Politick

The Illusion of Green Jobs

The Washington Post published a report on the bleak outlook for green jobs. Many have eagerly gone through training programs, only to find that there are no jobs to be had:

The Obama administration channeled more than $90 billion from the $814 billion economic stimulus bill intoclean energy technology, confident that the investment would grow into the economy's next big thing. ...

But the huge federal investment has run headlong into the stubborn reality that the market for renewable energy products - and workers - remains in its infancy.  ...

The industry's growth has been undercut by the simple economic fact that fossil fuels remain cheaper than renewables. [A]dministration officials acknowledge that it is likely to be years before the spending on green energy produces large numbers of jobs. 

There is a lot of potential in the green revolution, particularly around the "cradle to cradle" concept of building technology which has a recycle cycle similar to biology. A lot of folk believe you either accept the whole package, or are a denier of some sort. I rather think one should discriminate between the fact and the phantasm, the promising and the promoted. An important question is whether the diffusion of green technology throughout the developed countries can provide the foundation for coming out of the Great Recession. Are green jobs the ace in the hole for the future? 

The promise of green jobs, looked at critically, unfortunately comes up a joker. 

The Warning From Spain

Spain warned us of their failure with a green jobs program. You can download their report here. For every job created, 2.2 jobs were lost, or 9 jobs lost for every 4 created. And this does not even include opportunity cost - new jobs if the money had been spent elsewhere. Worse, only one out of ten green jobs were permanent. 

The White House response to this report was pretty awful and did nothing to treat this issue with seriousness, only spin. 

Bogus Claims 

The White House response to the Spanish warning is a striking example of how the proponents for green jobs often seem to have flown to Fantasy Island. 

The White House claimed close to 200,000 green jobs, but many of them turn out to be spurious, such as counting reporters who write about green jobs. The Dept of Energy claims around 80,000 jobs, but it is likely to be even less than that: of the $20B spent so far on green initiatives in the Stimulus, 80% of some programs went overseas (eg. to Chinese makers of wind turbines or solar cells). While it is hard to know what "some programs" encompass, it nonetheless means some or perhaps many of the green jobs were created outside the US. Paying $20B for 20-50,000 US jobs is $500k to $1m per job, a pretty steep price to pay, especially if most turn out to be temporary. 

California put out the results of a survey claiming 500k green jobs in the State, but most appear to be existing activities (recycling, insulation, etc.) and not an estimate of new venture-created jobs.

Arnold Schwarzenegger likes to say "as goes California, so goes the nation." Stephen Moore looked into his claims for California green jobs, and concluded it was not a dream of a green future, but a green nightmare: 

A new 2010 study by the University of California-Berkeley comes to the sobering conclusion that "the green economy accounts for just 1 percent of California's jobs." That's right: of the roughly 15 million California workers, only about 159,000 have green jobs (and this was an expansive definition of green jobs, including trash sorters at the dumpsters). ...

Gov. Schwarzenegger's own economics team concluded this year that the state's green regulatory structure is a menace to the state's economy. The governor's office study concluded that California's already iron-fisted environmental and workplace regulations translate into about $176 billion in lost output and nearly 4 million lost jobs. ...

Joseph Vranich, a business relocation expert, has a database of firms that move in and out of California. "Thanks mostly to California's hostile regulatory climate," he says, "for every three new businesses that move into the state of California, about 100 move out." ...

One former manufacturer in Los Angeles complained that "the regulators come onto your facility, and they want to shut you down. They view businesses as enemy combatants." Earlier this year, the EPA chased out of town the last steel foundry in Los Angeles, a firm that had hired hundreds of Southern California workers with good wages for decades. ...

Perhaps even more embarrassing is that when California's investments do generate new jobs, they are increasingly located outside the state. In June, the hot Silicon Valley firm MiaSolé reported that its planned home for one of the largest solar factories in North America, a 500,000-square-foot 1,000-worker plant, will be built in Atlanta. ...

Similarly, CalStar Products has erected its newest green plant in Wisconsin. Since then, it has been awarded nearly $2.5 million in federal clean energy tax credits through the American Recovery and Reinvestment Act, and the company said, "We expect to build additional plants down the Mississippi Valley and East Coast over the next couple years" -- and conspicuously, not in California.

