Published – Idaho State Journal, 03/17/13

As the stock market has been advancing into all-time high territory this week, many Americans are wondering how the economy can be so great while they’re struggling so hard to make ends meet. Let’s correct that perception immediately: the stock market is not the economy, and should not be conflated with it. The stock market is only one of many indicators that measure the financial health of the country. Wall Street, our metonym for the financial markets, rarely resembles Main Street, U.S.A., and this market run provides a perfect illustration of that fact.

The Dow Jones Industrial Average (DJIA), a composite of stock prices of 30 of the top companies in the country, has been in record territory for the past week. The Standard & Poor 500, an index comprised of a broader selection of 500 of the largest companies representing all sectors of the economy, closed Friday within five points of its closing record high. This is encouraging to investors, until we consider that factoring in inflation, the Dow is still about 1,500 points shy of its previous record in 2007. So while the markets are high, the significance is not.

There are primarily three reasons the markets have ascended to these lofty levels. The first is that after the market correction of 2008, earnings projections were dramatically lowered in the wake of the reduced economic growth prospects. The bar of expectations was lowered so far that they had no place to go but up, and for the next eight quarters of earnings reports, over 90% of publicly traded companies exceeded their reduced earnings forecasts. Positive earnings represent profits, which is the fuel for appreciating equity (stock) values.

The second reason is based on the cozy crony-capitalistic relationship between Washington and Wall Street. With tax-advantaged treatment, bailouts, grants, and interest-free loans, Washington has, for self-aggrandizing purposes, infused massive amounts of capital into select industries, sectors, and companies, that has significantly augmented their financial condition.

The third, but arguably most significant reason, is Fed monetary policy. Historically, the Federal Reserve, through their Federal Open Market Committee (FOMC) has had two conventional tools at their disposal to stimulate the economy, the Fed Funds Rate and the Discount Rate. The target Fed Funds Rate is the rate at which banks and other depository institutions actively trade balances held at the Federal Reserve, on an uncollateralized basis. And the Discount Rate, or window, is the rate the Federal Reserve charges member banks when borrowing money from the Feds for themselves, and not for lending to other banks.

The lower these rates are, the cheaper money is to the banking establishment, which at least theoretically, increases their lending capacity, and lowers the prime rate to borrowers. The Prime Rate, which is usually about 300 basis points (3%) above the discount rate, is the best rate for banks’ best customers, and is what most other retail interest rates are tied to.

The Fed Funds Target Rate has been at 0-.25% for the past four years, as the FOMC has attempted to “jump-start” the economy after lapsing into a deep recession in the fourth quarter of 2008. The affect has been negligible. The leading indicators of economic activity continue to show weakness.

Since near zero Fed Funds and Discount Rates have been ineffectual, and governmental policy has been counterproductive in stimulating the economy, including the much-hyped $800 billion “stimulus” spending, the Fed has had to resort to an unconventional means of economic growth. Ben Bernanke borrowed a book from the Japanese central bank to launch a process of Quantitative Easing; this is a means of infusing money into the economy by the central bank buying financial assets from commercial banks and other private institutions. Like the rates that the Fed controls, this process is designed to increase liquidity with lending institutions for new loans, using market forces to move long-term rates lower on the yield curve.

Ben Bernanke’s Fed is now in their third iteration of Quantitative Easing, referred to as QE3. The central bank is buying $45 billion in Treasury securities (bonds and notes) as well as $40 billion in mortgage-backed securities (MBS) every month, with newly minted cash from the Treasury. By so doing, over $2 trillion in new cash has been injected into M1, which accounts for all of the money in circulation, including coins, currency and demand deposits, like checking and savings accounts.

Even this unconventional economic stimulus is inefficacious to Main Street, the broader economy, but Wall Street loves it, as it has been the primary mover of equity prices for the past four years. As the DJIA has been steadily recovering since 2009, actual economic growth has virtually stalled. Recently revised fourth quarter gross domestic product (GDP) figures show the economy barely grew at an annualized rate of .01% last year. This is not a healthy or expanding economy, especially when compared with China’s 7.5% GDP growth rate.

“It really feels like this is what $8 trillion gets you, between deficit spending and money printing,” said RC Peck, chief investment strategist and CEO of Fearless Wealth. “It’s been about $8 trillion over the last four years and I really don’t think we’d be at these prices [if it weren’t for that].”

Bond manager Jeffrey Gundlach, CEO of DoubleLine Capital concurs. Gundlach says, “The slow-growth U.S. economy is living on cheap money as is the bull market, which is in its last stages.” He explains that the central bank is committed to “easy money,” referring to the accommodative low rate policy and quantitative easing. He calls these policies “circular financing schemes.” He believes that the equity bull market is in its seventh inning and when the game ends it will be “unpleasant.”

Those with 401(k)s are beneficiaries of the market run, as are other private investors with stock holdings. But aside from that, ascending stock prices have little impact on most Americans.

The economy has not improved in any tangible way for the millions of Americans struggling with unemployment and underemployment. A healthy jobs market is crucial to strengthening the middle class, which currently exhibits a troubling lack of long-term stability. More people have dropped out of the work force than at any other time, and median household income continues to decline.

Lawrence Katz, an economics professor at Harvard said recently, “You’re really struck by the unevenness of the recovery. The top end took a whack in the recession, but they’ve gotten back on their feet. Everyone else is still down for the count.”

The latest income figures from the Census Bureau confirm this. “Median household income after inflation fell to $50,054, a level that was 8 percent lower than in 2007, the year before the recession took hold.”

Just this week, the Federal Reserve announced a historic shift in its primary focus. Previously, the central bank held to the conviction that controlling inflation was their primary function, in order to stabilize and grow the economy. They now believe that improving the labor market and reducing unemployment is the key to economic recovery, growth, and stability, and their tone in doing so has been with increasing urgency. Those of us who work in the financial industry wonder why it took so long for them to realize it.

The real unemployment rate, according to the Bureau of Labor Statistics U-6, report, is 14.3%. And until that rate improves, which will have to come in the form of fiscal and regulatory reform by Washington, not just by Fed easy money policies, the middle class will continue to struggle, which translates to reduced consumer spending and fewer durable goods orders, and more small businesses strapped for cash as they compete for reduced spending dollars. As it is currently, Wall Street is ascending, while Main Street declines. When this bifurcation ends, it will be cause for celebration when the markets reach new highs.

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, Idaho, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board.  He can be reached at rlarsenen@cableone.net.

I was astounded recently to hear someone say they believe the talk of a “fiscal cliff” is artificial and not a legitimate threat. There is an artificial component to it in that government created it, but the threat is legitimate, and not only will it impact everyone of us in one way or another, even if an agreement is reached in Washington, but the cumulative economic impact could be significant.

There are several components to the so-called “fiscal cliff,” some of which are less widely known than others. Most people are aware that the present six income brackets taxed at rates of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent will expire, and revert to the pre-Bush era five income brackets taxed at rates of 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent. Without some reconciliation in Congress, everyone, even those at poverty level, will see their taxes increase.

