In my column for CNN, I discuss what sort of bailout Europe will need when it finally confronts the full scale of its debt crisis:

It’s been obvious for some time now what has to be done to avert the bank run: a European Super TARP, a version of the Troubled Asset Relief Program that was used to bail out Wall Street in 2008

The European Union will have to assume responsibility for the debt of southern European countries. In return, the EU will have to take control of the finances of those countries — cutting their spending and raising their taxes.

The debt assumed by the EU will have to be serviced somehow. That means the EU will need its own revenue stream sufficient to pay for and ultimately retire the southern European debt.

In other words, what we’re looking at is:

– A transfer of Greek and other southern European debt to all the people of Europe.

– Big government spending cuts especially in southern Europe, but also everywhere else.

– Higher taxes everywhere to support the southern European debt.

– All of it imposed by unelected bureaucrats in Brussels.

How’d you like to be the politician who has to explain that to the voters of Bavaria? So now you see why action is so slow.

The trouble is, the longer the action takes, the more expensive it gets — and the less likely the action is to be successful.

If the action comes early and if it is decisive and orderly, then it may be possible to force creditors to eat some of their losses. But in a panic, governments will not have time or leeway to negotiate. They’ll face a starker alternative: pay in full or default, the same stark alternative the United States faced back in the fall of 2008, which led to unappealing actors such as Goldman Sachs being made whole in backroom deals at the expense of the taxpaying public.

And if markets get the idea that the politicians of northern Europe will flinch from the Super TARP, then the bank run could start very fast.

Click here to read the full column.

Did James Hoffa Jr., President of the Teamsters, cross a line when he said he wanted to “Take Out” the Tea Party? In my column for The Week I try to provide a bit of context for the remarks:

The Teamsters have a reputation as one of America’s less delicate unions. Some say that reputation is outdated — an artifact of a ruder time. Then you come across something like the following: A 2003 National Labor Relations Board settlement between the Teamsters union and a picketed employer.

Here’s the first full page of the text, unedited. Just imagine the events that might have led to such a statement.

“We [the Teamsters local] will not engage in mass picketing or otherwise impede the ingress or egress of COMPANY employees or employees of any other employer to or from any COMPANY service center or any facility of any neutral person doing business with COMPANY or patrol or walk across the entrance of any COMPANY service center or a facility of any neutral person doing business with COMPANY in such a manner as to impede or delay the ingress or egress of any individual.

“We will not batter, assault, spit on, blow whistles loudly near a person’s ear, throw any liquid or solid object at, or attempt to assault any non-striking employee of COMPANY or any member of his or her family or any employee of a neutral employee doing business with COMPANY, or any security guard or supervisor or manager of a neutral empoyee doing business with COMPANY in the presence of employees.”

“We will not threaten to kill or inflict bodily harm, make throat slashing motions, make gun pointing motions, challenge or threaten to fight or assault employees, threaten to sexually assault non-striking employees or their family members, threaten to follow non-striking employees to their homes, use racial epithets or obscene gestures at non-striking employees doing business with COMPANY, or on any security guard, supervisor, or manager of COMPANY or neutral employers doing business with COMPANY in the presence of employees

“We will not videotape or photograph any non-striking employees of COMPANY, or vehicles of COMPANY or its non-striking employees while engaging in coercive activity observed or known by those being videotaped or threaten to release the photographs, names, addresses or photographs of non-striking employees

“We will not prevent any non-striking employee from accessing a COMPANY vehicle or COMPANY vehicles or the personal vehicles of non-striking COMPANY employees.

“WE will not threaten to fine or cause the discharge of non-member employees because they cross a picket line or refuse to go on strike.

“We will not threaten to cause any employee’s discharge if they do not engage in strike or picketing of COMPANY or any neutral person doing business with company.

“We will not attempt to harass or intimidate employees or security guards on COMPANY property by using mirrors to reflect sunlight into the eyes of COMPANY drivers or use mirrors or laser pointers to shine light into the eyes or video cameras of security guards.”

And that’s just page one!

Click here to read the full column.

Imagine that the UN General Assembly voted last month – as opposed to next month – to recognize a state of Palestine. What would the world look like this morning, in the wake of the deadly terror attacks in southern Israel?

A UNGA vote to declare a Palestinian state would have no legal effect, of course. The UN’s own rules lodge the power of state creation in the Security Council, not the General Assembly. That’s why the 1988 vote in the General Assembly to recognize “Palestine” had no juridical effect – and why the 1999 vote in the Security Council to create East Timor did have effect.

