Strange things can happen in an election year. That is the subject of Edward Luce’s column in the Financial Times (The Reality of American Decline).

In his State of the Union speech Barack Obama denied that America is in declne. He said “anyone who tells you America is in decline…doesn’t know what they’re talking about.” Obama’s national security adviser, Tom Donilon, said on a television talk show that the president “loved” an essay by Robert Kagan, titled The Myth of American Decline. What is odd about this is that Kagan argues Obama has chosen to make America less influential in the world by altering our foreign and defense policy, and by denying that America is an exceptional nation.

Kagan backs his thesis that America does not have to abandon its leading position in the world by stating that our share of global income is still about a quarter, which is roughly what it was in 1969. Luce questions that assertion, using data from the International Monetary Fund’s World Economic Outlook.. The IMF numbers show that the US accounted for 36 % of global income in 1969. It fell to 31 % by 2000, and in 2010 it was only 23% of total income. China’s output was only 12% of the  US  level in 2000, and in 2010 it was 41%.

It might soon be worse,says Luce. One forecaster says that China could be the world’s leading economic power in 12 years, if it grows at 7 % and the US manages only 3 %.

(In today’s FT Kagan counters what Luce is saying. The statement that America retains about a quarter of world output comes from US government data. Besides, even if Luce’s numbers “are the only ones out there” the reality is that China’s per capita GDP is only a fraction of that of the US. And, in 1800 China had the largest economy and did not do much with it.)

Even though Kagan makes it clear he believes Obama is willing America’s decline his article was endorsed by the president. Why? It is an election year and Obama is trying to steal an opposition issue. Bill Clinton used to call it triangulation, but Luce prefers “co-option.”

Joe Nocera, a liberal columnist who writes for the New York Times, says it makes no sense for Obama to oppose the Keystone pipeline, except for the fact it is an election year (Poisoned Politics of Keystone XL.) Nocera says he realizes that politically Obama had no choice. In his “heart of hearts” the president wanted to approve the pipeline. Nocera writes:

“But to give the go-ahead before the election was to risk losing the support of the environmentalists who make up an important part of his base.”

Most likely what happened was that Obama’s advisers think theyhave little chance of carrying Ohio or Pennsylvania, so it might be better to try for North Carolina and Virginia.

Nocera says we need oil. We get much of it from countries like Venezuela, that do not like us. And here is Canada, a staunch ally, that is now forced to look to China as a potential buyer for its oil. This week Stephen Harper, Canada’s prime minister, is in China for a high level meeting. He brought along his minister of natural resources.

This leaves Obama with an as yet unsolved problem. His Republican opponents have been saying Obama is too nice to our enemies, and too nasty to our friends. What will Obama be forced to do to co-opt this issue?

The most important single event that ultimately led to the housing crisis in 2007-2008 was the public-private partnership that Bill Clinton unveiled in 1994.

The most important individual contributor, however, was James A. Johnson. Johnson knew Clinton well, since they had been roommates in college in the 1960’s. Both opposed the Vietnam war and evaded the draft. Johnson became vice chairman of Fannie Mae in 1990 and chairman in 1991.(Johnson had been Walter Mondale’s campaign chairman during the 1984 presidential campaign).

In 1992 Congress passed the Federal Enterprises Financial Safety and Soundness Act. The act had two parts. One goal was to prevent taxpayer losses because of bad mortgage investments by Fannie and Freddie. This came about because the savings and loan crisis had cost taxpayers $500 million, and the act was intended to prevent a recurrence of this kind of disaster. This section of the law was also intended to damp down pressure from those in Congress who wanted the government to withdraw from the housing market, and completely privatize both Fannie and Freddie.

The second part of the 1992 act had to do with affordable housing. The law, in effect, had contradictory goals. It was designed to avoid another taxpayer bailout, but by requiring Fannie and Freddie to buy riskier loans it made it more likely that taxpayers would end up paying the bill.

