Friedman and Kristoff get it


In a column published in the NY Times on November 7 of this year

http://www.nytimes.com/2009/11/08/opinion/08friedman.html


Thomas Friedman basically gave up on the prospects of peace between Israel and the Palestinians in the short term, and came out against any further US involvement in trying to restart negotiations between the parties. I (sadly) agree strongly with this column, the thesis of which is that the US should stop bothering to try and broker a peace agreement that neither side wants! If they decide they want it, they know where to find us. As he put it, borrowing a line from the State Department, the Israelis want negotiations without a deal (so they can be seen and see themselves as trying for peace while always expanding their precious settlements which, given the dramatic downturn in violence from the Palestinians, is Israel's primary short term goal these days), while the Palestinians want a deal without negotiations. Oh sure, the Palestinians want a peace treaty, but even those that will negotiate with Israel, such as Abbas, don't want to actually give up anything, such as a never-will-exist right to return to Israel proper, or a total giveback of all lands captured in 1967. (I favor such an Israeli giveback, except for the old City of Jerusalem, as in Israel's selfish interests, but never mind...) And why won't Abbas and his ilk negotiate about now? Because even so-called moderates in their midst might well put a bullet in their heads. Oh, and Hamas runs the West Bank, and their official position is that Israel has no right to exist, and of course no formal negotiations. Lovely. Even if Israel WANTED a workable peace deal, which in my opinion it basically doesn't, it has literally no one to negotiate with!



So neither side really wants to talk turkey. I said a while back that I'm opposed to Israel resuming peace talks because Abbas has no base and can't deliver anyone. While that was and remains true, Frideman's argument is vastly better than mine. No more negotiations because neither side really wants to reach an agreement. So taking Friedman's insights and formulation into account, my plan is: (1) leave both sides mostly to their devices; (2) prevent the Israelis from further self-destructive settlement expansion; (3) let the Gazans stew in their rocket launching juices; (4) ignore the West Bank; and (5) be done with the whole damn thing. Friedman's right, if they want to talk, they know where to find us. I wish I could support peace negotiations, but right now I don't, for the reasons so very well stated in Friedman's column. Excellent job, Tommy!


As for Kristoff, in his column in the Times Thursday November 19th,


http://www.nytimes.com/2009/11/19/opinion/19kristof.html

he said that the GOP health care naysayers of today are saying many of the same things, sometimes literally the same things, that (mostly) GOP opponents of the creation of Social Security in 1935 and Medicare in 1965, said. Back in the day, the naysayers said Medicare would ruin health care, it was a step to socialized medicine, the government would get between you and your doctor. Nonsense. In 1964, way too many elderly in America HAD NO REGULAR DOCTOR because they couldn't afford it. After 1965, they could. Medicare was the reason. Sure, its mighty expensive, and has to be radically altered or it will, literally ruin the country, but America without Medicare is literally unthinkable. Elderly people having to chase down free/reduced cost care. Monster unmet health needs. Gigantic numbers of elderly dying for want of readily available care. Appalling. Kind of like what happens to thousands of uninsured annually today, you understand, but radically worse, because the elderly need health care far more than younger folk, and are in a worse position to find information, reduced cost or free care, etc. In short, it would be a nightmare for the nation and a living hell for way too many of the elderly. As for the politics, if the GOP ever put to a vote a full repeal of Medicare it would probably be the end of them as a party, literally. I could imagine the democrats winning a 50 state landslide by 25 points, and holding 80-85 seats in the Senate and a similar proportion in the House after the GOP tried it. Medicare is wildly popular among the elderly, for all of its flaws, and both parties know it. It is also popular among the non elderly population.



As for social security, the "end of the progress of a great country," was the quote from one speaker. That's right, ensuring that no elderly person in America lives in truly abject poverty will finish us off as a great nation! Think we're richer and better off than in 1935? Or 1945? By a wide, wide, wide margin, in every measure. Longer life expectancy, lower infant mortality, better health, more/better cars, vastly more/better consumer goods, and far more. Social Security was down a path to the dreaded "socialism." Without getting into silly labels, would it be better if millions upon millions of elderly were in dire poverty? I think NOT.


Now both programs have huge downsides, cost and otherwise, don't get me wrong. But their upsides are absolutely massive; in my humble opinion, they radically changed the country for the better!



Kristoff is 100% right! The democrats should bring up these long-ago objections from GOP naysayers, demonstrate that they proved wildly off the mark, remind the public that the GOP (and some democrats, to be sure) have been against the great progress represented by the two huge social entitlements, medicare and social security, and the same arguments that are wrong then are wrong now in today's health care debate. Bravo, Mr. Kristoff! I couldn't have said it better myself!

Jobs created by Presidency.

While I was listening to the un-illuminating debate about health care on the house floor, I decided to show you all just how bad George Bush's economic record was.

In the 4 years of Jimmy Carter's presidency, the economy gained 10.5 million jobs. That's actually a huge number, but I'm not surprised. This is when women were entering the labor force in huge numbers, and we were a lot younger as a nation than we are today, so more workers were entering the workforce every year. Its not nearly as impressive as it sounds, but not godawful either.

In Reagan's 8 years, the economy created 16 million jobs. What's interesting is that only 5 million and change were created in his first 4 years, as a result of the bad recession of the early 1980s, whereas 11 million were created in the last 4 years in the 1980s boom.

George Bush senior took over when the economy was strong, so his 1-term presidency should not have created many jobs. And it didn't, only 2.6 million in the 4 years. Not as bad as it sounds, but not good.

During Clinton's 8 years the economy created a whopping 22.5 million!!! Now the economy was weak but recovering when Clinton took over, so his first term should have had a bunch of new jobs created. And, with a larger labor force, you would expect a larger number of jobs to be created than in past presidencies. Still, this is a HUGE, HUGE number.

During Bush 43's 8 year disaster of a presidency, the economy created 2 million jobs!!!! Yes, 2 million net jobs in 8 years!!! Now the 2001 recession wasn't his fault AT ALL, and he took over right at the end of a boom, so the fact that literally zero jobs were created in his first term is somewhat forgivable. But only 1.8 million in his second term? Beyond pathetic!!!

Review of 8-year presidencies:

Reagan: 16 million.

Clinton: 22.5 million.

Bush 43: 2 million.

16, 22.5, 2. Yes, there are mitigating factors, but not ANYWHERE near enough to account for this huge, HUGE difference in economic outcomes. Amazing. Hey, who out there still likes Bush?

Have my economic projections changed?


I was recently asked whether, given the still awful employment reports coming out every month, whether I'd care to revise my economic projections. The answer is basically no. I was precisely correct regarding when the recession would end and the growth in the economy in the last quarter, but I was perhaps too optimistic in terms of the recovery of the job market. Job losses have slowed dramatically. The economy lost 645,000 jobs/month from November 2008-April 2009, 357,000 from May-July 2009, and 188,000/month from August-October. So the job market is clearly deteriorating at a much slower rate than late last year and early this year.



http://www.bls.gov/news.release/empsit.nr0.htm



But less bad being the new good isn't really very good. I actually thought the job market would be closer to zero jobs lost by now. That less unhappy day is probably still a few months away. But it won't be long before we're gaining jobs, and after a few sluggish months of job growth I still think that by the middle of next year job growth will be quite strong.

So nothing has changed my prediction for a strong economic recovery, which will be clearly felt by the middle of next year. I may have been off on timing, but everything else stands.



A window into my thinking can be seen by the striking Third Quarter 2009 Productivity Report, released Thursday.


http://www.bls.gov/news.release/prod2.nr0.htm


The money sentence is, "Nonfarm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009." This is the best quarterly result since the third quarter of 2003, and is a huge number. Since that third quarter of 2003, the next highest number was the 6.9% of the 2nd quarter of 2009, and the next highest 5.5 percent in the third quarter of 2007 (just before the recession began). No quarter since 1999 has been over 10%, so 9.5% is a big number. Output increased 4% (not bad at all, but not quite a boom), and hours worked DECREASED 5%. Business cannot keep that up for long at all. Fewer hours worked and more production. Very soon, if more production is desired by business, more worker hours will be needed. This will first be accomplished by asking current workers to work longer hours. There is, sadly, plenty of scope for this, which is why I may have been too optimistic about how fast the labor market would recover. However, you can only produce so many more widgets (or cars, or refrigerators, or legal briefs) with your current staff before you have to hire more people. That point will be reached soon, probably during the Winter or very early Spring. From there, I expect demand to be so robust, as a result of government stimulus, very low interest rates, a lot of money sloshing around, and pent up demand for consumer goods, including, incredibly, cars, that businesses will have to hire a lot of workers, quickly, and continue doing so for a long long time.

