Word Play

In his opening remarks during his televised press conference on Tuesday evening, President Obama described his proposed budget as leading "to broad economic growth by moving from an era of borrow and spend to one where we save and invest."

As with most of the president's lines, this sounds great. But where is the saving? And where is the investing? I am not asking, in this instance at least, as someone who worries about economic sanity but rather as someone who worries about the English language.

How can anyone, even someone who is totally onboard with Obama's budget and its priorities, keep a straight face when hearing it described as representing saving and investing? The president is quite correct when he insists that borrowing and spending got us into the mess where we currently find ourselves. But let's face it, his solution is to have even more borrowing and spending. Now a lot of respected economists see massive borrowing and spending as exactly the right thing to do. Why not defend that position honestly instead of misrepresenting his strategy? Probably because the president and his advisers know full well that most people recognize intuitively that growing the deficit to be even huger cannot be a good thing in the long run. They also know that, if a politician repeats something often enough, even if it is not true, a lot of people will come to accept it as true.

When a member of the press points out the inconsistency, the president is ready with a sure-fire rhetoric deflection. Rather than defending his position, he transfers the question into the mouth of a phantom Republican critic and then pronounces that this phantom has no standing to speak because of the mess in which the Republicans left the country. There never seems to be a follow-up question about how problems stemming from irresponsible deficit spending will be solved by additional, massive amounts of deficit.

The tactic of referring to government spending as "investing" is something that has caught on in the past few years. Politicians have found that they can get away with more if they simply substitute words or phrases that have positive connotations for most people for ones that tend to get more negative reactions. For example, tired of mocking comments from skeptics every time Al Gore gave a talk during an unseasonal blizzard, people concerned about the environment shifted from talking about "global warming" to "climate change." And politicians sensitive to the public's concern about public debt found they got more mileage talking about "investing" instead of "spending." It leaves the impression that all those taxpayer dollars will eventually come flowing back, bringing lots of greenback friends with them. No, the Democrats had it right when they were in the opposition and kept talking about "pay as you go."

Now, don't get me wrong. Personally, I like the idea of spending and investing being the same thing. It means that, if I have some cash in my hand, it's really all the same whether I spend it on a Mediterranean holiday or put it in a mutual fund. Cool.

So, clearly, the investment-for-spending gambit is alive and well. The president has refined it by also making "stimulus" a synonym for "spending." Last month at the annual retreat for House Democrats in Williamsburg, the president ridiculed Republican opposition to the stimulus bill, on the grounds that it contained huge amounts of wasteful spending, by saying, "What do you think a stimulus is? It’s spending. That’s the whole point! Seriously."

It was a good applause line, given the audience, but it was the sort of one-liner calculated to drive people with analytical personalities crazy. It implied that all spending is stimulative, i.e. that the phrases "spend money" and "stimulate the economy" are essentially equivalent. True, all stimulus is spending. But not all spending is stimulus. It's like dismissing critics of junk food by saying, "What do you think nutrition is? It's food. That's the whole point! Seriously."

The truth, which Obama knows full well, is that, all things being equal, the economy will recover regardless of what the government does or does not do. Government and business collectively affect economic cycles, but no one leader or political party can override the laws of economics. All presidents who find themselves in office at this point in a recession know that their main job is to position themselves to take credit for the eventual recovery. (And, as former President Bush knows, presidents who find the end of their term corresponding with the beginning of a recession are stuck forever with the blame.) And, as the new administration has signalled clearly from the beginning, the crisis atmosphere of a recession is an opportunity to put through initiatives that might not get passed in calmer times.

But the president runs a risk. It is not beyond the capability of a government to turn a recession, especially one as serious as this one, into an unqualified disaster. There is a tipping point at which so much of the gross domestic product becomes committed to serving debt that the economy cannot recover. And, even if it does start to recover, there is another danger. In a report yesterday, the Federal Reserve indicated that it had increased the money supply by more than $33 billion. Metaphorically, the Fed has cranked up the printing presses and is churning out dollar bills, thereby reducing the value of every dollar you and I hold. This is the sort of thing that more commonly happens in Argentina than in the U.S. When the recovery does start to happen, those extra dollars out there will be like so much tinder waiting for the spark of economic growth to ignite a conflagration of inflation.

