REJECTED!

Wow. What an interesting turn of events, eh? The House rejects the (first) big bailout deal. The House leadership tells the public we've got a deal, but apparently the House leadership can't count votes. Maybe this says something about why the approval rating of Congress is even lower than the approval rating of the President, i.e., the Congressional leadership seems just not too competent.

Congress: Crash Course In Econ?

I FIND AN INTERESTING ADMISSION in today's Politico:

"Rep. Jane Harman (D-Calif.), said that her Democratic colleagues have come to see the decision they face in the stark terms Delahunt described.

'This has been a crash course in Econ 201, and everybody's in school,' she said. In the five-and-a-half hours leading up to the meeting, she said, she’d been in five hours of meetings in which the details of the rescue plan were discussed."

Wow. I wonder. If you know that you know very little about economics, then I wonder why you think you should try to regulate the economy?

Financial Crisis: Congressional Coverup?

JEFF JACOBY:

"'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it.'"

That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it in recent days, the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' "

In fact, that isn't what Reagan said. His actual words were: "In this present crisis, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing.

Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

This is where I think we should be finding the explanation for this crisis. When people risk their own money, without the assurance that government will cover their bad bets, people take fewer risks. You should read the whole piece by Jacoby and see if his story makes more sense to you that the stories being told by most of the members of Congress.

The Question We Have To Ask

Of course the reports are that Congress has a "bailout" deal. I'm not sure I'm going to like the deal. I'm also not sure I will even be able to get information about what the specifics of the legislation will look like.

In the meantime, I would like to take a look at something Senator Obama said in the debate last Friday. The exerpt here begins with a question from Mr. Lehrer:

But, I mean, are you -- do you favor this plan, Senator Obama, and you, Senator McCain? Do you -- are you in favor of this plan?

OBAMA: We haven't seen the language yet. And I do think that there's constructive work being done out there. So, for the viewers who are watching, I am optimistic about the capacity of us to come together with a plan.

The question, I think, that we have to ask ourselves is, how did we get into this situation in the first place?

Two years ago, I warned that, because of the subprime lending mess, because of the lax regulation, that we were potentially going to have a problem and tried to stop some of the abuses in mortgages that were taking place at the time.

Last year, I wrote to the secretary of the Treasury to make sure that he understood the magnitude of this problem and to call on him to bring all the stakeholders together to try to deal with it.

So -- so the question, I think, that we've got to ask ourselves is, yes, we've got to solve this problem short term. And we are going to have to intervene; there's no doubt about that.

But we're also going to have to look at, how is it that we shredded so many regulations? We did not set up a 21st-century regulatory framework to deal with these problems. And that in part has to do with an economic philosophy that says that regulation is always bad.

I agree with Senator Obama that before we get to carried away writing legislation we really should ask ourselves how we got into the present situation. However, it seems to me the Senator doesn't really offer a direct answer to his own question. But, maybe it seems that way to me because what he may have offered as his answer seems either lame or incorrect to me.

Perhaps his answer to this important question is this: Well, Jim, the explanation for how we got into this situation is that a couple of years ago I sent out a warning, and then last year I sent out a letter of warning, and my warnings were ignored. That is how we got into this situation.

He may have sent out warnings, but if his answer is really I said trouble was coming but no one listened, then I wonder what he thought his job was in the Senate. As we can see from the past few days, this situation isn't one that seems to have fallen within the power of the President or within existing statutes. If there was a problem, then why didn't the good Senator get to work to craft legislation that would deal with the crisis he was warning about? So, I think if this was his answer, it is kind of lame. Especially since I think it is also the case, from what I've been led to believe from news and commentary, that both Presidents Clinton and Bush made more than one effort each to get Congress to deal with the operations of the Fannie's. It seems each and every one of the efforts by these Presidents was rebuffed by Congress. Nothing changed. Well, maybe something changed, maybe Congress made changes that increased the incentives for the Fannie's to make loans that would ordinarily have been thought to be too risky. Some of the things I read and hear make it plausible to me that Congress did indeed increase the incentives for the bad loans.

