A little more than a hundred years after Mr. Chief Justice Marshall's immortal quip regarding the power to tax, the great economist John Maynard Keynes expounded his epochal General Theory, and his timing was providential, from a certain point of view. It was the middle of the Great Depression, and the New Deal was in full flower. The New Dealers, recall, were a tribe of Utopian dreamers and schemers, with visions of agricultural collectives and nationalized utilities dancing in their heads. Among other things, they actually believed that the G.D. was caused by low wages (you read that correctly) and cash hoarding. Many had made the pilgrimage to Josef Stalin's paradise to gain their inspiration. All believed unreservedly in the capacity of enlightened, educated people (such as, well, themselves!), given enough authority and money, to fix the world. Certainly, modesty was not their hallmark.

You can imagine their delight when Lord Keynes revealed the Gospel of Aggregate Demand. The government, you see, can pull the economy out of a slump by taking it upon itself to boost aggregate demand! How to do this? A magic wand? A magic bullet? No. It's much simpler than that. All you need to do is organize useful projects and hire the unemployed to staff them. Where does the money come from? You borrow it. You see, sometimes the economy needs its "pump primed". You can pay off the debt later, once recovery kicks in, and the tax receipts come gushing. And did you know about the "multiplier"?

As you may now grasp, Lord Keynes' groundbreaking and brilliant (I mean that) work on aggregate demand provided the intellectual cover for busy-bodies and do-gooders throughout the land to congratulate themselves as they spent other peoples' money (or maybe even money that doesn't exist yet) on their pet schemes. Might there be shortcomings in this approach (see Today's History Lesson, infra, November 23, 2008), in the form of the long-run effects of taking on debt to pay for projects of unknown utility that private investors might have shunned? Sure, but the ever-insightful Keynes had an answer for that: "in the long run, we are all dead".

By the 1970s, the long-run had arrived, and, as he predicted, Lord Keynes had passed on. Efforts to manage the business cycle through manipulation of aggregate demand, however, were alive and well, though President Nixon's famous remark on the subject ("We are all Keynesians now") may have been an Ultimate Contrary Indicator. Nonetheless, Keynes' Cover had predictably led to social engineering through the tax code and other onerous regulations. Further, years of attempts to manage aggregate demand, and the widespread belief in the Phillips Curve (which held that there is an inherent and unbreakable link between inflation and unemployment such that more of one necessarily means less of the other) caused policymakers to accept more and more inflation in the hope of controlling unemployment. Once inflation inevitably got out of hand, interest rates skyrocketed, bringing high unemployment. This was the era of stagflation. The Phillips Curve was a dead letter, and many economists threw up their hands.

But the Two Giants, Reagan and Volker, had an plan. They would kill inflation through tight money (also suporting the dollar), and that, along with tax cuts and regulatory reform, would drive down unemployment. By the conventional wisdom of the Phillips Curve, this was an absurdity and bound to fail. But Keynes' aggregate demand model had some big holes in it, which the Two Giants recognized. First, Keynesian stimulus is effective only to the degree to which it is unexpected: to the degree markets see it coming, they learn to discount it in the form of higher interest rates. Second, the Keynesian model took no cognizance of the notion that perhaps government spending might be tinged with cronyism and other assorted inefficiencies that would undermine stimulus. Third, and most importantly to President Reagan, the Keynesian model took no cognizance of the role of incentives in economic life. Very simply, if you let people keep more of their money, and hassle them less, their appetite for risk will increase, as will overall economic activity. That this truism is even debated astounds me.

All of this seems common-sensical, and the results spoke for themselves. Yet these principles have been fought savagely, including by our current president, against all reason. Why? Simple. Ronald Reagan spoiled their fun. More money for tax payers and risk takers means less for "community organizers" to work their wonders. To the extent you put your faith in "economic activists", and the dreams of energetic people, you implicitly devalue the "contributions" of community organizers, government planners, social workers, political staffers, and the like. You've just told a lot of do-gooders that you don't think they do much good. Ouch!

