The headline: "Social Security Fund to Run Out in '35: Trustees." Any reader would assume that the reference is to the situation with the retirement and disability programs combined, as both are collectively referred to as "Social Security." Reporter Brian Faler doubled down on the headline error in his opening sentence:

---

The Social Security program will exhaust its trust fund in 2035 and have to start reducing benefits to senior citizens unless Congress intervenes, its trustees said.

Some readers may figure out because of his reference to "senior citizens" that Faler was only referring to the Old Age and Survivors retirement program, but that's a stretch. The reporter finally came clean in the next sentence ("That is three years sooner than projected in 2011 for the retirement benefits program, which serves 44 million people, the trustees said in an annual report today"), and the in next paragraph finally noted that the combined exhaustion date for OASDI (Old Age Survivors and Disability Insurance) is 2033: "The combined Social Security trust funds would be depleted in 2033, three years earlier than projected."

Geez, even the Associated Press, aka the Administration's Press, didn't go to that length to mislead about the situation. Stephen Ohlemacher and Ricardo Alonso-Zaldivar's beginning was far more accurate:

Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians' reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033 – three years earlier than previously projected – the government said Monday.

For those who are keeping score, what the Trustees projected would be coming 25 years down the road a year ago (2036 in the 2011 report) is now, thanks to yet another lousy year for the economy, four years closer (2033 minus 2012).

There's also this nugget from the Trustees' summary which both news services referred to only vaguely in the case of AP (i.e., without dollar amounts) and only discussing disability in Faler's report:

Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983 … The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.

"After the recovery is complete"? Oh well, let's not digress.

In 2007, Social Security ran a surplus of $186.5 billion. The Democrat-driven recession (see my original call in July 2008) and Democrat-engineered mediocre to non-existent recovery have been the major factors leading to a reversal of fortune of about $250 billion ($186.5 billion plus $66 billion). Baby Boomer retirements played a much smaller part, and many of tho who retired and began collecting Social Security benefits earlier than the current Full Retirement Age of 66 did so earlier than they originally planned because of the lousy economy.

It would be reasonable to contend that Bloomberg Business Week's Brian Faler was trying to present a later day of reckoning which would misinform those choosing to only read the headline and/or his first sentence. It's telling that not even two Associated Press reporters would go there.

Cross-posted at BizzyBlog.com.

CNN's Erin Burnett on Monday did a segment correctly castigating Congress for not passing a budget in over 1000 days.

The only problem was that while she did this, pictures of House Republicans were shown on the screen despite the blame resting solely with Senate Democrats (video follows with transcript and commentary):

ERIN BURNETT, HOST: Today's Congress, the least productive and least popular in recent history. What will it take to turn it around? Well you know what there's an idea out there, what about if they don't get anything done, they don't get paid. Well see this would really be a problem, I think, because it's been more than 1,000 days since the last joint budget resolution, so if you said you don't get paid until you get a budget, that's a heck of a lot of days with no pay.

All right, this is one of the potential reforms though that's going to be receiving a Senate hearing this Wednesday that might really turn the tide in terms of Congress getting things done and being liked perhaps a little bit while they're doing it.

John Avlon is going to be at that hearing and he has a preview for us tonight. All right John, so more than 1,000 days since the last joint budget resolution, no budget, no pay. Maybe they'll get one done.

JOHN AVLON, CNN CONTRIBUTOR: Maybe they would. So here's the idea. Basically it's basic. You don't pass a budget on time; you don't get paid on time. And so that's the idea of applying the kind of incentive that it might take the focus the mind of Congress to start doing their job, so that's one of the proposals that's going to be forwarded at this — the Senate hearing on Wednesday that's going to start trying to take on some congressional forums to maybe change this dysfunctional culture that we've seen in Congress.

BURNETT: And the average salary on Capitol Hill, $174,000 –

AVLON: That's right –

BURNETT: — right, so it's not — this is a lot of money.

AVLON: Absolutely and you know you need to change the incentive structure. The incentive system in Congress is all screwed up. This is one way to get it right.

BURNETT: All right, so I would love — that's a really great idea, a really great idea, OK.

You know what else is really great idea? Cable news anchors and their contributors knowing what they're talking about.

Since Barack Obama's first budget was passed in April 2009, the Senate, which has been controlled by Democrats since January 2007, has not offered one single budget.

By contrast, after taking over the House in January 2011, the GOP proposed and passed a budget on April 15. It was defeated by Senate Democrats on May 26.

As such, the entire cause of the absence of a budget resolution since April 2009 is Democrat obstruction.

To show House Speaker John Boehner (R-Oh.) and Majority Leader Eric Cantor (R-Va.) on screen during this segment was a pathetic deception.

Sadly, that's par for the course at CNN.

Saturday's NBC Nightlly News hyped a poll finding that 64 percent of Californians would be willing to pay more taxes "if the money went to public schools." (Video below)

Substiute anchor Kate included a plug for the report in the opening teaser:

Tax hike: Why people in one state are saying bring it on. Tonight, why they're willing to pay more.

Before a commercial break, she plugged the segment again:

When Nightly News continues on this Saturday evening, why some people are saying: Go ahead, raise my taxes.

As she introduced the story, after noting that in California the state is "struggling to live within its means," Snow added:

But something unusual is happening in California. The cuts have been so severe that some people are actually saying they could live with higher taxes.

After a clip of a school teacher complaining about the budget cuts, correspondent George Lewis declared:

And now, Californians are contemplating something that would have been unthinkable previously. In a poll conducted by the Los Angeles Times and the University of Southern California, 64 percent of Californians said they would pay more taxes if the money went to public schools.

After a soundbite of former Assembly Speaker Robert Hertzberg arguing that Californians would be willing to support an increase in some taxes if they believe the money is not wasted, Lewis warned that anti-tax sentiment may yet thwart plans to raise taxes:

GEORGE LEWIS: But this is the state where a guy named Howard Jarvis led a taxpayer revolt in 1978, passing an initiative called Proposition 13, dramatically slashing property taxes. His legacy lives on with organized opposition to any new proposed tax hikes.

JON COUPAL, HOWARD JARVIS TAXPAYERS ASSOCIATION: I think the public reaction would be very negative. California voters have rejected the last seven proposed state-wide tax increases.

Lewis concluded:

California has been hit harder by budget cuts than most other states. And the looming battle will test  whether the people here have had a change of heart about taxes and the value of government services.

Below are both video and a complete transcript of the report from the Saturday, December 31, NBC Nightly News:

KATE SNOW, IN OPENING TEASER: Tax hike: Why people in one state are saying bring it on. Tonight, why they're willing to pay more.

…

SNOW, BEFORE COMMERCIAL BREAK: When Nightly News continues on this Saturday evening, why some people are saying: Go ahead, raise my taxes.

…

KATE SNOW: Starting tomorrow, a big new round of budget cuts will take place in California, which, like so many other states, is struggling to live within its means. But something unusual is happening in California. The cuts have been so severe that some people are actually saying they could live with higher taxes. More tonight from NBC's George Lewis.

GEORGE LEWIS: A lot of glitter has gone out of the Golden State. A tough economy and high unemployment have left the public coffers empty and the governor announcing $1 billion in painful cuts.

GOVERNOR JERRY BROWN (D-CA): This is not the way we'd like to run California, but we have to live within our means.

LEWIS: Everything from welfare programs to libraries to education, one of the areas hardest hit. With widespread protests over tuition hikes at state universities, and elementary schools cutting the number of teaching days.

TRACY OUTMAN, CALIFORNIA TEACHER: These are the kids that are going to be running our country someday. Are they really going to be ready?

