News that the unemployment rate jumped to 10.2% in October, its highest level since 1983, as the economy shed 190,000 nonfarm jobs, underscores the spectacular failure of the so-called fiscal stimulus to stimulate anything other than economic misery.

Since the $787 billion stimulus was passed in February, the economy has lost 2.9 million jobs - for a total of 4.3 million since the end of 2008. The silver lining, some say, is the number of jobs lost each month is shrinking. But they lose sight of this: There's no guarantee the economy's 3.5% growth in the third quarter will continue.

Indeed, some worry the economy is on a slow-growth path that will lead to permanently high joblessness, weaker income growth and fewer opportunities. The Blue Chip consensus of more than 50 economists nationwide expects unemployment to remain above 8% at least into 2012.

Why should this be? Well, start with the fact that virtually all job growth comes from companies with fewer than 500 employees, and that startups and very small businesses are responsible for more than half of all new jobs.

Today, these entrepreneurial job creators are running scared. That the White House vows to jack up taxes on those with "high incomes" (that is, entrepreneurs) is one reason why. Next year's scheduled expiration of the Bush tax cuts that pulled the economy out of the 2001 recession is another.

Higher income taxes, a flood of stiff new regulations and the possibility of at least $2 trillion in new taxes related to cap-and-trade and a health care overhaul over the next decade have created a climate of uncertainty - for small and large businesses alike.

Businesses are hunkered down. They have $1 trillion in cash stashed away, but they won't invest out of fear it'll be taxed away or some government czar will tell them how to run their business.

At the same time, banks have a record $800 billion in reserves but can't seem to find any worthy borrowers.

The White House claims its stimulus "saved or created" 640,000 to 1 million jobs. But no evidence shows that's true. Stimulus has failed. If anything, borrowing hundreds of billions of dollars to fund such feckless initiatives is destroying private-sector jobs. Time has come for a dramatic change of course.

Moderate Republicans and Blue Dog Democrats should not be deluded by rosy-scenario estimates. Government-run health care will be a budget buster. First, new subsidies and handouts will cost more than predicted. Second, tax increases won't generate as much money as projected. Third, promises to control other spending - particularly Medicare - are laughably insincere. And fourth, bigger government will hinder growth, reducing tax receipts while triggering more spending.

The Senate plan allegedly will reduce deficits over the next 10 years by $81 billion, while the House proposal will shrink deficits by $104 billion over the same period. But if the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) have even tiny errors in their optimistic estimates, the fiscal implications are enormous. If history is any guide, the errors will be significant, especially with regard to the cost of new entitlements. And if revenues and offsets are 25 percent below the forecast and spending is 50 percent higher than estimated (and that almost surely is still too optimistic), the 10-year deficits will be $600 billion to $850 billion higher.

Assuming they actually care about controlling red ink, derailing government-run health care should be the top priority for deficit hawks. The methodology of both CBO and JCT is imperfect, and experience shows that these bureaucracies do a poor job of estimating future spending and revenue.

The budget estimates put together by the CBO are far too low, for instance, because they do not properly measure how people and businesses change their behavior in response to government largesse. Moreover, there are incentives for companies to dump their healthcare plans since workers will be able to obtain government-subsidized insurance. The spending numbers also are far too low because they do not recognize that politicians in the future will be tempted to expand subsidies as part of routine vote-buying behavior, similar to what happened with Medicare and Medicaid.

The federal government's ability to predict healthcare spending leaves much to be desired. When Medicare was created in 1965, the long-run forecasts estimated that the program would cost about $12 billion by 1990. In reality, it cost more than $100 billion that year. And it now costs $500 billion. Medicaid was also created in 1965 and was supposed to be a very small program with annual expenditures of about $1 billion. It has now become a huge $250 billion entitlement.

Medicaid's disproportionate share hospital (DSH) program is a sobering example. Created in 1987, the program was supposed to cost less than $1 billion in 1992, but the actual cost that year was a staggering $17 billion. To cite another example, the Medicare Catastrophic Coverage legislation was adopted in 1988 and repealed less than two years later, in part because some provisions were already projected to cost six times more than originally forecast.

The tax provisions in the healthcare proposals will impose considerable damage without raising much revenue. Higher income tax rates on investors and entrepreneurs in the House legislation will reduce incentives to be productive and also increase incentives for evasion and avoidance. The tax on high-cost insurance plans and medical devices in the Senate plan also will not generate the expected revenue since people and companies will change their behavior.

There also is little reason to expect that politicians in the future will be willing to control Medicare spending, so projected offsets of more than $500 billion are highly unlikely.

Finally, a bigger public sector has negative implications for public finances. Higher levels of government spending will drain resources from the productive sector of the economy, undermining economic vitality. Additionally, the plans result in large implicit marginal tax rates of nearly 70 percent because of the phase-out of insurance subsidies.  So even taxpayers with modest incomes will face a staggering penalty on upward mobility that will hinder overall economic performance.

Fiscal responsibility is achieved by limiting the size of government. The President and his congressional allies, however, claim that big increases in government spending are prudent so long as there are equally large increases in the tax burden. But that's like a doctor trying to fix a broken left leg by breaking the right leg as well.

Daniel T. Mitchell is a senior fellow at the Cato Institute and co-author of International Tax Competition (2008).

When Congress doled out the Troubled Asset Relief Program money in last fall's crisis, it attached strings giving the government numerous ways to control the entities that were getting the money. At first, it sounds fair-any other lender would ask for controls for bailing out a company, wouldn't they? But most other lenders, hoping to get their money back, would want their borrowers to do everything they could to succeed. For example, they certainly would not sell assets way below their fair market value or drive talent away. Would they?

Recently, the Pay Czar struck again. Kenneth Feinberg sharply reduced the overall pay of senior executives at banks and other companies with outstanding TARP loans. There are two kinds of assets in a bank. On the one hand, there are securities, buildings and equipment. On the other hand, there are the assets that go down the elevator every night. These are the bank employees, the ones with their future currently tied to the bank, but who can go across the street.

But what do you do if your star trader, who made you most of the $ 667 million commodities trading profits reported in 2008 when it was so desperately needed, is contractually entitled to $100 million as his cut for his work? What if he worked at Citibank?

The Pay Czar recently induced Citibank to sell Philbro to avoid embarrassment over a top trader's contractual pay. Yet Occidental Petroleum stole it for $250 million, about book value, and an extremely cheap less-than-one year payback. Philbro has historically excelled at trading commodities. What are the chances that skillful commodities trading will be even more highly valued as the government prints money creating inflation risk?

So when Citibank was forced to choose between holding on to perhaps the best counter-cyclical asset it had or making its pay scales cosmetically consistent, its government overseer induced it to sell the cash generator. Whatever was saved in wages was far outweighed by the loss of enterprise value. This is good for appearances when you are waging class warfare, but lousy for getting your money back as a lender. Ironically, it also resulted in many bankers' pay having a bigger component of salary making it less tied to performance and more like Congress' pay, which is completely divorced from whether America is doing better.....or worse from their efforts.

The Pay Czar said today he "doubts" cuts will make bankers leave. But when bank employees go down the elevator, they know that if they have the slightest foot fault, it could be "off with their heads." No wonder 11 of the 25 Bank of America employees left before Feinberg could take a whack at them.

Meanwhile, the pay committees can reduce bonuses, and the Pay Czar gets a second whack. Life becomes tough to plan. And those that remain employees pull in their horns, keep their heads down, and contribute to the slowdown. To avoid risk at the bank, consumer loans are off. Sharply. Commercial real estate loans are down. The private securitization market for loans is a shadow of its former self. While the Fed has doubled the money supply, all the inhibitions on bankers have helped to slow the velocity of money to a crawl. So the conflicting forces creating inflation and deflation rise in intensity, increasing the chances of a volatile outcome.

The problem with the Pay Czar is that he shows that contracts don't mean a thing. What's worse is he is not acting alone, but doing the bidding of Congress, which is imposing punitive pay cuts that will have the net effect of driving talent out of the companies that need it so badly. So now we know. Good results will be tossed overboard if they don't fit into the class warfare kabuki. While this is done in the name of protecting the taxpayer, it's really for purposes of finding a whipping boy to help re-elect Congress.

A real lender would want the bank to be worth as much as possible, and understand that if you drive the smart guys out and show contracts don't mean anything, you will poison your institution, and damage its value. If its value is damaged, your loan won't be repaid. In a world where your boss's word means nothing and your compensation is at more at risk, you will become demoralized, and will reduce your lending commitments. So the velocity of money slows down, and the crisis of confidence is renewed. That is the most likely result when the short term re-election interests of a posturing Congress are put first, far ahead of the taxpayers' and shareholders' long term needs to re-build bank value.

Mr. Singer runs Congressional Effect, a mutual fund that only puts money to work when Congress is in recess. 

"Job creation" is the altar at which politicians worship. Last spring President Obama defended his administration's near trillion dollar "stimulus" plan because it would supposedly lead to the creation of 3 million new jobs, while House Minority Leader John Boehner explained Republican opposition to Obama's plan because it would create too few jobs.

It seems both sides miss the point.

That is so given the paradoxical truth that economic growth is at its core all about destroying jobs. Rather than a signal of an economically advanced country, what economists term "full employment" is more realistically the property of industrially backward countries.

In impoverished countries like Bangladesh it's a near certainty that everyone works. And for those who beg, that's their work. Back during the Bosnian conflict of the mid ‘90s, news reports suggested that unemployment there was 75 percent, but for the U.S. military personnel in country, they witnessed the greater truth that the impoverished Bosnians were constantly working.

In economically advanced countries, the obvious goal is to produce more with less effort or, to produce plenty with as few workers as possible. In that sense the advance of machines and other forms of automation in the developed world has been profoundly good for all of us.

Thanks to the rise of the machine, children no longer have to work, and while the massive influx of women into the U.S. workplace has been profoundly good for economic growth, increased efficiency when it comes to production means that for two-parent families, work by both parents is increasingly a choice rather than a necessity. In short, a society is progressing when there is not full employment.

If jobs were the be all, end all for U.S. citizens, the path to full employment would be pretty simple, and it might include abolishing some of the labor-saving devices that have destroyed jobs including the computer, the ATM and the automobile. Jobs themselves can always be created, particularly if we're willing to lower our standard of living in concert with doing work that intellectual advances previously made unnecessary.

Of course most wouldn't recommend going down such a path, and with good reason. Not only would our day-to-day existence be more difficult, but for individuals to cheer the unnecessary creation of jobs is for them also to cheer a reduction in their pay.

Indeed, it can't be stressed enough that in modern economies, one individual's work is an investor's cost. Or to put it more simply, there aren't many good jobs without investors willing to supply capital so that they can be created.

In that sense, when Americans decry the offshoring of work or technological advances that make certain jobs superfluous, they're shooting themselves in the proverbial foot. They are because while outsourcing and technical advances lead to job destruction, they also make the cost of doing business less expensive which frees up the capital necessary to fund the pursuit of other works.

Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.

Returning to politicians and their peculiar worship of jobs, rather than devising endless programs meant to create them, they would do best by those eager to work if they did nothing at all. That's the case because it is government intervention in the economy in the name of jobs that is scaring off investors.

Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.

President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.

Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.

Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.

Looking ahead to tomorrow, whatever the unemployment number it's certain that politicians from both sides will wail about those out of work and what they're doing to improve things. Readers shouldn't be fooled by their sympathetic tones because in truth, it is the political class itself that is alienating the very investors possessing the ability to actually put people back to work.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

The cyclical bull market in stocks and positive print on GDP has caused some on Wall Street and in Washington to claim the recession has ended. Despite all the good economic news, an end to fiscal and monetary stimulus is nowhere in sight, precisely because policymakers know the happy news is artificially derived.

A closer look indicates that neither the administration nor the Federal Reserve believes its own recovery rhetoric. They understand that the economy will not prosper without continued life support.

I believe removing such artificial stimulus is needed so the country can immediately begin de-leveraging and to prevent the accumulation of yet more baneful debt. What is truly amazing is how many people on Wall Street are foolish enough to postulate that our problems have been solved. The stock market will not be so easily fooled for much longer.

The Great Depression Part II was narrowly averted last year by slashing interest rates to near zero. The Fed made money virtually free because the record level of indebtedness ($34 trillion) in the economy required such low rates so that borrowers could service their obligations. Otherwise a cataclysmic domino effect of defaults and bankruptcies would have occurred. To avoid that scenario, the public sector assumed some of the private sector's debt and then subsequently took on a significant amount more. The debt of the nation continues to increase at a 4.9% annual rate. All public debt is ultimately the responsibility of the private sector to pay off--either directly or through future taxes. As a result, the economy has never been more precarious than it is today.

In spite of this, the stock market appears to be doing quite well. We've seen a 57% rally off the March lows in the S&P 500. However, if you measure the market against other assets its performance is much less impressive. Since the beginning of 2000 the S&P is down about 50% measured in terms of a basket of currencies other than the falling U.S. dollar. The index is down nearly 80% against the real inflation hedge--gold!

The sad truth is that this recent market rally has been produced on the back of a weakening dollar and the slashing of corporate overhead. Cutting payrolls and research and product development projects are not a prescription for sustainable growth. As I like to say, you can't burn your furniture to keep your house warm forever. Eventually, top-line revenue growth must emerge or Wall Street's game of beat-the-expectations will be short lived.

It's also worth noting that a country cannot devalue itself to prosperity and that a bull market cannot survive an inflationary environment for long. In the short run, nominal gains in the averages can occur since everything priced in dollars tends to increase in value. However, the rally will be truncated unless the Fed provides consumers and corporations with a stable currency.

The ramifications of a crumbling currency are vastly misunderstood. A strong dollar is the cornerstone of a healthy economy. It is essential for balanced growth and healthy investment to occur. On the other hand a weak currency decimates the middle class and the corporate sector's ability to maintain earnings growth. Inflation lies behind all infirm currencies, and it is inflation that destroys the purchasing power of consumers. The diminished value of their wallets leaves them with the ability to buy only non-discretionary items. As a direct result, unemployment rates soar and economic output plunges.

I believe we will suffer from a protracted period of stagflation. Money supply, as measured by M2, has increased 5% Y.O.Y. Meanwhile the output of goods and services is falling. As long as the money supply is chasing a shrinking GDP pie, there will be upward pressure on prices.

Making the situation even worse is the manner in which the money supply is growing. The quality of growth is very low because the increase in supply is coming from commercial bank purchases of Treasury debt, rather from an issuance of credit to the private sector for capital goods creation. Total Loans and Leases at Commercial banks are down 8.2% from last year. Meanwhile, the amount of Treasuries held at all commercial banks is up 20% year-on-year.

That means money supply growth is emanating from government's misallocation and redirection of capital. It isn't being loaned out to build mines and factories; it is instead being loaned out to increase consumption and build even more consumer debt.

If the Treasury and Federal Reserve truly believed the economy and the stock market were on a sustainable recovery path, talk of extending and increasing the home buyer's tax credit would be off the table. The Fed would already be reducing the size of the monetary base. The truth, however, is that no one in government really believes in this recovery. If they did, they would be hiking interest rates and the deficit would be shrinking.

The government's realization of our precarious economic condition means its largess will continue. Near term, that may ease some pain. So did the artificial stimulus that gave rise to the housing boom. In the end, a protracted period of a near-zero interest rates, along with endless economic stimulus, will spawn another bubble and not a genuine recovery.

Michael Pento is chief economist at Delta Global Advisors and a contributor to greenfaucet.com.

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

'Our Choice: A Plan to Solve the Climate Crisis," Al Gore's sequel to his 2006 tome "An Inconvenient Truth," came out Tuesday. Printed on recycled paper using low-VOC (volatile organic compound) ink, it will undoubtedly be a best-seller and on the desk of every attendee at next month's climate change conference in Copenhagen.

In a press release announcing the book, the Oscar- and Nobel Prize-winning former vice president writes: "Now that the need for urgent action is even clearer with the alarming new findings of the last three years, it is time for a comprehensive global plan that actually solves the climate crisis. 'Our Choice' will answer that call."

The book's cover depicts one of the hurricanes Gore still claims are increasing in frequency and intensity. What has happened in the past three years is that such claims have been thoroughly debunked as the earth has cooled, possibly for decades hence.

For example, a recent study by researchers at Florida State University determined that the 2007 and 2008 hurricane seasons had the least tropical activity in the Northern Hemisphere in 30 years.

Ryan Maue, co-author of the report released in November 2008 on "Global Tropical Cyclone Activity," used a measurement called accumulated cyclone energy (ACE) that combines a storm's duration and its wind speed in six-hour intervals. The years 2007 and 2008 had among the lowest ACE measurements since reliable global satellite data were first available three decades ago.

In a New York Times puff piece the same day Gore's book was released, "Gore's Dual Role: Advocate And Investor," it's described just how profitable saving the earth can be. Considering the accuracy of Gore's climate data, his role would be better described as "storyteller and profiteer."

In November 2007, Gore joined the investment firm Kleiner Perkins Caufield & Byers. The following May the firm announced a $500 million investment in maturing green technology firms called the Green Growth Fund.

The group then announced an additional $700 million to be invested the next three years in green-tech startup firms. But there will be no return on these investments if the green technology business, uh, cools down. The hype and interest must be maintained. Climate change skeptics must be denounced as "deniers."

Financial disclosure documents released before the 2000 election put the Gore family's net worth at $1 million to $2 million.

A mere nine years later, estimates put his net worth at about $100 million. Gore's spokeswoman wouldn't give a current figure for his net worth, but, according to the Times, "the scale of his wealth is evident in a single investment of $35 million in Capricorn Equity Group," a Palo Alto, Calif., firm that directs clients to conservation investments, namely environmentally correct products.

Last year, Gore was the star witness at the hearings on cap-and trade-legislation in front of the House Energy and Commerce Committee. Rep. Marsha Blackburn, R-Tenn., asked how a man dedicated to saving the planet could get so wealthy so quickly.

Blackburn noted that Kleiner Perkins at last count had "about $1 billion dollars invested in 40 companies that are going to benefit from cap-and-trade legislation that we are discussing here today."

Gore replied he was only being a good businessman in a capitalist economy, that he was putting his money where his mouth was.

Perhaps, but at the same time he is advocating policies based on junk science that, while he enriches himself, will devastate the American economy, causing huge losses in jobs, economic growth and GDP.

The American consumer and taxpayer are on the wrong end of his green Ponzi scheme. Somewhere, Bernie Madoff is smiling.

But that's not the half of it. There's an Internal Revenue Service auditor poring over your books in the conference room. A state sales tax agent has left you a phone message that he wants to come in for a visit, and city fire inspectors just dropped off a violations summons.

With government budgets sharply constrained and likely to be under pressure for years to come, businesses struggling in the recession are now facing intense and rising scrutiny from tax and regulatory authorities. Across the country, governments are ramping up their audits of businesses, increasing fines and fees, and aggressively interpreting their tax codes to maximize collections. Meanwhile, tax codes and regulations continue to grow more complex and difficult to follow, sharply increasing the cost of compliance. As the technology consulting firm Sabrix recently put it: "Make no mistake: to cash-hungry tax authorities, your business represents a revenue stream." That's blunt.

The more intense scrutiny of firms actually started at the federal level before the recession began. From 2005 through 2007, the IRS increased audits on small-to-mid-sized firms, those with revenues between $10 million and $50 million, by 41 percent, according to a study by Syracuse University. The IRS says it thinks there's substantial ‘noncompliance' among firms in that revenue range. But IRS Taxpayer Advocate says a big problem is that the tax code is too complex and many taxpayers, their tax-preparers and the IRS's auditors simply don't agree on how to interpret the code.

But the feds aren't business's only concern. Since the recession began, governments with the biggest financial woes are being the most aggressive, starting with California. Among its moves the state has been sending letters to businesses telling them to check their records for out-of-state purchases, and then instructing them to pay back taxes they owe on goods or services they've bought in another state. In the first half of the year 25,000 firms got hit with the letters, whose tone is intimidating, to say the least: "Industry studies indicate there is a likelihood that your business has purchased fixtures, equipment...or other items...outside California," the letter reads. It then advises the business that the state has the right to audit it if it doesn't self-audit.

Across the country in New York City, whose $60 billion budget is larger than most states, the growing bite on business also comes from new fees and aggressive enforcement of regulations. The city's budget this year contains a whopping $100 million in projected new fine and fee revenues, up 12.5 percent from the $800 million the city already collects. What's particularly alarming to local businesses is that most of that additional money will come from estimated increased ticketing, as if they city knows that firms and city residents will behave that much more badly this year.

Some groups applaud such initiatives because they believe that businesses are simply being forced to pay what's due and keeping government coffers full in the process. The California Tax Association, a union group that advocates for a strong public sector, commended the state's letter-writing initiative because there is "a ton of tax avoidance out there," as a spokesperson said. Meanwhile, New York's businessman Mayor, Mike Bloomberg, told the press that firms that obey the laws have nothing to worry about from new enforcement efforts.

But the reality is more complicated. In New York, city inspectors under pressure to boost revenues have resurrected obscure laws that haven't been enforced for years. Meanwhile, tax codes are getting so complicated that firms struggle to comply at huge costs, and many still run afoul of the law. A survey last year by Tallman Insights, a technology consulting firm, found that small and mid-sized businesses spend on average $327,000 a year just to conform to sales and use taxes. At the heart of those costs are constant increases in tax rates, changes in clauses of the tax code, and complex lists of what qualifies as taxable and what doesn't.

In California, for instance, retailers are supposed to collect taxes on sales of fertilizer for flower gardens, but not on fertilizer used in vegetable gardens. If a store gets confused and collects for both, customers will complain. But if the store collects for neither, it's liable for the taxes and penalties on those items that are taxable. And the penalties add up. The Tallman surveyed estimated that businesses pay on average $34,000 in penalties and interest over and above back taxes.

Many firms that do business over state lines are finding that the cost of expanding in even a minor way, such as by enlisting an independent agent to represent the firm in a new state, can lead to a big tax bite. A recent article in CFO Magazine recounted the tax woes of a small Arizona furniture manufacturer which had a sales rep who made one trip a year to Washington State to service just two clients. When the state's tax authorities surveyed the firm and found out about the business, they sent it a substantial income tax bill based on just three days of activity every year in Washington. A poll by the magazine found that the states that were most aggressive about trying to extend their tax reach in this manner to out-of-state firms were New York, California, Massachusetts, New Jersey and Texas.

The good news in all of this, I suppose, is that it's worse elsewhere, such as in Europe, because of the widespread use of the Value-Added Tax, or VAT, which is a multi-stage levy which requires firms to calculate the value they add to a product or service and then pay taxes, which are eventually passed along to the consumer.

I guess business owners can thank heaven that America doesn't have a VAT, for now at least.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

Bernanke's Fed operates on the wrong symptom after misdiagnosing the patient. We're not suffering a crunch slowing the credit he believes to be the lifeblood of capitalism. We're hemorrhaging credit after engorging on too much debt. Our debts are staggering. We need additional savings to replenish capital rather than borrowing to keep spending it frivolously. Bernanke would serve us better with a tourniquet rather than these excessive credit transfusions.

Bernanke may have us all borrowing and spending again. GDP appears to be recovering. Unfortunately, the market's corrective medicine was stunted and these interventions bear inflationary consequences. Despite Bernanke's assertion that, "The US government has a technology, called a printing-press, that allows it to produce as many dollars as it wishes at essentially no cost," the costs are real and painful.

Since last September, they have created trillions of dollars to backstop crumbling financial markets by purchasing worthless bank assets and lending freely. Short-term interest rates barely hover above zero. They have also been monetizing treasuries to reduce long-term rates. This was done ostensibly to make mortgages more affordable.

Not only are these false cures to what ails us; they also reveal the futility of staving off asset deflation while facing an inevitable correction. The Fed's customary interventionist practices taken to their extremes failed to stanch the bleeding. Bernanke has authored numerous intrusions beyond his customary treatment manual because his usual cures were rendered ineffective.