The good news is that the checks and balances of our political system may keep things from getting completely out of hand. And the American economy is so large and resilient that it usually weathers even very bad economic policy. If so, we will all be relieved and more than happy to give the president credit for ending the recession.

False Choice?

Once in a while you hear an issue phrased in a different way than usual, and it makes you see it in a whole new light. I had such a moment the other day.

I was listening to a podcast of Dennis Miller's always entertaining radio show, and Dennis took a call from Steve in Indianapolis about the executive order to extend federal funding of embryonic stem cell research. Steve said his wife had raised the point that bald eagles' nests, and by extension eagles' eggs, are federally protected. You can get into serious trouble with the authorities for destroying the eggs. The implied question was, if the egg is not an eagle but only a potential eagle, why are human embryos not protected as well?

This sounds like a trick question. The answer would come back that the bald eagle is an endangered species. Every egg destroyed means one less eagle, causing the population to dwindle further. There is no shortage, on the other hand, of human beings. In fact, a lot of people think there are too many of us as it is and our overall numbers should be reduced.

But think about the implications of this explanation. The eagles are protected because, as a society, we have decided that their lives have value. If we didn't, we would not care whether or not they became extinct. That raises the question, do we not also value human life and, if so, does that value not extend to incipient forms of life, the same as the case of the eagle? Or is it, in both cases, simply a matter of managing population numbers?

You do not need to be some kind of religious fundamentalist to have a respect and regard for human life. And I think it is safe to assume that few would even think of using taxpayer money to experiment with human embryos if it did not potentially mean saving the lives of human beings. It is not a simple or easy moral question. Perhaps we can sidestep the moral dilemma by limiting research to embryos that would be discarded anyway. But not really, if we decide that an embryo's life was equivalent to a human life. We do not routinely harvest organs from people in comas because they would just be going to waste. We accord human life more respect than that. So there really is no way of getting completely away from the ethical question.

In the end, the decision to harvest stem cells from embryos is one of those trade-offs that we make in life. Not all of us will be totally certain that doing this is without negative moral consequence, but we hope that the good it does will at least outweigh the bad. And that is what bothered me about President Obama's remarks when he signed the executive order last Monday extending federal stem cell research funding beyond the limited lines authorized by his predecessor. He called the tension between science and morality "a false choice." One only has to recall experiments justified in the name of science, from Nazi Germany to the Tuskegee Airmen, to feel a shiver go up one's spine on hearing a national leader assert that. I'm not saying Obama made the wrong choice, only that he portrayed it as morally unambiguous and not as the trade-off it was.

Anyway, add to your presidential listening glossary the phrase "restore science to its rightful place" and substitute "funnel more money to universities," since federal funding, not federal permission, is always the issue. As it happens, a number companies (with names like PrimeCell Therapeutics, Stemnion, Cellerant Therapeutics and Geron) have been spending lots of private investor money on stem cell research for years. Private companies have never been banned from using embryonic stem cells for research. A fair amount of their research, however, has been in the promising area of adult stem cells, which avoids the moral trade-off, since these do not require a the killing of an embryo.

In Defense of 'Socialist' Europe

Europe gets a fair amount of bashing from Americans, especially conservative ones and especially over different economic approaches. But we Yanks should be careful not to assume that we have nothing to learn from our friends on the other side of the Atlantic.

In the debate between New World and Old World, Americans point to higher taxes, higher unemployment rates and a less friendly climate for entrepreneurship on the part of Europeans. The Europeans respond by pointing out America's weaker social safety net, pockets of poverty and a less-than-universal health care system. Some Americans look wistfully at the European way of doing things and wonder why we cannot be more like them. And some Europeans look at America and wish they were starting a business or making an investment there instead of in their own country.