Prior to the 1992 legislation Fannie and Freddie had been regulated rather haphazardly by a cabinet-level agency, the Department of Housing and Urban Development (HUD). A new office was set up within HUD (Office of Federal Housing Enterprises Oversight) that would have two missions. One group would conduct periodic examinations of operations, and a second group would deal with capital adequacy. The second group had to decide, by December,1994, how much capital was needed and also design a stress test that would determine the amount of capital required in a worst case scenario (very similar to what banks had to do in 2009).

The second part of the act contributed directly to the housing crisis. Whereas previously Fannie and Freddie had only bought high-grade mortgages to help banks when money for housing was tight the two agencies were now assigned the mission of expanding home ownership to people who previously could not qualify for a mortgage.

The second part had three components. One had to do with low and moderate income housing. The second dealt with “special afford able housing goals.” The third related to inner cities, rural areas, and other underserved areas.

The act required that 30 % of the mortgages bought by Fannie and Freddie must involve the low and moderate income category. Another 30 % was allocated to the third category, which included inner cities.

To reach the new housing goals it became necessary to lower mortgage standards. Prior to the 1992 law Fannie and Freddie had only bought mortgages with at least 20 % down payments. They were now willing to buy mortgages with only 5 % down.

Originally, the intention had been to have Fannie and Freddie pay fees that would cover the cost of implementing the new law. However, Jim Johnson became an active participant in designing the law, so the fees were dispensed with. Johnson also managed to convince lawmakers that the agencies could get by with much lower capital requirements than the banks. Banks had to set aside 10 % as reserves, and for Fannie and Freddie it was less than 5 %.

Gretchen Morgenson writes in “Reckless Endangerment” that Johnson’s influence was so great that Fannie and Freddie ended up controlling their controller. Among other things, the law stated that the regulators had to get the approval of Congress before taking action. It also was necessary to obtain congressional approval for its budget every year. Morgenson writes that, in effect, regulation ended up in the hands of congressional subcommittees.. Johnson was by far the most active in this area because the head of  Freddie ( Brendsel) had few contacts on the Hill, Morgenson wrote.

Fannie and Freddie made large campaign contributions to members of Congress. If a member voted in ways that hindered the activities of the agencies they would be branded as “enemies of affordable housing.”

The heads of Fannie and Freddie had always claimed the benefits of being able to borrow at lower interest rates than strictly private firms were passed on to home buyers. Actually, Johnson kept about a third of the savings for his firm, and this money was used for incentive pay for executives and to convince Congress and the public that the agencies were essential in order to achieve the American dream of owning a home. Both Johnson and his successor, Franklin Raines, earned about $100 million during their time as chairmen of Fannie. Much of this compensation was connected with bonuses based on the value of mortgages purchased.

The Alger Hiss case was a big deal, but I have discovered that few young people today know anything about it.

In 1951, in Korea, when we went off line for rest and relaxation, we received a beer ration, which we typically consumed in one sitting. One morning after finishing a case I was told by my group that I had attempted to lecture them on why we were in Korea. We were there, I said, to enforce Dean Acheson’s policy of containment. I had no recollection of doing this, and certain I failed to convince anyone.

The Hiss case made life miserable for Acheson. After Hiss was convicted of perjury Acheson said he refused to turn his back on Hiss. In his memoirs (Present at the Creation) he said he was tired and wished his choice of words had been better. But, he said “one must be true to the things by which one lives.” The issue was integrity of character. He certainly did not want to imply he condoned the behavior Hiss was charged with.

Daniel Patrick Moynihan wrote that when he returned from the Nixon funeral on Air Force One there was a certain amount of discussion about Alger Hiss and Whittaker Chambers. Moynihan remarked on the difficulty many in Washington have had grasping what Lionel Trilling once called “the powerful attraction to Communism felt by a considerable part of the American intellectual class during the Thirties and Forties.” Moynihan noted that not everyone understood him. He wrote:

.”..it is one of those gulfs between Washington as the political capital and New York as the intellectual capital which has always seemed to me a hugely important fact of American life.”