Health Care reform passed the House. 220-215, only 2 votes to spare! Nancy must have done yeoman's work arm twisting "moderate" dems. One Republican voted for it, which is one more than I expected. Although the House did pass it, the margin was SO narrow that it gives a lot of cover to wavering moderate dems in the Senate.


Just a short time ago, the House passed one of the 2 or 3 most important pieces of legislation in the last 50 years. Yet another step in the never-ending journey towards a just and more sensible country was passed. The Senate is taking its sweet time, and then there will be a conference committee, and the House passage was a nearly foregone conclusion for months, but it is still one of the most dramatic bills ever to pass the House. This is a truly historic day, a key step on the road to a more sane health care system. That less-than ringing endorsement STILL means that this is a Monster Important Bill. Health care is THAT important.

This post is going to be on the rambling side, because I have a few different threads going through my head, and don't want to do two separate posts, so please bear with me. Health care is crucial and I have some interesting things to say, I think, so bear with me.

In general, I'm of two minds on health care reform. The health care reform I REALLY prefer is frightfully simple. The House bill is 2,000 pages long. My health care bill is literally a paragraph: "All Americans shall have the right, and be required, to purchase access to Medicare at prices to be set by a Panel of 5 members appointed by the President and Confirmed by the Senate. This Committee, called the Medicare Committee, shall have the power to promulgate rules and regulations it deems appropriate, with Congress having the right to veto said regulations within 30 days of their promulgation; otherwise they have the force of law."

That's it. Basically, Medicare access for all. The idea is for private insurance to whither on the vine and end up with a single payer system. But Obama and many others deemed that FAR too radical, and they are surely correct. The democrats just wouldn't go for it.

So we end up with reform designed to make the current system work less dysfunctionally, less badly, rather than, as I much prefer, ripping it up, stomping all over it, burning it to a crisp and forcefully throwing it in a landfill, to die a well-deserved death.

But if you're going to make the health care system work less badly, the House Bill seems to me to be a very good start. I haven't followed the health care debate closely, for some reason, but this bill does restrict the more odious health insurance company practices. We appear to be stuck with the private system, but it will be less awful. The success or failure of this great reform effort, assuming it passes, will be in whether health care costs stop soaring far beyond inflation, and instead go up at around the rate of inflation. That change may not sound like much, but over a 10-20 year period, its HUGELY HUGELY important. We spend circa 2.2 TRILLION dollars a year on health care. Call it 2 trillion for simplicity. A difference of 5% in the rate of growth of health care spending is $100 BILLION a year in growth in spending avoided. That's well over a trillion ANNUALLY in avoided growth in health care costs in 10 years time, and far more than double that in 20 years time. I know I sound a bit hysterical when I say this, but slowing the growth in health care costs is, literally, crucial for the survival of this nation. Without exaggerating one iota. Every other problem America faces absolutely pales in comparison to the inexorable growth in health care costs, and the hugely dysfunctional health care system. And even though the lack of insurance by 50 million people is HUGELY significant, costing by most estimates more than 30,000 lives per year (that's nearly a 9-11 EVERY MONTH) self inflicted by our insane health care system, even that enormous problem pales in comparison to the ridiculous costs in our system. If we spent per person what France (a rich complex economy and a healthy country) spends each year, we would spend about $800 BILLION less each and every year on health care. $800 billion!!! That amount of money just dwarfs everything else in our national discussion. That's the total cost of the Iraq war-- EVERY YEAR, above and beyond what France spends, if only we spent what France spends per person! This is, beyond a shadow of a doubt, the most significant domestic issue facing America. Its fiscally critical, its the civil rights issue of our times, its so very important!

Civil Rights? Huh? Has Flyingpinkunicorns flown into a brick wall and suffered a concussion? Not at all. I think that health care should be a right, like the right to equal justice, the right to a free to the student public education through high school, the right to freedom of speech. If we don't provide AS A RIGHT health care to every single American (and not merely access to an emergency room) I think we should e-mail Gordon Brown, the PM of Britain, CC the Queen, and tell them we screwed up in 1776 and we want back into the British Empire! I really do-- I don't think we are a worthy nation right now because health care is not a right. It should be. That's a civil rights issue if ever I saw one; we discriminate on health care access based on ability to pay. If anyone proposed instituting charges for public schools such that poor parents couldn't afford to send their kids to school, in an attempt to secure a better life, there's be million person marches and riots! If we had previously enshrined health care as a right, and tried to take it away, the same would result. We should move towards making access to health care a right. Now you don't have a right to the very best private schools, and I'm actually 100% ok with having more expensive and less expensive plans. But access to a basic "Ford" plan should be, must be, a right. The democratic health care reform bills do NOT do this, but they do move several steps in that direction, which is why I support the effort on civil rights grounds.

I watched a lot of the house speeches today. They were not illuminating. There are a great many things I could say about the STUPID things the Republican members said, but I want to focus on just one. The GOP fancies itself the party of freedom. And at least 5-7 members mentioned the loss of FREEDOM in the House bill. You know, those who would sacrifice liberty for security deserve neither, blah blah blah. That's one of many sayings that if you think about it for a nanosecond you'll realize just how silly it is. Now government can EASILY go too far, and restrict liberty without increasing security correspondingly. See airport security. But having regulations decreases freedom? Want the freedom to drive without the restriction of traffic lights? Let the market decide? How about preventing insurance companies from discriminating based on pre-existing conditions. This decreases freedom for insurance companies, but as for individuals, not so much. Oh, the horror of government bureaucrats getting between you and your doctor. What do you think the private insurance sector does, every hour of every day in every state? This is just silly. Think most seniors think they've lost freedom by being on Medicare? Go ask them, Medicare is hugely popular. Veterans care, despite some problems, also works fairly well. The idea that millions of uninsured, myself included, who will soon enjoy vastly cheaper access to the health care system somehow are losing freedom is, of course, insane. Even those who have insurance will, if this bill works, pay less/their employers will pay less in coming years. Not much of a loss of freedom! The only persons losing "freedom" are health insurance companies, which have had far too much freedom and have done a huge degree of harm with it.

Anyway, there are some anti "freedom" provisions, to be sure. But overall, I'm with FDR who spoke of freedom from want and freedom from fear. Its easy to take that way too far, but this legislation doesn't even come close. By and large, this bill rationalizes to an extent a partially irrational health care system. It puts sensible regulations on insurance companies, protects individuals from arbitrary practices, and so on.


Now don't mistake for a second what I've said to indicate that I buy what the democrats are saying. What the democrats are saying is in many cases nearly as silly as what the GOP says, which is impressively silly indeed! Here's my favorite: several female legislators said that they rise to support this bill because it prohibits insurance companies from charging women more than men. Now let's assume that they insurance companies do so not out of animus, but because women's health care costs more. I don't know this to be the case, but I'm assuming it, as its overwhelmingly likely to be true.


So why on earth shouldn't insurance companies be allowed to charge more to those who cost more to service? GEICO charges more for bad drivers than good drivers, because paying out claims for bad drivers cost more. This makes all the sense in the world. Now if government thinks for social policy reasons that women shouldn't be charged more for health care (a somewhat reasonable position) then it should be government that pays for this preference somehow, either for a credit to the private sector or, better yet, by being the insurer (I support a single-payer system, strongly, for all of its flaws). But why on earth should this preference be imposed on the private sector? Similarly, why should an insurance company be forced to cover a pre-existing condition, presumably without being allowed to charge an appropriate rate? If someone has diabetes or the like, and is likely to cost a lot, and is getting new insurance, why should the insurance company be forced to insure at less than a market rate? This forces a private, for profit business to subsidize someone it does not have a business relationship with. That's INSANE! INSANE! It really is. Should American Airlines pay if I get cancer next week? No? Then why should a new insurance company? Because its in the insurance business? But I thought the private sector should be allowed (in the bounds of other laws) to act as it pleases. You are taking away what the private sector can do usefully; set prices. Using the private sector in this way is crazy; you get all of the downsides of the private sector (incentives to deny care, huge marketing costs, incentives to delay payment, etc) with few or none of the upsides (a market based pricing mechanism). The design of the democrats' health care reform is so far from optimal it isn't even funny. Of course, its still far, far better than our crazy, insane health care system, but it sure as heck isn't the way I would design it.


