Same 'Ole, Same 'Ole

President Obama talked about the economy yesterday, punctuating the end of "recovery summer." According to the President, the weakening economy is all the fault of stubborn Republicans who refuse to endorse the so-called "small business tax break" bill. This bill is another "targeted" tax break bill that is easily gamed and will contribute nothing to economic recovery. Republicans are correct to oppose this wasteful bill.

The President has no new ideas. His agenda is mostly a redistributive agenda with job-killing rules, regulations, taxes. The lack of job creation and the stultifying impact of Obama policies are a big surprise only to the President and his Congressional allies.

I wonder if this President will ever understand how jobs get created in the private sector? So far, Obama just keeps whistling the same discredited message of tax and spend. Fortunately, the Congress will have no more of this and November 2nd is fast approaching.

Out of Bullets?

How do you restart the economy? At this point, every government policy prescription has been tried. The net result: zero. The economy is struggling and some even expect the economy to show negative growth in the second half. That's unlikely, but certainly possible.

Maybe, just maybe, government policy is the problem, not the solution. The economy, had there been no TARP, no bailouts, no credit and debit card reform, no Obamacare, no demonizing rhetoric from the President, may have been well on the road to recovery by now. The government could well be the problem.

Macroeconomics is no science. When you ask an economist whether he favors spending or tax cuts, his answer tells you whether he is a Republican or Democrat? What kind of science is that? The cold, hard truth is that economists don't know what to do. Obama is now learning that truth to his chagrin.

Obama thought this would all be easy. With folks like Larry Summers, Tim Geithner, and Christina Romer telling him to use the usual Keynesian tactics and to declare personal war on the insurance industry and the financial sector, it was assumed that by the Fall of 2010, the economy would be on the mend. Such nonsense.

Government is the enemy. Banks won't lend because government regulators are forcing them not to lend by raising capital requirements and discouraging loans to anyone but the best credits. Absent this kind of ridiculous government policy, banks would be lending and credit would be available. But, government is blocking that.

There is a similar impact from debit and credit card reforms. These so-called "reforms" have the effect of eliminating credit for middle income Americans and small businesses. Credit card limits have been drastically reduced for many Americans as a result of the Obama debit and credit card reforms. The law of unintended consequences is bearing a bitter fruit.

It is government policy, not the free market, that is denying much-needed credit to the American economy and without that credit, true recovery is not possible.

Meanwhile, the so-called stimulus and other government give-aways to political friends, have ballooned the deficit to unimagined levels. America is now considered one of the most irresponsible countries in the world from a fiscal standpoint.

Just to square the circle, the Obama crowd and their allies in Congress, jammed through Obamacare which not only imposes huge additional future spending at the federal and state levels, but threatens to destroy the best health care system in the world. Quite an accomplishment!

As bad as all of this is, it is reversible. The naivete of Obama, Pelosi, and Reid is now obvious to the public. Nothing they have done has worked and virtually every program they have pushed has been trumpeted with misleading, if not outright false, rhetoric. The economy is staggering, housing is struggling, businesses are frightened of the future (and of Obama) and not hiring.

Fortunately, the public is now wise to the absurd and destructive policies of the Obama Administration and the Democratic Congress. There is hope of changing policies if things go well in November.

Then, hopefully, Congress can begin to reduce the barriers to economic recovery that have been thrown up by the Administration. The economy, if left alone and unhampered with undue regulation and taxation, can recover on its own. It doesn't need stimulus programs or anything else. It needs government to get out of the way and let the natural juices flow.

Reasons for Optimism

Don't let the national political scene get you down. Things are actually beginning to look up. November 2nd is the big day and no matter the result, there is an almost certain feeling that the political environment will get better for business.

Post November 2nd, Obama might change course. Not likely, though, as he seems to have his playbook memorized and can live with declining public approval. More likely, Republicans will block any new anti-jobs legislation that Obama and the Democrats can dream up. Moreover, there seems to real hope of gutting ObamaCare and shifting the health care discussion to a more rational plane. Progress can be made on repealing much of the finreg fiasco. Congresional committees can expose the enormous graft and corruption of the Obama Administration and their Congressional allies.

So, things will be changing for the better by late Fall and I would expect a very different public dialogue in 2011. All in all, I expect a better political environment for business as we approach the new year.

