Monday, September 6, 2010

The end of "Irrational Exuberance"

A few days ago I ran across an article by Eugene Robinson on the stupidity of American people - and it was a highly enjoyable read. Eugene is very upset at the American people because they "stupidly" changed their minds about Barack Obama and the Democrat Party. And he does not mince words - he calls Americans "a bunch of spoiled brats", while their opposition to Democrats is nothing more than a "temper tantrum". In order to prove the irrationality of American people, he uses a very peculiar argument:
Voters appear to be so fed up with the Democrats that they're ready to toss them out in favor of the Republicans -- for whom, according to those same polls, the nation has even greater contempt. This isn't an "electoral wave," it's a temper tantrum.

In reality, Eugene ignores that the people's decision to vote for Republicans is based on personal interest and trust - given the horrible state of the US economy, Americans were compelled to ignore their contempt for the GOP and vote with their pocketbook. According to the Rasmussen poll of likely voters, Americans "now trust Republicans more than Democrats on all 10 of the important issues regularly tracked by Rasmussen Reports." The table below compares the voters' trust for Democrats and Republicans.

The biggest criticism of Americans that Eugene is willing to share with his readers is that the people apparently lack the necessary patience, and instead of waiting for Obama to solve all the problems, they want everything to be resolved right away. Ironically, this is same Eugene Robinson who in 2007 triumphantly proclaimed that he lost patience with Iraq war (speaking about ironies, his article quite coincidentally was named "No time for patience in Iraq"), and it was foolish to give surge a chance. Of course, same Eugene Robinson lost his patience way before 2007 - for example in his 2005 article (that's just 2 years after the invasion of Iraq - the time comparable with Obama's presidency), he proclaimed "We're the ones trapped in the dark with no exit sign in sight." In a 2006 article, Eugene (the future guru of perseverance) proclaimed that Bush's surge was a waste of time and lives (the patient Eugene named his article "A 'Surge' in Wasted Sacrifice"), and that an increase in "troop strength that has almost no chance of making any difference". According to him, the surge was "arguably the worst imaginable "way forward" in Iraq". Why did he make this conclusion? Let me quote the end of the article in full - for the benefit of a reader who is in the mood for a chuckle:

It is unconscionable to think about dispatching more young men and women to Iraq without the realistic expectation that their presence will make a difference in a war that is no longer in our control. Here in Washington, proponents of a troop "surge" speak of giving the whole Iraq adventure one last try. But they sound as if they're more concerned about projecting an image of American resolve than anything else. Does anyone think a symbolic troop increase is going to have the likes of Moqtada al-Sadr or Mahmoud Ahmadinejad tossing and turning through sleepless nights?

Doubling the number of American troops in Iraq would be wrong -- we need to get out, now, before we set the whole Middle East on fire -- but at least a surge of that scale would have a purpose. The modest increase now on the table would be purposeless and wrong. What could be more immoral than sacrificing American blood and treasure to save face in a lost war?
And now, after 1.5 years of Obama's presidency and 3.5 years of the overwhelming Democrat's control over the House and the Senate, Eugene is angry at the American people for their decision to change the course of the country.

Talking about patience, in the same 2005 article, Eugene told the readers that Bush was leaving the country with "crushing national debt, rising economic inequality, a poisoned political atmosphere". Note that from 2000 to 2005, president Bush increased Gross National Debt by 2.3 trillion dollars, and during all 8 years of his presidency it went up by 4.4 trillion dollars. President Obama was able to match Bush's 8 year debt increase in just two years increasing it by 4.5 trillion dollars. In terms of GDP, Bush increased the debt by 12.2% of the GDP during his entire presidency, while Obama raised it by 27.9%. And in the future, Obama's deficits show no trend of closing with the rather moderate levels during Bush administration - far from it. All the predictions show the trillion dollar deficits as far as the eyes can see.