The Promise of Venture Capital

Stepping back, the bigger dilemma is what new industry sector or factor of production will drive us out of the Great Recession. In past depressions something pulled us out, like railroads, autos, or the jet age. Green jobs have a surface appeal of applying to construction, manufacturing, installation and other blue collar professions. But is the promise real?

Dian Chu took a look at the math of green jobs. The immediate problem is that the new, venture-capital type of green job is at the wrong side of the Industry Life Cycle curve - at the R&D side, not the growth & maturity side (see chart). 

The venture capital industry has experience with launching new industries, such as PCs, which grew fast and created many new jobs, but the green industries are not expected to show any similar sort of growth; instead they require large-scale, long-term infrastructure changes that eventually could become large, as the energy industry is very big.

Unfortunately, this means it will take too long to have enough green jobs to make the type of impact on an economy as large as the US to pull us out of the Great Recession. Worse, the US lacks a comparative advantage in many of these jobs, and ramping up projects to create demand for green products may benefit manufacturing in China as much as in the US - as we have already seen.

The Trap of Subsidies

Certainly a number of new green jobs have been funded by the venture capital industry, although I have not seen solid estimates of how many. Venture-backed job growth is promising, but to too great an extent these jobs depend upon continued government subsidies, and thus are at huge risk of evaporating. The green jobs of the '80s were gone by the '90s when the subsidies ran out. Already Europe and Japan are cutting back their subsidies to get their budget deficits under control. Are we that far behind?

Spain's green dream is turning into a nightmare for families who invested on the promise of those subsidies. Bloomberg ran a story on how the government is about to stiff green investors by pulling the subsidies they had promised:

Solar investors such as Vilimelis were lured by a 2007 law passed by the government of Prime Minister Jose Luis Rodriguez Zapatero that guaranteed producers a so-called solar tariff of as much as 44 cents per kilowatt-hour for their electricity for 25 years -- more than 10 times the 2007 average wholesale price of about 4 cents per kilowatt-hour paid to mainstream energy suppliers.

Thanks to the incentives, the family met the monthly cost of the loan and even earned a small profit. Once the debt was paid off in 2018, Vilimelis looked forward to making even more money during the 15 additional years of subsidies guaranteed under Spanish law.

Now Vilimelis and more than 50,000 other Spanish solar entrepreneurs face financial disaster as the policy makers contemplate cutting the price guarantees that attracted their investment in the first place.

“You feel cheated,” he says. “We put our money in on the basis of a law.”

The potential size of the losses is an astounding: Euro126 Billion. The goal of sustainable green jobs never materialized, as the solar panels and wind turbines were imported.  What is left is the wreckage of lost life savings, expensive energy, collapsed projects, and few green jobs. 

Too Cheap to Meter

There is something fundamentally different about green jobs than prior sectors like autos or railroads that pulled us into prosperity and growth. We used to have a goal of energy "too cheap to meter." Now we see innumerable steps to make energy more expensive, to encourage conservation and close the gap with high-cost renewable energy (wind, solar). It is hard to see how making energy expensive can drive growth in the economy and make the US more competitive with Asian rising powers. Worse, it is abject nonsense to believe a subsidized industry can pull us out - all we are doing is pulling money from profitable industries and sinking them in an unprofitable one.

The cleantech venture firms will say the subsidies are needed to get the new approaches to scale, where they can run down a cost curve and be viable without subsidy. Perhaps, but until the green industry gets to profitability on its own merits without subsidy, the jobs created will come at the expense of other jobs driven out by more expensive energy, and like Spain, we might find we lose more than we gain. 

Healthcare: Hide The Incline!

Riffing on the ClimateGate Hide the Decline video, here is the chart of the day from Verum Serum: how the Demo's are trying to hide the incline in healthcare reform.

You will see how phasing in the costs, but counting the taxes right away, gave the Senate bill a ten-year cost below $1T. When you instead count the first ten years of the fully-phased-in "reform", the cost almost doubles to $1.8T.

Clever, and misleading.

Get a Grip, People, on Obama!