To stand up against this type of entrenched interest, and to do so knowing that your approach would bring a brutal recession before causing the country to emerge much stronger than ever, is the definition of political courage. Current "leadership" could learn a lot, but won't. For reasons I'll delve into in the near future, our current president is constitutionally incapable of placing his faith in the dynamism of the American people. He will bitterly cling to the flat-earth creed of government knows best. He will be a failure.

Our favorite columnist, Holman Jenkins, lays it all out for us today. He wrote the column I would have wanted to write. I've been contending that President Mugabe-Wannabe doesn't give a damn about the economy. His concern is getting even with The Man, and he's going to try it because he thinks he can blame Bush for everything he purposely does to screw things up. If you think I'm crazy, just watch him.

Let's hope Holman Jenkins is correct in his prediction as to where this cowardly strategy will take the Obamalama:

He kids himself if he thinks he will be allowed, like FDR, to preside over a Depression without being blamed for it. The public is different now - the world is different - and he will own the "Obama Depression" sooner than he thinks.

We can only hope. But I'm telling you now he's sowing the seeds, with his Depression policy, of what will be (finally) "the worst economy since the Great Depression".

The quote above is actually from the end of Mr. Jenkins' column. He began by quoting the Obamessiah himself, from the inaugural: "Put away childish things..." Mr. Jenkins has a list of things for the President to put away, as follows:
1. "Put away the global warming panic";
2. "Put away the 'energy independence' conceit";
3. "Put away Ponzi welfarism"; and
4. "Put away class warfare tax politics".

I'm not holding my breath. We have no reason to believe the crack dealer in-chief is anything other than a Chicago race-hustling thug - apart from his Sidney Poitier sweet talk. For all the talk of change, hope, post-this, and post-that, the "stimulus" told us all we need to know: as Mr. Jenkins described it, once in office, his interest is in fulfilling the wish lists of those who put [him] there."

If nothing else, says Mr. Jenkins, this is going to be a fascinating presidency.

But his presidency will get really interesting in a year or two, or six months - whenever he finally realizes that everything he thought he wanted to do is irrelevant. He'll then have to adapt an agenda for the world as it is, in which many childish things no longer have a place.

After 9/11, many of us hoped that our political "leadership" would wake up to a new world in which clownishness and ancient shibboleths would no longer be tolerated. Sadly, the clowns, communists, and incompetents fought tooth-and-nail to preserve their positions, using every dirtbag trick in the dirtbag politician's book. Look at where we are now, as a consequence. And the ultimate dirtbag, President Shakedown, is betting his presidency on his ability to sell more of the disease as a cure, with his ability to blame the resulting depression on his predecessor as the backstop. Mark my words: he intends to sink the country.

“No American is ever made better off by pulling another American down, and every American is made better off whenever any one of us is made better off. A rising tide raises all boats.” John F. Kennedy

That was Cramer's opening line today, regarding the Obama administration, and the so-called "stimulus". He says sell any rally tomorrow. Again, I find his negative outlook vis-a-vis the administration's economic policy notable, given his self-identified status as Democrat, and previous and palpable efforts to cheerlead. This guy is about money, period, and if something isn't going to make him money, he's not going to pretend for long. Hence his swift abandonment of the Obamessiah, based on the utter uselessness of the "stimulus". The market is under no illusions about the "cluelessness" (Cramer's word) of Washington's current ruling elite.

Perhaps this is a time to repeat my theory about the election of 2006, as it relates to the markets, and the economy. As the election of 1994 signalled a multi-year resurgence in the markets and economy, the election of 2006 signalled the reverse. Why? With respect to 2006, it was the signal that killed any hope that sanity would prevail in Washington. That is, notwithstanding the foibles and weaknesses of Congress while under Republican control, market participants could be reasonably certain that nothing crazy was likely. With the Dem's takeover, all hope was lost.

