Joe Cobb

I have been watching with amusement the progress Ron Paul has been making with cosponsors on his bill (HR 1207). The cosponsors tactic was one that I used in the mid-1980s to get the gold coin bill adopted (PL 99-185), in the face of Treasury opposition. Those assholes were so anti-gold they didn’t even want a bullion coin to compete in the market with Krugerrands and Maple Leafs! Our key success in 1985 was to enlist the Black Caucus, chaired by Rep. Julian Dixon (D-CA) and his good friend Rep. Jerry Lewis (R-CA).

Questioning the Federal Reserve “Church”

I think it is true that the “audit the Fed” issue is just a publicity stunt, as Forbes points out. But it is a useful publicity stunt because it has focused a lot of attention on the Fed and its position in American society.

Until very recently, the Fed was treated as some kind of church. Its pontiffs were treated as spokesmen for the Mystery, and every member of Congress was very shy of criticizing the Fed, except for a few old populists like Henry Gonzalez who would have abolished the Fed and replaced it with the Treasury issuing fiat paper money in order to push interest rates down to zero, etc. William Jennings Bryan exercised pernicious influence back in 1913 to convert what would have been a fairly benign private clearing house that issued banknotes (just as every other National Bank also in those days did) – into a government agency that issued “obligations of the United States.” Thus the Fed was born. Rosemary’s baby.

I say Ron Paul’s bill (HR 1207) is a “useful” publicity stunt, but it could backfire if

(1) the concerns Bernanke highlighted came true, namely that the Fed felt pressured by Congress to inflate; and
(2) some kind of “audit” is conducted and the Fed is whitewashed and the whole issue becomes covered up with a new cloak of pseudo-democratic appearances.

Certainly, if a government is going to enforce a monopoly currency, the monopoly agency should *NOT* be under popular or democratic control. It should focus strictly on maximizing profit. For a monopoly currency that means only sustaining and stabilizing the purchasing power of the monetary unit. If a central bank can do that, it will rule forever in its narrow sphere.

The business side of the Fed is already audited. The current “Tax on Federal Reserve Notes” (so called; not really accurately named), which is a line item in the Fed’s annual income statement, is a 100% tax on the Fed’s nominal monetary profits. The money goes directly to the U.S. Treasury, just as the coinage seigniorage from the Mint also goes. (Of course, the Fed gets “to skim” because it pays its operating expenses before remitting to the Treasury – but that is revealed in the audits already conducted and published.)

The three areas where the Fed is not today audited are all justified, in my view, under the system we have.

• First, transactions with foreign central banks and IMF, Bank for International Settlements, etc. are secret because the foreigners want it done that way. The Fed acts as a fiscal agent for a lot of foreign governments, particularly the smaller ones.
• Second the Federal Open Market Committee and the games it plays under the rubric, “monetary policy,” do have the power to move the stock and bond markets in powerful swings. If anyone had insider knowledge of what the FOMC were doing on any particular day, your profits from day-trading would be gigantic. A hedge fund manager’s dream come true.
• Third, the FOMC operations, buying and selling to impact the Fed Funds rate, would also be an area that should not be allowed to become something of daily, transparent knowledge. The claim that these things should be kept non-political and out of sight of speculators and day traders makes sense to me.

The Monopoly Problem

But, the real issue is WHY should the Fed be a monopoly, and WHY should the United States government even want to use an undefined F.R.A.U.D. monetary system? [Note acronym: "Federal Reserve Accounting Unit Dollar"]

The answer is because the British Neo-Classical School of economics, which developed under the Victorian era regime following Peel’s Act of 1844, had neglected and lost track of the debates among – yes, amateur for the most part – economists from 1800-1844. Lawrence H. White’s book on this history, “Free Banking in Britain,” is very informative. Even Milton Friedman changed his mind after reading about free banking.

The British Economists

The Briish economists after 1844 came to the conclusion that “scientific management” of a monetary monopoly would be superior to whatever crippled market process occurred under a “pseudo-gold-standard” (Milton Friedman’s label).