In any case, maybe he offers a different answer. He speaks of shredding regulations. I'm not really sure what that is supposed to mean. Probably just political rhetoric that he hopes will merely be taken any way that favors him in the polls. It seems to me it is probably spin trying to confuse or hide the real answer to his good question. The real answer is that Congress made the bad incentives that led to the current situation.

Perhaps you have heard a simple summary of the incentives I refer to here: "privatize the returns, socialize the risks." I think this is a pretty neat and simple way to explain how we got to the present crisis. Congress created these incentives by insuring loans which really means Congress subsidized giving mortgage loans to customers that used to be thought to be too risky. So, I think this simple slogan is a good way to understand the basic economics of how this crisis started.

But, of course, Senator Obama doesn't want us to hear this simple explanation, because consider how the exerpt above ends. It ends by asserting this crisis is due to unregulated capitalism. Such an assertion seems wrong and quite the opposite of the real explanation. But, consider, if you are a member of Congress, you certainly don't want the voters to come to believe the problem was caused by either the action or inaction of Congress. And, if you tend to support policies that regulate markets rather than free markets, then you certainly don't want the voters thinking that it is actually the regulatory structure of our capital markets that explains our present circumstances.

Finally, notice that the policy that has been discussed the most to respond to this crisis involves government buying real estate and then later selling it for a "profit" for the taxpayers. I suppose this may sound good to many voters, but let me use that simple phrase above to explain why I think the essential idea of this "bailout" is a bad idea. The "bailout" take a situation of "privatize returns, socialize risks," into a situation of "socialize returns, socialize risks." Of course, that sounds like socialism doesn't it? Obviously, I think socializing risks led to the crisis, and now socializing returns can't fix the fundamental reason for this crisis. We should be looking for an answer that gets us to "privatize returns, privatize risks." That's capitalism, of course. I'm pretty sure Senator Obama doesn't want to move in that direction.

Maybe the question we have to ask ourselves, or ought to ask ourselves, is why are we apparently going to respond to the current crisis by moving closer to socialism?

Bailout Gallows Humor:

TODD ZYWICKI points to a nice letter to the editor:

"While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER Ann Arbor, Mich."

Oh, it seems to be getting hard to avoid that sinking feeling, eh?

Chilling Bailout

ARNOLD KLING on bailout:

"I found this story too depressing to finish. It says that we have a bipartisan agreement on a bailout, and I read only as far as the proud quotes from Chris Dodd and Barney Frank.

The unemployment rate is 6.1 percent, about average for the last 30 years. What adversity there is in the real economy is due more to oil prices than to credit market developments. Acting historic emergency legislation now is like doing a heart transplant on a patient with a head cold or calling out the National Guard to stop a food fight in the school cafeteria.

The Case Against the Bailout seems compelling, or at least worth discussing. The case for it is a vague threat issued by the nation's leaders that awful things are in store if this is not done. Awful things are in store, all right. Because of what is about to be done.

For me, this is like watching an announcement that in order to restore order Washington is being taken over by a military coup. I find it that chilling."

Interventionism & The Lessons of History

Ludwig von Mises from his book INTERVENTIONISM:

This analysis is intended merely to explain that the economic policy of interventionism,which is advertised by its advocates as a progressive socio-economic policy, is based on a fallacy. This book demonstrates that it is not true that interventionism can lead to a lasting system of economic organization. The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, distress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short-comings of earlier interventions, they will find eventually that they have adopted socialism.

[ . . . . ]

If there is anything history could teach us it would be that no nation has ever created a higher civilization without private ownership of the means of production and that democracy has only been found where private ownership of the means of production has existed.