Good things lie ahead.

Forget the "Hindenburg Omen"

The latest craze among stock market pessimists is the "Hindenburg Omen.". If you subscribe to this view, you will sell everything you own and retreat to a cave somewhere....immediately. According to "HO," the stock market will get crushed in September and October -- maybe to 5,000 on the Dow, maybe to 1,000!

Don't listen to this silliness. The stock market is cheap and serious Investors should be fully invested. There will soon be an "end-of-Obama" rally, as the enormous political sea-change that will take place on November 2nd gets factored in. There is a real chance of sweeping political change that will bring capitalism back to the US. There are good signs in Europe that even Europe realizes the welfare state must be dismantled.

Things can turn around and it looks more and more like that is where we are headed. So, put on your optimist hat, buy stocks, and enjoy the coming rally.

New Unemployment Claims Surge Once More

More bad news -- unemployment claims on the rise. Hovering just below 500,000, new unemployment claims is a window into what employers are doing at the moment. They are beginning to add to layoffs again.

For reasons laid out over and over again in earlier blogs, this is a perfectly rational response by private employers to actions taken by the Obama Administration and the Congress in 2009-2010. Commercial banks have, as a predictable response to Obama and the Congress, dramatically curtailed business lending. Can't be pilloried for making bad loans, if you don't make loans.

So, in some sense the Obama plan is working: the private sector has been brought to it's knees: way to go, Barrack! You paid those guys back. A little collateral damage, but so what if the unemployed ranks continue to grow.

Blogging

I was informed recently that my blog has been listed as one of the must-read blogs in the field of economics. While I don’t know much about how this ranking was done, it did boost my ego quite a bit and I thought I would post the link:

http://master-degree-online.com/top-100-graduate-blogs-by-university-personnel/

When I started blogging some time ago, I did not know how much I would enjoy it. While my schedule has become quite busy, particularly since taking on the role of director of the Financial Literacy Center, I am trying to keep up and write as much and as often as I can. Both the financial crisis and the financial reforms have offered a lot of material to reflect upon and to write about, so I am not short on topics, even though I write exclusively on subjects related to financial literacy.

But I am posting this short blog to thank my readers for their support and also to encourage them to continue reading. Have a good rest of the summer to all. I am getting ready to go to Italy, one of my favorite vacation places, and I will write more from there.

Financial education: What works?

I am just back from Denver, where I attended a conference titled “Implications of a Quarter Century of Research in Personal Finance,” organized by the National Endowment for Financial Education and Tahira Hira from Iowa State University. A group of researchers met over three days to discuss what we have learned so far on this important topic. I headed a team that addressed the question, “What learning strategies, interventions, and delivery methods hold the most promise for effective financial education outcomes?”

As we reviewed the many papers that have been written on this topic, we faced the difficulties commonly encountered when looking at the existing work. Navigating the bulk of existing literature and figuring out the common findings is a challenge, but our analysis of that extensive literature led us to what we called a “cautious optimism” about the effects of financial education. Along with this optimism, we are mindful of several difficulties inherent in evaluating financial education interventions. First is the issue of self-selection: i.e., are the people who attend financial education programs those with an existing interest in the subject, and is it their interest or the content of a program that motivates them to make certain financial decisions? Second is the dearth of details regarding program content, frequency, delivery method, and goals (to improve knowledge or change behavior or to satisfy a legal requirement) of the programs that are reviewed in the literature. This lack of information makes it hard to evaluate what makes a program effective (or ineffective). Third, one has to be mindful of the size of the intervention. Small interventions, for example, providing information on a particular issue cannot transform naïve investors into Warren Buffetts.

The team identified places where financial education seems most effective and methods to make financial education more effective. The most effective place for financial education was concluded to be the workplace; important methodology was judged to be that relating to adult education and to informal learning.

There are many (some obvious) reasons why the workplace is an ideal venue in which to provide financial education. First, this is where many adults are and also where many important financial decisions are made, e.g., how much to contribute to a retirement account, how to invest retirement wealth, whether to annuitize retirement wealth, and the list goes on. There are also benefits to employers in making sure that workers save for retirement and avoid financial problems, as financial problems and/or worries can affect worker productivity and morale. One benefit to both employers and employees, which in my view is not discussed enough, is that financial education can make people aware of and able to take advantages of benefits an employer offers (for example, employer matches of retirement contributions) or better understand and take advantage of tax-favored assets.

