The View From 1776

Bob Utterback writes a regular column called Outlook. It appears in the Farm Journal, the largest national circulation publication focusing upon family-owned farms. 

Mr. Utterback travels continually among farming communities across the nation to gauge market conditions and farmers’ market sentiment.  His February 14 column suggests that President Obama’s stimulus bill will be, on balance, a series of disincentives for family farms to run the risks of aggressive farming, because the stimulus bill unfavorably raises the risk / reward ratio.

Family farms have to contend with high levels of weather risks and volatile prices for seed, feed, and fertilizer, along with volatile sale prices for crops.  In addition, such farms are quintessential small businesses, ones which nonetheless require large, long-term investments in land, storage facilities, and equipment.

Farmers, more than average worker-consumers, understand the essentiality of maximizing saving and minimizing consumption expenditures.  They know that eating their seed corn will leave the fields bare for the next season.  Moreover, farm families work long, hard hours all year long to build and to preserve their farms for future generations of their families.  Reinstatement of punitive death taxes, as proposed in the President’s budget, is a meaningful disincentive to all that hard work.

Mr. Utterback’s interpretation of the stimulus bill, in the quote below, is that its primary effect is to transfer money from small businesses entrepreneurs to workers. 

Though he doesn’t make the latter explicit, the main worker beneficiaries will be labor unions, which can demand higher wages and make them stick in future economic downturns, thereby intensifying their impact upon the national economy (e.g., the many thousands of laid-off UAW members who get full pay and benefits from General Motors, without having to work a single day).  Democrat/Socialists, of course, aim to give labor unions new, special privileges to enhance their power to extort uneconomic labor contracts, which non-union workers, the vast bulk of the nation’s labor force, will pay for with lower wages, higher prices, higher taxes, and crushing inflation to offset labor union extortion. 

Because of the speed of the global contraction, many countries are quickly putting together financial stimulus packages to help stabilize and encourage their respective economies. As a result, the potential level of debt that’s going to be assumed by governments around the world this year is staggering!

The big question. Does government involvement in creating jobs help or just delay the eventual decline that must occur when an economic system becomes overheated, as we saw from 2006 through 2008? As I’ve been saying at many of my meetings, it will help arrest the decline in the economy and even produce a quick bounce, but will it have any long-term legs?

My concern continues to grow that current policy objectives are focused on taking away from one sector of the economy and giving to another. What incentive does this give for the individual businessperson to take a risk? I would argue that most take a risk only with the objective of making profit. The greater the uncertainty, as we are experiencing now, the greater the profit has to be. It’s not the objective of businesspeople to create jobs for jobs’ sake.

I know this sounds cruel, but businesses exist for the sake of the stockholder, not for the worker. I think this assumption is going to be attacked both domestically and internationally throughout the coming years because the political base is weighted to the worker, rather than the job creator (the businessperson). If the current administration’s stated objective is to increase taxes for those who make money, why take the risk of making money?

Also as a result of the current financial meltdown, I believe we’re going to see an increase in the amount of regulation and red tape that businesses have to deal with when hiring and maintaining employees.

In the end, the economic engine that drives our economy, the small businessperson, is going to simply decide to coast and hold onto what he or she has, rather than take any risks. This attitude must be the true focus of the new administration if they really want a growing economy that is viable enough to last long term.

We have to give consumers the confidence that the future is going to be better than the past and that he or she will be able to secure a job that will provide for his or her family. You’re not going to get this lasting stability with the government creating short-term jobs. I truly believe that only the private sector can do that, based on the long-term economic need.

Let The Honest Talk About Race Begin

ERIC HOLDER’S ASSERTION THAT ‘THIS NATION HAS STILL NOT COME TO GRIPS WITH ITS RACIAL PAST’ IS OFF BASE.
Saturday, Feb. 28, 2009

by Stuart Taylor Jr.

Dear Mr. Attorney General:

Your speech commemorating Black History Month by calling America “a nation of cowards” because we “do not talk enough with each other about race”—a topic about which we talk incessantly—was unworthy of the admirable public servant I believe you to be.

The speech was, as others have pointed out, embarrassingly misinformed, hackneyed, and devoid of thoughtful contributions to racial dialogue.

You can do much better. Please use your bully pulpit in the future to cut through the usual cant and state some politically incorrect truths about race in America that would carry special weight if they came from you. That would require mustering the courage to take on the Democratic Party’s powerful racial-grievance lobby. But it would do the country a lot of good.

The one point that you developed in a bit of detail in the February 18 speech was especially silly: “Black history is given a separate, and clearly not equal, treatment.... Until black history is included in the standard curriculum in our schools and becomes a regular part of all our lives, it will be viewed as a novelty, relatively unimportant and not as weighty as so-called ‘real’ American history.”