We monetized treasury debt during WWII, but that enabled our survival and had a definite end. Now we play this check-kiting fraud to fund self-perpetuating welfare programs. Welfare won't end. These programs accelerate. We once traversed this monetary high-wire for a legitimate purpose requiring economic risk. Now we finance society's moral rot.

This fights a symptom of inflation (rising LT rates) with an inherently inflationary cure. The longer Bernanke persists, the more pent-up inflation gets unleashed when he stops. Nonetheless, Bernanke claims he can undo these policies without endangering us.

Today, much of the excess liquidity remains essentially book-keeping entries. These monies replenished bank reserves decimated by faulty lending. Bernanke intends to prevent banks from lending them out by paying additional interest.

No value was created in conjunction with these new dollars. To the extent they have any value; it reflects an enormous transfer of wealth from the rest of us to Wall Street. Or, if they have no value, these banks are still failing. It's either theft or fraud?

Supposedly, if these freshly printed dollars never circulate, they will not raise the price level and thus there is no inflation. This idea mistakes one painful symptom with the disease itself. The CPI does not measure inflation. It measures consumer prices which is usually the last symptom to arise.

The CPI is like a stock price after a company issues additional equity. The price may rise despite its dilution as there are scores of factors impacting equity markets. But even more factors influence consumer prices. Unlike a stock investment, where its return is likely our primary concern, the consequences of monetary dilution are numerous. But prices will rise as confidence in the dollar erodes reversing last fall's flight to safety.

Bernanke misses on three points:

a) This equates to stealing someone's lawnmower in the dead of winter and claiming that it's not really theft if you return it before spring. Even if we never feel the pinch of higher prices, our government just bestowed colossal sums of money on its politically-connected friends. Shifts in monetary policy take time. The prices of oil and other commodities have risen substantially. Just because these haven't yet increased the price of bread doesn't mean your lawnmower wasn't stolen.

b) This is uncharted territory. Never has so much money been created so quickly. Nobody, Bernanke included, knows if it's even possible to extract these funds before the price level surges. Dr. Bernanke's patient lies exposed in the operating room, but he's never performed this procedure before. He plays a dangerous game with our financial health.

c) He walks a tight-rope. Even if you ascribe to his faulty logic, this procedure requires uncanny balance between inflation and growth. If the Fed's over-heated printing-press served as an antibiotic; what happens if the treatment ends before the infection is contained? If he moves quickly to avoid inflation, he may instead undermine our fragile recovery.

Bernanke faces a dilemma. He must manage interest rates and the proliferation of new dollars by walking a very thin line. If he moves too slowly, inflation will spiral out of control. If he acts too soon, he may dash the recovery. This highlights one of many fallacies in the statist argument extolling government intervention. Once recovered, we still depend on the programs that turned things around. Then what?

It is virtually impossible to manage these dials effectively. Bernanke will likely err on the side of inflation. Upending the recovery will embarrass politicians leaving him a scapegoat. Inflation makes the massive debt incident to their deficits relatively cheaper. Painful consumer price inflation won't be felt for some time allowing political cover.

Meanwhile, the cheap money will trigger an artificial boom. Dr. Bernanke will look brilliant and politicians will take credit for saving us. The press will authenticate this falsehood before equilibrium catches us from behind yanking us back to reality. When price inflation hits, it will hit hard.

Bill Flax works in the banking industry. This column reflects his views and not those of his employer. Please contact him at billflax2@yahoo.com.

The Intrade pay-to-play betting/investment parlor shows big wins for Bob McDonnell in Virginia and Doug Hoffman in upstate New York's 23rd congressional district. The New Jersey race for governor is too close to call, with the probabilities swinging wildly. Late last night, Chris Christie's victory probability was 56-46 over Jon Corzine, a 16-point gain for the Republican. This morning, Christie showed a 55 percent chance of victory, with Corzine at 47.

It's interesting that early signs of economic recovery are not helping the Obama Democrats. This is largely because of the 9.8 percent unemployment rate, which is expected to move higher. Even the crazy jobs-saved-or-created campaign is having no discernable impact while the Obamacons try to fight the unemployment rate.

If you go to recovery.gov, the official stimulus website, you'll find that there has been $207 billion in stimulus spending through October 30, 2009 - including $84 billion in tax benefits, $52 billion in contract grants and loans, and $71 billion in entitlements. So even if we give my friend Jared Bernstein his highly flawed "one million jobs saved or created," that's $207,000 per job in an economy where the average wage is about $46,000. Not good. Wasteful and ineffectual spending. (In reality, tax credits are spending. For incentivizing, you need marginal tax-rate cuts.)

Mike Flynn of Breitbart's biggovernment.com notes that the government pumped $170 billion into the third-quarter economy. But GDP grew by only $150 billion. As I said, ineffectual spending.

That doesn't mean the economy isn't rebounding. It is. Glitches and all, third-quarter GDP popped up 3.5 percent at an annual rate after inflation. Statistically, the recession is over. That's good. And it corroborates the big stock market rally over the past seven months. This is going to be a business-led recovery as self-correcting firms build profits on top of huge cash flows.

Yesterday's ISM manufacturing report for October also confirms the growth trend with a recovery reading of 55.7, the strongest since April 2006. And this morning's factory orders for September also show a stronger-than-expected gain. Even car sales are expected to rise in October by more than ten million, at least one million better than September. Ford, which refused to take TARP bailout money, reported a surprise increase in profits.

But the depreciating dollar remains a storm cloud over recovery. So are scheduled tax-rate increases and health-care legislation that will slam individuals and firms with higher tax burdens and higher tax costs for job creation.

And then there's the Federal Reserve. With gold up another $25 - setting a new nominal record of $1,079 - the Fed will release a policy statement tomorrow, one that is likely to continue a program of massive money-pumping and a zero interest rate.

This whole Obama policy mix of huge government spending and a depreciating greenback is all wrong. It's pro-inflation, not pro-growth. For a true economic recovery, we need a stable King Dollar and lower marginal tax rates to incentivize job creation.

Jimmy Pethokoukis and others have noted that the first recovery quarter under Reagan was better than 8 percent, not 3.5 percent. In fact, the average real GDP growth rate for the first quarter of the ten post-war recoveries is 7.3 percent.

So the economic-recovery story, and even the stock market rally, won't bail out the Obamacons today, although it remains to be seen whether a free-market, anti-tax-and-spend message will emerge from a three-election sweep by the GOP. If so, it could doom the so-called health-care reform that has become a symbol of the leftward-tilting, big-government, economic-control policies emanating from Washington.

The Office of Management and Budget projects a $1.5 trillion federal budget deficit for 2010, with deficits greater than $700 billion in each of the next 10 years. From 2010 to 2019, estimated deficits will total $9 trillion. That will increase the public debt from 41% of GDP in 2008 to 75% in 2019, a level not seen since the early 1950s. Even once the economy returns to normal (in OMB's view, that means 2012), deficits are expected to remain in the range of 3.7% to 5% of GDP.

It is possible for a government to run deficits continuously -- ours has done it almost every year for the last four decades -- but not on this scale. Since paying down the massive debts run up to finance World War II, United States public debt has varied within a band from about 25% to 50% of GDP, with the debt growing on a manageable scale as the economy also grew-typically, outside of recession, that has meant a deficit under 3% of GDP.

When we last ran such large deficits on a prolonged basis (from the early 1980s to the early 1990s) our finances were bailed out by the end of the Cold War, which enabled drastic cuts in military spending. It's not easy to envision a similar resolution for the deficits projected for the next decade. If we keep current levels of government spending, or substantially increase them as Congress is poised to do with health care reform, massive tax increases will eventually be necessary to prevent a debt spiral that undermines the creditworthiness of the United States government. What form will these tax increases take?

New taxes on the wealthy aren't likely to suffice. In 2007, before the Great Recession, the top 5% of income tax filers (those with income over approximately $160,000) had income of $3.29 trillion and paid $676 billion in federal income tax. Raising another $800 billion a year (enough to close the budget gap in 2012) would require taking over a third of their remaining income in new taxes, an outlandish sum. And of course, many of those people have incomes below Obama's stated tax increase threshold.

An across-the-board income tax increase is also an unpalatable answer. A new study from the Tax Foundation finds you could raise an additional $800 billion a year if you raise all income tax rates by 87%, starting from the elevated 2012 baseline after the Bush tax cuts for the wealthy expire. That would mean a bottom rate of 18.7% and a top rate of 74.1%. However, that figure assumes people wouldn't work less even though their tax rates nearly doubled. In reality, dynamic effects would reduce revenue and an even larger tax increase would be necessary to raise the $800 billion. Even a more modest goal like cutting out-year deficits in half, to a manageable 2% of GDP, would require a move to drastically higher marginal rates.

These ugly choices will have lawmakers casting about for other options, and Europe provides a guideline for how to finance high government spending. Contrary to popular belief, (much) higher income tax rates on the wealthy are not a hallmark of European tax systems outside Scandinavia. European countries levy income taxes that are broadly similar to the American tax, even somewhat less progressive. The main differences that support the larger European public sector are higher payroll taxes -- politically undesirable for the same reason as a general income tax increase -- and the inclusion of value added tax in the revenue mix.

A VAT, which taxes businesses on the difference between the price of goods sold and purchased, is economically similar to a sales tax but more difficult to evade. Like most consumption taxes, VATs are regressive, but they've also proved to be a money machine for European governments, with rates gradually creeping up over time. Last month, Nancy Pelosi said a VAT is "on the table". Sen. Kent Conrad has made similar remarks.

Imposing a new, regressive tax might seem like a strange play for the Democrats, but it's not unprecedented. Remember the Obama pledge not to raise taxes on people making less than $200,000? He already broke it, less than two weeks into his term, when he signed a bill raising the federal cigarette excise tax by 61 cents a pack. The cigarette tax is the most regressive tax levied by the federal government. Indeed, President Obama smokes, but few other wealthy people do.

White House Press Secretary Robert Gibbs contends that Obama's pledge not to raise "any kind of tax" on middle income people didn't cover the cigarette tax. Obama might similarly claim a VAT doesn't violate his pledge because it's a tax on businesses, not people. Pelosi is already peddling that line, saying taxes on the middle class are out but the VAT might be in. Of course, the VAT is like sales tax, so it's a tax on the middle class (and the upper class, and the lower class) but in Washington, semantics can matter more than reality.

Democrats will likely contend that new regressive taxes are justified because they will fund programs that disproportionately benefit lower-income people. To a significant extent, that is true. But contrary to President Obama's campaign promise, shiny new government programs won't be free for most Americans.  Instead, they'll come at a cost of increased taxation, reduced incentives for productivity, and a less robust private sector.

Josh Barro is a Senior Fellow at the Manhattan Institute.

Though economic logic tells us that GMAC should never have received even one dollar of federal largesse, if the planned handout of an additional $5.6 billion is approved by Treasury, GMAC will be the unworthy recipient of $17 billion of taxpayer funds. The latest GMAC lifeline is being defended as a way to revive carmakers GM and Chrysler, which politicians see as important to the health of the U.S. economy.

The problems with this thinking are many, however. Put simply, everything Washington gives out must somehow be paid for, and in this case the political class will seek to stimulate two companies left for dead by private investors. But in order to do so it must by definition depress the commercial outlook for successful companies that don't require government funds to survive.

It is frequently said by Republicans and Democrats that the government served a necessary, economy-boosting role in "bailing out" dying businesses over the past 18 months, but nothing could be further from the truth. To "bail out" the politically connected, one must as a rule harm the economic chances of business entities not so lucky as to have Washington connections.

In this case, just as tariffs subsidize the growth of the inefficient in concert with the starving of the efficient, the funds earmarked for GMAC's continued existence mean that the firms in possession of business plans that might actually be profitable will necessarily go without. The economic impact of such charitably backward thinking promises to be profound.

Indeed, the notion of access to "capital" isn't so much about money per se as capital consists of labor and equipment. When the failures in our midst are given funds by a government lacking any of its own resources, what's really happening is that capital of the human and physical variety is placed into the hands of the talentless over the talented.

Thinking about the above in real terms, if politicians had bailed out failed Internet firms of the Webvan and Globe.com variety earlier in the decade, the losers would have been productive Internet concerns like Amazon and Google, not to mention other technology firms who've yet to improve our lives through innovation. Going back even further in time, had the horse and buggy industry been politically connected, the rise of the previously vibrant U.S. auto industry would have necessarily been slowed for it being less able to access what is always limited capital in order to grow.

In today's case, the "seen" will be the jobs and factories preserved thanks to the continued support lent to automakers headquartered in the U.S., but the "unseen" will be what our economy loses for the entrepreneurs in our midst not being allowed to redirect limited resources to productive concepts that private investors might support. Indeed, not asked enough is what major industrial advances will never see the light of day in order to save a couple of automakers that have so stupendously failed consumers.

Ultimately it all comes down to the basic economic concept that as workers, we can only do so much. And when governments such as ours seek to control the flow of capital from the Commanding Heights, they tragically support unprofitable economic effort at the expense of the profitable.

No doubt if we as individual Americans chose to, we could likely make the best t-shirts, televisions and paperclips in the world, but in order to do so, we would have to cease engaging in other kinds of labor at which we excel even more. The tradeoff would surely be negative, but presently this economy-retarding deal is what's being foisted on us by our allegedly benevolent handlers in Washington.

In short, the bailout of GMAC will do nothing to stimulate the U.S. economy, and a lot to depress it for ensuring the continued misuse of human and physical capital. This should be remembered the next time politicians express hurt over a downcast economic and jobs outlook. Their sadness is all too fake, because the downturn has nothing to do with the private sector, and everything to do with a public sector too self-important to simply get out of the way.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

There's good reason to believe that Gasparino's latest book, The Sellout, will become the definitive book on the current financial crisis and the events that led up to "The Great Recession." Spanning three decades, The Sellout pulls no punches in chronicling the rise and fall of excessive Wall Street leverage and risk taking, as well as the cast of colorful characters that ultimately brought the U.S. financial system to its knees. It hits bookshelves tomorrow.

RealClearMarkets: You sat down recently with Wall Street legend Teddy Forstmann to discuss your new book and the genesis of the mess we now find ourselves in. Forstmann said it all began as a "cold" back in the 1970s and 1980s, and that since no one ever learned much about that cold, or did anything to treat it, it developed into the "cancer" that rocked the market and economy last year. As you pointed out during your conversation, these guys have been bailed out several times before, and that the risk-taking grew-exponentially-each time as a result. So where does that leave us today? Have we at last cured what ails us, or are we going to be reading another Gasparino book about a future Wall Street disaster that we could have prevented?

Charlie Gasparino: I don't know when it's going to happen, but if history is any guide, it has to happen again--the "it" being another financial crash. Of course, it won't happen tomorrow or next week, or maybe not even two years from now. But when the memory of 2008 wears off, and mark my words it will wear off, excessive risk taking will be back in a form that evades all these alleged regulatory controls that have been established. Regulation can never cure the disease of excessive risk.

The only thing that can cure it is tough love--allowing firms to fail. That doesn't mean I wanted the Fed and the Treasury to walk away last year. That would have meant Armageddon. But they should have walked away before that, when the systemic risk was smaller and the damage would have been limited. 1998 would have been a great place to start. Let Long Term Capital Management fail; let Lehman, and as I show in my book, possibly Merrill to fail, because the trades were the most vulnerable to LTCM's bad bond market bets.

Instead, by arranging a bailout, and by using free money to juice up the markets, policy makers emboldened Wall Street to take even more risk. That's what they did then, and that's what I fear is happening all over again.

RCM: As you are well aware, Goldman Sachs now has a serious PR headache on its hands with reports of $16 billion in bonuses in the pipeline. There's widespread anger that Goldman has been milking the system and profiting from a sort of incestuous, government-subsidized, "heads I win, tails you lose" paradigm-that the firm has profited off the taxpayer's dime after being rescued by Uncle Sam. Do you think the public outrage toward Goldman is justified?

Gasparino: Absolutely. Now I'm not in the Goldman is the center of all evil camp. But I know a lot of really smart people who believe that Goldman's bankers and traders virtually control the federal government in order to advance their own notorious agenda.

In fact, as I show in The Sellout, there were far worse players whose risk taking led to last year's meltdown, starting with Merrill Lynch and Citigroup. They were equally powerful from a policy making standpoint.

Remember, after Robert Rubin fought to end Glass-Steagall's separation of investment and commercial banking, he didn't go back to his old firm, Goldman Sachs, he went to work for the firm that benefited the most from the law's demise, Citigroup.

But Goldman in many ways crystallizes all that is wrong with the financial bailout, started by the Bush Administration, but carried on and expanded by Obama's. Goldman has been declared a bank, not much different than the old Bailey Building and Loan, and yet they don't take deposits or offer checking accounts. So what do they do? They trade, and they are trading as a federally protected bank, meaning they get to borrow at cheaper rates and they are Too Big To Fail.

How anyone considering themselves to be a capitalist can support this arrangement is beyond me.

RCM: Hedge-fund manager David Einhorn delivered a heck of a speech at the recent Value Investing Congress. He didn't pull any punches. Of particular note, he said the "failure of Lehman meant that, barring extraordinary measures, Merrill Lynch, Morgan Stanley, and Goldman Sachs would have failed as the credit market realized that if the government were willing to permit failures, then the cost of financing such institutions needed to be re-priced so as to invalidate their business models." Do you agree with Einhorn? But for the bailouts, would those firms have failed?

Gasparino: Yes I do. What's interesting about what Einhorn said is that even though he predicted Lehman's demise, he never thought the feds would let the firm fail. There's a section in the book that discusses this very point.

So think of it this way: if a notorious skeptic like Einhorn thinks the government is going to bailout a firm like Lehman, why wouldn't the irrational exuberants at Morgan, Goldman, and Merrill think that they can take enormous leverage and carry enormous amounts of high-yielding but high risk debt on their books? They all thought when things got tough Uncle Sam would be there with a paycheck ready to bail them out.

RCM: Who's at the top of your list of people who should be held accountable for the unraveling of the global financial system?

Gasparino: The politically correct answer would list a long line of risk-taking CEOs starting with Stan O'Neal at Merrill, Sandy Weill and Chuck Prince at Citi, Jimmy Cayne at Bear, and of course former Lehman CEO Dick Fuld, as well as various senior traders at these firms. They're all in my book with their contributions to the demise of the financial system.

But what you will also find in my book, which I guarantee is absent from most of the others, is the root cause of the risk taking, which I believe begins and ends with the policy makers. The various heads of HUD, like Henry Cisneros, Andrew Cuomo and those in the Bush Administration who believed owning a home was a right, rather than something that should be earned, led to the disaster at Fannie Mae and Freddie Mac, which spread its guarantees to subprime loans, a place it traditionally stayed away from.

You also can't excuse Alan Greenspan for handing out free money to Wall Street every time the big firms screwed up over the past thirty years. It gave them incentive to double down on their risky bets until of course they double-downed so much the system blew up.

RCM: What are your thoughts on President Obama's approach to the economy and his administration's handling of the financial crisis?

Gasparino: What the book says pretty emphatically is that the banking crisis is far from over; that for all the billions handed to Wall Street and the banking system, the crisis has merely abated. The prime reason for this is pretty simple--the Obama administration has done nothing more than maintain the status quo that began under Bush. The banks and Wall Street are being bailed out through subsidies, but Main Street gets no relief, other than stimulus money that does very little to stimulate the part of the economy that creates jobs outside of Wall Street.

RCM: Last question. Terminal curmudgeon Pat Buchanan recently wrote a column titled: "Traditional Americans Are Losing Their Nation." In it he basically argues that the U.S. is going to hell in a hand basket.

Here's an abridged excerpt:

"[Traditional Americans] see Wall Street banks bailed out as they sweat their next paycheck, then read that bank profits are soaring, and the big bonuses for the brilliant bankers are back . . . They see a government in Washington that cannot balance its books . . . The government shovels out trillions to Fortune 500 corporations and banks to rescue the country from a crisis created by the government and Fortune 500 corporations and banks. America was once their country. They sense they are losing it. And they are right."

What's your take?

Gasparino: It's hard to argue with much of his analysis. Unemployment is growing above 10 percent, and yet, bankers are making money based on government subsidy. Now we need a healthy banking system to survive, but Goldman isn't even a real "bank" and yet it gets treated like one from a policy standpoint, but not when it hands out bonuses.

It's about time someone in Washington says the following: "Okay, it's time to sink or swim on your own. Next time you screw up, the taxpayer isn't footing the bill." Goldman for one should become a hedge fund if it likes to trade so much and end this charade.

Dan Holland is an editor for RealClearMarkets.

The question is so unfamiliar that the past provides few clues to the future. Psychology is crucial. To take a parallel example: the dollar. The fear is that foreigners (and Americans, too) will lose confidence in its value and dump it for yen, euros, gold or oil. If too many investors do that, a self-fulfilling stampede could trigger sell-offs in U.S. stocks and bonds. People have predicted such a crisis for decades. It hasn't happened yet. The currency's decline has been orderly, because the dollar retains a bedrock confidence based on America's political stability, openness, wealth and low inflation. But something could shatter that confidence -- tomorrow or 10 years from tomorrow.

The same logic applies to exploding government debt. We have moved into uncharted territory and are prisoners of psychology. Consider Japan. In 2009, its budget deficit -- the gap between spending and taxes -- amounts to 10 percent or more of gross domestic product (GDP). The total government debt -- the borrowing to cover all its deficits -- is approaching 200 percent of GDP. That's twice the size of its economy. The mountainous debt reflects years of slow economic growth, many "stimulus" plans, an aging society and the impact of the global recession. By 2019, the debt-to-GDP ratio could hit 300 percent, says a report from JPMorgan Chase.

No one knows how to interpret these numbers. If someone had predicted 20 years ago that Japan's debt would rise so spectacularly, the forecast would doubtlessly have inspired this alarm: Japan will pay crushing interest rates as fearful lenders demand high returns to compensate for the risk that government might default or inflate away its debt. Instead, the opposite has happened. Japanese investors -- households, banks, insurers -- have absorbed 94 percent of the debt, reports JPMorgan. Interest rates on 10-year Japanese government bonds have dropped from 7.1 percent in 1990 to 1.4 percent now.

Superficially, it's possible to explain this. Japan has ample private savings to buy bonds; modest deflation -- falling prices -- makes low interest rates acceptable; and investors remain confident that new and maturing debt will be financed.

The American situation is similar. Despite huge deficits, interest rates on 10-year Treasury bonds have hovered around 3.5 percent. In time of financial crisis, investors have sought the apparent sanctuary of government bonds. But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates -- and we don't know when, how or whether that may happen.

Wealthy societies everywhere face a similar dilemma. Debt is ballooning from already high levels. The Congressional Budget Office reckons the Obama administration's planned budgets would increase the debt-to-GDP ratio from 41 percent in 2008 to 82 percent in 2019. Higher interest rates would aggravate the debt burden. Anticipating higher rates, the CBO estimates annual interest payments on the federal debt at $799 billion in 2019, up from $170 billion in 2009. Even the size of exposed debt is unclear; adding Fannie Mae's and Freddie Mac's debts (effectively guaranteed by the government) to Treasury debt would raise the total sharply.

But containing debt by spending cuts or tax increases would involve wrenching and unpopular measures that might, perversely, weaken the economy and worsen deficits. In Japan, the existing value-added tax (national sales tax) of 5 percent would have to go to 12 percent, says JPMorgan, along with deep spending cuts. Against choices like that, some advanced country might decide that a partial or complete default, though dire, would be less damaging economically and politically than the alternatives.

Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both. The odds may be against a wealthy society tempting that fate, but even the remote possibility underlines the precariousness and the novelty of the present situation. The arguments over whether we need more "stimulus" (and debt) obscure the larger reality that past debt increasingly constricts governments' economic maneuvering room.

To paraphrase a once famous mayor of New York - So how's he doing so far?