But a UN action does not need to have legal effect to have practical effect. Propaganda has a power of its own. Israel responded to Thursday’s terror attacks with air strikes against seven targets inside Gaza. The international reaction? Quiet. There are many reasons for the quiet. But one important contributor: Israel’s air strikes crossed no internationally accepted border.

To understand how important borders are, contrast Israel’s willingness to act in Gaza against its extreme reluctance to cross the Israel-Egypt border.

The terrorists who struck Israel Thursday crossed into Israel not from Gaza, but from Egyptian-ruled Sinai. Israel’s Ynet news agency is reporting that the terrorists actually emerged from underneath an Egyptian army border outpost – and in broad daylight, too.

Yet Israel has gone out of its way to deny that any of its forces ever crossed the border. Egypt has claimed three Egyptian soldiers were killed in the aftermath of the terrorist attack. Israel insists any Egyptian casualties must have occurred in clashes with the terrorists, not at the hands of Israeli warplanes in hot pursuit.

Who knows what the truth is? The one thing we do know: Israel is determined not to be seen intruding upon Egyptian territory. It feels no such reluctance about the non-sovereign state of Gaza.

But what if Gaza were regarded as sovereign, not necessarily by the United States and Canada, but by the Islamic countries and some European countries? The dilemma Israel faces on its Egyptian border would be joined by a similar dilemma on the boundary lines with Gaza and the West Bank.

This is precisely the dilemma the Palestinian push for UN recognition is intended to create.

Sovereign states have duties as well as rights. Sovereign states are expected to control their own territory, to prevent violent individuals from launching attacks on citizens of other countries. They are expected to provide for the welfare of their populations. They are expected to refrain from planning aggressive war against their neighbours.

Nobody in his or her right mind expects a post-UN-vote “Palestine” to do any of the above things. Quite the contrary: A post-UN-vote “Palestine” will be even less likely to suppress terrorism, even more dependent on international charity and even less committed to seeking peace with Israel.

The point of the exercise is not to gain the responsibilities of statehood, but to gain greater immunity for acts of irresponsibility – such as the heinous acts that claimed the lives of eight Israelis on Thursday and Friday.

Those acts left Israeli families grieving their loss. The families of the three slain Israeli soldiers mourn no less than the families of the five murdered Israeli civilians. It is always misplaced to speak of any “good” coming from the appalling fact of terrorist violence. But we can at least take this wisdom:

On Thursday and Friday, terrorist killers not only snatched away eight innocent lives. They also shoved the Arab world’s biggest state, Egypt, closer toward conflict with Israel. Such conflict would in turn raise the already-too-high risk of Islamic extremists taking power in the Egyptian state and army.

Palestinian radicalism can have frightening large-scale geopolitical implications. The whole region has an interest in dissuading the Palestinian leadership from adventurism and provocation. The push for a September UN vote on Palestinian statehood creates exactly the most perverse possible incentives for even relatively responsible Palestinian leaders. The world’s answer to the push must be a firm and unequivocal “no” – backed by a credible threat to end international assistance to the Palestinian Authority if the PA leaders are reckless enough to proceed.

Originally published at the National Post

In my column for CNN, I explain why Rick Perry’s record on job is both his greatest strength and weakness:

Gov. Rick Perry enters the presidential race with one big advantage and one big impediment. The advantage: his record of job creation in Texas. His impediment? His record of job creation in Texas.

Through two years of weak economic recovery, Texas has led the nation in job creation. Of all the jobs created in the United States since 2009, 38% have been created in Texas.

But if Texas has created many jobs, it has failed to create good jobs. Many of the jobs created since 2009 pay only minimum wage, and Texas, along with Mississippi, has the highest percentage of minimum wage workers in the U.S.

Truth be told, it’s unclear how much (if any) blame or credit Perry personally deserves for either Texas’ good job creation or Texas’ bad wages. Perry did not endow Texas with the oil that supports the Texas economy. Nor did he locate Texas next door to Mexico and the flow of legal and illegal immigration that drives down Texas wages.

Yes, compared to the government-led economic development symbolized by President Barack Obama’s stimulus spending, there is something to be said for the Texas approach. At least the Texas approach puts people to work. But must Americans choose only between the two ugly options: no jobs vs. low wages?

Click here to read the full column.