If you want to see a democrat saying what I'd like to say about the GOP and health care, look up on c-span.org the speech by George Miller on Saturday night the 7th at 8:40 p.m. eastern. HOO BOY! Tell em what you really think George! And he's 100% right. The GOP has no answers for the huge problems in our health care system. Zippo. Well, they have a few good ideas. We do need to reform the medical malpractice system. Its not nearly as big a deal as you've heard, but it is a problem, a meaningful one, and it should be addressed. The government should be the primary watchdog over bad doctors, either state or federal. But that doesn't really happen overmuch now; so the tort system takes on this role. And it does so hugely inefficiently. So reform is needed.



And the GOP is going on and on and on about allowing insurance companies to sell across state lines. Now this creates huge new marketing costs, so I'm not wild about it. Still, if we're stuck with this insane system, we may as well have the competition that selling across state lines will bring. Would you prefer that only 2 or 3 car companies be allowed to sell in your state? I didn't think so.



But these "ideas" do literally nothing to deal with the uninsured, and little to nothing to deal with runaway health care costs. The GOP is out of ideas. Completely out. If you're in any way surprised by this, you haven't been reading my blog! Or paying close attention. Well, that's what we have bloggers for!

Obama won the Nobel Peace Prize. Huh? I'm a bit tardy, but better late than never.

This announcement had me scratching my head from the instant I heard about it.


According to the Nobel web page, "Since World War II, the Peace Prize has principally been awarded to honour efforts in four main areas: arms control and disarmament, peace negotiation, democracy and human rights, and work aimed at creating a better organized and more peaceful world."


http://nobelpeaceprize.org/en_GB/about_peaceprize/history/


Well, although it does say "efforts" rather than "results," what special efforts has Obama made? Talks with North Korea and Iran? Whoopee. A return to American engagement after the Cowboy diplomacy of the Bush years, particularly the first term? Worthy of a pat on the back, but a Nobel Peace Prize?



At least for me, one should have tangible ACHIEVEMENTS in areas involving peace and human rights before receiving probably the most prestigious award in the world. Starting the peace process between the Israelis and Palestinians in the early 1990s DID qualify in my view, even though it didn't work out. At least there was a tangible accomplishment, substantive talks where there were none before with a clear possible path towards the resolution of one of the world's more intractable conflicts. But talks with Iran having just begun, following years of talks with the Europeans? Worthy of note, perhaps, but a Nobel? In short, whatever ones views of Obama, he has only been in office 9 months, and on the international front has nothing tangible whatsoever to show for it. Now that's not a damning indictment or anything, but we're talking about the NOBEL PEACE PRIZE here.


Oh, and while we're on the subject of PEACE, he's only very slowly winding down our 100,000 troop commitment in Iraq. What are we accomplishing there for regional, or even local peace? Don't know. And he's considering a troop buildup in Afghanistan, which will more likely than not lead to years of inconclusive war, civilian casualties, and all without Afghanistan being a viable nation state under a stable government at the end of this process. Now perhaps this can be defended, but we're talking about a NOBEL PEACE PRIZE here.

Look, I've predicted that the economy will boom, health care reform will pass and Obama will wind down our wars. Despite a VERY VERY slow start, I'm still at least lukewarm on him, if not a little better. But this award was just silly.

What really happened is that the elites of Europe were just horrified by Team Bush, and are so thrilled to have them replaced by a team that actually wants to talk to Europe and values its opinion, that they threw a wholly undeserved Nobel at him. Its their award to cheapen, I suppose, and they have indeed cheapened it, and not just a little. Nice going peoples.

The Obama boom has begun, Part II, the Politics



As I said in a post a few weeks back, the Obama boom has begun. The economy will do spectacularly well over the next several years, far better than nearly everyone is predicting. In addition to the significant economic ramifications, as discussed in the companion post, the coming boom will have big political ramifications.

As of this moment, the democratic part of the US electorate is dissillusioned with Obama. Nothing seems to have changed, and all we hear is TALK about health care, not action. Well, this too shall pass. It is overwhelmingly likely that a bill will be signed into law, and no one will care down the road that it took ridiculously long; instead, the voters will ask; what's in it for me.

Similarly, people are frustrated and pissed that the economy still sucks. If my Obama Boom does come to pass, and I'm even surer than before that it will, all will be forgiven. Unemployment was still over 7% when Reagan won 49 states in 1984, he won such a roaring landslide because everyone could see that things were getting much better. The same will be happening before 2012, and Obama will be similarly headed to a rocking reelection landslide.

Obama will likely win a 40-45 state reelection landslide. If my predictions about the economy are right, and nothing else ala war or watergate goes disastrously wrong, Obama will win reelection by 15 points.

Second, the boom will come in time to avert what could otherwise be bad losses for the democrats in the 2010 midterm elections, and instead leave the dems with only modest losses.


Third, and much more important than the short term political ramifications, the coming Boom will likely serve to remind Americans that government can and often does things right. The reaction to the disastrous meltdown of 2008 was spectacularly effective, and, I predict, the reaction to the coming Boom, with the fed slowly raising interest rates and taking money out of the economy, money it created in order to stimulate the economy and prevent a depression, will be almost as successful. I predict that the number of Americans who think government can actually do a lot of good, and get a lot right, will soar, from the very low numbers of today to numbers more in line with historical norms. I realize that this prediction is out there, even wacko. But when you try and predict the future sometimes there ARE sharp breaks with the present. Of course when you're wrong you look super foolish. I'm not saying that faith in the government will truly soar, but it will rise. And since the GOP is the party of government can't do anything right, it will be electorally disasterous for them. Not only will Obama win big, but he'll have big coattails. The dems could gain 15-25 house seats and 5-8 Senate seats in 2012 if what I forsee comes to pass.

Put another way, the above will make GOP attacks on government fall on far less receptive ears than they have since the late 1970s, which will have the extremely positive side effect of forcing the GOP to come up with a new message. Say, the government spends too much, and doesn't do what it does well. THAT's the message that the GOP used to send, and its a vital message! They've gotten away from that, to "Government isn't the solution, government is the problem," Reagan's famous line. Well, mostly not. If you're old, young, sick, or in any other way not fully able to take care of your needs as well as a healthy middle class adult, government IS the solution. Oh, and even if you are middle class, prosperous and well, you need government to regulate the financial markets, the health care system, and so on. Ask Lehman. Ask millions of foreclosed homeowners. Yes, Middle America, I'm talking to you! Not to mention getting the basics right. Americans understand that Bush ran two wars badly, failed during Katrina (with plenty of Louisiana (democratic party) failure thrown in, left the economy teetering on the edge of depression, and allowed America's problems to fester. Even people who don't follow politics overmuch get that. Ask President McCain.


Now, if after a few years of Obama the economy is booming, health care is being partially reshaped, the war in Iraq is winding down and the war in Afghanistan is being won, all of which I predict, faith in him, the democrats, and the federal government in general, will go way up! This will have profound ramifications, some of which I have outlined, some of which I can't even begin to guess. But this is the near term political future. Democrats up, Republicans down further, and, after a weak showing in 2010, democrats should be able to make gains all around in 2012 on the coattails of Obama's landslide reelection.

The Obama boom has begun; Part I: the economic ramifications.


This is a 2-part post. This post is Part I, in which I will discuss the ECONOMIC ramifications of the coming Obama boom. The coming boom is a monster, and thus the ramifications are highly significant! Even just my basic predictions have huge, HUGE ramifications. The Dow will, conservatively, I think be at about 17,000 in 2012, up almost 45% from where it is now. Even the highly likely economic ramifications from my predictions make this post well worth reading. In Part II, the companion post, I'll discuss the likely POLITICAL ramifications. If I'm even close to being right the political ramifications have the potential to be sweeping, reshaping American politics for a generation, as the depression did, in a coalition favoring the democrats in a very big way. Unfortunately, at least in the short run, this won't have much practical effect. As the health care debate has shown all too clearly, Obama is a compromiser, unwilling to go to the mat for most anything, and the barons in Congress are a heck of a lot more concerned about their pet projects then about solving America's problems.


In my post on July 9, I predicted a strong recovery. The shape of that recovery is becoming crystal clear to me, and it will blow your mind. Yes, it will be V shaped, for those who have followed discussion about the shape of the recovery in terms of a letter of the alphabet. Like the letter V, the economy went down sharply, and its going to go up sharply. In fact, it has already not merely hit bottom, but began growing fairly strongly. The initial estimate for 3rd quarter (July-September) GDP comes out at the end of October, and I'm looking for a number north of 3%, and possibly around 4. The 4th quarter will be over 2.5% as well. Not yet a boom, but definitely growth. 2010 will be the BIG year, the year the economy really takes off.

Jobs are what everyone is (rightly) worrying about. Job loss will stop quickly, before the end of the year. Job growth will start out slow and then, as I discuss later, shoot up very suddenly and very very sharply, in the early to middle part of next year.

