Skip to content

Bush, still the worst

There is something satisfying about snow days. Your choices are limited by forces beyond your control, so sitting around the house doing nothing is perfectly justifiable. For some of us, of course, the guilt inculcated by years of Catholic education threatens to bubble to the surface, but after years of dealing with it, I've learned to keep a damper on it. So, in keeping with our governor's insistence that we not leave our houses physically, I'm not leaving the house metaphorically either, and this post, rather than being at all original, will merely revisit some thoughts I emitted years ago.

A friend on Facebook linked to this article, entitled: George W. Bush: Still the worst: A new study ranks Bush near the very bottom in history, due to delusional wars, reckless spending and inflexibility. It has been my oft expressed view on this blog that George W. Bush was, indeed, the worst president of all times, so of course I followed the link with every expectation that I would enjoy the article, for, as any Fox viewer can tell you, nothing is more satisfying than having one's views reinforced.

But, alas, I was disappointed. The article was penned by Robert Merry, who was Washington correspondent for the Wall Street Journal, a fact that should immediately start the warning bells clanging.

In fact, Merry ends up being agnostic about Bush's claim to being the cellar dweller in the Presidential standings. But that's not the problem with the piece. In many ways, Merry finds fault where there is very little and minimizes or misunderstands the truly horrible.

His analysis of the Iraq war, for instance, is hopelessly compromised by his own Beltway delusions. Consider this:

Hence, the rationale of necessity collapsed after the invasion, and Bush was diminished in much of public opinion for having crafted a rationale for war that was either disingenuous or carelessly flimsy (I believe the latter).

Even characterizing the mendacity that led us to war as “disingenuous” is far too charitable to Bush (and Merry won't even go that far), and Merry never even mentions the fact that Iraq is now controlled (to the extent it is controlled at all), by a government that is allied more with Iran than it is with us, something that war opponents predicted would happen at the outset, just as many were proclaiming that no weapons of mass destruction would be found.

Merry's criticisms of Bush on the economy are more wildly off the mark, as are the relatively high marks he gives him for managing the economy in his first term. Here's the criticism (I've got no time to discuss the faint praise of the first term):

It was during the second term that things fell apart. The folly of the Iraq war became increasingly clear, and Bush’s credibility plummeted. The war sapped federal resources and threw the nation’s budget into deficit. The president made no effort to inject any fiscal austerity into governmental operations, eschewing his primary weapon of budgetary discipline, the veto pen. His first budget director, Mitch Daniels (later Indiana governor), strongly urged a transfer of federal resources from domestic programs to the so-called War on Terror, much as Franklin Roosevelt directed such a transfer when he led the country into World War II. Bush rejected that counsel and allowed federal spending to flip out of control. The national debt, which was being steadily paid down under Clinton, shot back to ominous proportions. Meanwhile, economic growth rates began a steady decline, culminating in a negative growth rate in the 2008 campaign year.

Almost none of this is really true. Whether budget deficits were good things or bad things in the Bush years, it was not the Iraq war that led to them. It was the Bush tax cuts. More fundamentally, it is hard to make the case that “fiscal austerity” was called for during the Bush years, or that it would have done anything to prevent the bursting of the housing bubble, which was the actual cause of the depression that started in 2008. No, Bush was bad for a lot of reasons, but not because he didn't hold the line on spending. In any event, Merry's historical comparison to FDR and World War II doesn't withstand scrutiny. Sure, FDR shoved money into military spending during the war, but it is more fair to say that he did it by increasing, rather than shifting, spending. That increased spending drove up the deficit (remember war bonds?) thereby increasing demand, which dragged the nation out of the Depression. Had there been no war, and had FDR borrowed the same amount to fund highway construction or some other worthy endeavor, the effect on the economy would have been the same. It is a mystery why shifting spending to the “War on Terrorism” would have equaled “fiscal austerity”; it would simply mean we had shifted money from generally more useful programs to those that were generally more useless.