This is particularly important with respect to the soon-to-lapse "Bush tax cuts". My theory was that the housing boom, to the extent it was precipitated by Fed policy, constituted a deferral of the tech-bust, 9/11 secular downturn. In that light, there had to be a potential for some other factor to spark the economy once the housing boom ran its course. It might have been, apart from the extension of the 2003 tax cuts, further tax cuts (particularly the corporate tax rate), more substantial tax reform (flat tax?), or non-tax policy improvements, such as an enlightened energy policy. Once the 2006 returns were in, any clear-headed observer knew none of the above was possible. So the economy was left to fall flat.

As I've remarked before, we are going to have a recovery, of sorts, in spite (NOT because) of the "stimulus" legislation. This is the natural order of things - GDP posted blowout quarters even during the Carter administration. But the best-case prognosis for the economy is growth in fits and starts - no long boom. That's what's got Cramer so bearish. Remember, he wanted to believe, but faced with the facts of current economic policy, he just can't put his money on growth. That's what I like about people who actually have (major) skin in the game.

For those still deluded enough to believe that the Dems are "looking out for the little guy", I submit as Exhibit "A" contra, the infamous Kelo v. City of New London, 545 U.S. 469 (2005). This ought to have been an eye-opener, but alas it's not a perfect world, and you better watch out for those dastardly Republicans who will (a) starve your kids; (b) kill your grandma; and (c) sick the Monopoly man on you.

For those interested in a little 5th Amendment glimpse into our brave new road to serfdom, there's now a book out detailing the trials of one Susette Kelo, entitled "Little Pink House", reviewed in yesterday's WSJ. For those unfamiliar with the tale, it is the saga of Ms. Kelo, a forty year-old, divorced EMT; the house she bought in 1997 in a blue-collar Connecticut neighborhood; a giant corporation (PFE ticker symbol), a grasping city council, and five liberal Supreme Court justices.

It seems that when Pfizer came a courtin' the New London Development Corporation (NLDC), whispering sweet nothings in its ear about a new plant in an older neighborhood adjacent to a recently closed naval facility, the NLDC swooned. But what to do? You can't make people abandon their homes just because you've cooked up a lovely development scheme that promises to fill the city coffers. Or can you?

The Fifth Amendment reads in pertinent part: "...nor shall private property be taken for public use, without just compensation." Thus, until Kelo, the Fifth Amendment takings clause had been understood, not unreasonably, to mean that a taking of private property may occur if (a) just compensation is paid; and (b) the taking was for use by the public. Such "uses" included all those things you would imagine - parks, highways, bridges, and the like.

Since Kelo, however, and thanks the five most "liberal" (Orwell alert) Supreme Court justices then sitting, "public use" now means "public benefit". What's a public benefit? Whatever City Hall says it is. As the dissenting opinions pointed out, this interpretation obliterated "for public use" from the text. It also made clear, for any who might care to see, that the liberal establishment is only too happy to crawl into bed with the biggest businesses and crush "the little guy" like a little bug if there's a fat commission involved.

The happy ending isn't, sadly, that Ms. Kelo kept her house. But neither was it demolished, as were the other holdout homes in her area. Ms. Kelo's was dismantled and re-assembled in another part of town, complete with commemorative plaque - can you just imagine the very same local political thugs who ran her out preening for the photo-op? No, the happy ending is that since Kelo, 43 states have enacted legislation clarifying that "public use" means "for use by the public". Who do you think opposed this legislation? On the other hand, when a similar law came up for vote in Congress, it was defeated. Who do you think defeated it? Getting the idea? Here's your news flash: your grandfather's Democrat party is dead and buried.

