Of Bidens and buttheads

Michelle Malkin performs a case study of Robert Hunter Biden that she dubs “The chronicles of Hunter Biden.” Biden is the younger of Vice President Biden’s two sons. Hunter Biden was discharged from the Navy when he flunked a Navy drug test; he tested positive for cocaine use.

Michelle declares that Biden’s saga signifies something larger than appearances might suggest. She finds it illustrative of beltway nepotism, corporate cronyism and corruption. Her column represents an advanced course in a tawdry subject. Please don’t miss it. Nobody does it like Michelle. I want to back up and briefly review the story for beginners.

The story of Biden’s discharge was reported by the Wall Street Journal last week by Colleen McCain Nelson and Julian Barnes: “Biden’s son hunter discharged from Navy Reserve after failing cocaine test.” Here is the opening of the story:

Vice President Joe Biden ’s son Hunter was discharged from the Navy Reserve this year after testing positive for cocaine, according to people familiar with the matter.

Hunter Biden, a lawyer by training who is now a managing partner at an investment company, had been commissioned as an ensign in the Navy Reserve, a part-time position. But after failing a drug test last year, his brief military career ended.

Mr. Biden, 44 years old, decided to pursue military service relatively late, beginning the direct-commission process to become a public-affairs officer in the Navy Reserve in 2012. Because of his age—43 when he was to be commissioned—he needed a waiver to join the Navy. He received a second Navy waiver because of a drug-related incident when he was a young man, according to people familiar with the matter. Military officials say such drug waivers aren’t uncommon.

Mr. Biden was commissioned as an ensign on May 7, 2013, and assigned to Navy Public Affairs Support Element East in Norfolk, Va., a reserve unit, according to the Navy. In June 2013, after reporting to his unit in Norfolk, he was given a drug test, which turned up positive for cocaine, according to people familiar with the situation. Mr. Biden was discharged in February, the Navy said.

Mr. Biden said in a statement that it was “the honor of my life to serve in the U.S. Navy, and I deeply regret and am embarrassed that my actions led to my administrative discharge. I respect the Navy’s decision. With the love and support of my family, I’m moving forward.”

The vice president’s office declined to comment….

The story doesn’t explore all the irregularities implicit in it. The discharge, for example, occurred this past February, eight months ago. How was the news suppressed for so long, until “people familiar with the matter” (in the words of the Journal’s reporters) let the coke out of the bag, so to speak? The suppression of the news represents a story by itself.

Then we have Biden’s lack of qualification for the treatment he received all along the way. The Naval Reserve must not feel too good about itself, or about the uncomfortable position in which it was put by the son of the Vice President. The authorities up the chain of the Naval Reserve are “familiar with the matter” and know how to reach out and touch someone at the Journal.

How unqualified was Hunter Biden? He was too old to join the Naval Reserve at age 43. He sought an officer’s commission for which he didn’t qualify. He received waivers to fill a part-time position in public affairs for which he wasn’t needed. After navigating these shoals, Biden was discharged within a month because he flunked a drug test.

Taking a look at the proceedings, the editors of the Delaware News Journal finds “an element soft corruption” on the part of the authorities in Biden’s treatment. It’s a bit of an understatement from a friendly source, but at least it is unillusioned.

The Weekly Standard’s Philip Terzian explores the anomalies and their historical resonance:

Biden was also granted two waivers by the Navy, one for advanced age and another for a previous, unspecified “drug-related” incident. A waiver for age is not the worst thing in the world (Biden was eight years over the maximum for the Navy’s program) and there are innumerable stories of men eager for combat who couldn’t pass an eye test, or were too old to enlist, but somehow contrived to get into uniform. Hunter Biden, however, was evidently not headed into harm’s way; and in any case, on September 11, 2001, he was 31 years old, a more appropriate age to sign up to fight. It is difficult to avoid the conclusion that he sought and obtained a naval commission for political purposes — public office in his native Delaware? — and that his status as a son of Vice President Joe Biden did him no harm.