LEWIS: And now, Californians are contemplating something that would have been unthinkable previously. In a poll conducted by the Los Angeles Times and the University of Southern California, 64 percent of Californians said they would pay more taxes if the money went to public schools. To help the schools and other vital services, Californians will get to vote on at least one initiative next year to raise state taxes. Governor Brown has filed an initiative that would increase sales taxes one-half cent and hike income taxes on millionaires by as much as two percent.

ROBERT HERTZBERG, FORMER CALIFORNIA ASSEMBLY SPEAKER: What we know is folks are willing to pay for the bills as long as they know their money's not being wasted.

LEWIS: But this is the state where a guy named Howard Jarvis led a taxpayer revolt in 1978, passing an initiative called Proposition 13, dramatically slashing property taxes. His legacy lives on with organized opposition to any new proposed tax hikes.

JON COUPAL, HOWARD JARVIS TAXPAYERS ASSOCIATION: I think the public reaction would be very negative. California voters have rejected the last seven proposed state-wide tax increases.

LEWIS: California has been hit harder by budget cuts than most other states. And the looming battle will test  whether the people here have had a change of heart about taxes and the value of government services. George Lewis, NBC News, Los Angeles.
 

I know, we're supposed to give TV shows and the like a bit of dramatic license to push a plot line. But doesn't it seem that an awful lot of the license taken tends to be pro-big government and left-leaning?

One pretty obvious example came along Monday night during the Season 2 finale of TNTs' "Rizzoli & Isles" (which ran again late tonight). The plot of "Burning Down the House" centered around the death of a Boston fireman in a major warehouse blaze. Ultimately, the perpetrator ended up being a fireman who was upset by "budget cuts," which were mentioned twice during the episode:

• At the beginning, one of the in-charge fireman regrets that he had to send the one who died (actually, it turn out that he was killed because he was onto the arsonist) into the building without backup, saying in essence, "That's what budget cuts will get you." He goes on talk about station closings and the like.
• In the climactic scene at the show's end, the arson-setting fireman, who ends up being responsible for a large number of them, believes he is alone in the same burned-out warehouse with Ms. Isles and is about to kill her. Before he makes his attempt, he complains about how the city "kept cutting back and cutting back," and how "they can't keep laying us off." When asked by Isles how he would prevent it, he responds (paraphrasing) that he would "burn a few buildings."

The trouble is, the City of Boston's Fire Department Budget has increased each year from 2010 to 2012.

As shown at this graphic, which was found at Page 31 of the city's 2012 budget (large PDF), the Fire Department's actual or appropriated amounts from 2009 to 2012 were as follows:

• FY09 Expenditures — $165.3 million
• FY10 Expenditures — $173.6 million (5.0% increase over FY09)
• FY11 Appropriations — $176.4 million (1.6% increase over FY10)
• FY12 Appropriations — $181.9 million (3.1% increase over FY11)

One can argue about whether the increases are big enough, but it's hard to make a case that the city is "cutting back and cutting back." Instead, it's on track to spend 10% more than it did three years ago.

Looking at another metric, total employment per the Department's About page is 1,611 in a city of about 620,000. Cincinnati's Fire Department has about half as many employees, and the city is about half Boston's size.

In other words, the situation in Boston doesn't seem to be out of whack. It certainly isn't in some kind of radical cutback mode, and hasn't been since the 1980s (with as far as I can tell no or almost no station closings since then). In fact, it's Boston's police budget which has seen real cuts (from $288.6 million in 2009 to a projected $269.2 million in 2012, also at the graphic) during the past three years.

Unfortunately, shows like these are where many of the disengaged who nevertheless vote end up getting what they believe is valid information which conforms to reality. In this case, it's not, and it doesn't.

Cross-posted at BizzyBlog.com.

For conservatives, one of the bright spots of the Occupy Wall Street protests was when millionaire investor Peter Schiff went down to Zuccotti Park with video camera and a sign reading "I Am The 1% – Let's Talk."

On Tuesday, I had the pleasure of speaking with Schiff by telephone in a sweeping interview about his experience at OWS, how the financial media are doing, and ending with his rather frightening view of the economy and the future of our nation (video follows with transcript):

NEWSBUSTERS: Peter Schiff is the CEO of Euro Pacific Capital and the author of the book “How an Economy Grows and Why it Crashes.” He is well-known for correctly predicting the housing and financial collapse in the last decade as well as his run for Senate in Connecticut in 2010. He’s a frequent guest on CNBC and the Fox Business Channel, and now has his own radio show. NewsBusters readers are likely most familiar with Peter for having gone down to Occupy Wall Street last month holding a sign reading “I Am The 1 Percent” engaging many of the protesters in serious discussion in videos that went viral on the internet including at MRC TV. Welcome to NewsBusters, Peter.

PETER SCHIFF: Thanks for having me on your program.

NEWSBUSTERS: My pleasure. It turns out we have a lot in common. We both went to UC Berkeley. Were you like me a liberal when you first went there and eventually grew up, or were you always a conservative?

SCHIFF: No I pretty much always been conservative. You know I had my dad to thank for that. He was able to teach me a little about economics and the U.S. government when I was in grade school. So I didn’t have to overcome those barriers. My road to the truth was a lot easier than yours.

NEWSBUSTERS: I guess so. So let’s move a little forward. As you know, NewsBusters is a media bias website. It’s part of the Media Research Center. What I wanted to discuss most with you is how the media reports economic matters. I’ve written for years that there are very few people in the press that have a clue about how the markets work or even the slightest understanding of basic economics or civics. Aside from the business specific outlets like the Wall Street Journal, CNBC, Bloomberg, Fox Business Network, how do you rate the rest of the media’s reporting of business, finance, the economy, and the federal budget?

SCHIFF: Well I don’t think it’s that particularly good when it comes to real deep understanding of the economic issues. If you want to know what the price of a particular stock is, get some of the latest headlines, the financial stations do a pretty good job of that. But I think there are some real serious structural economic problems underlying the United States. I still think we are on the verge of a major economic catastrophe, and you really wouldn’t know it by watching the major financial shows. It’s not just television coverage. In the press, in the written newspapers you’re really not seeing the kind of warnings that we should be given how dire the situation is.

NEWSBUSTERS: Interesting. For example, we had a massive stock market bubble in the ’90s that eventually led to a serious collapse. How much do you think the media helped to pump up that bubble at the time?

SCHIFF: Well they definitely helped. I think the financial coverage of the stock market mania probably fed into the bubble. I mean there were a few people who would come on and say it was a bubble. Their voices were in a distinct minority. Normally they were laughed out or shouted down. So, if anything maybe the few naysayers that were out there just the way they were treated merely reinforced the idea that this would go on forever.

So as in the case, the media got sucked into it and became a big cheerleader for it. I think they did the same thing with the housing market. I think that the media was less responsible or less involved in the housing bubble than it was in the stock market because I think a lot of stock investors were watching CNBC every day and things like that. I don’t necessarily think that real estate investors or speculators were necessarily tuning into the television or reading in the papers. They just knew anecdotally just from talking to their friends how much money everybody was making in real estate. And so I think the media was less involved in hyping that up. That was maybe more the realtors themselves who were hyping it up then just individuals as they were telling their friends, and as individuals saw their friends, there was a lot of peer pressure.

When your neighbor's got a brand new Mercedes because he refinanced his condo, you feel the pressure to do the same thing. Or if a couple of kids graduate from college, and one happened to buy a house and now he’s got a new car, he's taking European vacations. You rented an apartment and you don’t have any of these things, you want those things too, and your friend says, “It’s easy. Just buy a condo and it will jsut magically go up and you too will be rich.” So I think that was a lot more than necessarily the financial coverage.

