southward, recivilizing the old Warsaw Pact and the Balkans through cradle-to-grave entitlements, state unionism, radical environmentalism, and utopian pacifism.

How quickly the dreams of just a short time ago have been shattered. Now the once-smug EU struggles desperately to survive. The financial problems of Greece and several other countries threaten its very existence. Incredibly, in spite of this experience, the U.S. marches in double-time toward the goal that Europe is now being forced to abandon.

The myth of Socialism should have been abandoned long ago. In the 1920s, Ludwig von Mises demonstrated that Socialism and its close relative, Interventionism, were not capable of long-term management of an economy. The Soviet Union and a host of other highly socialized economies provided subsequent empirical support for Mises’ theoretical argument.

Despite overwhelming evidence, Socialism does not go away. Like a vampire, it reappears and seemingly cannot be terminated. Like the vampire, it sucks the life out of each economy it touches. Despite experience, each new generation seems to produce gullible people lured by the siren song of socialism. Each generation seems destined to battle these false promises anew.

Read the whole thing.