The marriage tax penalty will return. The tax code, before the 2001 EGTRA (Economic Growth and Tax Relief Reconciliation Act), required a husband and wife to pay more in taxes when they filed jointly than they would as single taxpayers. This will expire the end of the year as well. According to calculations from the tax publisher CCH, the marriage tax penalty translates to a nearly 17% increase in taxes for those married couples who file jointly, regardless of bracket.

There are also more than 70 so-called tax extenders scheduled to expire on December 31. These are tax breaks for businesses and individuals that are technically temporary but usually end up being extended. They include the itemized deduction for state and local sales taxes, tuition and fees, and educators' out-of-pocket classroom expenses.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, or JGTRRA, temporarily reduced the capital gains tax rate. Most capital gains have been taxed at 15 percent for the past nine years, and investors in the 10 percent and 15 percent tax brackets have not had to pay any taxes on profits from appreciated asset sales. Qualified dividends have also been taxed similarly. We now will revert to the pre-JGTRRA capital gains rate of 20 percent. The zero capital gains rate for low-income filers will return to 10 percent, and stock dividends will be taxed as ordinary income, meaning the top rate could be as high as 39.6 percent.

The Child Tax Credit will expire, which means each head of household will only be allowed a $500 deduction for each qualifying child as opposed to the current $1,000 deduction.

Currently, all taxpayers, regardless of income, are allowed to claim full annual exemption amounts for themselves and dependents. This exemption will be reduced or eliminated for higher income households.

For those who itemize deductions with their tax returns, the old limits will return. The aggregate of itemized deductions for higher income taxpayers will be reduced by three percent if the deductions exceed an annual threshold of a taxpayer's adjusted gross income.

Currently, childcare expenses of up to $3,000 for one child and $6,000 for two or more dependents are allowed. This will change back to $2,400 for one child, and a maximum of $4,800 for two or more children.

Also, the Estate Tax will revert to previous levels. Currently, an estate of greater than $5.1 million will be taxed at 35%, but after the first of the year, any estate over $1 million will be taxed at 55%.

For the past three years, the maximum number of weeks of unemployment insurance available in states with very high unemployment rates (8.5 percent or higher) was 99 weeks. That included 26 weeks of regular unemployment insurance, 53 of Emergency Unemployment Compensation, and 20 of Extended Benefits. At the end of the year, the emergency and extended benefits expire, reverting to a maximum of 26 weeks, or six months of unemployment benefits.

The so-called AMT Patch also expires. The Alternative Minimum Tax was implemented in 1969 to ensure that wealthy taxpayers were not using tax loopholes or taking excessive tax breaks to reduce their tax liability disproportionately. It was never indexed to inflation, so the fairly high income levels of the AMT 43 years ago are low by today’s standards. With the patch expiring this month, the AMT exemption drops from $48,450 to $33,750 for single filers, and from $74,450 to $45,000 for married couples. Many more middle-income taxpayers will fall under AMT tax parameters.

The convergence of all of these expiring tax policies, combined with the sequestration, or forced reduction in spending of $1.2 trillion over nine years, and the rapid approach to the federal debt limit of $16.5 trillion, and we have a veritable fiscal cliff, or, as some refer to it, a fiscal abyss.

The Congressional Budget Office has warned the economy would contract by nearly 1% if the tax issues are not resolved by the end of the year. However, the impact would likely be much more than that. Christina Romer, the former chairman of the Council of Economic Advisors, has calculated that tax increases of one percent of GDP lowers real GDP by roughly three percent. The combined tax increases listed above amount to nearly 2% of GDP, which will plunge the U.S. into another recession.

A deal will undoubtedly be reached before the end of the year to extend, adjust, or modify some or all of these components to the fiscal abyss.  However the fact remains that all of this financial havoc is threatened because the president insists on raising the top income tax rate from 35% to 39.5%, which will raise approximately $65 billion per year; enough to fund the government for about six days. It is both illogical and imprudent to threaten the nation with such fiscal havoc over six days of government funding. But with the media firmly behind him, he is inexplicably portrayed as the principled and prudent player in the negotiations. If all current tax rates are allowed to expire, the impact for 2013 alone will be $388 billion in new revenue, but would, according to Romer and most economists, thwart our fragile recovery and induce a new, deep recession.

The president’s own Simpson-Bowles deficit reduction commission responsibly recommended $3 in cuts for every $1 in revenue increase. Only a serious attempt at reducing spending will narrow the yearly deficit gap, which has averaged $1.44 trillion for each of the past four years.

The House majority favors a plan, much like Mitt Romney suggested, of limiting deductions at a proposed $50,000. The Tax Policy Center estimates that approach would raise nearly $800 billion over a decade, nearly $300 billion more than allowing the top two tax bracket rates to revert to pre-Bush levels, and have a much less pejorative effect on the economy.

If serious spending cuts are not made, even with higher taxes levied against the top income brackets, and long-term fixes are not made to Social Security or Medicare, the nation will continue the race toward the fiscal abyss, and the consequences will be much more devastating, and irreversible.

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board.  He can be reached at rlarsenen@cableone.net.

Published – Idaho State Journal, 09/02/12

Our U.S. Federal debt is reaching a tipping point. Just four years ago, economists feared that our public debt would reach 60% of the GDP by 2022. Failure to curtail spending, pass a budget, and piling on massive new spending has hurled us past that 60% benchmark twelve years earlier than feared. We passed the mark in 2010.

That 60% benchmark is critical, for it is recognized across the European Zone and developed nations as the “prudential limit” for public debt. And here we are, just two years later and our public debt is even greater. The public debt clock shows we’ll hit the spending limit of $16 trillion within the next couple of weeks, which means with a $15 trillion economy, we’re rapidly approaching the 107% mark of public debt to our GDP. For every $100 we spend, $41 of it is borrowed. All reasonable citizens must recognize the fact that we cannot continue this way.

Even that is an incomplete picture, as the total debt associated with unfunded liabilities associated with Social Security, Medicare, and Obamacare places our debt level between $55 and $80 trillion.

According to Joseph J. Minarik, Director of Research at Committee for Economic Development, “Today’s financial risk arises largely from U.S. fiscal misbehavior.” We did not have a budget passed by congress while Nancy Pelosi was Speaker, and the last two years the Senate has refused to pass one.

The President has presented his own “budget” to congress, but did not receive a single vote, even from his own party, because it was so out of touch with fiscal realities. Yet with his massive spending, from a $1.3 to $1.7 trillion deficit every year that he’s been president, our debt has skyrocketed.

Just four years ago Obama declared George Bush to be “irresponsible and unpatriotic” for $4 trillion in new debt in eight years. It must be more responsible and patriotic to run up $5 trillion in half the time!

The Simpson-Bowles Commission came up with recommendations to balance the budget in 12 years and reduce our debt load. The president ignored his own commission and has continued to spend as if there is no tomorrow. And there is no hint of an indication that the president has any plans for curtailing his spendthrift ways for the next four years.

The United States now has the seventh highest public debt burden among advanced nations, according to Minarik and the latest data. The countries ahead of us should sound familiar for their debt is destroying their economies: Greece, Iceland, Italy and Japan are worse off. We’ve even far surpassed Portugal. Minarik says without fiscal discipline, our politicians have placed us on course to “stumble into a financial meltdown.”