 So, what could explain Eugene's apparent tolerance and patience with president Obama and utter impatience with president Bush? One plausible explanation that comes to mind is that Eugene's political sympathies played some role in his "unexpected" growth of patience with the election of a new president. The second explanation takes into account Eugene's poor reasoning skills - for example in he proudly proclaimes that the "richest Americans need to pay higher taxes" and his main argument for this appeal to class envy is rather strange - according to Eugene, this is "because they [the richest Americans] earn a much bigger share of the nation's income and hold a bigger share of its overall wealth." This is a rather silly argument - since it flunks the most basic requirements of logic. When Eugene demands the rich to pay more in taxes - it is unclear what exactly is his point of reference. Should they pay more than the rest of the population? Even with flat income tax rate (which we do not have) the rich would be paying higher taxes than the rest of the population. Due to the current progressive taxation system, the richest Americans already pay a disproportionately large share of federal income taxes. If on the other side, this was an argument to raise taxes on the rich - Eugene's reasoning is clearly silly. Richest Americans by definition earn larger share of income, so the argument that we need to raise taxes on them because they have more money is a never-ending argument. In fact, following Eugene's logic, we need to keep raising taxes on the rich until their income and wealth falls to the levels of the rest of the population - which is an argument for communism. All in all, Eugene's sloppy thinking is not uncommon for the left-wing intellectuals, who have been educated in all subjects except the ones that require logical thinking and self-criticism.

But still, if I am generous enough to ignore the various fallacies in the article - does Eugene's main argument that Americans lack patience and need to give more time to the Democrats in power hold water? After some analysis it struck me that what we experience today with the Democrats in power has a close analogy in the latest few economic (and intellectual) bubbles that burst in the last 10 years. I want to remind the readers that back in 2000, some economists and journalists predicted that the Dow Index could reach 50,000 in the near future and that at 36,000 "stocks are both safe and undervalued". Note that it is 10,460 today - after the dot come bubble, the housing bubble and the banking bubbles burst. If you remember the 90ies, I am sure you can recount multiple experts asserting the people that the new economy was different, that the dot-com companies did not have to follow the old traditional Price per Earnings expectations (or as our affirmative action genius "unexpectedly" changed  it to Profits per Earnings). A few pedants can even remember the now infamous book "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market". According to publishers, "In Dow 36,000, James Glassman and Kevin Hassett see a bright future for stocks, but rather than looking at external factors, the two base their prediction on the intrinsic value of equities and their ability to generate cash." And there are predictions that look downright hilarious these days. Do you remember the claims that housing market will keep going up? Here is a book named "Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market" - and its title will make even Al Gore to giggle.

But this is not the end of it - let's not forget the predictions of the end of history by Francis Fukuyama - he even wrote a book in 1992 entitled "The End of History and the Last Man" to prove that the world history has come to an end - democracy won over all other regimes. In short, "Nothing to see here, comrades, walks away slowly". Of course, Fukuyama is indeed a rather peculiar character in his own right. I don't think there are a lot of people with his credentials - a Ph.D. from Harvard, prediction that the world "struggle between ideologies is largely at an end" in 1992, recommendations to president Clinton to support Iraqi insurgencies in the overthrow of Saddam Hussein, advice to president Bush to remove Saddam Hussein from power in 2001, and opposition to the US attack on Iraq in end 2003. Today he equates neoconservatism with Leninism and believes that president Bush "overestimated the threat of radical Islam to the US." As luck would have it, he is now a strong supporter of Barack Hussein Obama, and given his perfect record, I think it's a very good sign for Republicans.

Just in case anyone is interested, I have put the front covers for these three books side by side. As the Romans said "Sic transit gloria mundi", which can be vaguely translated as "Thus passes the glory of the world".

