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As much as many have been using the financial difficulties in states like California, New Jersey, New York, and a few other states to illustrate the problems with profligate spending and over-the-top tax burdens, they are more like the extreme examples that not everyone can easily relate. So rather than repeating the same old same old, it would be better to use two other states. These two states are similar in population, demographics, and just happen to share a border. However it is the differences between these two states that may give us a better comparison for their different approaches to state spending and taxes policy.

Which two states are we talking about?

Maine and New Hampshire.

Amity Shlaes uses these two states to show how out of touch our President is when it comes to how tax policy and government spending can have an effect on the economy, positive and negative.

Even before Obama was born, some states were applying the Obama rule of "spend, even if it means higher taxes, and you will grow." Others operated on the philosophy that less government, even perhaps in times of trouble, served their residents better.

J. Scott Moody of Public Choice Analytics, a New Hampshire public policy consultant who specializes in cross-state analysis, ran his own experiment. Moody compared Maine, a state that more than 60 years ago embarked on one path, with New Hampshire, which went a different route. Like the president, Moody favors an emphasis on the household pocketbook. He therefore spends time looking at per capita personal income of individuals.

Amity goes on to explain how both states were at parity in regards to taxes, income, and government largess back in 1946, but took divergent paths from that point on. Maine ended up adopting both a sales and income tax while New Hampshire still has neither. (The point could be made that New Hampshire does actually have one in the form of an Interest & Dividends Tax, but most folks pay neither because they don't have enough income from either to trigger the tax.)

In the end the two different paths taken have illustrated quite handily how taxes and federal largess can have an overall negative effect on the state so afflicted.

Overall today, Maine residents shoulder a heavier tax burden than do those of New Hampshire. State and local taxes take 12.6 percent of personal income in Maine, the sixth-highest share among states. In New Hampshire state and local taxes take 8.7 percent, putting New Hampshire at 49th for tax burden.

The result? Decade in, decade out, New Hampshire's economy grew faster than Maine's, so that the Granite State surpassed the Pine Tree State in 1984 and today boasts an output that is 20 percent bigger. Maine's recessions and double dips were worse than New Hampshire's. Eventually New Hampshire also won the population contest, passing Maine, in part thanks to migration. Last month, joblessness was 8.1 percent in Maine, better than Ohio but still bad, and 5.8 percent in New Hampshire.

In general New Hampshire hasn't suffered nearly as much from this recession as the other states in New England and the rest of the northeast. Historically, New Hampshire has fared better during recessions and recovered from them more quickly since the 1970's. Such success can be attributed to the state's low tax burden and limited government.

Unfortunately over the past 4 years the state has been inflicted with a milder form of the Tax-And-Spend disease that has plagued so many other states. Fortunately the voters have managed to hold the line at the town/city level, reining in spending and keeping property taxes in check. They are also making known their displeasure with their spendthrift legislators, seeing them for the wastrels they have become. An example: the legislature made the mistake of trying to abscond with $110 million in private funds from a state chartered medical malpractice association to help fill a ~$250 million budget deficit of their own making. Fortunately the state Supreme Court saw through the maneuver and told the state government the money wasn't theirs and to keep their hands off. That hasn't stopped the legislature from trying an end run around the Court, but the voters are quite aware of what's been going on and will likely correct the problem this coming November.

How many other states would have had their Supreme Court slap down a money grab by their legislatures? How many other states would fire the legislators trying to spend and tax their citizens money to the point where the state would no longer be attractive to businesses? Not to many, from what I can see.

So what does any of this have to do with what's been going on in Washington? Simply this: If the tax, spend, and grow the government at any cost agenda doesn't work at the state level, what makes Obama, Pelosi, and Reid think it will work at the national level? The only difference will be the number of zeroes in the size of the deficits. Unfortunately I doubt any of them will take the hint.

Yeah, this is the Recovery Summer. NOT.

If the 27.2% plunge in existing home sales is any indicator, the 'recovery' has just had a major setback. If home sales are falling, small businesses tied directly and indirectly to housing aren't seeing any increases in their business. This in turn means they won't be adding any new employees.

Can anyone say "Double Dip Recession?"

As the economic news has been anything but good, with unemployment numbers up, orders for durable goods down, and spending by consumers down across the board in July, is it any wonder the housing numbers have also been sinking, showing a deepening second dip? Some have ascribed the falloff to the end of the the home buyer tax breaks that expired at the end of last April, but the effects of that should have ended by now. But the housing market continues its descent.

The government program that was supposed to help people renegotiate their mortgages in an effort to head off foreclosures hasn't been successful, with nearly 50 percent of 1.3 million homeowners taking advantage of the program dropping out. All the program managed to do was delay the inevitable for a few months. But many of the homes meant to be 'saved' by the program were still foreclosed. I wonder how much tax money all of that cost us?

