President Barack Obama’s 2008 electoral landslide victory averted a global financial meltdown. Had John McCain won that election, the present G.D.P. in the United States would have been even lower than it is now by more than 15 percent.

Flashback: Didn't an early 70s version of Paul Samuelson's textbook infamously include the contention that per capita income in the Soviet Union would surpass that of the U.S.?

...we do know that the planners in the Soviet Union are putting full steam ahead on their program of industrial expansion: some experts attribute to them a 6 per cent rate of expansion, which is double ours and which could give them by 1975 production equal to ours. (But can they maintain this pace? Some doubt it.)

Update... Reader Nick Kaster writes,

Actually, in his famous econ textbook Economics, Paul Samuelson was touting Soviet per capita GDP growth as late as 1989, the year the USSR collapsed. Mark Skousen, in his article "The Perserverence of Paul Samuelson's Economics" says the following:

In very early editions, Samuelson expressed skepticism of socialist entral planning: "Our mixed free enterprise system ... with all its faults, has given the world a century of progress such as an actual socialized order--might find it impossible to equal" (1:604; 4:782). But with the fifth edition (1961), although expressing some skepticism statistics, he stated that economists "seem to agree that her recent growth rates have been considerably greater than ours as a percentage per year," though less than West Germany, Japan, Italy and France. (5:829). The fifth through eleventh editions showed a graph indicating the gap between the United States and the USSR narrowing and possibly even disappearing (for example, 5:830).. The twelfth edition replaced the graph with a table declaring that between 1928 and 1983, the Soviet Union had grown at a remarkable 4.9 percent annual growth rate, higher than did the United States, the United Kingdom, or even Germany and Japan (12:776). By the thirteenth edition (1989), Samuelson and Nordhaus declared, "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive" (13:837). ...

By the next edition, the fourteenth, published during the demise of the Soviet Union, Samuelson and Nordhaus dropped the word "thrive" and placed question marks next to the Soviet statistics, adding "the Soviet data are questioned by many experts" (14:389). The fifteenth edition (1995) has no chart at all, declaring Soviet Communism "the failed model" (15:714-8).

Thank God I’m not a lobbyist for any health care interest. I’m not a doctor either, but I’ll play one on the Net.

Which is cheap little set up to show you and your readers this little gem produced by John Boehner’s staff way back in August of 2009:

Now let’s look at today’s New York Times. I’ve read thousands of news stories over the past 30 years on how political fundraising pollutes public policy. It does, sometimes. Mostly, it doesn’t. Too often, it’s the politicians holding up the lobbyists. The Times, gets it exactly right:

But industry lobbyists, speaking on condition of anonymity for fear of alienating Ms. Pelosi, say they have stepped up their fund-raising for her all year with an eye to her pivotal role in the health care endgame, hoping to stay in her good graces and glean insights into her thinking.

“Fear of Alienation” leads to “Stepping Up Fundraising for Her” by the very people she castigates.

From Speaker Pelosi’s perspective, this is an easy recipe to follow: Castigate. Fear. Fundraise. Repeat.

Now, look at this chart. Yeah, I know, I hear groans about having to look at yet another chart of “the new bureaucracy of government health care.” But this time, you really need to see how this monster has grown since way back in July. Must be because of all the spices added to the stew after it left the committee kitchens of Chefs Rangel, Miller & Waxman by Speaker Pelosi’s graceful, gleaning insights.

Yet, with all its close attention to policy shoots and ladders, I think the chart is missing something: a gate.

Without an entrance, how can there be opportunities for fundraising dinners for Pelosi with donations by doctors (who disagree with the bill), lawyers (who support the bill and can’t wait to sue those doctors) and hospitals, insurers, med devices, pharma & assorted other industry types and their lobbyists (who have been castigated into fearful check-writing) to attend numerous fancy $100,000+ parties sprinkled through the 50 States of Stimulus?

From the perspective of the lobbyists involved, this is a stunningly sophisticated “strategy.” First, suck up to the executioner. Ah, then what happens?

Very important part of the Fear of Alienation Strategy: by no means are “the castigated and fearful” allowed to give anything but token money or support to those politicians who actually agree with them. Certainly not when the ultimate House vote is expected to be so close! We wouldn't want the Speaker to lose (and you to win) would we? That will make her very, very unhappy with you!

Got it? Write another check! OK, back to the your dungeon again!

I much admire Mick Danger's update of the government healthcare plan, with its greatly enhanced, mind-expanding flowchart.

His reference to "shoots and ladders" probably should be "chutes and ladders", but I don't see any such interconnections between the many boxes on the flowchart. Perhaps the free-floating box is an innovative concept in osmotic information flow. Or maybe Mick Danger's "shoots" is to be interpreted in a Second-Amendment Freudian sense.

Two weeks ago I visited the New?York?Federal?Reserve, for a meeting with a high-ranking official in an elegant conference room overlooking Wall Street. It's an appropriate view now, considering that in today's post-crisis world the Fed has assumed oversight responsibility for all the financial markets, not just banks.

Before the meeting above Wall?Street, though, I went below Wall Street. I went five stories down into the solid bedrock underneath the New York Fed, 30 feet below the level of the New?York subway system and 50 feet below sea level.

There the New York Fed has a vault containing about $300 billion in gold?bars.

It's the largest single gold hoard in the world. It holds more than Fort Knox. Almost all of it is held in custody for foreign governments -- very little of it is owned by the U.S. government, and none of it by individuals.

You enter the vault through a slot revealed when a 90-ton steel cylinder is rotated. When you are inside, and the cylinder rotates back, you are in a water-tight, air-tight room half the size of a football field stacked to the rafters with gold bricks weighing 27.4 pounds each.