The irony, of course, is that minor political scandals have erupted in the past over such questions. In 2000, the circumstances of George W. Bush’s service as a pilot in the Texas Air National Guard became a campaign issue. So did the promotion, in 1940, of President Franklin Roosevelt’s son Elliott to captain in the Army Air Corps. Abraham Lincoln’s eldest son Robert was criticized for his non-combatant status as a staff officer during the Civil War.

A more instructive parallel, however, might be to Sen. Joseph McCarthy, of all people. When one of McCarthy’s Senate aides, G. David Schine, was drafted into the Army and sent to basic training at Ft. Monmouth, N.J., Roy Cohn, another McCarthy aide and reputedly Schine’s lover, intervened persistently to obtain an officer’s commission for Schine. When the Army protested about repeated threats and interference from the senator’s office, McCarthy charged that the Army was attempting to retaliate against his investigations into communist subversion in the armed forces. The televised hearings that were held during April-June 1954 to investigate the matter — the famous Army-McCarthy hearings — not only revealed that McCarthy and his staff had repeatedly wielded their influence on behalf of Schine, but had done so despite Schine’s complete lack of qualifications for an officer’s commission.

The differences between Joseph McCarthy and Joseph Biden are self-evident, of course. But just as the effort to make G. David Schine an Army officer taught the country something about Senator McCarthy, so the brief, inglorious naval career of Hunter Biden tells us something about Vice President Biden — and the culture of entitlement in political Washington that has tarnished the Navy.

One wonders what might have been made of this story in a Republican administration. I can’t even imagine. What is the over/under on the number of days which the particulars of Norman’s column would have been given page-one treatment by the New York Times? Answer, I think: 35, or until the Department of Justice appointed a special counsel to investigate the matter.

Beyond media double standards, the superficially tawdry saga of Hunter Biden raises the difficult question intimated by Norman in his conclusion: Is there an institution under its jurisdiction that the Obama administration hasn’t degraded?

In defense of QE

A long-time reader and professional investor responded both to the critical if tentative substance as well as the spirit of inquiry in which I posted “The Age of QE” yesterday. Our reader’s company is devoted to private equity investment and he has asked me to withhold his name for professional reasons; I thought readers interested in the subject would appreciate his response. He writes:

I want to offer some perspective on QE. As an investor and professional participant in the markets and a conservative, I thought I would try to offer something of a defense of the Fed and its decision to pursue what has been called QE, printing or what I remember being called open market purchases in my macroeconomic classes. The opposing case is typically what I think of as a populist case that doesn’t really reflect an understanding of some important topics which inhere to a functioning capitalist economy and, very importantly, our fractional reserve banking system and the need for liquid (i.e. functioning) markets with a bid and offer.

Let’s first consider a world without the Fed and without QE. In effect this is what we experienced, briefly, when Lehman went bankrupt, when Washington Mutual was seized by the FDIC (and lots of other banks essentially became insolvent). If you think about it, when that happens – markets freeze and liquidity evaporates — savers lose all of their savings. Depositors at a bank are savers. Buyers of money market mutual funds are savers. When Lehman went bankrupt, their related money market mutual funds “broke the buck” – they were worth less than par.

The only thing that prevented this phenomenon from spreading was the willingness of the Fed and the Treasury to replace the banks as providers of liquidity and backstop deposits and so forth.

During the Depression, the Fed did nothing like QE and the Treasury wanted to force liquidation of excess assets and inventories and debts. The result is economic cataclysm, especially in a leveraged economy with a fractional reserve banking system. Banks cannot liquidate and satisfy their depositors need for cash. Deposits are borrowings for the bank. They in turn lend out the money they have on deposit to generate a return, and this pays savers a return. But when an economy goes into recession, this system malfunctions because the credit that originally justified the loan can no longer support it. This is the natural course of the business cycle. But the banking system on the way down is equivalent to the problem of a fire in a crowded theater. Everybody cannot get out at once. Not even close. It’s a fire in a vault really. Those lines of depositors waiting to take their money out cannot be satisfied.