In my own opinion, Bush's claim to being the worst president rests on two basic arguments. First, he was a truly bad president who led us into an unnecessary and counter productive war; cursed us with a security state beyond anything dreamed of by his predecessors (his successor, I admit, has done nothing to dismantle it); bequeathed us a Supreme Court that has destroyed any hope that we can recover our democracy (see, e.g., Citizens United); exacerbated and encouraged divisiveness; ignored the environmental crisis we face; implemented policies designed to transfer wealth to the rich.. and the list goes on with my having only scratched the surface. The second factor is the simple fact that previous terrible presidents (see, e.g., the shame of my alma mater, Franklin Pierce, who I'll use as an example), were simply not in a position to do as much harm as Bush. Bush wreaked havoc on a global scale; Pierce was simply a weak President who stood by and did nothing while the nation marched toward a civil war that might well have been inevitable in any event. At that stage in our history, a peace time president's ability to affect events, even in this country, was limited. His ability to visit destruction on the rest of the world was non existent.

One irony of Bush's presidency was that he had an ability to get just about anything he wanted out of Congress. Not for him Obama's desperate search to get reasonable minds to compromise. He made demands and they were usually met. His problem was that he almost always demanded truly awful things.

In my own opinion, our current president is on his way to earning a C+; not great, certainly, because given the times, we really needed a guy (or gal) who could get an A or better, but it still compares favorably with Bush's rock solid F, which I would rate F minus, if that made any conceptual sense.

All of this leads me to one final thought. We really do need someone to do a history of Bush's presidency now, while the memory of that parade of horrors is still somewhat fresh. I sort of cheated on my list of his atrocities, because already, I realize I've forgotten so many of them. That book must be written; but not by Robert Merry.

John Scott serves the people

A while ago I wrote a post about an ethics complaint filed against our newly elected Republican state representative, John Scott. Here's the opening paragraph.

As I noted in a previous post, the Democratic down ticket didn't do too well in these parts. One of our new Republican legislators is John Scott. John's campaign consisted mainly of distortions of his opponent's record. On the issues, he mainly confined himself to a fierce and unaccommodating dedication to the interests of insurance agents everywhere, but especially those in Groton.

I also noted in passing that, coincidentally, John Scott is an insurance agent.

Now, I'm pleased to report that Scott is actively engaged in advancing the interests of his constituent. You can check out the bills he's sponsoring or cosponsoring here. But let me save you some trouble and time. Here's a sampling, selected by yours truly:

Proposed H.B. No. 5062: “To require that the sale of a qualified health plan offered through the Connecticut Health Insurance Exchange be transacted by an insurance producer.”

Proposed H.B. No. 5255: “To study the potential benefits of applying Medicaid funds to the cost of health insurance for college students who are eligible for Medicaid.”

To prevent an over reliance on Medicaid when an affordable health insurance alternative is available.”


There appears to be a common thread here, but I'll leave it to the reader to figure that out.

Back in John's final days as a Democrat, he was fiercely opposed to Obamacare because he was afraid it would cut into the money he was making selling health care to college students. Looks like he's in a position now to make sure his fears were unfounded.

Never give the exploited an even break

I didn't watch the State of the Union address last night, but not for any Obama related reason. Ever since Reagan introduced the “people in the audience” crap which every President since has felt duty bound to emulate, I've been sort of sickened at the prospect of watching what has become more and more a meaningless exercise. Not that it was ever truly that meaningful, but…to get to my actual point.

I understand that Obama is casting himself as the protector of the middle class, by proposing legislation that he knows will never pass. That's all well and good. I'm all for proposing stuff that won't pass if the point is to shape the discourse and get what you want in the long term. On the other hand, Obama is still president, and there's lots of things he can do right now to help both the middle class and the rapidly expanding nameless class, which I'll call proles. (Hint for those of you who grew up without Classic Comics: read your H.G. Wells) Unfortunately, far too often when Obama could do the proles a favor with the stroke of his own, or an underling's, pen, it just doesn't happen.

The latest case in point concerns the impending bankruptcy of the for-profit Corinthian College, brought on by a slew of lawsuits or threatened lawsuits accusing it (correctly) of defrauding its students. Obama has it in his power to forgive the student loans these kids were duped into taking on to pay for the education they never really got. But these are not bankers, so apparently there will be no bailout for them. You can read the full story here. This sort of thing makes the Administration's claim to be the advocate for the bottom 99% ring just a bit hollow.