Minarick reveals, “In due time, U.S. public finances will be caught in a vicious cycle. Rising interest rates raise the federal government’s debt-service cost, which increases the risk premia on Treasury interest rates, which raises debt-service costs still further. Higher interest rates extend to private borrowing costs, which slows economic activity, which increases the federal government’s budget deficit. In another Catch-22 contradiction, the drop in economic activity is not cushioned by a fall in interest rates to match the fall in the demand for credit. Rather, the fall in activity triggers a massive growth of fear of default risk, and so interest rates rise rather than fall, accelerating the vicious cycle. Perhaps this crossing over in the effects on interest rates would constitute a true ‘tipping point.’”

Former Comptroller General of the United States, David M. Walker, appointed by President Clinton, agrees. He’s been sounding the clarion call of economic disaster for the nation if spending is not reined in, and politicians refuse to deal with fiscal realities of unabated spending. He describes America as a “sinking ship” in a sea of our own debt. He points out that, “The US ranks near the bottom of developed global economies in terms of financial stability and will stay there unless it addresses its burgeoning debt problems,” based on the Sovereign Fiscal Responsibility Index.

“We think it is important for the American people to understand where the United States is as compared to other countries with regard to fiscal responsibility and sustainability,” Walker said in a CNBC interview recently. He predicts that the country is rapidly heading towards a debt crisis that could come within the next two to three years if we continue on our present course.

Some may call this fear mongering, but it is the fiscal reality that we face as a nation today. We simply cannot go “Forward” on this same trajectory without collapsing the entire national economy under the weight of our debt, which is now $140,000 per taxpayer (mostly middle class). Is this the “fundamental transformation of America” that Obama has in mind? It’s our reality unless we change captains to navigate the fiscal obstacles ahead of us.

It’s time to put nation ahead of partisanship for everyone, Democrats, Republicans, and Independents. There are even those who claim to be “patriots,” who cling cult-like to a former presidential candidate. Any who claim to love this country, our founding documents, and our founding principles, who will, by voting for a third-party candidate, write in a candidate, or not voting at all, facilitate the election of the one with his foot on the spending gas pedal, are not worthy of the “patriot” appellation. They will be accomplices to the destruction of the very nation they feign fealty to if they put their “principles” ahead of national survival by failing to do all they can to prevent this otherwise inevitable destruction.

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board.  He can be reached at rlarsenen@cableone.net. 

Published – Idaho State Journal, 02/19/12

Since the 2008 financial market collapse, nearly every major newspaper and media outlet has featured stories on the demise or failure of capitalism. What they have mostly focused on is the failure of the largest financial institutions in managing risk, and the impact on the rest of us. But what they have mostly failed to do is mark the distinction between capitalism and crony capitalism. If they delved further into the failures of 2008, they would have been proclaiming the failure of crony capitalism.

We’ve seen over the past few years an even greater immersion into crony capitalism that further obscures the risks assumed by the major players in the private sector, poses even greater threats to the economy and our livelihoods, and further inserts government into control and manipulation of the very bedrock of our financial system, energy production, and corporate environment.

Although some amongst us are critical of capitalism, all of us participate in it, benefit from it, and fundamentally believe in it. At its most rudimentary level, capitalism is what we engage in every day. Investopedia defines capitalism as “An economic system based on a free market, open competition, profit motive and private ownership of the means of production.”

Everything we buy, every transaction we conduct, every financial plan we embark on, is based on our ownership of what we buy, build, produce, or service, and our freedom in making choices about price, service, and loyalty. If we want to make a purchase, we shop around for the best prices. Those companies that price comparable products or services too high will likely be passed over in favor of those who are more competitively priced. Those companies that fail to adapt to market forces, fail, and go out of business. The market has worked. Capitalism has worked. Capitalism does work.

Crony capitalism, however, is completely different. It is a perversion and a corruption of pure capitalism. Also referred to as corporatism, or statism, crony capitalism features corporate welfare as one of its most significant characteristics. Mussolini understood all too well this cozy relationship between government and business, for he once said, ‎"Fascism should rightly be called corporatism, as it's the merger of corporate & government power."

Investopedia defines it as, “being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.”

In other words, under crony capitalism, politicians in government determine winners and losers in the corporate world, not market forces. They determine which companies survive and flourish, and which fail.

This is the nature of the relationship in crony capitalism. Government officials express a desire to expand under the auspices of creating new laws, business incentives, and regulation. Corporations, through their lobbyists or CEOs who have been in government, influence the drafting of legislation to their benefit, gaining favorable tax treatment of their operations, regulation that favors their business model, and other business incentives. For this favorable treatment, corporations reward politicians by giving money to their campaigns and family members. Politicians benefit from the campaign donations, and push legislation and regulation that benefits their largest donors.

Financial reporter Christopher Powers aptly said of it, "It has become more and more apparent to seemingly everyone of late, that the American economic system is not based on capitalism, but a twisted hierarchical system of special interests and government favors commonly known as ‘crony capitalism.’??The distinction is very important, because crony capitalism in America – especially during the last century – created a toxic environment that has only recently spilled over into the mainstream understanding of the economy, but has long been under the surface, guiding the tides of public policy."

Bill Frezza, a fellow at the Competitive Enterprise Institute has written, "Would a farmer who put out a trough of slop be surprised if it attracted a bunch of pigs? Yet activists who promote enlarging the size and scope of government always seem to be shocked when one program after another is hijacked by corporations that find it easier to seek favors in Washington than customers in the marketplace. And, despite knowing that such corruption is inevitable, mainstream media consistently dismiss those who advocate curtailing government powers as corporate stooges."

Economics professor Donald Boudreaux, described the problem this way, ‎"When government gives up its role as referee in favor of a reciprocal relationship with those it regulates that also benefits those who run government, you have cronyism. Crony capitalism has as much to do with real capitalism as praying mantises have to do with real prayer.”

In a truly capitalist system, bad banks and financial institutions, and automakers weighed down by massive “legacy” costs would have been allowed to fail in 2008 and 2009. Their profitable and viable operations would’ve been bought by more efficient competitors. Shareholders, bondholders and some depositors would have lost some money, but taxpayers would not have been put on the hook for a dime.

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David Stockman, former White House Budget Director, in a revelatory interview with Bill Moyers, said just last month, “Crony capitalism is about the aggressive and proactive use of political resources, lobbying, campaign contributions, influence-peddling of one type or another to gain something from the governmental process that wouldn't otherwise be achievable in the market. And as the time has progressed over the last two or three decades, I think it's gotten much worse. Money dominates politics. And as a result, we have neither capitalism or democracy. We have some kind of crony capitalism, which is the worst.”

Economist Walter Williams recently wrote, "Free market capitalism is unforgiving. Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt. It's this market discipline that some businesses seek to avoid. That's why they descend upon Washington calling for crony capitalism – government bailouts, subsidies and special privileges."

But as we’ve seen, in a crony capitalist system, such failures are given preferential treatment, if they have the right political connections. Economist Richard Salsman ‎said recently, "Capitalism has been blamed for the Great Recession of 2007-2009 and for the financial crisis and bailouts of 2008, but it’s not ‘capitalism’ but the mixed economy and corporatism-cronyism that did it."