NEWSBUSTERS: Do you think that in the ’90s, sticking with that bubble, that a lot of the reporting, the bullish reporting was political because you had a Democrat that the media loved in the White House, or was it just because they were uninformed?

SCHIFF: I don’t think it was political. I don't know that you can argue that a lot fo the traders and the talking heads on let's say CNBC were necessarily Democrats who supported President Clinton. A lot of them are Republicans. I think that there it was a function of knowing where your bread is buttered. A lot of the advertisers are stock market, brokerage firms, mutual fund companies. A lot of the guests that are coming on these shows are coming on to promote their firm or their products. So I think a lot of that bias had to do with their own self-interest. People have a vested interest in keeping people interested in buying stocks, and so guests would come on and try to rationalize why these prices were good, that it wasn't a bubble, it was legitimate growth and prosperity and there was nothing to worry about. I think that happened despite the fact that they might not have been particular fans of the occupant of the White House.

NEWSBUSTERS: I think you're thinking mostly in terms of let's say CNBC or the Wall Street Journal and stock specific type of media outlets. But we had done, the Media Research Center had done a lot of studies comparing how the economy was covered under Clinton versus Bush. When we're talking a media study, we're talking about all of the various outlets – ABC News, CBS News, etc, New York Times, other things like that. So what was considered good news, good economic news under Clinton, when the same news would come out under Bush that be reported as bad.

SCHIFF: I certainly think that the false prosperity that resulted from the stock market mania, as a lot of jobs were created that were related to the bubble, as people were able to spend the windfalls that resulted from cashing in stocks or stock options, as a lot of that money was spent, that was confused with prosperity. And so, yeah, the media didn’t pick up on it.

Also, one of the reasons that the government was able to reduce the deficits during the Clinton years was because they were able to refinance a lot of the debt from long term to short term, and since rates were lower, they were getting a double benefit of moving from the equivalent of a fixed-rate mortgage to an adjustable rate mortgage. They were able to temporarily decrease the cost of funding that debt, but at the expense of ultimately, when interest rates rise, it’s going to really come back to bite us, the fact that we relied so heavily on short-term debt. That whole trend which continued under Bush, continues now under Obama, that entire trend began with Bill Clinton.

NEWSBUSTERS: Well, something else we noticed in the previous decade was that the media began predicting a housing bubble at least five years before it burst. Believe it or not, the first significantly bearish articles about real estate and about housing were in September 2001 prior to the attacks. So we touched upon this a little bit earlier, but I wanted to talk more about it. How do you feel in general the press covered the housing and the credit bubbles?

SCHIFF: I think pretty poorly. Certainly there was plenty of evidence out there supplied by me and other people that there was a huge bubble that was going to collapse, and that the reasons for the bubble was government support of the housing market either directly through Fannie, Freddie, and the FHA, Community Reinvestment Act or through the Federal Reserve’s actions to keep interest rates artificially low. Through the tax code with the deduction of mortgage interest with the $500,000 exclusion for the profits on the sale of a house. There were all sorts of things that government was doing to artificially inflate the real estate market. And since these real estate values were the assets underlying our banking system, it was obvious to me that when the bubble burst, the real problem was going to be in the banks because that’s where the lending was coming from.

And so I saw a tremendous catastrophe coming, and it should have been obvious, and there should have been a lot more coverage of it. Instead the media got captivated by it. And I think a large portion of that is probably that most of the people in the media were homeowners. Most of the people that were doing these reports, the anchors, the cameramen, the production people, they all owned homes. They all wanted to believe, and they were all caught up in this idea that their homes would always just go up in value. And even if they didn’t own a home, they wanted to buy one so that they could get rich without working.

So I think this whole idea captivated everybody. And so everybody was kind of drinking the Kool-Aid, and so they weren’t thinking straight, you know?

NEWSBUSTERS: Was it also possible the intricacies of things like credit default swaps and collateralized debt obligations, these were way beyond the economic acumen of most reporters? They therefore really couldn’t tell the whole story.

SCHIFF: These securities really weren’t that complicated in their structure. I just don’t think anyone took time to really look at it, and look at what made the whole thing possible was there were people buying up these risky tranches that were assigned all the risk. And so one of the reasons that 60 percent of the subprime mortgages that were originated were able to be rated AAA was because Wall Street created these tranches that took all the risks.

To me, as soon as I found out about that I realized that as soon as there’s a few losses, these tranches are going to collapse, and the whole market is going to implode because nobody will be willing to assume the risk once it’s obvious how risky it is. To me it didn’t make any sense that people were taking those securities in the first place, that they couldn’t figure out that even though they had a AAA rating, that they were junk, that they had no chance, these things were going to collapse. In the short run, they had higher yields, and I think a lot of people managing money were just very short-term focused because it was other people’s money, and so they weren’t really thinking it through. And of course, a lot of these people were also caught up in this idea that real estate prices would never fall.

Part of understanding risk in the mortgage market was understanding that real estate prices were going to fall. Since most people dismissed that out of hand there even being a possibility, it prevented a lot of people from understanding the problems in the market.

NEWSBUSTERS: One of the things that concerned me as I watched everything pump up, and more so as I watched it all collapse because I guess like most people irrespective of my background – maybe it’s because I owned real estate, maybe it’s because I really didn’t believe that everything was going to fall apart the way that it did – but after the fact, it seems to me that so many people, and we’re talking CEOs and CFOs of major corporations, major financial institutions all around the world with MBAs and Ph.Ds from the top universities in the world all bought into the same idea that the Ponzi scheme of credit default swaps and collateralized debt obligations would actually protect their portfolios from a decline in real estate. Does it scare you that so many people bought into the same Ponzi scheme?

SCHIFF: It doesn’t scare me. It maybe amazes me that people can be so foolish, but at this point, people’s stupidity doesn’t amaze me at all anymore. I’ve just grown to accept it. And that’s why this next crisis that’s coming is going to be so much worse than the last one. And of course, all the people who didn’t see the real estate bubble or the real estate crisis coming are the same people that are blind to this bigger crisis that’s coming much for the same reasons.

If you look at the run up in debt at the government level, the U.S. government is making the exact same mistake that homeowners made, and the consequences are going to be the same except on a bigger scale because it’s now the government that is going to have a credit crisis not just some subprime borrower.

NEWSBUSTERS: That is scary. So by September 2008 as everything began to collapse, in my view as someone who had been in the markets and analyzing the markets since 1980 when I started, the media became more bearish than I’ve ever seen them in my life. Do you think all of the bearishness at that time was warranted, or do you think that that pessimism acted to make matters much worse than they should have been?

SCHIFF: I think they should have been a lot more bearish than they were on the overall economy, but clearly as far as the stock market was concerned, no. The bearishness was not relevant or justified. We had a rally, and I was actually pretty bullish on stocks myself back in early 2009 because I had recognized that we had had a very substantial decline in stock prices, and the Fed was going to print a lot of money, and that would mean that the value of money would go down and therefore prices would rise to reflect the loss of value. And that didn’t mean real prices would rise. I was more bullish on gold than I was on stocks, but I recognized the market was going to rally.