There are signs of hope, however. The Obama Administration may not be interested in helping these kids, but the progressives in the Senate have spoken out:

A group of Senate Democrats has urged the Obama administration to forgive debts incurred by thousands of current and former students at troubled for-profit schools owned by Corinthian Colleges Inc.

Thirteen Senate Democrats, including Sens. Elizabeth Warren (D-Mass.), Richard Durbin (D-Ill.) and Jack Reed (D-R.I.), demanded in a stinging letter on Tuesday that Education Secretary Arne Duncan “immediately” forgive federal student loans taken out by students at Corinthian-owned schools, such as Everest, WyoTech and Heald.

The lawmakers argued that because federal and state authorities have accused the company of duping students into taking out loans by advertising false job placement rates, and federal law enables borrowers to have their loans discharged if their schools misled them into taking out federal student loans, current and former students shouldn’t be forced to repay those debts.

via The Huffington Post

The $600 million this would cost the government (assuming it could not recover anything from the banks and hedge funds behind Corinthian) sounds like a lot of money to you and me, but it's actually less than peanuts to the federal government. Besides, forgiving that debt would operate as a sort of mini-stimulus; the money those defrauded students don't pay to the government would be spent elsewhere.

This sort of issue will undoubtedly recur. It would be easy enough to stop it from happening in the future. These for-profit schools were designed for one thing only: to suck at the federal student loan teat. All we need do is restrict student loans to students attending non-profit colleges. Better yet, make state colleges and universities free, as Obama has timidly proposed doing for community colleges. But, in the meantime, it's time to give the proles a break, and Obama should jump at the chance to do so.

Blinded in the Beltway

I like Richard Blumenthal, but like all politicians (like all people for that matter he's not perfect. Minor mistakes can be forgiven. It is nonetheless distressing to see him buy into an argument that only denizens of the Beltway could swallow. He is co-sponsoring a bill that would allow yet more H1-B workers into the country.

In what detractors are calling a “wrong turn” in U.S. policy that could lead to outsourcing more American technology jobs, Democratic U.S. Sen. Richard Blumenthal of Connecticut has signed on as co-sponsor of a bipartisan immigration bill that eventually could more than double the number of guestworkers currently allowed into the country on controversial H-1B visas.

Blumenthal, in a phone interview, defended his co-sponsorship of the bill, saying it gives him a better vantage point from which to negotiate comprehensive immigration reform – including stronger safeguards to ensure that enforcement of guestworker laws are beefed up so companies that engage in H-1B visa abuses are punished. He also said the bill includes a provision to improve science, technology, math and engineering education in the United States to ensure that more American workers with technology skills are available to hire in the future.

via The New London Day

Blumenthal goes on to defend his position on other grounds:

Blumenthal said he is concerned about past abuses of the visa program. But his approach is to try to expand the visa numbers – because so many companies in Connecticut, large and small, have approached him complaining they cannot find skilled workers – while at the same time improving and reforming the program.

Isn't it amazing that some of the poorest countries in the world, such as India, are able to supply high skilled workers that just can't be found in the U.S.A. Here's what's really happening. It's not that these companies can't find highly skilled people; they just don't want to pay them. As Dean Baker has pointed out endlessly in his blog, when there is a shortage of something, the price of that something should go up. It's called supply and demand. If the supply of skilled workers were down, their price should go up. It hasn't. Also, in the olden days, if an employer needed people to perform a specific function, the employer would train willing workers to perform that function. Nowadays they prefer to import tractable peons from overseas.

This is a bit of a hobby horse of mine. Years ago I wrote about the fact that The Hartford decided that my sister and her co-workers were no longer skilled enough and/or were unwilling to perform their jobs. It therefore hired H1-B workers from India to replace them, which they did, once the unskilled Americans whose jobs they were taking trained them. Similarly, the quoted article notes a more recent event here in my backyard:

But opponents of H1-B visa increases, citing alleged abuses in the past including the systematic outsourcing of much of Pfizer Inc.'s information technology workforce in Groton starting seven years ago, said the current bill does little to protect U.S. workers.

Also, there's this, which is basically what I said above:

“The primary, practical function of the H-1B program is to outsource American high-tech jobs,” Harrison said in a statement. “Do the bill's supporters really think that's the direction American immigration policy should go?”