Another thing driving down the prices of housing is the large inventory of homes being held by banks. With over 2.3 million homes foreclosed since 2007, and the present national median home price of $179600, over $406 billion in real estate inventory is waiting in the wings to be sold. If all of that property were to hit the market at the same time housing prices would plummet even faster than they already have. That might be a great deal for someone looking to buy a home (assuming any bank would be willing to give them a mortgage), but many of those looking to sell homes would likely be forced to hold on to them or sell them at a huge loss.

What's worse is that some have been driven to pull what's come to be known as a buy & bail, where they buy a lower cost home they know they can afford and then let the mortgage on their first home go into default. This has been a prevalent tactic for those deeply underwater on their mortgage where they owe far more than the home is worth but don't want to pour their money into a sure money-losing property.

And the Obama Administration wonders why the housing market trend is still downward?

They just don't make 'em like they used to. Democrats, that is.

George McGovern, former Senator from South Dakota and Presidential candidate in 1972, was a class act. And one thing that made him that was his ability to see things from someone else's viewpoint. And once he 'walked a mile' in that someone's shoes, he came to a realization that some of the legislation he supported or authored while in Congress did more harm than good, particularly in matters pertaining to the economy and the businesses that drive it.

How do we know this? Because he told us so way back in 1992 in a WSJ op-ed piece. It so impressed another member of Congress that he had it submitted in its entirety to the Congressional Record, both as a reminder and a warning.

Here are McGovern's very words, words that should be read by every member of Congress, and particularly those from the Democrat Party.

A Politician's Dream Is A Businessman's Nightmare

`Wisdom too often never comes, and so one ought not to reject it merely because it comes late.'--Justice Felix Frankfurter.

It's been 11 years since I left the U.S. Senate, after serving 24 years in high public office. After leaving a career in politics, I devoted much of my time to public lectures that took me into every state in the union and much of Europe, Asia, the Middle East and Latin America.

In 1988, I invested most of the earnings from this lecture circuit acquiring the leasehold on Connecticut's Stratford Inn. Hotels, inns and restaurants have always held a special fascination for me. The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility--complete with an experienced manager and staff.

In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn's 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.

Today we are much closer to a general acknowledgment that government must encourage business to expand and grow. Bill Clinton, Paul Tsongas, Bob Kerrey and others have, I believe, changed the debate of our party. We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.

My own business perspective has been limited to that small hotel and restaurant in Stratford, Conn., with an especially difficult lease and a severe recession. But my business associates and I also lived with federal, state and local rules that were all passed with the objective of helping employees, protecting the environment, raising tax dollars for schools, protecting our customers from fire hazards, etc. While I never doubted the worthiness of any of these goals, the concept that most often eludes legislators is: `Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.' It is a simple concern that is nonetheless often ignored by legislators.

For example, the papers today are filled with stories about businesses dropping health coverage for employees. We provided a substantial package for our staff at the Stratford Inn. However, were we operating today, those costs would exceed $150,000 a year for health care on top of salaries and other benefits. There would have been no reasonably way for us to absorb or pass on these costs.

Some of the escalation in the cost of health care is attributed to patients suing doctors. While one cannot assess the merit of all these claims, I've also witnessed firsthand the explosion in blame-shifting and scapegoating for every negative experience in life.

Today, despite bankruptcy, we are still dealing with litigation from individuals who fell in or near our restaurant. Despite these injuries, not every misstep is the fault of someone else. Not every such incident should be viewed as a lawsuit instead of an unfortunate accident. And while the business owner may prevail in the end, the endless exposure to frivolous claims and high legal fees is frightening.

Our Connecticut hotel, along with many others, went bankrupt for a variety of reasons, the general economy in the Northeast being a significant cause. But that reason masks the variety of other challenges we faced that drive operating costs and financing charges beyond what a small business can handle.

It is clear that some businesses have products that can be priced at almost any level. The price of raw materials (e.g., steel and glass) and life-saving drugs and medical care are not easily substituted by consumers. It is only competition or antitrust that tempers price increases. Consumers may delay purchases, but they have little choice when faced with higher prices.

In services, however, consumers do have a choice when faced with higher prices. You may have to stay in a hotel while on vacation, but you can stay fewer days. You can eat in restaurants fewer times per month, or forgo a number of services from car washes to shoeshines. Every such decision eventually results in job losses for someone. And often these are the people without the skills to help themselves--the people I've spent a lifetime trying to help.

In short, `one-size-fits-all' rules for business ignore the reality of the market place. And setting thresholds for regulatory guidelines at artificial levels--e.g., 50 employees or more, $500,000 in sales--takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics.

The problem we face as legislators is: Where do we set the bar so that it is not too high to clear? I don't have the answer. I do know that we need to start raising these questions more often.

It seems to me that question hasn't been asked at all by the Democrats in Congress since at least 2007. It certainly hasn't been asked since 2009 by either the Democrats in Congress or The One in the White House. There have also been far too few Republicans asking that question, too. It's a question that is long overdue.

