Obama Really is the Messiah!

Barack Obama truly is The One, The Messiah, or at the very least, a major Prophet. He has managed to do something that hasn’t been done since slavery. No, not the American kind, I’m referring to the biblical Egyptian variety, back when Moses was The One they’d been waiting for. Like Moses, Obama has managed to unite the people and start them on their journey to salvation, and just like biblical Egypt, the people have found comfort in their founding principles and are heading back to the Promised Land. Unlike ancient Egypt, this time the people got united by accident.

But are we really united? Are we not a seriously divided nation? Yes, we are divided in many ways, but I believe we may be more united than we think. In fact, I’ll bet you a gazillion dollars that regardless of your political views, for roughly half of the last 2 years, you had zero trust in the guy in the White House, thought he was lying through his teeth, thought he was doing unconstitutional things, and were sick of seeing him on your TV. Does that describe you? Are we not united here? The point is, no matter who we trust or don’t, or who we vote for, roughly half the time, the other guys are in charge! And it’s not like the ones we mistrust ever go away. There are still laws on the books from Washington (yeah, that loser.) Heck, we still have that useless Louisiana Purchase Jefferson stuck us with! You think, your cool guy is in, and the other jerk is out? Think again.

Our government is like a giant nightmare version of the Garden of Eden that has never been pruned. Sure, it started out simple and beautiful when all we had was our Constitution, but along the way we bit the apple, and now anything can be justified as Constitutional. The Garden is an overgrown mess. When the Constitution can be anything, it becomes nothing. It’s as if everything ever planted in our Garden of Eden, good or bad, constitutional or unconstitutional, by every administration, has just grown, and grown, and grown, unchecked. How many federal programs, agencies, taxes, or laws can you name that have ever been phased out? Not many, right? Do you really want all those weeds clogging up your once heavenly Garden? Wouldn’t it be great if we could agree to do some trimming and weeding and get back to that Promised Land of Constitutional Government? See, we really are united!

After the State of the Union Address, Peggy Noonan, who writes a weekly op-ed in the Wall Street Journal, pointed out that Obama’s message was essentially (and I’m paraphrasing) “Washington is hopelessly broken, but if you allow us to control your entire life, we’ll make sure all your healthcare, energy, climate, automotive, banking, defense, housing, food, drug, and employment needs are satisfied.” Yeah, right. It’s laughable on its face, especially when you realize that half the time, the people in charge of your entire life will be the untrustworthy, lying, stupid, jerks you voted against! And say what you will, none of that is in the Constitution.

Unwittingly, Barack Obama has become our savior. I’m not suggesting that he is doing anything right, in fact, by being so spectacularly wrong, he has become the Prophet his followers promised. Look around. Everywhere you turn the pendulum is swinging back and this swing is bigger and more profound than any in the past. Of course, the pendulum is always swinging. Remember how after Bill Clinton’s “character” issues, the pendulum swung to Bush 43 who ran on bringing dignity back to the oval office? And after Bush’s lack of brains and communication skills, the pendulum swung to a much smarter guy? Notwithstanding the fact that he thinks there are at least 57 states, can’t pronounce Corpsman, and needs a TelePrompTer to talk to school kids; he really does sound smart most of the time.

(Not to get sidetracked, but speaking of sounding smart, when Obama talks about economics or defense in particular, he reminds me of a character in “Fast Times at Ridgemont High”. Remember Mike Damone, the sleazy cool kid who talks a slick game about the ladies, but eventually gets exposed as a complete novice and fraud? Here’s some dialog I clipped from IMDB:

• Mike Damone: I mean don't just walk in. You move across the room. And you don't talk to her. You use your face. You use your body. You use everything. That's what I do. I mean I just send out this vibe and I have personally found that women do respond. I mean, something happens.
• Mark Ratner: Well, naturally something happens. I mean, you put the vibe out to 30 million chicks, something is gonna happen.  
• Mike Damone: That's the idea, Rat. That's the attitude.
• Mark Ratner: The attitude?
• Mike Damone: Yeah! The attitude dictates that you don't care whether she comes, stays, lays, or prays. I mean whatever happens, your toes are still tappin'. Now when you got that, then you have the attitude.