The mortgage market meltdown illustrated how convoluted and corrupt crony capitalism is in the mortgage industry. Economist George Stigler, a Nobel laureate for his research into the causes and effects of public regulation conducted an exhaustive study characterizing the corrupt relationship between financial institutions, the Government Service Enterprises (GSEs, including Ginnie Mae, Freddie Mac, and Fannie Mae) and politicians. The abstract of his research states,

“How special interests, measured by campaign contributions from the mortgage industry, and constituent interests, measured by the share of subprime borrowers in a congressional district, influenced U.S. government policy toward the housing sector during the subprime mortgage credit expansion from 2002 to 2007.”

It continues, “Beginning in 2002, mortgage industry campaign contributions increasingly targeted U.S. representatives from districts with a large fraction of subprime borrowers. During the expansion years, mortgage industry campaign contributions and the share of subprime borrowers in a congressional district increasingly predicted congressional voting behavior on housing related legislation. The evidence suggests that both subprime mortgage lenders and subprime mortgage borrowers influenced government policy toward housing finance during the subprime mortgage credit expansion.”

Russell Roberts, a Distinguished Scholar and professor of Economics at George Mason University, scholarly breaks down this unhealthy relationship further, stating that “public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed money. The increasing use of debt mixed with housing policy, monetary policy, and tax policy crippled the housing market and the financial sector. Wall Street is not blameless in this debacle. It lobbied for the policy decisions that created the mess.”

This entanglement between Wall Street institutions, the GSEs, and politicians gets even more convoluted when you research on your own the role played in the mortgage collapse of people like Franklin Raines, Jim Johnson, Tim Howard, Timothy Geithner, Hank Paulson, Chris Dodd, and Barney Frank.

It’s crony capitalism that allows companies like General Electric, which had profits of $14 billion in 2010, to pay no corporate income taxes on a tax return that was 57,000 pages long. Tax deductions, tax credits, loopholes, “stimulus” funding, all speak volumes of the benefits of CEO Jeffrey Immelt’s cozy relationship with Washington, and how the largest corporations can “play the system” for increased profits.

The “green energy” movement is the fastest growing crony capitalism sector, receiving preferential tax treatment for deductions, government loans, and “stimulus” funding in the form of grants. Their capital outlays for lobbying have increased twelve fold over 2008 levels and the number of lobbyists for “green energy” companies and associations have increased 10 fold, according to OpenSecrets.org.

An entire library would likely be needed to document all the cases of abuse and crony capitalism in “green energy,” but the collusion between green energy companies and the government is absolutely shocking. The now bankrupt Solyndra debacle involving a government stimulus loan for half-a-billion dollars is just the tip of the iceberg. American Thinker goes so far as saying “green jobs are a euphemism for crony capitalism.”

According to Peter Schweizer, a research fellow at Stanford University, “an examination of grants and guaranteed loans offered by just one stimulus program run by the Department of Energy, for alternative-energy projects, is stunning. The so-called 1705 Loan Guarantee Program and the 1603 Grant Program channeled billions of dollars to all sorts of energy companies. The grants were earmarked for alternative-fuel and green-power projects…”

He continued, “a large proportion of the winners were companies with Obama-campaign connections. Indeed, at least 10 members of Obama’s finance committee and more than a dozen of his campaign bundlers were big winners in getting your money. At the same time, several politicians who supported Obama managed to strike gold by launching alternative-energy companies and obtaining grants. How much did they get? According to the Department of Energy’s own numbers ... a lot. In the 1705 government-backed-loan program, for example, $16.4 billion of the $20.5 billion in loans granted as of Sept. 15 went to companies either run by or primarily owned by Obama financial backers—individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party.”

It doesn’t seem to make much difference which political party is in control in Washington, for crony capitalism has thrived, as David Stockman said, for the past thirty years openly, and “under the public radar” for the past century. The problem has been significantly exacerbated over the past few years, as political favoritism toward specific industries and companies has accelerated the tax breaks, tax free loans, and outright government grants to corporate favorites as anointed by Washington.

The costs are massive, and impossible to get a complete grasp on. The Fiscal Times has quantified the cost of just the top 10 tax breaks to corporations at nearly $500 billion. The New York Times reports that subsidies in one corporate sector has tripled in the past few years, leading to a “gold rush mentality” in that sector. When all the tax breaks, incentives, subsidies, grants, and loans are totaled, the figure could well exceed $1 trillion. And government costs that currently administer all those programs could be in the hundreds of billions.

The solutions are not easy, but must be addressed. We need honest people who can’t be “bought off” in Washington, and term limits for congressmen and senators would help keep them that way. The influence peddling and free money exchange between major industries and Washington has to end, which could include a lower cap on campaign contributions by corporations and individuals. A flat tax on corporations would help to eliminate the cronyism in our tax code.

If “fairness” is truly one of our core American values, as the president said in his State of the Union Address, expunging the crony capitalism that has infested Washington is a great place to start.

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board. He can be reached at rlarsenen@cableone.net.

Complete Bibliography available upon request.

Our economy continues to struggle, with unemployment staggeringly high, inflation eating away at the purchasing power of our dollar, and the Misery Index (unemployment plus inflation) at a 28 year high. It’s critical that we understand how important job creation is to our economic stability, as well some of the greatest obstacles preventing the kind of job growth that our economy is capable of.

The total U.S. population is about 312 million people, with a labor force of about 154 million. Of those, 139 million have jobs, leaving 15 million unemployed, with current unemployment rate at 9.1% per the Department of Labor September Jobs Report. The Wall Street Journal estimates that the total unemployment figure is closer to 17% when counting those who have simply given up looking for work, which takes the unemployed count closer to 28 million. High unemployment is not only catastrophic for those unable to find work that want to, but for an economy like ours where 70% of the total GDP (Gross Domestic Product) is based on consumption, from gas, food and housing, to services and products.

According to the Labor Department, over 80% of the jobs in the U.S. are in the private sector, with state, local, and federal government employees making up the remaining 20%. And that’s even with public sector employment increasing 7% since 2000, and the private sector losing 1% during the same period. Economists estimate that 150,000 new jobs need to be created every month just to keep pace with our population growth and the number of new entrants into the job market.

Most critical to the employment landscape are small businesses that employee 500 or fewer employees. According to the Small Business Administration, small businesses represent 99% of all employer firms, employ half of all private sector employees, pay 45% of total U.S. private payroll, generate 80% of new jobs annually, create more than 50% of nonfarm private GDP, comprise 97% of all identified exporters, and produce 26% of the known export value to our GDP.

Since employee costs, which include wages, employer-paid taxes on those wages, and employee benefits including health care, are typically the largest expense item of a small business, businesses are reluctant to add new employees until or unless warranted by market conditions.

Government regulation adds significantly to the costs associated with running a business. Earlier this year the Small Business Administration reported that regulation costs American business $1.75 trillion per year, and costs small businesses as much as $10,585 per employee.