Many in Washington are wondering why more businesses aren't hiring. Anyone in business could give all kinds for reasons, many of them emanating from those self-same folks in Washington. With all kinds of new regulations, taxes, and other burdens coming why should anyone in business, large or small, want to hire when there are far too many unknowns? The answer: they wouldn't.

A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.

And what happens when the provisions of ObamaCare kick in and adds thousands more to the cost of hiring a new employee? The probability of hiring that new employee goes down.

More than one commenter to the op-ed piece linked above made it quite clear they had absolutely no understanding of business and why businesses hire new employees. To them all that was needed was for the business to hire new employees and the economy would start its recovery. They didn't understand that businesses won't hire them until they are needed. To do otherwise places a burden on those businesses with little or no prospect of generating any more income for that business and quite possibly turning a marginally surviving business into a money losing business. Businesses hire only the amount of employees they need to provide the goods or services their customers require. But these economic morons either can't or won't understand this simple concept.

My wife and I own a small business. (We both have other jobs.) While it is surviving it is barely viable. The economic downturn saw our income for the business shrink by almost 70%. My wife stopped taking a salary a year ago in order to ensure the business would survive. Both of us put in countless hours without pay in order to make sure we can pay our bills, our taxes, and meet our payroll. If the economy recovers we expect our customers to return as well (though not necessarily to the pre-recession level). But until then there's no way we could even consider adding another employee because if we did we wouldn't take in enough to pay them and pay all our bills, taxes, and business loan. In a short period of time we would be out of business and 5 employees would be unemployed. Yet this is exactly what the aforementioned economic/business morons want us to do.

Need I say more?

This is a concept that needs to be repeated again and again and again until it sinks in to the minds of the Progressives: You cannot tax our way into prosperity.

Again and again it's been tried, even here in this country, and it's failed EVERY. SINGLE. TIME. Yet the Progressives are incapable of realizing a very simple and easily proven truth, that being you cannot enrich the poor by impoverishing the rich. Yet again and again they insist that in order to be "fair" they need to spread the wealth. Unfortunately they will quickly do away with what wealth there is (except theirs, of course) and make sure everyone is poor. As if that were somehow fair.

The argument they use is that the wealthy can afford confiscatory taxes. But for every means the Progressives come up with stealing what isn't theirs through taxation, the wealth producers find ways around them. And as the tax rates climb, they collect less revenue from the wealthy. Should it become bad enough, the wealthy will leave, taking their wealth with them. That's a lesson the UK learned during the 1970's, when their 'wealth' taxes caused a mass migration of wealth to more tax-friendly locations, with the end result being the collapse of the British economy.

Could the same thing happen here? Absolutely. We've already seen some elements of that occurring, with US corporations moving their 'headquarters' to tax-friendly nations like Bermuda, allowing them to greatly reduce the amount of corporate taxes they pay. Why? Because the US has some of the highest corporate taxes in the world. Only a sucker or an idiot wouldn't make moves to lessen their tax burdens if at all possible.

Now that Obama, Pelosi, Reid, Frank, and Dodd have decided the rich are the problem, they've been wasting no time trying to figure out even more ways of extracting money they did nothing to earn to give to their 'core' constituents, meaning not the average working man or woman. One commenter to the piece linked above has some of it figured out.

[They] are not really interested in raising revenue - but to continue punishing those that have money - ... It is as simple as that.

They are so envious of those that can create wealth, that the only thing Obama and his ilk can do is grab onto as much as they can, spread the misery and distribute anything they can grab - The fact that they may have less to distribute is also irrelevant - As long as those that have money feel the sting, Obama is happy - and when those that have money do whatever it takes to try and escape the taxman, the misery creators, Obama will keep turning the screws ...

The Progressive mindset does not allow them to think anything other than wealth is a 'zero sum' game. That means they believe that if someone became wealthy it was because they stole it from someone else and made them poor. It appears it is hard for many of them to believe the wealthy became that way through hard work, long hours, and taking risks others were not willing to take. That many Progressives in government have managed to become wealthy through their government connections and not through the traditional American system of hard work again leads far too many of them to think their way is the only true way to become wealthy. It is true in a kleptocracy, something it seems a lot of Progressives are working very hard to create. One thing they have overlooked though is that most kleptocracies are Third World nations, with a vast majority of their populace living in poverty because that's exactly the way the kleptocrats in power want it. The Progressives in this nation are no different, though they'll try to pretty up their attempts in mind-numbing governmentalese and politically correct speech, trying to make it seem as if it's a good idea.

In the end, though, it all comes down to envy. Democrats, and particularly the Progressives within the party, envy the successful. It's all they have that might reach others of the same bent of mind. They'll work hard to take away what the successful have made, but won't work that hard to make themselves successful. They are, as Ayn Rand described them, looters.