This brewing hysteria over Obama has gone over the edge.  What is the great fear of Obama talking to school kids?  That he will sweet-talk them into being little ObamaBots to pursue a glorious socialist revolution in Amerika?  Peggy Noonan captures the Independent Angst of the moment in her column today, that the feeling is growing the Obama Is Not One Of Us.  It has already begun to infect the moderate Democrats, particularly the soon-to-emerge Hilary '12! crowd.  It may take down the leftwing wingnut and Green Czar, Van Jones, for his intemperate remarks.   But are all these Czars a fifth column to take over control of the government unconstitutionally, or just a way to give Chicago-style patronage jobs to those people who helped Obama get elected?  And is the threat in '12 a moderate challenger, or a more radical candidate angry over the loss of the public option?  

The best assessment of this I have read comes from James Srode in the American Spectator article One term Obama.  You would expect this publication to be virulent against Obama, as it outed President Clinton's Paula Jones escapade that eventually cascaded into a special prosecutor and impeachment.  Yet this piece provides a reasoned historical perspective about past Presidents who got into similar situations, and gives a much needed perspective to quell the brewing hysteria.

The thesis is that during grave crises, the better Presidents will seize excessive and unconstitutional powers, and as the crisis abates the powers will be pulled back.  Lincoln for example went way beyond anything even imagined about Obama's purported power grab; and yet as the Civil War was being won his powers were pulled back.  If he hadn't been assassinated, he might have become a failed President in his second term, as Wilson was - another example of a Presient who went beyond Constitutional powers from 1915-1918, to prepare for war, and then found his legs cut out from under him at home when he tried to create the League of Nations.  The crisis had abated and the body politic took back what he had seized.

As our financial crisis has seemed to recede, the power pullback is already well underway.  This is very early in his Presidency. The mistake he made was to try to seize power in areas unrelated to the crisis. Our crisis is financial, and his agenda is to fix healthcare, global warming and education.  The two bills in process, healthcare reform and cap&trade, are hugely complex monstrosities which look more like power grabbing than problem solving.  He should be benefiting from the green shoots; but instead he is sinking from them. 

Ironically a W-Shaped Recession and a second wave down might do more to help Obama's Presidency than success against the Great Recession.  If his luck is we muddle through, his karma may be that he overplayed the Crisis Card, and it came back to bite him.  

The Republic is in crisis.  It is always in crisis.  Get a grip.  

Getting Philosophical Over Healthcare

Distressing to watch Obama's Presidency rapidly unravel over healthcare, and to see the Democrats' resolve dissolve in confusion.  The fault lies not in their policies but in their philosophies.  Wonkish reworking of the public option into co-ops will no longer disguise the philosophical morass that Obama got into in how he went about selling the bill. 

He started out selling us on the philosophy of Something For Nothing: we could expand coverage without raising taxes!  This ran afoul of the CBO's Trillion Dollar estimate of the cost of covering 5% more of the population, a mere third of the 47 million uninsured.  (Why so few?  The rest are either illegals, are in transition between jobs or are young and healthy who opt out.) 

He then tried the approach of Nothing Will Change: we could keep our current doctor, and health insurance if we wanted!  This ran afoul of simple reading of the bill, where it was clear any stumble (eg change jobs, require new coverage) would force you into the public option - even if you wanted your old insurance, you were precluded from continuing with it!

Now he is trapped in a philosophical debate over Who Controls My Life: 

if we need (say) a hip replacement, do we and our doctor get to decide or does the government?  Do we as Americans, the land of the free and the home of the brave, now allow faceless bureaucrats to control our very bodies? 

Make no mistake, the deterioration of support for his health reform is directly running in the shoals of personal freedom. This is now the battleground: will the government be able to decide what care is given, or will it remain a private matter between doctor and patient? 

The facile answer is always, we ration care now! What is different whether an insurance company or the government does it?  But this is sophistry, since an insurance company is not 'rationing'.  If the plan covers it, they have to pay.  This issue is usually raised in an indirect way, about insurance companies dropping people whose circumstances change, or raising premiums, or not being affordable in the first place.  We all have anecdotes of insurance companies acting badly, and this is exacerbated by employer-based health insurance, where the big companies are in cahoots with the insurance providers to limit costs, and only a small handful of plans get offered without much choice.  All valid issues that can be resolved with reform within the philosophical paradigm of personal freedom.  The bipartisan Wyden Plan is one such reform, and may be gaining support.  In contrast, if we have problems with the Public Option, we can never change it. Ever. Again.

