In June of 2008, Stephanie Simon wrote a great article entitled “The Greenest Show On Earth:  Democrats Gear Up for Denver”.  She described the trials and tribulations of the planners trying to implement Denver Mayor John Hickenlooper’s charge of making “the greenest convention in the history of the planet”.   Here’s a short excerpt:

Consider the fanny packs.

The host committee for the Democratic National Convention wanted 15,000 fanny packs for volunteers.  But they had to be made of organic cotton.  By unionized labor.   In the USA.

Official merchandiser Bob DeMasse scoured the country.   His weary conclusion:  “That just doesn’t exist.”

Seventeen months and one victorious Presidential election later, as the Democrats run all three rings of our government’s circus, it is clear that the folly and/or paralysis described in Simon’s article was merely a foreshadowing of things to come.

The fundamental problem facing the Democrats right now is that their understanding of how an economy works is flat-out wrong.    It’s not like their policies will not work.   They simply can not work, any more than Newton could will the apple to fall from the top of his head back onto the branch.   Consider the following plans of action:

Economic “Stimulus”: Proclaim to know how to direct the resources of the economy in synergistic fashion, like some kind of nuclear fusion reactor creating more output than the inputs used.   Continue to pursue a strategy that is based on class-warfare, envy and redistribution.   Refuse to acknowledge that taking resources from one part of the economy via a political process, and handing them over to some other part of the economy, will not and can not produce a net positive.   Recoil from the possibility that their very attempts to manage the economy are in fact the cause of the economic woes they now try to combat.

Cap & Trade:   Propose a $200 billion dollar/year boondoggle to extract additional resources from the economy to be re-allocated to some supposedly wiser-purpose, all for a negligible change in the supposed villain, average global temperature.  Maintain the overarching vision the that humans can control the climate of a planet.   Support the silencing of dissenting points of view, and blame any dissenters that slip past the gates on Rush Limbaugh.

Card Check: Hammer home the belief that the economy can be made better off by eliminating workers’ rights to a private ballot as to whether or not they should form a union.   (Whatever one thinks of unions, this simple fact about this proposal should make it DOA, but it remains a top legislative goal).

Health Care: Take an already over-regulated one sixth of our economy, call it a “market”, proclaim that markets don’t work, and seek to take it over instead.   Hold up the structurally bankrupt programs of Social Security, Medicare and Medicaid as models to emulate.   Vilify the insurance industry and proclaim the desire for competition, but do not allow the insurance companies to compete with each other across state lines.    Make no mention of medical-malpractice and tort reform.    Lastly and most importantly, do everything possible to hide the successes of Health Saving Accounts and similar freedom-based, patient-empowering programs.

Taxation:  Stay on track to allow the Bush “tax cuts for the rich” to expire.  Maintain the class-warfare required to support such policies.   Ignore the fact that “the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined.”    Continue the path towards having 50% of wage earners pay no income taxes at all (standing at roughly 43% right now).    Make no connection between high corporate tax rates and companies sending jobs overseas.

If you were an entrepreneur, or a business owner or manager with the ability to start large new initiatives, perhaps ones requiring large numbers of new employees, in the face of the above legislative uncertainty, would you dare proceed?

Hopefully as the Democrats keep themselves tied up in logical knots, they will succeed in passing nothing in the way of major additional economic legislation.  Eventually, perhaps requiring several election cycles, the pursuit of such hamstringing policies will be dropped (or those enacted, repealed) and the true engines of growth will be unleashed.  In the meantime, as the party of Biggest Government (yes, the Republicans have their sad recent history of being the party of Bigger Government), the Democrats can not do the right thing because doing so would require them to repudiate their very worldview.   Solutions to our economic problems based on a worldview that an ever-expanding government can create a utopia-on-Earth are every bit like Bob DeMasse’s sought-after fanny packs.   They just don’t exist.

From the never-to-be-covered-by-The-New-York-Times department….