Anyway, Obama reminds me of a pseudo-intellectual Mike Damone. Yeah, it’s a stretch, so what, who cares?)

Getting back to the pendulum, this swing started long before Barack Obama became President. Don’t you remember feeling helpless as Bush was shepherding the tragic TARP bill through? You probably had the same feeling when congress unanimously passed the first stimulus bill and Obama was not President then either. Ditto when Bush expanded federal control over education and prescription drugs for Medicare. Yeah, this swing of the pendulum has been going for a hundred years and it’s about the Constitution and its demise as a check on federal power.

I realize this is a familiar charge. Whenever we don’t like what a politician does, we yell “Unconstitutional!” Remember the outcry over Bush’s warrantless wiretaps? It’s the oldest charge in the book, but can you ever remember it getting traction before? Why now? And why is Obama the Prophet if he didn’t even start the pendulum swinging?

Because Obama gave the pendulum such a huge push! Nobel Economist Milton Friedman used to refer to the “Frog-in-the-Pot” analogy when discussing the shredding of The Constitution. That’s the classic analogy about dropping a frog in a pot of boiling water only to see it jump right out. Put that same frog into a pot of cool water, slowly bring it to a boil, and you’ll soon have a happily poached frog. In this case, we are the frog, and the flame cooking us is being stoked by the bi-partisan enemies of The Constitution.

Obama has turned up the heat so much in such a short time, that the frogs are jumping in droves. Would there have been Tea Parties if McCain had won the election? I doubt it. John McCain would have been almost as much an enemy of the Constitution as Obama. He wanted many of the same things. Heck, Obama hasn’t been overturned by the Supreme Court as far as I know! That’s an honor few can share with John McCain. But still, I think we would have behaved quietly as we did under Bush. We would have just enjoyed the warm bath like the compliant frogs we are. But instead we see this today:

                      Photoshop Hat Tip: www.humblelibertarian.com via www.michellemalkin.com

So what changed with Obama?

• For one, we are supposed to be a nation of Laws not Men. Our Constitution is supposed to be our guiding light, not our leaders. Then along comes Obama with his Messianic shtick and personality cult and it just goes against the grain of who we are.
• Second, The Constitution allows for the government to collect taxes, and over the years, the government has devolved into a virtual redistribution machine. The constitution does not say that the government can directly redistribute wealth, and that’s been a line few politicians have crossed. Then Obama came along and woke us up.
• Third is his rhetorical assault on The Constitution itself. He has made no secret that he holds The Constitution in contempt and this is a bit too much for those of us who think it is the very thing that made this country what we are. (Not that any document is perfect. But we say, if you’ve got a problem with The Constitution, there’s an app for that; it’s called an amendment!)
• Fourth, is the sheer audacity of his redistributionist agenda and its unprecedented assault on future generations.
• And finally, there is the perception that he is not engaged as Commander in Chief; a job at the Constitutional core of our executive branch.

Yes, absent Obama we’d still be dozing off in that pot waiting to become frog soup, but his brazen Coup d’état woke us up. (Yes, I think you can call it a Coup even though we elected him. And the “p” is silent like in Corpsman for those keeping score.) In this case, it's The Constitution, not the government which Obama and the Anti-Constitutionistas seek to overthrow. Luckily, we are now awake.

Thanks to the Obama awakening, concerned Americans are protesting in the street by the millions. Massachusetts, of all places, just ended a super-majority in The Senate. The Obama Administration is retreating on every single one of its agenda items. No incumbent from either party is a sure thing unless viewed as a strict Constitutionalist. John McCain is being challenged in his home state from within his party. Atlas Shrugged is a bestseller. People are once again reading the Constitution, The Declaration, The Federalist Papers, and reviewing American history. For Chris sakes, one of the highest rated cable news shows is a guy teaching American history at a blackboard at 5 O’clock!

