More good news for America, and, incidentally, George Bush.
Final third quarter GDP figures were released today, showing a fantastically high 8.2% growth in GDP for the period. Let this be a lesson for anyone who would say, as I've heard often, that this president's (don't speak his name, it burns!) economic policies have resulted in the loss of 2.2 million jobs, the worst performance since Herbert Hoover, giving us incidentally the worst economy since the Great Depression.

It is true that Bush economic policy has not been entirely quite what I'd like to see. The deficit, pardonable at first while we got the War on Terror kicked off and decided we needed to whack Saddam, has ballooned to proportions which give pause for concern. But, Daschle & Co take note, there are only a few ways to actually cause a recession or massive loss of jobs by virtue of economic policy. There are only two levers by which the economy can be controlled: fiscal policy and monetary policy. The president has essentially no influence over the latter, which leaves us to consider how Daschle's claim could possibly be true with the President only recommending, not actually enacting, fiscal policy (which enacting is, after all, what Congress does for a living when it's not busy perpetuating its own existence).

So how could Fiscal policy produce a recession or massive loss of jobs?

1. It could be restrictive at the wrong time.
2. It could be neutral when matters plainly suggest loosening is in order, or loosen only a little when a lot is in order.
3. There are some really subtle and long term issues with currency valuation, which depends upon many other things on fiscal policy.
4. The size of the deficit has some theoretical long run impact on long term interest rates, which may nudge GDP (and hence job growth) in the wrong direction.
5. Protectionism, not strictly an element of fiscal policy, is generally not good for the economy on balance.
6. The tax code itself can, by its sheer complexity and the cost of ensuring compliance with its myriad byzantine provisions, reduce GDP.

Those are about it. Anything else from the fiscal policy side, which you're welcome to suggest, essentially has only fringe influence on the actual behavior of the economy. Let's briefly review our fiscal policy performance against the above items:

1. Being restrictive at the wrong time is bad for the economy. It basically means taking more money away from people just when the economy is getting into trouble and is headed for recession anyway. Restrictive fiscal policy relies either on increasing taxes or cutting government spending, neither of which has happened during the current administration.

2. Being neutral means relying only on automatic stabilizers for economic stimulus; or for tax receipts and spending to give opposing influences (both are presently stimulative). These automatic stabilizers refer to the tendency of tax receipts to automatically drop in a recession (fewer working people paying taxes); and the tendency of government spending to automatically increase in a recession (more welfare and other transfer payments to those same people now out of work). This is an acceptable response to a mild recession caused by the normal process of the business cycle (a recession caused by high interest rates, themselves a monetary policy response to check inflation in a high-GDP-growth environment). In a recession caused by the bursting of an asset bubble (such as our recent, post-Nasdaq collapse recession, or the decade long funk in Japan after the bursting of their real estate bubble) neutral fiscal policy relying on automatic stabilizers will not prove adequate. We've had three rounds of tax cuts, and are in no danger of accidentally having employed restrictive or neutral fiscal policy.

3. Let's leave aside discussion of what's really causing our currency to decline lately, and whether that's George Bush's fault; that's a complex discussion but it's not relevant to what we're considering here. Massive currency devaluation, which we've had a mild form of lately, tends to be beneficial to the economy in the short run as our exports become more affordable to foreigners, and they tend then to buy more of them. At the same time, foreign goods become more expensive to import into this country, so more Americans buy American goods. So the short run consequence of our recent currency trends would be to increase GDP and create jobs, not the opposite. In the longer run, a cheap currency tends to decrease foreign investment in US capital markets, making the cost of capital higher for US firms, which tends to result primarily in compromising worker productivity levels, not GDP or employment directly. [Yes, I'm aware that productivity will indirectly influence both GDP growth and employment. But all this is a change in the opposite direction from what we're experiencing now so it's not really relevant.]

4. A big deficit will, over time, tend to crowd out private investors and may result in long term interest rates being higher than they otherwise would be. All the estimates I've read credit this influence with being real but minimal, on the order of one-third to one-half of one percent (0.33% to 0.50%) higher interest rates. This element tends to be very slightly restrictive (most normal recessions come from the Fed increasing interest rates more like 3% to 4%) but is dwarfed by the fiscal stimulus which the deficit itself represents. I'd rather see a balanced budget, but it's simply not responsible to be running a surplus during a significant recession.

