Markets Down Hard, Debt, and Obamanomics

I haven't written here in my blog in a long time. But I've been watching the economic scene. And as you might imagine I've been quite unhappy with our President, his administration, and the results of their economic policies. Here in California the effect is magnified and made even worse.

I see these factors holding back the U.S. economy:

• Debt
• The effects of some misguided corporate rescues
• Market and corporate uncertainty caused by government actions, discussions and personnel appointments
• Present and expected future avalanches of regulations
  

After U.S. markets closed today, after the 512-point Dow drop and 60-point S&P drop, I watched a clip of Obama in 2008 or 2009, in which he said the economy should be much better 3 years out, or his presidency will be a single term. Well, here we are, it seems. I'll soon hoist a martini to his single term.

The pundits' observations I thought most valuable were that the market's fall is not about the U.S. debt deal, but about Euro-zone debt worries, and the growing perception that the U.S. economy is not growing fast and may actually fall into a "double-dip" recession. We'll see what actually happens, but though I've searched and listened to truckloads of commentary, I don't see a catalyst for U.S. growth. Yes, there are some sectors that should grow, and yes, the middle classes may be growing in China and India. But in our present trade environment we can't take proper advantage of it.

Obama said one correct thing, as far as the basic concept. He said Congress should approve the 3 or 4 international trade agreements in its queue. Now the agreements are forgotten and Congress has flown out of town for a month. The trade agreements would be one small catalyst for growth.

Hedge fund manager Phil Falcone was interviewed today on CNBC, mostly about his LightSquared network. In it he said that innovation was the only way for the U.S. economy to get going and grow again. I agree with him.

And what stands in the way of that innovation, or would foster the economic growth we all want (well, everyone except a few Luddites of various stripes)? In short, Obamanomics stands in the way of the innovation Falcone mentioned. Instead, for growth we should be repealing the laws, throwing out, simplifying, and rationalizing the regulations, and basically undoing all we can of the four factors listed above.

As an aside, during the Reagan administration, he said that he would reduce government employees by a significant amount. One evening I was looking up at the federal office building in West Los Angeles and doubted anything would happen. A very few years later the building was 40 or 50% vacant, if I recall correctly. I was very happy to see that Reagan did what he said he would do. Today the size of government employment has grown past any nightmare Reagan ever had. It's time to slim down again. The regulations and other scribblings of the bureaucrats are not needed. In fact, they're harmful.

Again, the bottom line is "back to free markets" to create the growth and jobs we need.

Calornia Propositions A-F election today, cont.

As a first follow-up, here's some quick arithmetic. The result is that Proposition 1A wants everyone in California to pay an additional $422 a year, on average.

Here's the breakdown. Proposition 1A's summary/analysis says that state tax revenues would rise by about $16billion a year through the 2012-13 year. So let's look at that number as 16,000,000,000. Wolframalpha.com says that California's population was 36.46 million in 2006, and increases by about 1.267% a year. So we'll take 36,460,000 and multiply by 1.01267 three times to compound to 2009. We get 37.86million, with a little rounding. Or we can write it 37,860,000. We'll cancel out three zeros from each number and divide. 16,000,000 / 37,860 = 422.61.

I think I know how I want to vote. That kind of marginal tax increase is very contractionary, as in the opposite of stimulative. And in California it's about wealth creation and getting the economy going again. Or rather, it should be.

Calornia Propositions A-F election today

Well, today is our election in California. The date got here fast and I haven't done my research into these propositions. The usual newsprint pamphlet containing the legislative analyses is missing from our house. Either we've misplaced it or we never got it.

I noticed a huge lack of URLs for information about the propositions. The single paragraph blurbs on the ballot don't mean anything. The basically explain nothing about the proposition, except the subject from the 60,000-foot level. And especially in this election, I don't believe what I've heard and seen in the political print ads and on TV. The ads are so slanted that they don't really make sense to me. The marketing program for these propositions basically "stink to high heaven"!

If you want to research these, here are some links.
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1a-analysis.pdf
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1b-analysis.pdf
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1c-analysis.pdf
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1d-anaysis.pdf
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1e-analysis.pdf
http://www.voterguide.sos.ca.gov/pdf-guide/props/prop1f-analysis.pdf
Gotta love the one for 1D. I don't know how much stock I should put in an analysis when they can't spell the word.
For other info and .htm presentations of the information, go to http://california.gov/ and search with "proposition 1x legislative analysis", where x is the prop of your choice.

Over the course of the last month, I've noticed that any economic analyst I've considered intelligent has recommended "no" votes on all of these propositions. I'll probably vote "no" myself.

Having said that, are California's political process and budget processes broken? Certainly. They are also wildly pro-cyclical, where spending goes up during good economic times, followed by budget crunches during bad times. This was true since before the defense-related recession in California in the late 80's, the Silicon Valley / dot-com boom-and-bust of the 90's and early 2000's, and so on. So the processes certainly need to be changed. As an aside, the "rainy-day fund", known in the analyses as the "BSF" seems designed to smooth the cyclicality to the upside, with more taxes, instead of forbearance of possible spending during good times!

One glaring, flashing omission from these proposals is discussion spending cuts. There's a lot of rearranging of deck chairs and debt, shall we say, and some sizable tax increases. There is discussion around protecting certain "sacred cow" spending areas. But the whole thing seems built around the idea of "Don't look at the spending behind the curtain!"

Talk with you soon. I'm off to study and Vote!

Why the "Old Fashioned" Title

This blog's title is as it is half as a joke, and half with serious intent. I recall the famous old Smith Barney ad, in which John Houseman says "“We make money the old-fashioned way. We EARN it.” I thought that was so cool the title just wrote itself. That ad was broadcast so long ago it will probably be very obscure to almost anyone under 40. But hey, I remember it like yesterday.

The point of the ad was that Smith Barney was rooted in the basics, and wasn't going in for all the swingin' financial engineering that was taking customers' money and getting people into trouble. And that was before anyone had heard of the fancy financial instruments that are causing so much trouble now.

The serious side is trying to make the point that the fundamentals of economics and Capitalism may seem old fashioned, but in fact they apply just as well today as ever. It occurred to me after I published that "Old Fashioned" must seem doubly quaint when the winning campaign was dressed in the cloak of newness and change.

I do not believe that anything really new has been proposed. This term will likely be a case of "the more things change, the more they stay the same". If I'm correct those who remember Johnson's Great Society and Carter's malaise will be drawing comparisons. Those who can remember the Great Depression as adults are getting fewer. But we can all hope that as Chairman Bernanke compares the statistics the coming period won't too closely resemble it.

I must be in a bit of a dour mood today. Here's some positive spin. Today I remembered again that a few short weeks ago we were looking squarely into the eyes of a meltdown of the world financial system and possible return to the financial stone age - as least from the perspective of the global economy. Today we're only discussing the length and depth of the recession. How's that for positive?