Should our civilization perish, it will not be because it is doomed, but because people refused to learn from theory or from history. It is not fate that determines the future of human society, but man himself. The decay of Western civilization is not an act of God, something which cannot be averted. If it comes, it will be the result of a policy which still can be abandoned and replaced by a better policy. (pp. 92-93)

Our system of political economy today is very much interventionist. Of course it is also "capitalist" in that there is a large realm of private ownership of the means of production. One of the important things to learn from this book is that the policies of the interventionist don't accomplish the goals of the interventionist. But not to worry for the interventionist because for the interventionist this just means it will always seem like there is more work to do later on. In other words, the interventionist politician has a pretty good scam working in that the earlier interventions of legislation and regulation just turn into situations later that are seen as needing more legislation and more regulation. Aaron Wildavsky noticed this too, and in SPEAKING TRUTH TO POWER he explained his conclusion that government had never fixed any of the problems it sought to fix. Instead, it was his assessment that government merely created more and/or different problems for the future to face.

Ludwig von Mises ends his analysis of interventionism with the words I quote above. So, he seems to hold some optimism that we can, and might, still learn our lessons from history. Unfortunately, it seems to me that politics today suggests that not enough people have learned these lessons. There seem to be very few voices speaking about interventionism and the present financial situation. Certainly few of our politicians are speaking publicly about the present "crisis" by noting it is likely the result of earlier government interventions.

Take a look also at the policies advocated by the presidential candidates and by our two major political parties. The policy debates tend not to be about reducing the interventionism in our system of political economy, but rather they seem to be about which new intervention will be the better intervention. The "change" being debated is not a change away from interventionism and back toward capitalism. Pity. It seems too many refuse to learn from history.

FAN & FRED

A WSJ EDITORIAL take note of politics with respect to Fannie Mae and Fredie Mac:

"The MBS portfolios have long been both the chief source of the systemic risk posed by the two mortgage giants and of the profits that so handsomely enriched shareholders and officers alike for decades. Without the extreme leverage inherent in those portfolios -- which the companies borrowed heavily, at taxpayer-subsidized rates, to accumulate -- their federal takeover might never have become necessary.

For years, Mr. Frank and other friends of Fan and Fred opposed not only bills written to limit the size of their portfolios, but any bill that in their view gave an independent regulator too much discretion to order a reduction. This was true of the reform that his House committee passed last year. Only when the White House caved to Mr. Frank and dropped its earlier insistence that a reform bill rein in the portfolios did Mr. Frank move his bill."

I'm not trying to draw attention to the politician under the WSJ's spotlight here. I suppose if the staunch support didn't come from this politician it would have come from another politician. The point I want to draw attention to is that the failures of FAN and FRED have much to do with the failures of government. Check out the entire editorial and note the idea that "taxpayer-subsidized rates" are important parts of the story of these failures.

Congressional Secrecy & Corruption

Email from Senator DeMint:

The Senate will likely vote tomorrow on Sen. DeMint's amendment to the Defense Authorization bill. The amendment strikes Section 1002 that incorporates all of the secret earmarks written in committee reports, giving them the force of law even though they are not in the bill, not debated, not voted on, and not signed into law.

This "incorporation language" must be stopped.

- It effectively reverses the President's Executive Order that Porkbusters pushed him to issue, which aims to stop secret, non-legislative earmarks dead in their tracks.

- It forces agencies to make funding decisions based on the instructions they get from committee staff who author these reports rather than on merit.

- It prevents Congress from debating and voting on earmarks, which is the only true form of transparency and accountability.

- It sets a dangerous precedent that will be repeated if it is not challenged and stopped.

Please also note that the GOP earmark reform task force created by Sen. McConnell recommended that all earmarks be written into our bills. That's what the Constitution requires. The vote tomorrow on DeMint's amendment will test Republican support for this principle.

If the amendment is adopted, the earmarks in the reports will become what Sen. Durbin famously described as just a "note to your sister" and will not be legally binding. Instead, government agencies will be able to spend these taxpayer funds on true national priorities, not special interest politics.

Glenn Reynolds:

If people want appropriations for their pet projects, it seems to me they should have to ask for them publicly, have them reviewed through the usual channels, and have them voted for. Is that asking too much? Apparently. But efforts at putting secret earmarks through are likely to play badly right now, with the federal government already facing financial strain from bailing out corrupt, politically-connected entities like Fannie Mae.