It has always stuck me as highly plausible that scientific researchers writing grant requests needed to convey some sense of urgency in order to motivate their potential funding sources into action.   Big need, big problem, big money.   Likewise, at the local newsstand, which cover story would more likely catch your attention:  “Earth’s Changing Climate: Same As It Ever Was…”  or, “Warming Climate To Radically Alter Life On Earth!!!”?

Hysteria sells.

Amidst perhaps the grandest, most globally-coordinated legislative campaign ever devised, that to impose “climate change” legislation, we have what should be considered an equally massive bombshell:  apparent proof that the research of dissenting scientists was systematically withheld from public consumption, lest it ruin the funding party for everyone else.    Do yourself a favor and listen to this exchange between author and radio host Laura Ingraham and climatologist Patrick Michaels from November 23rd, and then do the right thing and urge your friends to do the same.   Note that in the leaked e-mail exchanges, Michaels is singled out for some of the harshest criticism (in his role as party-crasher) by his fellow researchers.

On a far more serious note, all of this would would border on the comical if the consequences of blindly following such biased research were not so damaging to the most vulnerable people in the world.   Because at the end of the day, if the man-made global warming proponents have any concern for their fellow man, they will realize that man’s ability to adapt to an ever-changing climate is first and foremost an economic problem. It is really one of poverty, as it is the poorest people who are most unable to adapt.    Therefore, the solution is to create more of the opposite of poverty, which is wealth.   So instead of pouring our passion and funding into global warming, we should instead be fighting for global liberty.

Liberty and globalization, defined in this context as freedom in all forms, free trade, property rights and the rule of law, have done more to lift people out of poverty and better positioned them to deal with an ever changing world than any headline-grabbing, heartstring-tugging, Polar Bear-hugging, income-redistributing, Save The Planet campaign ever has, or ever will.

In this regard, Copenhagen Consensus Director Bjorn Lomborg has recently published two highly poignant commentaries in the Wall Street Journal, “Global Warming as Seen From Bangladesh” and “The View from Vanuatu on Climate Change“.   They should be required reading for anyone who feels “global warming” is the number one issue of modern times, or even amongst the top ten.

JP Morgan CEO Jamie Dimon’s recent commentary in the Washington Post proclaims that financial institutions need to be able to fail. He also describes the need for regulatory changes that would enable this to happen while minimizing the effects should a firm do so.   What he does not describe is why firms need to be able to fail.  Judging from the comments out there, it’s clear there’s a need to understand the why.  It is central to understanding what regulatory changes, if any, are even required.

Mr. Dimon is correct for one simple reason: When there is the perception of risk with a trading counterparty, risk management will arise to deal with that risk.   Due diligence with regards to understanding the counterparty will increase in proportion to the perceived risk.   In the extreme case, risk management may dictate that the trading (however simple or complex) may not take place at all. Note that “trading” in this case is not simply what everyone envisions on some Wall Street trading floor, but the very essence of any transaction between two individuals.

The absence of “too big to fail”, and the extra due diligence that would have instead been present, would likely have prevented the entire housing-related financial debacle we’re all living through, including the current hand-wringing about what to do about it.

When a firm is deemed “to big to fail”, anyone trading with that firm is afforded the luxury (or trap) of letting their risk management guard down.   “Hey, my counterparty’s existence is a sure thing — why should I care what they’re doing behind my back? — It can’t affect me.”   The story of the Norwegian town of Narvik illustrates this perfectly.

With truly free trade, two potential trading partners, X and Y, will only trade if they make each other better off.   To do that, they must know each other’s needs.  Say X and Y are contemplating a transaction, but X is deemed “too big to fail” by some trusted third party — ie, 100% trustworthy in their ability to fulfill their obligation to Y, and/or of their ongoing existence.   Trading partner Y now has far less need to understand trading partner X.   In some ways, rather than Y needing to exhibit reciprocity in its care for its trading partner, it can act more selfishly, focusing more so on its own gains.   Knowing that X’s continuation is a sure thing, Y might not even feel entirely obligated to honor their obligation to X — “If I don’t, what difference will it make to them?”   This, combined with lax bankruptcy penalties, might have been all that was needed to prompt some people to stop paying their mortgages as their houses went “upside down”.

