Remembering Benizar Bhutto & Her Corrupt Rule

Without a doubt, Benizar Bhutto's murder this week was a tragedy. It has done nothing but inject more uncertainty and instability into the Pakistani government situation.

However, of all the news coverage of the past week regarding Bhutto's murder, only one mentioned her prior regime's corruption. For example, consider this webpage on Benizar Bhutto's husband's corruption.

One editorial which I read in the Wall Street Journal claimed that Bhutto 'had never been tried for corruption,' or words to that effect.

Maybe not. I think she'd been deposed and left the country ahead of the authorities on both occasions.

Even at the time of each of her two turns as prime minister, The Economist reported Benizar's husband's shady dealings. Does anybody besides me wonder what the Bhuttos used for money when not in power? How have they been able to live without obvious careers, jobs, or other means of support for so long?

Perhaps Benizar would have won the next election. Perhaps not. If she had, perhaps this time, there'd be no corruption. More than likely, it would have continued.

Maybe the Pakistanis don't care about the corruption. Perhaps, to them, whichever tribe/group is in power will take its share of spoils.

But the pundit who noted Benizar's prior corruption, and its being the cause of her ouster each time, noted that her party has other qualified candidates to run for prime minister.

It's never a good thing to have political issues settled by violence and murder. But in the aftermath of Benizar Bhutto's death, it seems that nearly everyone has been remembering an angelic, perfect female Muslim leader, rather than the real, decidedly mixed blessing Bhutto was for her country and people.

On Economic Myth #3- US Incomes Are Static

This post is the third in a short series on economic myths prevalent among liberals in the US political scene. The prior two related posts concerning middle class job creation and tax-records-based income inequality, may be found here and here.

Last month, in the November 13th edition of the Wall Street Journal, the paper's lead editorial, entitled "Movin' On Up," provided detailed analysis the mobility of Americans with respect to incomes over time. The piece begins with the passage,

"If you've been listening to Mike Huckabee or John Edwards on the Presidential trail, you may have heard that the U.S. is becoming a nation of rising inequality and shrinking opportunity. We'd refer those campaigns to a new study of income mobility by the Treasury Department that exposes those claims as so much populist hokum."

The Journal article then begins to present data from that Treasury study,

"Much as they always have, Americans on the bottom rungs of the economic ladder continue to climb into the middle and sometimes upper classes in remarkably short periods of time.

The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

The Treasury study found that those tax filers who were in the poorest income quintile in 1996 saw a near doubling of their incomes (90.5%) over the subsequent decade. Those in the highest quintile, on the other hand, saw only modest income gains (10%). The nearby table tells the story, which is that the poorer an individual or household was in 1996 the greater the percentage income gain after 10 years.

At this point, we see that, even if there were as much static income equality as is alleged by liberals, contrary to the information provided in the Journal editorial by Alan Reynolds, the subject of the second linked post, the migration of US income earners up the scale from low to higher levels would make that a benefit, not a drawback. For, if one cannot improve one's income over time, and reach a more disparate level of income from one's prior one, where is the motivation for economic self-betterment?

And, not only does this work for those earning less, but, those earning the highest incomes actually experienced a decline in theirs,

"Only one income group experienced an absolute decline in real income -- the richest 1% in 1996. Those households lost 25.8% of their income. Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005. Some of these people might have been "rich" merely for one year, or perhaps for several, as they hit their peak earning years or had some capital gains windfall. Others may simply have not been able to keep up with new entrepreneurs and wealth creators."

As the study notes, there is substantial dynamism among Americans with respect to their ability move up or down the ladder of relative incomes. Thus, all of the poorest Americans do not stay poor. Over half of the poorest, by incomes, had moved into a higher quintile of income distribution by the end of the ten-year period. In particular, it states,

"The key point is that the study shows that income mobility in the U.S. works down as well as up -- another sign that opportunity and merit continue to drive American success, not accidents of birth. The "rich" are not the same people over time."

On the subject of inequality of incomes and income mobility, the article notes,

"The study is also valuable because it shows that income mobility remains little changed from what similar studies found in the 1970s and 1980s. Some journalists and academics have cited selective evidence to claim that income mobility has declined in recent years.

The political left and its media echoes are promoting the inequality story as a way to justify a huge tax increase. But inequality is only a problem if it reflects stagnant opportunity and a society stratified by more or less permanent income differences. That kind of society can breed class resentments and unrest. America isn't remotely such a society, thanks in large part to the incentives that exist for risk-taking and wealth creation."

The Journal editorial notes, based upon the recent Treasury study, that not only is static analysis of alleged income inequality a red herring, but mobility of Americans up and down the incomes scale remains similar to what it has been for over twenty years.

The US is not experiencing increased stratification of incomes, nor greater income inequality over time. Rather, our country's economic system remains attractive because of its characteristic of allowing those in the lower ranks of income earners to have a realistic probability of becoming much higher earners over time.

More Idiotic Overreaction to The Mortgage Mess: Jesse Jackson's 'Marshall Plan'

Compounding the months-old Congressional hand-wringing over the subprime mortgage mess is an editorial in the Wall Street Journal on 7 December by Jesse Jackson.