After Acheson made his comments to the press he went to see Harry Truman. He offered to resign as Secretary of State, but Truman refused. Truman reminded Acheson he had attended the funeral of his mentor in Kansas City (Prendergast) who had been to prison, and was severely criticized for doing so. For both, it seemed to be a question of integrity of character.

Moynihan thought it also had to do with a sheltered life, at least for Truman. He wrote that Truman had probably never met a Communist until he went to Potsdam. This was not the case with British Foreign Secretary Ernest Bevin, who had been a union leader. After Potsdam, Bevin was asked what he thought of the Soviets. He answered: “They’re are just like the bloody Communists.”

Interestingly, Ronald Reagan also benefited from having direct experience with Communists. When Norman Podhoretz told Reagan he feared he had too much trust in the Soviets Reagan laughed and said:

“Don’t worry. I know these people. I sat across from them when I was a union leader in Hollywood.”

I finally managed to work through “Witness,” by Whittaker Chambers. It was a chore, not because it is so long but because Chambers was such a complicated person. He had the sensitivity of an artist, so his writing is detailed and full of nuances. He writes about how he felt when he viewed a field of flowers. It would remind him of something or other. He is not an easy person to identify with. His writing style is masterful, however. It is one of those books that is hard to put down.

Robert Novak writes in “The Prince of Darkness” that he read “Witness” when he was a young Army officer waiting to be sent to Korea. He never got there, because the war ended. He wrote the preface for the 1987 edition of’ Witness.Reading ‘Witness,” he said:

.”..changed my worldview,my philosophical perceptions,and, without exaggeration, my life. I am not alone. From time to time in after-dinner conversation with politicians on the campaign circuit over the years, I find a common bond with other people–some a generation younger–who have been alarmed, entranced, and always inspired by Witness.”

Novak said that he had been disillusioned by Truman’s mismanagement of the Korean war and had begun to think the cold war was just a squandering of resources. “Witness” showed that the struggle against international communism was a defense of our values, and transcended the foolishness and weakness of Western leaders.

One of the effects of the Hiss case was to make Richard Nixon president. The conviction of Hiss, with the aid of Chambers’testimony, was a “seminal” achievement in Nixon’s life. Novak writes that Nixon was a poor president and a bad person. He would have remained an obscure congressman except for the Hiss exposure. Nixon was not a conservative, but he earned the permanent hostility of liberals and the intellectual class, as well as the loyalty of American conservatives. In retirement, he always refused to be interviewed by Novak, even though he called to say he liked the introduction he wrote in “Witness.” The reason he gave was that he always thought of Novak as a Rockefeller Republican.(Actually, Novak was a Reagan Republican at that time).

Chambers reminds me of Hamlet. He was in constant agony about what he should do. He wanted to fight the idea of Communism without injuring the people he had known in the underground. That is why he perjured himself by denying he had ever participated in espionage. He had expected to be charged with perjury along with his friend, Alger Hiss.

The strongest impression I received from “Witness” is about how little things have changed from the era that Chambers wrote about. Chambers was struck by the fact that the intellectual and educated class, instead of being enlightened and open-minded, was much more close-minded than the general population. Many refuse to believe to this day that Hiss was guilty, despite the overwhelming evidence against him. Hiss spent the rest of his life denying his guilt (he died in 1996). It seems that intellectuals will always be attracted to the egalitarian ideal, even though a rational individual should be capable of grasping that human beings are far too flawed to ever produce a “fair and just society.”

Chambers (a Quaker) became a deeply religious person who believed God was the only really effective antidote  to Communism. He said that all collectivist societies will always end up being totalitarian. Secularists believe man and his reason is the highest authority, and this arrogance causes them to believe in the perfectibility of human beings. All that is needed is a well designed society. But, such a society will necessarily require coercion. Christianity, said Chambers, constituted a bulwark against this kind of arrogance because its basic tenet is the salvation of individual souls. When he switched sides he was convinced he had gone over to the losing cause.