Yet, of course, the whole appeal of “scientific management” of an economic system ought to have passed away with the fall of the Soviet Union.

The observation that fewer business cycle downturns occurred after 1913 than before the Fed ignores a lot of economic history. First, it ignores the stupid regulations imposed by the National Bank Act of 1863 that forced banks to operated as undercapitalized agencies, because they were forced to buy government bonds in order to issue currency (but not demand deposits). This crippled the banking system and led to many more runs on banks and contractions than would have occurred without such rules.

Comparing the Canadian experience with the U.S. experience shows how much more stable the Canadian system was, with a more pure system of free banking. Canada didn’t create the Bank of Canada until the late 1930s, and by that time it was the mania of every government on earth to have its own central bank – and there was no longer any international gold payments system.

Second, although there was no Federal Reserve prior to 1913, there was the Bank of England, which acted like a global central bank for all the “gold standard” countries. And the Bank of England was very incompetent in running monetary policy, which is one reason the British Neo-Classical School economists were so critical of the classical pseudo-gold-standard. As the Bank of England induced expansion and contractions in the London financial markets, those markets affected all the rest of the world, New York in particular because of America’s close links with the British Empire. See Walter Bagehot, “Lombard Street” (1873) on “the unnatural system of centralization” and the mismanagement of the Bank of England. Bagehot was the editor of The Economist magazine.

Moreover after 1935, monetary policy was deliberately conducted with a bias never to allow a contraction and to promote a mild and gradual inflation. If you look at a graph of monetary expansion since WW2, many of what would have been contractions before 1913 are just flat spots on a rising chart. This is why Milton Friedman emphasized that it is the 2nd derivative (change in the rate of change) in monetary expansion that affects the growth of nominal GDP after a 6-18 month lag.

So, the bottom line is that I much prefer Ron Paul’s bill (HR 2779) to relax legal tender laws. If I could go all the way to utopia, I would urge a law having Congress make appropriations, budgets, and to assess taxes using the gram of gold as the government’s official unit of account, with a floating rate of exchange between the [thereafter] non-legal-tender F.R.A.U.D. units, which would continue to circulate and probably continue to dominate the financial markets. The U.S. national debt could still be payable in “dollars” but at a floating exchange rate with gold grams.

This might be the way to conform with the 14th Amendment, Section 4, and to pay off the national debt (in “dollars,” but not in gold grams).

Optimal Currency Areas

Indeed, in the literature of “optimal currency areas” it is not clear the whole United States should be a single currency area, much less all of Europe under the Euro. Labor markets in particular could operate more efficiently if wages were paid in local currencies. Michigan right now could experience a currency devaluation and that would help with unemployment.

Financial markets would probably operate more efficiently if prices were quoted in a global currency independent of national governments (e.g., gold grams).

And with floating exchange rates among them all.

The Massachusetts Debacle,
Coming Soon to Your Neighborhood.

The Wall Street Journal, Opinion & Outlook, March 27, 2009

Praise Mitt Romney. Three years ago, the former Massachusetts Governor had the inadvertent good sense to create the “universal” health-care program that the White House and Congress now want to inflict on the entire country. It is proving to be instructive, as Mr. Romney’s foresight previews what President Obama, Max Baucus, Ted Kennedy and Pete Stark are cooking up for everyone else.

In Massachusetts’s latest crisis, Governor Deval Patrick and his Democratic colleagues are starting to move down the path that government health plans always follow when spending collides with reality -i.e., price controls. As costs continue to rise, the inevitable results are coverage restrictions and waiting periods. It was only a matter of time.

They’re trying to manage the huge costs of the subsidized middle-class insurance program that is gradually swallowing the state budget. The program provides low- or no-cost coverage to about 165,000 residents, or three-fifths of the newly insured, and is budgeted at $880 million for 2010, a 7.3% single-year increase that is likely to be optimistic. The state’s overall costs on health programs have increased by 42% (!) since 2006.