Bosh. The reality is that our high schools and universities are quite clearly focusing disproportionate attention on black history.

The proof includes a poll published last year in which 2,000 high school juniors and seniors in all 50 states were asked to name the 10 most famous Americans, other than presidents and first ladies. The top three finishers were black: Martin Luther King Jr. (67 percent), Rosa Parks (60 percent), and Harriet Tubman (44 percent). So is the only living finisher, Oprah Winfrey (22 percent).

As for the universities, “the almost obsessive emphasis on race, class, and gender in the humanities and social sciences means that, if anything, black history is overrepresented in college history curricula,” in the words of professor KC Johnson, a distinguished scholar of American history based at Brooklyn College. (We co-authored a 2007 book on the Duke lacrosse rape fraud.)

It’s true that college black-studies courses are often “separate.” But the reason is hardly to slight black history. It is to satisfy demands for hiring more black professors, who tend to specialize in black studies. Some of them also use their platforms to spread the lie that America is still pervaded by white racism.

Your unelaborated assertion that “this nation has still not come to grips with its racial past” is also way off base, Mr. Attorney General.

To the contrary, this nation has adopted numerous civil-rights laws. It has replaced the once-pervasive regime of discrimination against blacks with a benignly motivated but nonetheless wide-reaching regime of discrimination against whites, euphemistically known as “affirmative action.” It sometimes seems more interested in teaching children about slavery and segregation than about math and science. It has elected a black president.

The country has replaced the once-pervasive regime of discrimination against blacks with a benignly motivated but nonetheless wide-reaching regime of discrimination against whites known as “affirmative action.”

For all of its flaws, this nation is “the least racist white-majority society in the world; has a better record of legal protection of minorities than any other society, white or black; [and] offers more opportunities to a greater number of black persons than any other society, including all those of Africa,” black sociologist Orlando Patterson wrote in 1991.

You also said this, Mr. Attorney General: “On Saturdays and Sundays, America in the year 2009 does not, in some ways, differ significantly from the country that existed some 50 years ago [and] is voluntarily socially segregated.”

Rubbish. It’s true that social self-segregation persists—especially, as Patterson has written, among “Afro-American students and young professionals.” But as Abigail Thernstrom points out in National Review Online: “In 1964 only 18 percent of whites said they had black friends; the figure today is 87 percent.” And the share of blacks with close white friends soared from 21 percent in 1975 to 82 percent in 2005. Sixty percent of whites report having black neighbors, up from 20 percent 50 years ago. A 2006 poll showed that half of the black respondents had dated whites and almost 40 percent of the whites had dated blacks.

Not to mention the black president, attorney general, former secretaries of state—one of whom served as chairman of the Joint Chiefs of Staff—power brokers, authors, entertainers, athletes, multimillionaires, and current and former CEOs at some of America’s biggest companies.

You said, “It is not safe for this nation to assume that the unaddressed social problems in the poorest parts of our country can be isolated and will not ultimately affect the larger society.” True. But you offered not a clue about how to address those problems.
As I think you know, and should acknowledge, Mr. Attorney General:

• The major causes of these problems do not include contemporary white racism, which has been driven to the margins of society and has not been a serious obstacle to black advancement for at least two or three decades.

• The dominant cause is, rather, our tortured history: slavery and past discrimination, of course, but also the misguided welfare policies and cultural trends that did so much to destroy work incentives, foster irresponsible child-bearing and dependence on the dole, and break up poor families in the latter half of the 20th century.

Indeed, even as legal barriers to blacks fell and discrimination receded, the percentage of black children born out of wedlock soared from an estimated 15 percent in 1950 to 69 percent in 2000. (There was a similar but far less dramatic trend among whites.) “You name the social problem—poverty, crime, substance abuse, doing poorly in school, dropping out—and it correlates with growing up in a home without a father,” in the words of conservative lawyer-scholar Roger Clegg.

• The most-important remedies for the problems plaguing many African-Americans are not more racial-grievance talk or civil-rights lawsuits. They are education, hard work, and the cultural renewal necessary to overcome the views of many black students that studying is “acting white.” The average black high school graduate has learned no more in school than the average white eighth-grader. Spending more money on schools won’t change that unless we also adopt major reforms opposed by powerful Democratic interest groups: firing bad teachers, rewarding good ones, encouraging school choice, and tearing down the legal rules that make it so difficult to get disruptive students out of classrooms.

• On the subject of preferential treatment in college admissions and employment, as well as other racial affirmative-action programs promoted by your party, your speech offered nothing of substance—only a cryptic comment that although there can be “very legitimate debate,” the subject is “too often simplistic and left to those on the extremes.”