You're probably aware that the H1N1 swine flu vaccine supply has fallen dangerously short of the level required to protect the most vulnerable among us. In the spring Federal officials predicted that as many as 120 million doses would be available by now, as opposed to the 16 million doses that actually arrived. Flu vaccine is tricky to make under the best of circumstances, but there are scientifically safe and proven ways to stretch supplies. Are you aware that the Federal Government refuses to allow the use of adjuvants that can be used to produce twice as many doses from the same vaccine stock? This despite the fact that over 40 million doses of flu vaccine containing adjuvants have been dispensed in Europe over the past dozen years without any indication of a safety issue. Some people denied shots because of this decision are going to die. Does this policy sound scientific or political?

You're probably aware that a mercury-containing preservative called thimerosal was removed from children's vaccines in 2001 to mollify activists promoting the theory that thimerosal causes autism. According to the Centers for Disease Control, there was then and is still now no scientific evidence linking thimerosal to autism. Despite numerous peer-reviewed studies as well as the empirical fact that autism rates have not plunged since the 2001 thimerosal ban, as one would expect if the preservative were a leading cause of this heart breaking illness, the administration recently made a decision that further reduced the supply of H1N1 vaccine. It switched our country's emergency H1N1 vaccine order from multi-dose to single-dose vials, causing production chain backups as vendors scrambled to accommodate the last-minute switch. Why the change? Because single-dose vials contain a lower concentration of thimerosal. Some people denied shots because of this decision are going to die. Does this policy sound scientific or political?

Did you know that despite the melting ice cap there are estimated to be five times as many polar bears wandering the northern regions of our planet today than there were fifty years ago? Studies indicate that the biggest threat to polar bears are not present climate conditions but forecasts of future conditions made by climate models. These are the same models that have been unable to explain why the hottest year on record was actually 11 years ago despite increases in atmospheric carbon dioxide and that the world's oceans appear to be cooling. This has not stopped the administration from proposing that 200,000 square miles of land, sea, and ice along the northern coast of Alaska be designated as "critical habitat for this iconic species." Does reading this statement make you wonder whether polar bears are genuinely endangered or merely charismatic? Does this policy sound scientific or political?

Did you catch the recent peer-reviewed article by Princeton's Tim Searchinger in Science magazine on the impact of biofuels on global warming? The authors found that "corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%." Has the White House called for a halt on ethanol subsidies and blending mandates? Is Obama asking legislators to heed the scientific evidence and pull back from this widely recognized economic and ecological blunder? No. Does this policy sound scientific or political?

Have you looked at the background and track record of the chief scientist the president chose to advise him? In a book co-authored earlier in his career with Population Bomb alarmist Paul Erhlich, Presidential science advisor John Holdren discussed the merits of adding a sterilant to public drinking water supplies to reduce population growth. The book goes on to note that "compulsory population-control laws, even including laws requiring compulsory abortion, could be sustained under the existing Constitution." You see we, dear readers, are not citizens meant to be served by our government. We are pollutants. Does this policy sound scientific or insane?

It's almost certain that the U.S. emerged from recession sometime during the summer, most likely in June. But those who want to credit the $787 billion "stimulus" package passed in February should likewise refrain from saying "I told you so."

They include presidential adviser Larry Summers, who said last week that "thanks largely to the Recovery Act, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery."

We have, in truth, stepped back from the abyss. But sorry, Dr. Summers, it was no thanks to government.

The strongest parts of the third-quarter GDP report came from personal consumption (up at an annual rate of 3.4%), inventories (up almost 1%) and homebuilding (up 23.3% after declining for 14 straight quarters). Government's contribution to GDP growth was up just 2.3%, slower than overall growth.

Cash for Clunkers and the $8,000 first-time homebuyer credit boosted consumer spending and housing. But these gains are one-time, not permanent. In reality, we merely took money from one hand and put it into another. Net change: zero.

With 4.1 million jobs lost this year and no verifiable boost to the economy from the stimulus, it's fair to say this has been a bust.

The average workweek is 31.1 hours, the lowest in decades. And 9.8% of Americans don't have jobs, the highest since 1983. White House officials promised that 3.5 million jobs would be saved or created as a result of the stimulus. But so far, the Associated Press reported Thursday, "the government has overstated by thousands the number of jobs it has created or saved."

In late July, economist J.D. Foster of the Heritage Foundation put it succinctly: "This is no longer an experiment in economic policy. The results are in: Keynesian stimulus does not work." This GDP report doesn't change that conclusion a bit.

If that's so, our only hope going forward is the private economy. Though hindered by massive government intervention in housing, banking and industry, it's still the most resilient in the world.

Businesses and households have cut spending to the proverbial bone. Now they're reaping the first benefits of all that pain.

That, and a flood of fresh money printed by the Federal Reserve - bank reserves, at over $800 billion, are about 200 times higher than normal - are the main reason for the third-quarter bounce.

What's of greater concern is the future. In a normal recovery we'd be growing much faster than 3.5%. That's what usually happens when you have a huge drop in output - a V-shaped recovery.

Few think that will happen this time. More likely we'll see slow growth of 2% or so, with fewer jobs and slower income gains - a real jobless recovery.

Why? Big government threatens our well-being with irresponsible health care "reform," higher taxes on entrepreneurs, a tax-filled cap-and-trade energy bill, a host of new business-strangling regulations and trillion-dollar deficits as far as the eye can see.

Champagne? No thanks. Put it on ice until a real recovery begins.

The distinguished Judge Richard Posner of the 7th Circuit Court of Appeals nailed the problem when he wrote last year: "Executive compensation in large publicly traded firms often is excessive because of the feeble incentives of boards of directors to police compensation."

But what does this have to do with mutual funds?

The answer: Nothing. While corporate shareholders watched more and more of their potential dividends flow to top executives, fees and expenses that mutual fund investors pay fell by about 60% over the last three decades.

And while some irresponsible corporate boards fueled a cycle of can-you-top-this CEO pay packages, independent mutual fund directors were scrutinizing the performance, costs, and competitiveness of fund advisers, driving better deals for the shareholders they represent.

Unfortunately, Judge Posner chose to unleash his anger in an opinion he wrote on Jones v. Harris Associates LP. At issue in Jones: the legal standards used to weigh whether a mutual fund's advisory fees are excessive. Posner's comments were manna from heaven for trial lawyers, who are eager to turn unfounded allegations about fund fees into a steady stream of lucrative lawsuits.

So as Jones moves to the Supreme Court, with arguments scheduled for next Monday, Nov. 2, the plaintiffs bar gloats whenever gullible commentators use this case to hammer on padded paychecks.

The real story of mutual fund fees is far different.

The fund industry is virtually a textbook case of a competitive market. More than 8,000 mutual funds vie daily for the dollars of cost-conscious investors. If investors are happy with the price, performance, and service of their fund, they stay and invest more. If not, they walk - because it only takes a couple phone calls or a few clicks of the mouse to move to another fund.

There's plenty of evidence that investors do just that: In any given year, 25% to 70% of mutual fund advisers experience net outflows.

Funds have no choice but to compete, because investors have ready access to a wealth of information on every fund - and all of its competitors. Investors can mine a rich vein of fund data on fund Web sites, investing Web sites, and easy-to-use rating services like Morningstar and Lipper.

And those investors are checking fees: In the 10 years to 2008, every net new dollar invested in stock funds went into funds with below-average fees.

Competition and disclosure are backed up by a tough regulatory regime, with independent directors standing as the investors' first line of defense. A fund adviser's contract - including fees - must be approved every year by the fund's independent directors.

These directors spend months reviewing reams of information about the adviser's performance, services, costs and more. They have to be thorough, because they're required by the Securities and Exchange Commission to document their decisions.

An efficient market, combined with effective regulation, produces results. The 2009 Morningstar global mutual fund survey, measuring the experiences of investors in 16 countries in North America, Europe and Asia, gave U.S. funds an A - the highest grade in any of the countries measured.

The study found that U.S. mutual funds have the lowest annual expense ratio, with most investors in America paying less than 0.75% of assets for fixed-income funds and less than 1% for equity funds.

Sharp competition, strict oversight and tight regulation - that doesn't sound much like the mess in executive compensation, does it? Nor does the result - investors paying half as much per dollar of assets invested as in 1980.

Shareholders, watchdogs, lawmakers - and, yes, judges - have every right to be mad about CEOs' bloated pay. But don't use that issue to destroy a mutual fund market that is delivering results for millions of Americans.

Stevens is president and CEO of the Investment Company Institute, the national association for mutual funds.

Mr. Reid's compromise is a bill with a public plan that allows individual states to opt out. That puts him squarely in the liberal camp, because few states end up opting out of federal benefits, however hard their initial resolve. The question is whether he can carry the votes of all senators of his own party and muster the 60 ayes needed to block a filibuster.

There are just 60 senators in the Democratic caucus, and Joe Lieberman (Connecticut), Ben Nelson (Nebraska), Blanche Lincoln (Arkansas), Evan Bayh (Indiana) and Mary Landrieu (Louisiana) are said to be especially wary of any form of public option. Mr. Lieberman has even threatened a filibuster.

Mr. Reid's decision tilts the Senate toward the bill passed by the Committee on Health, Education, Labor and Pensions, which contains a public option and is similar to the bill headed for passage in the House of Representatives. The Senate Finance Committee bill focuses on regulation of insurance companies and omits a public option.

Why does Mr. Reid choose the public option, even with an opt-out? It was the object of widespread vilification in the noisy August town hall meetings between members of Congress and constituents. It is a statist approach to health care, costing almost a trillion dollars over the next decade, which some Democrats may find they cannot support. Mr. Reid is cooperating with President Obama, who is committed to the public plan and cannot be seen to abandon it unless and until it fails to clear the filibuster hurdle.

In remarks on Monday, Mr. Reid said, "I believe that a public option can achieve the goal of bringing meaningful reform to our broken system. It will protect consumers, keep insurers honest and ensure competition."

That's the Reid-Obama argument. What it omits is that the public plan would result in the disappearance of competition, because private companies cannot compete against a government plan with its explicit government guarantee and its insulation from failure. When Medicare's costs exceed its revenues, as is happening at present, the program collects an additional $20 billion annually from the public purse. Private companies with similar cost overruns would go out of business.

The House bill and a Senate bill with a public option would drive the public into the arms of the government plan. The bills include penalties on firms that do not offer health insurance to employees, a requirement that everyone-man, woman, and child-have comprehensive insurance, and requirements on whom insurers must cover, what benefits must be provided, and the extent of variation in premiums.

This would solidify government control of health care, force many private insurers out of business, and lead to a single-payer health system, as in Britain and Canada.
Americans would have a financial incentive to sign up for the new public health-care plan, or for Medicaid, the federal-state plan for low-income people. The existence of a public option would motivate many employers to drop insurance and pay the annual penalty-in some versions of the legislation, only $400 or $750 per worker, in others, 8% of payroll-effectively pushing employees to the new public plan.

All bills would create health insurance exchanges. There the public plan would compete against "qualified health benefit plans," the only ones allowed to advertise their health insurance plans to individuals and firms. Qualified plans would be those that offer specified generous packages of benefits, meet guidelines on who could sign up, and agree to limits on the range of premiums.

In all, premiums would necessarily have to be very high. Insurers would be required to accept all applicants, no matter how sick. With the exception of variations for age and, in some versions, geography and tobacco use, everyone, no matter how sick or healthy, would be charged the same premiums. That would tend to lift premiums charged for young, healthy adults.

This pricing mechanism would quickly force private plans out of business-and leave consumers with the public plan.
In order to prevent insurance companies from offering plans unlisted on the health exchanges, lower-income Americans who receive federal financial help in paying for insurance would be required to buy only plans listed on an exchange. They could not select minimal plans with low premiums and high deductibles offered on the open market, even though such insurance makes sense to many people and encourages shopping around for less expensive services.

With restrictions on insurance companies driving prices of private insurance higher, it is unrealistic to believe that states would opt out of this sweeping, expensive proposed public insurance scheme. People would ask why residents of other states had access to inexpensive federal plans, yet they were prohibited from purchasing them. It's as though Medicare was offered in some states but not others.

Any health care bill that includes a public plan, with or without a state opt-out, will inevitably put private insurance out of business for the vast majority of Americans. Then, it's a short step toward a single-payer system.

Reacting to this critique, in the spring of 1979 economist George Reisman published a short book with an arresting title: The Government Against the Economy. At the time, Mr. Carter was pursuing a growth-limiting windfall profits tax on oil companies, and calling for an expansion of price controls on oil and natural gas. Talk was in the air of wider industrial price controls as a way to stem inflation, which had plagued Americans for much of the 1970s - since, not un-coincidentally, Richard Nixon's final abandonment of a gold-linked dollar on August 15, 1971. Mr. Reisman's book was largely a description of the harm and sheer stupidity of such price controls, and the nonsense of any limits-to-growth argument. His larger implicit thesis, though, is one worth pondering today: no matter how well-intended may be the designs of politicians, activist intervention by government often brings about the curtailment of growth, and even, as in the 1930s, disaster and impoverishment.

After a global recession engendered by Federal Reserve policy errors, Fannie/Freddie corruption and incompetence, and harmful legislation in many areas (e.g., bank lending mandates to poor credit risks), one would think Reisman's thesis is beyond dispute: government failure is a reality that can lead to economic hardship, however well-intended the policy aims. Yet gifted politicians and policy intellectuals favoring activist government concede nothing to Reisman. It's important for investors to understand Obama Administration thinking on this - and to analyze whether the current U.S. government is, however ironically, "against" the economy - in order to plan ahead.

Consider some basic facts:

First, the simplest proxy measure for government's involvement in an economy is the metric of government spending as a percentage of total economic output (Gross Domestic Product, or GDP). This *Government Spending/Total GDP* metric isn't perfect, as it doesn't cover other important factors such as tax rates, inflation and monetary stability, the regulatory regime, or levels of human and physical capital. Nonetheless it captures the size of government's "footprint" in an economy to a fair degree. And the first observation here - so prevalent that it may be regarded as a canonical law of economics - is that there is a significant inverse correlation between the size of this government footprint and GDP growth (and, by extension, standards of living). This is true beyond any timeframe other than the very short run. Communist economies, where government's footprint is biggest, exhibited very slow growth across the 20th century. But European welfare states do not fare well, either, in comparison to the growth engendered by the more limited-government policies of, say, Hong Kong, the U.S., or pre-1990 Japan (after 1990, Japanese government spending accelerated dramatically, and economic growth stalled). More recently, the People's Republic of China has witnessed strong growth only as rising economic liberalization, greater levels of foreign direct investment, wider property rights, and significant market-based reforms became policy.

Secondly, in the post-War era, U.S. federal spending, as a percentage of GDP, peaked at 48% in the war year of 1945, then fell back to the persistent low-20% range of recent decades (prior to a sharp increase to 28% in 2009). By contrast, in most European economies the government spending footprint is sharply higher (e.g., *Government Spending/GDP* has been above 60% many times in Sweden, and is 56% there in 2009). Meanwhile, inflation-adjusted economic growth has averaged 3.4% per annum since 1948 in the U.S.; this compares with a range of 1.8-2.7% for the economies in western Europe. Over time, this economic growth differential drives gaps in other such standard-of-living metrics as per capita income, or unemployment. Per capita income in the U.S. was over $44,000 last year, versus $32,000 in France, for example. And, persistently high unemployment levels have become the norm in Europe, often registering double digits in many countries for long periods. Sadly, in 1970 western Europe had 20 million more jobs than the United States; today the U.S. has 25 million more people employed than in Europe.

These differences in economic growth and employment rates have led to a growing gap in living standards not captured fully by the numbers themselves. Tax rates on personal income have generally been lower in the U.S. than in most European countries (though this is changing). And the cost of living, as measured by consumer staples ranging from milk to gasoline, is considerably lower in the U.S., meaning higher American income levels buy even more of the "real stuff" of life. Finally, the U.S. outspends more than the next 9 countries combined on national defense; whether that's for better or worse, it means many countries effectively live under an American defense shield, freeing up billions for welfare spending. Absent this implicit subsidy, higher tax rates to pay for their own security would imply a lower level of consumer welfare and living standards elsewhere, in the sense that "more guns" would mean "less butter" - and this comparative analysis ignores the rather stark differences in quality, service, availability, and convenience between, say, Europe, and a 24/7, please-the-customer-first, competitive culture in America.

Likewise, the rest of the world lives in the back-draft of U.S.-led innovation, entrepreneurial dynamism, technological advance, and capital deepening. The U.S. dominates the scene in private equity and venture capital spending, as well as corporate capital investment. More than one-fourth of all patents are issued in America, and these often comprise the most important and commercially viable over time. At over $300 billion per year, the U.S. dwarfs the rest of the world in absolute R&D spending, with three-fourths of that private sector- or academia-based. And, at a long term average of 2.7%, the U.S. is near the top in terms of the *R&D Spending/GDP* ratio (only a few Scandinavian countries, Israel, and Japan are higher; the European Union is 1.9%, by comparison). Outside of mobile wireless technology development in Japan and Scandinavia, one is hard-pressed to name a significant industrial advance emanating from anywhere other than the United States since 1980. From health sciences to software engineering, electronics, industrial ceramics, basic manufacturing, and countless other sectors, U.S. advances have been proliferated quickly throughout the world after commercialization. This is one reason the U.S. has run a persistent trade deficit; capital has found consistently solid returns here more than anywhere else over time, to the world's enrichment. Combined with continual U.S. innovation in corporate strategy, finance, management methods, and ever-deepening liquidity of capital markets, American technology, research, and know-how all combine to benefit the world via the entrepreneurial dynamism of our private sector.

All this matters for a simple reason: the superior wealth creation and higher standard of living in the United States result with a lighter footprint of government than elsewhere. A corollary of this is that if the United States did not exist - that is to say, if the European welfare states and Japan and others had no ability to benefit from American entrepreneurial dynamism, capital, technological innovation, management methods, or defense and security services - the global standard of living would surely be materially lower. Or to make the same point more realistically, if, since World War II, the United States had had the welfare state economy and growth rate of, say, France or Sweden, the world would be significantly poorer.

This is a seminal fact which President Obama would not deny. But he evidently does not agree that economic growth, based on superior American exploitation of entrepreneurship and a friendlier environment for capital investment, is the most important end of policy. Nor, concomitantly, is wealth generation the most important aim. He has spoken fondly of European health care systems, for example, and laments that the U.S. is the "only advanced democracy on Earth - the only wealthy nation" that does not provide universal health care to its citizens. Likewise he considers Club of Rome positions on energy and climate change to be enlightened, though effecting their policies here in the U.S. will mean hundreds of thousands of job losses and lower industrial profits. Again following the Club of Rome, Mr. Obama recently declaimed at the U.N. and G-20 that there is nothing inherent in the U.S. economic system which could be considered superior to the rest of the world. Given the standard of living differentials described above, this is rather astonishing, but illuminating in terms of where policy is headed.

To be sure, Mr. Obama has occasionally spoken favorably about America's private sector. But for him there is a danger of too little government, just as there is from too much. As he said last month in a joint session of Congress:

"You see, our predecessors understood that government could not, and should not, solve every problem....[B]ut they also understood that the danger of too much government is matched by the perils of too little; that without the leavening hand of wise policy, markets can crash, monopolies can stifle competition, and the vulnerable can be exploited."

This is a critical revelation of Mr. Obama's worldview, and is explanative with respect to current and future policy from this Administration. Economic growth is not the most critical lodestar for public policy, as long as business professionals exploit the "vulnerable" along the way. Further, as Mr. Obama has stated elsewhere, while the Civil Rights movement vested formal rights in such vulnerable, "dispossessed" people, little has been accomplished with respect to "political and economic justice in this society". He has opined as well that a shortcoming of the U.S. Constitution is that it does not enumerate "what the federal government must do" on behalf of people to effectuate "redistributive change".

Therefore there are societal goals to be pursued beyond economic growth which might fall under the rubric of what Mr. Obama has termed economic justice. That is to say, for Mr. Obama, there is an "optimal level" of government intervention in an economy which, far from harmful, can be of great assistance both in the short run of a crisis as well as for longer term resource coordination - and happily, at the same time such intervention can effect "redistributive change" and promote other policy preferences of the governing class, such as on environmental or energy matters.

Even if only implicit, a U.S. government policy agenda which places other goals above economic growth has enormous implications for American taxpayers, investors, and ultimately the world itself. For it portends the imposition of a European-style welfare state economy on the American people, the first result of which is a permanently lowered trajectory for the standard of living here. One of the immediate consequences of this is, as Mr. Obama's chief economist admitted last week, higher unemployment levels for the long term. Higher levels of taxation seem assured, again, for most all Americans - the top 1% of wage earners paid 17% of all personal taxes at the federal level in 1980; today this group pays over 39% of all personal taxes, so "help" must come from lower-income earners. And corporate tax rates in the U.S., already the 2nd highest in the developed world, will see no relief.

Other results of this policy set surely include a weaker-valued U.S. dollar, which puts at risk all dollar-denominated assets, particularly the U.S. bond market. Sharply higher interest rates and inflation are in the offing eventually, and prospects for a bond market collapse cannot be ruled out. All of this implies that on a relative valuation basis, U.S. assets will not yield returns available abroad, especially given the pro-growth policy pursuits announced now in several Asian countries, and most recently Germany. Oil is now at $80 and in the short run will surpass $100, with long term higher price levels in store - Asian demand and U.S. monetary policy will ensure that.

Of course, in the very short run, higher levels of new government spending induce greater consumption, per the present moment. And Mr. Obama is globally popular, as is his agenda for "economic justice". But the world will come to regret that the engine of the U.S. economy is now being shifted to a lower gear, for in time it means the same for them.

Mr. Chapman is an Adjunct Scholar at the American Enterprise Institute.  Please direct comments to john.chapman@aei.org

A recent New York Times editorial acknowledges that the economy is weak, but it pleads for yet another federal stimulus package. The Times editors want another round of unemployment benefits (this would be the third) to subsidize non-work welfarism. They also want more federal spending on state Medicaid -- an area that already has been showered with federal taxpayer money to no economic avail since it has nothing to do with economic growth.

Can't we do better?

Or let's take the case of Rep. Barney Frank, a smart guy. He told MSNBC that "The right wing took control of government and ruined it. They gave it a bad reputation. Now we are trying on every front to increase the role of government in the regulatory area."

Ah! Re-regulation. What a great idea. As I recall, the Soviet Union and old Eastern Bloc tried heavy government control and regulation, and it didn't work. The people rebelled. They wanted economic freedom; the right to keep their own money; the right to start their own businesses; and the right to climb the ladder of success in a free economy.

Now here's a counter-thought. The Reagan free-market revolution, which included regulation lite, a sound dollar, and low tax rates, launched a three-decade-long boom. And yes, the Gipper's policies were copied around the world. (What does Barney Frank know that the rest of the world doesn't?) Even the communists in China have adopted deregulated free-market capitalism.

The battle between democratic entrepreneurial capitalism and heavy-handed statism has already been won by the economic freedom fighters around the globe. That's one reason why the capitalist emerging economies in Asia, Eastern Europe, and many parts of Latin America (think Brazil) are challenging U.S. economic supremacy and the American dollar.

Prodded by the New York Times and other media organs, the Democrats in Congress are going in the wrong direction. They don't seem to realize that growth and wealth come from individuals and human action, not the heavy footprint of the state.

Here's another example of drinking from the wrong water. Top administration economist Christina Romer delivered a very gloomy forecast to Congress last week. She said unemployment will remain at a "severely elevated level," and that the U.S. jobs market will stay painfully weak next year. She was just being honest. Ms. Romer, who has written about the benefits of permanent tax cuts to stimulate GDP growth, might in fact be sending a shot across the bow to her fellow Obamacons. She even said the Obama stimulus plan will contribute little to economic growth in 2010. From her own work, she knows that big-government spending and temporary tax credits have no economic-growth power.