Like gamblers doubling down on their losses, Democrats have already hiked the fines for people who don’t obtain insurance under the “individual mandate,” already increased business penalties, taxed insurers and hospitals, raised premiums, and pumped up the state tobacco levy. That’s still not enough money.

So earlier this year, Mr. Patrick appointed a state commission to figure out how to control costs and preserve “this grand experiment.” One objective is to change the incentives for preventative care and treatments for chronic disease, but everyone says that. It sometimes results in better health but always more spending. So-called “pay for performance” financing models, on the other hand, would do away with fee for service – but they also tend to reward process, not the better results implied.

What are the alternatives? If health planners won’t accept the prices set by the marketplace – thus putting themselves out of work – the only other choice is limiting care via politics, much as Canada and most of Europe do today. The Patrick panel is considering one option to “exclude coverage of services of low priority/low value.” Another would “limit coverage to services that produce the highest value when considering both clinical effectiveness and cost.” (Guess who would determine what is high or low value? Not patients or doctors.) Yet another is “a limitation on the total amount of money available for health care services,” i.e., an overall spending cap.

The Institute for America’s Future – which is providing the intellectual horsepower (we use the term loosely) for reforms like those in Massachusetts – argues that the cost overruns prove the state must cap how much insurers are allowed to charge consumers and regulate their profits. If Mr. Patrick doesn’t get there first, that is. He reportedly told insurers and hospitals at a closed meeting this month that if they didn’t take steps to hold down the rate of medical inflation, he would.

Even the single-payer cheerleaders at the New York Times have caught on to this rolling catastrophe. In a page-one story this month, the paper reported on the “expedient choice” that Mr. Romney and Democrats made to defer “until another day any serious effort to control the state’s runaway health costs. . . . Those who led the 2006 effort said it would not have been feasible to enact universal coverage if the legislation had required heavy cost controls. The very stakeholders who were coaxed into the tent – doctors, hospitals, insurers and consumer groups – would probably have been driven into opposition by efforts to reduce their revenues and constrain their medical practices, they said.”

Now they tell us. What really whipped along RomneyCare were claims that health care would be less expensive if everyone were covered. But reducing costs while increasing access are irreconcilable issues. Mr. Romney should have known better before signing on to this not-so-grand experiment, especially since the state’s “free market” reforms that he boasts about have proven to be irrelevant when not fictional. Only 21,000 people have used the “connector” that was supposed to link individuals to private insurers.

Which brings us to Washington, where Mr. Obama and Congressional Democrats are about to try their own Bay State bait and switch: First create vast new entitlements that can never be repealed, then later take the less popular step of rationing care when it’s their last hope to save the federal fisc.

The consequences of that deception will be far worse than those in Massachusetts, however, given that prior to 2006 the state already had a far smaller percentage of its population uninsured than the national average. The real lesson of Massachusetts is that reform proponents won’t tell Americans the truth about what “universal” coverage really means: Runaway costs followed by price controls and bureaucratic rationing.

by Judy Shelton

Let’s give the Fed some competition. Abolish legal tender laws and see whose money people trust.

Let’s go back to the gold standard.

If the very idea seems at odds with what is currently happening in our country – with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year’s record budget gap – it’s because a gold standard stands in the way of runaway government spending.

Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money – i.e., currency with no intrinsic worth that government has decreed legal tender – loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation – which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.

Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.

In short, inflation undermines capitalism by destroying the rationale for dedicating a portion of today’s earnings to savings. Accumulated savings provide the capital that finances projects that generate higher future returns; it’s how an economy grows, how a society reaches higher levels of prosperity. But inflation makes suckers out of savers.

If capitalism is to be preserved, it can’t be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there’s no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.

So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies – and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that “every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard.”

Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.

Legal tender laws currently favor government-issued money, putting private contracts in gold or silver at a distinct disadvantage. Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not. Gold purchases are subject to taxes, both sales and capital gains. And while the Constitution specifies that only commodity standards are lawful – “No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts” (Art. I, Sec. 10) – it is fiat money that enjoys legal tender status and its protections.

Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.

Private gold currencies have served as the medium of exchange throughout history – long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.

Which is why government officials should not now have the last word in determining the monetary measure, especially when they have abused the privilege.

The same values that will help America regain its economic footing and get back on the path to productive growth – honesty, reliability, accountability – should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal “stimulus” at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, “In the long run, we’re all dead.” But it shortchanges future generations by saddling them with undeserved debt obligations.

There is also the argument that gold-linked money deprives the government of needed “flexibility” and could lead to falling prices. But contrary to fears of harmful deflation, the big problem is not that nominal prices might go down as production declines, but rather that dollar prices artificially pumped up by government deficit spending merely paper over the real economic situation. When the output of goods grows faster than the stock of money, benign deflation can occur – it happened from 1880 to 1900 while the U.S. was on a gold standard. But the total price-level decline was 10% stretched over 20 years. Meanwhile, the gross domestic product more than doubled.

At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery – aside from inadequate savings – is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.

The fiasco of the G-20 meeting in Washington last November — it was supposed to usher in “the next Bretton Woods” – suggests that any move toward a new international monetary system based on gold will more likely take place through the grass-roots efforts of Americans. It may already be happening at the state level. Last month, Indiana state Sen. Greg Walker introduced a bill – “The Indiana Honest Money Act” – which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.

It may turn out to be a bellwether. Certainly, it’s a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world – the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.

Ms. Shelton, an economist, is author of “Money Meltdown: Restoring Order to the Global Currency System” (Free Press, 1994).

Published in The Wall Street Journal, Feb.12, 2009.

by Paul Krugman

Bad jobs at bad wages are better than no jobs at all.

For many years a huge Manila garbage dump known as Smokey Mountain was a favorite media symbol of Third World poverty. Several thousand men, women, and children lived on that dump – enduring the stench, the flies, and the toxic waste in order to make a living combing the garbage for scrap metal and other recyclables. And they lived there voluntarily, because the $10 or so a squatter family could clear in a day was better than the alternatives.

The squatters are gone now, forcibly removed by Philippine police last year as a cosmetic move in advance of a Pacific Rim summit. But I found myself thinking about Smokey Mountain recently, after reading my latest batch of hate mail.

The occasion was an op-ed piece I had written for The New York Times, in which I had pointed out that while wages and working conditions in the new export industries of the Third World are appalling, they are a big improvement over the “previous, less visible rural poverty.” I guess I should have expected that this comment would generate letters along the lines of, “Well, if you lose your comfortable position as an American professor you can always find another job – as long as you are 12 years old and willing to work for 40 cents an hour.”

Such moral outrage is common among the opponents of globalization – of the transfer of technology and capital from high-wage to low-wage countries and the resulting growth of labor-intensive Third World exports. These critics take it as a given that anyone with a good word for this process is naive or corrupt and, in either case, a de facto agent of global capital in its oppression of workers here and abroad.

But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

After all, global poverty is not something recently invented for the benefit of multinational corporations. Let’s turn the clock back to the Third World as it was only two decades ago (and still is, in many countries). In those days, although the rapid economic growth of a handful of small Asian nations had started to attract attention, developing countries like Indonesia or Bangladesh were still mainly what they had always been: exporters of raw materials, importers of manufactures. Inefficient manufacturing sectors served their domestic markets, sheltered behind import quotas, but generated few jobs. Meanwhile, population pressure pushed desperate peasants into cultivating ever more marginal land or seeking a livelihood in any way possible – such as homesteading on a mountain of garbage.

Given this lack of other opportunities, you could hire workers in Jakarta or Manila for a pittance. But in the mid-’70s, cheap labor was not enough to allow a developing country to compete in world markets for manufactured goods. The entrenched advantages of advanced nations – their infrastructure and technical know-how, the vastly larger size of their markets and their proximity to suppliers of key components, their political stability and the subtle-but-crucial social adaptations that are necessary to operate an efficient economy – seemed to outweigh even a tenfold or twentyfold disparity in wage rates.