H-1B critic Hira, in testimony to Congress two years ago, covered the litany of complaints about the program, including a charge that the majority of foreign workers using the visa were being hired as “cheap indentured workers”; that American workers were not being given the first shot at employment before H-1Bs were hired; that American workers with similar or superior skills were being replaced by H1-Bs to save money, and that oversight of the program “is nearly nonexistent.”

It seems to me that before passing any bill, a legislator ought to consider how he or she would game it, if it were in his or her interest to do so. In the case of H-1B, we don't need to do that, as it is being gamed before our very eyes. You can talk all you want about rooting out abuses. That's not going to happen. The net effect of this bill would just double the number of abuses.

Bad Moon Rising

Pam Martens, at Wall Street on Parade, reviews the evidence for a worldwide deflationary spiral:

Collapsing yields, collapsing commodity prices are the result of distorted income dispersal, otherwise known as income inequality.

Last August, researchers at the Federal Reserve released a study showing the fragility of the U.S. consumer. The Fed’s Division of Consumer and Community Affairs found that 52 percent of Americans would not be able to raise $400 in an emergency from their checking account, savings or borrowing on a credit card that they would be able to pay off when the next statement arrived.

There is a delicate equilibrium of income distribution that sustains growing economies. When income distribution becomes insanely skewed to the top 10 percent, deflation is the inevitable outcome.

To express it another way, when workers are stripped of an adequate share of the profits of their productive labors on behalf of the corporation, they can’t consume an adequate amount of the corporate output. Supply gluts develop and deflation follows.

I have read similar analyses elsewhere, which leads me to believe that the current economic good news may be transient; we are reaping, perhaps, the benefits of lower oil prices, while we have not yet experienced the bad effects of the conditions that led to that price decline.

Income inequality, sooner or later, will come back to at least nip the hand that fed it.

Someone, though apparently it's not clear who, once said that god takes care of fools, children, drunkards and the United States of America. I'm afraid that god may very well be off his game as we look ahead, if we are indeed heading toward yet another economic downturn. Timing was fairly good the last time around; the people responsible for the Great Depression were in power when it occurred, and they were replaced by the right people as soon as the country had a chance to do so. But we mustn't fool ourselves into thinking that it was a result of rational thought on the part of the voters. Hoover was in when it happened; he promised more of the same; so people voted for Roosevelt. It just so happened that the non-existent god, in his wisdom, lined things up just right. The people who got the blame deserved it, but that was largely fortuitous.

Fast forwards to 2016, the year everyone on our side thinks will be a walk away win for us. Assume, for the moment, that the economy is in free fall. Who you gonna blame? It won't matter that it is Republican policies (and, to be honest, Democratic craveness) that have gotten us where we are, nor will it matter that they will run on the promise of giving us more of what got us into trouble in the first place. They will be pointing the finger at Obama and the Democrats, and they will win, even if they nominate a crazy person, which they likely will. All three branches of government will be controlled by people who are, to be as charitable as I can be, close to certifiably insane.

Now, there is always a silver lining. It won't take long for people to realize that the Republicans only made a bad situation worse, despite the efforts of the beltway propaganda machine to cover for them. 2018 might be a good year for us, if the Republicans don't change the laws and prevent us from voting, and 2020 might be even better. We might even be in a position to gerrymander ourselves into a Congressional majority. But by then it really might be too late. They'll be able to do a lot of damage in four years, and it could be irreperable. So, here's hoping Ms. Martens is wrong about the coming crash, but don't count on it. God has been distracted by a bunch of fools, children and drunkards, and his attention has strayed from the USA.

Some lexical pushback

Yesterday I bemoaned the tendency of the Left to allow the right to frame the terms of debate, including allowing them to abrogate warm and fuzzy words like “reform” and “pro-life” to describe themselves or their policies. Well, lo and behold, today in my in-box I got something from a group that isn't going to take it anymore.

The email below is from Dr. Mark Boslough, a physicist, climate change researcher, and Fellow at the Committee for Skeptical Inquiry.

Dear John,

Bill Nye and many other skeptical scientists (including me) have an important message: Climate science deniers are not skeptics.

Last month a group of 48 of us published an open letter because some members of the media are still misleading the public by wrongly using the term “skeptic.” The New York Times, for example, recently called Senator James Inhofe (R-OK) a skeptic — even though he believes in the absurd notion that climate change is “the greatest hoax ever perpetrated.”