I also notice that the press seemed a bit quicker to pick up on these earmark stories back when the GOP controlled Congress . . . .

I certainly hope earmarking will play badly these days. I think it should be regarded as unconstitutional for Congress to "act" without actually writing legislation for review by all members of Congress, much less by the public. And, if earmarking can't be seen as unconstitutional, then surely secrecy in spending decisions should suggest that our Congress is corrupt.

Earmarks: Senators vs. Governors

There is an article today in the Wall Street Journal about earmarks, and it seems to me the authors either (a) seek to use their article to influence public opinion negatively toward Governor Palin, or (b) they reveal their ignorance of the very matters they choose to report on. Here is how the article begins:

Last week, Republican presidential candidate Sen. John McCain said his running mate, Alaska Gov. Sarah Palin, hadn't sought earmarks or special-interest spending from Congress, presenting her as a fiscal conservative. But state records show Gov. Palin has asked U.S. taxpayers to fund $453 million in specific Alaska projects over the past two years.

These projects include more than $130 million in federal funds that would benefit Alaska's fishing industry and an additional $9 million to help Alaska oil companies. She also has sought $4.5 million to upgrade an airport on a Bering Sea island that has a year-round population of less than 100.

The article begins by noting that the governor of Alaska asked the national government for funding for projects in Alaska. So, who is surprised by this? I suspect many people in Alaska, as well as people in each of the rest of the 50 states, expect this to be part of the normal job responsibilities of their governor. Perhaps the Alaska state legislature was involved in these projects as well.

The article moves on to bring up the controversy over earmarks, and seems to take it for granted that Governor Palin was asking for earmarks:

During an appearance Friday on ABC's "The View," Sen. McCain said Gov. Palin shared his views, and hasn't sought congressional earmarks. "Not as governor she hasn't," he said.

In fact, in the current fiscal year, she is seeking $197 million for 31 projects, the records show. In the prior year, her first year in office, she sought $256 million for dozens more projects ranging from research on rockfish and harbor-seal genetics to rural sanitation and obesity prevention. By comparison, her predecessor, Gov. Frank Murkowski, sought more than $350 million in his last year in office.

Now, I may be a fool, but it seems to me that phrases like "she is seeking" and "she sought" are inaccurate, and quite possibly intentionally chosen to distort. It seems to me that Governor Palin was not acting for herself, but instead, that she was carrying out her duties as governor of "the great state of Alaska." In other words, it was the state of Alaska that was seeking funds from the national government for "projects ranging from research on rockfish and harbor-seal genetics etc."

The article ends by noting the McCain campaign, including Governor Palin, has been critical of Senator Obama's record with respect to earmarks:

On the campaign trail, Gov. Palin has repeatedly attacked Sen. Obama on earmarks. "Our opponent has requested nearly one billion dollars in earmarks in three years. That's about a million for every working day," she said at a rally in Albuquerque, N.M.

Sen. Barack Obama requested a total of $860 million in earmarks in his Senate years, according to Taxpayers for Common Sense. That doesn't include $78 million for projects that were national in scope and had been requested by many lawmakers. Sen. Obama halted all earmark requests in fiscal 2009.

It is difficult to compare Sen. Obama's earmark record with Gov. Palin's -- their states differ in size, for instance, and the two candidates play different roles in the process. . . .

Indeed, Senator Obama and Governor Palin do have different roles to play with respect to earmarks, while Senators Obama and McCain play quite the same roles with respect to earmarks.

The practice of earmarking is a Congressional practice. Both Senator Obama and Senator McCain are members of Congress, and therefore both Senator Obama and Senator McCain can participate in the corrupt practice of Congressional earmarking. In stark contrast, Governor Palin is not a member of Congress, and therefore Governor Palin cannot choose to engage in the corrupt practice of Congressional earmarking.