But all of that aside (I do go off on tangents, don't I?), what Laffer describes, what most Americans understand, and what the nation needs can be broken down into two simple sentences, provided by yet another savvy commenter:

Who cares if tax breaks don't fill the pockets of lower wage earners (like myself)? If raising taxes doesn't help the economy, then don't do it. (Emphasis added)

Indeed!

One of the more lucid commentaries I've ever read dealing with the financial mess the Democrats have been foisting upon us came not from this Wall Street Journal op-ed piece, but from a WSJ reader who manages to put it into perspective for those of us not infected with the progressive mind rot about economics (how it should work rather than how it does work).

Reader Geoff Wilson writes:

The Progressive mindset is a curious one. It only makes sense or becomes predictable once you realize that to them, Utopia is reached through faith in the inherent goodness of their goals. As such, it is really a religion. I say this not to disparage the concept of religion in general, but to recognize that religion is marked by a belief that "faith is the substance of things hoped for, the evidence of things not seen." Thus, to a true believer, no amount of logic or objective evidence will sway their opinion, since in their eyes, the true test of faith is to adhere to your beliefs when all else tells that your course of action has no chance to bring about the result you wish it to.

Thus, Progressives cling to their backwards, illogical view of the workings of the economy not because they have ever been proved correct, but because they have faith that this is the way the world works, and because this is the only pseudoscientific framework that has ever been constructed that gives their desire to control other people for their own good some sort of supposed systematic logical basis. Thus, telling them that their logic makes no sense actually only serves to solidify their resolve, because Keynesian thought is actually based on the economy being controlled by "animal spirits" that are illogical. Thus, economic crashes are not brought about by predictable, understandable chains of logical cause and effect, but instead are brought about by the capricious whimsy of illogical humans, who stampede over the cliff of liquidity traps with wild abandon like lemmings.

They don't expect the economy to make sense. Rather, they expect to follow the wisdom of their high priests no matter what the economic dials and guages (sic) are showing, because the two things they have faith in are that good intentions will always triumph, and that the economy is a backwards, illogical machine that can only be steered by turning left if you want to go right.

Ah, yes, good intentions. We all know where that road leads, don't we?

How many times have we seen a government decide it knew best how to handle its national economy, only to see all its efforts make things progressively worse to the point where the economy collapses, and with it, the government that tried to 'save' it? The harshest example has to be the the old Soviet Union, where all their 5-year economic plans failed to produce anything in abundance except inefficiency, shortages of vital goods, and misery. Venezuela has been heading down that road to hell and Argentina is following close behind.

Britain narrowly escaped the same fate when Maggie Thatcher became prime minister and proceeded to undo all the damage done to the British economy by her wrong-headed, though good intentioned predecessors. She understood, as did Ronald Reagan, that no one person or group of people are smart enough to control an economy to the betterment of all.

One of the most easily documented examples has been economic central planning, which was tried in countries around the world at various times during the 20th century, among people of differing races and cultures, and under government ranging from democracies to dictatorships.

The people who ran central planning agencies usually had more advanced education than the population at large, and probably higher IQs as well.

The central planners also had far more statistics and other facts at their disposal than the average person had. Moreover, there were usually specialized experts such as economists and statisticians on the staffs of the central planners, and outside consultants were available when needed. Finally, the central planners had the power of government behind them, to enforce the plans they created.

What is remarkable is that, after a few decades of experience with central planning in some countries, or a few generations in others, even communists and socialists began to repudiate this approach.

All such control diminishes economies and acts as a disincentive for anyone trying to do anything to improve it. China and India came to understand the concept and abandoned tight government control over their economies and they boomed to a level never seen before in either country's history. It's too bad the Progressives in this country have failed to learn that lesson and are willing to make the same mistake. Of course I expect their refrain will be "But we'll get it right this time!"

The only explanation I can come up with for the Progressives' belief they can succeed where everyone else has failed is insanity. You know, the type of insanity defined so: "Doing the same thing over and over again but expecting different results this time."

Indeed.

As if we need even more evidence the housing market is built on sand, the June housing sales showed a decline of 5.1%, indicating a deepening slump.

What's worse is that banks are selling more homes than developers, meaning the banks are shedding themselves of bank-owned properties (meaning foreclosed homes). When banks do that they'll sell them for lower prices in order to be rid of them, driving down real estate prices in general. That will sap even more equity from present homeowners, putting some of them upside down on their mortgages as any equity they had has now disappeared.

How is this supposed to be good for the economy?

As the old saying goes, "If you tax something, you get less of it. If you subsidize something, you get more of it."

In this case "it" is unemployment, something the Obama Administration has done everything it can to foster more of, Obama's claims not withstanding.

Of course all the other disincentives for getting another job, or worse, creating them, keep getting bigger. After all, why should Congress or the White House actually pay attention to the employers who actually create the jobs?