But I also recognized that the problems were far deeper than what the media was suggesting, and I still don’t think we’ve had any kind of economic recovery at all. I think we have managed some GDP numbers that are bigger, but I don’t think that evidences a stronger economy. I think that just evidences bigger problems because all we’re doing to get that higher GDP is spending more borrowed money. And so the debt is growing much faster than the GDP. And so the debt to GDP ratio keeps getting higher and higher in favor of debt, and that means the country is getting closer and closer to bankruptcy. I would say we’re already bankrupt, we’re just getting deeper and deeper in the red. And of course all of this borrowed money has to be repaid with interest. Whatever growth we’ve been able to borrow from the future will more than be offset by what we have to give up when we have to pay the money back.

Part of the problem is that people believe we never have to pay it back. And of course, in a way they’re right because we’re just going to default on it. But the fact that people think that we can borrow without ever having to pay it back makes no sense because if you accept that, you also have to accept that there are people willing to lend us money and they never want the money back. I don’t think people are that stupid. I think the lenders want their money back.

NEWSBUSTERS: Did you see at the time – and I’m still at the fall of 2008 as everything’s collapsing – did you see the media bearishness as having any political component whatsoever? Many conservatives believed at the time and still do that the pessimism was hyped to allow Obama and the Democrats to blame everything on Bush and the Republicans. Did you see it that way, or do you see it that way now that they were playing on fears?

SCHIFF: I certainly think the Republicans were very much complicit in what happened. So the media was right to blame the Republicans, but they were wrong if they didn’t blame the Democrats, too. It wasn’t just the Republicans. The problem was the government, both Democrats and Republicans. I think where the media failed is trying to blame the problem on capitalism, on the free market, on a lack of regulation, on deregulation. That had nothing to do with it. The problems were caused by too much government, by too much government involvement in the economy, in specifically the housing market and through the Federal Reserve and the cost of money. Because the housing bubble was a credit bubble. It was because credit was too cheap and too plentiful. And why was that? Because the Federal Reserve made credit too cheap.

And of course one of the reasons the market was so willing to loan to real estate versus other asset classes was because of the government guarantees. You know, anywhere there’s a government guarantee, whether it’s housing or student loans, the market is going to be willing to lend to people who absent those guarantees wouldn’t have been able to borrow. And certainly many of the people, in fact most of the people who borrowed money to buy houses in 2002, 3, 4, 5, 6 never could have borrowed that money were it not for government guarantees. So how you can then blame the private sector for a problem created by government is beyond me. But the media managed to do it. And why the politicians would want to do it, I mean, the last thing they want to do is accept responsibility for the problem. But if the media is supposed to be a watchdog, they should have shined a light of truth on this situation. Instead, they helped spread the propaganda.

NEWSBUSTERS: Exactly, and actually one of the ways that I wrote about at the time that they were spreading the propaganda, Peter, was they completely ignored in my view what the real culprits of the bubble were, which was the Financial Services Modernization Act of 1999, the Commodity Futures Modernization Act of 2000, and the tremendous amount of pressure that Clinton put on Fannie Mae and Freddie Mac to lower their lending requirements. When everything collapses in the fall of 2008, we heard nothing about these key pieces of legislation. What we heard about instead is that it was about deregulation, but it was supposedly about deregulation under the Bush administration. But nobody wanted to talk about the two pivotal pieces of legislation that occurred under Clinton which were completely responsible or at least precipitants.

SCHIFF: Oh yeah. Bush didn’t come up with this. Obviously, it started under Clinton as far as this bigger push to housing, although a lot of it predates Clinton. I mean, Clinton didn’t come up with the home mortgage interest deduction. That was there long before Clinton came around. So government involvement in housing has been there. As a result, housing prices have always been inflated to levels that were higher than existed in a free market.

What happened in the 1990s is that the government basically threw a match on a powder keg when Alan Greenspan slashed interest rates down to one percent, and at the same time you had this big push on the part of the government with Community Reinvestment Act and the FHA to really get more people into housing. Because it almost became a political and a social issue, because let’s say minorities who disproportionately happen to be, or poor people are disproportionately minorities, didn’t own homes in the same percentages as let’s say the majority. And since real estate was now seen as your ticket to easy wealth, because real estate prices were rising, it was seen as, “Why should we deny all these easy riches to poor people? Why should it just be the middle class and the rich who can make money doing nothing? That should be the American right. Everybody should be able to make something for nothing. We should all be able to get rich just living in houses even if we can’t afford to buy them.”

So the whole idea was we need to get everybody into a house and we’ll all be rich. So in order to enable that, the government was putting pressure on the lenders to allow people to buy houses even if they didn’t have a down payment. And even if they really couldn’t afford to make the payments. The idea was that just by putting them into a house, they’ll be rich, that we’re going to end poverty by putting the poor in houses. Because once you put a poor person in a house, then the house goes up, and they’re no longer poor.

So all of this had to do with this crazy idea that real estate just goes up, which of course it doesn’t.

NEWSBUSTERS: Well, the point that I was trying to make is everything falls apart in the fall of 2008 and the media were tremendously quick at pointing their fingers at George W. Bush while in reality the pieces of legislation that really pumped everything occurred before he was even elected president. But let’s move on.

SCHIFF: But George Bush, see I don’t want to let Bush off the hook. See, George Bush had a real opportunity. When he was elected in 2001, and the NASDAQ bubble burst, and it burst early in his presidency. He could have said, “Look, we were living in a bubble in the 1990s. Now we have to pay the price. We’re going to have a severe recession, we’re just going to have to live through it.”

Instead of being honest with the American public, he tried to ease the pain with a bigger round of stimulus that was worse than the one that created the stock market bubble. Even after, you can say, 9/11 happened, and so we were attacked. Yes, but instead of urging Americans to go out to the mall and buy more stuff or buy more cars, he could have called for sacrifice. He could have said, “Look, we’ve been attacked. We need to hunker down. We need to save our money so that we can afford to increase our military spending in reaction to this crisis.”

Instead of doing that, he just urged on more debt. You can’t just say, “Hey, the problems were created under Clinton.” Yeah, they started under Clinton, but he expanded them just the way Obama is expanding the mistakes that Bush made. We have this baton of bad policies, and we just pass it from one leader to the next. Nobody says, “I don’t want that baton. I don’t want to carry this anymore.” Nobody actually wants to change the policy even if they run based on a promise of change, they change nothing.

NEWSBUSTERS: Well, we’ve actually moved forward in my questions here, but you’ve set me up for a question that I wasn’t going to ask until later, but we’re here. Isn’t it the reality, don’t you believe that really probably since the ’80s the American economy has been dependent upon asset bubbles?

SCHIFF: Oh yeah. We’ve had a phony economy engineered by the Fed where we’ve just been serial bubble blowing, and we haven’t been creating real wealth. In fact, the opposite. We’ve been allowing the industrial capacity of our country to disintegrate as we depend on the productive capacity of the rest of the world.

We run these huge trade deficits that are on the order of magnitude of 40 to $50 billion a month. We are borrowing to buy things that we didn’t produce in our own economy because our economy lacked the productive capacity to make all those things. Instead, we’re relying on this phony service sector that’s built on a mountain of debt where we all borrow money to buy stuff that the rest of the world produced. And we’re not producing here because we’re not efficient enough.

We have too much government. We have too much taxes. Too much regulation. Not enough savings and investment. We’ve got this phony economy that is dependent on these bubbles and cheap money, and that’s why Ben Bernanke has got interest rates at zero, and that’s why he’s keeping them there because he knows that our phony economy will collapse the minute rates go up. Letting the phony economy collapse is the best thing we can do, because until we let that economy collapse, we’re never going to rebuild a viable one to take its place.