This is the week that the U.S. presidential race got serious.

The joke candidacy of Donald Trump has crashed and burned. The early assumption that Barack Obama would enjoy an easy “morning in America” re-elect has also crashed and burned. After the market turmoil this week and after Texas Governor Rick Perry’s expected entry into the GOP race Saturday, here’s where we stand.

On the Republican side, Mitt Romney looks like the weakest major-party front-runner since Michael Dukakis in 1988. To date, he has raised more money than any other Republican, but at a pace nowhere near George W. Bush’s fundraising in 1999. Romney’s record as governor of Massachusetts haunts him. Republicans do not respect his greatest achievement: Extending health coverage to his state’s uninsured, and they cannot forgive his pragmatic compromises, including increases in state business taxes. And Republicans remember that Romney not only used to be passionately pro-choice on abortion, but that he promised in 1994 to outdo Ted Kennedy as a champion of gay rights.

Disenchanted Republicans have shopped for a credible alternative to Romney.

Ron Paul, Sarah Palin, Herman Cain and Michele Bachmann obviously do not qualify. Minnesota Governor Tim Pawlenty and former House Speaker Newt Gingrich looked more plausible, but have not made the sale. Texas Governor Rick Perry, on the other hand, may have what it takes. A three-term governor of the country’s second-biggest state, Perry has raised a career total of $100-million in campaign donations. While a favorite of Texas business leaders, Perry has also created a profile acceptable to religious conservatives. Last weekend, Perry presided over a prayer event in Houston that explicitly excluded non-Christians, and that just happened not to include any Mormons or very many Catholics.

Perry has weaknesses: Brains-wise, he is not exactly the sharpest pencil in the packet. Past Perry campaigns have been dogged by whispering campaigns about the candidate’s personal life. Will Republicans, let alone Americans, really nominate another Christian conservative from Texas so soon after George W. Bush? But with Romney unable to exceed 25% in Republican presidential preference polls, Perry may well be able to surge past him if the race narrows to a two-person contest.

Especially since President Obama’s political position is crumbling by the minute.

U.S. economic output has still not caught up to its level of 2007, and is now threatening to stall, if not slip back into outright recession. The U.S. job situation continues to be dismal.

Between the summer of 2008 and the spring of 2009, almost 9 million Americans lost their jobs. Since the summer of 2009, the U.S. economy has produced a net total of two million new jobs.

Even if the U.S. economy started tomorrow producing jobs at the best rate of the booming 1990s, it would still take almost two years to reduce unemployment to pre-crisis levels. At the current rate of job creation, a little over 100,000 per month, the U.S. economy won’t return to full employment for more than half a decade. As is, six million Americans have been out of work for six months or longer.

Unemployment hits hardest exactly those social groups who put their trust in Barack Obama in 2008: the young and racial minorities. They may not vote against him in 2012, but they cannot be relied upon to turn out to vote for him.

For presidential re-election, what matters is not the level of the economy, but the trend. Ronald Reagan scored re-election with unemployment over 7%. But unemployment had dropped by two points in 1983 and another 1.5 points in 1984. Even those still out of work on voting day could feel confident that conditions would improve soon.

In 2011, the trend is not President Obama’s friend. Obama supporters complain that many of the weaknesses of the U.S. economy can be traced to Republican obstructionism. The Federal Reserve has failed to act decisively to expand the money supply because Senate Republicans have blocked the president’s Fed appointments.

The Republican threat to prevent a rise in the debt ceiling frightened bond investors. Republicans now threaten to tighten federal fiscal policy by cutting spending and refusing to extend the one-year payroll tax holiday when it expires at the end of 2011.

Those Obama supporters have a point, but not the point they want. True, Republicans have not played a helpful role in this economic crisis. But it’s also true that Barack Obama is not the first president in U.S. history to have faced unhelpful opponents. Other presidents have had to overcome opposition to achieve results. If President Obama could not do so, he is unlikely to win many sympathy votes. The electorate will likely instead say: “The job was too tough? Go find a job you can do, and let us find somebody else to deliver the prosperity that eluded you.”

Originally published at the National Post.

In my column for CNN, I discuss some of the reasons why very few companies are currently hiring:

Even if we avoid a second recessionary dip, we’re stuck on a very, very disappointing path. Call it the 1936 parallel.