And then something changed. Some combination of factors that we still don’t fully understand – lower tariff barriers, improved telecommunications, cheaper air transport – reduced the disadvantages of producing in developing countries. (Other things being the same, it is still better to produce in the First World – stories of companies that moved production to Mexico or East Asia, then moved back after experiencing the disadvantages of the Third World environment, are common.) In a substantial number of industries, low wages allowed developing countries to break into world markets. And so countries that had previously made a living selling jute or coffee started producing shirts and sneakers instead.

Workers in those shirt and sneaker factories are, inevitably, paid very little and expected to endure terrible working conditions. I say “inevitably” because their employers are not in business for their (or their workers’) health; they pay as little as possible, and that minimum is determined by the other opportunities available to workers. And these are still extremely poor countries, where living on a garbage heap is attractive compared with the alternatives.

And yet, wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people. Partly this is because a growing industry must offer a somewhat higher wage than workers could get elsewhere in order to get them to move. More importantly, however, the growth of manufacturing – and of the penumbra of other jobs that the new export sector creates – has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise. Where the process has gone on long enough – say, in South Korea or Taiwan – average wages start to approach what an American teen-ager can earn at McDonald’s. And eventually people are no longer eager to live on garbage dumps. (Smokey Mountain persisted because the Philippines, until recently, did not share in the export-led growth of its neighbors. Jobs that pay better than scavenging are still few and far between.)

The benefits of export-led economic growth to the mass of people in the newly industrializing economies are not a matter of conjecture. A country like Indonesia is still so poor that progress can be measured in terms of how much the average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more than 2,800 calories a day. A shocking one-third of young children are still malnourished–but in 1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific Rim, and even in places like Bangladesh. These improvements have not taken place because well-meaning people in the West have done anything to help – foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better.

Why, then, the outrage of my correspondents? Why does the image of an Indonesian sewing sneakers for 60 cents an hour evoke so much more feeling than the image of another Indonesian earning the equivalent of 30 cents an hour trying to feed his family on a tiny plot of land – or of a Filipino scavenging on a garbage heap?

The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages for our benefit – and this makes us feel unclean. And so there are self-righteous demands for international labor standards: We should not, the opponents of globalization insist, be willing to buy those sneakers and shirts unless the people who make them receive decent wages and work under decent conditions.

This sounds only fair – but is it? Let’s think through the consequences.

First of all, even if we could assure the workers in Third World export industries of higher wages and better working conditions, this would do nothing for the peasants, day laborers, scavengers, and so on who make up the bulk of these countries’ populations. At best, forcing developing countries to adhere to our labor standards would create a privileged labor aristocracy, leaving the poor majority no better off.

And it might not even do that. The advantages of established First World industries are still formidable. The only reason developing countries have been able to compete with those industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.

You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative? Should they be helped with foreign aid? Maybe – although the historical record of regions like southern Italy suggests that such aid has a tendency to promote perpetual dependence. Anyway, there isn’t the slightest prospect of significant aid materializing. Should their own governments provide more social justice? Of course – but they won’t, or at least not because we tell them to. And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard – that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.

Links

To get a taste of moral outrage against globalization, turn to Corporate Watch, a site dedicated to exposing the “greed” of transnational giants. Or, for a bizarre twist, check out Sweat Gear, a satirical online catalog that attacks sweatshops in Central America. Another argument against globalization – that it threatens democracy – is made by Benjamin Barber in the Atlantic. The Clinton administration’s word on the subject can be found in a speech by Labor Secretary Robert Reich to the International Labor Organization urging better compliance with core labor standards.

Paul Krugman is a professor of economics at MIT. He was awarded the Nobel Prize in Economics. This column was published in The New York Times March 20, 2008. Copyright by The New York Times.

by Kimberly A. Strassel
The Wall Street Journal, October 12, 2008

And now, America, we introduce the Great Obama! The world’s most gifted political magician! A thing of wonder. A thing of awe. Just watch him defy politics, economics, even gravity! (And hold your applause until the end, please.)