Some regulation is needful to protect consumers, the environment, and workers. But much of it adds needlessly to business costs. According to the Federal Register there are more than 4,200 new regulations in the pipeline. Most of these are being implemented by the federal bureaucracy, and not tied to legislation coming out of congress, and that doesn’t include the 2,000 pages of new regulations imposed by Obamacare. Some of the more inane regulations are coming from the EPA (Environmental Protection Agency) like regulating farm dust as a pollutant, imposing illogically demanding requirements on energy producers, and regulating the manufacturing sector like never before with extreme emission demands. Obama did warn that his policies would make “energy prices skyrocket.” That’s one promise he’s keeping, but regrettably, they are destroying jobs and livelihoods as well.

The Hill reports that new regulations imposed by an out-of-control EPA will “cause economic activity in much of the country would grind to a halt. Construction would slow. Energy prices would rise. Businesses would be unable to expand. Large parts of the country would be off-limits to new industry.” These extreme regulations put our energy producers and small businesses, including farms, at risk of going out of business, or raising costs so much that consumer and producer inflation will go out of sight.

The Manufacturers Alliance/MAPI has estimated the cost could be as high as 7.3 million jobs by 2020 and add $1 trillion in new regulatory costs per year between 2020 and 2030 for just one of those new regulations.

Senator John Barasso of Wyoming said recently, "Our economy is continuing to sink and it's being weighed down by regulations coming out of this administration."

The President’s proposed jobs bill is simply an attempt to throw more money at the unemployment problem. If he was serious about job creation, he would call off the dogs at the EPA and the rest of the alphabet soup of government agencies and start reducing regulation rather than illogically increasing it. Reduction in regulation would cost less and have far more positive affect in job creation than throwing more of our tax money at the problem.

Jobs by small businesses are the backbone to our economic system, and as such, are the key to our economic stability and growth. Government encroachment through increased regulation stymies economic and job growth. If the president was truly interested in creating new jobs, he should first stop his bureaucracy from killing them.

Published – Idaho State Journal, 09/25/11

I am continually astounded at the selfishness and egotism of some individuals, and some special-interest groups. An attitude that’s pervasive with anti-growth, anti-development, anti-progress groups that, by their actions, proudly and arrogantly proclaim, “I’ve got mine, so now I’ll prevent everyone else from getting theirs.”

Perhaps the most blatant, self-serving, and extreme versions of this selfishness is manifested by radical environmental groups. I’ve never been a big George Carlin fan, but his characterization of the radical environmental movement was spot-on. In his distinctive sardonic fashion, he would say, “We're so self-important. Everybody is going to save something now. Save the trees, save the bees, save the whales, save those snails. And the greatest arrogance of all, save the planet. What?

“I’m tired of these self-righteous environmentalists, these white bourgeois liberals who think the only thing wrong with this country is there aren't enough bicycle paths, people trying to make the world safe for their Volvos. There is nothing wrong with the planet. The planet is fine. The people are (bleep).”

As inhabitants of the “blue planet,” we should all be “environmentalists.” We have a vested interest in protecting our habitation, preserving our quality of life, and ensuring the same for future generations. The problem arises at the extreme ends of the environmental protection spectrum.

Case in point is the ongoing “megaloads” issue in North Idaho. If you’ll recall, Canadian-based Imperial Oil, the world’s largest producer of synthetic oil harvested from oil sands, is investing $8 billion in expanded operations in Alberta. Included in that investment is $100 million in transportation costs to transport 35,000 tons of South Korean-made mining equipment across northern Idaho’s U.S. Highway 12, which has been handling over-sized loads safely for 20 years, from the Port of Lewiston.

Environmental extremists groups like Advocates for the West, Natural Resource Defense Council, and Friends of the Clearwater have done everything imaginable to prevent the shipment of the oversized loads over Idaho and Montana highways to Sweetgrass, MT where they cross the border into Canada. They have petitioned the respective Transportation Departments in the two states, they have filed injunctions and lawsuits in court, and even had some prepubescent malcontents from their ranks attempt to block the shipments by “sit ins” on the highways.

Let’s put this in perspective. Like it or not, oil is the literal fuel to our economy. The U.S. economy, and the world economy are struggling in spite of all the Keynesian “stimulus” spending that has buried the nation in debt. This week alone the Dow Industrial Average gave up 700 points in two days because of indications of another global recession. We’re still hovering at nearly 10% unemployment (closer to 17% according to the Wall Street Journal), and government is adding more and more deterrents to economic growth and job growth than ever before through regulation. There were 604 new regulations added in July alone. These shipments represent significant economic activity, job generation, and more energy production, all of which are sorely lacking today.

Frankly I would understand such resistance to these shipments if they were permanently damaging the state and our resources. But these are trucks, hauling equipment. They pose a minor inconvenience for midnight travelers.

Opponents argue that they could fall into the river. Anything’s possible, but everything we do has risks. When the rewards for the risks ventured are greater, we do them. Are we to the point in society where we are only willing to try something that’s 100% safe?

Interestingly, these groups are also fighting large shipments by Weyerhaeuser, a “green” energy company, that wants to ship oversized loads of equipment to a mill in Alberta that will generate fewer CO2 emissions from their facility there. If they were consistent in their assertion that they’re “saving the earth” shouldn’t they be facilitating, rather than blocking those shipments?

But such logical contradictions are commonplace with such illogical extremists. A recent blogger on the Journal weblogs admitted honestly, “Yes, I’m a walking contradiction. My concerns for Highway 12 are for the aesthetics…” That was after admitting the wind turbines west of American Falls are, “pleasing to the eye” even though such wind turbines permanently alter the landscape and are killing thousands of birds, many of which are on the Endangered Species List.

The risk to reward ratio is superb for this venture. The risk is negligible while the reward is significant in the form of increased supply of oil for everyone and economic velocity which the country is in short supply of these days. There is nothing to be gained, yet much to lose by blocking these shipments. The earth is not “saved” by successfully blocking them, leaving the only benefit as an inflated sense of self-importance and a “feel good” sensation for those extremists. The price of which we pay collectively.

By Richard Larsen

Published – Idaho State Journal, 08/14/11

Usually good humor works because it’s based on a modicum of truth. Sometimes attempts at humor are funny because they’re so far removed from the truth. Such was the case with the Journal’s editorial cartoon in the Friday paper. It depicted Barack Obama attempting to resuscitate a persona labeled “Economy” extricated from waters where it was apparently on the verge of drowning, while the GOP sat comfortably on a lounge sipping a beverage of undisclosed composition. The cartoon was obviously drawn either by an Obama ideologue (one of those believers in the elusive “hope and change” mantra) or someone just ignorant to fact and oblivious to history.

Put in accurate contemporary perspective, the cartoon may have needed several frames. The first, starting with Obama’s election, would have had him dunking the economy in the water (sea of debt) with his first round of spending increases (modified bailout). The second frame would have had him nearly drowning the economy with a failed trillion dollar (with interest payments) “stimulus,” that was more political payback than it was economic stimulus.

The next few frames would have been repeated attempts at drowning the economy in the sea of debt with FinReg, ObamaCare, significantly expanded EPA job-destroying regulations, “Cash for Clunkers,” and another 608 regulations imposed in July alone by the administration. All the while, the Pelosi and Reid congress was helping him dunk the economy, attempting to hold it under the sea of debt, and cheering Obama on from the bank.