Why do I say Congressional earmarking is corruption? In case you haven't been paying close attention to the scandal that is Congressional earmarking consider the following explanation from an article at Harpers online:

Only later, after the approved bill had been shuffled off to the President for signature, could lawmakers and laymen alike peruse its contents in earnest. Scattered throughout the bill were hundreds of hastily inserted pages of “earmarks,” or allocations for local projects that are tucked into federal budgets. As approved at the November 17 appropriations meeting, the Foreign Operations bill had contained a mere nine earmarks. The omnibus measure, which was completed after two feverish days of work, allocated money for 11,772 separate earmarks. There was $100,000 for goat-meat research in Texas, $549,000 for “Future Foods” development in Illinois, $569,000 for “Cool Season Legume Research” in Idaho and Washington, $63,000 for a program to combat noxious weeds in the desert Southwest, $175,000 for obesity research in Texas. In the end, the bill’s earmarks were worth a combined total of nearly $16 billion—a figure almost as large as the annual budget of the Department of Agriculture and roughly twice that of the Environmental Protection Agency. It was the biggest single piece of pork-barrel legislation in American history.

Of who added these grants, no public record exists. Except in rare cases, members of Congress will refuse to discuss their involvement in establishing earmarks, and the appropriations committees have a blanket rule against commenting. Often it is difficult to discern even who is receiving the funds: earmarks are itemized in bills but generally without disclosure of the direct recipient—just a dollar amount, destination, and broad purpose. Indeed, in the matter of the $16 billion burglary, and the similar acts of mass theft plotted for this year, the only certainty seems to be this: that lawmakers and lobbyists collude to conceal, to the utmost extent possible, their actions from the American taxpayer, who serves as the ultimate benefactor to their chronic bouts of generosity.

What do members of Congress want to hide when it comes to the practice of earmarking? Their corruption of course. Please allow me to quote myself so that I might try to drive the point home:

It's kind of hard for me to imagine that our Constitution is consistent with the practice of earmarks. It is certainly true that the Constitution grants Congress the power to tax and spend on programs consistent with the enumerated powers of Congress. But this is a power of Congress and not a power granted to each individual member of Congress. Earmarks allow Congressman X or Senator Y to say that project Z back home, which is the brain child of Mr. K (a friend? neighbor? contributor?), will get money from taxpayers all across the country.

Individual members of Congress have been allowed the opportunity to individually use the government's power to tax in order to pay friends, family, favored political supporters, and maybe even themselves on at least some occasions. That's corruption, and if it wasn't corruption then as a member of Congress you would want your constituents to know the many ways in which you've been bringing back home the Congressional bacon.

As a matter of Senators versus Governors, Governors simply cannot choose to make a Congressional earmark, nor can they choose to hide their earmarks from public review. Actually I can imagine that the so-called "earmark" requests of Governor Palin arrived in Washington on official Governor of Alaska letterhead. In contrast, the part in the earmarking process played by individual members of Congress not only does not appear on their official letterhead, but the earmarks themselves do not appear in written form in legislation and often there is meant to be no official and public way to tie an earmark to the member of Congress who makes it.

So, how do Senators Obama and McCain stack up with respect to earmark corruption? Since I've been following this scandal I know that Senator McCain has fought in the Senate to end the practice. While I've not followed Senator Obama closely on this issue, my impression is that he did not fight against the practice in the past.

With respect to the authors of the Wall Street Journal article, they seem to me to have made little effort to help the reader understand the corruption of earmarks and the role in earmarks played by Senators versus Governors. Does this reflect ignorance or bias?

[Hat Tip: Instapundit]

Wits To Prosper

Deirdre McCloskey in THE BOURGEOIS VIRTUES:

"The real danger comes from assaults on the human capital that made land scarcity irrelevant in the first place. We can pollute Lake Erie. In fact, we did. During the 1960s every environmentalist declared with angry assurance that Erie was biologically dead forever, kaput, finite, over. And yet in the 1990s we can bring it back for fishing and swimming, and did, if we have our wits about us. . . . . The modern world is different from a zero-sum world, which Malthus theorized just as it was disappearing forever. . . .If we have our wits about us. Responding to the real danger threatening our future, I argue, requires attention to human freedom. It is human freedom which has given us the wits to prosper." (34-35)

I have not yet read her entire book, but I think the first chapter is a marvelous defense of capitalism and freedom.

