Never assume that merely because a group of businessmen ally themselves with the Obama Administration, it means that the Administration’s policy wants and desires are consistent with free market principles.

Tad DeHaven explains.

Courtesy of Ike Brannon and Chris Edwards. A key passage follows:

Keynesians thought that fiscal stimulus would work by counteracting the problem of sticky wages. Workers would be fooled into accepting lower real wages as price levels rose. Rising nominal wages would spur added work efforts and increased hiring by businesses. However, later analysis revealed that the government can’t routinely fool private markets, because people have foresight and they are generally rational. Keynes erred in ignoring the actual microeconomic behaviour of individuals and businesses.

The dominance of Keynesianism ended in the 1970s. Government spending and deficits ballooned, but the result was higher inflation, not lower unemployment. These events, and the rise in monetarism led by Milton Friedman, ended the belief in an unemployment-inflation trade-off. Keynesianism was flawed and its prescription of active fiscal intervention was misguided. Indeed, Friedman’s research showed that the Great Depression was caused by a failure of government monetary policy, not a failure of private markets, as Keynes had claimed.

Even if a government stimulus were a good idea, policymakers probably wouldn’t implement it the way Keynesian theory would suggest. To fix a downturn, policymakers would need to recognize the problem early and then enact a counter-cyclical strategy quickly and efficiently. But U.S. history reveals that past stimulus actions have been too ill-timed or ill-suited to have actually helped. Further, many policymakers are driven by motives at odds with the Keynesian assumption that they will diligently pursue the public interest.

The end of simplistic Keynesianism in the 1970s created a void in macroeconomics that was filled by “rational expectations” theory developed by John Muth, Robert Lucas, Thomas Sargent, Robert Barro and others. By the 1980s, old-fashioned Keynesian was dead, at least among the new leaders of macroeconomics.

Well, it has come back to life. But only because we appear to be determined to forget the mistakes of the past.

Actually, scratch that. Not “we.” Better to say “some.” Better still to say “mainly the Obama Administration and its Congressional Democratic allies.”

The President who promised us that he would re-engage the world and put to the side the supposed unilateralism and arrogance of the Bush Administration has raised hackles across the world with the news that the Obama Administration is pushing for “Buy American” provisions in the new stimulus act.

Now, the Administration appears to be backtracking on this utterly protectionist proposal. And a good thing too. Because “Buy American” provisions are lousy policy and the rest of the world is mighty ticked off:

The issue may cloud Obama’s trip to Canada on Feb. 19, his first journey outside U.S. borders as president. Officials in Canada, the top U.S. trade partner, are criticizing a part of legislation that passed the U.S. House of Representatives Jan. 28 that requires the use of U.S.-made iron and steel in infrastructure projects.

“U.S. protectionism is about to make Canada’s recession a lot worse,” Ralph Goodale, house leader for the opposition Liberal Party, said today in Parliament.

[. . .]

The U.S. provision is “clearly against trade agreements,” and Canada would be able to file a complaint under either the North American Free Trade Agreement or with the World Trade Organization, said Simon Potter, an international trade lawyer with McCarthy Tetrault in Montreal.

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The Australian Prime Minister could learn a lot from Horwitz, who answers the former’s shibboleths with cold, hard facts.

I continue to chuckle over the contention that we have or had some kind of ultra-free market that caused us to fall into a recession. I guess that Kevin Rudd is yet another person who seems to think that there is just one page of rules and regulations in the Federal Register and has forgotten about the other 69,427. Just how many pages of rules and regulations are needed before people like Rudd think to themselves “gee, maybe the Americans have quite a lot of regulations on the books and people like me are beclowning ourselves in claiming otherwise”?

Those who objected to the selection of Sarah Palin as John McCain’s running mate in last year’s Presidential election sarcastically derided the nature and competence of the McCain campaign’s vetting operation. Surely–the thinking went–the campaign could not have been operating on all cylinders if it allowed a candidate like Palin to slip through its vetting procedures and end up as the Number Two on the Republican ticket.