For accuracy, the cartoon should’ve shown congressional conservatives attempting to save the economy by preventing Obama from dunking it again, and striving to find the drain plug to the sea of debt, and looking for buckets to lower the debt level.

Every policy, initiative, and regulation that I can think of instigated by this administration has been a threat to the economy they claim to be helping. The only exception, one that gave the economy another gasp of air between Obama’s dunks, was agreeing to retain the Bush tax cuts. And yet, instead of accepting responsibility for his actions, he ascribes blame for the nearly drowned economy to the “Tea Partiers” in congress who were trying to save it! Somehow we’re to believe that more debt and more taxes are going to save the economy and create jobs? It’s never worked before, why should we expect a different outcome just because “The One” is doing it?

I was impressed this past week with Art Cashlin of UBS when CNBC interviewed him on the floor of the New York Stock Exchange. He cited Albert Einstein’s definition of insanity of doing the same thing over and over again while expecting a different outcome in reference to the possibility of the Federal Reserve printing more money to monetize the debt through a “QE3,” or a third phase of Quantitative Easing. The same principle should be applied to Obama’s economic solutions: more spending is not the solution, either to stimulating an economy and job growth, or to reducing the deficit and the national debt. More of the same exacerbates the problem, not solving it.

These issues have been brought more to light this past week since Standard and Poor’s downgraded the nation’s sea of debt. As S&P stated, “Elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating," and further indicated that the recent effort at addressing the national spending addiction through the debt ceiling debate did nothing in “putting the U.S.'s finances on a sustainable footing."

S&P added that the nation's credit rating could be lowered even further if serious attempts to reduce the debt and deficit are not successful. They further asserted that $4 trillion in spending reduction would be a good start towards rebuilding our credit rating, yet the only proposal that even came close to that figure was instigated by conservatives in Congress. Obama and congressional Democrats’ only solution was to increase the debt limit and keep on dunking.

According to Investor’s Business Daily, the downgrade of U.S. debt will likely add another $100 to $150 billion to the deficit in higher interest costs as new issues of our sovereign debt (bonds, notes, and bills) will have to promise higher rates to reflect the increased risk represented by the downgrade.

It’s difficult to think of any policies and regulation that would be more destructive to our economy and our national fiscal condition than what Obama and his facilitators in Congress have wreaked on the nation the past few years. Was this by design to destroy the nation so he could “fundamentally transform” it, or was it through sheer ignorance of the laws of economics? That’s the $14 trillion, actually, now the $17 trillion question.

With the proliferation of apocalyptic threats in the mainstream media regarding the August 2 “deadline” for raising the debt limit, it’s important to realize why we have a debt limit. It’s designed to prevent Congress from limitlessly adding to the nation’s credit cards, by providing a device whereby Congress assesses their level of spending and to make necessary adjustments. The debt limit has been raised 78 times by my count, since 1917.

As the Congressional Research Service states, “The debt limit imposes a form of fiscal accountability, which compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues.” In other words, it’s a self-imposed statutory spending restriction designed to work like a school-zone speed limit. If the nation had a balanced budget amendment on the books, there would be no need for a debt limit.

Regrettably, it appears that the only branch of government serious about reducing the nations’ debt and deficit spending is the House of Representatives. The Obama administration and the Senate majority seem to think that the only way to address our spending issue is by allowing us to spend more, facilitated by raising the debt limit!

As I’ve pointed out before, the scare tactics being promulgated by the White House and the profligate spendthrifts on The Hill, are nothing short of astounding. Obama threatens that seniors may not get their Social Security checks, while Treasury Secretary Geithner now warns of a financial Armageddon if the debt ceiling is not raised by August 2. The threats are bogus, unless they intentionally choose to make them real. We hit the debt ceiling in mid May, and the sky didn’t fall, the nation didn’t collapse, and the government hasn’t defaulted on its debt and interest payments. They’ve been juggling payments to stay at the ceiling, and they can do so after the artificial deadline as well, unless Obama and Geithner willfully choose to punish the nation for not acquiescing to their demands for more credit.

Donald Boudreaux, a professor of economics at George Mason University explains, "If President Obama follows through on his threat to withhold paying August’s Social Security obligations of $49.2 billion, it will be because he chose not to send them out. But the federal government can pay in full its $49.2 billion in Social Security obligations and its $28.6 billion in Medicare obligations — in addition to paying all of its creditors — and still have $10 billion remaining."

"The problem is that $10 billion in August isn’t sufficient to pay for all of the other programs. An un-raised debt ceiling, therefore, will oblige Washington politicians to do what they’ve refused to do for generations: make tough choices instead of shifting the costs of today’s spending onto tomorrow’s taxpayers and continuing to spend wildly."

It’s painfully obvious that as a nation we continually elect leaders who are more concerned about reelection assured by ingratiating themselves to the electorate by the “goodies” they send home, rather than exercising fiscal prudence to assure the perpetuity of the republic.

Let’s break this down in even simpler terms. The nation won’t default on its obligatory interest payments on the national debt on August 2 unless Obama and Treasury Secretary Geithner decide to. Secondly, interest rates are headed upward. Unless Congress gets the Senate and the Obama administration onboard with legitimate reductions in spending, not just reduced rates of growth of spending, the amount of interest the nation spends for new debt issuance will spike 35 to 50 basis points (.35 to .50%) as we face the prospect of a credit downgrade by the major rating agencies, Standard & Poors and Moody’s. They will be following the lead of Egan-Jones ratings analysts who have already downgraded U.S. debt AA+. S&P has indicated a 50/50 probability of downgrade regardless of what happens with the debt ceiling. Explaining their downgrade two weeks ago, Egan-Jones cited “the high level of debt and the difficulty in significantly cutting spending” as the reasons. This will make all interest rates go up, in spite of all the Federal Reserve has done to keep them artificially low.

This will further devalue the dollar, making imports more expensive, including oil, since the dollar is the reserve currency used for global trade. Inflation will be even more problematic at the consumer and the producer level, as the purchasing strength of the dollar continues to erode.

The only solution is serious debt and deficit reduction, which the White House and the Senate obviously have no intention of addressing. For that to occur it’s obvious that we must replace Obama and all the profligate spenders of both parties with men and women of common sense and a commitment to exercise fiscal prudence. They have created a crisis that we will pay for: now in inflationary prices, and for generations paying for their debt.

Published – Idaho State Journal, 06/19/11

Economic uncertainty is crippling to all who are caught in its grip. Individual Americans, uncertain about their job security in a “pink slip” environment are not as inclined to spend as they would be with real job security. They are worried about whether they can keep their homes, keep their vehicles, afford college for their kids, and afford health care if an illness was to befall a family member. Since 70% of the economy is driven by the consumer, this is one of the realities restraining the nation’s economy, and the reality most of us face daily.

That uncertainty has a tight grip on the private sector where free enterprise and entrepreneurship turned a third-world economy into the largest in the world in just a few generations. The economic freedom that once beckoned to the world for the astute, creative and talented to come to America, has rapidly dissipated. Regulation and government control over the private sector are on the verge of choking the life out of free enterprise.