NEWSBUSTERS: So your view here is there isn’t necessarily a legislative or fiscal or monetary approach now that can fix the economy, that basically we’ve got to let all of the excesses that we’ve built up over the decades unwind themselves no matter how ugly that might be before we’re really going to have a strong foundation for a real economy again.

SCHIFF: Oh yeah, yeah. There’s no gain without a lot of pain. The longer we delay the pain, the more painful it’s going to be.

NEWSBUSTERS: But Peter, what president is going to allow that to happen? Nobody will.

SCHIFF: Well, maybe Ron Paul. It’s worth a shot.

NEWSBUSTERS: I had a feeling we were going to get to Ron. For those that don’t know, in his 2008 run for president, Ron Paul’s, Mr. Schiff was the, you were one of his economic advisers.

SCHIFF: Yes, not that he needs any economic advice. He should be giving it, particularly to the other presidential candidates or the president himself.

NEWSBUSTERS: Well, we’re going to move away from that only because I can see a lot of our readers clicking off at this point. I would like to discuss that with you at some point, although I think…

SCHIFF: Who do your readers support?

NEWSBUSTERS: Well, that’s an interesting question, but I think at this point what we’re seeing in the debates and the public’s response to the various candidates is Paul gets a lot of support for his economic views which I largely agree with, but it’s his foreign policy views that have a tendency to make people a little bit queasy.

SCHIFF: Yeah, I think if they took a little bit more time to understand them, they might not be as worried. But the real problem is if we don’t deal with this economic threat, then our ability to defend ourselves goes out the window. If we destroy the value of our currency, if we collapse our economy, we have no national defense. So I would say the biggest foreign policy threat facing the United States is coming from Washington, D.C. And if we don’t defuse that threat soon, nothing else we do is going to matter.

NEWSBUSTERS: I agree. I agree. Alright, let’s move on to you had a lot of fun last month, you went down to the Occupy Wall Street movement – took a lot of guts. Actually, there’s another word I would use, but we’re a family program – with a sign saying, “I am the 1%.” And you engaged a lot of these protesters. Tell us about that experience, Peter.

SCHIFF: Well, I’ve argued with liberals my whole life. So it wasn’t that different. You know, you mentioned you went to Berkeley. I spent four years there, so it wasn’t much different than being at Sproul Plaza or whatever on a typical day.

NEWSBUSTERS: You know it’s really funny that you say that because when the movement first came out I wrote about this and said, “You folks don’t realize that Occupy Wall Street’s been happening in Berkeley since the ’60s.

SCHIFF: Yeah, so I think I was pretty well versed to these arguments, because they’re no different than the ones they were making back then. It was pretty much what I expected. There were some people out there, though, that kind of supported me. There were maybe 20 percent of the people. Of course, I might have had a skewed sampling based upon the people that tended to gravitate in my direction. But there were people there that were protesting the crony capitalism, the relationship between the Fed and the banks, that corp relationship. They actually wanted capitalism. They wanted the government out. So there is a percentage there that are protesting for the right reasons among the Occupy Wall Streeters.

But the vast majority of them are your typical leftist, Marxist, statist type people who just want more government, who think that the rich have too much money, and too much power, and the government needs to take the money from the rich and give it to everybody else, and that’s how you create prosperity by redistributing the wealth. And they just don’t trust capitalism. They never have. And they’re using the situation today as an excuse to advance their socialist agenda even though the reason the economy is suffering the way that it is is because of the very types of policies that they are prescribing as the solution.

One woman said that I’m part of the one percent and she’s part of the 99 percent. I said to her, “Well, if I were willing to put you in the one percent, if I was willing to give you enough money so that you could be part of the one percent, would you take it?” And she said, “No.” She doesn’t want to be in the one percent. She’d rather be in the 99 percent. And I said, “You’re just not telling the truth.”

Just like there was one of the groups, one guy was complaining to me that companies like Walmart are exploiting their workers and paying them low wages. I of course made the point that it’s not exploitation. They can quit if there’s a better job. If they’re not quitting, it means there is no better jobs, so they’re not exploiting them. They’re giving them the best job they can find.

But I tried to make the point that the reason companies want to pay low wages is because their customers want low prices. And then he got back to me and said, no, he doesn’t want low prices, that he wants high prices. Which is ridiculous. And even if you follow that to its logical conclusion, well who would be hurt the most by higher prices? The poor. Higher prices aren’t going to hurt the rich. They have the money to pay for it. The people who benefit the most from low prices are the poor.

NEWSBUSTERS: The Left’s hatred of Walmart, Peter, has never made any sense to me. This is a company the Left should revere for exactly the reason you’re saying.

SCHIFF: There’s not that many rich people shopping at Walmarts. In fact, most rich people couldn’t even find a Walmart. They’ve never even been inside of a Walmart.

NEWSBUSTERS: Yeah, but they might own Walmart stock, and that’s what really makes these folks mad. How do you feel about the reporting of this movement at this point? For instance, why do you think the media and the protesters revere the top one percent of the nation’s actors, entertainers, musicians, and athletes, but they hate the top one percent of people in the financial services industry? Why do you think that is?

SCHIFF: I don’t know. Maybe because if you’re making your money in a certain way. I guess people like movie stars because I guess people don’t mind paying to go to the movies. They don’t mind, they like watching sports. They don’t like the fact that they have to pay $4.50 for a gallon of gas. Nobody wants gas. You want to get some place, so you need gas. You don’t want it, so you regret having to buy it. So maybe you vilify the people that are charging you so much money for your gas, but you don’t understand – if it weren’t for those people, there would be no gas. And then you couldn’t get to the ballgame to watch your favorite baseball player.

I think that is part of the problem, the perception of what you’re getting for your money. I mean, nobody was upset with Steve Jobs over all his millions because everybody likes the iPad and the iPod even though they’re expensive, they’re glad to have them.

NEWSBUSTERS: Well, and they also weren’t upset about the fact that most of his manufacturing facilities were in China, he didn’t employ a heck of a lot of people in America.

SCHIFF: Well, if he did, then he would have been too expensive. No one would have been able to buy the products.

NEWSBUSTERS: The point that I was trying to make is, though, the people that are our entertainers, or the people that are in sports, these represent not just part of the one percent of wage earners. They’re also potentially part of the .1 or .01 or .001 percent of people that strive to be in those industries. These are the most successful people in the industries that they’re in. The same is true of the folks that are the most successful let’s say in the financial services industry. Out of the hundred thousand let’s say people who graduate with an MBA each year, maybe one tenth of one percent or less are going to get a good job on Wall Street, and significantly less of them are going to end up with the high paying position on Wall Street.

SCHIFF: Oh yeah, but the big difference is though you’re getting these government subsidies for Wall Street in the form of government bailouts. If somebody is trying to be an entertainer or an actor or a sports star, they’re not getting any government backing. The government’s not there to bail them out if they fail.

NEWSBUSTERS: Well, PBS.

SCHIFF: So I think the part that people resent about the Wall Street fat cat is the perception that he got fat feeding off the public trough and that is a problem. When you get all this money being funneled to Wall Street from the Federal Reserve, and then you get the government backstopping their mistakes, they can gamble with other people’s money, with taxpayer money, and if the gamble’s a win, they keep all the profits, and if they go sour, they stick the taxpayer with the loss.

See, that is a problem, and that’s where I stand shoulder-to-shoulder with the Occupy Wall Street protesters. I want to protest that. Only I think it’s better to protest Washington for making the bailouts available than to protest for accepting them because I’m not going to blame an individual company for taking a bailout. After all, if the government offered to bail me out, I’d take it. The problem is the government shouldn’t have the power to do that.