So why not try something different? Unfashionable as it may be today, why not go back to the supply-side model of lower marginal tax rates for individuals and businesses, large and small? That's the model my late dear friend Jack Kemp successfully espoused to President Reagan more than 30 year ago. It's the incentive model of economic growth. At lower tax rates, where folks keep more of what they earn and invest, greater after-tax rewards spur greater work effort and investment risk. They also boost asset values. This is exactly what the economy needs: a rejuvenated dose of incentives -- permanent incentives.

Think of this: At the same wage level from cost-conscious businesses, a 10 percent personal tax cut provides a handsome after-tax wage-increase incentive that will spur individuals to go back to work -- simply because work will pay more after-tax.

When I spoke last week at the launch of the Jack Kemp Foundation in Washington, D.C., I emphasized the supply-side model of a sound dollar, flat tax rates, free trade, limited government, and market-driven solutions for better schooling, more efficient health care, and the amelioration of poverty. Jack Kemp believed in these principles. He believed in growing the economic pie, not redistributing it. And he believed in growing it large. He would have hated today's notion of a "new normal" of 2 percent growth and high unemployment. He would have argued for the need to give everyone greater economic-empowerment opportunities and incentives. And he would be just as right today as he was when he began his crusade in the mid-1970s.

Kemp's universal principles have stood the test of time. His was a genuine growth solution, one that is essential to America's greatness, her boundless optimism, her prosperity, and her success. Today's anti-growth economic policies would have driven him crazy. And he would have fought back.

That's the message for economic freedom fighters everywhere: Unite, and throw off your chains. Especially here in America.

Oops.

In what amounts to the most underreported story of the year, the Treasury Department's Inspector General testified last week that in an effort to get money into the economy quickly the Internal Revenue Service rubber-stamped most applications for the $8,000 tax credit for first time homebuyers, and in the process the government has paid out hundreds of millions of dollars to people who probably scammed the feds out of our money.

About 107,000 taxpayers out of 1.4 million who claimed the credit so far may have abused the program, the IG estimated, including about 74,000 whose previous tax returns indicate they were not actually first time buyers (No doubt many of these will claim the Rep. Charlie Rangel rule of home ownership, which is simultaneously to declare several homes as a primary residence in order to secure a tax break on one or more). Another 19,300 applicants apparently received the tax credit even though they didn't buy a home (okay, that's my emphasis, not the Inspector General's). And then, in the final absurdity, 580 of the applications approved by the IRS listed homeowners who were under 18 years of age, including some four-year-olds. No doubt the $4 million that the feds paid to these kids will go into their college savings accounts.

The IG testified that prior to the start of the program his office advised the IRS on several procedures to identify potentially fraudulent claims before sending out checks, but the agency ignored the recommendations because officials were apparently concerned about getting the money into the economy as quickly as possible. Whether IRS officials were pressed by someone in the White House or Congress to get the checks out quickly is an issue worth investigating, if the media were interested.

But apparently they are not. The IG's revelations provoked a collective yawn in the press. According to the Nexis newspaper database, the testimony garnered barely more than a dozen mentions in stories, including a few buried deep in pieces about efforts to extend the tax credit. Newspaper opinion editors yawned too. I could find just a few editorials, including one mild tsk-tsk in the Boston Globe. The major TV networks and cable news programs mentioned the fraud just a handful of times.

What's most remarkable is that at about the same time the IG was dropping this bomb on Congress last Thursday the issue of fat bonuses on Wall Street also surfaced in the press. Since then newspapers have published about 430 stories about financial firms' compensation, while the electronic media ran some 130 pieces on bonuses, including multiple mentions on CNN, MSNBC and that rogue outfit, Fox News.

Talk about a double standard. I'm sympathetic to anger on Main Street against banks and investment banks that accepted government money to stay afloat and now are paying big bonuses out of profits. But what the big banks are doing is still legal, if controversial. Compare that to potentially $500 million in homebuyers' tax credit fraud, according to estimates by the IG. Somehow it seems disproportionate to evoke more outrage about how banks will disperse their earnings than how the IRS may have squandered our money.

The IG's report raises all sorts of provocative issues. During the many stimulus debates that took place last winter, advocates simultaneously assured us that programs would get underway quickly and that fraud and abuse would be held at bay. But many of the stimulus programs are far more complex than the homebuyers' tax credit, including construction projects that will hand out huge chunks of money to private firms under fast-tracked bidding procedures. Big dollars are also going through programs that are habitually subject to widespread fraud, like Medicaid. If it was boorish of critics to complain about potential fraud when the stimulus hadn't yet even been approved, it certainly isn't now that the Treasury's IG has uncovered the first widespread abuses.

The IG's testimony came at hearings to extend the tax credit beyond its Nov. 30 expiration. The real estate industry and its supporters in Congress are worried about what will happen to the home market without this big government subsidy. The industry generously estimates that of the estimated 1.8 million buyers who will take advantage of the tax credit by the end of November, about 350,000 would not have purchased a home if the credit didn't exist. But some nonpartisan experts believe that many of those buyers would have bought a home eventually anyway and the credit merely pulled their buying forward by six months to a year, just as cash for clunkers pulled forward some car buying but resulted in a sales slump when the program expired. The IG's testimony raises the additional question of how many of those incremental 350,000 buyers were legitimate first-time purchasers.

The underwhelming reaction to the tax credit rip-off helps explain how the federal government can just keep merrily subsidizing home buying in America despite one calamity after another. Two weeks before the IG's testimony, officials at the Federal Housing Administration were forced in Congressional hearings to acknowledge problems with their portfolio of insured mortgages, which grew rapidly when Congress pressed the agency to step in to the home market after Fannie Mae and Freddie Mac crashed. Still, you are more likely to find over the last three weeks stories in the press about how to obtain an FHA-insured mortgage than read reports on how the agency may need a bailout because of unwise mortgage subsidies and risky underwriting strategies.

If it seems like hardly anyone in Washington is learning anything from our current economic turmoil, it's because there apparently isn't any penalty in national politics for being foolish and imprudent with our money. It's only when people on Wall Street are foolish and imprudent with their money that everybody seems to get really upset.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

The party's future direction is unclear.

But as America struggles to emerge from a financial crisis, any renewal of the right will require Republicans to rethink their approach to the economy. An agenda focused chiefly on tax cuts, as the Republicans' has been since Ronald Reagan's presidency, is no longer enough.

In 1980, Reagan won the election by attracting a substantial portion of Democrats with three simple ideas.

First was the fight against the Soviet Union.

Second, the battle against the excesses of the state: "Government is the problem, not the solution," Reagan famously said.

Third, and most relevant to this discussion, was faith in economic growth.

Growth improves everyone's well-being, lifting the underprivileged from poverty and eliminating the need for costly fiscal redistribution. With growth as the objective, a deep cut in tax rates for higher-income people was justifiable and necessary because it would increase the incentive to work and foster productivity.

Lower taxes became a winning political weapon for the Republican Party. In 1980, when the highest marginal income-tax rate stood at 70%, this economic platform was extremely attractive, as were Reagan's other key ideas. The country had just seen a decade of low growth and high inflation, defeat in Vietnam, the Soviet invasion of Afghanistan and the humiliation of the American hostages in Tehran. It was ready for change.

An entire generation adhered to the Republican Party, forming a majority so solid that it lifted George W. Bush to the presidency 20 years later. A golden era of economic growth began in the early '80s and continued, aside from a few minor recessionary interludes, until 2007 - a quarter-century of unparalleled prosperity.

Yet today the Republican brand, so successful for over two decades, has lost some of its luster. In part, it's simply the curse of success. The war against the evil empire has been won. Taxes were substantially reduced. The battle for deregulation has achieved many of its main objectives.

In part, too, Reagan's platform lost its appeal because the Republican Party frequently betrayed it. The size of government increased by 33% during W's first term, the largest increase in federal spending since Lyndon Johnson. Bush's last Treasury secretary, Hank Paulson, orchestrated the most massive state intervention in a Western economy since Francois Mitterrand's nationalization of French banks.

The situation of Americans has changed, too. Though American GDP has doubled in real terms the past 25 years, median real income has grown by only 17%. While the richest 1% of the population has tripled its real income, with the richest 0.01% finding its real income quintupled, the bottom 10% has increased its income by only 12%.

Now the financial crisis has created significant discontent. In a survey taken last December, 60% of Americans declared themselves "angry" or "very angry" about the economic situation.

If Republicans ignore this popular anger, as the party establishment did last autumn, they leave a powerful and potentially disruptive force in the hands of Democrats. The Democrats could channel popular anger into protectionism, 90% tax rates and onerous new market constraints.

In Republican hands, populism could become a strong force for positive change.

The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry.

While the two agendas sometimes coincide, they are often at odds. Established firms are threatened by competition and frequently use their political muscle to restrict new entries into their industry, strengthening their positions but putting their customers at a disadvantage.

A pro-market strategy aims to encourage the best conditions for doing business, for everyone. Large banks benefit from trading derivatives (such as credit default swaps) over the counter, rather than in an organized exchange.

They can charge wider spreads that way, and they can afford to post less collateral by using their credit ratings.

For this reason, they oppose moving such trades to organized exchanges, where transactions would be conducted with greater transparency, liquidity and collateralization - and so with greater financial stability. This is where a pro-market party needs the courage to take on the financial industry on behalf of everyone else.

A pro-market strategy rejects subsidies because they're a waste of taxpayers' money and because they prop up inefficient firms, delaying the entry of new and more efficient competitors.

And a pro-market approach holds companies financially accountable for their mistakes - an essential policy if free markets are to produce sound decisions.

A pro-market party will fight tirelessly against letting firms become so big that they cannot be allowed to fail, since such firms may take risks that ordinary companies would never dream of.

A pro-market party should favor a robust safety net - for people, not companies. Of course, this safety net should be run on market principles as much as possible. Unemployment insurance should retain incentives for people to look for work, and the health-insurance industry should be opened up to competition. But defenders of markets cannot ignore the importance of providing such security for citizens.

They also cannot ignore the nation's growing income inequality and the widespread loss of confidence that the future will be better than the past. The knee-jerk Democratic reaction is to give these poorer citizens entitlements disguised as rights.

The Republican response should focus on providing opportunities. Parents should have access to good schools for their kids, regardless of their financial means or where they live. The best way to deliver on that promise is through a voucher system.

Students should have better access to loans to finance their education because everyone gains from a better-educated work force. The unemployed should have access to retraining, which can also be designed through a voucher system.

Health care should be available in the marketplace. The current system, in which only employers get a tax deduction for health insurance, reduces labor mobility and increases the cost of becoming unemployed.

The U.S. has been the inspiration for all who believe in freedom, both political and economic. Its identity, however, is predicated on maintaining a political consensus that supports market values.

Growing income inequality, the financial crisis and the perceived unfairness of the market system are undermining this consensus. If Republicans don't stand up for markets, who will?

Zingales is the Robert C. McCormack professor of entrepreneurship and finance at the University of Chicago Booth School of Business and the co-author of "Saving Capitalism From the Capitalists." This column is adapted from the autumn issue of City Journal.

Now numerous commentators bemoan that banks are borrowing from the Fed only to invest in treasuries, rather than lend those monies out to struggling businesses. Some are frustrated that Wall Street villains enjoy a game of arbitrage at taxpayer expense. Others lament that no safeguards were enacted last fall to prevent this malfeasance. Some believe this reflects an underhanded ploy to monetize additional treasuries. It is a vulgar thought that the Fed could be employing banks under its purview in order to secretly monetize public debt. This is particularly frustrating to those who fear that aggressive monetary policies are harbingers of massive inflation.

However, nobody acknowledges that the expected crowding out occurs right before our eyes. The same economists who disregard capital maintain that "credit is the lifeblood of the economy." As if there can be credit without capital. As if people using other people's money (credit) offer more financial value than those providing the money (capital). These Keynesian enthusiasts of deficit spending and easy credit then whine that banks are lending to Washington instead of into the private sector.

The bankers, nearly wrecked by aggressive lending practices, may be "greedy," but they aren't stupid. Why lend to struggling firms in uncertain times when you can borrow cheaply from a quasi-government entity and then can lend it back to Washington at a risk-free profit? How can lending to high-risk borrowers improve an economy nearly capsized by aggressive lending practices?

Those same borrowers are now that much weaker amidst the throes of recession. Bankers were "greedy" when they lent to people unable to repay them and now they're "greedy" because they don't. But we want bankers, like all market participants, to operate in their own interests. Profits don't reflect greed so much as sound business practices efficiently satisfying market needs.

America's capital was depleted by the stock market crash and real estate bust. Therefore our markets can sustain less credit, not more, until savings accumulate or foreign investment accelerates. There can be no credit without capital. Fiat dollars can be printed in an attempt to offset the lack of capital with easy credit, but debasing the currency thwarts the savings vital to capital restoration. Why save with historically low interest rates promising no return and inflation that will eviscerate your holdings? The threat of higher taxes, suffocating regulation and general disdain for private enterprise emanating from Washington repels investment from our private sector.

Businesses repay their lenders by using said credit productively rather than conjuring up dubious capital via the printing press. Businesses provide the goods and services enriching our lives. Washington uses your money to entice votes. Printing money doesn't put those funds in the hands of the small businesses and entrepreneurs government claims to be helping. Instead, the new money flows back and forth between Washington and Wall Street finally arriving at Main Street in devalued terms.

Government handouts skew incentives and undermine growth. Paying people not to produce or enabling them to continue producing inefficiently cannot stimulate production. Don't blame banks for lending to Washington instead of capital starved businesses; blame the politicians devouring our scarce capital for blatantly uneconomic purposes. As Washington voraciously consumes credit, there is less available for private borrowers.

The solution to the ongoing credit crunch is simple. Cut government spending and stop debasing our currency. Only then will capital begin to restore and ultimately flow to the next round of visionaries with new innovations that better all of our lives.

The credit markets marry financial capital to intellectual capital. Banks serve as intermediaries connecting the capital of savers to people with promising new ideas requiring capital to become a reality. This can't happen when government intercepts the flow of capital for political purposes.

Capital is finite, but it isn't static. Businesses grow the pie or they go out of business. Public spending shrinks the pie. We don't suffer a credit shortage. We suffer a shortage of capital and a government vulture feasting on what remains while sabotaging the market's inherent restorative powers. Government spending must subside so capital can replenish. Interest rates should revert to higher levels as determined by market forces. This would attract investment from abroad and bring capital out of hiding.

As we contemplate a second stimulus package, Milton Friedman's words come to mind, "If a private enterprise is a failure, it closes down, unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions." The last stimulus proved a disaster. Why would we go there again?

Bill Flax works in the banking industry. This column reflects his views and not those of his employer. Please contact him at billflax2@yahoo.com.

As Bartlett put it, the "individual entrepreneur is still the basic motivating force in the economy " and any "measures which suppress entrepreneurship will ultimately cause the economy to stagnate." With the top tax rate at the nosebleed level of 71 percent at the time of the book's publication, Bartlett's cure was among other things lower taxes in order to reduce the cost of innovation.

Fast forward twenty-eight years, and Bartlett is presently promoting a new book titled The New American Economy. In it, he argues that supply-siders have won, so it's time for the individuals behind the cause to "declare victory and then go out of existence." Bartlett correctly points out that the whole notion of supply-side economics (SSE) has been perverted by various give-aways and tax credits authored by the economically tragic George W. Bush administration, and that the concept has lost meaning.

Given the substantial role that Bartlett played in the U.S. economy's classical/supply-side economic revival of twenty-five years ago, it would be foolish to denounce his views out of hand. At the same time, much of what Bartlett is presently suggesting as a way of righting the economic ship he decried long ago; that, or he makes suggestions that are simply untrue.

Bartlett notes that he had a "front-row seat to the creation of SSE", and sure enough he was a staffer for Congressman Jack Kemp as the latter rolled out the eponymous Kemp-Roth tax cuts. Still, as Bartlett's 1981 book makes plain, supply side economics has long been with us, though before Herbert Stein pejoratively coined the phrase "supply side economics", this kind of thinking was phrased "classical economics."

In truth, Bartlett and others simply resuscitated the centuries-old ideas of classical thinkers ranging from Adam Smith to John Stuart Mill to Jean-Baptiste Say. Major media have reduced supply-side/classical theory to tax cuts paying for themselves, but the main point of the original classical thinkers was that demand is an afterthought because our demands are unlimited, so the trick to stimulating economic activity is to remove the barriers to production. Production is itself demand, so if taxes are low, money sound, regulation light and trade free, individuals will produce with strong demand being the certain result.

Bartlett should be lauded for being a part of the revival of this kind of thinking, but for him to suggest that he had a front-row seat at the creation is for Bartlett to somewhat dig spikes into the shoulders of the giants on which he once stood. Incentive economics has long been with us, and well before Bartlett assisted in its happy revival.

While tax cuts have historically loomed largest in historical accounts of the classical economic revival, Bartlett correctly points out that monetary policy played a large role too. The problem there is that Bartlett incorrectly argues that the notion of "money supply" most associated with the late Milton Friedman was a big part of the supply-side/classical mix. Nothing could be further from the truth.

For evidence we can refer first to the late Robert Bartley's 1992 book, The Seven Fat Years, a book widely seen as the diary of the economic revolution that Bartlett participated in. Importantly, money supply was never part of the equation.

As Bartley put it about Friedman's relations with supply-siders, "On most issues - Say's law, price controls, energy efficient markets, deficits, Keynes or whatever - he would be entirely at home at Michael 1. But not on his centerpiece, controlling the ‘money supply.'"

Indeed, as the late Jude Wanniski wrote in The Way The World Works, the book seen by many modern supply-siders as the Bible of the modern classical movement, "Supply-siders are concerned with the quality of money, not its quantity. Nobody, except the market as a whole, could ever know how much of what kind of money is appropriate to finance expansion without inflation." Not only did supply-siders think it impossible to know the correct supply of money, they also knew that with dollars everywhere in the world, efforts to control the supply would fail impressively.

Still, Fed Chairman Paul Volcker certainly did foist Friedman's monetarism on the U.S. economy for three years (from 1979-1982), and the results were disastrous. Money values and interest rates fluctuated wildly, and in a 1981 New York Times piece meant to clearly separate supply-side economics from economy-sapping attempts to control the supply of money, Wanniski observed "How ironic" it was "that ‘Reaganomics' has come to be identified as the twinning of ''tax cuts and tight money".

And with Reagan's presidency imperiled by monetarist prescriptions amid a collapsing economy, Barlett's boss the late Jack Kemp remarked about the Volcker Fed that "One has to question whether or not they know what they're doing." Kemp later asked for Volcker's resignation, but by October of 1982 the Fed ceased its reliance on money-supply targets and the economy/stock market began their long march upward.

To this day it's fascinating that Volcker is given so much credit for the 1980s boom. The truth is that the dollar collapsed once he began targeting money supply, and only came back once Reagan's election (and a return to strong-dollar policies) became likely. The reality is that growing economies need more money, not less, so the idea that money supply should be vainly restricted amid tax cuts was and is a perversion of the growth idea altogether. Rather than a Reagan ally, Volcker's monetarist flirtation nearly made Reagan a one-term president.

On the government-revenue front, Bartlett seeks a "tax system capable of raising considerably more revenue at the least possible economic cost", and among other things has said we need a VAT tax imposed to pay for the enormous unfunded liabilities in our future. As evidenced by Bartlett's book Imposter, he's of the view that the U.S. is bankrupt.

Not excusing the ridiculous spending under George W. Bush and others for one second, if the U.S. is bankrupt, it's funny how the market for Treasuries suggests something quite the opposite. Bankrupt entities pay enormous rates of interest on debt, and that in no way describes our present situation.

Furthermore, Bartlett was at least in the past a fan of Muslim philosopher Ibn Khaldun, and in Reaganomics prominently featured Khaldun's observation that "at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments." Bartlett is clear about his desire for higher taxes, but what's not been explained is why he thinks higher assessments will be any more successful today. Reaganomics is full of statistics about how lower tax rates frequently yield higher revenues, along with quotes (including one from Woodrow Wilson) bolstering the claim, but now Bartlett seems to think history with regard to taxation lacks meaning.

When it comes to the call for tax cuts during the financial crisis of one year ago, Bartlett has written that he really doesn't understand "how tax cuts could have done the slightest bit of good when millions of people had no income." What's confusing here is that back in 1981 it was very apparent to him why tax cuts would work well in periods of high unemployment. They would because as Bartlett noted in Reaganomics, "the largest proportion of important new inventions are still the result of individuals working virtually alone, rather than by big corporate laboratories."

Taxes are once again merely a price put on work, and while Bartlett would doubtless know better than anyone that tax cuts can be overrated, if he still believes that the individual is the source of economic health, one way to stimulate the minds of idle individuals would be to reduce the cost of their economic innovations. If it's agreed that tax cuts aren't the be-all, end all that some suggest, Bartlett's clear logic of long ago makes plain that they're less than hurtful, and more likely effective in facilitating economic creativity.

Considering budgets and deficits, Bartlett decries a Republican Party that has abandoned "the balanced budget as its signature economic policy". So while only a blind partisan could defend egregious spending during the GOP's control of same, one question has to be asked: would we prefer a balanced budget amid $2 trillion in spending, or a $250 billion deficit with $500 billion in federal spending?

The answer is obvious, and in pure economic terms the aforementioned deficit in concert with lower spending would be much preferred. Government spending is a tax like any other for depriving private interests of capital, so for Bartlett to elevate a balanced budget is for him to similarly elevate a great deal of economy-enervating spending.

Bartlett seeks higher taxes to balance the budget, and correctly notes an utter lack of discipline when it comes to Congress appropriating the massive amounts of dollars that reach Washington. A fair point for sure, but if Congress is as wasteful as Bartlett suggests, isn't it the height of naivete for him to suggest that our legislators would somehow discover their inner parsimony if tax increases actually produced the higher revenues he desires?

What's interesting about all this is that during George W. Bush's presidency, Bartlett happily exposed the revolting spending increases on the watch of a Party that billed itself as fiscally prudent. Nosebleed spending under Bush logically did nothing for the economy, and Bartlett is owed a great debt for revealing Bush as an "Imposter."

But despite the fact that it didn't work for the Bushies, Bartlett has turned in the other direction, has found his own inner Keynesian, and believes that heavy federal spending is now the cure for a weakened economy. As he sees it, the New Deal failed because FDR "didn't run deficits nearly large enough until the war forced his hand."

In making the claim that deficits would serve today's economy well, Bartlett ignores simple history from the ‘20s and ‘30s. Indeed, the U.S. economy roared back from a 1920 downturn greater than the one which began what is termed the Great Depression despite spending cuts that he newly scoffs at. Back then legislators correctly knew that government spending would retard the flow of capital to the private sector.

Conversely, FDR asked Congress for a $7 billion deficit in 1933, achieved a record deficit of $4 billion that year, but the economy essentially achieved a round-trip in terms of growth. In short, heavy spending in the ‘30s did little to nothing for economic growth, while the economy boomed after the ‘20s recession for the federal government doing next to nothing. Bartlett sees doing nothing now as some kind of libertarian fantasy, but it surely worked in the early ‘20s.

But more important in considering the ‘30s through Bartlett's eyes is his failure to account for one of the most basic laws of economics, one taught in Econ 101 classes around the country. Specifically, it is the law telling us that human wants are unlimited.

Thinking about the above, to believe Bartlett's take on why the economy didn't revive in the ‘30s, one would have to believe that for ten years the most entrepreneurial individuals on earth buried their natural instincts and simply chose to do nothing. What Bartlett presumes flies in the face of basic economic logic, not to mention human nature most notable in a uniquely American culture which elevates productivity above most everything else.

Worse, assuming his present views hold sway, to believe Barlett's contention that a government possessing no resources other than those provided it by private individuals helped us exit the Great Depression (through excessive wartime spending) is for one to believe that the production of weapons meant to kill potential customers (not to mention all the human capital the U.S. lost during WWII) and destroy economic assets is somehow stimulative.