How did Obama get from Something For Nothing to Taking Away Personal Liberty?  He got out maneuvered by of all people Sarah Palin, whose Death Panel facebook page captured the essence of the philosophical problem: to control costs, the government system will have to ration care, and as she put it:

And who will suffer the most when they ration care? The sick, the elderly, and the disabled, of course. The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama’s “death panel” so his bureaucrats can decide, based on a subjective judgment of their “level of productivity in society,” whether they are worthy of health care. Such a system is downright evil.

The Obama side when ballistic.  I doubt the rebuttals to her comment ever read her original piece. She was not talking of the 'end of life' counseling provision that many pundits said she was; she was talking about a philosophy of government healthcare to have to ration to control costs.  This is why so many got the story wrong.  How sad for example to see the Old Grey Lady drop an editorial on the front page (as if it were news) claiming no one had ever proposed death panels.  Their statement that "[t]here is nothing in any of the legislative proposals that would call for the creation of death panels or any other governmental body that would cut off care for the critically ill as a cost-cutting measure" brought the philosophical challenge of who-decides-about-my-care front and center in the debate.  They began to backtrack on this storyline just a few days later.  They probably would never have run it in the first place if they had only read their own paper on the subject!  Just a few months earlier the New York Times had run a conversation with Obama which started with the story of his grandmother, who was terminally ill with cancer when she had an expensive hip replacement procedure so that she would not be bed-ridden for the last three to nine months of her life:

THE PRESIDENT: So that’s where I think you just get into some very difficult moral issues. But that’s also a huge driver of cost, right?

I mean, the chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here.

LEONHARDT: So how do you — how do we deal with it?

THE PRESIDENT: Well, I think that there is going to have to be a conversation that is guided by doctors, scientists, ethicists. And then there is going to have to be a very difficult democratic conversation that takes place. It is very difficult to imagine the country making those decisions just through the normal political channels. And that’s part of why you have to have some independent group that can give you guidance. It’s not determinative, but I think has to be able to give you some guidance. And that’s part of what I suspect you’ll see emerging out of the various health care conversations that are taking place on the Hill right now.

Ah, there's the rub!  What is that 'independent group' and what powers does it have? In their own coverage of the Obama interview Peter Baker of the Times wrote this on May 1:

Some conservatives have cited Mr. Obama’s story to make the case that his plan to expand access to health care and reduce costs ultimately will result in rationing, of the kind that might have denied his grandmother the surgery unless she paid the bill on her own.

To me, Obama is laying out the intellectual case for health care rationing while acknowledging the potential human costs of such a policy,” wrote Matthew Continetti on the Web site of the Weekly Standard magazine. “He’s saying that,in order to contain costs, under a universal health care program his grandmother might have been denied that hip replacement, or forced to pay for it herself. This is the natural consequence of a universal policy, which would bankrupt the country without some form of rationing care.”

Amazingly such a panel has already been established - in the Stimulus Bill!  It granted $1.1B for a Council to make the hard decisions about rationing care.  In the terrible interview where Obama said to a questioner that maybe her grannie would have been better off taking the painkiller, he went on to say: 

[W]e want to use science, we want doctors and — and medical experts to be making decisions that all too often right now are driven by skewed policies, by out-dated means of reimbursement, or by insurance companies.

Hmmm, "medical experts".  Left out of the answer was the patient and her family.  Normally he is fairly careful in his answers, but he has dug himself a deep hole and will have a difficult time getting out of it.  It is clear he philosophically is NOT on the side of personal freedom but of a panel of experts.  We have seen where this leads: to the Orwellian-named panel of death in the British National Health System called NICE, which sets appallingly uncompassionate guidelines to refuse care and treatment to the needy in order to ration care that the national system finds it cannot afford to cover.  

(Doubt this?  Read this horror story. Think I am picking on the Brits?  Check out this coming fiasco in Canada.  Think it cannot happen here?  It appears to be already be happening over at the VA system, which just updated a pamphlet for vets dealing with end-of-life decisions. )

Maybe the very framework that started this reform movement - to somehow contain the increasing costs of healthcare - is itself the wrong place to start.  Like the Jesuit's Premise, it inevitably leads to panels of medical experts rationing care to contain costs.  While health spending as a percent of GDP has risen, consumer spending on essentials (food, housing, transport and healthcare) has been essentially flat for 60 years,  Maybe as costs of transport and food have dropped, we have decided to spend more on our health.  This is not a bad thing at all, given a paradigm of personal freedom.  