As scientists, we practice and promote scientific skepticism. As Fellows of the Committee for Skeptical Inquiry, we encourage informed citizens to do the same. But those who reject the facts on climate change are not skeptics — they’re deniers.

We are insisting that journalists report truthfully on climate change and those who deny the science behind it. Can you add your name to support our letter?

Sign your name to tell the media: Stop referring to climate science deniers as “skeptics.”

Truth in climate reporting is already catching on among some news outlets. Recently, NPR and CBS both resisted using the term “skeptic” when it did not apply, and replaced it with the word “denier.” Now, we in the scientific community are asking other major publishers and broadcasters to do the same — and with strong, widespread public support, we can raise the bar for factual accuracy in climate reporting.

It’s time for our media to recognize climate science deniers for what they are.

Please sign on to support the letter from myself, Bill Nye, and other members of the scientific and skeptical community.



Well, it was nice of Mark to write. In light of what I wrote yesterday I really had no choice but to sign the petition. In this one instance it might not do much good, but if the left loudly and persistently fought back against the right's Humpty Dumptyism, it would sink in sooner or later. We have to do to the press what the right did to it over the course of the past 50 years- insistently accuse it of conservative bias-not just Fox, but virtually all of the Beltway centric media.

By the way, if you want to sign the petition, I believe you should be able to do so by following this link.

Lessons from Webster’s and Humpty Dumpty

Today I stumbled upon this article in the Progressive by Connecticut's own Jonathan Pelto, detailing the way in which the proponents of public school privatization are buying political influence. Now, Jonathan is not particularly popular with some of the elected politicians I know, but despite his sometimes abrasive way of writing, I like him because he's about 95% right, which puts him only slightly behind me. There is a vast right wing conspiracy out to destroy the public school system; hand our tax money over to the plutocrats; disempower teachers thereby driving the good ones out of the profession; and eventually restrict decent real education to the rich, while doling out job training to the rest of us. Unfortunately, there are plenty on the nominal left that have joined the right in this push; one of whom is our otherwise fairly good governor. Jonathan's article is well worth reading.

But I come not to praise Pelto, but to pick a nit. Jonathan's article contains some good examples of the left's tendency to ignore or buy in to the manipulation of language by the right. Here's an excerpt from Pelto's piece:

Raimondo, who as Rhode Island’s state treasurer won national acclaim from conservatives for successfully dismantling the state employee pension fund, raised hundreds of thousands of dollars from donors associated with funding the education reform movement and profiting from the charter school industry. Her running mate, Cumberland mayor Daniel McKee, one of the state’s most vocal supporters of charter schools, was elected lieutenant governor with help from many of the same donors.

Now, Pelto doesn't exactly play softball when writing about these people, but he does something the right would never do: buy in,-if not entirely, far enough- into their own characterization of their “reform movement”. The right is always eager to call what it does “reform”, because the word has a positive connotation. While one might argue that the term is value neutral, it doesn't resonate that way, and in fact, isn't even defined that way. Here are the first several definitions from Webster's unabridged:

1 obsolete : RESTORE, RENEW
2 a) : to restore to a former good state : bring from bad to good
b) : to amend or improve by change of form or by removal of faults or abuses
c) : to put or change into a new and improved form or condition
3 : to put an end to (an evil) by enforcing or introducing a better method or course of action or behavior<~ the abuses of political patronage>
4 : to induce or cause to abandon an evil manner of living and follow a good one : change from worse to better<~ a drunkard>

People on the right may call themselves “reformers”, and they may call their attempts to divert our taxes into their own pockets “reform”, but that doesn't make it so, and we should avoid using the term to describe them. Even while criticizing, we legitimate them when we allow them to pick the words by which they will be described. We seem to be amazingly blind to the emotional power of language, so we constantly cede the linguistic high ground to the forces of darkness. Education reform? Why not call them the public school destruction industry, or something similar. If a reader is already on Pelto's side, his use of the term “reform” won't matter, but it may very well make it harder to persuade the undecided or the “low information” reader who might be puzzled at the fact that Mr. Pelto is against “reform”. Who knows how much harm has been done to the cause of abortion rights by the fact that people who believe in abortion rights have allowed the right to get away with calling itself “pro-life”. We seem to be Alices while the right is Humpty Dumpty to the core:

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’

’The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.”