It is easy to castigate the Fed and the Treasury for “bailing out” lenders and management teams, but the truth is more complicated. They were backstopping a system which holds the savings for the vast majority of Americans. As for the continuance of QE, I would revert to the Depression data and again observe that the Fed allowed the money supply to collapse by 1/3. This was devastating to the economy. Allowing monetary contraction through forced liquidation (which is the policy antidote to QE) would be beyond cataclysmic – it would make the Depression or today’s Greece a walk in the park. Unemployment would be 30%, people’s savings would be wiped out all at once – and the beneficiaries would be a tiny fraction of wealthy who would be able to buy assets for pennies from desperate sellers.

The primary criticism viz QE is that we are destroying the dollar and sowing the seeds of inflation. Maybe. But we are currently not inflating. At all. Commodity prices are falling or have fallen dramatically – gold, oil, you name it. The dollar has strengthened viz its alternative currencies, including gold and silver. There may be particular areas of price rises, but that means it’s not a uniform monetary phenomenon. Measured inflation is tame. One of the “inputs” which drives inflation is something called monetary velocity, or the speed with which people spend their money on items. As it did in the depression, it has collapsed. During the depression, it was this particular input which was responsible for the collapse in the money supply. You can think of QE as effectively offsetting the decline in velocity.

Monetary authorities always dance on the head of a pin in this way, trying to balance all of these inputs and avoid catastrophe. It’s a difficult task.

The truth is, the deflationary forces in the global economy are extraordinary. Technology, innovation, credit, freer movement of capital and labor – all of these forces have combined to create massive excess capacity in most of the world. This is fundamentally deflationary. Those who long for deflation are being a bit glib (which we would get without monetary intervention, believe me). William Jennings Bryan railed about being nailed to a cross of gold. That’s deflation that arises from the gold standard – truly hard money). He was a populist. In today’s world, modest deflation would – as it always does – redound to the benefit of lenders (unless it also consumed them to in a deflationary spiral , as it likely would in the end). Rapid inflation is to the benefit of borrowers at the expense of lenders. There is a reason why all of these quasi populist, socialist third world countries inflate and destroy their currencies rather than deflate. Stable, predictable and modest inflation is probably best for us all, dancing on the head of the pin.

All in all, while he gets tremendous criticism (as did Volker, Greenspan and now does Yellen), Bernanke probably deserves a great deal of credit and a big thank you from all of us, wealthy, middle and lower classes. Middle classes have been more significantly damaged by tax policy and Obamacare than anything else (i.e. fiscal transfers away from them). But the Fed really has preserved the stability of the banking and monetary system from which we all derive extraordinary benefit.

So how do we get out of this difficult, zombie economy we are in? True, real economic growth that derives from our natural competitive advantages – technological applications which yield productive and rapid growth in output (energy is the most important example) and fuel domestic industrial development and job growth. Cheap energy is our long term way out. And we need to buy time with measures like QE and some fiscal relaxation through middle class tax relief.

I wrote back that I really hadn’t thought about inflation so much as “accommodative” policy accommodating absurd federal spending. Our friend responded:

I read your post as being a bit open. You suggested that nobody has really talked about it and you were searching for a populist case against QE, but you identified one in the Post article.

I tend to think the populist case is that it is a boondoggle for the 1% while the 99% have their savings get eroded. My observation is that QE and bank recapitalizations which deter deflation and support modest inflation benefit borrowers and depositors, which is a majority. The beneficiaries of modest deflation would be lenders at the expense of borrowers. And in the case of spiraling/spiking deflation (which is a likely case versus modest deflation) everybody would lose except only hard asset and cash holders with no debt (the VERY wealthy). No analysis on this topic is perfect, but the empirical evidence from the 1930s suggests that rampant deflation and monetary shrinkage is much more damaging to the populist than QE and maintenance of the banking system.