Thomas J. Sargent writes in the Wall Street Journal that Europe might be in a better position to deal with the Greek debt problem if they had followed the American model more closely (An American History Lesson for Europe). Sargent, winner of the 2011 Nobel Prize in economics, is a professor of economics at New York University.

When Greece joined the Eurozone it became possible for it to borrow at essentially the same interest rate as the Germans, even though its economy is much less efficient. Now Greece is faced with a situation which will require it to give other Europeans (essentially the Germans) dictatorial powers over budget policy in order to escape bankruptcy. This is an ironic posit ion to be in for a nation that discovered democracy.

Sargent writes that the American states were bailed out by the federal government in the 1790’s, but when several ran into financial difficulty in the 1840’s the federal government refused to come to their rescue. State creditors asked the federal government to bail out the states, but Sargent writes that “after an enlightened debate, in the early 1840’s, Congress declined, so many states repudiated their debts.” Following the repudiation, several states rewrote the constitutions to require year-by-year balanced budgets. If a state such as Illinois (probably the leading candidate for default today) decided to repudiate its debt it could do so without necessarily leaving the dollar-zone.

The impetus for the bailout in the 1790’s came from George Washington (and Alexander Hamilton) and not from the states. In fact, Hamilton had to beg states-rights advocates, such as Thomas Jefferson, to go along with the plan. The Federalists under Washington wanted to strengthen the credit-worthiness of the United States by not allowing the states to default. The way to do that was for the federal government to assume the debt obligations of the states. Once this was done there would be widespread support for shifting exclusive authority to levy tariffs from the states to the federal government. Hamilton was an admirer of the British financial model which had given England a military advantage over France, despite its much larger population.

Sargent’s only interest is in showing the Europeans they might have fewer problems to deal with today if they had followed the American model more closely. However, it is interesting that Jacksonian Democrats preferred to leave the states to their own devices, whereas today’s Democrats are more inclined to bail out the states if default seems imminent. Democrats have adopted the collectivist model, which argues “we are all in this together.” But the collectivist model comes with strings attached, which means the loss of freedom. This is the choice the Greeks are faced with today.

Barack Obama’s preference for campaigning over governing represents a challenge for the editorial writers at the Financial Times. The FT likes to berate Republicans for their “obstructionism,” which means their refusal to support Obama-sanctioned national goals. In the 2008 campaign Obama said Afghanistan was the good war America must win. Now that another election is approaching Obama wants to tell voters the war is about to end. The only problem is the national goal of winning the war is nowhere in sight.

The FT says Hillary Clinton’s promise that 2011 would be a year of a “diplomatic surge” in Afghanistan rings hollow, since both the US and France wants to end combat activity soon, even though security and stability in nowhere near being restored in that ravaged country (No Winners in Afghanistan’s War). The FT writes that the problem is the west’s policy in Afghanistan has not worked. This forces the FT to give Obama a mild rebuke. The FT writes:

“It is no coincidence that the retreat comes as presidential elections loom in both countries…. Political considerations are finally taking centre stage in the conflict.”

The rebuke is mild because anyone who read Bob Woodward’s book about Obama’s “dithering” ahead of the announced troop surge should have understood it was not a serious effort. It was nothing at all like George W. Bush’s courageous decision to intensify the Iraq war in 2007 (which Obama opposed).It was merely an attempt to fulfill a campaign pledge which was designed to show that his primary opponent (Hillary) had supported the wrong war.

In its news report of the Pentagon’s statement that America will end its combat role in 2013 (instead of 2014, as previously agreed) the FT notes that it “surprised Afghan and Nato officials, who had assumed the US would continue to play a main combat role until the completion of a phased security handover to Afghan forces in late 2014.” (Kabul in Plea to US Over Troop Pull-Out Schedule).

