Columnist.
Neel Kashkari, the Republican candidate for governor of California, just recounted in The Wall Street Journal his week on the streets of Fresno posing as a homeless man looking for work. At the end of his op-ed, Kashkari lamented that he didn't need a higher minimum wage, paid sick leave or a health care plan. What he needed was a job. And Kashkari made the important point that all those government benefits, especially extended unemployment benefits, are work disincentives that may actually block job creation.
Businesses created more than 200,000 new jobs for the sixth straight month. Second-quarter gross domestic product rebounded by 4 percent from the winter-weather doldrums. And the Manufacturing ISM Report exceeded all expectations, with big gains in new orders and employment. So on the surface, the economy is looking better. And as a result, the Federal Reserve is on the cusp of a new and less-stimulating policy cycle -- which is a big reason why stocks sold off this week. A lot of investors are wondering what happens when the Fed takes its foot off the accelerator. Will burdensome tax and regulatory policies prevent any sort of economic breakout?
Just for once, wouldn't it be great if President Obama actually defended American business, instead of attacking it?
Across his remarkably successful presidency, Ronald Reagan repeatedly made the link between the U.S. economy and U.S. international security and defense. He consistently argued that weakness at home leads to weakness abroad. Reagan was aiming at the dismal Carter years. But he understood for all times that economic strength at home sends a powerful signal for international security overseas. When Reagan went to Reykjavik to meet with Gorbachev, he believed the resurgent American economy would hammer the nails in the coffin of Soviet communism. And he explained to Gorbachev that if the Soviets didn't come to the negotiating table with nuclear weapons, the U.S. would out-produce them on nukes and with technological superiority. Similarly, Reagan would not give up his vision for strategic missile defense.
Good news for the American worker: Employment in June surged 288,000, with a 262,000 gain in the private sector, easily beating the consensus forecast of 215,000 new payrolls. This marks the fifth consecutive monthly increase of 200,000 or more jobs, the best five-month stretch since early 2006. As for the unemployment rate, it dropped from 6.3 to 6.1 percent. Stocks surged on the news, with the Dow closing above 17,000 for a record high. And the good news doesn't end there: The small-business household survey gained a big 407,000 while the number of unemployed fell by 325,000. These job gains were spread wide across the economy, as the diffusion index jumped from 62.9 to 64.8 percent. And although lower-paying retailers counted for a big 40,000 jump, higher-paying professional and business services increased 67,000.
Why in the world would Congress want to reauthorize the Export-Import Bank? Known as "Bank of Boeing," Ex-Im is the perfect example of corporate welfare, crony capitalism, fraud and corruption. Get rid of it. It's a government-sponsored menace that actually damages American business competitiveness and reduces jobs at home. Voting against Ex-Im should be a no-brainier.
"Reinvigorating the leadership" is how one senior House staffer described the ascendency of Steve Scalise, the Louisiana Republican who won a first-ballot victory for the position of GOP whip. The staffer went on to portray Scalise as not a member of the Washington establishment. Indeed, Scalise is a former chair of the Republican Study Committee, the conservative caucus in the U.S. House. He has had a meteoric rise, and he is someone to be reckoned with. Scalise's win follows Kevin McCarthy's first-ballot victory for the GOP majority-leader slot. And here's something I did not know: As whip, Scalise gets to appoint his chief deputy whip, a leadership position most recently held by Illinois Republican Peter Roskam (who lost out to Scalise for majority whip). So it could be, when all is said and done, that two conservative RSC members are part of the GOP leadership.
Listening to David Brat on election night, following his upset win over Eric Cantor in Virginia's seventh congressional district, I heard a principled, free-market, pro-growth individual who is going to make an excellent Republican House member. Mr. Brat, the Randolph-Macon economics professor, talked about pro-growth tax reform, spending limits and entitlement reform. He wants to end the congressional bailout of Fannie Mae and Freddie Mac and return them to the private sector. He opposes corporate cronyism in Washington. He'll have no more special favors for the K Street crowd. He emphasizes the importance of the rule of law and property rights, which are so essential to our free-market system.
Despite a shrinking economy in the first quarter and outright declines for consumer spending and manufacturing in April, the May jobs report delivered the fourth-straight monthly gain above 200,000, with nonfarm payrolls jumping 217,000. This is the best four-month increase since late 1999. And finally -- after five years -- total U.S. payrolls rose above the previous employment peak set in January 2008. (On the 10th anniversary of Ronald Reagan's death, it's worth noting that the Gipper's supply-side policies reclaimed all the lost jobs from the 1981-82 recession in a matter of months.) As for the unemployment rate, it held steady at 6.3 percent. And the underemployment rate (U-6) dropped a tenth to 12.2 percent. So overall, this was a positive report. And it's good to see more Americans working. But there are still some serious warts in the jobs story.
Are Ben Bernanke's loose lips the real cause of surging stocks and plunging interest rates? Here's the backstory: The so-called smart money on Wall Street had it all wrong. "Sell in May, and go away" was the big theme a month ago. Oops. The broad-based S&P 500 has jumped another 2.5 percent to a record high near 1920. Meanwhile, 10-year Treasury rates unexpectedly dropped to less than 2.5 percent. So if the Wall Street pros are honest, they'll admit they've been selling stocks and bonds, not buying them, and therefore got the story all wrong. And perhaps most surprisingly, the so-called "real" or inflation-protected 10-year TIPS yield also dropped another 25 basis points. Year to date, this key proxy for real economic growth has unexpectedly fallen 56 basis points to a low 0.2 percent. This is an election-year economic warning for Democrats.