5. The steel tariffs were bad, and anyone who's read this space before knows I despised them. I'm glad they've been rescinded, and they were the one fiscal policy George Bush has embraced which was unquestionably bad for the economy. But the cost to the American workforce was estimated, even by opponents of the tariffs, at "only" about 30,000 jobs. For anyone looking to blame the whole 2.2 million jobs lost on President Bush, they will have to come up with more than just this one misguided instance of protectionism.

6. The tax code should be fundamentally reformed along the lines of what Ronald Reagan supervised in the early 1980s: cut all marginal rates, close as many loopholes as possible, and simplify the tax code. I've perused a copy of the actual IRS code (not the little instruction books or publications they give you, but the actual law), and it runs to literally 10,000 pages. The money a company spends on lawyers and CPAs to guide them through this maze is certainly better than running afoul of the law, but a simpler tax code would allow businesses (especially small businesses) to rechannel this money to be spent on higher wages to workers, newer machinery, more advertising, and generally growing the business instead of paying what is essentially a surcharge on tax compliance. Paul O'Neill spent his time as Treasury Secretary advocating tax reform instead of paying attention to current economic issues, and this rightly cost him his job; but tax reform shouldn't be abandoned just because it's not the single absolutely highest priority.

So what did cause this current recession, and why did we really lose these 2.2 million jobs? An asset bubble burst before George Bush came to office. There was a massive terrorist attack which cost the economy many billions of dollars directly. And a group of very bad men was identified who needed killing halfway around the world, which has contributed to a high deficit (though not directly affecting economic output). Anyone who would blame all this on George Bush clearly is angling for selfish political advantage, and has demonstrated themselves as being utterly immune to facts.

A shout out to the Bread Villain and the Puppetmaster: how France helped us without really trying.
Sheesh. I get slammed at work for a couple weeks and all hell breaks loose while I'm away, and for a change the news is good.

Saddam's capture: Really good news.
Kadafi's newfound desire to be our pal: Really, really good news.

Kadafi, evidently concerned whether Libya or Syria (both current members of the Axis of Evil Junior Varsity) would get the big promotion now that the head rat in Iraq has been nabbed, decided to eliminate his nation from the running for the coveted #3 position when the new Axis of Evil rankings come out next year. It would be really extraordinary for Kadafi, who's been mostly (though not entirely) below our radar lately, to be pulling our leg on this one, just to provoke us by embarking upon the very path just concluded by Saddam; his intent seems genuine and legitimate from where I sit.

Why the sudden change of heart? And why would this be potentially even better news than Saddam's capture?

It's not likely that the scales have suddenly just fallen from Kadafi's eyes, rendering visible the wrongness of his prior sponsorship of terrorism, pursuit of WMD, and export of weapons and weapons technology. Likelier that the reputation of the United States among Arab nations has already undergone a dramatic shift, which may be a manifestation of that elusive "reaction of the Arab Street." Likely the French have actually helped us here, though certainly not intentionally, by shouting their shrill and repetitive condemnations of our president as a cowboy and the US as a rogue nation.

The French inability to cow us into submission before their evidently awesome moral superiority and aversion to violence, despite their confident assurances to their departed pal Saddam and their best efforts to do so, have likely gotten the attention of other nasty regimes around the world. Not all of them are necessarily properly afraid yet, but they should have noticed by now that only the Brits have any real ability to influence us once we get an idea into our cowboy heads, and that they're on our side anyway in most of these dustups so far. And they should certainly have noticed that the idea infiltrating our cowboy mentality these days is to go take the fight to our enemies, whomever we perceive them to be.

The French have done us a great service in making clear just how uncontrollable we are these days, even when self-proclaimed "great powers" do their utmost to dissuade us. So, I give here a heartfelt and genuine thank you to the pusillanimous de Villepain and his puppetmaster Chirac. You've both been quite helpful despite your intentions to the contrary.