These are nothing short of miracles. Barack Obama is indeed the Messiah.

Anyone Else Think This Toyota Thing is Creepy?

I don't mean to sound like a paranoid conspiracy guy, but does anyone else think this Toyota thing is creepy? Think about the timeline: 

 

1. Non-Union Toyota of Japan  passes Union GM of the US as the world’s largest auto maker.
2. Union support of Barack Obama helps him win the Presidency of the US.
3. GM goes bankrupt and gets bailed out by the US government which hands a huge chunk of the company to the UAW UNION.    
4. Toyota is accused of  unanticipated acceleration, a dangerous problem that is very hard to prove.  Toyota cites floor mats and issues warning.
5. Complaints persist and the US government insists on a recall.   
6. Toyota is forced by the US government to cease selling those models, an unprecedented move in automotive history.  
7. Non-Union Toyota sales and stock crash.
8. Union and US owned GM sales rise nicely.  

If you were around when Audi was practically forced out of the US based on a similar charge, you know that there may or may not be a real mechanical reason for un-anticipated acceleration. In the Audi case, the whole thing turned out to be bogus at best, and at worst, a coordinated attempt to take-down Audi, complete with a scary "60 Minutes" segment!  Now, I know the Toyota case involves fatalities and therefore requires serious treatment, and I also hear that there is a suspect part, but until the problem is scientifically solved, I remain suspicious of this weird coincidence of Government Motor's biggest competitor being smeared by such a ubiquitous claim as unanticipated acceleration...

 

UPDATE:  Oh, and I forgot that $1,000 "incentive" GM is now offering Toyota owners to switch brands.  Where does a bankrupt car company, owned by the US government, get $1,000 checks???
UPDATE II:  Oh, and did you know that Toyota closed its only UNIONIZED plant in 2009???

Anatomy of a Myth III – Markets are Partisan!

On October 14th 2008, three weeks before the presidential election, The New York Times published the eye-catching chart below: (follow link for full size version)
Full sized NYT Chart

The chart graphically shows how since 1929, Democrats in the White House were far better at producing positive stock market returns than their Republican counterparts, and clearly the message was that a vote for Obama was a vote for galloping prosperity while a vote for McCain was a recipe for financial disaster.  Oh my God, run for the hills!

They say that if you torture data enough you can eventually get a confession, and this chart proves it - Khalid Sheikh Mohammad got better treatment! And yet there is not a single number I dispute on the chart. No, the problem is not one of accuracy, but rather of timing and the very premises on which the chart is based. The fact is, by appropriately correcting just the timing problems I was able to reverse the conclusion of The Times, but unlike the Grey Lady I would not suggest that you invest a single dime based on these more relevant results.

First to the premises: In order for there to be some relevance to this chart, one would have to assume a minimum of five dubious premises:

   1. Party affiliation is the determining factor in a President’s economic policies.
   2. Presidential economic policies are isolated from congressional policies.
   3. Political parties have had consistent economic policies throughout history.
   4. Markets live in the moment and are not in the habit of discounting the future.
       &
   5. Markets were either irrelevant or not measured before 1929.

Not a single one of these premises is strong enough to hang your hat on, let alone bet $10,000!

To wit:  Were JFK’s economic policies anything like Barack Obama’s? Were Nixon’s anything like Reagan’s? How about the idea that Presidential policies are isolated from congressional policies? Was Bill Clinton the same President before ’94 as he was after? And how about parties being consistent over time.  Is that valid?  Hoover, a Republican, was a protectionist and Clinton, a Democrat, was a free-trader; what about Reagan vs. Obama on the same issue?