Fast forward to the present day, which has seen a tax cheat slip through the vetting procedures of the Obama transition process and become Secretary of the Treasury. And since the Obama Administration has decided that the drama surrounding Tim Geithner needed an encore, we now have this:

ABC News has learned that the nomination of former Senator Majority Leader Tom Daschle, D-S.D., to be President Obama’s Secretary of Health and Human Services has hit a traffic snarl on its way through the Senate Finance Committee.

The controversy deals with a car and driver lent to Daschle by a wealthy Democratic friend, a chauffeur service the former senator used for years without declaring it on his taxes.

It remains an open question as to whether this is a “speed bump,” as a Democratic Senate ally of Daschle put it, or something more damaging.

After being defeated in his 2004 re-election campaign to the Senate, Daschle in 2005 became a consultant and chairman of the Executive Advisory Board at InterMedia Advisors.

Based in New York City, InterMedia Advisors is a private equity firm founded in part by longtime Daschle friend and Democratic fundraiserLeo Hindery, the former president of the YES network (the Yankees’ and Devils’ broadcast network).

That same year he began his professional relationship with InterMedia 2005, Daschle began using the services of Hindery’s car and driver.

The Cadillac and driver were never part of Daschle’s official compensation package at InterMedia but Mr. Daschle — who as Senate majority leader enjoyed the use of a car and driver at taxpayer expense — didn’t declare their services on his income taxes, as tax laws require.

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Be sure to show them this.

Then remind them that over-regulation exists in lots and lots and lots of other parts of the economy as well and that perhaps all of the shibboleths about how the free market brought about the current economic crisis ought to be rethought.

At the very least, you will guarantee a head explosion from your opposite number. And that might actually be fun to watch.

Or two names. Anyway, without further ado:

1. Smoot.
2. Hawley.

Explanation.

Be very, very, very afraid. Malevolent agents bent on destroying the economy could not do a better job than these protectionists could.

Here is a little list:

1. The ability to restore fiscal discipline, given that we passed a stimulus bill in the House that spends more than did the massive New Deal boondoggles of years past.
2. The ability to have a separate and vigorous argument over education policy, given that federal education outlays have been doubled in the stimulus bill.
3. The ability to have a separate and vigorous argument over health care policy, given that the states are receiving $87 billion in Medicare funds, and that Medicaid and SCHIP coverage is being determined through the stimulus bill.
4. The ability to have a separate and vigorous argument over redistribution of wealth, given that the stimulus bill engages in redistribution.
5. The ability to crack down on the culture of earmarks.

Sources are here, here, and here. These are the “good government” policies that were sold to us during the election?

Martin Feldstein–despite his credentials as a conservative economist–has gone on record as supporting a stimulus package (his was for defense spending). I imagine that he might have been amenable to suggestion from the Obama Administration that some kind of Keynesian stimulus might be necessary to address the current economic downturn.

But Feldstein’s reaction to the bill passed yesterday by the House is . . . well . . . take a look:

Start with the tax side. The plan is to give a tax cut of $500 a year for two years to each employed person. That’s not a good way to increase consumer spending. Experience shows that the money from such temporary, lump-sum tax cuts is largely saved or used to pay down debt. Only about 15 percent of last year’s tax rebates led to additional spending.

The proposed business tax cuts are also likely to do little to increase business investment and employment. The extended loss “carrybacks” are primarily lump-sum payments to selected companies. The bonus depreciation plan would do little to raise capital spending in the current environment of weak demand because the tax benefits in the early years would be recaptured later.

Instead, the tax changes should focus on providing incentives to households and businesses to increase current spending. Why not a temporary refundable tax credit to households that purchase cars or other major consumer durables, analogous to the investment tax credit for businesses? Or a temporary tax credit for home improvements? In that way, the same total tax reduction could produce much more spending and employment.