American policy is once again to carry a big stick, and Libya has agreed to mend its erstwhile wayward ways as a direct result of this. Even Dean should be aware that the war he so despised has just greatly reinforced our ability to negotiate peace on favorable terms with the Arab world. Negotiations with, say, Iran which are not backed up by credible threat of force amount merely to asking really nicely for the mullahs to give up on their nuclear programs just because they're such swell pals of the US and lovers of democracy. It should be obvious that approach won't actually work.

[Yes, I'm aware that the Iranians are actually Persian, not Arab, strictly speaking. Let it go; I was on a roll.]

Update: As usual, Stephen den Beste over at USS Clueless has a couple of insightful posts on this matter.

Maybe I'll have to stop referring to Tom Daschle as The Ghoul.
Daschle is becoming something of an unlikely hero of mine of late, as he attempts (with some success) to block some of the more egregious legislative efforts of the Republican Congress. And I say this as a Republican myself.

The aptly named Omnibus Spending Bill (a bill sweeping all manner of truly offensive local pork under the rug known as miscellany) passed the House Monday, supposedly providing for the continued financial operations of government but also including such essentials as changes to media ownership rules, overtime pay rules, and yet another extension of unemployment benefits. Daschle & Co blocked the bill's passage and let the Senate get out of town without voting on it till at least their January return to business, and hopefully not then either without some modification. The bill contains $7.5B for 7,000 "earmark" local projects. This bill, pork and all, increases Federal spending by "only" 3%, a much smaller increase than in recent years, but it's still faster than inflation has been.

This does seem to me to be a strong case for the line item veto. And not the watered down, legislatively enacted "allowance" that Congress unconstitutionally extended to the President in 1995 (later overturned by the Supreme Court), but a genuine Constitutional provision for one to allow individual items to be struck down so bills which are overall beneficial can be passed. I assume there's at least some good somewhere in the bill.

Nothing better illustrates the perverse political calculus involved leading me to support Daschle than the unemployment extension issue. I wanted the bill blocked temporarily to encourage some cleanup to a bill all too laden with wasteful spending. Daschle blocked it because it didn't contain enough wasteful spending in the form of more free money for the unemployed. Now unemployment benefits relate peculiarly to actual unemployment insofar as there is a marked tendency for anyone receiving benefits to continue not finding a job and to continue receiving benefits. According to the Wall Street Journal, (link for subscribers only) most recipients of unemployment benefits don't actually find a job until the final week before their benefits run out. Another extension, while charitably generous, would keep more people unemployed longer and into an election year to boot (perhaps an estimated 0.3% increase to the unemployment rate according the the Journal article cited above). Not to accuse Daschle of wanting to artificially create unemployment to hurt George Bush's re-election bid or anything, but I'd like to see Bush re-elected by presiding over a sound economic recovery and a budget which doesn't include all manner of Congressional pork intended simply to buy votes for incumbents.

We as a nation seem to be profoundly unserious. While fighting an existential war we quibble and bitch over carrier deck landings and the real purpose of holiday visits to Iraq, applaud Al Gore when he says unblushingly that the current war is the "worst foreign policy mistake" in our nation's history, and applaud serious, flagrant untruths such as calling the present economy the worst since the Great Depression. I'm sure this last is just an exhumation of the very same theme we heard during the 1992 presidential election, and it's about as true now as it was then; but since it was successful in garnering an election victory, truth need not be considered. Which is fortunate for those who repeat the lie, since it is not remotely true.

Meanwhile, with the largest deficit in history (some of which, eg War on Terror, and in my opinion, the War in Iraq, is justified, yes), Congressmen insert unrelated pork items into bills totalling $7.5B and applaud their own restraint for, I guess, not frivolously spending even more than that; and enact horrible and uncontrollable Medicare expansions. All to buy votes, to sustain their own venality and love of power. I refuse to believe that in the midst of a war against an enemy bent on our utter extermination, the most pressing issue facing the United States today is whether to give free pills to senior citizens. It's disappointing, to say the least.

Call me crazy, but delaying this bill to allow unemployment benefit extensions to expire and encourage a rethinking of all those pork projects seems like a good start.