The FT says that Nato officials scrambled to disguise their surprise.

Normally, it should be easier to agree on national goals in matters of war than when purely civilian projects are involved. But, history tells us otherwise. The war of 1812 was very unpopular with people in New England, who wanted to protect their trade with England. The war with Mexico in 1846 was opposed by the north because it was thought to be an attempt by the south to expand slavery. Today, Obama wants Republicans to embrace all sorts of national goals which for the most part are political, and have nothing to do with what some like to call “the common good.” Why, for example, is it in America’s interest to prevent the sale of Canadian oil in the US, so that we must import Venezuelan crude instead?

Thomas Friedman’s mind works in strange ways. He is intelligent and knowledgeable, but also highly predictable, and often seems oblivious to the implications of what he is saying. Today is one of the few times he does not advocate a higher federal tax on gasoline.

Friedman’s topic in the New York Times today is the different mental processes of politicians and corporate CEO’s (Made in the World). For a CEO the world is one big factory. It doesn’t matter where in the world a product is designed, assembled, packaged and sold. A CEO will go wherever he can find talent at the lowest cost. The world is a huge global supply chain.

Politicians, on the other hand, see the world as blocs of voters living in specific geographies. They see their job as maximizing the economic benefits for the voters in their geography.

Friedman apparently was stimulated to write this because when Barack Obama had dinner with Steve Jobs, the CEO of Apple, last February, he asked Jobs why most of their products were made overseas. Obama inquired if that work could be brought back to America. Jobs responded: “Those jobs aren’t coming back.”

Friedman also quotes Michael Dell, founder of Dell Inc, who pointed out that 96 % of Dell’s potential new customers live outside America. To access this market it is necessary to design and manufacture some parts of the products in their countries.

Friedman says America is well positioned to compete in the global supply chain because “there is no higher imagination-enabling society than America.” The biggest returns go to those who imagine and design a product. America has historically welcomed talented immigrants. There is no country safer than America when it comes to secure capital markets and protection of intellectual property.

Friedman concludes that in order to capitalize on these advantages America must come together on a plan. We need a national strategy to “enhance and expand all of our natural advantages: more immigration, more post-secondary education, better infrastructure, more government research, smart incentives for spurring millions of start-ups–and a long-term plan to fix our long-term debt problem..” If we do all of that, says Friedman, nobody could touch us. We’re that close.

Friedman should know we are not close at all. He longs for central planning, which is only possible in totalitarian societies. That is why Friedman is so enamored with China. But even China cannot entirely ignore the will of the people.

The first thing Friedman might have said is that we should elect a president who has some idea of how CEO’s think. That kind of understanding is not likely to come from a community organizer and a Harvard professor, who studied the manual written by Saul Alinsky. Friedman could have mentioned that Jobs told Obama there would be more work in America if foreign students were allowed to remain here after they graduate from our engineering schools. Obama brushed the suggestion aside and said it could only be done as part of comprehensive immigration reform. Jobs said he was very disappointed with the president’s response.

It is true that politicians think in terms of voting blocs, but not necessarily geographic regions. There is no question Obama thinks he has a better chance to win support from the so-called educated class, and that his prospects are not good among manual workers. That is why he rejected the Keystone XL pipeline, which is opposed by environmentalists. If America had a plan to rely less on oil from insecure sources, such as Venezuela and the Middle East, it would be set aside because of Obama’s electoral needs.

Is America a secure place for property owners? Not necessarily, because when the auto companies were restructured by the Obama administration union pension plans were protected but bond holders absorbed large losses.. When Boeing built a plant in South Carolina the Obama administration tried to prevent a shift of production from Washington state because South Carolina has right-to-work laws. Obama has often said the founders paid too much attention to property rights.

Friedman writes that talent earns the biggest returns in America. But, that means they end up in the top 1 % income bracket. According to Obama,these are the people who are oppressing the remaining 99 % of the population.

