A Festival of Failure, A Carnival of Corruption

One can forgive John McCain's speech writers for producing the worst nominating speech in decades - perhaps since candidates began going to national conventions to accept the nomination of their party. They are saddled with the worst candidate in decades, and with the reality that reality is catching up with them. Gustav disrupted oil production, and the RNC. A year ago John McCain looked dead until fatalities subsided in Iraq, and he looks even more dead now.

John McCain looks dead, because the policy ideas, the political apparatus, and the ideology he comes from are thoroughly discredited by all but his remaining supporters in the Village-American ethnic group which adored him so much.

The economy that he is running as the continuation of, does not look much better. We are in an either/or form of stagflation. We don not have both/and quite yet, but July, which saw positive numbers on manufacturing, durable goods orders, and a second quarter which saw a large dollop of GDP, was marred by spikes of double digit inflation. Indeed the GDP numbers are inflated by counting some of that inflation as "growth." Since the Fed stopped pumping money into the economy, and with the death of the poorly designed stimulus bill that was the product of Nancy Pelosi unwisely capitulating to the Bush White House, the indicators have turned south. We are seeing the increase in unemployment that is typical of a late recession/pre-rebound. The buffering that the US had in this, as yet, undeclared, recession, was the ability to export to the rest of the world. Inflation in food prices helped GDP, because that inflation increased exports. However, the UK is in recession, Japan is in recession, and the Euro-zone will be there shortly. With falling exports, a Fed that has a junk balance sheet, and China which is paralyzed from it's splurge for the Olympics, there are few areas of global demand that are robust, and certainly nothing capable of pulling the rest of the global economy with it.

McCain is the nominee of a party which has left behind ghastly wreckage, and the best he can show for it is a reduction in the number of car bombs in Baghdad. There are good reasons why this is not considered an important economic indicator. The Republican national convention has been a Festival of Failure, with a collection of tawdry attacks combined with a pallid echo of Barak Obama. Both parties are running to take on the legacy of Ronald Reagan, and the real Reaganite economically is a Democrat this time around.

This morning's dismal job news is not a surprise. The J-Number predicted a hiring recession this year, and it has occured in spades. As of today even the well simmered unemployment survey admits that the headline unemployment rate has leapt to 6.1%, and the more accurate payroll survey shows that the economy is shedding payroll positions at a rate not seen since the last recession. The Financial Times thoughtfully reminds us that this is the 8th straight month of payroll losses in the US. In all the economy shed 101,000 private payroll positions, saw a shrinking labor force. More is yet to come, because while productivity shot up in the second quarter, manufacturing productivity sank by 2.2% on rising unit costs. This would indicate that there is more pain to come, since service jobs cannot charge more than than basic employment provides for.

The book is closed on the Bushconomy's war-time expansion, and all indications are that it was the worst long recovery in the post-war era, and leaves behind an economy poised for a second recession to being in the waning weeks of his term. Bush lost two wars, and will now preside over all or part of three real recessions. I am not sure what the National Bureau of Excuses for Repbulicans will say, but that is merely a question of what propaganda line they will choose to put out. Like almost everything under the ideologically blind and corrupt right wing era in America, it has been a carnival of corruption, funding nakedly theocratic pseudo-science in the name of research.

Adding to this is the harvest of confrontational politics and the failed liberalization of both China and Russia. Russia, in particular, paying a price for confrontation with the west, but since it possess resources which are needed for global growth, this price is relatively short lived. With capital in short supply, it is easy to retrench. When capital is again pouring out of banks desperate to prop up demand, it will find its way back to Russia.

One could enumerate a long list of head winds facing the global and American economy, but the primary problem is that the United States has been, and is committed to remaining, the world's largest banana Republic, spewing money into bribes, boondoggles, and benefits for the already well off. In the 1980's Latin America was the designated loser of the global economy, providing fat profits for bad decisions. Now that role falls on the American consumer, and there is going to be a desperate drive to give that consumer just enough access to credit and tax reductions so that they can continue to pay the usurious real rates of interest. If one buys a 400,000 dollar house for 800,000 dollars, the real rate of interest is not 5%, but instead rolled into the inflated price.

An election between Bush's Baby Brother, and his Crazy Coot Old Uncle

Barak Obama, for his part, is proposing that we do less of the same: TAX CUTS! TAX CUTS! TAX CUTS!

Which, let me translate it for you from the econospeak:

"Reaganomics, now with more smoke and mirrors!"

The Obama economic plan is the product of the same Chicago School failures as Bush, merely not amped up as far. The falling into line of Democratic congressional candidates indicates that we will get yet more national debt, in a world that is already soaking up huge amounts of dollars, and is cluttered with central banks that have no more flexibility to take on bad paper. Barak Obama's economics, are George W. Bush's economics, minus the give aways to the very wealthy, which have already happened, and will largely continue on his watch.

Hence the medium term prognosis for the global economy is that we are looking at another five years which will see a full blown recession in the core developed economies, another bout of inflation when the larger bail out of the mortgage system occurs in earnest, a shortened "Obama Spring" when Iraq finally stops draining fiscal policy dry, and then another, deeper and more profound, recession when the current plateau of tertiary oil production begins to slide. Obama is committed to a hard core policy of import substitution, which is the inverse of labor arbitrage. Labor arbitrage tries to throw people out of work to get lower inflation and higher productivity, but ends up firing the least productive productive workers, and then turns them into very productive unproductive workers. Or fire not very manufacturing workers and hire them as profitable burger flippers. Import substitution destroys the least productive export jobs, and turns them in to non-tradeable jobs which look productive as long as monetary policy can be manipulated to make non-tradeable goods look profitable. Japan is saddled with this, but it has a large enough trade surplus to mask it. Most other countries which have tried it have failed. And the US was doing this in drag under Bush with the housing boom. We don't export houses, the housing industry does not produce exports. Paying lots more for our energy, as the import substitution road leads, will mean a reduction in US competitiveness.

We've seen two acceptance speeches. Both promised change. Spare change. If you shook the world of ideas, everything loose ended up in these two speeches, which were virtually clones of each other, except that Barak Obama was capable of delivering his with conviction, and his version is not quite as cancerous as McCain's. Barak Obama is running on the fact that he wasn't in Congress when the war votes came up, and John McCain is running on the perception that losing a war means winning it. Neither version should inspire much confidence, but at least you can be sure that since Barak Obama intends to destroy the American economy, that he will make it look good with sunglasses, and be able to do it. McCain? Well let's just say that the only person to kill three Fortune 100 companies is his chief economic advisor, and she will certainly do for America what she did for shareholder value as CEO. Obama is terrible, but McCain is unthinkable.

The historical wisdom is that Democrats are better for the economy than Republicans.

If only one was running this time.

Instead, we have an intramural fight between two wings of a failed theory of supply side economics. One some what less horrible than the other. Obama's main economic plan is to cut taxes. He is promising less for renewable energy over 10 years, longer than he is constitutionally able to be in office, than Bush has gotten to blow in 6 months in Iraq. He is promising trillions for tax cuts. Those tax cuts will go straight to oil prices, banks, health insurance, and assorted other interests that have pricing power. A simple example is what happened with the middle class portions of his tax package: wages went down as employers cut raises and benefits, knowing the Uncle Sam was cushioning the blow. The same thing will happen again, as a poor labor market will give employers the choice of whether to let employees keep the reduction in tax rates, or keep it themselves by simply not giving any raises and increasing employee contributions to benefits.

The old order is clinging to power for one last throw of the tax cut dice, and you, dear reader, your children, your grand children and possibly your great-grand children, will be paying for Barak Obama's trip to the Supply-side Riviera.