Gold is so dense that these heavy bars are surprisingly small, but don't make the mistake of picking one up with only one hand. Vault workers wear ultra-light, ultra-strong magnesium shoe-covers to protect their feet from the inevitable drops that have left the cement floors pockmarked with deep dents.

It's all very old-school. The vault was built in 1921 and looks it. It still uses technology from that bygone era. Nothing digital. Nothing web-enabled. An enormous scale used to weigh gold bars looks like an enlarged version of an old-fashioned balance beam you'd expect to see in an apothecary shop -- yet it weighs precious metal tons at a time within the accuracy of the weight of a grain of rice.

But then again gold is pretty old-school, too. When you're holding one of those bars in both your hands you have the sense that you're in the presence of economic value that is fundamental and lasting. It's more than knowing that the bar is worth about $300,000. Sure, it would be a thrill to hold a briefcase stuffed with $300,000 in hundred-dollar bills. But this gleaming bar is something more. It's real.

On my way out of the vault, on my way to my meeting upstairs, my host asked if I'd like a souvenir. Sure, I said, holding out both my hands expecting one of those gold bars (not really). Instead, a small sealed plastic bag was dropped into my hands, containing about an ounce of paper shredded like confetti, paper that had once been United States currency.

Yes, I thought. Exactly! What could be a better souvenir of the world's largest stockpile of true value than a little bag of something of no value whatsoever?

Would it have made any difference if the currency hadn't been shredded? Absolutely. That way I could have spent it -- which is to say, I could have turned it into something real. But until I did so, shredded or unshredded, it was just paper. In its unshredded form, its value comes only from the command of a government that declares that, under penalty of law, we all agree that it is valuable.

Yet it is not valuable, fundamentally. It's just paper, and there's no limit to how much the government can print, and then force us to regard as valuable. Gold is intrinsically valuable. It's scarce. It's hard to find. No government has to threaten you with a jail sentence if you don't think it's valuable. Because it just is.

So I went upstairs to my meeting with a high-ranking Fed official, and we talked about interest rates, the economy, the Fed's balance sheet. All I could think about was that bar of gold. And that bag of shredded paper. I knew that any decision the Fed makes can affect only the paper. That's the Fed's world. Paper. There's nothing the Fed can do to affect gold.

Which is why gold is so valuable, and why paper is worthless. Gold is forever. Paper is just whatever the Fed decides to do from one moment to the next.

Now here's a paradox, or at least a seeming paradox. The longer the Fed keeps interest rates at zero, the more worthless paper money becomes. That creates the impression that gold is more valuable -- in fact, this week it hit all-time highs at almost $1,100 per ounce as the Fed announced the indefinite continuation of its zero-rate policy. But that's not gold becoming more valuable. That's the paper money in which the price of gold is denominated becoming less valuable.

In other words, gold is the constant. Its value doesn't change. Its dollar price changes, but not its value. So when investors come to me and ask me how they can hedge against the falling value of the dollar, I always tell them to buy gold.

You can't escape the falling dollar by buying other currencies like the euro or the yen. They're just paper, too. Lately they've looked strong versus the dollar. But in the end, they're just paper.

And you can't escape with stocks. Fine, stocks are up something like 60% since the March bottom. But that's only if you price stocks in dollars. Try pricing stocks in gold -- in other words, how many ounces of gold will one unit of the S&P 500 or the Dow Jones Industrial Average buy? If you think about it that way, with gold now at all-time highs, then stocks are really only up about 34%.

OK, 34% is great. But think of the risk you took to get it. And remember that in terms of real purchasing power -- the ability to buy an ounce of gold, to acquire real value -- stocks only went up about half as much as it seems on the surface. The other half is just the value of the dollar collapsing.

It's going to get worse. The Fed is going to keep rates at zero just about forever. The government isn't going to stop spending. As I wrote here a couple of weeks ago, Treasury Secretary Tim Geithner is going to try to make the dollar even cheaper by getting exporting nations like China to raise the value of their currencies.

So it's like I've been saying here for a couple years now. Buy gold. It's that simple.

en Bennett Cerf, a head of Random House, begged her [Rand] to cut Galt’s speech [in Atlas Shrugged], Rand replied with what Heller calls “a comment that became publishing legend”: “Would you cut the Bible?” One can imagine what Cerf thought — he had already told Rand plainly, “I find your political philosophy abhorrent” — but the strange thing is that Rand’s grandiosity turned out to be perfectly justified.

...But Cerf offered Rand an alternative: if she gave up 7 cents per copy in royalties, she could have the extra paper needed to print Galt’s oration. That she agreed is a sign of the great contradiction that haunts her writing and especially her life. Politically, Rand was committed to the idea that capitalism is the best form of social organization invented or conceivable.

...Yet while Rand took to wearing a dollar-sign pin to advertise her love of capitalism, Heller makes clear that the author had no real affection for dollars themselves. Giving up her royalties to preserve her vision is something that no genuine capitalist, and few popular novelists, would have done. It is the act of an intellectual, of someone who believes that ideas matter more than lucre.

The reason why, I think, is that Kirsch is eager to find any contradictions in Rand, in order to use them to demystify her. But perhaps it's that he, himself, is incapable of entrepreneurial thought. Which is why he's chosen a career as an impotent intellectual in the service of The New Republic.

Posted by Donald L. Luskin at 3:45 PM | link  

Posted by Donald L. Luskin at 9:54 AM | link  

Wednesday, November 04, 2009

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Tuesday, November 03, 2009

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Monday, November 02, 2009