The fact is that different countries with different cultures and histories collectively make different choices. How a nation makes a trade-off between prosperity and security is its own business. The French, for example, have opted for a medical system that seems very good and other generous social benefits and, in turn, seem willing to tolerate a society in which a large portion of the population has guaranteed employment while a minority have permanently dim prospects for employment.

One thing that Europeans seem to understand well, however, is the danger of inflation to an economy. After all, countries like Germany can remember a time when printing money destroyed the economy. When the euro currency was founded, the requirements for participation included an annual national deficit of no more than 3 percent and a total debt not to exceed 60 percent of the gross domestic product. These were strict standards that were not easy for every country to meet, and not every country has been able to adhere to them. But say what you want about Europe's large amounts of social spending, Europeans do at least understand the importance of paying for it.

So it should be no surprise that, when the U.S. government started lobbying European governments to pass their own stimulus bills along the lines of the one passed in Washington last month, ahead of the G20 meeting to be held in a couple of weeks, the Europeans said, thanks but no thanks. Maybe they are just being cheap or stingy. But I think they are merely heeding the lessons of history and have rightly seen that this is not the right time to pile on debt that will take many years to pay off.

As The Wall Street Journal suggested this morning, Europe is actually a good test case for economic czar Lawrence Summers's assertion that every dollar of deficit spending yields $1.50 in economic growth. "If that were true," wrote the Journal, "Italy would be the richest country in Europe, instead of merely one of the most indebted."

Bank Shots

Some tell me that there's no point in being annoyed that President Obama, who decried distractions like "lipstick on a pig" during last year's campaign, is quite willing to fuel a distraction about whether Rush Limbaugh is the de facto leader of the Republican Party. All politicians do this, these people say correctly. Republicans have made great hay, for example, out of setting up filmmaker Michael Moore as a figurehead for the Democratic Party or at least its liberal wing, even though he holds no elected office.

The point, however, is that usually presidents and their chiefs of staff and their press spokesmen do not usually get involved in this sort of thing personally. At least not after they get into office. But over the weekend the Sunday news programs were duly preoccupied with the whole Limbaugh thing. This did not entirely crowd out discussion of the economic situation, but it did cut into it.

The fact is that, of all the initiatives and announcements that have poured out of the new administration, the one that is conspicuously missing is a strategy for the credit system. And if you polled all people who pay close attention to the economy and asked them, if the administration could work on only one single problem right now, at the top of the list would be the banks. If I were a conspiracy theorist, I might even start thinking that the lack of a plan or strategy was actually deliberate, to keep the atmosphere of crisis going so that there would be less political resistance to the administration's other initiatives. But more likely it's just that the banking problem is simply not easy to solve.

Why is the banking problem so important? Because if credit started flowing again, the economy's other problems would be a lot easier to solve and, indeed, might solve themselves. John McCain might have had a political tin ear when he insisted last autumn that the fundamentals of the American economy were sound, but he wasn't really wrong. This recession was largely a self-inflicted injury caused by a housing bubble that wiped out, or at least cast doubt on, a lot of loan paper when it burst. If banks would start lending again, jobs would not be at so much risk.So what's the solution? Political opinion seems to be divided between those who see giving more money to banks as the only solution and those who want to let banks fail. The former would essentially be throwing good money after bad, and the latter would be terribly disruptive to the economy.

One thing the government could do to spur the market to help solve the crisis is to eliminate capital gains tax, at least for those buying so-called toxic assets, thereby making it worth it to investors to sort through them to find the potentially profitable ones to buy. The administration, however, is doing the opposite. It is raising capital gains taxes. When an ABC reporter pointed out to Obama during the campaign that increases in the capital gains tax have always resulted in lower revenues, he seemed surprised but unruffled. It was still a good idea, he explained, because it would be "fairer."

Something else the government could do is to intervene and force large banks to sell off profitable parts of their business until only the most untenable parts remained. In other words, make them small enough to fail. It should be lost on no one that smaller, local banks generally are doing much better than the behemoths. There is a lesson here that should be reflected in policies and laws on mergers and acquisitions, going forward.