I'm not prone to excessive optimism, I'm really not. But the American economy is about to roar back to life, haul Europe's along with it, and shock the world. Put on your party hats, peoples, the good times are about to ROLL!


In my July 9th post I explained a bit about why I think economic growth will be so strong over the next few years. Let's try some hard number predictions (guesses, really).


A) The short term:


For the second half of this year, which has begun, growth will be fairly strong. I'm thinking 3% or so for the 3rd quarter, and about the same, to perhaps as high as 4% for the final quarter. This Christmas will be a strong holiday season, with sales up more than 10% from last year's poor levels. Even though these are strong predictions, they aren't the stuff of legend, given the economic free fall of late 2008/early 2009. In fact, jobs will most likely continue to be shed, and unemployment will tick up to 10.3% give or take a few tenths. But 10.3% should be the high water mark for unemployment for this cycle. From there the unemployment rate will decrease, very slowly (if at all) for a few months, then pretty rapidly for a long time thereafter.

In short, the $64,000 question is the job market. When will the economy begin creating jobs, and lowering the monster 9.8% unemployment rate? The very short term news on this front is awful. The average number of hours each working American works each week is the lowest on record. This means that as company order books begin to increase (this has already begun) companies can easily work current employees a little harder before even thinking of hiring new employees. And companies will be VERY cautious in hiring new people.

To explain what will happen next, a brief look back is required. Between September 2008 (Lehman) and about March 2009, businesses in America were in full out panic mode! The financial system teetered on the edge of collapse, a collapse which would very likely have resulted in unemployment over 15% nationally, bread lines reminiscent of the 1930s, and all sorts of other awful outcomes. In this environment, with sales of things like refrigerators, tvs, CARS, and other consumer durables falling faster (by far in some cases) than at any time since 1945, business understandably lost its nerve, panicked, and laid off, en masse, millions of workers. What's weird about the Great Recession of 2008-2009 (I like the name Great Recession, it really captures the moment -- I didn't make it up) was that FAR more jobs were shed than should have been based on the GDP numbers, as I said earlier. Given the sharp decline in GDP, unemployment should be around 8.3-8.5% now. Instead, its 9.8. A 1% + difference in unemployment is a big deal, its about 1.5 million job. So we're basically short about 1.5 million jobs from where we "should" be based only on the GDP decline. In broad brush, those 1.5 million jobs are "panic" jobs. Jobs that were destroyed not because they couldn't be supported by the companies that had them, but because companies were hugely fearful. Now this was perfectly rational, don't misunderstand my point. But now that the financial crisis is over (yes, its OVER), American business has fewer workers than it needs RIGHT NOW by at least 1.5 million. As GDP picks up, that shortage is going to grow, fast. Real fast. So does this mean businesses are a few months from a hiring boom that will will take the job market in 3 big steps from godawful to weak to mediocre to good? Nope. Businesses will project the recent past into the near future (perhaps the most common human mistake-- if on my epitaph it is said that I cautioned against making the mistake of projecting the recent past into the near future, I will have accomplished something, as it is one of my two basic motifs in life) and businesses will be very cautious in expanding payroll, particularly with the crushing costs of health care added onto the cost of hiring most workers. Thank you GOP and weak-kneed democrats. More on health care coming to a post near you.

In any event, sometime late this year or early next year, probably in January or February 2010, a funny thing is going to happen to American business, in a fairly short time frame, circa 2 weeks. Businesses from the redwood forest, to the gulf stream waters, from California (yes, even California) to the New York islands, are going to be caught short. Their order books, down so sharply, will begin to revive. Nothing too dramatic, but instead of having orders for 100 units as we projected, we've got orders for 108. Now we can get out 108 with current payroll, but its a strain. And our customers are telling us they might want 115 over the next period. Wow, we need to hire new workers! Well, let's DO IT. This will happen, literally in a few weeks, all over the country. And so begins robust job growth.

Beginning early next year, Bernanke and the fed will see that my predicted Boom is really here, and begin draining money out of the system, and raising interest rates, in short undoing the huge stimulus efforts undertaken in recent years.

I predict that job growth is on the verge of turning positive, and that for September-December job loss will be very small, less than 100k/month on average, and that by February there will be net new jobs. Even manufacturing employment, which has been just decimated, is going to increase. In the most recent national report on manufacturing, for August, the purchasing managers' index registered 52.9, indicating slight growth in the manufacturing sector overall. This is the first month of growth in 18 months, and surprised me somewhat. Its not a strong report per se, but for manufacturing of late it is strong indeed.


http://www.ism.ws/ismreport/mfgrob.cfm


This report implies, based on past correlation, that the economy is already growing at an ok clip, 2-3%. Given that the recession has just ended, this isn't bad. Given that businesses inventories are way down, there is thus an immediate need for more manufactured items. Now of course some of this will come from overseas, but a fair bit will come from the good old US of A. So the manufacturing recovery has already begun! This will alas come as news to Ohio, Michigan, etc, which have been so hard hit in recent years, but if order books are growing employment will grow too. In the short term at least.


Since inventories are low, and there is pent up consumer demand for cars (some of which was satisfied by cash for clunkers) electronics, and other items, economic growth should be fairly strong in the coming months, as it usually is after a recession. Recovery from the last 2 recessions (2001-03, 1991-2) was painfully slow. Most commentators are predicting a similarly slow recovery this time, in particular because of the huge problems in the financial sector. These predictions are reasonable and understandable. And dead wrong!


These predictions by others ignore the huge actions by the fed, treasury, and the congress, as outlined in my July 9th post, which I take so very seriously. In short, there is a totally unprecedented amount of stimulus in the pipeline, and now that the financial system isn't a total mess, that stimulus will work its magic.


To conclude predictions for the near term:


2nd half 2009: 3.5%.


1st half 2010: 5% (that's not as shocking as it sounds after such a steep recession).


2nd half 2010: 3.5%



Not bad at all, I'd say!

B) The next few years:

As I've said, starting late this year or early next year the economy will take off like a rocket, and one of the great booms in American history will begin. Figure on better than 4% growth for 2010 and at least 3% for 2011.

Because the economy is so weak now, and has been for a while, it can grow for quite some time without increasing the types of inflationary pressures that come from a strong economy, namely a wage-price cycle where emboldened workers demand and receive higher and higher salaries and other forms of compensation, and then spend that money chasing a relative shortage of goods and services.

Will inflation kick up and become a serious problem, as many suggest? No. Why? Because I have nearly unlimited faith in Bernanke's ability to manage the money supply and other factors within the control of the fed. The recovery will be faltering at first, and Bernanke will be cautious in undoing the massive amount of stimulus that he has injected. But the GDP growth that I have predicted is so strong that he will by the middle of next year begin fairly aggressively raising interest rates, selling back treasury bonds that the fed has bought, thereby reducing the money supply, and slowly begin eliminating the other extraordinary stimulus measures which took place in 2008 and early 2009. This will have the desired effect of clamping down on inflationary pressures caused by very very easy money, and, I predict, cause the dollar to soar. These two things in conjunction will be enough to prevent inflation from increasing more than modestly.

Once the markets become convinced that I am correct, and that a strong noninflationary recovery/boom is underway, the markets will take off like a rocket! My advice on buying stocks? If it isn't nailed down, buy it. If it is nailed down, get the nail off the damn stock and then buy it! The conditions I outline are ideal for a long sustained stock market boom (which will, by 2012, be creating its own problems, but more on that in a few months). My 17,000 prediction on the Dow Jones by 2012 could prove conservative.

C) The ramifications:

Much has been written about how American consumer behavior has really changed this time. And it has, for a while. There is MUCH less conspicuous consumption. Frugality is in. Had the hard times lingered, this change may have lingered. But since a boom, and prosperity is really right around the corner this time, old habits will reassert themselves. Debt will again be in. Even a housing boom wouldn't surprise me, but that's several years away at least.

The federal budget deficit will close much more rapidly than the CBO or congress is predicting. It won't be balanced anytime soon, that's just not in the cards, but it will shrink and shrink dramatically. In fact, if reelected, it wouldn't surprise me that much if Obama duplicates Clinton's feat of the federal budget balance moving in the correct direction for 8 years in a row! In any event, the Boom will be strong enough to fundamentally rewrite the budget picture for the next several years, but not anything like strong enough to solve the long term budgetary problems, of course. These require a significant cut in the rate of growth of Medicare, AND significant tax increases, as well as modest cuts elsewhere in the federal budget.

Today is the most important day in the health care reform effort, and likely one of the most important days of Obama's Presidency. Here's why.