Why should anyone in business today want to take the chance of adding employees when they don't know what the Obama Administration and Congress has in store for them? Both seem to be on an anti-business bender, blaming business big and small for the troubles we've all been experiencing. Never mind that it was a Democrat controlled Congress that started spending money like there was no tomorrow. (During the last 2 years of the Bush Administration the budget deficits were bigger than the previous six years combined. It was during the last 2 year of the Bush Administration the big spending Republicans in Congress were replaced by the even bigger spending Democrats.) Never mind it was Democrats in Congress who thwarted President Bush's efforts to rein in Fannie Mae and Freddie Mac.

Why should Obama, Pelosi, or Reid let facts get in the way of their socialist agenda?

Despite all it's promises to the contrary, the Obama Administration has failed to stimulate the housing market in any meaningful way. While the attempt made with the home buyer tax credits did boost home sales a bit, home sales tanked after the tax credit ended.

Last month mortgage applications for new homes and refinancing hit a 13-year low despite record low interest rates (see below). It's also expected the number of foreclosures this year will be greater than last year despite the Obama Administration's attempts to "bully and wheedle banks into stopping foreclosures", an effort that's failed for the most part.

Remember when the Obama administration announced its plan to spend billions of dollars to prevent foreclosures? The White House threatened banks that attempted to seize defaulted property and tried to get judges to reset the principal of the loans in court. None of that has helped stop the wave of foreclosures; it has only delayed and strung out the pain, ironically cresting just as voters go to the midterm polls.

The housing market won't recover until the economy actually starts creating more jobs. Without jobs, nothing Obama does is going to fix the worst housing market we've seen in decades.

None of the stimuli and the rescue plans worked, because none of them addressed the core problem: joblessness. Without jobs, people lose their homes no matter how much the government intervenes to stop it.

Until we get people back to work, these programs are simply futile. A homebuyer tax break doesn't help someone without a job qualify as a buyer, and restructuring plans for existing mortgages can't help an unemployed person make a mortgage payment.

Obama has put the cart before the horse, trying to bolster one part of the economy (housing) without making sure another part has the means to sustain it (jobs). Maybe he's expecting the housing market to lead the way to recovery. If so he has made a major faux pas as the housing market tends to be a lagging indicator of economic recovery. It's a leading indicator only if the economy starts heading down into recession.

**********************

I took a look at today's finance rates from our local bank which shows a fixed 30-year mortgage at 4.375% and a 20-year fixed at 4.25%! That's the lowest I've seen, ever.

I ran the numbers for our present 30-year mortgage (at 5.75%) through their calculator and found we'd save $70 per month on our mortgage payment if we took out a 20-year mortgage for refinance. That means we'd take years off our remaining mortgage and still pay less than we're paying now.

Needless to say, we made the call and have started the ball rolling.

It was while reading the comments to this Brian Riedl piece about the myth of the Bush tax cuts and the deficit that a suspicion of mine was confirmed, that being that far too many otherwise educated and experienced people still have little understanding of the relationship between taxes, government spending, and economic growth.

First, the three myths.

The Bush tax cuts wiped out last decade's budget surpluses.

The next decade's deficits are the result of the previous administration's profligacy.

Declining revenues are driving future deficits.

I won't delve into the rebuttal Riedl provides as you are more than capable of reading it for yourself. However I can boil it down to a simple, easily understood phrase: It's the spending, Stupid!"

Tax cuts didn't cause the deficits during the Bush Administration. They didn't cause the unprecedented deficits during the first 19 months of the Obama Administration. The shortfall in revenue was not the problem then, and it's not the problem now. It's the spending by our government that exceeds what it takes in that is causing the deficits, period. Raising taxes won't solve the revenue shortfall because they won't generate the revenues Congress expects. Instead, revenues will fall off as the higher taxes discourage the very economic activity the government needs in order to expand the tax base.

Now comes the fun part.

Reading the 200+ comments to Riedl's op-ed piece, it is quite obvious who gets it and who doesn't.

Probably one of the most disturbing set of comments came from someone who is purportedly an experienced CPA, yet doesn't understand the Laffer Curve for what it is: a graphic representation of the relationship between tax rates and tax revenues. More than one comment showed her lack of understanding that the relationship between tax rates and tax revenues is not linear, meaning that if tax rates are doubled on some economic activity the revenue collected does not automatically double. It will be less than that because the higher taxes discourage the activity being taxed, hence less money changes hands, in turn decreasing the amount of money available to be taxed.

She also likes to make claims she doesn't back up or is unwilling to admit she was wrong when confronted with facts from the very sources she (sometimes) quotes. An example:

Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to.

She then goes on the quote economist Greg Mankiw, saying he wrote that the Bush tax cuts didn't raise revenues, in effect debunking the claim. But what Mankiw wrote was that they didn't raise revenues as much as had been expected, but they still rose. There was also a lag between when taxes were cut and the economy reflected the boost in available capital. It also depended upon which taxes were cut and by how much. That's not quite the same thing.

On the other hand, another commenter appeared to have a better understanding of the effects of the tax cuts on the average taxpayer and even provides some numbers generated using "some great tax preparation software" to debunk claims by others that the tax cuts actually placed a greater tax burden on them.