From 1933 to 1936, the U.S. economy grew strongly, almost 10% a year. When supporters of President Franklin D. Roosevelt sang “Happy days are here again,” they had reason to celebrate. By the end of 1936, U.S. output of goods and services had returned to 1929 levels. Corporate profits were surging. $100 invested in the stock market at the end of January 1933 would have multiplied to almost $350 in January 1937.

Yet even before that second slump, one economic indicator remained ghastly: unemployment. Even as output boomed, markets soared and profits bulged, an estimated 17% of Americans remained out of work.

Today likewise, things have returned more or less to normal for the affluent — without taking much of a bite out of the unemployment numbers.

In fact, on our current trajectory, the U.S. will catch up to 2007 levels of economic output sometime in the next couple of months. Yet at the current job creation rate of a little north of 100,000 jobs per month, the U.S. economy will not recover its 2008-2009 job losses until the middle of the decade. And because so many distressed workers have quit the labor force altogether, the pace of job creation would have to double for the U.S. to see total employment rates return to pre-crisis levels before 2015.

What’s the problem? Consider just these factors:

1. This past recession delivered its hardest blow to some especially labor-intensive industries: construction and retailing. Even as economic activity recovers, we’re not going to see lots of new home building. Nor will we see people using their cash-out refinancings to go shopping at Best Buy. Americans are saving again. Those who have jobs are paying down debt.

2. Recessions lead to consolidations. Weak firms go broke, strong firms gain market share. The strong firms hire, the weak firms fire. But because the strong firms are more productive (that’s why they are strong!), they do not hire nearly as many people as the weak firms have laid off.

Click here to read the full column.

Canada increased its exports by $26.7-billion in 2010 over 2009. Almost 80% of that increase was driven by sales of automotive products into the U.S. market.

Canada’s economy has been buoyed by strong prices for Canadian energy and food exports, and by a surge in construction activity inside Canada. Canada benefited from a well-designed fiscal stimulus – very unlike the American version – that supported the economy in the crisis and then ended when its job was done.

So congratulations all around. Yet even as Canadians enjoy their comparative success, it sadly remains true: The most important factors determining Canada’s future success remain outside Canadian control.

Click here to read the full column.

The first and most obvious loser: National security.

The economist Herb Stein used to advocate a simple model of federal budgeting:

a) Decide how much it costs to defend the country.

b) Pay for it.

c) Then see what else you can afford.

Adam Smith phrased the same idea more elegantly, by saying that “defense is superior to opulence.” The point is that the defense of the nation is not just another line-item. It’s the first obligation of government, more important than any other form of spending, and way more important than minimizing taxes.

Yet this budget deal treats defense as just another special interest. Worst is the enforcement mechanism for the deal: If spending targets are not met, the deal subjects Medicare and Medicaid to automatic cuts (presumably to punish Democrats) and subjects defense to cuts (presumably to punish Republicans). The enforcement mechanism could have included new taxes, but defense was substituted to clinch the deal. That way Republicans get to tell their Tea Party base that the deal contains no tax increases. But the substitution also reveals that for today’s Republican Party, the defense of the nation is at best a secondary priority.

The next loser: American political stability and financial credit.

The debt ceiling debate feels like one of those tragic episodes out of the history of the fall of republics. To gain their point on a budget matter, Republicans did something unprecedented in the annals of American government. They made a bargaining chip out of the public credit of the United States. In a well-functioning democracy, certain threats are just not used, and the threat to force the country into default should rank high on the list of unacceptable threats.

Click here to read the full column.

In my CNN column, I write about the five major mistakes President Obama has made in his handling of the debt-ceiling debate and the economy.

If the debt ceiling crisis were a movie, President Barack Obama would deserve an Oscar for his performance in the role of “the last reasonable man.”

But of course the crisis is not a movie. The crisis is a deadly serious clash of ideas and interests. And there, the president has lost his way.

Obama has lost his way so badly that even his core liberal supporters should be questioning whether they have got the right man in the job.

The indictment has five headings:

1. Obama has ceased to lead on the economy.

The management guru Stephen Covey famously said: “The main thing is to keep the main thing the main thing.” Economic recovery is — or should be — the main thing. In 2009, Obama advanced a series of bold proposals to accelerate recovery: his big fiscal stimulus, the auto bailout and so on.

The president’s proposals did not fail, exactly. But they did not work as advertised. The American economy limps weakly forward, leaving millions out of work.

During the Great Depression, President Franklin Roosevelt demanded from his administration “bold, persistent experimentation.” By contrast, Obama put measures in place at the beginning and waited for them to yield results. And waited. And waited. And waited.