Bastiat is doubtless spinning in his grave that someone as smart as Bartlett could buy into one of the oldest fallacies in the book that to kill and destroy is the way to grow an economy. Bartlett would also have to explain why the U.S. economy continued to grow in the war's aftermath despite a demobilization of the military. One possible hint exists in Reaganomics, as in Bartlett notes that the total U.S. tax burden had the average American working "only" three months a year to pay taxes versus 6 plus months today.

More realistically, it is government intervention that has caused every downturn in the history of mankind, because only government can create the needless wedges between work and reward. As Albert Jay Nock put it in explaining the 1930s downturn, "The present paralysis is due solely to State intervention, and uncertainty concerning future intervention."

Bartlett used to know all this, and sure enough on page 89 of Reaganomics he scoffed at a CBO study suggesting that there is a greater economic effect from government spending than tax cuts. As a modern reviver of classical economics, Bartlett knew then that government spending is the equivalent of shifting $50 from one set of pockets to another, while creating no incentives to produce. Rather than stimulative, those redistributed to would have less reason to work and produce, while those redistributed from would work less for their enterprise being expropriated.

Bartlett of course argues now that times are different, that we're in a "liquidity trap" and only government can spend our way out. And despite a dollar testing all-time lows versus foreign currencies and gold, Bartlett suggests we're suffering from deflation.

He misreads both. For one, no act of saving on the part of an individual ever detracts from demand. The liquidity trap he speaks of is far from a deflationary concept (when money rises in value), but instead the predictable result of monetary debasement. Indeed, who would lend to or invest in productive concepts if their returns are to be eroded by inflation?

Bartlett correctly points to the Fed's role in tight liquidity, but rather than an argument for a government with no resources expropriating funds from the productive, this merely points to the need for the Fed to float the cash rate it sets. If it does, individuals will achieve a market rate of return on their savings, and banks will lend those savings out.

Contrary to Bartlett's assertion that the banks in the ‘30s lacked money, in truth they were awash in cash during the Depression years as William Greider noted in Secrets of the Temple. But the problem then, much as it's the problem today, is that banks were fearful about lending due to a federal government that felt a need to involve itself in most aspects of the private economy. Leaving aside the inflation and resulting capital disappearance that Bartlett incorrectly sees as deflation, is it any wonder after the treatment of Chrysler's secured bondholders (to name one wronged source of capital) that investment is presently tight?

Ultimately Bartlett believes that "what the supply-siders did was good for the economy, good for the country and good for the advancement of science." Despite that, he now feels it's time for the concept to take a rest for the George W. Bush years having distorted it altogether.

But as Bartlett correctly states, the Bush years had very little to do with supply-side economics. From two stimulus packages, to record spending, to regulation of the Sarbanes-Oxley variety, to the imposition of tariffs on foreign goods, to dollar debasement, the Bush years were the very opposite of the idea that Bartlett says is spent.

In truth, and as Bartlett so helpfully shows us, supply-side economics at least in modern times never was. So rather than a signal that the classical viewpoint should be put to bed, it's time for the experts such as Bruce Bartlett to revive supply-side's true meaning. In short, those of us who admired Bruce Bartlett for years are desperately seeking the old Bruce Bartlett. We need him to revive an idea that always works, but that was wholly discredited by a Republican administration that never practiced it.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

With the firm just posting over $3 billion in profit for the quarter and planning to dispense $16.7 billion in annual bonuses in a year which the country's unemployment rate is set to breach the politically-important 10% level, a circumstance that would normally allow top executives at a publicly-traded Wall Street firm to sleep the sleep of the just is engendering no shortage of sleepless nights. They ask themselves, "how do we do what we normally do (i.e. take the money and run), when it would, at best, appear unseemly, and, at worst, attract the ire of a restless and increasingly populist nation?"

While this is, to be sure, a high class problem, it is no less a simple one. There is of course a question of the "optics" of it all, especially when the country's top financial cops are looking for more scalps than Navajo Joe. Regretfully, early indications suggest that Mr. Blankfein and his lieutenants are going to take their cues from our political elite, designing a Rube Goldberg compensation scheme that will attempt to fool enough people into thinking that they have satisfied both their top producers and the needs of the greater financial system simultaneously.

Of course, like all politically motivated decisions designed to have one's cake and eat it too, it will fool no one, and probably only result in making both the firm's stake-holders and the public at large unbearably self-righteous once bonuses are paid. The pre-emptive announcement of a $200 million donation to the company's education foundation foreshadows this coming kabuki dance and would almost be hilarious if it weren't so hideously transparent and unnecessary. In free societies, good companies should have nothing to fear from their successes and charity should be accompanied, not by cynicism, but by at least some modicum of the milk of human kindness.

Austrian writer and satirist Karl Kraus once advised that in the "case of doubt, decide in favor of what is correct." And so, it would seem that the irony of Goldman's attempts "to suffer the slings and arrows" of their outrageous fortune gracefully may lie with perhaps the most inherently capitalistic solution of all - distributing this year's windfall to the actual shareholders (formerly known as "owners") of the company in the form of a special dividend. This would provide an instant and not insignificant return to countless individual investors, pension plans and endowments. Corporate management and the employees would also receive tax-advantaged compensation. And maybe, just maybe, it would discourage the ugly mercenary culture that has surrounded investment banks since they abandoned their partnership structures and became public companies.

Dividends are, of course, still considered a Victorian notion for many in corporate America, a less muscular, creative, and fun choice for any self-respecting imperial CEO. But, a good bar bet, at let's say Rothmann's on 54th, might be to ask your average financial services professional what percentage of the equity market's historical return has been derived from dividends. Chances are pretty good that there wouldn't be one in ten that would be within 5% of the correct answer - 51.5% - although nine out of ten could probably tell you how much median home prices in the Hamptons have declined year over year out to two decimal places. Goldman's record in this regard has been less-than-stellar, its current dividend yield is 0.8% and it has paid out a little less than 9% of its $46 billion in net income it has earned as a public company. With the stock at $180, no one's complaining, but what happens if, however implausibly, the firm's principal transactions dice turn cold?

Of course there will be those that claim that such a scheme would unnecessarily place the firm's talent (perhaps the most over-used term in American English today) at risk of mass exodus. But let's face it, we've all been re-priced in this business over the last year. Intelligence, ambition, and a willingness to work hard are admirable qualities but are hardly in short supply today given the carnage that has taken place in our industry.

Being the proprietor of a small Wall Street partnership, it is obvious that I have no clue about the stresses that accompany a CEO of a large public traded financial services firm with over 30,000 employees. Hamlet reminds us that "conscience does make cowards of us all," and so I would be lying if I didn't say that I'm speaking my own book here - I am a shareholder and have an intense interest in how our industry is perceived by the public at large. I met Mr. Blankfein only once, during an interview for a trading job coming out of business school. I remember only that he asked me about my SAT scores and his saying, perhaps presciently given my career and his own current circumstance, that good salesmen rarely make good traders and that good traders rarely make good salesmen. A special dividend from Goldman might just prove that he can be both.

Jason Trennert is chief investment strategist and a managing partner at Strategas Research Partners.

The perversity of the proposal is evident in the enumeration of powers requested. Under the plan, regulators would be given the authority over bank holding companies to establish receivership, provide loans, purchase assets, guarantee liabilities, or make equity investments. But Lehman went bankrupt, AIG received a loan, Bear's assets were purchased, Goldman's liabilities were guaranteed, scores of banks have been placed in receivership and hundreds have received capital. One searches the document in vain for a substantive request for a new authority.

This absence is not surprising since the proposal itself is more a regulatory power grab than a serious discussion of past failures. Given how much discussion there has been about the overlapping jumble of regulatory authority, it was surprising to see the following recommendation put forward.

"The authority to decide whether to resolve a failing firm under the special resolution regime should be vested in Treasury, which could invoke the authority only after consulting with the President and only upon the written recommendation of two-thirds of the members of the Federal Reserve Board and two-thirds of the members of the FDIC Board. But, if the largest subsidiary of the firm (measured by total assets) is a broker-dealer, then FDIC Board approval is not required and two-thirds of the commissioners of the SEC must approve. If the failing firm includes an insurance company, the Office of National Insurance within Treasury will provide
consultation to the Federal Reserve and FDIC Boards on insurance specific matters."

That certainly should streamline things going forward.

An honest reckoning would examine why regulators, whose chief weapon in times of crisis is the ability to close failed institutions, failed to use this tool to shutter large institutions during the crises.

Most curious about the proposed "New Foundation" is the lack of a new foundation. Where we might hope to see a clear framework for extraordinary intervention we get a catalogue of powers needed by regulators. The fact that the powers requested have already been used, to horrible effect, does not seem to make anyone in the Administration blush.

The proposal's biggest failure is the absence of any serious thinking about which powers should be used in what circumstances. How to decide between, for instance, receivership and capital injections?

"We propose that, in choosing among available tools, Treasury should consider the effectiveness of an action for mitigating potential adverse effects on the financial system or the economy, the action's cost to the taxpayers, and the action's potential for increasing moral hazard."

So in the future we'll either let ‘em fail or we won't.

The thrust of the proposal is a blanket request for the authority to employ a mix of powers and the discretion to decide at the time what is best to "reduce systemic risks." The Administration seems to want to institutionalize the seat-of-the-pants approach that caused so much turmoil last fall.

Congress should reject this request for complete discretion. There is a strong argument to be made that the biggest cause of last fall's debacle was the discretionary nature of the decision-making process. John B. Taylor makes the point in his recent book, Getting Off Track, pointing out that the federal government exacerbated the crisis by "supporting certain financial institutions and their creditors but not others in an ad hoc way, without a clear and understandable framework."

Bears Stearns failed, Fannie and Freddie got rescued, Lehman was allowed to fail, Washington Mutual failed, AIG got rescued. None of it made sense at the time; none of it makes sense in retrospect. One searches the Administration's proposal for some clues about how things might have been done differently. There are none. We are left with the impression that they prefer to make up the rules as they go.

Rather than a New Foundation, we need competent regulators who can close down failed institutions with minimal collateral damage. Last fall, Treasury Secretary Henry Paulson clearly had no idea how to do this. The team of Paulson, Geithner and Fed Chairman Bernanke was terrorized by the threat of systemic collapse, but their haphazard approach to the bailouts terrorized the markets even more.

The regulators who botched things so badly then should not be given more authority. They should be given simple and direct mandates on how to do their jobs properly in the future.

Behold the "Independent Journalism Tax."

In order to preserve independent journalism in the age of the Internet, a national Fund for Local News should be created with money the FCC now collects from or could impose on telecom users, television and radio broadcast licensees, or Internet service providers.

This is the key recommendation buried on page 91 of a 100 page report issued last week titled "The Reconstruction of American Journalism" by Leonard Downie, Jr. Vice President of the Washington Post, and Michael Schudson, a professor at the Columbia School of Journalism.

Lamenting the demise of the "hegemony that near-monopoly metropolitan newspapers enjoyed during the last third of the twentieth century," these guardians of journalistic integrity recommend that your tax dollars be distributed to their brethren by "Local News Fund Council boards comprised of journalists, educators, and community leaders" to make sure that "advocacy journalism is not endangered."

Juxtapose this learned study with some recent poll data collected by the Pew Research Center.

Only 29 percent of 1,506 adults surveyed said news organizations generally get the facts straight. The facts! Sixty percent said the press is biased, up from 45 percent in 1985. Just 26 percent said that news organizations are careful their reporting is not politically biased.

The market appears to be speaking about how it views "advocacy journalism" as practiced by the likes of the money-losing Washington Post, reduced to bragging that its decline in circulation may finally be starting to slow. Kept alive by its profitable Kaplan division, one can only marvel at what sort of independence Leonard Downie would expect to maintain living on the dole. Reporters would have lots of company, of course, joining the ranks of bankers, car manufacturers, ethanol producers, and climate scientists who rely on the public weal for their daily bread. But independence? When was the last time you heard taxpayer-subsidized NPR bite the hand that feeds it?

The amazing thing about Downie & Schudson's study is that the vast majority of the pages are actually devoted to describing the amazing ferment being generated by new news-gathering organizations empowered by the low barriers to entry afforded by the Web. These are supported by a bewildering array of new business models, all interacting in a dance of discovery and renewal that the authors seem to mistake for the last days of Pompeii. What clearly irks them is the lack of professional training and credentials that they believe are required to turn college kids who aren't sharp enough to study medicine, law, finance, or engineering into paeans of virtue imbued with an ethos of Olympian detachment and moral rectitude.

Gimme a break. Have you ever read a newspaper article about an event you personally attended wondering which other planet the reporter actually visited that day? Have you ever been interviewed by a journalist with a major newspaper who had any subject matter expertise on the material he was covering? Were you fooled for one minute that he hadn't already written his story and wasn't just looking for sound bites that would fit his preconceived notions? Did you notice how lazy he was about tracking down a diversity of independent sources and how easily he could be guided into a self-referring circle of cronies? And these are the professionals?

At least when you read a blog you know what axe the author is grinding. Who needs an editor with a 29% success rate to check the facts when you know that ten more bloggers are poised to pounce? And thanks to the Internet we can all get our own hands on the same source material the reporter is reading and decide for ourselves. Case in point is the Downie & Schudson study. Go read the mainstream press reports on it then Google up the original document. The contrast is illuminating.

In the current era of single party rule, is there any chance that this further intrusion of the government into our lives might actually come true? Might we one day be forced to pay a tax every time we make a cell phone call to make sure the Press Room in the White House is stuffed with even more reporters eager to credulously swallow whatever nonsense comes out of the President's mouth? Could truly independent newspapers be forced to compete with government subsidized lapdogs like, say, truly independent banks or car companies?

The Democrats in Congress and the White House are pushing through the most sweeping changes toward direct government control of our economy since at least the Great Depression. Consider just a few news items from recent days:

• The Senate moves to give the Food and Drug Administration huge new power over what we eat and drink, and what medicine we take.

• A House panel OKs a new Consumer Finance Protection Agency that will have direct control over consumer credit from banks and businesses - potentially killing a private system of consumer borrowing that, whatever its flaws, has led to unparalleled consumer wealth and access to credit.

• A new "bailout" is proposed for small businesses that will further distort markets, punish successful companies and reward failure. The opposite, in other words, of a free market economy.

• Execs of companies that took government bailouts get their pay slashed - courtesy of U.S. "paymaster" Kenneth Feinberg.

In ways large and small, it's easy to see we're building a nanny state that will make Europe's seem modest by comparison. After all, this doesn't even include health care "reform" or cap-and-trade. Soon, the federal government will control every aspect of our lives - though the Constitution explicitly forbids it.

This is the inevitable result of the massive expansion of government over the past year. The $700 billion TARP program, the $787 billion stimulus, a planned "second stimulus," $13 trillion in new debt over the next decade - inevitably, we'll see new government controls and regulations on nearly everything.

"They are awakening a vast regulatory apparatus with authority over nearly every U.S. workplace, 15,000 consumer products and most items found in kitchen pantries and medicine cabinets," the Washington Post has observed.

Too bad none of it's working. White House economic adviser Christina Romer acknowledged Thursday the stimulus is running out of steam - despite the $194 billion spent.

Meanwhile, the TARP czar admits that, despite comments last year that the bailout could end up paying for itself, very little of the more than $700 billion will be paid back.

What do we get? A slow-growing economy, fewer jobs, government-controlled incomes and trillions in new debt. Some nanny.

In that sense, it may be that polar opposites Karl Marx and Joseph Schumpeter were right: capitalism is seemingly its own worst enemy. In rich societies, commentators can become wealthy while trashing wealth creation.

The irony with Krugman is that when it comes to policy prescriptions meant to elevate the living standards of the lower and middle classes, much of what he proposes is inimical to their economic health. This has revealed itself most recently amid the dollar's renewed decline.

As Krugman put it in the New York Times, "The truth is that the falling dollar is good news." Krugman's reasoning here is that a weak dollar makes it easier for U.S. companies to export. A nice thought at first glance, but what Krugman ignores is that we can't export unless we're importing, and a weak dollar makes imports more expensive. Trade always balances.

Taking Krugman's illogic further, tall men could presumably become jockeys and short women models if the former expanded the length of an inch while the latter reduced it. The obvious problem in both instances is that no change in the definition of an inch or foot will blot out the visible reality that some people are tall, and some short.

The same applies to the veil that is money. The Obama Treasury can do as the Bush Treasury did and talk down the dollar, but eventually all prices must adjust. So while a weak dollar might in the near-term make U.S. goods attractive, the globalization of production means that the costs of the myriad imported inputs that go into the creation of U.S. goods will eventually have to rise. Inflation steals the benefits of devaluation, and ultimately renders the notion of "money illusion" moot.

Sadly, the harm wrought by a weak dollar extends well beyond false notions of enhanced exporting capabilities, and it in particular weakens the economic chances of the non-rich.

For one, those not wealthy frequently don't possess the ability to protect the value of the money they earn. Lacking access to esoteric currency trading techniques, or perhaps knowledge of gold's essential nature as a hedge against devaluation, the non-rich suffer inflation's ravages most acutely through lower purchasing power. This showed up most notably this decade in the rising price of gasoline.

Some of course did protect their wealth in a rising housing market aided by the dollar's decline, but economic reality eventually caught up to the money illusion there too. Depending on when the non-rich waded into housing, this historical middle class hedge against monetary debasement may not have worked so well.

Worse for those with middle and lower incomes, home ownership is presently for many a proverbial "ball-and-chain" which keeps them landlocked, and unable to seek the best job opportunities irrespective of locale. So while the weak dollar stimulated nominal home price gains and put a lot of average families into houses, the longer-term result has been that those who would benefit most from mobility during a period of limited job opportunities have found themselves unable to relocate.

Krugman of course makes the thin and easy to discredit argument that a weak dollar helps U.S. exporters, but what he ignores is the broader truth that without capital, there are no jobs and wages. He also ignores Schumpeter's tautology that entrepreneurs can't be entrepreneurs without capital.

Considering capital's role when it comes to jobs, a weak dollar does not cause inflation so much as it is inflation. When money is losing value, those with capital must factor in extra risk in committing it to job-creating concepts. Specifically, inflation erodes real investment returns, which means the average worker suffers lower wages for capital migrating toward the hard, commoditized assets least vulnerable to currency debasement over investment in the productive, wage economy.

Looking at entrepreneurs, most start up small with designs on growing large. But if money is losing value, their ability to access the funds necessary for growth is similarly compromised.

It is said that small businesses create the vast majority of jobs in the United States, but as the Wall Street Journal recently reported, "Banks are reluctant to lend, especially to companies with weak or no credit history." The same article in the Journal also found that "Venture-capital investment in U.S. companies fell 44% in the first half of 2009 from a year earlier."  President Obama is now talking up a small-business "stimulus" plan that Krugman will no doubt cheer, but what neither understand is the greater truth that the weak dollar looms large in the struggle for capital among small businesses. 

When money is treated badly, as in when it's devalued, capital hides. As evidenced by the difficulty small business and entrepreneurial concepts are having in accessing funds, this will negatively impact the job chances of those who can least afford low, or non-existent wages.

But perhaps the biggest reason Krugman's dollar opinions are inimical to the health of the lower and middle classes has to do with equity returns. Indeed, it is through saving, investing and compound interest that the phenomenon of the "Millionaire Next Door" has become a reality.

Put simply, investing is what has in modern times allowed the non-rich to join the rich. But as the last four decades have shown, periods when the dollar's been weak have coincided with low equity returns.

In the ‘70s, Presidents Nixon, Ford and Carter pursued weak dollar policies, and the result was a 17% percent S&P 500 return made negative in real terms based on the dollar's decline. Much the same has occurred this decade amid weak dollar policies sought by the Bush and Obama administrations.

Looking at the ‘80s and ‘90s, something different occurred altogether. Presidents Reagan and Clinton both felt a strong dollar was in the nation's interest, and the market result was a 121 percent S&P return under Reagan, and a 208 percent return under Clinton. Periods of currency strength correlate with powerful equity returns that lift the fortunes of what is a broad investor class largely populated by those not technically wealthy. Krugman seeks the opposite.

To some, Paul Krugman is a champion of the middle and lower classes given his desire to shrink the gap between those with and without money. But for his views on the dollar alone, it's apparent that his reputation lacks merit.

Krugman's support of weak currency policies erode the earnings of those who can afford it least, reduce the investment necessary to create jobs and wages, and drive down the very investment returns necessary to lift the fortunes of those seeking to increase their wealth. Far from a champion of the middle and lower classes, Krugman's views correlate with wealth destruction, and if implemented, his ideas will only shrink the wealth gap insofar as all of us will become worse off.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

A new study released by the Economic Mobility Project of the Pew Charitable Trusts shows that community colleges have the potential to help students of all academic abilities and family income levels. Enrolling in a community college and earning a two-year degree or certificate in high-return fields such as health care, computer science, or building trades, can open a pathway to well above-average-and rising-earnings.

The 1,200 community colleges in America now enroll 11.5 million students, according to the American Association of Community Colleges, or 46% of all undergraduates and 41% of first-time freshmen. Moreover, community colleges offer a wide range of career-enhancing and academic courses at bargain prices which average $2,400 a year.  This is far less than what public and private four-year colleges charge, plus community colleges are open to students of all educational backgrounds; most notably those who lack the credentials needed to enter four-year colleges.

The new study, by this writer and economists Louis Jacobson and Christine Mokher of CNA, a think tank providing analysis and solutions to address civilian and military problems, examines 84,000 students in Florida over the period 1996 to 2007, using individual data on education and earnings.

In a phone conversation, Mr. Jacobson declared, "This project is vitally important in a period when even the best educated college graduates are having difficulty finding well-paid jobs. Policy-makers are looking for new ways to ensure that all students, especially those from low-income families, receive the education they need to enter careers with advancement opportunities."

We conclude that community colleges can play a major role in increasing economic mobility, especially for young adults who did poorly in high school. It is widely known that well-prepared high school students excel in both two-year and four-year colleges, and, until recently, they were able to find good jobs. Many well-prepared low-income students start out at two-year colleges out of economic necessity and then transfer to four-year colleges.

The challenge is to give a boost to students who did poorly in high school - students who typically do not attend college at all or who do not attend long enough to gain career-enhancing or academic skills that provide entrée into well paying fields. Our study shows that community colleges provide career-enhancing skills for many low-performing students, but too many fail to take advantage of these opportunities.

Students who earn As and Bs have higher earnings not only because they are more likely to complete their college degrees, but because they choose courses in high-return fields. Only 25% of C students gain credentials in these fields, compared to 40% of A and B students. This suggests that with better information and support C students could identify high-return programs that they could complete, in fields that would be of interest to them.

The study shows that getting a two-year associate degree or a credential in a health care field such as nursing, medical imaging, or physical therapy is doable for low-performing high school students and offers them high starting salaries alongside excellent advancement opportunities. Students with health-related concentrations earned by far the highest median salaries among all fields: $46,000 initially and $60,000 after seven years

What can be done to empower more students - especially those with poor high school records - to enter high-return fields?

First, improve the academic preparation of entering students, so that they are capable of completing tougher courses of study. Although this is not easy, some programs, such as the Knowledge is Power Program (KIPP) in elementary and secondary charter schools have succeeded in raising math and reading levels.

Second, give students more career counseling, so that they know what courses are suitable to their mix of skills, what courses they are likely to complete, and what courses will lead to good incomes when they enter the job market. Many low-performing students do not know much about the world of work and do not have mentors to inform them.

Third, make sure that students know what financial assistance is available, and how to get it. Financial-aid rules are so complex, and the application processes so onerous, that they discourage those who most need help and more education. Students who would like to transfer to four-year colleges need special financial counseling.

Finally, increase incentives for community colleges to provide career counseling and support services. Why not reward community colleges for increased course and program completion in high-return fields? Why not shift resources to fields such as health care where courses currently are oversubscribed? Increasing the number of slots in high-return courses would be tremendously beneficial to low-income, low-performing students.