Amongst the chain of players in the housing market, note the prominent role of Fannie Mae and Freddie Mac, two institutions that were generally thought of as “too big to fail”.   Any mortgage originator who could raise product in a way that could conform to Fannie or Freddie’s securitization requirements could lay off whatever risk they initially had to  these organizations.   They were therefore incentivized to raise as much product as they could, earning commissions and short term compensation along the way, knowing that anything Fannie or Freddie did downstream was irrelevant.    Loans to borrowers with sketchy credit profiles?  No problem!  Sell ’em off to Fannie or Freddie!   This is exactly what occurred with firms such as Countrywide Financial.

Suppose that Fannie and Freddie did not have their implicit government guarantee, or political pressure to assist in expanding home ownership.  They would then have been far more concerned with the quality of the collateral they were purchasing.    This would have rippled all the way back to the origination of the loans, because the resulting loans would have been less marketable, and in many cases, perhaps not marketable at all.

However, there would have still been a role for risk-takers to provide a valuable service to the market, in the form of making higher interest loans (to compensate for the risk) to higher-risk borrowers, and NOT selling the loans to a third party.   But there would have been an important difference.  It would be the free market and private decision making, as opposed to a political process, determining where on the risk-reward curve the business activity would be.

Mr. Dimon also does not mention the massive instructional benefit of failure.   While failure in and of itself is generally not pleasant to watch (perhaps with this exception), it is invaluable as a teaching tool.   It allows all non-participants to learn in a way that is every bit as valid as those who did participate:  Watching someone burn himself on a hot stove doesn’t require me to touch the stove as well to learn not to touch it.   Simply knowing that people can burn themselves on hot stoves is enough to make me cautious and treat the stove with respect.     This country needed to witness failure of lending to unqualified people to ensure that such poor business practices did not expand in scope.   Failure of unqualified borrowers to obtain credit is not evidence of a broken free-market.  It’s direct evidence of the market working!

If failure were permitted to happen in an unhampered fashion, private defense against possible failure of trading counterparties would necessarily increase.   There would be no need for a regulatory agency to try to outthink the market as a whole (an impossibility, yet one that many people sadly think is possible), because out of their own self-interest in self-preservation, companies would do it themselves.    Even still, there may be opportunities for private firms to arise that would add additional risk-management services in the form of wider information visibility and/or better analysis.   There is simply no need to politicize the function.  Claims that companies self-policing themselves have failed ring hollow because the necessary punishment of true corporate failure was not present.

A politicized version of the crucial risk-management function produces things like forcing a bunch of firms to take TARP money, even those who don’t need it, to shelter the identity of those who do.    Discovering these weakened firms faster and more unambiguously is exactly the kind of information that market participants (companies AND individuals) need to correctly perform their risk assessment.   Simply the threat of being put on such a list would be enough to keep an honest company concerned with the best interests of its customers off the list.

And this is exactly where we’d wind up.  Financial stability, security and trustworthiness would rapidly become the aspects that financial service companies would compete over.   Large financial institutions would have to prove to their customers that they are conducting themselves in ways that make their customers comfortable in trading with them, lest they watch these customers go elsewhere.    Not with some phony “too big to fail” claim, backed up with a politicized redistribution of private wealth, but with honest and verifiable proof using their own resources.    It’s already started, with small and regional banks running ad campaigns highlighting the fact that they didn’t take TARP money.  It’s a trend we need to encourage.

Imagine one morning you wake up and learn that The United States is under attack from multiple fronts, our defenses overwhelmed by a previously inconceivable force.  It’s not unlike 9/11, except on a much wider scale.  Your plans for the day have just been changed.

Different scenario:  You are woken out of bed by the carbon monoxide alarm in your house.  You can’t see or smell anything wrong, but it’s not a false alarm and without it, you’d meet a sad fate.