I think the linkage of monetary accommodation to aggressive fiscal spending doesn’t really work in this case. It is true that we engaged in massive fiscal expansion and unprecedented deficit spending in 2009 and 2010. On the other hand we have been reducing the fiscal deficit substantially since then and this is actually contractionary. Reducing the deficit from 10% of GDP to 4% of GDP is still very contractionary and a very big drag on growth. One can argue about the components of that contraction as a policy matter being poor choices (tax increases to pay for bad social spending, to your point). But I wouldn’t link the Fed’s expansionary policy to our fiscal policies and choices.

Those choices are really the product of a badly flawed and broken budget process “managed” by a Democratic Senate led by Harry Reid and abetted by President Obama. The Fed doesn’t have much to do with it.

UPDATE: Our reader recommends Niall Ferguson’s column about monetary policy in the Wall Street Journal today. It is behind the Journal’s subscription paywall but accessible here via Google.

STEVE adds: This is a good analysis of the case in favor of QE, and I find it compelling.  One factor that ought to be mentioned as to why the enormous monetary growth hasn’t led to inflation, in addition to the factors mentioned above, is the collapse in “velocity,” i.e., the speed with which money turns over in the economy basically.  This factor—”V” in the famous basic equation of monetarism that Friedman made famous, “MV=PQ”—fell sharply during the recession of 2008-2010, and has kept falling since then.  You can see the chart from the Federal Reserve below.  I believe this is unprecedented in the history of Post-WWII recessions, but I haven’t gone back and looked.  There are some reasons to think a new, lower level of velocity might endure, but if it doesn’t?


Hillary Clinton Reveals Her Stunning Ignorance of Economics

In this one-minute clip, trying to shore up the floundering Coakley campaign in Massachusetts, Hillary Clinton displays her ignorance of how the world works not once, but twice. First she assures her audience that raising the minimum wage doesn’t cost jobs, it leads to job gains. (“Our entry-level employees will now cost $15 an hour? Great! Let’s hire two!”) Of course, no one ever asks: if that’s true, Hillary, then why are you so cheap? Why not raise the minimum wage to $100 an hour?

You have to watch the clip for her second gaffe:

“Don’t let anybody tell you that it’s corporations and businesses that create jobs.” Where do they come from, then? Does the stork deliver them? Are they legislated by Congress? Two equally plausible alternatives.

Something happening here? An update

We have yet to hear from the White House press office in response to our request for a comment on our reader’s report that a major network problem has hit the computers used by staff in the Executive Office of the President. Our source, however, updated us with the latest on the issue overnight. He believes it is expected that news of the problem (whatever it is) will soon break publicly, if not today. Describing the problem as a “major data loss,” he believes that repair is expected to take weeks.

From what he understands, this is a serious problem. He asserts: “We are potentially talking OMB, USTR, ONDCP, OPM, and the White House itself(!). Top-line executive deliberations. Gone. Stolen? No idea.”

Signing off with my name, cell phone number and site URL, as I did yesterday, I emailed the White House press office again this morning at 8:30 a.m. (EDT) to follow up:

I wrote yesterday morning with a request for comment on a report of network failure affecting the computers of the Executive Office of the President. The deadline for response was 3:30 pm yesterday. I called to confirm receipt of my message yesterday afternoon. I was assured that the message had been received and forwarded to the appropriate spokesman for response.

Nevertheless, as of this morning, I have received no response whatsoever. I don’t believe this is a particularly difficult question. Would you please let me know when I may expect a response?

As of 4:00 p.m. (EDT) this afternoon, we have been unable to confirm our reader’s report or elicit a response from the White House. I called the White House press office again this afternoon and was assured that my messages have been received and forwarded for response, although they will offer no time when a response can be expected. It’s now been two business days that we’ve been waiting for a response. Sorry about that, I’m sure.