A failed Presidential candidate and liberal-issue gadfly, Jackson weighed in with a piece ominously entitled "A Marshal Plan for Mortgages."

His opening paragraph contains this sentence,

"But for the two million homeowners who face foreclosure over the next year because of the subprime mortgage crisis, their New Year's hopes rest not with themselves, but with policy makers in Washington and the investment community on Wall Street."

Wait. They face foreclosure "because of the subprime mortgage crisis?" I thought we had a mortgage crisis because of the behaviors of these delinquent or defaulting consenting borrowers.

Maybe I missed something. Or, more likely, Jackson simply misunderstands the concept known as 'cause and effect.' Perhaps this was not taught in Jackson's bible college?

Then Jackson gets down to his real message,

"It's time for another U.S. government-sponsored Marshall Plan. But instead of reconstructing Europe after World War II, today's Marshall Plan for mortgages would restore homeowners' and investors' confidence and dreams.

We already have a model for such a plan. It has been used successfully several times since the Great Depression, and has always worked. That model is the Reconstruction Finance Corporation. During the Depression, President Hoover used the independent government agency to provide $2 billion in aid to state and local governments, and for loans to banks, railroads and other businesses. Subsequently, President Roosevelt used it to finance the most creative aspects of his New Deal.

If we can save the S&Ls, we certainly can save homeowners with subprime mortgages. And whatever you call the revived agency, whether its middle name is Finance, Trust or even Mortgage, it is needed to rescue those Americans steered into subprime, adjustable-rate mortgages, often laced with hidden fees they never knew about."

He's not shy, is he? Nor stingy with your tax dollars. Even as he mixes metaphors. The title refers to the Marshal Plan, which reconstructed a ruined Europe after WWII, in order to prevent those still-free countries from falling under communism's hold.

However, in Jackson's text, he actually wants the RFC resurrected. Which is it, Jesse? Can't you get your request straight in even a relatively brief editorial?

I won't even touch the 'most creative aspects' of FDR's New Deal, other than to muse that maybe these were the unconstitutional parts subsequently struck down by an unpacked Supreme Court?

But, to Jackson's points. First, we aren't in the Great Depression. We haven't had anything near the equivalent of the original Black Friday of 1929. And the S&L's weren't saved, so much as forced into taking actions that altered their sector forever. Many went out of business, Jesse, because they lent long and borrowed short.

The moral there, and again, now, is that businesses and consumers must be made to pay the consequences for their economic decisions. That's the American Way. You have the freedom to succeed, or fail, Jesse. We can't just start handing out absolution, willy-nilly. Lessons learned by unwise, imprudent investors, lenders and borrows won't be soon forgotten.

Near the end of his plea for governmental intervention, Jackson writes,

"We must move immediately to adopt this Marshall Plan for mortgages or face the prospect of entire neighborhoods and communities becoming depressed and potentially abandoned. Unless we act, the crisis will continue to snowball. On Jan. 1, the interest rates on hundreds of thousands of home loans are scheduled to balloon, triggering an avalanche of foreclosures. Finding a permanent answer to this crisis should be a priority that unites all Americans, regardless of political party, ethnic background or income level. Financial institutions, politicians and local communities must work together to restructure mortgage loans and stem the rising numbers of foreclosures."

Jackson doesn't cite any facts or data in his closing call to arms. And, knowing he's not an economist, I'm not inclined to simply believe his hyperbole. It reads to me like a Jackson homily/diatribe- use the right phrasing and emphasis, and you can skip the facts.

And, by the way, a recent Journal editorial noted that recent analysis is showing that a surprising number of now-troubled mortgages were, in fact, instances of borrower fraud perpetrated on lenders and investors! Painting the entire situation with a broad brush is sure to have a host of negative consequences- rewarding imprudent adult borrowers, as well as fraudsters.

Better to just skip this idea of Jackson's. But if he thinks it's this serious, I'd welcome seeing Jesse donate most of his net worth to the cause and wear sackcloth instead of his usual expensive suits.

Unwarranted Halo Effects: Warren Buffett On Politics

In my companion blog, I have provided evidence that, at least for the past five years, Warren Buffett hardly deserves the title "The Oracle of Omaha." In these posts, here and here, I have noted that Buffett has made at least his share of big investment mistakes, if not moreso.

Why is the business media so ga-ga over this guy? This morning, CNBC featured an interview with him in San Francisco, where Becky Quick, a network anchor and reporter, accompanied him. Buffett is holding a series of fundraisers for Hillary Clinton.

At the end of Quick's interview with Buffett, she asked him why he backs both Hillary and Obama. Buffett's reply was simply, stunningly unbelievable. I suppose the video is available today on the CNBC website, but I won't provide a link, because I believe it will be non-functional by tomorrow.

Buffett's reply was that he believes both candidates 'understand our economic system,' or words to that effect, and that 'neither one wants to kill the goose that laid the golden egg.'