Many economists predict that the recovery in employment will be slow and unemployment will be permanently higher. If that forecast is true, it is low-performing, low-income students who have the most to lose. Now is the time to focus on training them so that they can look forward to productive careers, rather than irregular employment and weak earnings.

Just like with any other instance when someone else picks up the tab, it is human nature to worry less about what something costs. But Capterra will continue to offer healthcare benefits for the same reason that other employers do - because only employers can buy health insurance with pre-tax dollars. Thanks to old federal tax laws, the American citizen is forced to pay with post-tax income when buying health insurance directly.

I believe that healthcare reform is necessary in this country, but not the kind for which most politicians seem to be advocating. I recommend the following three steps. First, any proposed healthcare reform should eliminate decades-old discrimination and treat all citizens the same - whether they buy their own health insurance directly or through their employer. As soon as the playing field is leveled, we would immediately offer every employee a choice to continue to receive health insurance coverage through us, or to accept a higher salary and buy it on their own. In the long run, most citizens would likely buy insurance on their own so they could purchase the right plan for their personal situation as opposed to the "one size fits all" approach of their employer. Both employees and employers would stand to benefit.

The second necessary step is tort reform. Frivolous lawsuits increase the cost to practice medicine in America by billions of dollars annually, and over half of all dollars awarded to patients go to their trial lawyers. With so much at stake, this special interest group will fight tort reform to the bitter end. Fortunately, not only is there significant precedent for having specialized courts established for highly complex areas such as medical malpractice, but it is also in the best interest of our country if we truly want to contain healthcare costs. This is a great example of reform that should be tested by the states before being considered at the federal level. As doctors and residents of states begin to reap the benefits, the other states will likely follow suit.

The third and final step may have the most impact. Every citizen should be allowed to purchase health insurance from any provider that they choose, including providers from other states that should remain free from the burdensome mandates that may exist within the citizen's home state.

Currently, state laws prohibit this, but it seems to be exactly what the Commerce Clause of the Constitution was designed to protect. As soon as competition is open across state lines, we will have many more choices available and this will stimulate long-needed innovation within the health insurance industry. Insurers will develop mechanisms to protect consumers against being dropped due to pre-existing conditions, encourage healthier lifestyles and facilitate better communication between doctors and patients. If they don't, they will fail to compete and be run out of business.

As an online marketplace for the business software industry, Capterra witnesses this sort of innovation every day. Regardless of the kind of software, businesses have dozens - even hundreds - of options to choose from, and this forces software vendors to develop increasingly innovative and user-friendly products. If the absurd scenario existed whereby companies were unable to buy software across state lines, there is little doubt that competition would be stymied and innovation would deteriorate, just like it has in the health-insurance industry.

Our politicians need to stop putting forth false debates. Most Americans on both sides of the political spectrum agree that healthcare reform is necessary and furthermore that everyone should have access to health care. Saying otherwise misrepresents the other side and gets us nowhere. At the heart of the matter is determining the best way to reduce healthcare costs for all while maintaining our high level of care and doing so without violating the core American principle of limited government.

I believe that the plan I advocate would be supported by most reasonable Americans - at least those who do not work for the special interests. All three steps deal with the problem of having tens of millions of uninsured Americans by addressing the root causes of high health insurance costs. This plan should help us to avoid the more extreme measures currently being considered, whether it be a government-run plan which history has shown is always more expensive than originally anticipated, or a government-run insurance marketplace when there are numerous such marketplaces that already exist. Of course, these marketplaces are handcuffed by their inability to cross state lines. If we simply set them free, we will likely realize that yet another exchange - especially a highly regulated one financed by tax payer dollars - is the last thing that we need.

We need to learn from the mistakes of the past and come up with real solutions for the future. This is what entrepreneurs do. Our politicians need to follow suit.

If you are in the same boat in New Jersey, you can decamp next door to Pennsylvania and reduce your insurance bite from nearly $10,500 a year for family coverage to $6,500. Or, if you prefer a bare-bones high deductible policy, you can pay a mere $800 a year in Pennsylvania for your family coverage.

All of this talk of health reform in Washington has created the illusion that we have a single health care system in America with prices that are roughly similar once adjusted for local costs of living. But in fact we have 50 different health care systems. Our states, through their insurance commissioners and legislatures, exercise enormous influence over the shape of health insurance by mandating to residents and businesses what kind of coverage they must have, and to insurance companies what kind of illnesses and therapies they must cover.

The result is sharply different rates across the country. In a study, the trade group for the nation's insurers, America's Health Insurance Plans, estimated that the average premium for family coverage in the individual market nationally was $5,800. But the study found wide disparities in costs, ranging from average premiums north of $12,000 in New York and Massachusetts to premiums costing on average only $3,000 to $5,000 in more than a dozen states. Some states have even allowed insurers to introduce low-cost, high-deductible policies that can cost under $1,000 a year.

It's fair to say that the costs imposed by some states based on how they regulate health insurance are now a bigger burden on individuals and small and mid-sized firms than state and local taxes. New Jersey's per capita state and local tax burden, for instance, is $1,322 a year higher than Pennsylvania's, according to the Tax Foundation. But an individual buying health insurance for himself in Jersey must pay $1,377 more, on average, than in Pennsylvania for a policy. Only very large firms, which generally self-insure and are free from having to follow the worst of mandates, can escape the health insurance luxury tax that some states impose through their regulatory regimes.

Numerous studies document how a state's policies can price many of its own residents out of the market. A new report from the Manhattan Institute, for instance, estimates that New York's health insurance mandates raise the cost of insurance some 42 percent, effectively pricing out about a third of those who are uninsured and could otherwise afford coverage. The biggest driver of costs in New York is the so-called guaranteed issue mandate which requires that an insurer issue a policy to anyone who seeks one, even someone who has previously gone uninsured but then chooses to buy a policy once he became sick. Another big ticket mandate is community rating, which requires insurance companies to charge policyholders the same premium, regardless of their age, gender, or health status.

Other mandates requiring that insurers cover everything from chiropractic care to family therapy sessions to "hair prosthesis" each typically add on average 0.5 percent to the cost of a policy, though some mandates, like those requiring insurers to pay for in vitro fertilization procedures, boost premium prices up to 5 percent. It's precisely because some states pile mandate upon mandate (New York has 51), that the total cost of insurance can vary widely from state to state.

There's no evidence that states garner any benefit from such regulation and mandates. States with numerous mandates don't have healthier populations, for instance. Indeed, many state mandates are enacted for political reasons that have little to do with health care outcomes. Several years ago New York's then-Governor Pataki signed into law the state's hefty in vitro fertilization mandate as a payoff to conservative religious groups whose members favor big families and lobbied heavily for the law. It's a rather classic example of how, when you vest such power in lawmakers, some will eventually abuse it.

States have often tried to fix the mess they create with these mandates by expanding their state-subsidized coverage as more people become uninsured. In New Jersey, for instance, the state subsidizes coverage for children in families earning up to 350 percent of the poverty level. But, that's still not enough to address the state's uninsured problem because Jersey's individual health insurance policies are so expensive. So Gov. Corzine has proposed a universal health insurance mandate in the state, which would cost an additional $1.2 billion annually, and which he knows the state can't afford.

In lieu of a new state universal coverage mandate, Corzine will settle for a national health reform bill which forces insurers in other states to do what Jersey does. That's why Corzine supports Democratic plans in Washington for national health insurance reform. They would level the playing field between expensive states like his and everyone else by shaping America's health care system so that it looks the same, that is, just like New York or New Jersey or Massachusetts. That's one way to keep residents and businesses from fleeing the high costs of health insurance that your state imposes.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

Rove's thoughts are hard to discount given his skill at reading the political tea leaves. Still, it doesn't take a health care scholar to see that the Baucus Bill is merely a backdoor path toward a government managed public health care option.

That's the case because if passed, the Baucus Bill promises to erase profits for private health care providers. And with profits hard to foresee due to the Bill's mandates, it's fair to assume that the disappearance of health insurers will make it easier over the long-term for those in favor of a State option to foist it on a hapless electorate.

The reasons for this are basic. Under the Baucus Bill, private insurers will not be able to refuse health insurance for the existing unwell among us. This is the equivalent of requiring car insurers to pay for customers who miraculously see the value of being insured after their cars are totaled.

If applied to car insurance, there would be little incentive for drivers to buy insurance. Knowing they would be covered no matter how they drive and no matter how many accidents they cause, they would logically skip the monthly payments and wait to insure themselves until an accident makes being uninsured expensive.

The same will apply to health insurance. Not only will there be little incentive among Americans to take responsibility for their own health, they'll have an incentive to shun purchasing health insurance altogether knowing full well that federal mandates will enable them to buy health care on the relative cheap after the fact.

So while the Baucus Bill is trumpeted by its advocates as a measure that will increase the rate of insured in the United States, the opposite will likely occur. Thanks to the removal of expensive consequences that come with ignoring the purchase of insurance, the penny-wise in our midst will skip the costs of coverage until a serious illness makes buying it sensible.

For the responsible among us still foolish enough to pay for insurance, we'll see our premiums rise to the extent that existing insurers stay in the business. Forced to actuate for the influx of the irresponsible sick eager for a free ride, they'll raise the premiums for the responsible. Far from an insurance plan, we should be honest that this is a welfare program like any other.

Of course to help pay for what can only be described as a welfare plan, the Baucus Bill will tax what politicians term "Cadillac" health benefits, and they expect to raise $200 billion in doing so. No mention of whether the "Cadillac" health coverage politicians enjoy on the backs of their constituents will be similarly taxed.

Knowing full well that they won't, the Baucus Bill's supporters would have us believe that companies offering gold-plated health insurance are so dim as to continue to do so in order to be fleeced by the tax collectors for the welfare state. Good luck with that.

Instead, and as is always the case, when the tax code is used with blunt force to penalize anything, the end result is that what is taxed tends to vanish. To paraphrase Calvin Coolidge, high incomes frequently disappear when they're taxed, and this will be the certain result of legislation meant to target quality health plans.

So with gold-plated insurance set to somewhat disappear due to exorbitant tax rates, it won't be long before less-than-stellar health plans become quite impressive in the eyes of politicians. Seeking to bleed whatever is still around for revenues, politicians will go after the non-rich after their naïve plan to pay for healthcare on the backs of the productive goes awry.

The allegedly moderate supporters of the Baucus Bill make the stupendous claim that it is responsible and bipartisan for the "public option" not being included as part of the package. Their claims are empty, however, because any bill the premise of which is to turn healthcare into a "right" will on its face end up bankrupting the very companies that would provide the good in question were market forces in play.

The end result of the Baucus Bill's passage will be more people uninsured, and fewer private companies seeking to provide them with insurance. And with governments nothing if not experts when it comes to cynically exploiting crises of their own making, Washington will soon enough trot out a public option to fill the void left by insurance companies seeking real profits in other markets.

For a political party that is charitably adrift, the Republicans have so far been strong in opposing the health care plans offered up by the opposition. Here's hoping that rather than compromise, they match action with rhetoric about adhering to constitutional principles. The Baucus Bill is not only a backdoor path to federal health insurance, but it's blatantly unconstitutional.

Now's the time for the GOP to make a strong stand. There is absolutely nothing in the Constitution which allows for federal involvement in health care, but lots in there suggesting that as individuals the law protects us from thievery. The Baucus Bill is nothing more than theft, and politicians who care about protecting property rights should do everything possible to make sure it fails.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

Congressional Budget Office Director Douglas Elmendorf, testifying before Congress last week, said the House global warming bill will slow economic growth in the next few decades and cause "significant" job losses in the fossil fuel industry.

During last Wednesday's session of the Senate Energy and Natural Resources Committee, Elmendorf said the carbon cap-and-trade provisions of the comically named American Clean Energy and Security Act of 2009 would cut GDP below what it would otherwise have been by 0.25% to 0.75% by 2020. The impact in 2050 would be 1% to 3.5%.

Elmendorf's office issued the same warning in a report last month.

The cap-and-trade legislation, sponsored by Democratic Reps. Edward Markey of Massachusetts and Henry Waxman of California and passed in the House in June, is intended to cut domestic carbon dioxide emissions by 17% by 2020 and 83% by 2050. This would drive U.S. per capita CO2 emission levels "below those of George Washington's first term as president," economist Garrett Vaughn wrote in IBD in August.

Such low emission levels can't be reached without economic pain, and the cost will surely be more than Markey's "postage stamp a day." Any sharp reduction will require the country to move almost entirely away from fossil fuels - not a cheap transition.

Neither would it be meaningful. The churning shift simply would not make a real difference in global CO2 levels. The Environmental Protection Agency itself said drastic CO2 emission cutbacks made in the U.S. are virtually worthless if developing nations China and India don't cut their greenhouse gas emissions.

Both have made it clear that they have no intention of joining developed nations in committing economic suicide by placing limits on their carbon emissions.

Elmendorf, who seems to have bought into the global warming scare, said during testimony that projected cost estimates "do not include any benefits from averting climate change."

While the statement is a ready-made Democratic talking point, the reality is that no benefits will be coming. There is nothing to avert. The global warming predicted by the computer models just hasn't materialized. Nor will it.

No one should wonder about that, given the tainted data that were fed into the models and those same models' poor record. It's a classic case of garbage in, garbage out.

Two years ago, the International Journal of Climatology published a study finding that 22 models used by researchers were so flawed that they predicted warming when cooling was the case. Nearly three years earlier, the famous Mann hockey stick temperature chart that alarmists cite as evidence that man is causing the Earth to warm was discredited by an article in Geophysical Research Letters.

Meanwhile, scientists at the University of East Anglia seem to have lost or destroyed the raw data they have used to make the case for man-made global warming. This loss - or cover-up of data the scientists want to conceal - makes it impossible for other researchers to confirm or refute their claim.

Despite his proximity to the university, British Prime Minister Gordon Brown, like all true believers and political operators who have a stake in perpetuating the global warming fraud, is unaffected by this case of scientific malpractice. Brown, who is facing a difficult election, claimed Monday that the world has 50 days to save itself from climate "catastrophe."

Should the Senate follow the House and heed Brown's hysteria by passing a cap-and-trade bill that the president signs, the country will be forced into an uncomfortable place. As is often the case in Washington, doing nothing would be the far better choice.

Before launching Strategas, Jason made his mark during a successful 15 year stretch at International Strategy & Investment Group (ISI) where he distinguished himself by building and overseeing the firm's popular company surveys and its investment-strategy group. Now leading the charge at Strategas - the firm he launched with two other ex-ISIers, Nicholas Bohnsack and Don Rissmiller - Trennert and his team continue to offer probing market analysis and non-consensus calls.

RealClearMarkets: A lot of investors have been caught off guard by the stock market's strength and resiliency since the early March bottom. This skepticism convinced many that a big September pullback was all but inevitable. It didn't happen. Now they're pushing the correction call back to October, November, etc. Where do you think we're headed? Do stocks still have room to run?

Jason Trennert: By our lights, the central tension for investors is the cyclical versus the secular. In the short term, we've been telling our clients that it is more dangerous to be short than to be long. This is simply because a combination of cyclical forces - namely inventory rebuilding and as-yet unspent stimulus - is likely to provide the basis for better-than-expected economic and earnings growth.

While we believe a lot of this growth will wind up being ephemeral once the effects of government stimulus fade, few of us are going to be able to tell the difference between the start of a real economic cycle and one simply created by ever-greater amounts of public spending. There is still $3.5 trillion in money market funds earning virtually nothing out there and policymakers - both fiscal and monetary - are doing their best to get people take on more risk.

Having said this, the secular, or long-term outlook for the market is not as bright. In the postwar period, most economic cycles in the U.S. have been driven by pent-up demand from interest rate sensitive sectors like housing and autos. We think it's safe to say there is little pent-up demand for these sectors today and that consumer spending as a percentage of GDP is likely to fall.

Perhaps more important, the growing federal budget deficit is likely to be a powerful headwind for market returns in the future. The government can't simply dissave by $1.5 trillion a year without some cost - either in the form of higher long-term interest rates, higher taxes, or both. So far, neither of those costs appear to be evident. Simply stated, we're "bullish until the bill comes due." We think that bill will likely arrive sometime by the second half of 2010.

RCM: What's your forecast for the U.S. dollar? Do you think we're nearing a bottom? And on a related note, what's your take on gold? Jim Rogers grabbed headlines recently saying gold is headed past its inflation-adjusted all-time high of $2,300 sometime this decade. Do you think he's got the story right?

Trennert: It is, in truth, very easy to make a bearish case for the U.S. dollar. Our fiscal policies don't inspire confidence at the moment and the Fed continues to monetize our debt. Historically, this has not been a great recipe for currency strength. The problem of course is, what's the alternative? Resource-based currencies like the Australian and Canadian Dollar are interesting but aren't large enough to step into the breach. This has tended to lead people to question fiat currencies generally and be drawn to hard assets.

I have never generally considered myself to be a big fan of gold, but I must say, I own gold stocks today as a hedge against what I see as over-expansive fiscal and monetary policies in the developed world.

Separately, my discussions with clients lead me to believe that gold is NOT over-owned, especially in the institutional investment community. There is still a stigma attached to what is considered to be a "barbarous relic" that suggests to me that it can go higher. A client with considerable experience reminded me recently that "there ain't no fever like gold fever."

RCM: You recently observed that the U.S. economy is geared for consumption, and that we've got some tough sledding ahead of us in terms of growth, since consumers are curtailing spending and reducing debt. Likewise, some other savvy market veterans seem to be taking it a step further, predicting a seismic shift in reduced consumer spending for years to come. Do you agree with this generational consumer spending shift call?

 
Trennert: It is hard to know whether there is something special about the American consumer that allows him to, despite his better judgment, consume beyond his means. Frankly, I believe our consumption binge has not been a function of something special in the American psyche but simply ever-cheaper and ever-greater access to debt. Like it or not, that era is over.

The structured finance market will never look the same and even if American consumers wanted to re-leverage, new regulations will make it hard for the financial community to put Humpty Dumpty back together again. At the margin, I think we're in a more generational shift toward greater saving on the part of the American consumer.

 
RCM: Back in August, you wrote a Wall Street Journal op-ed arguing that the Fed-by monetizing our debt-is preventing the bond market vigilantes from imposing any sort of discipline on a new administration determined to spend more money. How is this movie going to end?

Trennert: This is especially worrisome to us at our shop, not merely because of the current size of the deficit, but the size of the new spending plans now being proposed. Right now, the Fed is worried about the potential for deflation and is willing to go along. Eventually however, if fiscal policies are left unchecked, some adult supervision may be necessary, putting fiscal and monetary policy on an eventual collision course.

Right now, it doesn't seem as if there is an enormous cost, save the decline in the dollar, to our policy mix. Eventually, however, greater inflation, especially in commodities, may force the Fed's hand in soaking up the liquidity it so generously provided over the last two years. My personal belief is that this is, in part, some basis for the "beat-the-clock" nature of the Administration's latest spending initiatives.

RCM: On a related note, a few weeks ago I asked hedge fund manager Doug Kass to consult his crystal ball and reveal what he envisioned for America twenty years down the road. His forecast was far from optimistic. In fact, his final quote was, "After years of greatness, the U.S. is destined for not so greatness." What do you think? Are you ready to hop aboard the Kass train and declare America's best days behind her?

 
Trennert: I don't think so but I am, at heart, an optimist. I am reminded of the quote from President Clinton when he said, and I'm paraphrasing, "there is nothing wrong with America that can't be fixed by what is right with America." Our society is nothing if not dynamic. It's hard not to believe that a lost decade in the economy and stocks is possible while we restructure - taxes, regulation, interest rates, and inflation, are all likely to get worse and put pressure on earnings multiples.

Still, I fundamentally believe there is something inherent in our system that will allow us to make the changes we need to once again assume our place as that "shining city on a hill."

Dan Holland is an editor at RealClearMarkets.

Oddly enough, there is a form of National Transaction Tax that ought to pass the most inclusive standards for the levying of a just tax. If broadly applied, such a tax could potentially eliminate the need for both corporate and personal income taxes. It is inherently progressive in that the heaviest burden would be carried by the rich - who would incidentally receive valuable benefits in direct proportion to their payments - with an almost negligible burden falling on the poor. And best of all, it would be voluntary.

A voluntary tax that could fund the entire federal government? Surely you jest.

The idea, first proposed by a certain novelist-philosopher forty years ago, is based on the simple concept that citizens who expect the government to guarantee the sanctity of their contracts should be asked to pay for this valuable service. The more you utilize the service, and the larger the value of the contracts you want protected, the more you pay. Asking a fry cook at McDonald's to underwrite the enforcement of a Goldman Sachs derivative contract is both morally offensive and economically inefficient. Suppose, instead, that everyone just paid their own way?

Contract disputes could always be handled by private arbitration, and nothing in this proposal limits that. But a fundamental tenet of civil society is that only the government has a right to dispatch men with guns to enforce a judgment. Want the right to use the court system and police to enforce your contract? Then be prepared to foot the bill with the equivalent of a contract insurance premium, paid in advance. Don't pay the fee and you don't get the service.

A true National Transaction Tax would be levied on any and all private transactions in which either party wanted the right to avail themselves of the public rule of law. Caveat emptor deals and cash-and-carry transactions would be spared the tax, again at the choice of the parties engaged. It wouldn't even require mutual agreement; the party that wants the protection pays the tax. But any other transactions with an expressed or implied contract, from buying and selling securities to taking out a mortgage to placing a purchase order for parts to writing a check to using a credit card would be subject to the tax. Proof of payment would be a precondition to achieving the standing required to sue in public courts.

The precise tax rate required to fund all the legitimate functions of government is left as an exercise for the reader. This would certainly vary based on what assumptions you made on the spending side of the ledger - after all, there is still no free lunch. But it would be hard to find a more economically efficient tax, or one with fewer propensities to cause market distortions. Sure, some Wall Street sharpies would invent some complex securities designed to avoid the tax. But if they did, they would have to peddle them knowing that if their Rube Goldberg machine blew up, aggrieved counterparties couldn't come running to Uncle Sam to sort things out. Meanwhile, I bet the rest of us would happily fork over 5%, or whatever the number turned out to be, without even thinking about it. And if Congress set the rate too high, maybe those private market alternatives might start looking attractive.

Because a National Transaction Tax could be applied at every stage in a supply chain, it would bear some resemblance to the dreaded Value Added Tax. Again, I haven't run any numbers but I'd be surprised if it took more than a single digit tax rate to cover the cost of eliminating the corporate income tax. Outsource a piece of your supply chain rather than handle a task in house and you pay the tax if you want the right to seek government redress should problems arise. After all, imposing the cost of private contract enforcement on the public is a classic economic externality. Mom and pop businesses that buy from trusted local suppliers can chose to go bare and forgo the tax, passing the savings on to their customers. Ditto any handshake deal like buying a used car from a friend. But as the expression goes, "don't come crying to me" if the thing breaks down as soon as you drive it down the driveway.

Tearing up the income tax code and enacting a National Transaction Tax, which could probably be codified in ten pages or less, might be politically impractical as it would limit the ability of Congressmen to reward their friends and punish their enemies the way they do with our present tax code. But wouldn't a broad based, voluntary levy thinly applied across the entire economy tied directly to valuable services be morally satisfying? Or would you rather keep playing the tired old game of "Don't tax you, don't tax me. Tax that man behind the tree?"

The Treasury's Orwellian paymaster, bureaucrat Kenneth Feinberg, isn't happy with Lewis. BofA lost money in the third quarter, so Feinberg - like that famously fascistic dispenser of soup in "Seinfeld" - says, "No pay for you!"

Some might think that's a good idea. About time those greedy CEOs got their comeuppance, right? Not so fast. Sure, the heads of big banks are not very popular these days. So the government can pretty much do what it wants and the public will applaud lustily.