Taxing The Wealthy

We hear pretty often in politics these days about "tax cuts for the wealthy" and about taxing the wealthy because they can afford to pay. The underlying assumption of those who speak of such things seems to be that reducing taxes on the wealthy would surely not be in the interest of those who aren't wealthy. Perhaps there is something to be learned from Ludwig von Mises on such issues:

"Popular opinion is inclined to believe that the taxing away of huge incomes does not concern the less wealthy classes. This is a fallacy. The recipients of higher incomes usually consume a smaller proportion of their incomes and save and invest a larger part than the less wealthy. And it is only through saving that capital is created. Only that part of income that is not consumed can be accumulated as capital. By making the higher incomes pay a larger share of the public expenditures than lower inncomes, one impedes the operation of capital and eliminates the tendency, which prevails in a society with increasing capital, to increase the marginal productivity of labor and therefore to raise wages." [Ludwig von Mises, Interventionism, p. 51]

Friedman Says -- Innovation Policy Please

THOMAS FRIEDMAN:

"What I found missing in both conventions was a sense of priorities. Both Barack Obama and John McCain offered a list of good things they plan to do as president, but, since you can’t do everything, where’s the focus going to be?

That focus needs to be on strengthening our capacity for innovation — our most important competitive advantage. If we can’t remain the most innovative country in the world, we are not going to have $1 billion to toss at either the country Georgia or the state of Georgia.

While we still have enormous innovative energy bubbling up from the American people, it is not being supported and nurtured as needed in today’s supercompetitive world. Right now, we feel like a country in a very slow decline — in infrastructure, basic research and education — just slow enough to lull us into thinking that we have all the time and money to play around in Tbilisi, Georgia, more than Atlanta, Georgia."

Both candidates are now talking about "change" as a center point in their campaigns. It seems to me they don't want to be too explicit about the changes they would like to see happen. Still Senator McCain seems to be saying that he specifically wants to change the way Congress is corrupt with respect to earmarks. I would like to see the corrupt practice of earmarking ended.

Senator Obama's "change" most often seems to me just about changing the political party that claims the occupant of the White House. And, when Senator Obama talks about possible changes in policy, then I start to get a bit concerned because of the issue discussed in my last post. You see, I agree with Friedman that it would be good if the policies of the next President were good for innovation and entrepreneurship in the United States. Unfortunately, in my view, the very liberal policies Senator Obama has voted for in the past tend to be the sorts of policies that reduce innovation and entrepreneurship over time.

Instead of turning to Washington and government policies for change, perhaps we would do well to realize that change happens all the time in our lives and in our system of political economy. Sometimes the change is not so good, but most often the economic changes in a system of political economy like ours have been, over time, good for our standard of living. Over time, the changes that have allowed us all to enjoy greater prosperity are the changes that follow from innovation and entrepreneurship. And, of course, the innovation and entrepreneurship flow from the private sector and capitalism, not from the interventionist public policies of Congress and the Presidency. Senator McCain may understand this. Senator Obama's past suggests he likely does not understand this.

Obama Searching For The Median

VICTOR DAVIS HANSON:

"It is interesting how Obama has been evolving toward McCain’s positions rather than vice versa. Take Iran. At first, to Obama it posed little threat; now it is a danger large indeed—as McCain insisted all along. Obama used to ridicule the surge and claim it had failed; now he assures us that it has worked beyond our wildest dreams. Obama was opposed to oil drilling, and was silent about coal and nuclear power. Now suddenly he has dropped mention of inflating our tires, and is referring to oil, gas, coal, and nuclear production as legitimate means to wean ourselves off foreign oil. In political terms, all this is wise, since voters ultimately want to be reassured about centrist positions rather than worry over consistency. As Anbar quiets and we leave, expect him to suggest his pressure and criticism were responsible for the Iraqi government’s turn-about.