So we’ve got to protest government, and we’ve got to protest the Fed. They’ve got to turn off the money spigots. They’ve got to let interest rates go up so that we don’t have all this reckless speculation. The only reason it’s possible is because the Fed made it cheap.

NEWSBUSTERS: But isn’t one of the other media problems here in inflaming this movement is that they like to cast or to depict people on Wall Street as just pushing money around, paper around, and they’re not creating any services or functions that benefit the society? Don’t you as somebody on Wall Street disagree with that depiction?

SCHIFF: Well, I disagree with part of it. There is some viable services being performed on Wall Street. There is legitimate investment banking going on. There is legitimate asset management, M&A stuff going on that does add value. But a lot of what happens on Wall Street now is simply proprietary trading. And that’s not adding any value at all. That’s just a transfer. And a lot of that is being financed by the cheap money.

So I want to get rid of that. I want Wall Street to add value to the U.S. economy. I don’t want to turn it into a casino. And that is what the Federal Reserve has done, and that is what the government has done. It’s a gigantic casino. And a lot of money is being won, but a lot of other money is being lost. And part of the problem is a lot of the money that’s being lost is being sucked out of the rest of the economy and funneled through the few people that have these jobs on Wall Street. And that is one of the reasons you’ve got this big problem, and we’re giving capitalism a bad name. We’re giving it a black eye because this ain’t capitalism. You know, we preach capitalism, but we practice socialism, and in doing that, we give capitalism a bad name.

NEWSBUSTERS: But doesn’t the proprietary trading, and at this point I’m speaking from my experience as someone who did arbitrage for Merrill Lynch, and that was proprietary trading. Doesn’t that give the firm more money for its mortgage banking operation to fund new companies?

SCHIFF: Essentially, but if somebody is betting, somebody’s going to lose if somebody’s winning. If you’re just gambling in the stock or bond market, somebody’s gains have to equal somebody’s losses. And if you look at the percentage of Wall Street profits that now come from proprietary trading versus what it was in the past, it’s enormous. And this is what takes on all the risk. If you’re making money through proprietary trading, and you’re leveraging yourself up. You see, if they were trading without leverage it would be a different situation. It’s still might be a zero sum game, but they’re leveraging up to incredible extents, and the only reason they’re able to get so leveraged is because of all the backstops from the Fed and all that cheap money. If you took all that away, you wouldn’t have all this risk because the risk, the systemic risk they’re all afraid about is a result of the leverage. And what’s financing all the leverage? That’s the Fed, and to a lesser extent the implied put of the government and the too big to fail.

NEWSBUSTERS: Well, and it goes back to what we were saying before – we can’t grow our economy without a bubble, so all of that leverage is a big part of the bubble.

SCHIFF: Well, and that’s not really growing our economy. The bubbles don’t represent economic growth. In fact, I would say they stand in the way of true economic growth. It’s the illusion of prosperity, and that’s what government is all about – trying to maintain this illusion at all cost. But eventually, you can’t maintain it anymore. Eventually we have to come off of this high and we’ll realize just how poor we really are.

NEWSBUSTERS: So what’s your vision of the economy at this point, in the future, in particular let’s say with what’s going on in Europe? Is the EU going to stick together, or is the Euro about to really fall apart, and what’s that going to do to us?

SCHIFF: I don’t know. I don’t think the Euro’s going to fall apart. I think eventually it might, but my guess would be it’s either going to hold together for a while longer or it will dwindle in its size meaning that some of the countries might choose to drop out of the Eurozone, and so the Eurozone will be smaller. But I don’t think that it’s going to be dismantled completely. I don’t think that Austria, for example, is going to go back to the schilling. I don’t even think Germany will go back to the mark. I think countries like Germany, Austria, the Netherlands, there are some countries that will stay together with a single currency, and you’d could call that the Euro.But is it possible that we could see the resurrection of the Italian lira? Yeah, it’s possible.

But I still say that the odds right now at least in the short run favor a move in Europe to try to keep all of the pieces together, but I think ultimately Europe is going to be better off, and the Euro is going to be better off if they don’t try to bend to accommodate the weakest link. I think that they need to force these weaker economies, mostly in the south, to cut government spending dramatically in order to stay in the Euro. If they’re not willing to do that, kick them out or let them leave, but don’t make holding the Euro community together to be your number one goal. The number one goal should be a sound Euro, and if the sound Euro means that Greece isn’t a part of it, then Greece isn’t a part of it. If they’re not willing to do what it takes to restore some fiscal discipline to their economy, then you don’t want them in the Euro. That’s what they have to decide.

But I think what we really have to learn from this situation in Europe is that’s a glimpse into our future. Europe is having problems because of too much debt, too much government debt. We’ve got more debt than Europe. Maybe our debt to GDP isn’t as big as Greece is, but it’s bigger than the Eurozone in total. And in fact if you throw in all of our unfunded liabilities, it could be bigger than Greece.

So we have got an enormous problem on our hands, and the only reason why it hasn’t blown up in our faces yet is because interest rates are still very low. But at some point in time, rates are going to go up, and when they do, we’re Greece, except we’re Greece with a printing press, which is worse.

NEWSBUSTERS: And isn’t it in reality pretty absurd of us to be considering our debt at roughly let’s say 15 trillion while completely ignoring the somewhere around $120 trillion worth of unfunded that we know are liabilities that exist in our future? Shouldn’t we be looking at that rather than what’s just currently on the books?

SCHIFF: I know, you’re talking about the tip of an iceberg when you talk about 15 trillion. The fact of the matter is that’s still a big number in and of itself. But of course, it’s way beyond that. I mean, just look at the Fannie and Freddie debt. That should be part of the national debt too because the government stands behind all that debt. What about all the student loans? That needs to be thrown on there.

So, there’s a lot of debt where the government has said, “We guarantee to pay it back” even if they didn’t borrow the money themselves, they guaranteed somebody else’s debt. That needs to be a part of the national debt. And of course, if you have huge accounting shortfalls in government programs like Social Security where the government has promised to make all these payments to people, yet they don’t have any money set aside to fund it, that gap, that unfunded liability, that has to be part of the national debt unless you’re going to acknowledge that the Social Security recipients have no legitimate claims to their money, which no politician is going to do. In fact, every politician says, “No one on Social Security needs to worry. We're not going to ever cut any benefits. Everyone’s going to get all their benefits.” Well where’s the money going to come from? It’s going to have to be borrowed. It’s debt.

NEWSBUSTERS: Looking at your crystal ball, what do you see for the American economy, and then I’ll let you go. What do you see for the American economy twelve months, 48 months, moving forward?

SCHIFF: I see a crisis. I think that’s about the time zone where it should hit, a sovereign debt and a currency crisis where the dollar plunges putting a lot of upward pressure on consumer prices in America and interest rates, and forcing the Fed to make a very difficult decision: either raise interest rates, short-term rates aggressively to stop the dollar from freefalling and to put a lid on consumer prices, and plunge the economy into a worse financial crisis and economic crisis than 2008, or; because the pain of doing the right thing is so difficult that we don’t do that, then we keep on inflating despite what’s happening, and we destroy the dollar, we have runaway inflation, hyperinflation, and then we have something even worse.

And beyond that I really can’t see because then we have two choices: either we completely abandon socialism and go back to a gold standard and go back to the Constitution and work our way out of this gigantic hole that we will be in, or; we abandon what’s left of capitalism and fully embrace socialism, become a complete totalitarian state, in which case we’re finished, at least for several generations until maybe violent revolution is able to restore freedom. But in the meantime, the key might be just to leave the country if you can.