In the end what it all boils down to is that the only way to reduce deficits in a manner that won't take decades or generations to accomplish is for the government to spend a lot less money, not tax the bejeezus out of everyone that has an income. Or to put it more simply, again: It's the spending, Stupid!"

Even though unemployment hovers just under 10%, there are manufacturing jobs in the US going unfilled. It isn't that no one is applying for those jobs. On the contrary, a lot of people have been applying for them. Unfortunately it appears that far too many of them aren't qualified to fill those empty positions.

According to the most recent statistics, there are 14.6 million Americans looking for work. Surely a handful of these people would be suitable for a manufacturing job? Turns out many of the unemployed are unqualified for the skilled jobs these companies need filled.

But this is exactly what we wanted, isn't it? American manufacturing has moved, on many levels, beyond the low-skill manual labor of centuries past, and companies are increasing their usage of highly-technical practices like automation and CNC machining.

But all may not be as it seems at first glance. While younger workers may have the education, older workers have the experience that can outweigh education.

...in many cases, the 40-something who has been working in manufacturing job for the last 20 years (yet does not immediately qualify for a high-skill position) might actually make for a better candidate than a 23-year-old who just walked off the stage with their engineering diploma in hand. Think about the malleability of someone who has worked on the shop floor for years; they understand tools, safety, how to work hard, and so on.

But one must also look at the downside of some of these same workers. In certain industries they were crippled by being stuck in one particular job performing the same function over and over again, meaning that outside of that production line environment they've had little or no increase in knowledge or ability. What exactly am I talking about? Unions.

...the anti-competitive spirit of private- and public-sector unions conspires to dumb down its victims, making them into dependents -- first of the union and then of the state, when the employer lets them go, or goes under. Even workers in non-union jobs and plants have felt the impact of career compartmentalization as unions have bullied employers to transform the logistics of the factory to suit their members' alleged need for "security."

In short, big union collectivism administers Novocaine to the brain, from the kindergarten classroom to the factory floor, thus slowing the economy.

So as the number of private-sector jobs that Americans can't do swells, only one option remains for the people who have been doped and duped by collectivism: you can cash checks from the government -- either for doing nothing at home, or for actively hampering economic growth by working for the government.

Speaking as a former member of a labor union (the International Brotherhood of Electrical Workers), I can attest to the institutionalized sloth a union can bring upon manufacturers. I saw it on the floor every day. I heard it from the union stewards and fellow members of the rank-and-file. It was always "What are you trying to do, kill the job?" if you were working hard to be productive. In other words, you were some kind of a scumbag if you worked hard and gave anything above 50% effort during your shift. Under circumstances like that is it any wonder a lot of manufacturing jobs either headed to other states or other countries?

I think the only reason the company I worked for at the time survived was because it was a defense contractor. The economics were different. If the union had also made its way into the commercial side of the company (much of which was located in other states with right-to-work laws) it would have gone under because it wouldn't have been able to compete on price.

How many times have we seen companies close their doors forever or move their operations elsewhere because they couldn't meet union pay and benefit demands that would have left them less competitive, or worse, bankrupted them?

There's no doubt in my mind we're seeing a second dip in the housing market, considering the $8000 tax credit ended in April. Mortgage activity has all but ceased (but refinance activity has picked up a bit). There are other signs the housing market is softening further, and that we aren't anywhere near the bottom.

We've been in the process of trying to refinance our mortgage, seeing the interest rates are quite favorable. We're planning on a shorter term at a rate a little over 1 point lower than our present mortgage, meaning our monthly payment will be the same, but the mortgage will mature in a third of the time. Others are refinancing in order to reduce their monthly payments. Anyone capable of doing so would be crazy not to. But that doesn't help the housing market in any fashion.

One of my biggest worries about declining housing values is that what equity we do have in our home will dwindle further, if not disappear. While this may seem like an unlikely scenario, it isn't impossible. In fact, it's highly probably.

In the real world, the U.S. housing market has fallen less than half the distance it needed to fall to bring U.S. housing prices back to sane levels. While defining "sanity" is an ever more difficult task in this age of disinformation, let's start by going back to the mid-1990s. It was in the second half of that decade U.S. housing prices began a much steeper incline than previous years, and (depending on whose numbers you look at) U.S. home prices roughly tripled over that span.

I know housing prices in the Northeast have been too high for decades, going back to the first housing bubble during the late 1980's. Prices were going up at a rate many times that of inflation. It didn't help that a group of speculators were helping to drive up housing costs by churning properties (buying from a homeowner then reselling to other speculators to drive up the price) and then dumping them on unsuspecting buyers. It didn't help that a small number of banks were helping the speculators. When the bubble burst right during the 1990 recession, a lot of people found themselves upside down on their mortgages. What made it even worse was that many homeowners lost their jobs, meaning they had no way to make their mortgage payments. A lot of them ended up abandoning their homes, in effect handing the keys over to the bank and telling them "Good luck!"