As discussed in a prior post, it is NOT total healthcare that has been spiraling out of control, but government healthcare, specifically medicare, which has grown on a per-patient spending level much faster than private healthcare.  It is difficult to find ANY area in which we would trust a government subsidized entitlement to contain costs better than a private market-based system.  When you add the risk of loss of personal freedom over our very bodies, it makes the direction of ObamaCare antithetical to American values. Time for a restart and a look at market-based solutions. 

Let Them Eat Painkillers!

No wonder Obama's poll numbers are sinking.  The more he talks off the cuff about healthcare, the more he sounds callous and arrogant, like another famous failed figure from history - Marie "Let them eat cake!" Antoinette.

In this exchange, the questioner's mother needed a pacemaker or she would die, but she was 100 years old, and the arrhythmia specialist declined to do it because of her age.  He made that decision like a government bureaucrat would, by reading her file rather than seeing her. When the arrhythmia specialist actually saw her in person - at her doctor's insistence - he changed his mind about the level of risk and went ahead. As the questioner put it, he did so when he saw "her joy of life." Here is Obama's answer:

Question: "Outside the medical criteria for prolonging the life of someone who is elderly, is there any consideration that can be given for a certain spirit, a certain joy of living, or quality of life; or is it just a medical cut off at a certain age?"

President Obama: "Yeah, we're not gonna solve every difficult problem in terms of end of life care. A lot of that is going to have to be we as a culture and a society making better decisions within our own families and for ourselves. But what we can do is make sure that at least some of the waste that exists in the system that is not making anybody's mom better that is loading up on additional tests or additional drugs that the evidence shows is not going to improve care, that at least we can let doctors know and your mom know that, you know what, maybe this isn't gonna help. Maybe you're better off not taking the surgery, but taking the painkiller."

I think people are turning on him the more they hear how he really thinks.  It is one thing to express empathy with other people's money and cry about the uninsured, but it is something else to hear him say that your grannie should die rather than receive care.  Is this America, where you would no longer be free to take care of your ailing mother?  Or is it Amerika? 

No wonder his Presidency is beginning to unravel. 

This is not an isolated incident.  Consider this answer:

Right now, doctors a lot of times are forced to make decisions based on the fee payment schedule that’s out there. So if they’re looking and you come in and you’ve got a bad sore throat or your child has a bad sore throat or has repeated sore throats, the doctor may look at the reimbursement system and say to himself, “You know what? I make a lot more money if I take this kid’s tonsils out.”

Oh my. Now some faceless bureaucrat will refuse to let you take your child's tonsils out.  And guess what - pediatricians in general do not do the operation; they refer it to a surgeon and receive no kickback.  Obama's comment is not only insulting to pediatricians, nea appalling, it is profoundly ignorant:

PBHO's pediatrician scenario just goes to show that he's either very uninformed about the issues or trying to mislead the public on the issues.

The pediatrician stands to make more money NOT referring the kid to an ENT. He makes more money by continuing to see the kid in the office every other week because he isn't getting better. If he refers the kid to an ENT and the ENT yanks out the tonsils, the kid gets better and stops coming in to the ped's office for repeated visits.

Given his callous ignorance on the doctor-patient relationship, maybe it is no surprise that he is delusional on costs.  He keeps claiming that we can increase coverage, subsidize care, and lower overall spending on medical.  This is so far out of the realm of reality that you must wonder at his economic illiteracy - and shake your head over how far the mainstream media has fallen to keep shilling for him on this point. 

The answer is not to add even more third-party subsidy to healthcare, but to increase incentives in the doctor-patient relationship for cost consciousness.  It is nuts to fantasize that a government program will contain costs.  RomneyCare in Mass. is already grossly over-budget and considered a failure by the Boston Globe.  Absurdly, the paper goes on to shill for ObamaCare.  Are we in the Twilight Zone yet? 

The following chart says it all: medicare has risen much more per patient than private care.  The gap is now in the range of $200B a year - more than enough to give every uninsured who cannot afford health insurance (a number estimated at around 8 - 12 million Americans) subsidized health insurance with $170B left over to reduce the deficit.