Two and a half cheers for Obama

Regular readers (should they exist) will recall that I have been urging the Democrats to stand for something other than being the party that is not crazy (which, oddly enough, is not a compelling selling point in this country). In particular, I've urged forgiveness of student loans and free college tuition in public institutions. So, you can imagine I'm quite pleased that Obama has taken up the call:

Introducing his proposal here on Friday, Mr. Obama vowed to make college affordable for all Americans by investing $60 billion over the next 10 years to provide free community college tuition to as many as nine million students a year across the country. If Congress and the states adopted his plan, the president said, “two years of college will become as free and universal as high school is today.”

Via The New York Times

Obama loses half a cheer for confining his proposal to community colleges. I suppose this is strategic; his firmly held belief that he should always propose what he feels he will get after negotiations are over, but that makes little sense here for two reasons. First, it is a nonsensical way of bargaining, which has been proven repeatedly during his tenure. More importantly, he must be aware that nothing he proposes will pass this Congress, unless it is something like the TPP, designed to screw average Americans. Given that reality, he should recognize that this proposal is a PR move, designed to stake out positions that he can sell to the American people as the Democratic alternative to the Republican mix of theocracy and oligarchy. Given that reality, why propose giving people half a loaf, when you can propose giving them a full loaf just as easily and can justify it on policy grounds just as well.

But the point of this post is not to criticize Obama. He has brought the issue to the fore, and already progressives are using his proposal as a rallying point to push for universal free public college education. What struck me was the slant taken in the Times coverage, which started out be emphasizing the fact that some people would gain more than others from Obama's proposal:

In California, community college tuition and fees average less than $1,500 a year, the lowest in the nation, and with government grants, most students pay nothing. In Florida and Michigan, the cost is over $3,000, yet poorer students still attend free. But in Vermont and New Hampshire, prices are around $7,000, well over what government grants cover.

That broad range means that President Obama’s proposal to make community college tuition-free nationwide — if Congress and the states were to embrace it — would benefit every student of the two-year colleges, but that far greater benefits would go to students in the states with the highest tuition. And while it would aid the economically hard-pressed, it would also effectively extend federal aid to millions of middle- and upper-income students who do not qualify for it currently.

Almost any social legislation benefits some people more than others. There seems to be a widespread need in the press to try to set one group against another. Sure, the Times says, everyone will benefit, but some will benefit more than others, so let's stir up some resentment. Well, let's look at this a little more closely.

First, let's look at this from the perspective of the individual students involved, rather than the states in which they reside. Right now, the students in the high cost states are being screwed to a greater degree than those in the low cost states, though they all are being screwed. They have every right to complain about the injustice of their plight; far more right than low cost states will have to complain about equalizing the playing field. Obama's proposal merely puts each individual on the same level. If you want to look at it in terms of the flow of money to the various states, my guess is that, California aside, it would amount to a reversal in the normal flow of money from blue states to red, a result that no rational person should complain about. Finally, the implication that middle and upper income students should not benefit from this largesse is typical American thinking. We argue initially when creating welfare programs that they should be needs based. A few years later, we condemn them as welfare and try to undermine them. Social Security has, so far, proven impervious to right wing assault because everyone's ox gets gored if it is undermined. In the case of education, no one argues that the middle class (to the extent it exists) or the upper class should pay for public primary or secondary education. Obama is merely extending that widely accepted premise (currently being slowly undermined by the for-profit charter school industry) to college level education. As a nation, we are about 50 years late in starting this discussion, but better late than never.

Of course, the way in which this is implemented would be critical. If the Feds are paying, and the states are setting the costs, then it's pretty obvious that the states can start gaming the system. But that's of academic interest right now. The important thing right now is to get this discussion started. Nothing is going to get passed in the next two years. Here's hoping that the inevitable Hillary will see this as a populist issue she can embrace without upsetting her banker friends.

Good news in Groton

and Stonington, North Stonington, Voluntown and Griswold. Our state Senator, Andy Maynard, who was badly injured in a fall last summer, showed up at the Capitol to be sworn in to the term that he won from a hospital bed.