[. . .]

On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment. Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs. Has anyone gone through the (long) list of proposed appropriations and asked how many jobs each would create per dollar of increased national debt?

The largest proposed outlays amount to just writing unrestricted checks to state governments. Nearly $100 billion would result from increasing the “Medicaid matching rate,” a technique for reducing states’ Medicaid costs to free up state money for spending on anything governors and state legislators want. An additional $80 billion would be given out for “state fiscal relief.” Will these vast sums actually lead to additional spending, or will they merely finance state transfer payments or relieve state governments of the need for temporary tax hikes or bond issues?

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The Arena had us discuss whether the stimulus package should have attracted Republican votes. I had no hesitation in answering no. The policy behind Keynesian stimulus is terrible; see here, here, here, here, here, here, here, here, and here, just for starters on why Keynesian stimulus is a bad idea. The fact that House Republicans were cut out of the negotiating process only served to reduce the impetus for Republicans to reward the crafting of a bad bill with their votes.

There are plenty of critiques that can be made of this stimulus bill, critiques that make a powerful argument against its enactment. Phil Levy points out that the stimulus is tremendously protectionist and will counteract trade liberalization–something we would stay away from if we were serious about wanting to stimulate the economy (see also this piece by Levy). This piece reinforces concerns that the stimulus package will turn into a protectionist bonanza (we may in part thank the antediluvian Senator Sherrod Brown for the increased Congressional effort to make a bad economic situation worse through the promotion of protectionism; evidently, the words “Smoot” and “Hawley” mean precisely nothing to Senator Brown). Philip Zelikow reminds us that the crafting of this stimulus package detracts from the spirit of pragmatism that the President promised us he would follow:

. . . the current belief in the healing power of a gigantic stimulus package is substantially faith-based. Once one gets past the need to revitalize automatic stabilizers (like unemployment compensation) and give state and local governments appropriate access to credit, the relevant science and the historical analogies, when probed, are not so deep. Just a few months ago, the International Monetary Fund’s economists acknowledged that, “Perhaps surprisingly, the empirical literature on the effects of fiscal policy does not provide a clear answer to the simple question of whether discretionary fiscal policy can successfully stimulate the economy during downturns.” The new chair of the Council of Economic Advisers, Christina Romer, knows this all too well.

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Alan Reynolds on Keynesian fiscal stimulus. He notes that for the creation of every job, we are spending $275,000. That’s a lot of money and should leave one smacked by gob, but I suppose that it is a bargain considering the fact that for every government job we are creating, we are spending $646,214.

Your HopeAndChange at work. Or, perhaps more accurately, your HopeAndChange pretending to take work seriously; I pray that in private, the President and the members of his Administration do not actually think that these proposals are intellectually defensible in any way. I would be terrified if they did.

The degree to which special interests are seeking breaks and assistance in the stimulus bill should appall people of reasonable sensibilities:

Craig Silvertooth, the president of the Center for Environmental Innovation in Roofing, said he’s concerned that lawmakers have failed to include tax incentives for energy-efficient roofs using solar panels. But the geothermal heat pump industry — represented by lobbyists for one company, Oklahoma-based ClimateMaster Inc. — said it won equal footing with solar and wind companies through a 30% homeowner tax credit in the House bill for installation of a geothermal heat pump.

Lobbyists for U.S. footwear makers and retailers want lawmakers to wall off their drive to scrap import taxes on cheap shoes from a competing push to lower tariffs on all imported clothing and textiles.

The shoe lobby sent a letter to congressional leaders Tuesday asking for a stimulus provision abolishing the import tax on synthetic, fabric and canvas shoes. The American Apparel & Footwear Association, the Footwear Distributors and Retailers of America and retail footwear companies say the tax can reach 67.5%.

Once this kind of behavior commences, it is pretty difficult to stop it. Of course, the last thing we need in a recessionary economy is legislated protectionism and other such antediluvian policies but so long as Congress and the Obama Administration open the bidding to parochial interests, the chances that such godawful policies will get implemented goes up by several orders of magnitude.