Boy, he couldn't be more wrong, could he? Hillary wants to tax and tax some more, to fund her many programs. Programs, she was quoted as saying are too many to mention. That's when she's not busy arguing for governmentally mandated alteration of contracts which CDO investors have with the obligors of the instruments which they have bought.

Obama is no better. He, too, argues for redistributional programs and taxes to essentially take from the so-called rich, and then make the poor even more dependent upon governmental handouts.

Buffett went on to claim that both candidates share his concern that incomes in America become less disparate. Too bad, as I commented here on Alan Reynolds' recent WSJ editorial, that all three are wrong about this trend.

It's truly disturbing when someone who many feel represents free-market capitalism openly supports socialist candidates who will happily dismantle the system which has allowed him to engage in his business as he has for so many years.

I'm not entirely sure which mistake bothers me more. The one identifying Buffett as a consistently superior institutional investor, or his in backing Presidential candidates so liberal that they may as well simply call themselves socialists.

Beware The Faux-Conservative: Mike Hickabee

Kim Strassel wrote a wonderful, informative piece about former Arkansas Governor Mike Huckabee in a recent edition of the Wall Street Journal. It's not the first of its ilk in the Journal, but it is somewhat more current, given Hick-abee's recent rise in polls in Iowa.

As in an earlier Journal piece, by which author I do not recall, Strassel provides details which demonstrate Hick-abee's lie, when he casts himself as a conservative.

He has a nearly-impossible plan to totally revise taxation in America, grandiosely calling for the abolition of the IRS.

As if.

He speaks of support for headline-type conservative positions, such as "lower taxes," a "strong America," and "health care reform." But his detailed, practical plans for such are missing.

Essentially, as another Arkansas Governor before him, Hick-abee is long on style, charisma and jocularity, but short on specifics.

Why should one run for President? To provide solutions not readily available. Why do candidates often run? Because they simply would like the job.

Of the Republicans, I think only Romney and Giuliani genuinely offer specifics on what they would do to handle various issues and problems which our nation currently faces.

I like Thompson but, truth be told, to back him is to back a style and attitude, more than positions and a record. As with the McCain, the maniacal Ron Paul, or Tancredo.

It's the same, I fear, with the latest hick from the South, Mike Hick-abee.

Hillary Shows Her True Socialist Colors

Hillary is finally dropping the pretense of being any sort of economic moderate. With her call for government-mandated measures concerning housing markets, as noted in the Wall Street Journal's piece on the front page of its December 4 edition this past week, she has unveiled her true socialist colors.

Calling for

"a 90-day moratorium on foreclosures and a five-year freeze on adjustable mortgage rates,"

according to the Journal piece, Hillary leaves no doubt that she's willing to ride roughshod over market dynamics.

Let's consider the existing housing market. No servicer who believes they can keep a homeowner in their home is going to wantonly foreclose. It's simply too expensive to pull that trigger capriciously.

Regarding adjustable rate mortgages, since when has any governmental agency been better at estimating risk than markets? Don't you think, by now, the market is going to exact higher prices on adjustable rate loans anyway?

Not to mention, most lenders are likely to eschew them for marginal buyers.

As with other Democratic legislators, Hillary mistakenly views a small slice of subprime defaults as the same thing as a general mortgage industry crisis. It's not.

Sure, her plan will play well to the lower-income crowd which Hillary wants to elevate to victim status. But, in truth, these are adults who chose to take on mortgage debt. Nobody put a gun to their heads when these people elected to borrow beyond their means to repay debt.

If government, including the Bush administration, and all Democratic Presidential candidates, would simply let the markets do their job, whatever costs should be borne, and lessons learned, will be delivered by markets in the next 6-12 months.

However, the last thing we need is for Presidential candidates to begin architecting rules for capital markets when they don't, as in Hillary's case, even understand the functions of our market economy to begin with.

Observing Pearl Harbor Day

Just a short note to observe the 66th anniversary of the Japanese attack on the US Naval and Army bases at Pearl Harbor on December 7th, 1941. This attack, coming, as it did, explicitly in advance of the Japanese declaration of war on America, galvanized public commitment to defeating Japan as nothing else probably ever could.

Whether Roosevelt conspired to facilitate so much damage and loss of life among American servicemen has never been clearly determined.

Never the less, on this day, I think it's worthwhile to consider our modern counterpart, September 11, 2001.

That day's terrorist attack on the World Trade Center towers parallels the Pearl Harbor attack. There was no explicit change in relationship status between the United States and another recognized state.

Rather, it marked the first time the shadowy forces which share extremist Islamist beliefs struck Americans on our own soil.

In the midst of the current campaigns for the November, 2008 Presidential election, it is timely to note the different reaction of the American people from that of our predecessors in World War II.

Now, Democratic candidates insist there is no terrorist threat, and that we should simply withdraw from combat in foreign lands. They fuel the public's desire to believe that sacrifice is unnecessary to protect our way of life, liberty and freedom. The mainstream media is complicit in this campaign.

Rather than see Pearl Harbor as an isolated event, I think we should take a lesson from it and rededicate ourselves to eliminating the forces which, without reason, threaten, and have attacked our country, wherever they may be found.

Remember the Arizona. Remember Pearl Harbor.