Finally, in terms of incentives, Obama wants to punish companies like Dell, who would like to sell to foreign customers. Those who shift jobs overseas in order to compete for foreign customers should be taxed at higher rates than those who keep jobs here, says Obama. It would be better for America if foreign profits could be brought back here without a penalty.

Kimberley A. Strassel writes in the Wall Street Journal about Mitt Romney’s strange reluctance to turn his success at Bain Capital into “a broad rallying cry for capitalism (Mitt Keeps Missing the Message). His diffidence contrasts sharply with the audacity of Barack Obama, who does not hesitate to take credit for achievements that he has strongly opposed, such as the boom in domestic oil and gas production.

Romney’s biggest problem is that many conservatives are not convinced he is a true believer in conservative values.. He could rectify this by stressing the advantage of the free enterprise system, starting with the fact that it lets consumers make their own choices, rather than have to follow directions from bureaucrats. Romney should also take advantage of the focus on Bain to keep Obama from changing the subject from economic growth to a debate about income inequality. In a war it is never a good idea to allow the enemy to choose the battlefield. Romney should welcome the opportunity to argue that prosperity depends on a vigorous private sector, whereas history shows central planning has always been associated with poverty.

Romney’s lack of forcefulness on this issue probably in part reflects the way he was brought up. Wealthy people often do not like to talk about money. Another factor is that people in business are usually too pragmatic to think much about ideology. The idea is to earn a profit, not to look for ideological purity. A third reason might be that Romney is intimidated by the hostility of our cultural institutions toward capitalism. I have often heard corporate officials say the last thing they want to do is appear in front of a jury. The common belief is that corporations have deep pockets and can afford to pay.

Obama demonstrated he does not lack audacity when he said his policies are responsible for the oil and natural gas boom in America. He knows he can get away with this outrageous claim because he is protected by a corrupt mainstream media. His Justice Department recently lost a case in North Dakota, where three oil companies had been sued because six ducks died in an oil pit. This meant they were in violation of the Migratory Bird Act. The judge who rejected the claim said that wind farms are responsible for at least 40,000 dead birds annually, but this has failed to attract the attention of Eric Holder in the Justice Department.

Obama’s comments about energy confuses the editors at the New York Times NYT writes (In Defense of Clean Energy) that Obama blasted Republicans for their single-minded commitment to fossil fuels, but the paper also suggested Obama may be intimidated by the Solyndra debacle. They write that they suspect his advisers are telling him clean energy is a loser.

Christopher Caldwell writes in the Financial Times that the only justification for attacking the rich on the tax question is vindictiveness, because it will hurt the economy and do nothing to correct the deficit problem. Romney’s tax rate is low, partly because of the special rule relating to carried interest. Caldwell writes:

” And yet, if this rule on carried interest were discarded tomorrow, it would win the US Treasury only an additional $2 billion a year. If Mr. Obama were to raise taxes on those earning $1 million per year, it would cover only the tiniest fraction of a deficit that last year reached $1. 3 trillion.”

Obama needs a scapegoat. He must try to convince Americans they would have jobs if the top 1 % was less selfish. He also wants people to believe that taxing the rich can save the entitlements and eliminate the need for reform.

Caldwell notes that when Democrats controlled the White House, Senate and House they could have done away with the carried interest rule in a single afternoon. They did not, says Caldwell, because Democrats” hold the allegiance of 19 of the 20 richest postcodes in the US “. The beneficiaries of the carried interest rule live in New York and Connecticut, not in Mississippi. Besides, the rule is much more useful as an election club against Republicans like Romney. (Obama, in 2008, received more campaign contributions from Wall Street than McCain did.)

Alan Greenspan is unapologetic in his defense of capitalism in a Financial Times column today (Meddle With the Market at Your Peril). He argues that history proves it is the most productive economic system, and also rejects the notion there is a trade-off between competition and equality. He says history shows the most productive economies have been able to do the most for their citizens. Without wealth creation there are no resources for government to distribute. (This brings to mind Margaret Thatcher’s well-worn phrase that socialism works until we run out of other people’s money.)