On matters like abortion, capital punishment, gun control and FISA, Obama again moves closer to McCain rather than vice versa. Apparently, he realizes that no northern Democratic liberal has been elected since JFK, nearly a half-century ago—an amazing fact in and of itself—and so has to follow the Bill Clinton centrist route, which can be accomplished by a variety of measures."

It is interesting, and it does seem to be happening. The simple voting model in economics that says the preferences of the median voter will determine the outcome of an election seems to apply in this case.

It has been observed that Senator Obama has the most liberal voting record in the Senate, and then he picked the 3rd most liberal senator in Senator Biden to join him on the ticket. Unless the median voter preferences in the country are very liberal, it would seem that Senator Obama has quite a ways to go to get to the median. Mr. Hanson's observations suggest that even Senator Obama recognizes that his past policy preferences aren't likely to capture the median voter's preferences.

Now I have to wonder if Senator Obama is going to be successful in his search to appeal to the median voter. Will voters decide that his past policy preferences are his true policy preferences? Or will voters decide that what he says now actually reflects his true policy preferences?

The Real Economic Scorecard

ROBERT SAMUELSON takes a look at the economy:

"Just last week, the Census Bureau released its annual study of household incomes, poverty and health insurance -- often called the nation's 'economic report card.' Its hard numbers seemed to confirm how many Americans feel. Sure, we're prosperous, but prosperity is fraying. Except for the rich, living standards are stagnant. Poverty is up; health insurance coverage is down. Naturally, both Barack Obama and John McCain seized upon the report to claim that their policies would restore progress.

Hold it.

Though echoed by policy wonks, pundits and politicians -- last week, Bill Clinton -- the conventional wisdom is wrong or, at least, misleading. Here's a more accurate assessment. For most Americans, living standards are increasing, albeit slowly, over any meaningful period. But rising health spending is eroding take-home pay, and immigrants are boosting both poverty and the lack of health insurance. Unless we control health spending and immigration, the economic report card will continue to disappoint. Unfortunately, neither Obama nor McCain seriously addresses these problems."

Samuelson makes sense to me. He specifically suggests three reasons why the "conventional wisdom" of the politicians paints an inaccurate picture. One of these reasons I think we should pay particular attention to:

Low-skilled immigrants, concentrated among Hispanics, outnumber the high-skilled. They drag down median incomes and raise poverty and the number of uninsured. One way to filter out the effect on income is to examine groups with few immigrants or their American-born children. Consider non-Hispanic white families. From 1997 to 2007, their median incomes rose about $6,000, to $69,937, a gain of about 9 percent. For black families, the increase was also about 9 percent, though only to $40,222. Again, not stagnation.

Immigration's effects on poverty and health insurance coverage are greater. Since 1990, Hispanics numerically account for all the increase in the number of officially poor. Similarly, immigrants represented 55 percent of the increase of the uninsured from 1994 to 2006, says the Employee Benefit Research Institute. Many unskilled workers can't get well-paid jobs with insurance.

Perhaps another way of putting his point is that the country is effectively importing poverty. It strikes me as a bit odd for public policy to be to import poverty while at the same time our politicians get on the stump and say they will create new government programs to end poverty. It seems that much of the recent "measured" increase in poverty could be "cured" by changing immigration policy.

But perhaps there is another, more ironic, point to consider. The conventional "wisdom" is that the economy is struggling through a bad time. Perhaps. But, the idea that the country is importing poverty suggests there is a bigger picture and a larger truth. Those who come to this country, whether legally or illegally, do so because they expect to be able to become better off here than they can be if they stay where they come from. Not only is the country importing poverty, but in doing so the country's economy provides the means by which many people are escaping even worse poverty. The economy of this country is not only able to import poverty but it is able to improve the lives of those our census bureau "measures" to be in poverty. Isn't it ironic that even in times of a struggling economy in this country, the country as a whole is still an "engine" and the means by which so many do better for themselves.

While it seems ironic, perhaps there is a serious danger lurking in our politics these days. If we misunderstand the economic picture, especially the larger truth of our economy, then it becomes more likely that the public policies that will follow this election cycle will impede and diminish the ability of our economy to continue to be the engine by which so many prosper.