But before you start laughing, here is another book from 2009, entitled "Death of Conservatism" - predicting, as one may guess, the apparent death of conservatism. I remember the triumphant author of this book, Sam Tanenhaus, making rounds on the radio and television and giving interviews to various enthusiastic talk-show hosts. The publishers of this book proclaimed that it "celebrates and mourns the end of the harshly ideological strain of conservatism that reached full flower during the presidency of George W. Bush...Tanenhaus argues that Republicans must moderate their focus on ideological purity if they are to return from the political wilderness and offers trenchant criticism of the liberal excesses that previously led to a long Democratic exile from the White House." The new edition of this book is advertised thus:  "Will almost certainly prove to be one of those rare books in American history that have a signal impact on both the political movement and the public at large…. Taut, eloquent, provocative and carefully argued. " On top of that, we have the Newsweek editor Evan Thomas who declared on MSNBC: "I mean in a way Obama’s standing above the country, above – above the world, he’s sort of God." And who could forget the infamous article from the Time magazine "The Republicans in Distress: Is the Party Over" from May 2009 that had this to say about conservatism, republican ideas and the future of this country:

The party's ideas — about economic issues, social issues and just about everything else — are not popular ideas. They are extremely conservative ideas tarred by association with the extremely unpopular George W. Bush, who helped downsize the party to its extremely conservative base. A hard-right agenda of slashing taxes for the investor class, protecting marriage from gays, blocking universal health insurance and extolling the glories of waterboarding produces terrific ratings for Rush Limbaugh, but it's not a majority agenda.
The Newsweek also marked the idiot territory with a rather ridiculous claim that "We are all socialists now" - which was a rather drastic overstatement - unless Newsweek was talking exclusively about the Washington DC insiders, and ignored the opinions of the American people. As readers may remember, Washington Post decided in 2010 that Newsweek was too much of a loser to keep, and the entire Newsweek enterprise was sold for less than 1/2 of the price of one lousy Newsweek magazine that you can get over the counter at a foodstore. Dr. Sidney Harman, the man who bought it for one dollar, remarked that "NEWSWEEK is a national treasure" - which is probably true (but very unsettling) given the huge debt that the nation now carries.

So, what is the parallel between the multiple bubbles of the last decade and the Democrats losing grace? The Democrats won the elections in 2006, and this was the beginning of the Democrat-bubble. The inauguration of Barack Obama was the time when the Democrat stocks were at their peak. As Obama famously claimed: "“We are the ones we’ve been waiting for.” As Mark Steyn famously quipped - "When you’ve spent that long waiting in line for yourself, it’s bound to be a disappointment."  Today we are observing a long anticipated market correction in the political arena - the people woke up to the inherent inability of the Democrat Party to solve the complex problems that America faces - as Eugene correctly lists them: "restructuring our economy, renewing the nation's increasingly rickety infrastructure, reforming an unsustainable system of entitlements, redefining America's position in the world". Unfortunately, today's Democrats in general and Barack Obama in particular are institutionally incapable to solve the nation's problems - given their complete dependence on corrupt government unions, welfare-addicted minority groups and the media-academy complex. Their general ignorance of the operation of the free market economy and the modus operandi of foreign enemies of the United States make the task of governing completely impossible. "Hope-n-Change" is hardly a plan for this great nation - it's more of a slogan for a middle school sports team.

Back in 2008 I predicted the bursting of the Democrat bubble - but I must confess that I was mistaken about the exact date of the collapse - I believed the Republicans would need more time to recover and they would be able to fight back as late as 2012. It is certain now that  they will achieve significant improvements in the political climate this coming November elections. All in all, it's fair to say that media has oversold the Democrat Party, and it is quite certain a big chunk of it will pay the ultimate price - some media outlets will lose their reputation and eventually go broke. It may well be that the New York Times, Washington Post and possibly CBS will follow the steps of the Newsweek magazine and Air America - but this too will be only the beginning. The people are finally awake, and soon we will see the bursting of the biggest bubble in the world - the Democrat bubble. It's time to squeeze this zit out of the skin of our nation.

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