As you have all likely heard, Ted Kennedy died last night after a battle with brain cancer. As you also likely know, Ted Kennedy had always considered national health care reform and universal coverage as a crucial battle to be won in order to make America a better place, and the next logical step in the great liberal reform efforts from Teddy Roosevelt, to Social Security, to the civil rights laws, medicare and medicaid, in the 1960s.

We're going to learn an awful lot about Obama's presidency today, and unfortunately I don't think we're going to like it.

If LBJ were president right now, he would shamelessly exploit Teddy's death in order to pass health care reform in his name. His speech would go something like this: "America lost a Senate legend today when Ted Kennedy passed away. I got to know him over the last few years, and grew to really appreciate what a giant he was. He will be missed, and I hereby declare today a day of national mourning in his honor. Health care reform was his life's work. He said on many occasions that he hoped to live long enough to see America pass a real national health care system, one which would cover everybody. So we would have an America in which people could no longer go bankrupt because they got sick, or have their health insurance taken away. I demand that Congress act quickly after its recess to pass comprehensive health care reform legislation that would make Ted Kennedy proud. And I assure each and every member of congress that he is watching from on high, and will take careful note of what goes on in this debate.

Health care reform was Ted Kennedy's life's work, his great goal. I call on Congress to pass, without delay, a health care reform bill, entitled the 'Ted Kennedy Health Reform Act of 2009.' I have been discussing for months now the details which must be in that bill. The ball is now in Congress' court. Teddy is watching. Thank you and goodnight."

Something like that. Despite the fact that its the end of August, and despite the fact that Obama has been talking ENDLESSLY about health care, he should take 5-10 minutes of prime time tv tonight, and make a speech along these lines. Then, Kennedy's name should be repeatedly and shamelessly mentioned in the press, in order to pass the act. His family won't mind, I strongly assume, and no one could DARE accuse him of taking advantage, because the media won't allow it; as they know that he would have been the first to approve of his name being exploited for THIS cause. LBJ would do it. FDR would do it. Lincoln might well. Nixon certainly would. But its not in Obama's nature to so shamelessly use a man's death for the cause. So he won't. He'll issue kind words, and mention health care reform, but not in the very direct and clear way I outline. And it will be a missed opportunity, perhaps even a missed golden opportunity, to reclaim the debate.

Oh, one other thing. We're going to learn whether Obama or Rahm Emanuel is running the White House. Rahm Emanuel, as I understand him, would exploit the death of his own mother in order to accomplish a relatively minor goal. He CERTAINLY would endorse a strong program along the lines I mention, and, I humbly submit, doesn't need flyingpinkunicorns to suggest it to him. So in addition to learning how much Obama is willing to exploit Kennedy's death, we're going to learn a lot, I think, about Emanuel's power to shape the agenda. The next 24-48 hours are going to be both crucial and fascinating for those paying close attention. So pay close attention.

The economy will recover strongly in 2010. Nearly every economist on record is predicting a very slow recovery. Nearly every economist is wrong.

First, its not at all unusual for the huge majority of economists to be fundamentally wrong on the course of the national economy. Very few predicted the vigor of the recovery starting in 1994, following a very slow start to the recovery after the recession of 1991. Very very few predicted a steep recession following the bursting of the housing bubble in 2007-2008. And now, most economists, seeing the truly dreadful economic numbers that are coming out this year, are predicting a very slow recover, if any at all. A lot of ordinary people are wondering if the economy will ever recover strongly.

It will. Betting against America has been a losing bet for 400 years. It continues to be, particularly since we have reasonably competent leadership in the White House.

Anyway, all of the economists and ordinary people I have alluded to above are making the same fundamental mistake. They are projecting the recent past into the near future! It is my belief that this error is very common among people of all stripes, is deep in human nature, and in fact is one of the key obstacles people face regarding trying to get an idea of what will happen in the future.

Housing prices went up recently? They will continue to do so. The stock market? Ditto.

It takes vision (and guts, and insight) to predict a radical break from the recent past. After all, the recent past often DOES indicate the course of the near future. But sometimes it doesn't, and recognizing those times is crucial if you're going to be worth a crap as an analyst of any sort.

Let's see if I'm worth a crap as an analyst of the economy about now.

The reason I am predicting a strong recovery is simple; there are so many huge efforts in place to stimulate the economy. These are, in order of importance:

First, and most importantly, Hank Paulson and Tim Geithner have apparently stabilized the banking system. When's the last time you heard truly awful news about a major bank/financial institution? Been a while, hasn't it. We've progressed through a stimulus package, health care reform, Iranian elections, Michael Jackson, and so on. Its easy to forget that from September to early February the financial system was at various times teetering on the edge of the abyss. With the help of (eventually) good leadership from Paulson, under Bush, and (reasonably) good leadership under Geithner, the banking system has apparently stabilized. This was absolutely necessary for economic recovery to take root. If I am reading the treasury department website correctly, and I think I am, a total of slightly over $70 billion dollars has been repaid to the treasury, from various banks, out of $203 billion the government put in.

http://www.financialstability.gov/docs/transaction-reports/transactions-report_070609.pdf

Given where we were just a few months ago, that's an incredibly good sign for the health of the banking system.

Second, the Federal Reserve has created an absolute boatload of money. M2 is the aggregate total of all physical currency, amount in demand accounts, savings accounts and a few other areas. This is the measure that the fed currently uses to determine the broad money supply. Between September 2008 and July 2009, the fed (wisely in my opinion) increased M2 from
$7.65 trillion to $8.3 trillion, a nearly 10% increase. This 10% increase is a fairly large increase historically, and is highly likely to stimulate the economy in the short run. In so doing, the fed dramatically increased the amount of reserves held by banks. This change allows banks to make more loans. This process has begun, but not yet in a big way.

Third, interest rates have been cut by the fed, to the floor. This hasn't really mattered yet, due to the banking/credit market crisis, but as these areas continue to return to normalcy (I predict) interest rates will regain their potency to stimulate the economy, as businesses and individuals will again want to borrow to grow/expand their business, buy cars and houses (more on that later in this post) etc. With banks increasingly able and willing to lend (there has been progress already in this area, and I predict much more in the next 6 months) the low cost of capital will stimulate, as it always has.

Fourth, the Obama stimulus. It has been criticized (correctly) for being slow to really get moving. Much of the actual government spending will occur between this October and next October. This fact will turn out to be a blessing in disguise, as the spending will likely have far more knock-on effects than it would have earlier this year, because the banking system will be healthier. In any event, the stimulus will add somewhere around 1.5 points to GDP growth for the next fiscal year (beginning October 1st).

Fifth, businesses have already cut so very many workers. This, perversely, should indicate that the rate of job loss should slow, very very soon. It already has slowed, but only from frightfully high levels, to high levels. This should progress, in turn, to fairly high levels, little job loss, and then a little job gain. The sectors that have been hardest high (finance, construction, especially residential housing construction and manufacturing) have had absolutely savage, depression-like job cuts. I admit to not knowing the details at all on this point, but it seems to me that further serious job cuts in these areas are highly unlikely. Many of the weak businesses in these areas have gone out of business, the survivors have already cut to the bone. Businesses have cut jobs in many cases even faster and further than the demand for their goods/services have fallen. When demand stabilizes (which may have happened already, and in any event should happen quite soon), businesses will quickly stop cutting jobs, and then tentatively start adding a few. This process tends to build on itself in normal recoveries.

Sixth, there is beginning to be pent-up consumer demand. The sales of cars in particular dropped so steeply in 2008-2009, that the average age of vehicles in America has soared to the point where in the past car sales really picked up. This may take a little while this time around because of the credit crunch and particular worries about GM and Chrysler, but with the government bailouts in place, I predict these worries will soon be overcome. 2010 should represent a big percentage increase in car sales off of the truly godawful levels of 2009. This will boost the economy.

The same is true to a lesser extent for other consumer goods. Demand fell so far so fast, that it will likely rise soon.

With housing, I doubt this is the case. Housing prices still probably have further to fall, and I can't see a housing recovery of any kind until at least 2011. In past recoveries housing has usually led the economy out of recession, as lower interest rates entice buyers. That is most unlikely to happen this time, which is why the recession has gone on for so long (18 months and counting assuming it is not quite over yet).

However, the other elements of recovery that I have outlined should be so vigorous that a very weak housing market is overcome, and a reasonably strong economic recovery should take root sometime late this year or early next year. The naysayers, who are predicting a double dip recession, with unemployment eventually reaching north of 12%, are wrong.