"Wall Street" may make a good whipping boy for the economy's troubles, but the president should not forget that he will need investors (a class that these days includes most Americans) to have confidence in his administration's policies if we are going to get out of this. The stock market reaction to each of his pronouncements (one dive after another) is certainly not definitive, but it's not exactly reassuring either. After months of talking down the market, first as a candidate and then as president, he belatedly tried to talk it up last week, advising people to invest with a long view. It did not help, however, that he based this on current "profit and earning ratios." As many business writers were only too eager to point out, he apparently meant price-to-earnings ratios, the common way to determine whether a company's share price reflects its actual value.

Like a number of things that Obama says, it sort of vaguely sounded right but, in strict terms of what the words actually meant, it didn't really make any sense.

Rush to the Head

Barack Obama got elected by promoting the fact that he was not George W. Bush. Now he is governing by promoting the fact that he is not Rush Limbaugh.

Like all good lines, that is an over-simplification. But there is an element of truth in it as well. The president's detractors say he is running a perpetual campaign. A kinder way to put it might be that he is employing tried and true public relations techniques. Indeed, President Bush's presidency might have been more popular, and maybe even more successful, if he had paid more attention to PR. One of the annoying things about Bush for his supporters was his apparent disinterest in selling his policies and positions. It wasn't that he wasn't an effective campaigner because he was. Or at least he could be, when he needed to be. The proof is that he managed a (not uncontested) Electoral College victory over an opponent who should have been a shoo-in, given the general public contentment under the administration of which Al Gore was a key part. Further proof is his even more decisive victory over John Kerry four years later. But between campaigns, Bush seemed to have little interest in explaining and persuading the public of the merits of his policies. It was as if he didn't bother because it meant subjecting himself to more interaction with the media, something he did not care for.

Bill Clinton, on the other hand, was a master of public relations. My main memory of the Clinton years is that every week there was some big announcement or ceremony, touting some new victory for the people, whether it was signing a bill into law or issuing an executive order. The funny thing is that I cannot for the life of me really remember what 95 percent of those victories were. When reflecting on the Clinton administration, I like to joke that his major domestic accomplishment was throwing a bunch of people off welfare. And this is technically true. The reform of the welfare system was a true bi-partisan victory that had much to do with the great economy the country enjoyed during the late 1990s. In foreign affairs, perhaps Clinton's most concrete personal accomplishment was his personal intervention in the Northern Ireland peace process. To this day, the man is regarded as some sort saint or idol on this island.

But when fleshing out the list of Clinton's accomplishments, we find that a lot of them come with asterisks denoting a valiant but ultimately unsuccessful effort (health care reform, Middle East peace, the Kyoto treaty) or symbolic (apologizing for slavery) or well-intentioned but misguided (don't ask, don't tell). When I have talked to friends who are ardent Clinton supporters, I sometimes ask them what they consider his major accomplishments. Usually, they mention the economy, for which he does indeed deserve credit, although he also benefited from a fair bit of luck (catching the upswing of the tech boom) and cooperation from a Republican Congress back in the days when Republicans in power actually did more than give lip service to balanced budgets.

But more often than not, when I ask that question, my friends don't list specific Clinton accomplishments. They speak of a good feeling they got from his presidency, of how good it made them feel to have someone in the White House who they felt shared their values. It is no accident that Clinton was always a popular president. Personal popularity always seemed to be very important to him. He rarely, if ever, undertook an action that would cost him a lot of his popularity. The amazing thing is that people on the left have always seemed to love him, even when he was implementing policies that were essentially Republican. He warned of looming dangers from international terrorism and from Iraq. But he never did anything aggressive or painful to try to deal with them. And, in fairness, there would have been little political will for that at the time. In contrast, his successor, in the wake of September 11, did take aggressive and painful actions that were entirely consistent with Clinton policies and assessments (bad intelligence and all) and, in the long run, took a devastating hit on his own popularity. If people thought his actions were a departure from Clinton era policies, it might be because Clinton himself was a frequent critic of them.