Even though prices fell then, they didn't fall to a level that would have reflected the actual value would have been without the bubble.

With this second round of the housing market collapse, is it possible the decades overdue correction is about to take place?

Should U.S. homes fall back to 1970 prices (while U.S. workers earn their 1930's wages), that implies that U.S. home prices will fall more than 75% from today's prices.

Could home prices could fall that much? I don't know. I'm not sure that the quote above is based on actual 1970's prices or inflation adjusted prices. Either way it doesn't bode well for present homeowners.

Should that happen almost anyone with a mortgage would find themselves upside down on their note, which in turn could lead to an even greater round of defaults and walkaways. Those capable of doing so could first buy a house at the greatly reduced price and then let their first home go into foreclosure. (It's being done today in places where real estate values have fallen so much that many homeowners have found their homes to be virtually worthless.) Of course I'm assuming the Frank-Dodd Finance Reform bill doesn't make it through Congress, because if it does pass it's highly unlikely anyone will be able to get mortgages unless they don't need them. And that will only make things even worse in the housing market.

It will be the 1930's all over again.

As if the stock market downturn and declining home sales aren't enough, the so-called Frank-Dodd Financial Reform bill will make sure to kill off one thing that many of us depend upon - our local community banks.

The comprehensive financial reform agreed upon by the House and Senate on Friday, along with all the new regulations of the past year, could signal the end of community banking. The new reforms will give more power to the Federal Reserve to regulate how [small banks] do business.

What does all this mean for our customers? Less credit will be available, costs will increase, and we will be less able to make loans to regular people who were creditworthy in the past. This is the perfect storm for the small retail banking customer. We will start to see more small community bank failures and mergers because of voluminous regulation.

I thought financial reform was supposed to help both consumers and banks to survive. Instead it looks like it's designed to destroy small banks and make it very difficult to get loans of any type. How is this helping anyone except the banks that are too large to fail?

It has become increasingly apparent the Democrats in Congress are not friends of the American people. The only ones they're interested in helping are themselves...to our money.

It was 80 years ago yesterday, June 17th, that President Herbert Hoover signed the Smoot-Hawley Tariff Act into law, which instantly turned the Great Recession into the Great Depression. It was an act of trade protectionism that had exactly the opposite effect from the one intended. Call it an example of the Law of Unintended Consequences writ large.

Hoover and his congressional allies thought that reducing imports would strengthen the economy. Instead, it contributed to a collapse in world trade and the spread of protectionism around the globe. The lessons from this policy mistake are unfortunately all too relevant today.

The Smoot-Hawley tariff, conceived as a Republican ploy to gain the farm vote in the 1928 election, was a bad idea from the start.

It was one of the biggest mistakes the Republican Party ever got involved with.

It seems modern day Democrats are now looking to make the same mistake as the Republicans did in Hoover's day and for the same reasons. Should they pull it off, the unintended consequences won't be the same as those back in 1930. Instead, they'll be far worse.

Perhaps it's time for Congress and the President to stop punishing American businesses for succeeding here. Who knows, maybe new jobs will be created here as a result.

Is it any wonder 'green' jobs haven't been created here?

With the US government spending far too much time trying to kill off traditional energy sources, they really haven't spent nearly as much time trying to promote production of green energy sources as they should. Could that be why a lot of potential American energy jobs have been heading to China instead?

It seems any time there are alternative energy projects that actually look like they may actually work as advertised, the government wants nothing to do with it, or worse, works to kill them. But they'll sink tons of money into questionable projects with little chance of return on investment, or that will require endless government subsidies to survive.

Despite the ABC report above that the government of China controls the economy from top to bottom, meaning they can make offers others can't, the reality is quite different.

According to report from Cornell University, China's free enterprise economy works from the bottom up.

Entrepreneurship is taking off in China and with little input from the government, reports a new Cornell study. It is the capitalism of the private sector -- not government -- that is powering China's huge economy, say the researchers, making the rise of capitalism in China very similar to the West's.

"The surprising finding is how little government actually is needed to enable entrepreneurial activities," said Victor Nee, Goldwin Smith professor of sociology and director of the Center for the Study of Economy and Society at Cornell, who led the study. "Where markets rule, profit opportunities naturally draw in new entrepreneurs, no matter how adverse the institutional environment may be initially. Once a critical mass of private firms operates in specific niches, social norms and networks fulfill many of the functions that textbook economics assigns to government and legal institutions."

So ABC says one thing, and a study from Cornell says just the opposite. Who am I willing to believe?

Cornell, of course.

Chinese entrepreneurship is echoing that of the US long ago. Entrepreneurship is an endangered species here in America, seeing that the government doesn't appear interested in keeping US innovation, ideas, and inventions here where they can create new jobs, if not entirely new industries. We are indeed becoming far too much like Europe, where the government has taken control of many aspects of the economy. They stifle innovation, either by making financing new ventures more difficult or less profitable, or burying them under an avalanche of regulations that all but prohibit new economic activity unless the government can exercise control over every aspect of it.