The VA problem is not Shinseki; it's socialism. The Veterans Affairs health care system is completely government run. It is a pure single-payer program. National Review Editor Rich Lowry calls it "an island of socialism in American health care." He is right. I've been arguing this all week. So perhaps Democrats and Republicans will get together to sack VA Secretary Eric Shinseki. But that won't change a thing. In fact, it's a distraction. The long waits for treatment, with excessive delays resulting in as many as 40 deaths, are a tragically predictable outcome. This is the result of bureaucratic rationing, price controls, inefficiencies and the inevitable cover-ups. It was the late James Buchanan, the Nobel Prize-winning economist, who taught us all about bureaucratic incentives in his seminal work on public choice.
Tea-party activist Sal Russo offered an eye-opening remark this week. He said "Conservatives should be leaders in the immigration-reform movement." Then tax-reform activist Grover Norquist organized a media conference call, in which he reinforced his support of immigration reform. American Conservative Union chairman Al Cardenas joined in that call, as did Robert Gittelson, president of Conservatives for Comprehensive Immigration Reform. In recent days, support for legal status for undocumented immigrants was also voiced by Sen. Rand Paul, Texas Gov. Rick Perry and former Florida Gov. Jeb Bush -- all GOP presidential contenders.
Does a solid jobs report change the overall economic picture and offer the beleaguered Democratic party a new leg up for the midterm elections? My answer is no and no. Even with all the political slicing and dicing that accompany these big reports, the April employment survey was a lot stronger than virtually anyone expected. Nonfarm payrolls surged by 288,000. Private payrolls gained 273,000. The unemployment rate registered a big decline, dropping from 6.7 percent to 6.3 percent. Some are arguing that lower unemployment is a function of 806,000 dropouts from the labor force. But that's a reach. In the prior three months, the small-business-related household survey gained over 1.2 million jobs. So these month-to-month bumps have no meaning. But the trend is clear: The unemployment rate is falling and more jobs are being created.
When President Obama holds back approval of the Keystone pipeline, for the umpteenth time, it's bad enough that he's politically pandering to Tom Steyer, the hedge-fund billionaire and manic radical opponent of fossil fuels. If he gives in to Steyer by blocking the pipeline, Steyer gives $100 million to Democratic candidates this fall. Obama's transparent political cynicism is incredible. But it's more than that. It shows his disregard for jobs and economic growth for blue-collar union workers who used to be Democrats. It shows his utter disregard for our loyal Canadian ally up north. And it sends the wrong signal to Vladimir Putin, who probably believes the U.S. will not undermine Russia with energy independence and oil and gas exports while Obama is in office.
Will somebody please explain to me how rising inflation is somehow going to extricate us from the tepid economic recovery? I don't get it. It used to be hypothesized that *low* inflation was the key to *high* economic growth. For everybody in the economy, low inflation was a tax cut. Conversely, rapidly rising prices were thought to penalize the economy by placing a tax-hike effect on investors, businesses and families. It was this logic that spurred Paul Volcker (especially) and then Alan Greenspan to labor mightily in the 1980s and 1990s to bring inflation down.
Is it too farfetched to connect the dots between a brilliant Wall Street Journal op-ed by Charles Koch, the chairman and CEO of Koch Industries, and the continued sluggish recovery in jobs, business investment and the overall economy? I don't think so. In his piece, Koch seems to make a plea for a big dose of free-market capitalism. He argues, "The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism."
President Obama has ramped up his second round of economic and financial sanctions on Russia, and on Vladimir Putin in particular. Some of this is already working. But if anybody believes it will be easy to financially deflate Russia, they better think again. Russia holds $132 billion of U.S. Treasury securities. That's a big number, and it could be sold in the event of financial warfare. That won't kill the United States. But it will undoubtedly cause interest rates to rise. Would Putin spend it all? Who knows? His central bank just spent $50 billion to defend a sinking ruble, which is off about 10 percent year to date. But that still leaves about $400 billion in foreign-exchange reserves that could be called upon to defend the Russian homeland in an emergency.
Sizing up last week's unexpected congressional win by Florida Republican David Jolly, Kim Strassel of the Wall Street Journal wrote, "The Republicans who win this fall will be those who have serious answers to the attacks leveled on them -- about Obamacare, the economy, women's and seniors' issues." Sound advice. A few weeks earlier, pollsters John and Jim McLaughlin argued that to win big in November, the GOP cannot rely on Obamacare alone, unpopular as it is. More sound advice.
Fifty years ago last week, on Feb. 26, 1964, President Lyndon B. Johnson signed into law the sweeping tax cuts that had been championed by his predecessor, John F. Kennedy. The law brought the top marginal income-tax rate down to 70 percent from 91 percent and the bottom marginal rate down to 14 percent from 20 percent. The 22 rates in-between also were cut. The tax legislation of 1964 was one of three major across-the-board income-tax cuts in the 20th century. The others took place in the 1920s, during the Warren Harding and Calvin Coolidge administrations, and in 1981 and 1986 during the Ronald Reagan administration. After the Tax Reform Act of 1986, the top marginal rate was all of 28 percent. Today it is 39.6 percent.
Just before the bankruptcy of the Mt. Gox bitcoin digital-money (or virtual-currency) exchange, Japanese finance minister Taro Aso predicted the inevitable failure. "No one recognizes them as a real currency," he told reporters. "I expected such a thing to collapse." I totally agree with Mr. Aso. For weeks and weeks I have been tweeting and broadcasting that bitcoin is not real money. It is not a reliable medium of exchange, nor is it a reliable store of value. It has no central-bank regulation, network operations or even centralized issuance. And because of its wild price fluctuations, bitcoin can never be a reliable payment system.