Having said all this, job losses should continue for several more months, and unemployment will top 10% for certain. Its possible that everything I predict in this post could come to pass except for job growth, and that unemployment could still rise through next Spring, topping out at around 11.5%. I doubt it, but its possible. That would merely set the stage for a delayed, and thus stronger recovery, as the job market catches up to the other underlying forces in the economy.

I know I seem ridiculously optimistic to many of you, but what I am doing is not simply projecting the recent past into the near future, but instead trying to understand the forces that will shape the near future. And what I see is an array of forces constituting wind at the back of the economy, and only housing as a strong headwind. There are many, many more tailwinds than headwinds.

By all means, judge me favorably or harshly over the next year, depending on what happens. But this is, in broad outline, how I see the economy.

Panic, despair, health care

These words now go together.

The effort to reform health care is in real trouble. Here's one recent article among many.

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/08/AR2009070804184.html?hpid%3Dtopnews&sub=AR

The dems are badly floundering because of intra-party disagreement (not surprising) coupled with the entirely expected nearly uniform GOP opposition. Anyone who thought the GOP would participate in actually trying to solve a crucial national problem must have spent the last 8 years on Neptune. Well, prescription drugs for seniors. Anyway, we KNEW the GOP wouldn't work with President Obama on health care. After all, can't give the democrat a victory! Although there is a lot of talking by Chuck Grassley, the ranking Republican on the crucial Senate Finance Committee, he has few GOP followers. As Jon Kyl, the # 2 Republican in the Senate recently said, Grassley has no authority to represent Republicans.

http://www.latimes.com/news/nationworld/nation/la-na-baucus-grassley9-2009jul09,0,5713295.story?page=2

So the democrats have put in a HUGE effort to be bipartisan in the Senate, only to be predictably disappointed. Sure, the dems may pick off 3 or 4 Republican Senators, at most, but that's it. And more likely they'll get only 1 or 2. And that's worth fundamentally watering down health care reform?

In any event, the Obama administration realizes that their signature issue, health care, is in big trouble. To its credit, the administration has awakened, big time. The early strategy was to give congress their head, let them work out the trade-offs with minimal supervision/input, and weigh in where necessary. After all, the Congressional committee chair people are really feeling their power these days because of the huge democratic majorities, and a top-down approach from the White House might really have not worked any better than it did for Hillary in 1994. Alas, that particular plan has run into the iceberg of democratic disunity, and, like the Titanic, the leave-it-to-Congress ship is taking on water fast. Oops.

The administration has now realized that the democrats in Congress can't agree amongst themselves and, as Andrew put it, are like petulant children, requiring careful adult supervision. Well fortunately, adults, from Obama to Emanuel and on down, run the White House. The adults are now in the game, and are pushing, pulling, arm twisting, begging, threatening, cajoling, convincing, negotiating and other adjectives I can't think of at the moment, with congress, mainly the Senate. All is negotiable, but the noises coming out of the White House recently have been hugely encouraging; more willingness to negotiate over how to pay for it (I couldn't possibly care any less), while less negotiation on a public option (I couldn't possibly care any more). All to the good, as far as it goes.

The (really) bad news is that with the clock ticking towards Obama's (meaningless) August deadline, the Senate isn't close to agreeing on the big issues. The Senate HELP Committee (Health, Education, Labor and Pensions, Kennedy, Chairman), put out a reform bill tentatively scored at $600 Billion over 10 years. Chump change, in other words, given that we will spend more than $40 Trillion over that stretch. If Kennedy put it out, I'm for it (on Health Care). If we can't pass this reasonable bill, the sky has fallen. Obama will be shown to be totally impotent. Like the Emperor in the Wizard of Oz.

To be defeated by Max Baucus and the other compromisers when you hold 60 seats (57 or so is the real number-- there are a few dems that really aren't, but Snowe and one or two Repubs are listening) is just sad.

Based on what I know now, and I have been following of late, I'd say that its no better than 50-50 that a serious reform bill is signed into law. The House will do what its told, and Nancy will pass a strong bill with a PUBLIC OPTION (insert steroids here), but the Senate???? And even if the Senate does pass a real bill, that conference committee will be one whale of a monster-fight. Will Nancy and Steny Hoyer in the House just cave to the Senate, after being told we can't get to 50 in the Senate without doing it the Senate's way? I predict yes, they will. If they didn't, the thing could die. I don't think red state dems like Nelson of Nebraska, the two dems from Arkansas (Pryor and Blanche Lincoln), Landrieu of Louisiana, etc. are afraid of bucking Obama. They think it will HELP them politically in their states, and they're almost certainly correct. Since they're not running for president, what do they care if health care reform whithers on the vine?

I advocate the democrats in the Senate writing a reasonable bill, compromising within the party, ignoring the GOP, and going from there. I truly hate to try and do such a massive reform effort in a partisan fashion, its far from optimal. But alas the GOP just isn't willing to deal on any terms except their own, and they're not willing to really try and dig in and help solve America's huge problems. So we'll have to do it without them, and let the chips fall where they may.

I urge everyone to contact their house member and Senators on this. www.house.gov, and www.senate.gov. Finding links to send your rep/Senator a message on-line is a piece of cake on the main web sites. This issue is so huge that its worth the few minutes to send your comment.

Iran:


Here's my take on what's going on in the Islamic Republic.


As I see it, what you and the world are witnessing is a game of multidimensional chess, with various forces pulling this way and that. Fundamentally, there are four forces operating within Iran:


1) The clerical supporters of the regime. Led by, of course, Ayatollah Khameni. These are fairly radical to very radical folks that truly believe in the religious destiny of the regime, and the odd (to western ears) tenants of Shia Islam. These folks are willing to countenance a totalitarian state if need be to preserve a regime they largely believe in. There is also some genuine popular support for the Islamic nature of the regime, albeit less than a few weeks ago....


2) The military/paramilitary supporters of the regime. Their most public face is President Ahmadinejad who won the Presidency (fair and square, by Iranian rules and standards, which include required approval from the regime to run for president!) four years ago, and has been declared the "winner" amidst such controversy recently.


#s 1 and 2 are in a pretty strong coalition. Should this coalition break down, a revolution is quite likely.


3) Clerical opponents of the regime. It is of course simplistic to simply label them opponents, but right now, at a time of maximum uncertainty, these people are calling the recent election fraudulent. Since Khameni has repeatedly said otherwise, and threw down the gauntlet in a defiant fist-banging, and somewhat threatening speech on Friday, it is fair to call these clerics opponents. The most visible person representing this faction, by far, is former president Rafsanjani. He is currently the Chairman of the Assembly of Experts, a fairly important behind-the scenes body which, among other things, elects the Supreme Leader. There are several Grand Ayatollahs that also fit within this description, many of whom have far superior religious credentials to Khameni.


The most interesting aspect of the the current Iranian crisis (and a crisis it is!) is that there is such a public split amongst clerical elements within the regime. Previous disagreements, with a few odd exceptions, have been papered over, and in the past, such as 1999, when there were visible splits within the regime, the Supreme Leader put his foot down, and everyone basically jumped back in line. This time, not so much.


Another key thing to keep in mind as the Iran situation unfolds. Rafsanjani was once a crucial supporter of Supreme Leader Khameni, and was the key person involved in elevating him to that status when former Ayatollah Khomeni died in 1989. He has been rumored, however, to have turned somewhat on his former protege, and acted within the Iranian government to maneuver against Kahmeni. Rafsanjani was once considered a moderate, and compared to Kahmeni and Ahmadinejad he really is. He does NOT believe in the overthrow of the regime or (god-forbid from his perspective) western democracy. He does, however, think the regime has led the country into a ditch . He apparently opposes the harsher clerical controls over people's daily lives, and has been a critic of the economic decisions made by recent governments, especially that of Ahmadinejad. His focus is on economics.


4) Pro Civil society (and in some cases far less anti-western than the regime, or even pro-Western democracy in rare cases). This group is represented by former President Khatami and to a lesser extent, of course, "defeated" presidential candidate Mir-Hossein Mousavi and many of the masses in the streets. Mousavi was perhaps better described really as an internal critic of the regime than some anti-regime outsider. However, he has recently stated that he is willing to "be a martyr," which paints him more as a regime opponent.

In order to run for president, you must be approved by the Guardian Council, a body appointed by the Supreme Leader of and 6 jurisits. These are crucial pillars of the regime, and not about to let a real rabble rouser run for the somewhat important job of president. I say somewhat important, because ultimate power rests with the Supreme Leader.