This is an old tactic: Divide and conquer. What about when they come after you? If someone in the Treasury or the White House decides you make too much, whatever it is you do, or your chosen profession suddenly falls out of favor, your pay might be next on the chopping block. After all, a precedent has now been set.

CEOs like Lewis are an especially easy target. Even though he's forfeiting $2.5 million in pay this year, he has pulled down $165 million over five years, and when he leaves his job later this year, he'll get as much as $120 million in a payout. So he'll manage.

Even so, CEO pay in this country has never been determined by the government. Nor should it. CEOs don't work for the government - they work for the shareholders.

Some shareholders are still righteously angry at BofA for buying Merrill Lynch, which soon suffered deep losses. Of this, two points need to be made. One, Treasury basically twisted BofA's arm to consummate its deal to buy Merrill Lynch. Two, Lewis made it work: Today, Merrill Lynch is very profitable.

That said, shouldn't shareholders still be angry? After all, Lewis was at the helm during the banking industry's excesses, so he deserves a ration of the responsibility. And in the third quarter, BofA reported a loss of $2.2 billion.

All true. But right now, BofA's not doing too badly for its real owners. On Feb. 20 of this year, the company's shares bottomed at $2.53. On Thursday, they topped $19.

That's a gain of 650%. Based on the stock's float, Lewis could be credited with restoring $142 billion in shareholder value. IBD's own database shows that, as of Friday, BofA had outperformed three of every four stocks in the market.

Hate Lewis all you want, but it's shareholders who own Bank of America Corp., and they should decide his pay - not some "czar" in Washington. What in the world has come over this country?

To protect retirees from the ravages of inflation, Social Security recipients get a Cost of Living Adjustment to their basic payout each year based on consumer price changes in the preceding year.

Since COLAs were introduced in the early 1970s, inflation has been so inexorable, every year has seen an increase in benefits.

The string runs out next year, however.

Because of a fluke in the COLA calculation, beneficiaries this year accidentally got a whopping 5.8% hike - more than actual inflation. And because inflation this year has been fairly low, beneficiaries are slated to get nothing additional next year, and perhaps not in 2011 either.

Thanks to Washington, they'll get another raise anyway - right out of working Americans' pockets.

With unemployment at a 26-year high of 9.8% and many working Americans taking double-digit cuts in pay, it seems only fair that those who get Social Security should be held to what they deserve, and nothing more. But that's not how Washington works.

Sensing an opportunity to curry favor with the largest, and wealthiest, group of Americans in the country - the elderly - the White House wants to give them a $250 hike anyway - $14.3 billion in budget terms.

Even if it's a one-time payout, which is likely, it's vote buying on a massive scale - the kind of casual corruption practiced in Third World countries.

What's worse is that a precedent would be set - in effect, eliminating the COLA. Social Security and Medicare are already bankrupting us. This ends even the pretense of fiscal responsibility when it comes to entitlements.

Coincidentally, the very day this latest news of federal fiscal incontinence emerged, the Government Accountability Office released an update to its long-term budget outlook.

"While a lot of attention has been given to the recent fiscal deterioration," the GAO report said, "the federal government faces even larger fiscal challenges that will persist long after the return of financial stability and economic growth."

The long-term fiscal outlook, it added, "remains unsustainable."

What exactly does unsustainable mean? In the GAO's "alternative scenario" - the one based on "historical trends and policy preferences," and thus the most likely scenario - the U.S. has a spending shortfall of $62.1 trillion over the next 75 years.

That's just under 9% of our expected total GDP over that time. To close this "fiscal gap" will require a 47% hike in taxes or a 33% cut in spending. That's what "unsustainable" means.

Every day, in ways large and small, this government shows itself to be the most fiscally reckless and irresponsible in our nation's history - frighteningly on par with those that wrecked once-wealthy Argentina in the 1940s and Germany in the 1920s.

The $14 billion cumshaw the White House has in mind for the retired is just another signpost on our road to fiscal ruin.

Last night CNBC had clips of Maria Bartiromo interviewing Tim Geithner. That was quite the combo. Combining economic ignorance with the levered long leader of the willfully blind is pretty interesting Mr. Buffett, indeed!

On the question of leverage, Geithner proclaimed his mystery of faith stating that "credit is the oxygen"...

On the question of plans to address the Burning Buck... well... Geithner didn't have any...

I couldn't make this up if I tried, but rather than provide Bartiromo with a proactive plan to address the Currency Crisis, Geithner said that he doesn't usually talk about daily activity in the currency markets. Timmy, understanding that the daily analysis is more of a real-time risk management approach, how about weekly or monthly? Quarterly? Annually? Newsflash: the US Dollar is down another -2.2% this week and has lost -16% of its value since March! Wakeup.

Never mind the marked-to-market price, Geithner went on to point out that the US Dollar's strength was most readily apparent when the world was screaming with fear. Finally, he concluded that, as a result of how the US Dollar acted during last year's apocalypse, the US Dollar's strength remains readily apparent.

This guy was serious. Under this line of thinking, I guess all we have to do is create another Global Leverage Crisis and we'll get our currency back! While hope is not an investment process, I can only hope that the Chinese and Japanese didn't watch the YouTube of those CNBC clips...

This morning the Buck continues to Burn. Are they Bombing Out The Buck? Or are they just getting started? Niall Fergusson at Harvard thinks that the bombing is going to be for another -20% down move in the US Dollar within the next 6-12 months. I like Niall's research, a lot. But Niall, if that happens... all I have to say is 'lock the barn doors Sally', because every American with a pitchfork is going to be coming at those of us who work in Financial Services.

Away from not trusting him, my biggest issue with Tim Geithner has to do with competence. He doesn't do global macro, so I don't think he really has any idea how to approach this secular Global Currency Diversification exercise. Being a New York centric banking man has its privileges to the Groupthink Suite.

If Geithner's answers pertaining to the US Dollar last night weren't alarming enough, here's what the Treasury issued as a statement to The Client (China) this morning:

"Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework"...

Again, I couldn't make this up if I tried, but Geithner is so clueless right now that he is choosing to antagonize the Chinese in the Treasury's semi-annual report on currency policy. The Chinese are already a net seller of US Treasuries and Dollars. What are you doing Timmy? Wakeup.

If you are looking for another opinion on this other than mine and Fergusson's, here's Alan Greenspan's this morning: "I'm not overly concerned about the most recent decline in the dollar"...

Gee, thanks Alan. You haven't been concerned about this country's currency for a long time. Now your boy, Bernanke, is following your lead. We issue our citizenry a ZERO percent return on their savings accounts, fire up the inflation machines, and are teeing up Investment Banking Inc. to pay out more bonuses on the back of this Piggy Banker yield curve in 2009 than we did in the year that preceded this said "Great Depression"!

Never mind the long term implications of the US Dollar trading close to 38 year lows. This, of course, is all just fantastic for the US stock market in the immediate term. We Bomb the Buck, and everything priced in bucks reflates. Yesterday, I called this the Minsky Meltup. Today, I'll call it the same.

The Minsky Model isn't one that the levered loan originators of Investment Banking Inc. like to read about. Shhh - keep that under wraps. Ignorance and leverage is a powerful compensation structure for those who have an entitlement to game the US Financial System.

My immediate term upside resistance level this morning for the SP500 is at yet another higher-high (1103) and my immediate term TRADE support line is at another higher-low (1069). Meltem' up boys, and hope that the American people are as ignorant as Geithner in understanding that the last crisis was born out of a weak-dollar debt-financed asset-price-appreciation bubble.

Best of luck out there today and have a great weekend with your families,
KM

If you'd like to learn more about Research Edge and how to become a subscriber please click here.

Keith McCullough is the founder and chief exexcutive officer at Research Edge, LLC, a real-time research firm focused exclusively on generating and delivering actionable investment ideas.

Profits are the mother's milk of stocks, business, and the economy. And top-line sales revenues now appear to be bolstering the corporate cost-cutting effort. As long as these earnings keep coming in strong, stocks will keep rising. My hunch is that we'll move back to pre-Lehman levels - to over 11,000 on the Dow and over 1,200 on the S&P. Backed by an easy-money Fed, the economy will probably grow in a mild V-shape of something like 3 to 4 percent for the next year or so.

But storm clouds are gathering.

One of the biggest clouds out there is the sinking dollar. What we're witnessing right now is a big global shift out of dollars and into commodities. The dollar is quickly losing its reserve status to the yen and the euro. The proof is in the pudding: Earlier today, the greenback notched a new 14-month low against the euro. This is not good.

Meanwhile, in the second quarter ending in June, central banks around the world invested 63 percent of their new cash reserves into euro and yen, and put only 37 percent into dollars. And over the past six months, the greenback has lost 15 percent while gold has climbed nearly $150. If this trend continues, spiking inflation and interest rates will choke off the stock market rally and do serious damage to the economy. It could happen very fast.

No one in the Obama administration or at the Fed seems to care about any of this. In fact, they are probably applauding the lower dollar as a sort of 1970s way of boosting exports and the manufacturing heartland in the Midwest. But the falling dollar is bad news for consumers. It will ultimately cause higher inflation, as signaled by the rising price of gold.

There are also future tax hikes looming out there, as well as the enormous explosion of government spending and debt. All of this is why it's hard for me to be a long-term bull.

The great market boom between 1982 and 2000 was basically characterized by low marginal tax rates and a strong King Dollar. Unfortunately, the 21st century has witnessed a weak dollar and, more recently, rising tax rates that are coming due in 2011 (if not sooner). In other words, the prosperity-inducing Mundell-Laffer supply-side model is being reversed.

As economist Art Laffer put it to me, we are stealing demand and production from the future. So, even as we get a V-shaped recovery now and into next year, 2011 may finally pay the piper for both low growth and higher inflation.

What we need to be doing is exercising some monetary restraint to save the dollar. The Fed should start moving excess cash from the economy. They should follow Australia's lead and begin raising their target rate. In addition, the Treasury ought to be buying all these unwanted dollars in the marketplace. And Washington needs to quit their explosive spending and borrowing. It is killing us. Some statutory - or even constitutional - limits should be set.

We also need economic-growth incentives like lower marginal tax rates which would benefit investors, entrepreneurs, and workers. We should be slashing tax rates on large and small businesses across-the-board.

Stocks could have another four to six months left to rally. That would be great news for increasing the wealth of the investor class, and maybe even enhancing the animal spirits a bit. But the policy mix is all wrong right now. Health-care entitlements and taxes punctuate the wrong-way policy mix.

What remains to be seen is whether the Republicans can successfully challenge the Democrats with a true supply-side economic-growth message and job-creating platform. If not, beware of the storm clouds.

You wouldn't know it from the sparse media coverage, but the British High Court found so many errors in Gore's movie in 2007 that British schools no longer can show the film without the equivalent of a health warning.

I asked Gore if he intends to correct the record. He dodged the question, and the so-called reporters defended his right to be evasive by shutting off my mic.

The encounter was disappointing but not surprising. I served years of hard time as a liberal journalist in Europe and learned that covering the environmental beat meant toeing the line of extremism - no inconvenient questions allowed.

But it is now time for journalists, and the consumers and businesses that will pay the ultimate price, to start questioning the conventional wisdom about global warming and exposing its true cost. If alarmists like Al Gore get their way, millions of American families will watch as their dreams of a prosperous and pleasant future disappear.

The evidence of environmentalism run amok abounds in Europe. Spain believed the spin that environmental regulation can create "green jobs" and boost the economy. Now the country has 18% unemployment. Britain could suffer blackouts because of policies that require the country to replace coal with fuels like solar and wind power that aren't readily available or reliable.

Unfortunately for Americans, many of the lawmakers who represent them in Congress seem unwilling to learn from Europe's mistakes.

The Senate is now considering a bill that Sen. John Kerry, D-Mass., co-authored to create a European-style "cap and trade" system for carbon dioxide emissions, and he just won the endorsement of a key swing senator. International pressure on the United States to adopt such legislation also will increase in December at climate talks in Copenhagen.

That's bad news for taxpayers. The Obama administration reluctantly admitted last month that cap-and-trade would cost the average American family $1,761 a year.

That is a rosy prediction. A Heritage Foundation analysis pegs the cost at an average of $2,979 a year and as much as $4,600 a year by 2035. Jobs will disappear, energy prices will skyrocket, and the American Dream will become an unattainable fantasy for many.

Wealthy environmental elites like Ed Begley Jr., who is featured in our documentary "Not Evil Just Wrong," think that is just fine. They love to tell everyone how "happy" people are in the Third World, where poverty, disease and premature deaths are common. But if they really loved it, they would move themselves and their families to Fiji and burn all of their passports.

Instead, environmentalists live comfortably, flying around the world telling other people they should forsake air travel and drive cars that cost as much as many people pay for a place to live. All the while, the environmentalists try to scare people with stories about dying polar bears and lemurs.

Their hysteria knows no bounds. The British government is now spending nearly $10 million to air ads that feature an animated puppy drowning, a rabbit crying and a carbon monster spewing soot from the sky.

The ad is so laughable that even the journal Nature mocked it. But Britain wouldn't be spending that kind of money unless it expected a return on the investment in the form of new converts to the false doctrine of global warming.

That's why it's so important for journalists who inform the public to ask tough questions, both about the science behind global warming and the financial impact on consumers and businesses.

Americans had better hope their country's journalists start grilling Gore and his colleagues. Otherwise, more people will be misled, and the country will be feeling Europe's green-induced economic pains for years.

• McAleer co-produced "Not Evil Just Wrong," a documentary film that premieres Sunday.

Some witnesses, including James Guest of Consumers Union and Marcia Greenberger of the National Women's Law Center, will argue that the Democratic health-care bills in the House and Senate would, if enacted, particularly benefit women. As another witness, I will suggest otherwise.

With three Democratic bills-two in the Senate, one in the House-to be melded, no one knows all the details of the measure that will reach the president's desk-assuming something does.

Despite good intentions, many aspects of these bills would leave Americans worse off than they are at present. First, people on Medicare and Medicaid, disproportionately women, would receive less care and possibly worse care.

Second, people of working age would pay more for health insurance, essentially because Congress is likely to insist on more generous benefits and to require that insurers cover even persons with a history of high-cost illness. This may be socially appealing, but it will have financial consequences which have not been discussed by the sponsors. Paying higher premiums will leave less income for everything else.

Third, by raising taxes, the legislation will discourage job creation and investment. That will hurt women more than men, because women exit and re-enter the labor force more often.

Medicare and Medicaid beneficiaries are likely to get a lower standard of care: In the Senate Finance Committee bill, sponsored by Max Baucus, the chairman, nearly 90% of $404 billion of Medicare and Medicaid savings would occur in the period 2013-19. Thereafter, savings would be expected to accrue at the rate of 10% to 15% a year, cumulatively. Elderly women would be the biggest losers. A Medicare Commission would propose further cuts.

The House Democrats' bill would expand the Medicaid program to 133% of the poverty line in order to cover low-income uninsured workers, even though Medicaid does not provide as high a level of care as private plans. Women, 69% of Medicaid recipients, would be disadvantaged by being required to accept Medicaid rather than a refundable tax credit to purchase a private plan, as has been suggested by Representative Tom Price, a physician and Georgia Republican.

Better coverage, higher premiums, less disposable income: Under all pending bills, plans purchased with the aid of tax credits in the new health exchanges would offer generous coverage, with no deductibles for many services, and no annual or lifetime limits on benefits. Premiums would skyrocket.

One obscure but important feature of the bills is that variation in premiums would be constrained. For some plans, the highest premium could be no more than twice the cheapest and variation would be allowed only on the basis of age. Younger men and women would have to pay more than they would otherwise.

A new government mandate for employers to offer health insurance, if in the final bill, would-in workplaces that don't offer it now-cause wages to decline or future wage increases to be withheld.

Economics professors Katherine Baicker of Harvard and Helen Levy of the University of Michigan concluded in a recent paper that low-income, minority workers would be the most affected by a government mandate on employers. "Workers who would lose their jobs are disproportionately likely to be high school dropouts, minority, and female," they wrote.

Similarly, Peter Orszag, now the Obama budget director, testified in 2008 when he headed CBO that "The economic evidence is overwhelming... that when your firm pays for your health insurance, you actually pay through reduced take-home pay. The firm is not giving that to you for free."

Higher taxes, fewer jobs, less investment: The House bill relies on income tax surcharges on the most productive workers, bringing the top tax rate to 45%, as well as an 8% payroll tax on employers who do not offer the right kind of health insurance to their employees. Moreover, anyone who does not sign up for health insurance would face an additional 2.5% income tax penalty.

Taxes discourage work and investment, thereby reducing employment.

Tax increases would adversely affect married women because some enter and leave the labor force depending on their family situation. The disincentive effect would discourage married women from working. It could even discourage marriage by intensifying the present "marriage penalty" in the tax code, the higher tax rate on a woman who is married.

By raising taxes on upper-income Americans to 45%, Congress would worsen our tax system's marriage penalty on two-earner couples, whereby women pay even more tax married than single.

The tax penalty for working is even more substantial at the low end of the income spectrum because phasing out health care subsidies for the poor imposes high tax rates on the extra dollar earned. As people move up the income scale, they give up the subsidy.

The staff of the Joint Tax Committee estimated that combined effective marginal tax rates on income and insurance premiums, including payroll taxes, for poor families of four under the Baucus bill would be substantial, exceeding tax rates for upper-income individuals under the House bill, and reaching 59% at 150%of the poverty line and 49% at 250 percent of the poverty line.

Our health insurance system needs to change, but not in the way envisaged by the Democratic Congress. Rather than mandating one expensive plan, Congress would do better to shift the current health insurance tax exclusion from employers to individuals and allow employees to choose their own, portable plans, as they do with car and life insurance. That would help women, and men too.

Washington's view of what's happening at FHA falls into two broad categories. On the one hand there are people like FHA commissioner David Stevens who don't seem to think that FHA's current lending practices are risky because the agency isn't lending at so-called sub-prime standards, specifically because the agency doesn't back adjustable rate mortgages and requires documentation from all borrowers to verify their incomes.

Then there are those like Reps. Barney Frank and Maxine Waters, who say they are willing to accept additional risk in FHA loans in order to prop up the housing market and keep lending to people who can't otherwise afford to buy a home right now. Frank and Waters continue advocating giving these borrowers what Washington classifies as "affordable housing" mortgages. Both attitudes, Stevens as well as Frank's and Waters', are troubling when you consider the history of such government-backed lending and what FHA's efforts say about the prospects for sensible reform and restraint.

Congress pushed FHA into the market after Fannie and Freddie, which had usurped much of FHA's mortgage role starting in the early 1990s, went bust. To grease the wheels Washington raised the limits on a mortgage that FHA could approve to a whopping $729,750 per home in some markets. This is what qualifies as "affordable lending" in Washington. In addition, FHA heavily backed mortgages with a down payment amounting to as little as 3.5 percent of the value of the home, which lenders would never approve in the current market without government insurance.

Decades of underwriting experience tell us that these lending practices, that is, big loans made with low-down payments in a volatile market, are very risky. The FHA and the Veterans Administration, for instance, came under similar pressure to lower their underwriting standards and boost lending in the 1950s, after the post-World War II housing boom pushed up prices and put ownership out of the reach of some middle class families. The agencies responded by raising limits on the size of loans they would approve (which Congress allowed the agencies to do) and sharply lowering down payment requirements. From the early 1950s to the mid-1960s the typical down payment on an FHA-backed loan decreased from about 18 percent of the value of a home to just 7 percent, while VA down payments went from an average of about 10 percent to less than 3 percent of the value of the home.

Along the way, foreclosure rates spiked sharply, from about 1 per 1,000 mortgages at both agencies in the early 1950s to about 12 per 1,000 on FHA loans by the mid-1960s, and to 7 per 1,000 mortgages on VA loans, according to a study of foreclosure and delinquency problems in the two programs published in 1971 by the National Bureau of Economic Research.

By contrast, the foreclosure rate on conventional mortgages, where down payment ratios declined only slightly but remained well above FHA and VA rates, went from about 1.6 per 1,000 mortgages in the early 1950s to a mere 2.4 per 1,000 by the early 1960s. "The incidence of [foreclosure] claims was found to decrease sharply with the increases in borrowers' equity," the NBER report observed, stating the obvious.

There's nothing mysterious about why foreclosure rates react this way. A homeowner who has made a small down payment will quickly be sitting on a loan that is "underwater," that is whose value is higher than the value of the home, if home prices decline. For a variety of reasons, ranging from a homeowner who is suddenly out of work or one who was counting on the home he purchased to be a great short-term investment, such homeowners are far more likely to default on their mortgages, studies have shown.

Under these circumstances, all one has to do is look at housing prices to understand just how risky the FHA's low-down payment standard has been in the last two years. Home prices have declined relentlessly every month since August of 2006 through May of 2009 before taking a breather more recently. So it's not surprising that the percentage of FHA mortgages underwater has risen and that, according to one estimate, a fifth of all loans it made last year and a quarter of all loans from 2007 are now classified as having serious problems.

Faced with these troubling signs, the FHA is banking on optimistic projections of rising home prices, which would help to clear up problems with its portfolio in the next few years. But as the economist Robert Shiller observed last week in a New York Times column, a recent uptick in home prices could represent little more than a new wave of short-term speculative buying, what Shiller called "short-run price volatility" that may well be just the equivalent of a brief bear-market rally. If housing market bears are correct, prices could start declining again, and the FHA would be in for a mess of trouble.

Not surprisingly, FHA's backers in Washington, the very same people who defended Fannie and Freddie when critics warned of their increasingly dangerous lending practices, are quick to accept the optimistic view. Waters proclaimed in recent hearings that, "I am feeling very confident about FHA." This is the same Waters who in 2004 told a Congressional hearing that, "We do not have a crisis at Freddie Mac, and particularly at Fannie Mae."

What's even more troubling is that Waters, Frank and other supporters of FHA are willing to take these risks for what amounts to at most a marginal boost in homeownership. In testimony before Congress the FHA administrator, Stevens, and other supporters claimed that its low-down payment loans are necessary to unlock the American dream for those who don't have enough money to put down a conventional down payment. But figures from the last few years suggest that most of these people are not permanently shut out of the mortgage market, that instead, all we do when we subsidize these programs is pull their buying forward.

During the housing bubble, when home ownership rates rose from about 65 percent to 69 percent of households, ownership rates barely budged at all among households led by adults 44 and over, and rose just slightly in households with adults 35-44, according to research by University of Virginia Professor William H. Lucy and researcher Jeff Herlitz. The really big gains came among households headed by someone under 25 years old, where ownership rates rose to 25 percent from 19 percent, and in households led by someone 25 to 29, where ownership rates rose to 41 percent from 36 percent. In other words, it isn't so much that government subsidized loans extend the American dream to those who would be denied, but rather to those who would be denied for a few more years.

None of this is reflected in policy discussions now going on in Washington. It's clear that little about the financial nightmare we've been through has prompted Washington to examine closely the data that's available and reevaluate its long and often disastrous policy of subsidizing home ownership in America at risky and often counterproductive levels.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

First up, it is precisely because gold is limited in supply and that it has very few industrial uses that it is such a worthy measure of money. With nearly every ounce of gold ever mined still with us, there's a massive disparity between the gold stock (roughly 137,000 metric tons) and gold discoveries (flow) that frequently reach 2,000 metric tons per year.

The result of the above is that with annual discoveries very small relative to supply, gold's real price is highly stable. Neither central banks nor individuals can credibly move its real price over the long-term precisely because there's so much gold held in diffuse hands. This is why gold has historically served as money par excellence, to paraphrase Karl Marx.

Morici argues that there's not enough physical gold to back every currency, and while true, that's not the goal of most who desire a return to a gold standard. In truth, if the U.S. Treasury were to define the dollar in gold terms, it realistically wouldn't need to hold very much gold in Fort Knox to do so.