“Reality-based” economics at its finest. Aren’t you glad we are giving government this much power over our lives?

Glenn Reynolds asks whether Joshua Treviño, my friend (and RedState co-founder!), is “establishment enough” to be the conservative editorial columnist–or one of them, anyway–at the New York Times. May I offer my sincere and profound hope that Josh is selected precisely because he is not an establishment figure?

I suppose that if the New York Times’s was in good financial shape thanks to all of the establishment positions it has embraced, it would serve as an argument for further establishment thinking when it comes to selecting the next conservative columnist. But of course, the New York Times is not in good financial shape. As such, establishment thinking is not and should not be the order of the day. Quite the contrary; the New York Times should shake things up rather dramatically so that perhaps, just perhaps, it can pick itself up off the mat and become a consequential news organization again.

Josh can help them do that. He is iconoclastic in his writing but in the best way possible, having carved out a niche all his own and having won the respect of his readers in the process. He is firm in his convictions and equally firm when he believes that it is necessary to call out his own side of the philosophical divide. He has a wonderful and eloquent way with words. And he won’t pussyfoot on the issues of the day.

The New York Times has nothing to lose in picking him. They have everything to gain. It would be a bold, unsettling, momentous choice to give Joshua Treviño the conservative slot for the Times’s editorial page. And quite frankly, the Times needs to be bold and unsettling if it wants to re-establish itself as the newspaper of record once again.

Note the following from Marc Ambinder’s account of the meeting between President Obama and the House GOP over the stimulus package:

The President admitted that all of the spending [for the stimulus] can’t be done in two or three years.

So, the President is finally admitting that the government won’t be able to spend all of the stimulus money during the period the recession is likely to last.

We now see–in the event that we did not see earlier–that the effort to pass a stimulus package has significantly less to do with jump-starting the economy and more to do with implementing a massive public works bill that has been at the top of the Democratic Party’s wish list. The recession is just an excuse for this public works package. Recall, of course, that contra Naomi Klein, the real “Shock Doctrine” has been pursued not by Milton Friedman, but by his ideological opponents, who are more than willing to cynically use an economic crisis to advance their ideological agenda. This is just the latest evidence of the attempt to advance the Democratic Shock Doctrine to burden the country with a stimulus package that we do not need, do not want, will do nothing for our economy and will only serve to wreck whatever remains of our fiscal health.

This is the behavior and activity that the Democrats have denounced and claimed to abhor for the past eight years. This is the behavior and activity that they promised to change and bring to an end.

Yeah right. Tell me another one.

The litany of broken promises continues:

Despite President Barack Obama’s pledge to limit the influence of lobbyists in his administration, a recent lobbyist for investment banking giant Goldman Sachs is in line to serve as chief of staff to Treasury Secretary Timothy Geithner.

Mark Patterson was a registered lobbyist for Goldman until April 11, 2008, according to public filings.

Patterson first began lobbying for Goldman Sachs in 2005, after working as policy director for then-Senate majority leader Tom Daschle. According to publicly filed lobbying disclosure records, he worked on issues related to the banking committee, climate change and carbon trading and immigration reform, among others.

Patterson’s lobbying was first noted by the National Journal magazine.

Patterson is one of over a dozen recent lobbyists in line for important posts in the Obama administration, despite a presidential order severely restricting the role of lobbyists in his administration, the magazine reported.

So much for ending “business as usual.” Can we call this HopeAndChange rhetoric a fraud now?

I don’t know whether to laugh or cry. On the one hand, I am glad that someone took on the myth of Che. On the other, however, I am appalled that we actually have to have this discussion in the first place.

I may well go see the movie myself, if only out of morbid curiosity. I can, however, at least console myself with the certain knowledge that I won’t be hoodwinked into thinking that Che Guevara was some kind of hero. And why, by the way, do we continually need to have discussions over whether Communist tyrants were heroes, anyway?