My take is that a lot of the public is unsure about whether they truly support a full overthrow of the regime. Many would probably blanch at the violence and uncertainty this would entail. They are united, however, in their loathing of the manner in which Ahmadinejad and his ilk have run the Iranian economy into the ground. Remember when oil prices were sky high? You'd think Iran, with the 3rd largest amount of proven oil reserves (Saudi Arabia, Canada, Iran, Iraq) would have had a rip roaring economy. Not so much! Instead, Ahmadinejad's blatant misrule has left the Iranian economy in a sad state. Kahmeni has obviously lost some influence in the eyes of the Iranian people.


In addition, Ahmadinejad is blamed by people in this group for foreign policy misadventures. Not that these people like Israel, by a damn long shot. Many are, however, neutral to slightly favorable about the US. But what they DO think is that Ahmadinejad has brought a world of negative attention onto Iran with his various diatribes, and that this has done no good and some harm to these people's day-to-day lives.

Predicting what will happen next is a fool's errand. But make no mistake; the regime is clearly threatened, and could fall, with Kahmeni likely winding up in exile in Iraq. More likely, unfortunately, is a Tianenmen like crackdown, where Kahmeni calls out the army for real, kills a few hundred or more, and makes crystal clear that its all over, time to pack up and go home. I fear this outcome greatly.

I was recently asked to comment on an op ed piece by David Brooks. Here's the piece:

http://www.nytimes.com/2009/06/02/opinion/02brooks.html?_r=1&ref=opinion

For those who don't know, Brooks is a conservative that sometimes uses his brain, making him a rare bird indeed on the conservative side. He's really a moderate conservative, a northeastern "conservative" of the kind that dominated the GOP once upon a time, when it was by and large to the left of the democrats. He became fairly critical of Bush towards the end of the second term, disillusioned with what happened when the GOP ruled the roost.

Anyway, here are my thoughts.

Brooks' piece is thought provoking, but I think he's wrong in a few key respects.

First, let's start where he's RIGHT. GM's biggest problem, at the end of the day, has been that its corporate culture could not accurately allow reality to seep into the key decision makers' in-box. Roger & Me was 1989 for heaven's sake. GM's been mismanaged for Olympiads!

Second, and much more worryingly, Brooks is surely right that, "the Obama plan won't revolutionize GM's corporate culture." However, the realistic risk of oblivion might. And that's where Brooks is wrong. He says there won't be any more outside investors. Baloney. Banks/investment funds will be CLAMORING to invest in GM (owned by Obama and thus unlikely to go truly bust as Brooks himself argues) if they show any signs of life. Perhaps even if they don't. Brooks is making the always fatal error of projecting the recent past into the near future. Credit markets will be loosened, money will look for a home, and if GM climbs out of intensive care, money will find it.

Brooks is importantly right that Obama's plan DOES entrench the ancien regime, which is terrible. The internal resistance in the administration to actually get in the car business and RUN IT for a few years is monumental. Look, I don't like the idea of a government running a car company much either. Put the factories in the district of powerful chairman, kowtow to the unions, block imports, ease rules, etc. But GMs management has been SO bad for SO long that its really hard for me to believe that Uncle Sam could do too much worse. Where I do think Brooks is somewhat wrong is that it "would be politically suicidal for the Democrats, or whoever is in power, to pull the plug on the company -- now or ever." He's not WRONG here, for sure, but he forgets a somewhat likely scenario. GM shrinks, does not boost market share, shrinks further, eats up more money, shrinks further, etc. GM may not so much die as fade away, at least in North America. In fact, that's probably the most likely scenario. Now this is godawful because it WOULD mean that dems throw good money after bad (and rightly get roasted by the Southern/Western dominated GOP for doing so) but it would over a period of say 12 years mean the end of the company, at least its North American Operations. It is true that GM will have to beat to Obama's drummer. Given that its focus for decades has been on anything but innovation and building small cars that people want, as opposed to big trucks that warm the planet and drive up the price of oil, changing its focus to pleasing its new masters in Washington will be much less harmful than Brooks thinks it will. Its easy to be reflexively against government owning the commanding heights. It isn't totally wrongheaded. But GM is a bit of a special case b/c its management has been SO bad for SO LONG. To conclude, Brooks piece, although worthwhile, is, in main part, at war with itself.

1) GM's corporate culture is totally dysfunctional (totally true);

2) GM will now have to please new masters (totally true, and more than just Obama-- Congress too);

3) Therefore, things will get worse and more good money will be thrown in after bad (I submit false-- GM was so bad that pleasing DC should be an IMPROVEMENT.

Lastly, Brooks throws in a FASCINATING analogy to the Iraq war, without bringing himself to quite say that that's what he's analogizing to: "The end result is that G.M. will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. We’ve seen this before, albeit in different context: An overconfident government throws itself into a dysfunctional culture it doesn’t really understand. The result is quagmire. The costs escalate. There is no exit strategy."

There are two possible exit strategies if things go wrong at GM:

First, bite the political bullet and let it go bust. Who knows, Obama might grow a set and do just that if the company just implodes. But let's stipulate that he/his successors won't.

Two, stand idly by as GM vainly struggles to right itself, and slowly fades away. Expensive, surely, to the extent any more money is put it. But the public is fed up with the bailouts, big time, and there may not be repeated bits at the apple. In any event, this would impose the market discipline that Brooks and the GOP so love, as oblivion nears. Then pleasing Obama/Congress would take a back seat to survival. After all, if DC isn't coughing up any more money, why kill yourself to please them. This exit strategy would be the "do nothing and watch them fade away" strategy. This is the strategy I predict Obama will take.

The recession will end in July, give or take a month or two.

Yup, I have finally figured it out, and this prediction will not likely be retracted.

On December 12, 2008, I posted that the recession would end on June 17th, meaning really June of this year.

http://flyingpinkunicorns.blogspot.com/2008/12/june-17-th-2009.html

My thinking was that as of June the recession would have been going on longer than any since World War II, and that a fair bit of the bloodletting had already took place.

Alas, on February 8, I retracted that prediction, fearing the banks were in truly horrible shape, and that it would take months, at a bare minimum, to even begin to clean them up.

http://flyingpinkunicorns.blogspot.com/2009/02/i-was-wrong.html

I guess I lost my nerve.

A few weeks back, the administration released the results of the so-called stress tests, indicating what would happen to the banks if unemployment went over 10% (a stressful situation for banks' balance sheets). The results indicated that the banks were in MUCH better shape than we had thought. Sure there were a few, notably Bank of America, which needed more capital. It was decided that 10 large banks needed a total of $75 billion more in capital, with Bank of America needing $33.9 billion.

In the few days following the results of the stress tests, several banks raised billions in capital, which would have been impossible late last year due to the fear in the financial markets about the banks. This was a loud (but largely unnoticed) vote of confidence in the banking system.

Anyway, the recent unemployment numbers have been godawful. The number of first time claims for unemployment, dropped by 13,000 last week, but were still at 623,000, a terrible number. That's the sort of number you'd expect when the economy was deep in recession. However, unemployment is what is referred to as a lagging indicator. That is, when business first starts getting better, you force your current employees to do a little more. Only when it keeps getting better do you finally take the plunge and hire new people. So even after the economy begins growing, everyone, including me, expects that unemployment will get worse. We will certainly see 10% before 2009 is over, and could conceivably see 11% early next year. But the worst is very very likely over. Barring a huge new shock in the banking system, the less bad news we've been hearing about the credit markets, coupled with more federal stimulus money, rock-bottom interest rates and the small Obama tax cuts will cause the economy to begin growing very soon. Almost certainly during the Fall, and probably during the Summer. Do hold the champagne. The mere fact of growth of GDP, in and of itself, doesn't mean too much for the great majority of people (though it does help the federal budget). But this time it may mean a little bit. I'm a big believer that people and businesses don't react to numbers that much, they react to conditions on the ground. But hearing a positive GDP number will almost certainly give business and consumer confidence a boost. And such a number is very possible for the quarter which runs from July- September of this year.

If I had to predict, (guess, really), I'd guess that the recovery is for real, but not vigorous until early to mid 2010. Figure that unemployment will begin to fall by about May 2010, and fall sharply at that. Given that by May 2010 it will be about 10.5% I suspect, it can fall very fast without worrying anyone that the economy will overheat and cause inflation. In about April-May 2010 the fed can begin draining the economy of the extra money it created in 2008 and 2009, and begin raising interest rates. The day I can advocate for that in my blog will be a good day indeed, for all of us.