Indeed, money is an interest bearing asset, whereas gold must be stored at a cost while generating no interest. That being the case, if Treasury made plain that in the future dollars would be redeemable at a set gold price, there would be very little incentive for dollar holders to exchange them for the physical commodity.

So long as the redeemable standard was credible, redemptions would be low. Importantly, under this kind of gold exchange standard, markets would communicate to U.S. monetary authorities how many dollars should be in the system. Put more simply, a rising gold price alongside redemptions would signal the need for the Fed to extinguish dollars, while a falling gold price would serve as a signal from the markets that the economy needs more money.

Morici pines for a currency world characterized by floating currency values, but in seeking what is realistically an absence of policy, he misreads the historical, pre-1971 role of money. Simplified, money is merely a concept, much like a foot ruler is a foot ruler. If we were to float the foot we could still build houses, but we'd build less of them while making a lot more building mistakes.

Currencies must be seen in the same way. When they float, they distort the real money prices of all manner of investments. Much as a floating foot would lead to all manner of asymmetric and ugly living spaces, floating money leads to all kinds of faulty investing; the rush to housing wrought by a weak dollar the latest and most impoverishing example.

Had the dollar been stable, the money illusion that drove up the nominal prices of homes would not have revealed itself, and the world economy wouldn't have collapsed due to a flight to the real. The weak dollar is what made housing so attractive, and is what props up nominal prices to this day.

This is important when Morici's views on China's currency policy are considered. Specifically, Morici posits that "since 1995 China has maintained an undervalued currency by selling huge amounts of yuan for dollars to merchants and currency traders." Morici is correct that China seeks to maintain a stable dollar/yuan price through the currency markets, but it does not do so to hold down the price of the yuan.

More realistically Chinese monetary authorities have long understood that lacking any modern history as currency overseers, it would be dangerous for them to conduct policy absent a credible currency anchor. In that sense China's monetary policy is similar to that of myriad other countries around the world who peg their currencies to better known, and more credible monetary concepts. For good or bad, and bad at present, China has since 1995 outsourced its monetary policy to the United States.

Morici sees China's sliding dollar peg as an attempt to hold down the prices of its goods, but basic anecdotal evidence proves otherwise. Indeed, to produce goods for the world, China must import massive amounts of commodity inputs which are priced in dollars, and which have spiked in price due to the dollar's debasement. While money is surely a veil and can't change the real price of anything, if China wanted to reduce the nominal price of its goods, it would drive the yuan up much higher so that its commodity inputs would become less expensive in nominal terms.

Digressing somewhat, Morici makes the case that Japan has similarly pursued a weak currency strategy against the U.S. In that case, Morici is blatantly ignoring the facts. In 1971, a dollar bought 360 yen, whereas today it only buys 90. The idea that Japan has held down the yen versus the dollar is empirically bankrupt, and arguably not worth mentioning.

Back to China, the main reason for it maintaining a dollar peg beyond has to do with trade. Put simply, when currencies gyrate relative to each other, cross border trade is victimized due to the uncertainty it creates among consenting merchants. In that sense, we need only ask ourselves how very much interstate trade would plummet within these fifty states if there were fifty currencies. The collapse would be disastrous.

Much the same would reveal itself if the yuan and dollar had no stable relationship. Morici sees trade as war, but in truth trade is the simple and wealth enhancing process whereby individuals - as opposed to countries - exchange what they're best at. We produce in order to consume (trade), and stable currency values make this possible.

Looking at cross border trade between individuals in China and the U.S. since 1999 alone, the results have been profoundly good. U.S. exports to China over that timeframe have rocketed up 429 percent, while Chinese exports to the U.S. have risen 312 percent. Trade is once again the sole reason we work, and the dollar/yuan relationship has enhanced our incentive to be productive.

Morici believes that it's problematic that the Chinese produce without consuming, but in suggesting this he ignores basic economic logic. For one, as anyone who's visited China has noticed, individuals there are major consumers as evidenced by China being one of the world's largest car markets, to name but one item.

But assuming they weren't, as in assuming the illogical whereby the Chinese produced in order to remain impoverished, this would in no way harm the U.S. economy. That's the case because no act of saving ever detracts from demand. If the Chinese decide to bank all their gains from exports, the money saved will simply be lent to businesses eager to expand and to consumers eager to spend. China's allegedly excessive savings rate is an absurd canard that merits no serious attention.

Morici ties rising U.S. unemployment to our trading with countries like China, but in doing so he ignores the fact that the U.S. has had a trade "deficit" for as long as it's been in existence, and that despite a globalizing world, the U.S. labor force participation rate (from 60% in 1970 to 66% in 2005) has been rising for nearly forty years. Cross border trade hasn't so much killed jobs as Morici supposes without evidence as it's changed the nature of our work. Whereas we used to be more reliant on agriculture and manufacturing for work in the States, we've done as countries have always done whereby we've let low value work migrate elsewhere in order to do higher value, service-oriented work.

In the end, it must be said that the China/U.S. trade relationship is the greatest story never told by mercantilists of the Morici variety. As opposed to a signal of our decline, the massive amount of Chinese imports that reach the U.S. (fostered by relative currency stability) are a major compliment to our productivity first, and to our desire to let others make for us what's not in our interest to make so that we as individuals can achieve our own comparative advantage.

In an economic system of individuals, there are no trade deficits. Morici believes otherwise, however, given his blinkered view that trade is war between countries. Here's hoping his views will carry no weight beyond his substantial role in the economic commentariat. If not, as in if the Moricis of the world achieve barriers to exchange where there presently aren't, lower standards of living are just around the corner.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

Al Gore wasn't there to throw out the first snowball, er, baseball, so he might not have noticed that Saturday's playoff game between the Colorado Rockies and the Philadelphia Phillies was snowed out - in early October. The field should have been snow-free just as the North Pole was to be ice-free this year.

It seems that ice at both poles hasn't been paying attention to the computer models. The National Snow and Ice Data Center released its summary of summer sea-ice conditions in the Arctic last week and reported a substantial expansion of "second-year ice" - ice thick enough to have persisted through two summers of seasonal melting.

According to the NSIDC, second-year ice this summer made up 32% of the total ice cover on the Arctic Ocean, compared with 21% in 2007 and 9% in 2008. Clearly, Arctic sea ice is not following the consensus touted by Gore and the warm-mongers.

This news coincides with a finding published in the journal Geophysical Research Letters last month by Marco Tedesco, a research scientist at the Joint Center for Earth Systems Technology. He reported that ice melt on Antarctica was the lowest in three decades during the ice-melt season.

Each year, millions of square miles of sea ice melt and refreeze. The amount varies from season to season. Despite pictures taken in summer of floating polar bears, data reported by the University of Illinois' Arctic Climate Research Center at the beginning of this year showed global sea ice levels the same as they were in 1979, when satellite observations began.

At the 2008 International Conference on Climate Change, hosted by the Heartland Institute, the keynote speaker, Dr. Patrick Michaels of the Cato Institute and the University of Virginia, debunked claims of "unprecedented" melting of Arctic ice. He showed how Arctic temperatures were warmer during the 1930s and that most of Antarctica is indeed cooling.

At the other end of the earth, we are told the Larsen B ice shelf on the western side of Antarctica is collapsing. That part is warming and has been for decades. But it comprises just 2% of the continent. The rest of the continent is cooling.

A report prepared by the Scientific Committee on Antarctic Research for last April's meeting of the Antarctic Treaty nations in Washington notes that the South Pole has in fact shown "significant cooling in recent decades."

Australian Antarctic Division glaciology program head Ian Allison says sea ice losses in west Antarctica over the past 30 years have been more than offset by increases in the Ross Sea region, just one sector of East Antarctica. "Sea ice conditions have remained stable in Antarctica generally," Allison says.

So what gives? Earth's climate is influenced by many things, the least of which is the internal combustion engine. We and reputable scientists have noted the earth has cooled during the last decade, a period in which the sun has grown very quiet with little or no sunspot activity.

According to research conducted by Professor Don Easterbrook from Western Washington University, the oceans and global temperatures are closely related. They have, he says, a natural cycle of warming and cooling that affects the planet.

The most important ocean cycle is the Pacific Decadal Oscillation (PDO). Easterbrook notes that in the 1980s and '90s it was in a warming cycle, as was the earth. The global cooling from 1940 to 1975, which had some experts warning of an ice age, coincided with a Pacific cooling cycle.

Professor Easterbrook says: "The PDO cool mode has replaced the warm mode in the Pacific Ocean, virtually assuring us of three decades of global cooling." Such solar and ocean cycles explain why the earth can cool and polar ice thicken even as carbon dioxide levels can continue to increase.

Will any of this be brought up at the climate conference in Copenhagen this December? Not unless hell freezes over. Then again ...

If they are truly disgusted, they should look to themselves for answers.

Since the end of World War II, the dollar has largely replaced gold as the reserve asset central banks hold to back up national currencies. The supply of mineable gold is too limited, and efforts to back up currency with gold would result in chronic shortages of liquidity and global deflation.

When a merchant moves goods, for example, from Thailand to Mexico, the market for pesos into bahts is thin or nonexistent, and the merchant sells pesos for dollars to buy bahts. Similarly, many other cross-boarder trades, financial contracts and debts are denominated in dollars, although the euro is coming into greater use.

Over the years, governments and traders gravitated to the dollar, because the United States has the largest and most diversified economy. Virtually anything made or grown around the world is made or traded in the United States, and money invested in dollars is secure from political upheaval and state confiscation.

Until recently, the dollar has been a well managed currency. The U.S. government resisted the temptation to borrow too much and flood the world with too many dollars and Treasury securities, which provide liquidity the same as do dollars.

The current market determined system of exchange rates emerged by default in the early 1970s, when the Bretton Woods system of government-enforced fixed exchange rates failed, and the United States ended the convertibility of the dollar into gold.

This system has no rules or effective governing structure. Consequently, some governments seized opportunities to manipulate the system to gain competitive advantages in trade. For example, since 1995 China has maintained an undervalued currency by selling huge amounts of yuan for dollars to merchants and currency traders.

The undervalued yuan makes Chinese exports artificially cheap and foreign products too expensive in Chinese markets. China enjoys huge trade surpluses that create millions of jobs and double-digit growth in China. Japan and others have pursued similar strategies.

These policies impose huge trade deficits and unemployment on the United States, create enormous imbalances in the global economy, and contribute importantly to the Great Recession.

The U.S. trade deficit grew from about one percent of GDP in 2001 to more than five percent from 2005 to 2008, and this should have created a shortage of demand for U.S. goods and services and a recession.

However, China invested the dollars obtained suppressing the value of the yuan to purchase U.S. securities. U.S. consumers borrowed those dollars, against their homes and on credit cards, and kept the U.S. economy going.

Finally, the credit bubble burst and an even bigger recession resulted. Huge federal borrowing is now required to finance massive U.S. stimulus spending, bailout banks and otherwise rescue the U.S. economy.

All this borrowing floods capital markets with Treasury securities, which provide the same liquidity as dollars, and pushes down exchange rates for the dollar against every major currency except the Chinese yuan. This reduces the value of the dollars, as expressed in euro and yen, held by China, Russia, Saudi Arabia and others.

Hoisted on the consequences of their own mercantilism, China and others would like to see the dollar replaced by a basket of currencies.

A global currency poses enormous diplomatic and technical challenges, including creating an international body to control its supply and persuading governments to issue debt denominated in this global currency. Without those, private merchants and financiers would still seek a central national currency to facilitate trade and denominate private cross-border contracts and debts.

Even with a global currency, China could still buy dollars with yuan to keep its value suppressed against the dollar and boost exports into the United States. The United States would still have to run large federal deficits to avoid economic meltdown.

China would still be stuck holding dollars that chronically fall in value against other currencies.

If China and others want that problem fixed, they need to abandon currency manipulation and let their populations purchase more U.S. goods and services.

The U.S. economy would grow robustly, federal borrowing would subside and the threat of too many dollars compromising the dollar's role in international finance would vanish.

It was shocking. Only after reading it twice did I realize it was just a forecast and not reality. Yet as Nobel Peace Prize winner Barak Obama pursues his strategy of global multilateralism, the inexorable logic of reciprocal disarmament smacks one in the face.

If the US refuses to acknowledge the existence of evil, rejects unilateralism, and insists on an even-handed approach to international relations, what else can we expect the UN to deliver but an insistence that all sides in the Middle East give up their weapons of mass destruction, including Israel? If this harrowing forecast becomes reality, what might happen next?

War.

Several reasons make this likely. The most compelling is that a preemptive strike by Israel on Iran's nuclear infrastructure would be in the best interests of the leadership of both nations.

The Iranian mullahs may be crazy but they're not stupid. The biggest threat to clerical rule comes not from Israel or the US but from Iran's own restive people. The surest way to crush domestic opposition is to unify the country around hatred for the infidel invader. A price would have to be paid, but Ahmadinejad might find a little death and destruction acceptable compared to the loss of power. Bloodying Israel's nose by putting up a good fight wouldn't hurt his standing either. If Ahmadinejad's handlers believe that Israel will execute a careful surgical strike, which is likely given Israel's interest in minimizing collateral damage, the mullahs may roll the dice.

The existential threat against Israel comes not from nuclear tipped Iranian missiles with a return address but from a bungled attempt at nuclear blackmail by an Iranian supplied terrorist group. Hate deranged Islamo-nihilist terrorists will never be sated until the chant "Death to Israel" becomes a reality. They have proven that they will pursue this end even at the cost of their own lives and the lives of their children. Israel, therefore, cannot let Iran go nuclear.

As for their own nuclear weapons, Israel's leaders know they cannot give up their ultimate doomsday defense unless their neighbors morph into peaceful, pluralistic democracies populated by post-reformation Muslims that have grown beyond the medieval philosophies that keep them impoverished and dangerous. What are the chances that this will happen before Iran gets the bomb? Israel may roll the dice.

And the US? Doesn't Netanyahu need a green light from his patron before he scrambles his jets? Perhaps not if he believes he can do what he must do without exposing his American supporters to terrorist retaliation. Perversely, if the US repudiates Israel's unilateral right to nuclear weapons then loudly denounces a strike on Iran both before and after the fact, Obama can win support from the world as well as his own shaky left. If the Obama administration believes that an isolated Israel will be the only one to pay the price for doing the world's dirty work, the multilateral engageist in the White House may roll the dice.

A strike on Iran gives Arab despots throughout the Middle East relief from nuclear mullahs while still allowing them to gain standing with their hapless citizens by joining the rest of the world in denouncing Israel. European companies get to increase their business with Iran supplying its reconstruction efforts, especially after sanctions on Iran are dropped post-strike by a furious UN who can then focus on its treasured goal of undermining Israel.

Tortured logic rife with miscalculation? We better hope so. But a frightening possibility in this tortured part of the world. And a reminder that history is full of miscalculations made atop tinderboxes that lead to war.

Earlier this year, Secretary of the Interior Ken Salazar announced he would delay the comment period for offshore energy exploration by six months. Salazar claimed that the previous comment period, which would have ended in March, "by no means provides enough time for public review."

Evidently 25 years of delays and bans was not enough. During that quarter-century Congress had to make the decision each year whether to renew the ban on offshore energy, yet Salazar suggested that we were somehow engaged in a "headlong rush" to explore for energy offshore.

One reason behind this bureaucratic delay has nothing to do with developing a responsible energy policy. It has to do with the myth known as "peak oil."

Peak oil was a theory developed decades ago that suggests we will soon reach a point of maximum oil production, after which oil will only become harder and harder to find, leading to an enormous energy crisis.

In fact, many still believe this theory today, including Al Gore, who told CNN that "we are almost certainly at or near what they call peak oil." The Sierra Club's executive director, Carl Pope, once warned that peak oil could come in 2010 and that "we're better off without cheap gas."

Since anti-energy elites ignore the massive amounts of oil that we do have but are banned from extracting, they propose new energy taxes to supposedly save us from future energy crises by punishing the use of oil. After all, if oil is the problem, then coercing America away from oil usage would be the answer.

The problem is that peak oil is fundamentally wrong.

Geophysicist Marion King Hubbert first suggested in 1956 that peak oil was a reality, and that we would hit our maximum rate of production sometime around 1970. But recent estimates of oil are actually an astounding three times larger than peak oil predictions, meaning the newest discoveries simply should not exist according to the theory of peak oil.

In Brazil, there could be as much as 100 billion barrels of oil offshore, including the Tupi oil field, which is the largest oil discovery in this hemisphere in 30 years. Had Brazilians been banned from exploring and conducting new seismic tests, they never would have made this massive discovery. Now Brazil is set to become an oil exporter.

Researchers from the U.S. Geological Survey concluded earlier this year that there are massive amounts of oil and natural gas in the Chukchi Sea off Alaska's coast. They estimated that there could be as much as 157 billion barrels of oil in the Arctic, or nearly twice as much oil as was previously known to exist in that part of the world. The natural gas discovery is also greater than all of the previously known reserves in the Arctic.

Last year the USGS had to increase its estimate of oil reserves in the Bakken formation in North Dakota and Montana by 2,500%. The area is now estimated to hold more than 4 billion barrels of oil.

In Israel, experts underestimated the size of a huge natural gas discovery made in January of this year. The field is actually 16% larger than what had been estimated. Experts now claim Israel can supply itself with enough natural gas for two decades and could be an energy exporter.

In the United States, we have a 100-year supply of natural gas. Last year geologists discovered that gas reserves in the Marcellus Shale formation in Appalachia are actually 250 times larger than they estimated in 2002.

And recently, in the Gulf of Mexico, BP announced they had made a huge new discovery of oil, estimated to be as large as the biggest oil-producing spots in the Gulf, which means it could supply as much as 300,000 barrels of oil per day.

All told, there have been more than 200 new oil discoveries around the world this year alone. What these discoveries mean is our energy future does not have to be dictated by OPEC or energy taxes on American businesses. It is possible to have abundant and reliable sources of low-cost energy.

This runs contrary to what environmental extremists claim, namely that we have to make a painful transition to alternative fuels and renewables to avoid the disastrous effects of peak oil. In reality, we have reached the end of peak oil as a theory.

Gingrich, former Speaker of the House, is general chairman of American Solutions. Everley is the energy policy manager at American Solutions.

That contribution cannot be overestimated. One quarter of American Nobel Prize winners since 1901 have been immigrants. Today, a third of all the scientists and engineers in Silicon Valley are immigrants or foreign-born. Furthermore, 40 percent of the Ph.D. scientists working in the U.S. are foreign-born. Unfortunately, our immigration laws ignore these facts.

The driver of economic growth in the modern world is knowledge, and scientific discoveries spill over into related fields to fuel further discoveries. Scientists working in research teams can quickly share insights with each other, allowing greater output. Scientists and engineers working closely together increase the speed and scope of their research. When this brain power is geographically concentrated, it boosts economic growth and technological development.

America's current immigration laws artificially limit our capacity for technological advancement. The engineers and Ph.D.s driving much of the technological innovation in Silicon Valley are overwhelmingly Indian, and a growing number of them are here illegally. According to the Department of Homeland Security's Office of Immigration Statistics, there are almost 300,000 illegal Indian immigrants in the U.S. Many of them arrived here on H-1B or student visas and have overstayed their legal residency in the hope of getting a green card.

Indian immigrant workers are generally highly skilled and enjoy high incomes. Average Indian-American households have an income 62 percent greater than the average. The skills, work ethic, and entrepreneurial spirit that make Indian immigrants such a successful group are remarkably constant throughout the community, regardless of legal status. Instead of making them jump through bureaucratic hoops, we should encourage them to live here peacefully and contribute to society.

Foreign graduate students also contribute to America's ongoing technological success. A 2005 World Bank study found that foreign graduate students working in the United States file an enormous number of patents. Additionally, a quarter of international patents filed from the U.S. in 2006 named a non-U.S. citizen working in the U.S. as the inventor or co-inventor. Many of those immigrants whom our immigration bureaucracy refuses to recognize are responsible for the rapid technological advancement of recent decades.

Ultimately, highly skilled immigrants benefit the American economy. Counting just the value of patents, scientific discoveries, and firms started by immigrants, it is clear that their arrival has paid off handsomely for the U.S. And rather than take jobs away from Americans, more people with wider skills and greater experience increase employment opportunities. The non-partisan National Foundation for American Policy reports that for every H-1B visa issued, U.S. technology firms increase their employment by five workers.  In that sense, every day that almost 300,000 Indian immigrants spend in legal limbo represents a gargantuan waste of creativity.

And that doesn't even count the millions of talented individuals from China, Europe, and elsewhere who would come here seeking greater opportunity if the law would only let them. The five immigrant Nobel Prize winners came from Britain, Canada, Australia, China, and India. The number of potential Nobel Prize winners who have lost their opportunity to do research in this country is unknown. What is known is that the U.S. government has kept out millions of the most inventive, brilliant, and entrepreneurial people in the world for no good reason.

Alex Nowrasteh is a Policy Analyst at the Competitive Enterprise Institute and a contributor to OpenMarket.org.

While official Washington and much of the media focus on the great health-care struggle, the administration's economic advisers have been busy reviewing proposals to create jobs, aware that pressure on them will grow to deal with high unemployment that threatens to persist through Election Day next year. President Obama's aides insist that they knew all along that the original stimulus, as one of them put it, would "never fill the full gap from the recession." Whether or not they anticipated this, they're planning to act, even though -- for political reasons -- what comes next will not be called "a second stimulus."

These developments are far more important than what already feels like a stale debate over the president's policies up to now. It involves those who say that the stimulus worked and those who say it didn't. In fact, the stimulus has certainly "worked" as far as it went. Just about every respectable economist believes that without it, the economy would be in worse condition than it is now, and heavy spending from the stimulus this year will prevent even more severe employment losses.

But this has been such a profound, job-destroying recession that even $787 billion wasn't sufficient. And changes made to secure some bipartisan support in the Senate last February rendered the stimulus less effective than it might have been. It should, for example, have included even more help for state and local governments, and there was no good reason to cut school construction money that the House had approved.

Moreover, pretending, as Congress did, that an expensive fix in the alternative minimum tax was "stimulus" simply wiped away $70 billion that could have been used for programs or tax cuts more likely to put people to work.

The White House is in the position of defending the stimulus and urging that we do more. While the recovery act "has been a major contributor to stemming job loss and saving and creating jobs," said one administration official, "we've always known that additional measures for job creation were something the administration would support and plan for."

It is a sign of the gravity of unemployment that even liberals who typically see business tax cuts as a highly inefficient way to reduce unemployment are supporting a tax credit for new jobs -- an idea that was knocked out of the original stimulus proposal.

Larry Mishel, president of the Economic Policy Institute, a liberal think tank, does not believe that the tax credit is sufficient on its own, and he continues to favor public-works jobs, especially in areas of very high unemployment.

Nonetheless, Mishel said he supports the tax credit because unemployment is so stubbornly high. "It's such a desperate situation," he said, "that we need to do things that move the dial."

The administration and the Democratic Congress are also likely to move quickly on traditional ways to pump money into the economy by helping Americans most hurt in the downturn. These include extending unemployment insurance, expanding food-stamp coverage and offering more help so the unemployed won't lose health insurance. All have a high economic return since the recipients, because of need, spend the money quickly.

With so many states being forced to cut their budgets and raise taxes -- the exact opposite of a stimulus -- more direct assistance to states is also likely to be part of a new jobs package.

Like the job-creation tax credit, helping states might find some Republican support. Moreover, 19 of the 37 governorships at stake in 2010 are now held by Democrats, and many of those statehouses are vulnerable to Republican takeover. By easing the states' fiscal situations, an infusion of new federal money could also bolster the political standing of the party in power.

At least some economists, according to administration allies, are also suggesting ways of extending easy credit to American manufacturers and boosting government purchases of American-made products.

A more aggressive approach to jobs is inevitable because high unemployment over a long period not only is a social and economic calamity but also stands as the biggest obstacle Democrats face in the 2010 voting. Rarely have an administration's economic and political imperatives been so closely aligned.