As for the 4th and 5th premises, they are just laughable but correctable, and to that end I reworked the chart. To account for the fact that markets are forward-looking I used equity values from 6 months prior to Presidential elections when markets are poised to react to the political calendar and when Presidents are referred to as “lame-ducks”. The Times chart uses values from the exact date of inauguration which assumes that the market has made no adjustment for an incoming President's expected policies. Anyone who follows the market knows that it is concerned with little else but the future!  Finally, to account for the fact that there is nothing magic about only going back to 1929, I went back to 1900 which coincides with the dawn of statistical movements in the Standard and Poors Index for which there is data back to 1871.

Here’s what I found:

                        
                                                     S&P Data Source: Yale Professor, Robert J Shiller

1. From 1900 to today, Republican Presidents yielded average annual returns of 4.66% and Democrats 4.05%, and that includes Hoover!

2. Even since 1929, excluding Hoover, Republicans beat Democrats by 7.13% to 5.03%!

3. The only way to get Democrats to beat Republicans is to start with Hoover (as the Times did) and then it’s Democrats, 5.03%, to 3.51% for the Republicans. Whew!

4. Many like to use the post-war period as an investment benchmark: Since WWII Republicans have whomped Democrats by 7.13% to 3.66%!

So, what does this prove? Absolutely nothing - except that you really shouldn’t pay too much attention to The New York Times for investment advice! For one, the correlation between parties and markets is too weak. Second, there is too much “noise” for a reliable correlation. And third, there is still the problem of the first three premises!

In short, vote for the guy or gal you prefer, and base your investments on other factors.

A Contrarian on Bernanke

Listen to any Ben Bernanke detractor and they’ll sing basically the same tune, which goes something like this: “Ben Bernanke is a an excellent academic economist and an honorable guy who performed well this past year as Fed Chairman, but he was right there at Alan Greenspan’s side in the early 2000’s when interest rates were kept too low for too long. Those low rates helped cause the housing bubble which eventually burst and collapsed the global financial system in 2008.  That kind of negligence should not be rewarded with a second term.”

I have trouble disagreeing with much of that, except that there is a far better and more compelling reason to lay some blame for the financial collapse with Fed Chairman Bernanke. I haven’t heard the following argument from anyone in the economic press, so that could either mean I’m out of my mind, or everyone else is missing something. Read on, and judge for yourself.

First a little history: Below is the Fed Target Rates for the last 10 years. The period most Bernanke detractors are focusing on is the period of low rates from roughly 2002 through 2004 when he was Alan Greenspan’s right-hand man.

Ben Bernanke became Fed Chairman February 1, 2006 when the Fed Target rate had already been raised by Greenspan to 4.25%. The day Bernanke became Chairman, he raised the Target Rate to 4.5%, but he didn’t stop there. He kept raising until July 1, 2006 when the Fed Funds Target hit 5.25%. So from July 1, 2004 to July 1, 2006 the Fed raised it’s Target Rate from 1.00% to 5.25%, an increase of 425% in 24 months.

What effect did all those rate increases have on the yield curve and why would that matter? Well, as most economists will tell you, nothing screams recession quite like an inverted yield curve (when long term rates are lower than short term rates) and forcing one is economic poison.

In January, just before Bernanke became Chairman, the yield curve was essentially flat with a slightly positive bias, but that quickly changed. Bernanke’s first raise to 4.5%, resulted in a slightly negative yield curve and again, he kept raising the Fed Target all the way to 5.25% by July 1, 2006. By November 2006, there was a clear downward trend in yields. (see chart below).

Why did Ben Bernanke keep raising interest rates in the midst of a housing bubble, with an election coming up in November 2006, and a yield curve already threatening negative by late 2005? Why did he persist and force the yield curve decidedly negative by mid 2006 which threw us into recession and crashed the housing market? No one but Ben Bernanke knows for sure, but in my humble opinion, if there is a smoking gun against him, it is this and not the period from 2002 to 2004, before he was even Chairman!

In Hebrew, Shalom, which is Bernanke’s middle name, can mean Hello, Goodbye, or Peace. I say Goodbye, and leave us in Peace, but I don’t see that actually happening. In a political and economic climate where a tax cheat can get Senate approval to be Treasury Secretary, a reckless but honorable Fed Chairman is virtually a shoo-in.