I've got to say, he's done it again. There's a reason why this guy, who I remember living in a tract house among a lot of state workers, is (and has been for a long time) in line to buy an NFL franchise. Rush's "bipartisan" stimulus proposal wonderfully highlights the fascistic tendencies of the Obamessiah and the single-brain-cell organisms that slobber over him in the MSM. Of course it is nothing new to note that "bipartisan" means Republicans back down and agree to go along with what the media and beltway libs want. Neither is it news that the government-media complex would love to silence, and seeks to marginalize, new media (shout out to Dan Rather!). So the Obamalama is just another thuggish Chicago pol in this tired old mold - where's the story?

What is new, and brilliant, is Rush's approach to Obama-speak. Don't just "just say no" to national socialism; and don't just say "me too (but less)". Call out the new- speak, and present an alternative (that highlights the farcical nature of Obamanomics). Finally, Reagan-style, explain how it will work, why it will work, and issue a challenge.

Thus the 54-46 Challenge, so-named for the approximate percentage of the vote going to Obama and McCain, respectively (rounding up slightly for Obama). Let the Dems take control of 54% of a stimulus package, and the Republicans 46%. Now there's a stimulus we can really call bipartisan! Astutely, Rush points out that among financial commentators, the supply-siders aren't violently opposed to Keynesian stimulus of some level; and the administration isn't completely opposed to tax cuts. Moreover, opinion polls show the public lacks confidence in the efficacy of government spending, yet has a degree of willingness to try a mix of demand and supply-side solutions.

So let's try a 54-46 solution. The administration, and the congressional majority, can figure out what they'd like to do with 54% of the money, and the congressional minority can do what it wants with 46%. Let us put 46% toward cap gains and corporate rate cuts, payroll tax holidays, housing, and suchlike. They can do what they want with their 56%, and all we'll do is say it won't work and I told you so.

C'mon Mr. President. Whining about Rush Limbaugh isn't very original, much less "post-partisan". Neither is lecturing the minority about who won the election and who didn't. By contrast, the 54-46 Challenge may be the most "post-partisan" idea I've ever heard. Want to be a real hero? Take Rush's advice and float it as a trial balloon, then watch what happens in the markets. You won't need to watch another opinion poll, and Rush has said he'll let you take all the credit.

Robert Reich, former Clinton administration Labor Secretary, who, as indicated in the Wikipedia post bearing his name "has dedicated his career to making worthless people more worthless", has done the country a tremendous favor. He has given us a most eye-opening glimpse into the true meaning of "economic stimulus" in Obamessiah speak. In so doing, he has hopefully provided the noose with which the current administration will be hanged in 2010 and 2012.

I am speaking, of course, of his recent "testimony" - presumably in his capacity as Obama economic advisor - before some banana-republic congressional conference chaired by congressman Charlie("let's reinstitute the draft so we can get more white kids killed")Rangel. This spectacle first came to my attention via Rush, and also was a hot topic on Tom Sullivan's show yesterday. Now, it can be found on youtube at http://www.youtube.com/watch?v=opxuUj6vFa4

The lowlights are as follows. In opining on the objectives of the forthcoming "stimulus" legislation, Mr. (not, to my knowledge "Doctor", as suggested by the illiterate Rangel) Reich said that the money should be allocated with the greatest speed possible (good!), for "high social return" (?). Amplifying on this point, he infamously proclaimed that "the money should not go to highly-skilled professionals, or to white male construction workers." Instead, (presumably the preponderance of) stimulus money should be allocated to "the long-term unemployed... people who are not necessarily white construction workers or high-skilled professionals." For those still struggling to discern the direction in which the Obamalama wishes to take the country - whether his nods in the direction of moderation are mere head-fakes - the Reich Manifesto ought to provide a clue.