NEWSBUSTERS: Is there any note of optimism you can give my readers before we go?

SCHIFF: Well, the optimism is that after we’re broke we’ll see the light, the error of our ways, and we won’t go down that road – we won’t complete the journey down to serfdom. We’ll actually become a free-market, capitalistic country again. Yes, we’re going to have a lower standard of living, but we’ll have a lot less government, and we’ll be able to rebuild. And in a generation or two, America could be on top of the world again.

So, there is a reason to be optimistic. Capitalism is a wonderful, powerful force if we can ever embrace it again. If we could have another American Revolution like the first American Revolution, then it’s great. But I said, I don’t know. I don’t know what is going to happen. I don’t know which path we’re going to choose.

But I’m still here. I haven’t left the country, so obviously I’m somewhat optimistic or I already would have been gone. There are plenty of people who have checked out and have already left. Look at Jimmy Rogers, he went over to, he lives in Singapore now. He wanted to get out of Dodge.

NEWSBUSTERS: Well, you talk about a revolution, and I realize I said that was the last question, but last one: is this revolution going to be between the Tea Party and the Occupy Wall Street folks?

SCHIFF: That’s how I kind of see it. Those are the two factions. I’d rather have it be a Tea Party revolution because that’s more of a true American capitalist Constitutional revolution versus the Marxist type revolution the Occupiers would rather have. They already had that revolution, it happened in Russia in 1917, and look at the disaster that created.

NEWSBUSTERS: Well, Peter, for everybody at NewsBusters, we appreciate your time and wish you Happy Holidays.

SCHIFF: You too. And don't forget, I do my own radio show. People can listen five days a week, Monday through Friday on SchiffRadio.com, and I do it from 10AM to noon. And of course, go to my website, EuroPac.net. In fact, my book “Crash Proof 2.0” just came out in paperback. So people can buy it. In fact, they make pretty good gifts for Christmas if you’re looking to give the gift of knowledge, get people a copy of “Crash Proof 2.0.”

NEWSBUSTERS: Sounds good, Peter. Thank you very much for your time, sir.

You knew this was coming.

Nobel laureate Paul Krugman – might he finally be realizing that our budget deficits can't possibly be solved by just eliminating the Bush tax cuts? – is now calling for marginal rates even higher than when Bill Clinton was in office:

Why should 1990s taxes be considered the outer limit of revenue collection? Think about it: The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?

Let me suggest two areas in which it would make a lot of sense to raise taxes in earnest, not just return them to pre-Bush levels: taxes on very high incomes and taxes on financial transactions.

But has the "long-run budget outlook…darkened" because of tax receipts or spending?

NewsBusters readers know full-well the answer is the latter.

As I've noted many times in the past, if we had only grown our total expenditures at the rate of inflation since 2007, we would have had a $413 billion deficit in the just-ended fiscal year 2011. This would be even lower in the current year given projections of $2.9 trillion in unified tax receipts.

When you consider that total unified outlays in 2007 – before the Democrats took over Congress! – were $2.7 trillion, and that they rose to a staggering $3.8 trillion in just four years or 41 percent, it's just absurd to blame our fiscal woes on revenues.

But we've grown accustomed to this in the past couple of years, especially from arithmetically-challenged Nobel laureates like Krugman.

Yet readers shouldn't take this proposal by the New York Times economist lightly.

As serious spending cuts continue to be taken, well, unseriously by our lawmakers, and our debt continues to expand at levels threatening additional credit rating cuts, you should be prepared for more calls like this.

This may not happen in an election year when even a leftist like Barack Obama is aware of what happened to Walter Mondale in 1984.

But if the Republicans don't at least take back the Senate while retaining the House next November, 2013 could be the year America experiences the largest tax hikes in its history.

Happy Holidays.

It's truly delicious when the outfit which calls itself the Essential Global News Network essentially admits that a certain economic theory which begins with a "K" has become such an undesirable word — almost an epithet — that it avoids its mention.

That was the case with a pathetic critique of GOP candidates' economic plans written up by the wire service's Charles Babington on Sunday. When I saw its headline ("Studies challenge wisdom of GOP candidates' plans"), I blew past the story because I expected the same-old, same-old. Then an emailer with a journalistic background informed me that it was even worse than usual. He's so right that I can't possibly pick it apart without writing a book; so I'll just concentrate on the paragraph containing the theory with no name and the one which immediately follows it:

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Mainstream economic theory says governments can spur demand, at least somewhat, through stimulus spending. The Republican candidates, however, have labeled President Barack Obama's 2009 stimulus efforts a failure. Instead, most are calling for tax cuts that would primarily benefit high-income people, who are seen as the likeliest job creators.

"I don't care about that," Texas Gov. Rick Perry told The New York Times and CNBC, referring to tax breaks for the rich. "What I care about is them having the dollars to invest in their companies."

Geez Charles, doesn't this "mainstream economic theory" have a name? Why, it does: K-K-K-K … Keynesianism. Accurately considering the last three fiscal years, the $4 trillion in nominal deficits created, the nearly $5 trillion increase in the national debt, the Troubled Asset Relief Program, and whatever additional shenanigans in which Federal Reserve Chairman Bernanke and Treasury Secretary Tim Geithner have engaged as one giant stimulus, there's a word to describe Keynesianism as it has been applied in the real world: discredited. It isn't that GOP candidates have "labeled" the past three years of Keynesianism a failure; it has actually been a failure by any objective standard, as illustrated visually in the following late-August graphic at Investor's Business Daily editorial:

If reported third-quarter growth holds up after all routine revisions and future comprehensive revisions, which is by no means certain, the current economy finally got back to where it was before the recession began nine quarters after it ended — a time period which, as seen above, is three times longer than the recovery from any other post-World War II downturn. If that's not a failure of Keynesianism, I don't know what is.

Babington's second excerpted paragraph tries to make a lazy shopworn point which doesn't hold up, for two reasons. Most obviously, his reference to "the rich" is not interchangeable with the "high-income people" referenced in the previous paragraph.

But even more significant is the failure of analysts cited by Babington and others elsewhere to pick up on something Boston University economist Laurence Kotlikoff mentioned in two separate October columns at Bloomberg (here and here; Note: I have collaborated intermittently with Mr. Kotlikoff on financial projects during the past year).

Kotlikoff's insight: Herman Cain's 9-9-9 plan, by taxing consumption instead of income, will cause wealthy people with relatively low reportable incomes or who receive a large portion of their incomes in the form of tax-advantaged capital gains and dividends to in many cases pay far more in sales tax than they have been paying in income tax, and will in effect cause them to pay taxes out of their wealth.

It's debatable as to whether this would be a good thing; but we're never going to have that debate if the so-called experts who are dismissing Cain's plan as a giant sop to the rich fail to recognize Kotlikoff's huge point. Any media report which fails to mention that Cain's plan would in effect tax consumption out of wealth in certain cases should by definition be seen as suspect.

Cross-posted at BizzyBlog.com.

Sometimes it’s worse to pretend to be doing something about a serious problem than it is to do nothing at all. That’s where we are in our talks about our out-of-control spending.

Just as the European Union did, we’re going through two months of talks about what to do about long-term fiscal imbalances. Under the deal that kept the government from shutting down last summer, the so-called supercommittee was supposed to take politics out of the equation by making talks truly “bipartisan.”

by OutloudOpinion.com For more Podcasts visit www.outloudopinion.com

The easy catch in former Obama administration economic adviser Austan Goolsbee's Thursday interview on MSNBC's "Morning Joe," as reported by the Politico's Tim Mak, is that he believes that "if given a second chance he would not have backed the Cash for Clunkers program or the home buyer tax credit." Goolsbee's excuse for his changed position — that the administration didn't think the recovery would take so long, when the administration's policies have primarily explain why the recovery has taken so long — is characteristically lame.