Magic Bullets Part VII – The Tax Ammendment

If you could wave a magic wand and make one amendment to the Constitution all by yourself, what would it be? Would you impose term limits? Would you rename the country after yourself? Would you make “Pants on the Ground” the national anthem? I know what I’d do: I’d end hidden taxes and get every person to participate.

My theory is that just about everything that is systemically wrong with our country stems from the fact that we don’t really know what it all costs and we don’t all share in those costs. This is of course, no accident. Politicians have been expert at two things, hiding the costs of their duplicity and getting re-elected. If we were to eliminate stealth taxes and get everyone to share the costs, profligate politicians would have their plans blow-up in their faces and the only ones re-elected would be those lowering costs and improving the efficiency of their enterprise.

Here’s how I would end stealth taxes and give everyone “skin-in-the-game” with one amendment to the constitution: The amendment would read as follows – “All federal domestic revenues shall be collected directly from the people and all taxpayers will pay the same rate and receive an identical pre-bate.”

The first question you may have is; (*feel free to use Larry The Cable Guy accent here) “What’s a pre-bate?” A pre-bate is a nifty way to not impact the poor while at the same time giving everyone skin-in-the-game. The way it would work is this: At the start of every tax period, an amount equal to the taxes paid at the poverty level would be sent to every taxpayer. This would in effect establish a zero bracket for the poor and a graduated net tax rate for those earning more than the poverty level. After that, every dime would come directly out of the pockets of the people. And there would be a single rate for every person with no deductions, period.

Here is an example of the tax system that would result. Incidentally, this could work for a system based on Income Taxes, Sales Taxes, or any combination of the two. The rates are for illustration purposes:

Tax rate = 40 % (This could be split roughly between 20% income and 20% national sales tax, for example.  Yeah it’s high, but it has to be to pay for what we’re now spending!)

Poverty rate = $15,000 income per year for this example.

Pre-bate = $6,000 per year or, $1,500 per quarter.

Using this example, everyone of age, who is legal, from Bill Gates to a homeless person, would get a $6,000 annual pre-bate.

A poor person would be able to earn and spend up to $15,000 and effectively pay zero taxes due to the pre-bate. Bill Gates, on the other hand, would burn through the $6,000 in a blink and end up paying an effective rate of 40% with no deductions. A person making $30,000 and spending it all would pay $12,000 in taxes, minus the pre-bate, resulting in $6,000 total taxes for an effective net rate of 20%.

So that’s how the pre-bate would work to graduate net tax rates despite there being only one rate and everyone participating. You may be asking; “Doesn’t everyone participate now?” To that, I’d have to answer yes and no. The fact is, some 50% of Americans are getting an illusory free-ride. The reason I say “illusory” is because many people incorrectly believe they pay no taxes. After all, many get a big rebate check in April and the politicians are always telling them they are going to tax only “the rich”. Eventually, people start to believe it. This is borne out in election after election when people are told that someone else will pay for their big entitlements like free healthcare, subsidized housing loans, extended unemployment benefits, and so forth. But there’s a problem: economies have a way of leveling these costs and spreading them around to the point that the cost becomes built into everything we buy and everything we earn. The notion that costs for huge new entitlements will be borne by someone else is like trying to pump water from only the deep end of the pool; if your pump is fast enough, there may actually be a moment when it will appear like the shallow end is unaffected, but trust me, that will not last!

Back to the wording of the amendment: “All federal domestic revenues shall be collected directly from the people…” By directly taxing only the people, there would be no more indirect taxes like payroll taxes and business taxes of any kind. Now, you may be thinking; “What, no business taxes? That’s crazy! Why give Corporations a free ride?” My answer: because businesses already pay no taxes. Sure, businesses do remit taxes, but only after collecting the exact amount from their customers and employees. In other words, all corporate payroll taxes, income taxes, fees, etc. are actually just hidden taxes on individuals. These hidden taxes distort voter behavior and obscure the necessary transparency of our exploding public sector.