And it’s not just future uncertainty over what shoe may drop next squash free enterprise, but more significantly, the uncertainty over what has already happened to the private sector in the past few years. Each year all new policies and regulations, created both by presidential executive order and legislative statute, are filed with the Federal Register. For years the Register has added over 70,000 pages of new regulations each year. Last year set a new watermark of over 81,000 pages of new federal regulations, including over 6,000 pages due to the federal government taking control of healthcare. And that’s just the beginning. Most analysts claim that by the time Obamacare goes into full effect over the next few years, it will be by far the most onerous regulatory boondoggle in history.

FinReg, the mammoth financial regulatory overhaul passed by congress ostensibly to define “too big to fail” and address the financial collapse of 2008, not only failed to resolve the subprime mortgage issue it was supposed to, but it will in the end, add 25,000 pages of new regulations to the Federal Register.

Every regulation created by Washington imposes new requirements and new costs on employers. Health care costs from the partial implementation of Obamacare have already run out of control with most employers facing 30-45% increases in health-care insurance costs as a result. Over 95% of the private sector employers in the country are small businesses with fewer than 500 employees, and are sole proprietorships, or partnerships, structured as limited-liability companies (LLC) or S Corps.

The costs imposed on small businesses by every page of regulation emanating from Washington is debilitating. Winslow Sargeant, chief counsel for advocacy at the U.S. Small Business Administration, recently shared some staggering facts with the Senate Small Business Committee. He testified that costs to meet Environmental Protection Agency rules average $22,000 per employee for a small manufacturing firm. This compares to only $5,000 per employee for the large companies they are trying to compete with. The average cost for all small businesses to meet federal rules is $10,585 per worker. Small businesses face costs of IRS tax regulations that are four times greater per employee than for large companies. For many small businesses, the cost of government regulation is greater than the cost of health-care insurance on a per-employee basis.

In a recent CNBC interview Jack Welch, the former CEO of General Electric, stated the obvious, that the economy will be moribund for the foreseeable future, primarily because of the anti-business regulatory environment fostered by Washington.

At the National Manufacturing Summit in Dalton, Georgia last month, speaker after speaker lamented the uncertainty of doing business in this era of inordinate regulation. Tom Fanning, Chairman and CEO of the Southern Company, said that increasing federal regulation is causing the costs of everything they do to soar. Norman Holmes, President of Southern Gas, said regulatory costs have increased by 40% just in the past few years.

Last week the President’s Jobs and Competitiveness Council wrapped four months of deliberation over how to improve job stability and growth nationally. They were charged to leave "no stone unturned" in the search of ways to boost the country's anemic job growth. Since all the appointees were ideologically of like mind with the administration, the only suggestions they could come up with were more money to retrain workers, more tax dollars retrofitting commercial buildings to boost energy efficiency, and more government loans passed out by the Small BusinessAdministration. This shouldn’t surprise us, as the president himself last week blamed job losses on ATMs! They’re all clueless, it appears.

It’s largely the uncertainty created by expansive government control over every aspect of private sector business operations that’s inhibiting job and economic growth. What a shame Washington is too myopic to see that! 

Published - Idaho State Journal, 09/19/10

On a daily basis the ruling elite in Washington and the media cast the blame for our current poor economy on George Bush, capitalism, Wall Street, banks, and Republicans in general. Facts do not support this oft-repeated creative fiction.

Tracing the roots of the financial meltdown of 2008 and the resulting recession, we must go back to the Community Reinvestment Act of 1977 (CRA). This Federal law intimidated lenders into not restricting their credit services to low-risk markets, a practice called “redlining.” The CRA required banks to submit regular reports proving that they were not avoiding home lending in impoverished regions. This started the process that has peaked over the past few years of lending with little proof of ability to pay. Lenders were pressured by government regulators to make creative interest-only loans, high-risk “no doc” and “liar loans,” in order to allow people to buy more housing than they could afford. We have come to know these loans as “sub-prime,” or loans with much higher risk of default.

In 1992, Boston's Federal Reserve funded a study that resulted in increased pressure on banks to fund questionable mortgages. It led to increased regulation of the mortgage market at the bank level to the point where four government agencies were monitoring banking activities relative to CRA demands. A ranking system was put into place where financial institutions were rated based on CRA lending, and the penalties could be stiff against banks whose CRA rating declined. The data and analysis of that research was later discredited.

In 1994 then Attorney General Janet Reno declared the Clinton Administration would be even more aggressive in pressuring lending institutions into full compliance with the CRA.

Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants, (GSEs, or Government Sponsored Enterprises) became the underwriters for most of the sub-prime mortgages. GSE leaders bragged in internal memos about their expansion into the sub-prime business and how that augmented their earnings.

Jim Johnson, CEO of Fannie Mae, was forced to resign in 1999 over accounting irregularities. Franklin Raines replaced him and perpetuated the questionable accounting and funding of sub-prime mortgages. Fannie was levied a $400 million fine by the SEC for their fraudulent bookkeeping and risk management but that didn’t even slow them down, let alone stop them. There is an additional political component to this as both Franklin Raines and Jim Johnson have served as economic advisors to Barack Obama.

In 2003 and 2005 the Bush administration attempted to reform the GSEs. Both Bush Administration Treasury Secretaries and Alan Greenspan repeatedly called on Congress to clean them up. Those attempts failed mostly due to the massive contributions by the GSEs to congressional reelection campaigns. The top recipients of those funds were Chris Dodd, Barney Frank and Barack Obama, some of the most ardent supporters of the GSEs.

Politicians created our recession with bad policy, bad regulation, and lack of regulation of the GSEs which resulted in a real estate market collapse. The GSEs sold the mortgages to banks and Wall Street as government guaranteed paper while rating agencies failed to make the distinction between quality loans and their sub-prime counterparts.

Congress has repeatedly exempted the GSEs from regulation that would hold them to a higher standard and would have likely prevented the financial market meltdown of two years ago and the resulting recession we still languish in. The new financial reform recently passed and trumpeted by the administration once again intentionally excludes the GSEs. Our problem is still not solved and it can happen yet again.

The media have been accomplices in this shakedown. There has been no accountability, and negligible factual coverage on who really caused this mess. It’s not Wall Street and the banks. They were writing and trading the mortgage paper that Fannie and Freddie wanted and the enabling congressional leaders encouraged. And the media have pointed the blame at everyone and everything except those who really caused it: their friends in government and the GSEs.

In short, the government created the problem by socially engineering the lending process by pushing lenders too far to make mortgages to too many and for too much. The foolhardy government mortgage lending policies led to a near collapse of our entire financial system. As the Investor’s Business Daily observes, the law of unintended consequences of government policy is now fully manifest.

When you hear causes of our recession, and they don’t list congress and bad regulation, they’re not telling you the truth. The causal elements of what brought us to this point were the creations of those most ardent in casting the blame elsewhere. They are most culpable, for they wrote the legislation and the regulations, refused to regulate the GSEs, and yet still they have the audacity to point blame at everybody but themselves. 