It will take time to judge the effectiveness of Barack Obama's policies. The first weeks of a new administration are inevitably taken up with hiring people, announcing initiatives, making policy statements and the like. All of this activity, especially given the extremely ambitious nature of Obama's plans, gives the impression of much being done. But, in the end, it will be the continuing battles fought in Congress and the real-world results of administration policy that will determine success or failure. But, like a lot of politicians, Obama and his people know that it doesn't hurt to set up a bogeyman as a false alternative to his policies. When voters are weighing the pros and cons of a political fight, all the better if they compare Obama not to Republican politicians but to a private citizen who happens to have a radio program.

Luck of the Irish

Every few years or so, as I make my way down the narrow, windy road that leads to my house, I spy a few men in bright yellow vests filling potholes. They work for the county council and approach the job with the insouciance of people who are guaranteed a job for life and who have three times the number of bodies to do the job before them. And I think to myself, oh, elections coming up again.

Call me a cynic, but the potholes and crumbling road surface languish for months, if not years, and it is only when local elections loom that the county council seems to swing into action. To make it even more obvious, around the same time I usually get an official-looking letter in the post from our local county councillor proudly announcing that they are fixing the road, or at least some road that they think I live near.

Now politicians in democracies the world over invariably do their best to bring home the bacon to help their re-election chances, but it wasn't until I came to Ireland that the quid-pro-quo relationship between politicians and voters became so clear to me. Ireland has two major political parties and, in terms of substance, it is hard to tell the difference between the two. Fianna Fáil is invariably described as center-right and Fine Gael is always tagged as center-left. The main material difference between the two is that Fianna Fáil is usually in power, and Fine Gael usually isn't. There are probably many reasons for this, but it probably has something to do with the fact that most people are direct recipients of gifts from the Fianna Fáil government. For example, when we moved here, one of the first things my wife did was to sign up for a monthly cash payment that we were entitled to for having a school-age child. Everyone in the country gets this payment, from the multimillionaires to the unemployed. It is not means tested. During the boom years of the Celtic Tiger, more such goodies were doled out, including fee-free university education and free health care for senior citizens, which likewise are not means tested.

This all sounds great, but now the Irish economy is in serious recession and there is not enough revenue coming in to cover all these outlays the government has committed to. It has no choice but to cut back. But once a group has gotten used to a subsidy, it tends to scream bloody murder at the mere threat of having it taken away. And it doesn't help things for popular opinion when the people you are ticking off are students and senior citizens, who have more time than most people to go marching in the streets.

Unlike the U.S., Ireland has few options to deal with a budget crunch like this, thanks mainly to its membership in the European Union. It can't run up huge deficits because it had to agree by treaty to keep deficits within a certain range, as a condition of using the euro currency. And it can't simply print more money because the money supply is controlled by a European central bank. So, Ireland has little choice but to reduce its budget and/or to raise its taxes. This is simply reality and mirrors the choices most of us have in life when times are hard: either find a way to get more money or reduce our spending.

Because of its sheer size, the United States can choose to radically increase its spending even as revenues fall. It simply writes more IOUs to China and other countries and, if worse comes to worse, it can resort to printing money to cover the spending, thereby diluting the value of the dollar. But despite the massive spending, President Obama aims to halve the U.S. deficit. He bases this on growth projections that look like fantasy, given the economic situation. And he will raise taxes on businesses and the top five percent of earners. This sounds like a painless solution for 95 percent of us, but the fact is that higher business taxes generally result in higher prices and lower employment. And taxes that are not broad-based tend to have diminishing returns as the rate goes up. The calculation seems to be that, even if the economy doesn't improve for many years enough voters will be getting some gift or other, in the best Irish tradition, from the Democratic-controlled government so that they will continue to re-elect it anyway.

Ireland will inevitably have to raise its tax rates and that will not help its recession. The Celtic Tiger made a few individuals super-wealthy, but some of them will not be contributing at all to the treasury, as tax rates go up. Those ones have long since changed their tax residency to places like Monaco.