Andy sustained a brain injury. Apparently his ability to think and understand is not impaired, but he has trouble talking. One could argue that a politician who understands and thinks, but does not talk, is an improvement over the common herd, but more than likely his speech will improve and he’ll lose that advantage over his brethren and sisthren.


(Picture courtesy, borrowed actually, from the New London Day)

Folks from outside our area may remember Andy as half of a pair of stars of a Daily Show segment, which highlighted the gentlemanly campaign, bereft of smears or negativity, between Andy and Stu Norman. Here we know him as a conscientious legislator and a truly nice guy. I have not always agreed with Andy, meaning he has something in common with everyone else on the face of the Earth, but I’m proud that he’s my State Senator and really glad that he’s made it back where he belongs.

Yet More Adventures in Economics

A few days ago I wrote about an article in the New York Times, that appeared to say that investors were fleeing the lower interest rates paid by European countries for the higher rates that the U.S. is paying. I was puzzled, as the argument made by the expert in the piece appeared to be somewhat inconsistent with the law of supply and demand. Why, I asked, did a perceived higher quality product cost less than risky Italian bonds? Put another way, if American bonds are so special why aren't we charging more, in the form of lower interest rates, to buy them.

Well, along comes Paul Krugman, to explain the real reason for the disparity.

So, here’s the question I was just asked: How can it be that interest rates on U.S. government bonds are so much higher than on European bonds — not just German bunds, but even Spanish and Italian bonds are now paying less than their U.S. counterparts. My correspondent asks, Is the U.S. government really a riskier bet than that of Spain?

The answer is no, it isn’t. In fact, investors assign virtually no risk premium to holding U.S. government debt, and rightly so. I mean, even if you thought the US might default in the next 10 years, what, exactly, would you propose to hold instead? A world in which America defaults is one in which you might want to invest in guns and survival rations, not German bonds.

In that case, however, what explains our relatively high interest rates?

Well, let’s compare with Germany, also perceived as almost completely safe — but paying much lower interest. Why?

The crucial point here is that German bonds are denominated in euros, while U.S. bonds are denominated in dollars. And what that means in turn is that higher U.S. rates don’t reflect fear of default; they reflect the expectation that the dollar will fall against the euro over the decade ahead.

But why should we expect a falling dollar vis-a-vis the euro? One big reason is that European inflation is very low and falling, while the U.S. seems to be holding near (although below) its 2 percent target. And other things equal, higher inflation should translate into a falling currency, just to keep competitiveness unchanged. If you look at the expected inflation implied by yields on inflation-protected bonds relative to ordinary bonds, they seem to imply roughly 1.8 percent inflation in the US over the next decade versus half that in the euro area, which means that the inflation differential explains about 60 percent of the interest rate differential.

Beyond that, there is good reason to expect the dollar to fall in real terms over the medium term. Why? The relative strength of the US economy has led to a perception that the Fed will raise rates much sooner than the ECB, which makes dollar assets attractive — and as Rudi Dornbusch explained long ago, what that does is cause your currency to rise until people expect it to fall in the future. The dollar is strong right now because the U.S. economy is doing better than the euro area, and this very strength means that investors expect the dollar to fall in the future.

So that’s what the Germany-US differential is about: higher US inflation (which is a good thing) plus the expectation that the dollar-euro rate, adjusted for inflation, will eventually revert to a normal level. Ultimately, it’s all about European weakness and relative US strength.

via Paul Krugman's blog

So, the disparity in interest rates does say something about the relative strengths of the economies involved, but not for the reasons cited in the Times article I discussed in my previous post. In a sense, simply comparing interest rates when different currencies are involved is like comparing apples to oranges. If everything were translated into dollars or Euros for comparison purposes, the effective rate of return, taking into account the anticipated change in the value of the currencies involved, may be higher in Europe (or the same) than that in the U.S. Of course, the investors could turn out to be wrong. The dollar may not fall against other currencies, in which case U.S. investors may do relatively better. (At least I think that would be the result).

This is yet another example of an amazing innumeracy in the press and among some experts. It reminds me of our media's insistence on directly comparing unemployment rates in the U.S. and European countries, without correcting for the various ways in which unemployment rates are measured in the countries involved. See, here, in the Wall Street Journal of all places, on the unemployment issue.

So, that's a question answered.