There are two ironies involved here. One is that Greenspan did much to tarnish the reputation of financial capitalism by not doing enough to contain the internet and housing bubbles. The other is that the FT, a business newspaper, sides with Barack Obama, the distributionist, and argues that free market Republicans are mostly to blame for political gridlock in America (The State of Barack Obama). Greenspan’s column is one of a series of articles in the FT about the condition of capitalism in the world today.

The Wall Street Journal reminds us, in an editorial today (The Buffett Ruse), that Barack Obama said in 2008 to Charlie Gibson of ABC News that he favored a higher tax on capital gains because it was “fair,” even though it might result in lower tax revenues and less growth. Obama is willing to sacrifice economic growth in order to advance his idea of “social justice.”

Greenspan writes:

“While central planning may no longer be a credible form of economic organization, the intellectual battle for its rival–free market capitalism–is far from won.”

Since Greenspan is such a staunch defender of Adam Smith (or Hayek) style capitalism it is fair to ask why he did not do more to protect it while he was Fed chairman. I think he answers that question when he says that we are really criticizing human nature when we attack capitalism. Greenspan may be brilliant, but he is also human. People who are brilliant tend to have a problem with humility. Greenspan probably enjoyed his reputation as a genius and was reluctant to spoil the party. His other failing is he was too rational. He professed to believe that rational people would not purposely act in ways that were self-destructive. However, since he is so rational he should have known the chief executives of the major Wall Street firms were hired hands who lacked an ownership mentality.

We cannot know for sure what is in Obama’s mind, but if we understand human nature we should be skeptical of people who claim to feel our pain. Chances are that, like most politicians, Obama is motivated by a desire for power. The way to achieve it is to build political coalitions, and the way to build coalitions is to hand out benefits to favored groups. (If we want to solidify our skepticism and realism we might want to read the works of Friedrich Nietzsche, who would have claimed even Mother Teresa was motivated by a desire to feel good about herself.)

In the years I have managed money for wealthy people I have discovered that guilt feelings are most common among people who have inherited money. It is less prevalent among people who started with little. I think that might account for Mitt Romney’s hestitancy when it comes to explaining his activities at Bain Capital. He says he became successful without using his father’s money, but it is likely his privileged background influences the way he thinks. Romney should stop saying he does not want to apologize for being successful, and instead give some specific examples of how capitalist efficiency helps America and how it compares with the inefficient and wasteful nature of government- run monopolies.

Greenspan could have pointed out that no matter how good an idea is it can turn bad if carried to excess. He once mentioned “irrational exuberance” and then seemed to forget about it. Moderation is a virtue, said Aristotle. In 1980 my investment performance was unusually good. I could not resist the temptation to make sure our chief investment officer was aware of this. My accounts were up about 80 %, while the overall market might have been up 15 %. It was because I had invested heavily in energy stocks. He sent me a note in response. It said: “Don’t overdo it.” He was right. It took nearly a decade for energy stocks to return to favor.

]

The State of the Union address last night fit the usual pattern, in that Barack Obama took credit for the good things and blamed others for what is wrong in America. But, clearly our union is not getting stronger when we have to borrow $1 of every $3 we spend to keep the economy growing at a miserly 2% rate. If we keep going this way national bankruptcy is inevitable.

What is good in America today is that we are growing our oil production and have abundant supplies of natural gas. Environmentalists do not like this because it impedes the shift to higher cost alternative energy. To appease the environmental lobby Obama is blocking the Keystone pipeline and forcing Canada to look to Asia in order to sell their oil. However, Obama also sought to create the impression that the growth in domestic production is a consequence of his policies. even though he placed a moratorium on production in the Gulf and has prevented the issuance of drilling permits on federal land.