Put another way, a business is just a bunch of individuals, formed into a team and working toward a common goal. The team itself gets no vote and does not exist except as a legal entity. Taxing a business violates the very rule on which this country was founded: Taxation without Representation. Of course businesses do get represented, but only through money and lobbying. If we eliminate all business taxes and collect everything directly from the people, we are properly aligning taxation and representation. Of course, business lobbying will still go on to fight for regulatory and trade consideration, but the power will shift measurably towards the people.

So would this be simple to implement? All I can say is, it’s hard to conceive of a tax regime as complicated as what we’ve got. So yes, this would be simpler, better, and more efficient. Of course we’d still have to have some agency like the IRS that would administer collections, pre-bates, compliance, business rebates, and the like. That’s one dragon we can’t slay with this magic bullet.

What we would gain though is a population directly aligned with their government and a likely return to our founding principles of Constitutional Democracy. We’d once again have what Lincoln referred to as a: “Government of the People, by the People, and for the People.”

Kennedy’s Second Victim

We all know Edward Kennedy’s first victim, Mary Jo Kopechne, who tragically got in the car with a reckless and drunk senator from MA and paid for her mistake with her life. Today, after the special election in MA, we will likely meet the second victim, the Obama/Pelosi/Reid Democrat Party. Just like the first, they too hitched-up with the late Senator from MA who drove them off a bridge and now they too may pay the ultimate price.

The irony of the dream of socialized medicine dying along with one of its biggest sponsors is almost too rich to fathom. You’d think that by now everyone would have understood the dangers of being seduced by Uncle Teddy.  As the old saying goes: “Fool me once, shame on you. Fool me twice, shame on me.”

Interestingly, the first sound blaring out of the PA on the west lawn of the Capital when they held the big healthcare rally this fall was The Who, and everyone at that rally sang along and pumped their fists; “We won’t get fooled again!” At least the descendants of another Massachusetts legacy, The Boston Tea Party, refuse to be victims.

My Kid's Better Than Your Kid!

If he wasn't the stronger of the two candidates, I'd have to support Scott Brown anyway based on this: Ayla Brown Sings The National Anthem.  As far as I know, Martha Coakley has no kids, which is probably a good thing for her as it avoids comparison...

When Do We Stop Laughing???

When do we stop laughing???

John Brennan, the top counterterrorism official in the Obama administration actually said this weekend that there was "no smoking gun" in the Christmas Day panty-bomber incident! Huh? Is there a better description than "smoking gun" to describe a male terrorist who attempts to commit mass murder by barbecuing his genitals? I wish I could say the rest of Brennan's statements were less ridiculous. Sadly, they were not.

     

Anatomy of a Myth II – The Racist Constitution.

Maybe it’s just me, but I was taught that the Constitution counted black people as 3/5ths of white people. It was just something we were told was due to the racism of the times. That’s how it was in those unenlightened days, after all, what could you expect from a bunch of rich white slave owners? Those founders may have been learned wise men, but they were also flaming racists, or so we were told. Fortunately for the Constitution and the Founders, the 3/5ths language in Article 1, Section 2 is not what we were taught.

Critics use the 3/5ths enumeration language to justify all sorts of anti-founder, anti-American, sentiment. If the Constitution itself can be viewed as a racist document, does that not cast doubt on the holiness of the whole enterprise of these United States? Isn’t that what some have preached for years? Does that not sound familiar? There’s only one problem with this argument; the premise is flawed because the 3/5ths language in Article 1, Section 2 is not about race or racism.

Oh, I’m not claiming that racism didn’t exist among the founders and in colonial America. I can’t imagine an economy based on forced African labor as anything but racist. But the Constitution, and in particular the 3/5ths provision in Article I, Section 2 studiously avoids that issue. The framers were pretty aware that history would be looking over their shoulder and accordingly chose language that would not be harshly viewed by future generations. They were doing what they could, in their way, to plot a course in the direction of their founding dream of a society in which “all men were created equal”, and were treated that way.