If you really want an honest conversation and if you don’t share the opposition of the vast majority of Americans (including me) to large racial preferences, please clarify specifically why you disagree. Also, please come to grips with the fact that these preferences do very little for truly poor people; that a substantial percentage of them go to middle- and upper-class blacks at the expense of less affluent Asians and whites; and that preferences harm some of their intended beneficiaries.

On this last point, please address the social-science research showing that virtually every selective college and university in the country discriminates so heavily in admissions that most black students cluster toward the bottom of the class and the best black students see their accomplishments stigmatized—and that alarming percentages drop out. And that more than half of entering black law students never pass the bar and never become lawyers. And that many blacks might do much better and get better educations at the less selective schools they would attend if the racial preferences were not so large. And please state whether you support the racial-preference lobby’s efforts to deny researchers access to the empirical databases that would cast more light on the magnitude of these problems.

One especially egregious reverse-discrimination case of which you are surely aware—because it is pending before the Supreme Court and politically explosive—is a lawsuit by white firefighters in New Haven, Conn., who were denied promotions they had earned. The reason was that powerful political figures wanted to promote some blacks who had done much less well on tests of firefighting skills and expertise.

The most important contribution that your Justice Department could make to a serious conversation about race in the near future would be to file a friend-of-the-court brief supporting those white firefighters. The deadline for doing that is February 26, the day this column goes to press. Here’s hoping that you do the right thing, and that your brief writers do a better job than your speechwriters.

The old saw is “garbage in; garbage out.” When the computer model is too complex and attempts to cover too wide a scope, its output is worse than useless; disaster is just around the corner.

Econometric computer models were at the root of the 1998 collapse of John Meriwether’s hedge fund Long-Term Capital Management (LTC).  That event led the Federal Reserve to pull out all the stops and flood the market with liquidity to prevent a possible world-wide financial meltdown.  Long-Term Capital Management had too many huge financial commitments to and from the world’s major financial institutions.  Allowing it to fail, so the Fed thought, would risk system-wide disaster.

Mr. Meriwether’s computer models had built in all of the assumptions of risks that humans then could foresee in constructing very complex trades involving very complex financial instruments.  He and his colleagues were as intelligent and as well informed as any group of securities traders in the world.  They were former “masters of the universe” at Salomon Brothers, when in the 1980s it was the world’s largest non-governmental trader of securities.  And Mr. Meriwether was at the top of the Salomon Brothers trading heap.

Yet, an unanticipated confluence of market conditions effected a swift collapse of LTC’s house of cards.

A nearly identical pattern emerged in our present financial collapse, beginning with the subprime mortgage meltdown.  Some of the world’s most sophisticated computer jocks modeled some of the most complex financial instruments in history.  A vast network of risk swaps among the world’s major financial players was constructed to hedge against all foreseeable risks.  However, the computer modelers failed to foresee combinations of circumstances that would quickly undermine the risk protections built into their models.

Once again, unanticipated confluences of market conditions kicked the slats from under this vast financial structure.

To dig out of this economic debris, the nation is rolling the dice with the largest financial wager ever made: President Obama’s stimulus bill. 

Why are we once again placing our bets on the same school of econometric-model economists who gave us the stagflation of the 1970s, economists who are using the same sorts of computer models that led to disaster in 1998 with Long-Term Capital Management and in 2008 with the subprime meltdown?

In a free-market economy, hundreds of millions of individuals can make better and faster economic decisions that come closer to sensing all available information than can any group of intellectual planners working with the world’s fastest block of supercomputers.  Planners cannot possibly gather all available information in real time and cannot effectively integrate that information into policy enactments that must apply uniformly to the entire population.

A couple of quotes:

The primary fallacy of the tooth-fairy economics at the heart of the stimulus is the very idea that economic health is the product of government spending, which is financed either by borrowing (which leaves private businesses with a smaller share of the pool of savings for them to borrow from), printing money out of thin air, or direct seizure from the population. Whatever government spends the money on is necessarily arbitrary—government lacks the profit-and-loss feedback mechanism that keeps the private sector from squandering resources and employing factors of production in ways that do not cater to consumer wants…

In his recent press conference, President Obama cited the case of Japan as if it were evidence for his side of the argument. Exactly the opposite is true. Japan has done everything to itself that our government has done and is threatening to do to us, and with no results. From partial nationalization of its banking system to “stimulus” packages amounting to trillions of yen, from propping up zombie companies and dropping interest rates to zero, they’ve tried it all.

Naturally, the Keynesian response is that Japan simply didn’t spend enough. Oh? Thanks to the misnamed “stimulus” packages that the Japanese government imposed on its hapless people, Japan is the most indebted country in the developed world. So becoming the most indebted country in the developed world—and that’s saying something—still isn’t enough spending for Keynesians?