Comparing the US to those Vaunted Euro Health Systems UPDATED

You see a lot of propaganda these days in the MSM touting the Euro nationalized health systems as providing better care than the US.  This is all a build up to support a grandiose new health system, which will come with a grandiose price tag.  But are those stories telling the real story?  We all know the 'trick' in those systems to keep costs down is to ration care.  We see that happening already in Mass with RomneyCare, way over budget and now holding care back to cut costs.  If care is kept away from the needy, how do these systems really perform? 

Well, it appears they do well for routine problems, and fall way short for serious problems.

UPDATE 8/22: a recent study shows some surprising results.  Here is a chart on cancer survival rates, where the US is much higher than Europe.  

Consider also this snippet courtesy of John Mauldin from Dennis Gartman's eponymous letter. It should give all of those who favor a nationalized healthcare system pause, before they jump right in. Quoting Dennis:

"Canada is a wonderful place to have a nasty gash on one's forehead stitched, or to break one's nose in a game of pick-up baseball; but have cancer, or need eye surgery, or want an MRI, and the business of medicine in Canada and/or the UK breaks down badly in favour of medical care here in the US. For example... and we wish to thank The Investor's Business Daily for the data noted here this morning...

"... here in the US men and women survived cancer at an average of just a bit better than 65%. In England only 46% survive. In the US, 93% of those diagnosed with diabetes receive treatment within six months; in Canada only 43% do, and in the UK only 15% do! For those seniors needing a hip replacement and getting one within six months, 15% get it done in the UK; 43% get it done in Canada ... and in the US 90% do! For those waiting to see a medical specialist, 23% of those in the US get in within four weeks, while 57% in Canada have not yet done so, and in the UK 60% are still waiting after four weeks.

"When it comes to proper medical equipment, in the US there are 71 MRI or CT scanners available per million people. In Canada there are but 18, and in the UK there are only 14! Ah, but the best figure of all is this: 11.7% of those 'seniors' in the US with 'low incomes' say they are in excellent health, which in and of itself sounds rather low ... rather disconcerting ... and an indictment of the system itself, doesn't it? But in Canada only 5.8% do!

More here at the IBD original article, which quotes from a National Center for Policy Analysis study: "10 Surprising Facts About American Health Care."

UPDATE 8/26: Perhaps the best capstone on this point is to compare systems for health issues not overall mortality.  In the US, we have higher rates of homicide and car accidents.  A little reporting at the Chicago Tribune concluded: "We are 12 times more likely than the Japanese to be murdered and nearly twice as likely to be killed in auto wrecks."  So where would the US rank of accidents and homicides were removed?  According to "The Business of Health" by economists Robert L. Ohsfeldt and John E. Schneider:

Where [would] the U.S. would rank in life span among developed nations if homicides and accidents are factored out. Their answer?  First place.

As the Tribune concluded:  "our health-care system is doing a poor job of preventing shootouts and drunk driving but a good job of healing the sick."

Why The Stimulus Won't Work: The Marginal Productivity of Debt

This chart should give you pause about stimulating the US economy with more debt.  What it says is that for every Dollar of new debt (private or public) we have had diminishing returns.  According to Antal Fekete, if you take this chart further back, we used to get $3 of GDP for every $1 of debt.  Sometime in the late '60s, the line crossed below $1, meaning every new Dollar of debt returned less than that in GDP.  Antal thinks we actual went negative in 2006, but regardless of whether his data is the same as this chart, we are approaching that point. 

This is truly a point of no return.  This means every new $1 borrowed reduces GDP.  We borrow ourselves into collapse.  If we are at that point, the $2T expected deficit in 2009 means we drop GDP by some percent of $2T - if for example we lose $1 of GDP for each $1 of new debt, the deficit itself would cause a $2T in GDP, or a 14% drop, on top of the already declining GDP - collectively a level of destruction not seen since the Great Depression.  I guess it is fortunate that the line would not immediately go to a negative $1 of GDP for each new $1 of debt; but as the curent Federal deficit is unprecedented in peacetime, we might find the fall below the trendline to be serious. As usual, Karl Denninger gives an entertaining and informative rant on this topic. 

It is also worth noting that PPI was down 3.5% year over year - the largest drop since 1950.  Deflation is here. Bernanke has tried to reflate with around $9T of easy credit, but it is like pushing a wet noodle.  All around him credit is being destroyed faster than the central bank can reflate.  We are living the Austrian School argument, that after a credit bubble bursts, you cannot reflate it.  Deflation is inevitable. And so it has arrived. 