I am pleased to inform readers of the emergence of a new online magazine, The New Ledger, which stars a number of friends of mine. The reading is quite smart and the format, while somewhat bloggish, allows for and encourages longer opinion pieces that one would more likely find in the Op-Ed section of a major newspaper.

I have been asked to write for The New Ledger and am glad to do so; you will see me post some of my longer pieces there. Here is my first column, which was inspired by the decision to confirm Timothy Geithner as Treasury Secretary. An excerpt:

In urging Geithner’s confirmation, Senate Majority Leader Harry Reid offered his entirely nonpartisan opinion that “This powerful economic storm demands strong, decisive and wise leadership,” and that “No one is more qualified or prepared for the task than Tim Geither.” Thus, despite the fact that the Treasury Secretary was ridiculously delinquent in paying over $40,000 in back taxes (plus interest), despite the fact that his delinquency stemmed from his inability to master the supposedly complex machinery of TurboTax and his inability to properly read the rules on self-employment taxes that applied in the two years he worked at the International Monetary Fund-all while collecting IMF reimbursement for the taxes he did not pay-despite all of these mistakes that would have landed an ordinary citizen in hot water with the Internal Revenue Service, Tim Geithner finds himself as the latest successor to Alexander Hamilton, the first Secretary of the Treasury.

And that, you see, is because Tim Geithner is indispensable. He has been neck-deep in the efforts that have been made since last fall to rescue the American economy and we just cannot pass up on the opportunity to make him the Treasury Secretary as a consequence.

Now, a churlish soul (like me, perhaps) might remind you that the TARP program Geithner helped design and whose implementation Geithner urged has turned out to be something of a disaster; its accounting procedures are opaque, its functions are haphazard at best and its original mission has been drastically altered from purchasing toxic assets and taking them off of the balance sheet of financial institutions, to injecting capital into banks in exchange for stock. Oh, and TARP has encouraged appalling amounts of corruption. But never mind all of that. Tim Geithner is indispensable.

“But,” I hear you cry, “De Gaulle told us that the graveyards are full of indispensable men! Surely, this would imply that there is no such animal!”

Indeed, there is not. But try telling that to the Obama Administration.

Read it all.

Some educational TV, courtesy of Dan Mitchell:

Mitchell makes a good point that is too often ignored: The Bush Administration was famous for its profligate spending ways. Why didn’t that produce the Keynesian multiplier effect that people like Paul Krugman promise us will come about if only we enact an economic rescue plan like the one that the Obama Administration is recommending?

CBO’s views on the payout rate from infrastructure spending long predates this administration. Check the testimony of various CBO officials on its web site. They have repeatedly said that only about 25% of money is spent the first year after being made available for spending. That means after the proposal has been made, after the authorization has passed Congress, after the appropriation has been made and the fiscal year has begun, and after the relevant federal agency has certified that the project is in fact ready to begin. Given that most public works projects take more than a year to complete, why is it any surprise that only a fourth of the money is spent the first year?

–Bruce Bartlett. So, only one quarter of a Keynesian stimulus plan will come online the first year after Congress has appropriated it. By then, the economy may well be in recovery and by the time 100% of the stimulus money comes online, the economy will assuredly be expanding. We are about to take our budget deficit into the trillions and we will have nothing whatsoever to show for it.

Remind me again: Why are we entertaining the thought of Keynesian stimulus? (Bartlett link via Will Wilkinson.)

Read this about the nosedive in trade activity since the onset of the financial crisis last fall and feel the sickening lurch in your stomach. And hey, if that’s not enough, consider that things are likely to get a whole lot worse on the global trade front before there is even a sand castle’s chance in an earthquake that they will get better.

At least we have an Administration that is determined to do anything and everything in its power to encourage trade liberalization. That ought to ameliorate a whole host of our problems on the trade front.

Oh, wait . . .