In the first scenario, the threat is so obvious that the need for taking some kind of defensive action, perhaps even an offensive one, is equally obvious.  Failure to do so could prove fatal.  In the second scenario, the consequences of inaction are every bit the same, but the threat can not be easily seen.  It has to be detected by other means.

The United States is currently engaged in a “hot” war with multiple fronts, thankfully not on our soil. Less thankfully, many of the citizens of Iraq and Afghanistan have woken up to the first scenario, and have been forced to act accordingly.  And although no one wants the war to continue any longer than required, losing the war is not an option.

Yet on American soil, like the carbon monoxide threat that can not be readily seen, another war is now underway.  It has many fronts, and the enemy force is organized, highly determined and well funded.  It is also a war that we can not lose.  This is the war on capitalism and free-markets.

In many respects, it is the more important war.

Consider first off that the terrorist forces that attacked U.S. soil in 1993 and 2001 recruit from regions of the world where poverty reigns.   To a David with a highly questionable economic future, a chance at greatness via a terrorist act against Goliath begins to look more appealing.  But the irony in what they are attacking is staggering.    The economic system which defines America — “the land of opportunity” — is exactly the system that could be bringing these economically hopeless people out of their despair. The opposite is also true, as Steven Malanga has written, “free markets are rare in starving nations“.

To whatever extent America weakens its most differentiating characteristics, we reduce our opportunity to be an example in how to best lift the world’s inhabitants out of poverty and into peace.

With wealth and poverty being opposites, if we lament the latter, we must look to promote policies and practices that have demonstrated track records of creating the former.   Likewise, free-markets and their resulting capitalism are inimical to war.   They are the best peace-plan ever devised. It bears repeating:  A truly free market between two trading partners makes both parties better off.  Once this virtuous circle is in place, there is a greatly reduced incentive to go to war, as both parties are made worse off.   Note that this precisely explains Russia’s reluctance to join in the chorus against Iran — they are huge trading partners.

Under a rising tide of concern over Obama’s push of our economy into a more socialist-leaning direction, we have George Soros greasing the skids, with the goal of de-emphasizing free-markets in matters of public policy.  This will be no small effort either, with a hoped-for endowment of $200 million.   This is more than the combined endowments of many of the more notable free-market organizations.

And the proverbial “carbon monoxide detectors” are going off with regard to the United States.   Exhibit A is the value of the US dollar, which has been meandering downhill like a nice “blue” intermediate ski trail with black diamond sections becoming more frequently interspersed.    Exhibit B is our exploding debt, which is finally catching more attention for what it is:  blatant inter-generational theft.

What’s truly mind-boggling about the efforts of Soros and his wealthy followers is that they decry the very system in which they became wealthy, the system in which they expand their wealth, in classic “I’ve got mine, close the gate” fashion.   Witness Michael Moore’s “Capitalism, A Love Story” — in some countries, attacking the native economic system with such a movie would get him killed.

This crowd simply doesn’t understand what free-markets and capitalism are.  They think our economy, with its ever increasing regulations, corporate cronyism and government-as-backstop is a free market.    Others have done a fantastic job at illustrating the ridiculous nature of such claims, very recently, Charlie Gasparino’s piece in the Wall Street Journal (expanded in his new book, “The Sellout“).   Two other recent and noteworthy books, Thomas Woods’ “Meltdown” and Thomas Sowell’s “The Housing Boom And Bust” also make the methodical, crystal-clear case that big, interventionist government itself was the primary cause for our recent financial crisis.

None of this would matter if the anti-capitalists didn’t have the full mind and ear of the legislative and regulatory arms of the federal government right now.   The damage that could be done in just one 2-year congressional term is incalculable.   Ronald Reagan’s “shining city on a hill” runs the serious risk of tarnish.

In the opening example of a sudden “hot” war in our backyard, we would all literally leap to our feet and do anything and everything required to defeat the enemy.   Yet surely and silently an enemy operates in our midst whose worldview can more easily lead to the “hot” war.   When will we leap to our feet to defeat it once and for all?