The AIG Show Trial

What is going on today with Ed Liddy, CEO of AIG, is a show trial of the sort that used to grace the Soviet Union.  Ed Liddy was not put in place by AIG, but the government.  The current Treasury Secy, Tim Geithner, while he was head of the NY Fed, put in place the AIG bailout and allowed the bonus deals.  Chris Dodd, Demo Senator, put an amendment in the 'Porkulus' bill to protect executive bonses - including these AIG bonuses.  Now that the political heat is falling on Obama and not Bush (you don't hear Bush's name anymore, do you?  All Obama, all the time), the Demo leadership from Obama to Dodd are 'shocked, shocked' to find bonuses are being paid.  They hope the show trial will deflect public anger; if it doesn't, expect Tim Geithner to take the fall. No one will shed a tear for an incompetent tax cheat.

This show trial is all political noise, but beware of what Obama said today at a press conference, which shows how clueless he is of the real world.  He never really held a job, after all.  He first said he wanted to end the 'culture of bonuses' - meaning he has no understanding of how to motivate sales people, in or out of Wall Street.  (BTW, if he removes these bonuses, expect the remaining sales people at the AIG trading desk to vacate, leaving virtually no one to manage $2.4T of credit default swaps - what a huge potential fiasco that will cause, all to save $165M of bonuses). Next he said he wanted to end the boom & bust cycle of the economy - a pattern built into human nature.  Even God wouldn't try that!  Finally he said he would have Barney Frank come up with the answer - Barney Frank! the fox in the henhouse who thwarted 12 attempts by Republicans to end the excesses of Fannie/Freddie that was the proximate cause of the housing bubble.

No wonder Obama's political support has dropped hard - his incompetence is showing. The spread of strongly approve vs strongly disapprove has dropped from 30% to 7%, and got as low as 4%, according to Rasmussen.  He gets poor grades from economists, according to a WSJ poll. And at one time, 60% of MSNBC viewers in an unscientific poll rated him an F  - this from his must supportive TV network! 

This show trial is distractig the public from a much worse AIG issue - $120B of the $170B of bailout went right out to the counter-parties of these swaps.  Goldman Sachs got $13B, etc.  And none of them has any responsibility to pay it back.  Who is responsible for that?  It should make us very cautious to let the governent get its hooks into any other companies. It has destroyed AIG through inattention and now massive political meddling. Maybe the real trial should put the real culprits up, nt the fall guy. 

The Barack O'Bama Irish Song

We are all mongrels now!  Worth a listen and a moment to celebrate the meaninglessness of race.  Barack may be more Irish than African.  Let the world embrace him for who he is, not what he is.  Lyrics here.

Greatest Bank Robbery in History?

Lots of analyses how the bailouts to be approaching $7T in commitments (not draw downs), which, as a percent of GDP, is approaching the level reached during the Great Depression from all of the various bailouts/stimulus/jobs programs.  Much of this seems to be going to the banking sector, the same sector that got us into this mess peddling snake oil like subprime mortgages, SIVs, CDOs, ARS, CDSs and so much more - and pulled huge amounts of profit out of the economy.  Bill Bonner at The Daily Reckoning puts this in perspective:

Before 1987, only about one of every 10 dollars of corporate profits made its way to the financial industry – in payment for arranging financing, banking and other services.  By the end of the bubble years, the cost of ‘finance’ had grown to more than 3 out of every 10 dollars.  Total profits in the United States reached about $6 trillion last year; about $2 trillion was Wall Street’s share.  What happened to this money?  Other industries use profits to build factors and create jobs.  But the financial industry paid it out in salaries and bonuses – as much as $10 trillion during the whole Bubble Period.  And now that the sector finds itself a few trillion short, it waits for the government to open its purse

It is as if the last few years were an illusion foisted on Main Street by Wall Street and the Fed, and while Main Street ran hard to stay in the same place, Wall Street took out a grossly disproportionate share of profits. Consider this analysis: 

Real median household income in the U.S. was $50,577 in 2000 when George Bush took office—it is $50,233 today. The government has added over $4 trillion to the national debt during that time. ... The only way people have been able to maintain their lifestyle has been to borrow against their house and run up their credit cards. That is a phony improvement in lifestyle.