To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don’t pay income taxes! How can our star enact such mathemagic? How can he “cut” zero? Abracadabra! It’s called a “refundable tax credit.” It involves the federal government taking money from those who do pay taxes, and writing checks to those who don’t. Yes, yes, in the real world this is known as “welfare,” but please try not to ruin the show.

For his next trick, the Great Obama will jumpstart the economy, and he’ll do it by raising taxes on the very businesses that are today adrift in a financial tsunami! That will include all those among the top 1% of taxpayers who are in fact small-business owners, and the nation’s biggest employers who currently pay some of the highest corporate tax rates in the developed world. Mr. Obama will, with a flick of his fingers, show them how to create more jobs with less money. It’s simple, really. He has a wand.

Next up, Mr. Obama will re-regulate the economy, with no ill effects whatsoever! You may have heard that for the past 40 years most politicians believed deregulation was good for the U.S. economy. You might have even heard that much of today’s financial mess tracks to loose money policy, or Fannie and Freddie excesses. Our magician will show the fault was instead with our failure to clamp down on innovation and risk-taking, and will fix this with new, all-encompassing rules. Presto!

Did someone in the audience just shout “Sarbanes Oxley?” Usher, can you remove that man? Thank you. Mr. Obama will now demonstrate how he gives Americans the “choice” of a “voluntary” government health plan, designed in such a way as to crowd out the private market and eliminate all other choice! Don’t worry people: You won’t have to join, until you do. Mr. Obama will follow this with a demonstration of how his plan will differ from our failing Medicare program. Oops, sorry, folks. The Great Obama just reminded me it is time for an intermission. Maybe we’ll get to that marvel later.

We’re back now. And just watch the Great Obama perform a feat never yet managed in all history. He will create that enormous new government health program, spend billions to transform our energy economy, provide financial assistance to former Soviet satellites, invest in infrastructure, increase education spending, provide job training assistance, and give 95% of Americans a tax (ahem) cut — all without raising the deficit a single penny! And he’ll do it in the middle of a financial crisis. And with falling tax revenues! Voila!

Moving along to a little ventriloquism. Study his mouth carefully, folks: It looks like he’s saying “I’ll stop the special interests,” when in fact the words coming out are “Welcome to Washington, friends!” Wind and solar companies, ethanol makers, tort lawyers, unions, community organizers — all are welcome to feed at the public trough and to request special favors. From now on “special interests” will only refer to universally despised, if utterly crucial, economic players. Say, oil companies. Hocus Pocus!

And for tonight’s finale, the Great Obama will uphold America’s “moral” obligation to “stop genocide” by abandoning Iraq! While teleported to the region, he will simultaneously convince Iranian leaders to peacefully abandon their nuclear pursuits (even as he does not sit down with them), fix Afghanistan with a strategy that does not resemble the Iraqi surge, and (drumroll!) pull Osama bin Laden out of his hat!

Tada!

You can clap now. (Applause. Cheers.) We’d like to thank a few people in the audience. Namely, Republican presidential nominee John McCain, who has so admirably restrained himself from running up on stage to debunk any of these illusions and spoil everyone’s fun.

We know he’s in a bit of a box, having initially blamed today’s financial crisis on corporate “greed,” and thus made it that much harder to call for a corporate tax cut, or warn against excessive regulation. Still, there were some pretty big openings up here this evening, and he let them alone! We’d also like to thank Mr. McCain for keeping all the focus on himself these past weeks. It has helped the Great Obama to just get on with the show.

As for that show, we’d love to invite you all back for next week’s performance, when the Great Obama will thrill with new, amazing exploits. He will respect your Second Amendment rights even as he regulates firearms! He will renegotiate Nafta, even as he supports free trade! He will . . .

This article is copyright 2008 by Dow-Jones & Company, Inc.
Link to original article.