Obama is obviously sensitive to the Solyndra problem and that is why he said that hydraulic fracturing, which has allowed production of oil and gas from shale, resulted from federally funded research. Its practical application, however, was pioneered by Mitchell Energy, which is now part of Devon Energy. The comparison with Solyndra is not apt, because the fracturing technology was available to everyone in the industry, whereas Solyndra represents an attempt by government to pick individual winners. This is what is referred to as “crony capitalism.”

Obama waxed nostalgic about how good things were for American workers after World War II. This is strange, because progressives like Obama are supposed to be forward looking. We will never return to those post-war days when America was dominant in the world. The focus should be on how to adapt to a highly competitive global economy. That is why the Jobs Council argues that our education system must be revamped, so that companies will not be forced to shift operations abroad in order to hire skilled workers.

Obama claims the wealthy in America are paying too little in taxes, but it would be more accurate to say the average American is under-taxed, especially in comparison with people in Europe. Wealthy people in America pay a much higher percentage of income taxes than Europeans do. The New York Times today has a table which shows the median taxpayer in America pays only 2. 3 % in federal taxes. Even if payroll and Medicare taxes are included the rate is only 7. 4 %.The reason is Europe’s dependence on the value added tax, which is paid by everyone who shops.

Obama is forced to concentrate on income inequality because he cannot argue that America is becoming more prosperous. We are becoming poorer by the day as our debt grows and the dollar shrinks in value. It is easier for government to put people on food stamps than it is to create jobs. That is why the choice in this year’s election is between the opportunity society or the dependency society.

Last night’s Republican presidential debate once again reminded me of the similarity between politics and Wall Street. It has to do with the lack of transparency. It is difficult to tell whether we are being sold a good or bad product.

It is called packaging. The wrapping may seem attractive, but the product often turns out to be foul.

Newt Gingrich says he was paid $1. 6 million by Freddy Mac for teaching them history. He noted that the GSE’s (government sponsored enterprises) at one time were good for the housing market. That was before Jim Johnson became involved. But, Johnson convinced Bill Clinton to change the model about 15 years before Gingrich was hired as an adviser. By then, the GSE’s had been corrupted. Now we are supposed to believe Gingrich advised them to revert to the old model. The suspicion is Gingrich was brought on board to help fend off stricter regulation.

Gingrich said he helped balance the federal budget several times when he was Speaker during the 1990’s. He might have told us Ronald Reagan had something to do with this. When the Cold War ended it allowed deep cuts in the defense budget. Gingrich did not tell us how he voted on the Clinton tax increase in 1993 (he voted against it).

Gingrch said he resigned as Speaker and left the House in 1998, because Republicans lost seats in the election that year. Ron Paul interjected that when he joined the House the place was a mess and Gingrich had lost the support of his Republican colleagues.

Mitt Romney has problems of his own. He says a mandate to buy health insurance in Massachusetts is fine for that state, but it is not good for America. It is called federalism (states rights). But Romney was eager to attack Rick Perry, in an earlier debate, for allowing children of illegal aliens to go to college after graduating from high school and pay the same tuition as other Texans. That choice by the people of Texas apparently does not fit Romney’s concept of federalism.

Barack Obama is less exposed, because he does not have to engage in debates. However, his supporters says it is not fair for Gingrich to call Obama the food stamp president, even though the number of Americans receiving food stamps has increased more than 50 % during his three years in the White House.

On the other hand, Obama should take credit for the increase in America’s oil and gas production in recent years. Tom Sever and John Podesta write in the Wall Street Journal (We Don’t Need More Foreign Oil) that under Obama’s leadership we appear to be at the beginning of a domestic oil and gas boom. Therefore, we do not need to import Canadian oil. Romney, however, noted that the only reason we have an oil boom in North Dakota is that Obama has not been able to stop it because it is on private land. Obama does not like fossil fuels in any form. He is for wind and solar.

The gridlock in Washington cannot be blamed on the Constitution. People do not trust government because politicians lie too much. They also do not trust Wall Street.