Something else Goolsbee said is far more surprising — so surprising that one wonders if famed supply-side economist Arthur Laffer somehow temporarily took over the former Obama adviser's mind and body. One also wonders why Mak saved what Goolsbee said for his report's final two paragraphs instead of headlining and leading with it.

Here they are:

Goolsbee also disagreed with Democratic Senate Majority Leader Harry Reid, who said Wednesday that “private-sector jobs have been doing just fine” and that the focus should be on saving public sector jobs.

“I guess I would disagree a little. I think at this moment, the government still has an important role to play, it’s to get the private sector going, and we can do that with tax cuts and incentives,” he said.

"Tax cuts and incentives"? Holy Reaganomics, Batman! The only wiggle room Goolsbee may have is that he doesn't mean "across the board" tax cuts. But given the administration's current dogged insistence on tax increases and silence on tax cuts, that's hardly relevant.

If only Goolsbee, Obama's economic team, and the President himself had channeled their inner Laffer during the administration's first few months, Investor's Business Daily would never have created the following grim graphic:

Of all the recoveries since World War II, only one has taken longer than three quarters to get back to where it was when the downturn began — the not-quite-there after eight quarters recovery which we currently inhabit.

Goolsbee's time with Obama goes all the way back to his 2004 senatorial campaign, and he was Obama's senior economic adviser during the 2008 presidential campaign. Where was your inner Laffer when we needed it, Austan?

If this were a current or former Bush adviser openly disagreeing on a fundamental economic policy (e.g., David Stockman with Reagan in the early 1980s), I don't Tim Mak would have distracted readers with the Cash for Clunkers eye candy in hopes that readers wouldn't get to the really big item at the end.

Cross-posted at BizzyBlog.com.

Somebody needed to give Calvin Woodward and Christopher Rugaber at the Associated Press Five-Hour Energy drinks or some other boost before Tuesday night's GOP debate. Their brains must have totally turned off late in the  afternoon without re-engaging before they filed their late-evening post-debate report.

Behold how the AP pair "proved" that excessive government regulation doesn't kill jobs (bolds are mine throughout this post):

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FACT CHECK: Regulations not a huge jobs killer

Is regulation strangling the American entrepreneur? Several Republican presidential candidates say so. The numbers don't.

The anti-regulatory fervor was in evidence Tuesday night in the latest GOP debate, but rhetorical flourishes, on that and other issues, masked far more complex realities.

… THE FACTS: Labor Department data show that only a tiny percentage of companies that experience large layoffs cite government regulation as the reason. Since Barack Obama took office, just two-tenths of 1 percent of layoffs have been due to government regulation, the data show.

Businesses frequently complain about regulation, but there is little evidence that it is any worse now than in the past or that it is costing significant numbers of jobs. Most economists believe there is a simpler explanation: Companies aren't hiring because there isn't enough consumer demand.

The conservative National Federation of Independent Business asks its small-business membership each month to name the single most important problem they're facing. Last month, the most common response was "poor sales," cited by 28 percent. Government regulation came in second, at 18 percent.

… High levels of economic uncertainty are another drag on business, but economists say that's less due to regulation than to fights over government spending and taxes.

Lord have mercy, guys:

• I'm not going to concede that "large layoffs" don't occur because of government regs. Companies in financial trouble usually have a myriad of problems which the regulatory burden exacerbates. Paperwork and busywork are fixed costs which can't be avoided. If fixed costs associated with regulation are increasing — and they are (and the linked item used figures from before Obamacare and Dodd-Frank came along) — then declines in sales volume are more likely to lead to layoff decisions. When the decisions are made, the layoffs are likely to be larger and more likely to be permanent.
• At a minimum, Woodward and Rugaber had no justification for  their "argument over" conclusion based only on looking at large layoffs. Small layoffs of 50 or fewer workers don't have to be reported to Uncle Sam, yet they may affect a larger number of people than those which are reported. Small-layoff events are more likely to occur at smaller enterprises, which have been shown to be more negatively impacted by burdensome regulations.
• Far more fundamentally, laying a worker off is not the only way to "kill" a job. Not replacing someone who is fired, leaves, or retires (such as the possibly looming Obamacare) "kills" a job, and regulatory concerns are far from irrelevant in these decisions (finding, screening and training new people are quite heavily regulated processes). Using temps to avoid taking on a permanent burden and letting them go during even minor sales fluctuations "kills" reported full-time jobs. Deciding to make products offshore partially or completely because of regulatory requirements "kills" jobs which could have been created.

There happens to be a drop-dead obvious case of overzealous regulation killing jobs in the Gulf of Mexico which, after they wake up tomorrow have their morning coffee, even Woodward and Rugaber might recognize as valid. A report by Quest Offshore Resources, Inc. (HT Tina Korbe at Hot Air) provides evidence of post-oil spill job losses in the Gulf of Mexico:

While the offshore Gulf of Mexico oil and gas industry has seen some signs of recovery from the low state it was in during the drilling moratorium, activity levels are still well below the levels seen before the Macondo incident and well below the levels of the Quest baseline forecast before the incident. From a permitting, rig, and drilling activity perspective the industry is at best flat compared to where it was before the drilling moratorium, with the growth that had been previously expected both delayed and diminished.

… -As of the end of September, 21 floating rigs (those with subsea blow out preventers) are operating in the Gulf of Mexico, of which only 18 are currently drilling wells.
- Pre-moratorium 33 floating rigs were operating the Gulf of Mexico with 29 drilling wells at that time.
- This indicates a roughly 37 percent drop in both the number of rigs operating and drilling.
- Since the moratorium began, 11 rigs have left the Gulf of Mexico. Only one of these has returned, 3 rigs are currently sitting idle.
- 7 of these rigs have left to African countries including Egypt, Nigeria, Liberia, and The Republic of Congo. 3 of these rigs have left to South America, including Brazil and French Guiana. The remaining rig recently mobilized to Vietnam.
- This translates to approximately 60 wells lost based on the original contract terms of these rigs.
- The loss of these rigs amounts to lost spending of $6.3 billion and annual lost direct employment of 11,500 jobs over two years.

Memo to Woodward and Rugaber: The word "regulatory" appears once in Quest's report; so by your twisted definition, this "counts."

Rob Bluey at the Heritage Foundation explains what excessive regulation has done in this instance, not only to jobs but to U.S. Treasury collections:

A large part of the problem is the complexity of the new regulations and the lack of resources at the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) to handle these new complexities. The solution, however, is not more bureaucrats but a more efficient system that promotes safety, assigns full liability to oil and gas activities, protects the taxpayer, and allows offshore gas and oil exploration to continue. The system in place now is preventing people in the Gulf from getting back to work.

Not only is the anti-drilling agenda costing jobs and economic hardship in the Gulf region, but it’s preventing billions of dollars from coming into the federal government’s coffers because of decreased royalties, lease sales, and rent fees. Yesterday, Senator David Vitter (R–LA) wrote to Interior Secretary Ken Salazar and BOEMRE director Michael Bromwich urging the need for more action in the Gulf:

Another memo to Woodward and Rugaber: "Preventing people in the Gulf from getting back to work" = "killing jobs." I hope your Wednesday morning coffee is good — and really, really strong.

Cross-posted at BizzyBlog.com.