So, what about that 3/5ths thing; what does it really say in Article I, Section 2? The founders enumerated non-free Persons as 3/5ths of a free Person. In other words, it was about slavery not race. Free blacks, of which there were many by 1787, were enumerated exactly as free whites. Moreover, the constitution refers to all men, free and “other” as “Persons”. This is no accident. Incidentally, white slaves would have been enumerated exactly as black slaves, at 3/5ths. That’s right, there were occasional white slaves too!

So why the distinction and the 3/5ths thing in the first place? Madison explains in Federalist #54 that enumeration served two purposes in the constitution: representation and taxation. The more Persons you had, the more you were taxed and the more representatives you could send to the federal govt. Slaves didn’t pay taxes or vote but did swell the population of a state, therefore the 3/5ths thing was arrived at as a compromise for calculating taxes and representatives. Of course, free blacks were fully enumerated before they could vote; just like women.

Article 1, Section 2 never mentions race or slaves, only “free Persons”, “Indians”, and “other Persons”. Indians, who also paid no taxes and couldn’t vote, were enumerated as “zeros” presumably because they didn’t contribute economically like slaves did. Again, none of this precludes the reality of racism among the people of the time, but it does point out the lack of a racial aspect to Article 1, Section 2.

Thomas Sowell, one of my favorite economists, and incidentally a black man, tells a story in one of his books where he was questioning a professor and asked where slavery came from. The professor responded that that was the wrong question. The right question was, where did freedom come from, because slavery was woven into the human fabric from the outset; it is only in modern times that freedom has become the norm. We have abolitionists and philosophers around the world to thank for the freedom that we all enjoy today. Among them were the wise men who wrote our founding documents and made it clear, if you look closely, where they expected us to end-up.

The Irony of Keynes

If I were to ask you to name the single biggest ideological struggle of our time what would you say? Capitalism vs. Communism? Liberalism vs. Conservatism? Democrat vs. Republican? Sure, those are all big ones, but to me the struggle at the root of all those is an economic one; Supply Side Economics (SSE) vs. Demand Side Economics (DSE). As John Maynard Keynes (1883 – 1946), the man most associated with DSE said about economics: “In reality, the world is ruled by little else. Practical men (and women), who believe themselves quite untouched by any such intellectual influence, are usually slaves of some dead economist." Wow, talk about irony!

For most of the last 100 years we have oscillated between these two economic theories. In the 30’s it was pure DSE. In the 60’s and 80’s it was mostly SSE. Often it’s been a blend of the two. But now we are back to pure DSE and not since the 30’s have we put so many eggs in that basket. In fact, the experiment we are conducting right now is a historic case study in economics and the result will determine our economic future. One possibility is that everything will work out just fine  Then again, it could be an epic and profound human disaster! Have I got your attention?

Now, if you’re like me, you’ve heard these terms over the years and have a basic understanding of them. But, speaking for myself, I sometimes get confused by the language of economics. A further source of confusion enters in when economists let their unrevealed political bias color their explanations. Not being an economist, but as someone who has studied this stuff on my own gives me a perspective that might help others get to the essence behind SSE and DSE. In that spirit, the following is a summary of the big poli/economic debate of our time using simple language which absolutely reflects my bias.

Here are my boiled-down definitions of SSE and DSE:

• Supply Side Economics is the theory that people will enthusiastically SUPPLY their efforts and capital if they are free to realize the rewards. 

• Demand Side Economics is the theory that people will enthusiastically DEMAND goods and services if they are subsidized to do so.

Supply Side Economics is all about freeing people to create and produce.

Demand Side Economics is all about re-distributing wealth to get people to consume and spend.