If I sound like I take offense at the notion of hundreds of billions of debt-financed federal expenditures being allocated on the basis of criteria other than the twin, and mutually-reinforcing, goals of economic recovery and taxpayer value, then I have succeeded in communicated my displeasure. And, with apologies to Seinfeld, I wish to make it crystal clear that I am not offended as a (mostly) white male; I am offended as an American and a taxpayer! Though offensive on many levels, the Reich Manifesto is offensive mostly because it reveals, with utmost and brazen clarity, that this claque of super-annuated student council candidates, that the below-the-median crowd has put into power, cares not a whit about economic recovery or getting the unemployment rate back to pre-recession levels. If they did, they would take the greatest pains to ensure that deficit-financed stimulus be allocated in ways that maximize (taxpayer) return. Like it or not, that goal would require putting the money in the hands of people who have the skills to create value. And, like it or not, in many cases, this would mean "white male construction workers".

For those of us who fancy themselves New Deal historians, the Reich video is no surprise. As is becoming increasingly clear via recent scholarship, the New Deal was an abject failure as an economic enterprise. It was, however, a masterful exercise in big-government propaganda. I'm reminded again of the famous encounter FDR had with his Treasury Secretary, Henry Morgenthau, in the latter's office. Morgenthau had a sign on his desk, intended to guide his subordinates, which read "does it contribute to the recovery?" When he saw this, FDR sniffed "this isn't about recovery; this is politics" - at a cost in human misery measurable on the cataclysmic scale. And so it is with the new administration. A President with no executive experience, who's goals in life appear to have been to (a) spend other people's money, and (b)"remake America", has been handed the opportunity of a lifetime. As his Chief of Staff, Rahm Emmanuel, put it: "a crisis is a terrible thing to waste".

The public expects Washington to spend money, and Washington will be happy to oblige. The public thinks it's buying infrastructure, but it's only half right. It's going to buy the infrastructure of a political machine, whether it wants to or not, and at a very dear price. Further, as Congressman Rangel candidly explained in the video, the administration needn't worry about what the middle class might think of this mad (social) scientist experimentation - they'll be way to preoccupied with taking care of themselves to raise a fuss. Where does this leave us? A massive exercise in social engineering, doomed to fail as a massive subsidy to bad behavior, bad culture, bad thinking, and bad ideas, resulting finally in, as Holman Jenkins described it in the title of his recent WSJ piece, "A Lost Decade". Ten years from now, they'll still be saying it's Bush's fault, but I'm telling you now: by then, it won't be.

"With all thy getting get understanding."
Malcolm S. Forbes

Yesterday Carter Worth, Chief Technical Analyst at Oppenheimer, appeared on Fast Money to discuss recent stock market action. Notably, he presented a 30-year chart of the S&P a la Louise Yamada. Although not nearly as negative, he acknowledged the obvious point that the S&P is bouncing along very long-term support, and that failure to hold here opens the possibility of substantial further declines.

Mr. Worth noted that the sideways trending is consistent with his training and experience. These issues (will support hold or not) don't tend to resolve themselves in short order. He expects much more trading within recent ranges before this matter resolves itself.

Last week Governors Rick Perry (Texas) and Mark Sanford (South Carolina) offered some very interesting thoughts in a WSJ piece they authored entitled "Governors Against State Bailouts". Helpfully, the governors pointed out that "every penny would have to be borrowed" to prop up ailing state governments. They caution that in the usual rush to "do something" (in this case, regarding the various fiscal crises among state governments), it would be wise to first "do no (more) harm to our country's finances."

This is a critical point: by diverting scarce resources (by borrowing) from economic best uses, and directing them to governmental entities whose governing models are clearly failures, the feds will likely accomplish little other than perpetuating fiscal doldrums, irresponsibility, and slow growth.

As an alternative, Governors Perry and Sanford suggest a model they have in fact successfully utilized - "improving soil conditions for business by cutting red tape, reforming our legal system and our worker's compensation system." Andrew Jackson called this approach "reform, retrenchment, and economy". I would call it a nod to Hauser's Law - supply-side reforms geared toward raising growth rates, and not tax rates, restores fiscal health, and beget a virtuous cycle of continuing growth.