Is it any wonder US companies are finding China far more receptive to new ideas and new technologies than the US?

The owner of a one time Chrysler dealership in the Laconia, New Hampshire area has let known his displeasure about the loss of his franchise as part of the restructuring of Chrysler Corporation after it was taken over by the government.

A former Chrysler dealership in the Lakes Region is closing up shop a year after the automaker's bankruptcy plan took effect -- and it's not going quietly.

Chrysler's bankruptcy plan included stripping its name from nearly 800 dealerships across the country -- including six in New Hampshire. It has been a struggle for many of the dealerships, and one in Belmont is closing its doors after 20 years.

The sign painted across the empty showroom windows expresses the owner's outrage.

"The sign says, 'This business is now closed because of Obama's economics.' I put that up there because it was his task force that closed -- or took away -- 789 franchises from small businesses," said Alan Silberberg, owner of Lakes Family Auto Center.

A number of successful and lucrative dealerships were forced to close their doors while lesser dealerships survived. It appears to many the selections of which dealerships to close were quite arbitrary and did not reflect the economic viability of those franchises. There have also been grumblings that some dealerships whose franchises were terminated were selected based upon their political leanings, with those owned by supporters of the GOP selected more often than those owned by Obama supporters.

Frankly, I believe it's because there were far more successful dealerships owned by Republicans than Democrats, so the burden fell more upon those franchisees in direct proportion to the balance between Republicans and Democrats...but I could be wrong.

Economist Arthur Laffer (he of the Laffer Curve) gives us a reminder and a preview of how tax policies can affect economic activity, sometimes for the better, but this time around for the worst.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

People can also change the timing of when they earn and receive their income in response to government policies.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Anyone believing people and businesses won't change their schedules or behavior due to tax increases or decreases or government mandates are either deluded or have no understanding of human nature or business. The upcoming tax changes will certainly affect the revenues collected next year as anyone capable of taking advantage of the existing tax rates will do so before the rates change next year. To do otherwise would be foolish. (I am also assuming that many of the same people who deride others for taking advantage of moving up income or other disbursements will do likewise, showing that they are hypocrites as well.)

Probably the biggest problem facing us is that, as a group, far too many liberals have a very poor understanding of economics. How do I know? Because Zogby tells me so.

Who is better informed about the policy choices facing the country--liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.

Some commenting on the Zogby piece claimed the questions asked didn't include enough specifics, but the poll was supposed to cover generalities, not definitive economic principles. Zogby wasn't polling economists, but members of the general public, giving us a decent snapshot of economic knowledge and attitudes across America, including some of our politicians. And with a majority in Congress, the left has been making some major economic blunders in their ignorance.

Need we say more?

Gee, where have we seen this before?

First it was Cash For Clunkers, an Obama program that helped spur auto sales for a couple of months. But once the program ended, auto sales slumped and were even lower than before the program started, just as many economists (and a few non-economist bloggers, like yours truly) predicted. All the incentive program managed to do was shift the purchase of vehicles forward a couple of months, meaning that people that were inclined to buy new cars or trucks regardless of any program moved up their purchases a couple of months. But there were no follow on purchases meaning the sales plummeted once the program ended. There was no net gain of sales.

Now were seeing the same thing in the housing market, with a sales slump following the end of the tax breaks given for buying a new home, first for first time home buyers, and then for anyone buying a new home. Once the program ended in April, there were no follow on purchases. All the program managed to do was shift the sales forward a few months. There will be no net gain in sales. The folks buying homes would have done so anyway.

And then came May, traditionally the height of the spring housing season.

Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997. Yes, you can argue that a larger-than normal share of buyers today are all cash, but those are largely investors.

That means real organic buyers are exiting in droves.

"With another week of historically low mortgage rates, the trend from the prior three weeks continued, as refinance applications increased while purchase applications dropped. Purchase applications are now almost 40 percent below their level four weeks ago, while the refinance share, at 74 percent, is at its highest level since December," said Michael Fratantoni, MBA's Vice President of Research and Economics.

So the low mortgage interest rates have been driving a lot of refinancing, but not a lot of mortgages for the purchase of homes. Color me surprised. NOT. Even with the lower interest rates the demand isn't there, having been exhausted by the end of April due to the tax incentives.

How much have those incentives cost the American taxpayers? The obvious answer is more than if there had been no tax incentives at all, and it was all for nothing. The temporary bump in home sales has passed and the slump has taken its place.

Way to go Team Obama!

As Paul Ingrassia reminds us, today was the first anniversary of the GM bankruptcy. You know the one, where the White House subverted the Constitution, stiffing the bond holders and debtors and giving the proceeds to the UAW, who were in no way a debtor.

What it was was a payoff to the unions for backing Obama, plain and simple. There's no other explanation I can find that makes any sense.