Politicians use terms like “targeted spending”, “deficit spending”, and “investment”, instead of "wealth redistribution".  But those terms violate double-entry accounting rules; they only show one side of the ledger. Where does the spending or investment come from?   It has to come from someone, right? Are we really gaining anything by taking a dollar from one person and giving it to someone else? Well, yes in a sense we are: as the old saying goes, “If you rob Peter to pay Paul, you’re guaranteed to gain Paul’s vote!” And the vote tally goes up exponentially when Peter has yet to be born! In fact, this is the politician’s favorite funding source. Politicians get elected time and again by re-distributing wealth from the unborn to active voters. It’s a classic heads I win, tails you lose scenario where the winners never have to face the losers in an election. This has become the essence of DSE today.

DSE or “Keynesian Theory” when associated with John Maynard Keynes usually refers to targeted re-distribution exemplified by short-term “stimulus” designed to minimize a dip in the “business cycle”. Cash for Clunkers, the 787 Billion Dollar Stimulus Bill, and TARP are recent examples of the original intent of DSE re-distribution. But that is a small part of total DSE. Most wealth re-distribution is done to achieve political or social goals and not for specific economic benefit. Social Security, Medicare, Medicaid, and Obamacare are all re-distributive programs and are social and political programs first and foremost. But regardless of the intent, the economic effects are the same. Thus all re-distribution behaves as Demand Side Economics.

So, what is the difference between wealth re-distribution and “normal” government spending? I maintain that any fiscal expenditure for a reason other than the essential roles of government is a form of wealth re-distribution. Neither SSE nor DSE questions the need for essential government services, or the idea that taxes must be collected in order to fund them. But of course, the devil is in the details.  In this case the detail is how a society defines the “essential roles of government”.  In our case we can start with the US Constitution and call anything in that document essential. Anything we have added above and beyond our constitution is, I would contend, wealth re-distribution.

This definition helps answer one of the big questions surrounding Supply Side Theory: What is the optimum level of taxation which will promote prosperity? The answer: Just enough to fund the essential roles of government.  Anytime we spend government money on things not explicitly enumerated in the Constitution, we are choosing DSE re-distribution over optimum prosperity.

Again, there are often compelling socio/political reasons for a society to engage in wealth re-distribution. But what often is obscured is the economic damage and deceit involved in this choice. Unfortunately, the underlying premise of DSE is flawed as is the generational theft which accompanies it.

So, what is the big flawed premise of DSE? In short; Supply can satisfy Demand, but Demand can never satisfy Supply. Put another way, all the Demand in the world can never Supply food for the hungry unless there is a reason for producers to Supply food. Demand alone does no good. Remember the old Soviet Union? Was the Demand for groceries any less in the Soviet Union than in the US - yet who could forget those pictures of the Soviet food stores with empty shelves? Naked Demand is like the person wandering through a desert dying of thirst; they have infinite Demand for a drink but it does them no good without a Supply of water.

The theory is that Demand alone will stimulate producers to Supply more. But the flaw in that thinking is that the re-distribution of wealth works exactly in the opposite direction in two ways: first, by taking money from producers it reduces the reward for them to create Supply, and second, it disincentivizes Demanders to contribute their labor. It’s a classic lose-lose scenario.

Socio/political reasons aside, engaging in DSE in the name of helping the Economy is nonsense. And this is not just a critique of Obamanomics. George W Bush is often mistakenly called a “Supply-Sider” for lowering taxes, and yes he did lower taxes which aided prosperity. But his record is much more complicated than that, for while lowering tax rates, he also engaged in plenty of DSE, especially in his last two years with the Pelosi/Reid Congress. Ultimately, he was both a Supply-Sider and a Demand-Sider and thus he was neither.

The current course we are on is as close to a pure Demand Side Economic model as we are likely to ever see. That makes this a watershed moment in the debate over economic theory. Too bad for us we may end up, as the father of DSE John Maynard Keynes famously said, “slaves of some dead economist”. If that isn’t ironic enough for you, consider this; we are being led into this servitude by our First Black President.