Published - Idaho State Journal, 09/12/10

For nearly ten years I’ve been living a lie. Ever since the first round of Bush tax cuts in 2001 I’ve been told that I was rich, because I got a tax cut. For someone living barely above subsistence level, I found it rather ennobling that all these anti-capitalists across the land thought I was rich. Now, all of a sudden, my bubble is burst as even Barack Obama is finally telling the truth that everyone, at every income level, got a tax cut from that despised former leader of the free world. All this time I thought it was among the “rich” that got those tax cuts.

Here’s a little primer for those who have been bitter clingers to the “tax cuts for the rich” nomenclature. President Bush in 2001 and 2003 led Congress to reduce tax rates for all taxpayers. The effect was record tax receipts starting in 2003 and a shifting of the tax burden increasingly to the wealthiest Americans. We can more easily see the effects by dividing taxpayers into five brackets. Those who benefited most were the lowest income, under $25,000 (a tax cut of 17.6%) per year, and those making about $60,000 per year (12.6%) according to IRS data. When the benefits of the second round of tax cuts are factored in, those in the $60,000 per year income level realized a total Federal tax savings of 24 percent. Those who made over $350,000 received a tax cut of 12.5%, while those who make over $1 million got about a 6% reduction.

The Wall Street Journal stated that the Bush tax cuts, in effect, triggered what may be the biggest increase in tax payments by the rich in American History. The top 1% of taxpayers, who earned $388,806 and higher, paid 40% of all income taxes with the Bush tax cuts, the highest percentage in at least 40 years. Taxpayers in the top 10% in income, those earning over $108,904, paid 71% of the total income taxes, again, the highest in at least 40 years.

When we look at the lowest income taxpayers, the figures are amazing. Those below median income levels paid a record low of 2.9% of all income taxes, while the top 50% paid 97.1% of federal income taxes.

Darn it, there goes another broken Obama campaign promise. Seems like I remember him saying, “No family making less than $250,000 a year will see any tax increase.” Looks to me like all of us will see our taxes go up if the Bush tax cuts are allowed to expire. Those who have decried the “tax cuts for the rich” for the past decade have been lying to you.

This week in Cleveland Obama said the tax-cuts for the wealthiest Americans must be allowed to expire, while extending the lower tiered income bracket tax cuts. He said, “This isn't to punish folks who are better off -- it's because we can't afford the $700 billion price tag." Only in a Marxist world can individual assets be thought of as an entitlement for the government! If he truly believes he can do more job creation with that extra income to the government rather than those entrepreneurs and sole proprietors who fall into that tax bracket, his track record doesn’t support it. The stimulus bill “guaranteed” that unemployment wouldn’t exceed 8%. I say, let the “rich” keep it. They’re much more likely to put it to good use in economic expansion and job growth than the ruling class in Washington is.

In August of last year, Obama declared accurately, “You don't raise taxes in a recession.” I don’t believe the economy is out of the doldrums yet, Mr. President. While technically we may be out of a recession, it surely doesn’t feel like it, as attested by the high unemployment rate, low consumer confidence, barely-positive GDP growth, and a housing market in the throes of depression.

According to the Investor’s Business Daily, two-thirds of small businesses fall into the top income tax bracket. They are also the ones we depend on most for job creation. IBD also points out, “Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. Of crucial importance to entrepreneurship and job creation, the top capital gains tax rate rises from 15% to 20% next year, while the top rate for taxation of dividends rises from 15% to 39.6%.”

A surefire way to reduce activity is to tax it, or increase the taxes on it. If you want less capital investment, tax the gains on it. If you want less income growth, tax it. If we want to ensure that the economy remains moribund for the foreseeable future, allow the tax cuts to expire on all income levels. But mostly, allow them to expire on the “rich.”

Published - Idaho State Journal, 08/08/10

But there are exceptions, and Steve Wynn, founder of Wynn Resorts, is one of them. In a CNBC interview recently he accurately observed, “It’s common sense that’s disappeared in Washington DC. We’re inheriting the awful results of wild, uncontrolled spending, unbelievable, unsustainable debt.”

Referring to the financial reform just passed, which does nothing to solve the problems which led to the financial markets meltdown two years ago, he said, “And yet, here we are, doing it again, $20 billion a month to the FHA. On top of what happens to Fannie Mae and Freddie Mac. We’re doing it again today for $20 billion a month! We’re destroying the housing market, again; under the name of a stimulus, phony misrepresented names.”

Controversially, Wynn recently announced that he was moving some of his corporate offices to Macau, China. When asked by the interviewer about that move, Wynn responded, “Macau has been steady. The shocking, unexpected government is the one in Washington. That’s where we get surprises every day. That’s where taxes are changed every five minutes. That’s where you don’t know that to expect tomorrow. To compare political stability and predictability in China to Washington is like comparing Mount Everest to an anthill. Macau and China is stable, Washington is not!”

He continued, “Is there a businessman in America that isn’t frightened about the next crazy idea that is coming from Washington? The financial institutions, the cars, the businessmen, the taxes, the health care, everything is Coo Coo. And God knows what’s next!”

Wynn was next asked what the healthcare reform was going to cost him. He responded, “A lot. It’s going to produce the exact opposite of what they said. Health costs, because of that 2,700 pages, are going up not down. In the simplest possible terms, they added 32 million people, the amount of doctors is going down and the amount we’re paying them is less. When demand goes up and the supply of doctors goes down, what happened to the price? High school students out there, children? Price goes up!”

He continued, “The one thing that would’ve saved us money, the control of frivolous lawsuits, they didn’t touch with a ten foot pole. Those hypocritical SOBs and the Congress didn’t touch it with a ten foot pole. Every insurance company, every businessman in America said doctors are doing testing in fear of frivolous lawsuits that are unnecessary that is jacking up the price of medicine. Please do something about that. In Texas they put a cap on punitive damages and the malpractice insurance dropped by 45% in one year. But did they do it in Washington? No.”

Explicating the obvious, that the business world is not willing to hire because of so much uncertainty in the country, he concluded, “So when you ask me today about predictability and uncertainty in China compared to Washington, I take China. Washington is unpredictable these days. Washington is… No one in the business community from one coast to the other has any idea what’s next. And what’s even worse, the people that do business with us that buy our bonds in other countries don’t even know what’s next. The uncertainty of the business climate in America is frightening, frightening to everybody. And it’s delaying the recovery.

“We’re on our way to Greece, in the hands of a confused and foolish government that is living up to the prediction of Alexis de Tocqueville who in 1909 said: ‘The American system of democracy will prevail until that moment when the politicians discover that they can bribe the electorate with their own money.’ And boy it’s in full bloom today. So extreme that it would probably have an end unto itself. The public is frightened. This Tea Party business is all about fear. There is a sense in the land of discomfort. There is a sense of fear that the politicians are ruining us. And the people are right. It’s got to stop. It’s got to stop!”

Only 1 in 10 of the Obama administration has worked in the private sector, and none, that I’ve been able to ascertain, ever ran a business or had to meet a payroll. It’s obvious that they know nothing about how the economy works. In all likelihood, we’re heading into a double-dip recession because of all that is emanating out of Washington. If the administration were to declare an outright war on capitalism and on the business community, it’s hard to imagine what they would do differently. Wynn is right: It’s got to stop!