Financial education has normally been conceived of as being delivered in a classroom, but one has to think more broadly and creatively about adult education. In contrast to young students, adults have a rich set of experiences that shape how they view their financial situation. Additionally, financial education can be made more effective with reference to theories of learning that offer important suggestions and insights. One such theory is Mezirow’s transformative learning theory. This theory has been around for over 30 years and has been used as a framework to help make sense of learning and teaching in numerous disciplines—health and medical education, intercultural relations, psychology, environmental sciences, higher education, instructional technology, archaeology, human resource development, just to mention a few. I mention the importance of theory here because, in my view, one of the reasons why financial education has not been as effective as it could be or has not been given the attention it deserves is because it is not considered within a rigorous and theoretical framework.

Even within such a framework, it is possible to incorporate different ways of learning, including informal learning. Informal learning is increasingly becoming recognized as significant to workplace education. Instead of having employees participate in traditional workshops or training sessions, employers are creating conditions in which workers can learn from each others. Financial educators, policy makers, and program planners will do well to recognize that financial education efforts can be successful outside of the formal settings that are the traditional venue for financial education.

As I have mentioned in previous blogs, to run a successful conference you need to have good people, good papers, and good food. Having provided, I hope, a little glimpse of the energetic discussion that went on throughout the meetings in Denver (as well as the informal learning that occurred outside of the meeting rooms!), let me turn to the topic of food. Our meals were a blend of French and Italian cuisine. We went to a wonderful French bistro one night where we tried pâté, saucissons, onion soup, and a wonderful pistachio-crusted trout. The Brown Palace hotel, where we stayed, provided us with succulent breakfasts. At a lunch one day we had gourmet pizza. Some were surprised by this lunch choice. Not me. Give me pizza, and I am happy!

The Future of Medical Care in the US

By waving magic wands in the air and declaring (almost) universal health insurance for all Americans, the Obama folks think that they have really accomplished something of significance. Actually, they have, but their main accomplishment is not what they think.

Obamacare, Medicare, Social Security will not succeed as advertised simply because there is no payment mechanism to fund these pipedreams. Instead, generations of Americans will find nothing in the well when their turn comes to receive benefits. The politicians that created this looming nightmare will be long gone, leaving a disillusioned populous with nothing but dark memories.

But beyond this. The assault on the the health care industry, the insurance industry, the medical supplies and technicians industry by the Obama Administration will destroy those various components of the health care industry. It will further erode the necessary supply of doctors and nurses required to service even past levels of American health care. The new Obama world will be health care without doctors and nurses. That should be interesting!

Like everything else in Obama-land, there is a huge disconnect between dreams and reality.

The Hidden Cost of Labor-Friendly Government

Why don't ordinary folks rob banks? That's where the money is, said famed bank robber Willie Sutton. The answer is: "you might get caught." If you a rob a bank, you might end up in prison (but, you might get away with it). This is what economists call a contingent liability. You have to do something first, then sit back and see the consequences.

What if you're a businessman, choosing between hiring an employee and a more expensive machine alternative. What would you do? Normally you would hire the employee. But this assumes that both choices have the same contingent liabilities. But, there are no government laws to protect machines...hence no real contingent liability to acquire the machine.

But, what about hiring an employee? Employees have "rights.". Literally, hundreds of rights. These "rights" enable employees to sue their employer, even for things that occur off the job site! The contingent liability of hiring a single employee can run into the hundreds of thousands of dollars! Even a small workforce, especially if it satisfies modern notions of diversity, can impose millions of dollars of contingent liabilitiies upon a small business.

So,what to do? The only way to avoid these massive contingent liabilities is to not trigger the enabling event: if you want to avoid jail, don't go around robbing banks; if you as a businessman want to avoid crippling litigation costs over presumed "employee rights," hire fewer employees and, almost as important, do not create a diverse workforce.

Employees with "rights" impose huge contingent liabilities on employers. There is a way out -- don't hire!

This seems to be what is happening in today's labor market.