Finally, at the end of 2010, he added one more measure to the mix: a partial cut to the payroll tax, included as part of the deal that renewed the Bush tax cuts.

The payroll tax holiday is welcome if late. But it was small (2 percentage points out of the 12.6% paid by workers and employers) and was almost immediately offset by the surge in oil prices after the so-called Arab Spring. That surge took back from workers every dollar of the $110 billion in tax relief delivered by the payroll holiday.

And since December, Obama has surrendered entirely to the claim that we can somehow fix the economy by fixing the debt problem. The truth is the opposite: Fix the economy, and the debt problem will shrink to much more manageable proportions.

2. Obama does not effectively use the domestic powers of the presidency.

Talk radio shows accuse Obama of acting like a Third World dictator heading a thug government. That’s a devilishly ingenious line of attack on a president who actually makes weaker use of his domestic power than any since Jimmy Carter.

Example: The U.S. recovery that commenced in the summer of 2009 stalled in the spring and summer of 2010. Many economists blame the stall on the Federal Reserve’s April 2010 decision to stop providing additional monetary stimulus for fear of igniting inflation. Those inflation fears proved utterly misplaced, and in late 2010 the Federal Reserve resumed its monetary stimulus.

Where was the president during this crucial debate? AWOL.

Yes, yes, the Federal Reserve is independent and all that. But other presidents have succeeded in making their views known and respected on monetary policy. Obama had a unique chance to influence the debate, because through the summer of 2010 two of the seven seats on the Fed’s Board of Governors stood vacant. The president nominated expansion-minded governors to fill the seats. The nominations were put on hold by Republican senators. And what did the president do? Did he take to the airways to demand action on his nominees? Did he punish the senators by stopping federal projects in their states? Did he fill the seats with recess appointments?

To borrow the answer from Fred Armisen’s imitation of Obama on “Saturday Night Live”: “I’m seeing two big accomplishments: jack and squat.”

3. Obama cannot communicate empathy for Americans in economic distress.

Remember that video of the Obama supporter expressing her exhaustion and disappointment with the president’s record of help to the middle class?

Watch it again, and pay careful attention to what the president does. He first makes a perfunctory effort to connect with the woman in front of him as a fellow-parent. Then he rattles off a list of small programmatic changes: in the student loan program, in credit card regulation, none of them especially relevant to the woman in question. He finishes with a “stay the course” message that must ring hollow in the ears of all those for whom the “course” means unemployment of 38 weeks or longer.

Notice what the president does not do. He does not thank his questioner for defending him. He does not ask her questions of his own. He is so determined to sell his narrative, that he cannot hear or honor her fears. And indeed the questioner did lose her job a few weeks after the town hall meeting.

For two years, Obama’s economic message has been “recovery is around the corner.” He has delivered this message from factory floors and restaurant tables. He has not spoken in front of groups of unemployed; he has not spoken at welfare offices.

Obama’s disconnect from those in distress may explain the remarkable collapse of his support among younger whites, once one of his most important groups of supporters. Pew reports a 10-point surge in Republican identification among whites under age 30 since 2008. These are some of the voters hardest hit by this recession. They are voters to whom this president has spoken least.

Click here to read the whole column.

Government spending is often wasteful. But it’s still spending.

When the Department of Waste, Fraud & Abuse buys toothpicks for the office cafeteria, that money is received by somebody. The recipient then buys other goods and services, circulating money through the economy. The money may not flow to its highest and best use, but it still flows.

What happens when the government money stops flowing?

If the economy is growing normally, then the ex-government money can be returned to the taxpayers who will spend it on something else, probably something more useful.

But what if the economy is not growing normally?

President Obama’s 2012 budget, submitted in February of this year, proposed $33 billion in cuts from federal agencies as part of an overall five-year freeze in non-defense discretionary spending.

Since then, the scale of proposed cuts has grown bigger and bigger and bigger. These cuts may not ever materialize. But if they did — you know, that’s real money they’re talking about. If the government were to spend less at a time when households and businesses still hesitate to spend more, well then … you don’t have to be an Orthodox Keynesian to recognize that less money would be spent.

And spending less money has real-world consequences for real-world suppliers and vendors.

So here’s the question:

If government is to cease providing extra demand to the U.S. economy sometime after, say, August 2 of this year, who will provide that demand instead? And how?

Click here to read the full column.