As you all likely know, congress is seriously considering major health care reforms. In 1993-94, the Clinton administration created a body headed by then first lady Hillary to draft up a complex plan. The administration drafted it, and intended to stick as much of it as possible down the democratic congress' throat. The democrats gagged, and, in the face of the terrifying couple of Harry and Louise (google ads, Harry and Louise, health care) passed nothing at all. The GOP took control of both houses of congress in 1994, denied there was a serious health care problem that needed fixing, and the rest is history. Painful, expensive, life shattering history for millions of Americans who lack health insurance, or who find that when they need it most their insurance company slow pays their doctor, denies claims, denies authorizations for tests, demands pre-notification before an emergency room admission (presumably you should have known you would be rear-ended) and so on along the litany of things wrong with our health care system. Oh yeah, we spend nearly 50% more PER PERSON than any other country in the world (with the tiny exception of Switzerland, who we spend more than anyway) and we get outcomes that are slightly worse than our peer countries (Canada, France, the UK, Germany, Japan). I always thought conservatives believed in cost-benefit analysis. Well, our system costs more and generates slightly worse outcomes. Sounds like it needs fixing....

Anyway, the point of this post is to jolt you, my readers, into DOING SOMETHING. The burning issue of health care reform in the last few weeks is whether the Obama administration will compromise on what is known as a public option. Liberal and lefty democrats favor a single payer system, like Canada or France, whereby the government is the primary (or only) purchaser of health care. This is socialized medicine, which the right has made a dirty word, on a par with communist, terrorist, or gay married person. A bogeyman. Anyway, the democrats are, sadly, NOT proposing any such option, which would, among many other things, put the health insurance industry out of business. Instead, the mantra these days is that if you like your private insurance (and many Americans justifiably do) you can keep it, largely unaltered. But, if you don't like it, or you don't have private insurance, a PUBLIC OPTION allows you to buy into some form of government run or regulated option, such as Medicare.

Imho, a public option is CRUCIAL if health care reform is to really deliver any significant benefits to America. In fact, I would state that the issue of the public option is by far the most significant issue facing the congress and president these days. The economy will soon recover (more on that in a post coming soon), the shape of energy reform is becoming clear, but we could choose to omit a public option for health care and simply let a big opportunity to reform a part of our economy which badly needs reform, and allow millions of uninsured Americans to stay uninsured.

Howard Dean has created a web site that asks everyone to sign a petition supporting a public option for health care. I have signed this petition and I urge all of you to do the same.

http://standwithdrdean.com/

My thoughts on Afghanistan/Pakistan

I begin with the assumption that the Taliban would get KILLED in a free and fair country-wide election. That is, although they have real pockets of support among the Pashtuns on the border, they are not a genuinely popular movement, as Mao's communists were, and so many successful revolutionaries were. They were wildly unpopular, by all accounts, the first time around.

I'm no Afghan expert, but I'm told they don't have a ton of support. Remember, Al Queda in Iraq looked like they had real Sunni support, until the Sunni leaders turned on their asses and asked the infidels, ie. US, to help kill them, b/c they horribly overplayed their hand. The Taliban was a foreign import, rather than a genuine Afghan movement. They were really installed by Pakistan's intelligence service (the ISI) as a way to stabalize and have a tad of control over their northern neighbor. Control didn't quite happen, but a modicum of stability (vis-a-vis Pakistan) did. Prior to the installation of the Taliban, various factions vying for control over Afghanistan took their battles, literally, to the streets of Pakistan. They set off car bombs and did other damage. The Pakistani army and intelligence services (and people) were NOT amused.

The Taliban are not natural leaders of Afghanistan in any way, shape or form, and are not viewed that way by basically any non-Pashtuns, and not really by many Pashtuns either as I understand it. They were accepted by many, especially in the beginning, because they brought an end to the chaos and fighting. Once the Afghan people got a taste of the Taliban, they were ready to throw them out.

Why do we care whether Hamid Karzi or the Taliban control Afghanistan? Afghanistan is one of the very poorest countries on earth. Even though it is nearly 100% Muslim, your average Muslim in another country doesn't begin to care about it (as they might Iraq, Egypt, and other countries of significance). Their only exports are poppy seeds and instability. They have no oil. On the other hand, they are strategically located, and are vital to the future of Pakistan. So they do matter.

As we all know, Bin Ladin had completely free reign in Afghanistan prior to 9-11. The Taliban ran things day to day, but Bin Ladin did as he pleased. So its perfectly fair to say that the Taliban attacked us. But would they dare do it again if they somehow regained power? Probably not. The best reason to be willing to spend lives and oodles of money to defeat the Taliban lies in Pakistan. Although Pakistan is poor as well, it has circa 180 million people, nearly all Muslim, most of a modern army, and many dozen nuclear weapons. Bin Ladin followers taking over Pakistan (as many have dreamt of for years) would be a HUGE disaster for American national security. In my view, a seriously first order problem. Andrew thinks that even in this godawful eventuality, we could rely on MAD (mutually assured destruction) to prevent them from getting too uppity. I don't. Religious nutjobs are just not nearly as predictable as the Soviets were. Besides, I'm not willing to bet New York on it. I'm highly confident that India feels the same way. Sure, Pakistan is their enemy. But the Pakistani regime mostly plays within defined bounds. (The terror attacks last year in Mumbai (formerly Bombay), which killed 173 people and were huge front page news worldwide were a glaring exception, but India knows perfectly well that Pakistan didn't orchestrate the attacks. Whether Al Queda (or the Taliban) would similarly confront India within a known parameter of permissible activity is another matter entirely. That's a question which India would greatly prefer not to have to answer.

I've made a leap that I should explain. There are several areas of Pakistan, near the Afghan border, which are in virtual open revolt against the Pakistan government. These are sometimes referred to as the Tribal areas, which is only one part of Pakistan that is in near revolt. It is in these border areas (including but not limited to the Swat Valley) where Bin Ladin and the rest of the remaining Al Queda leadership are thought to be hiding, and it is from these areas where the Taliban is launching their attacks across the border into Afghanistan. The Pakistani government is none too pleased at these developments. Although a cease fire was controversially signed between Pakistan and some of the rebel elements back in February, the Pakistani army has moved in in force in recent days.

http://www.nytimes.com/2009/05/08/world/asia/08pstan.html?ref=asia

Pakistan fears that the Taliban types, with the aid of Al Queda types, could be a grave threat to their (always weak) government. So they're pushing back hard in certain areas.

So what does Pakistan think of the Taliban war in Afghanistan? What with the rebellion going on near the border and all, and the army and the intelligence services being the only institutions in Pakistan worth a NYC subway ride, I doubt seriously they're going to see it in their long term interests for the Taliban to WIN in Afghanistan. For them to EXIST, maybe. Keeps the US interested, keeps our billions flowing into Pakistan, keeps us from following our foreign policy where it wants to go, which is a wholehearted embrace of India, for trade reasons, as a counterweight to China, and a counterweight to possible Islamic radicalism coming from Pakistan or Sri Lanka. (Was that the longest sentence you ever read?)

That's where gravity is (strongly) pulling the US foreign policy. Fear of Bin Ladinists controlling Pakistan's nukes are pulling in the other direction. Both the army and the ISI realize this, and are playing a bit of a dangerous double game, but they don't see it in their interests to order the army to turn border areas into rubble. They've, however, gone from playing patty cake with the rebels to playing a bit rough, and from the US perspective, that will just about do. I think the Pakistan/Afghan problem is approaching a sort of equilibrium. Pakistan sees the rearming of the Taliban and the chaos following in Afghanistan and sees a more than mini rebellion by very similar types in the north of Pakistan, with the aid of Al Queda. They've looked in the crystal ball and just cringed. So the army under MUSHARRAF preferred to play patty cake, while the army under weak civilian leadership is starting to crack heads. These people aren't Saddam's sycophant idiots. They have more than 1/2 a clue, the army does. And while they may not crack down hard enough to WIN (by which I mean crush the rebellion utterly) they will, I humbly predict, crack down hard enough not to lose (in Pakistan). Which is really more than enough from their perspective. India can tolerate this, the US can tolerate this, and at the very very VERY end of the day it may be that even the TALIBAN can tolerate this. Leverage from the US on the Afghan side of the border can badly squeeze an already somewhat squeezed Taliban until they slowly whither away into dust. That, in broad outline, is my Plan. I think it has a high chance of "success" and a low chance of bad failure (Al Queda types controlling swaths of Pakistan or, god forbid, the Pakistani military and with it its nuclear arsenal). It is for this reason that I support the escalation of the effort in Afghanistan-- not so much because its worth that much American money and blood to see who rules Afghanistan, but because it is worth lots of American treasure to ensure that the rebel types, aided and assisted by (and part and parcel of) the Taliban (and aided by Al Queda) don't rule Pakistan.