They may have their hands full with inquiries triggered by the news of the day, of which there is plenty. I don’t know. For whatever reason, I take it at this point that we are not going to receive a response today. If/when one is received we will post it immediately.

A Lefty Explains What the Election Is All About

Rob Stein is the founder of the Democracy Alliance, an umbrella a group that organizes the funding of left-wing causes by rich liberals and interest groups. In The Blueprint: How the Democrats Won Colorado by Adam Schrager and Rob Witwer, at page 7, Stein explains candidly what politics is all about for the Left:

“The reason it is so important to control government is because government is the source of enormous power,” Stein continued. “One president in this country, when he or she takes office, appoints…5,000 people to run a bureaucracy, nonmilitary nonpostal service of 2 million people, who hire 10 million outside outsource contractors–a workforce of 12 million people–that spends $3 trillion a year. That number is larger than the gross domestic product of all but four countries on the face of the earth.”

“So the reason we’re doing what we’re doing…and the way we get progressive change, is to control government,” Stein said. “That’s what this is about.”

This will to power explains why the Left, a clear minority among Americans, consistently punches above its weight, politically.

Glenn Reynolds once commented on the seeming paradox of liberals who are terrified at the prospect that libertarians might take power and leave them alone. Actually, liberals probably do want to be left alone; they just don’t have any intention of leaving you alone. Liberals hunger for power so that they can enrich themselves, in many cases, but more generally, so they can remake the world according to their own preferences. This doesn’t mean that they will have to change, but it does mean that you will have to change. As long as liberals’ hunger for power is stronger than conservatives’ desire to be left in peace, the Left will continue to dominate our public life.

STEVE adds: I’d never seen that Stein quote before, and I’ve never seen a liberal ratify so directly and so clearly Michael Oakeshott’s great warning of this disposition:

To some people, “government” appears as a vast reservoir of power which inspires them to dream of what use might be made of it. They have favorite projects, of various dimensions, which they sincerely believe are for the benefit of mankind, and to capture this source of power, if necessary to increase it, and to use it for imposing their favorite projects upon their fellows is what they understand as the adventure of governing men. They are, thus, disposed to recognize government as an instrument of passion; the art of politics is to inflame and direct desire. In short, governing is understood to be just like any other activity – making and selling a brand of soap, exploiting the resources of a locality, or developing a housing estate – only the power here is (for the most part) already mobilized, and the enterprise is remarkable only because it aims at monopoly and because of its promise of success once the source of power has been captured.

As Oakeshott concluded, the conjunction of dreaming and ruling generates tyranny.

Eleven days.

Why Climate Negotiations Are Like Arms Control

News out of Europe yesterday is that the EU has adopted an ambitious greenhouse gas emission reduction target, calling for a 40 percent reduction in GHG emissions by the year 2030. But the announcement was larded with lots of talk of “flexibility” and contains so many contradictory elements that it is clear this is not serious. My favorite condition is this one:

A 27% renewable energy target that is binding at an aggregate European level but voluntary for individual member states.

In practice what this means is: Let Germany do it. They’re dumb and rich enough to keep subsidizing this nonsense. And why not? Germany is sticking it to the rest of the Euro-zone economies with its de facto domination of the Euro currency, which is adverse to the economic interests of the poorer southern European nations. If I were a Greek, Portugese, or Spaniard, I’d want to stick more windmills up Germany’s arse too.

Above all, the scheme is contingent upon the upcoming UN climate summit in Paris next summer arriving at a legally binding international deal. But the Obama Administration has already signaled that it won’t commit further political suicide by agreeing to a legally binding treaty, and will instead seek a loose framework in which each country can decide for itself what level of effort it wishes to make.  At which point this new European commitment will go “poof.”  France’s Francois Hollande, host of the next UN summit, admitted as much when he said the agreement, while “conclusive and definitive,” could be “revisited.”  No wonder Hollande’s public approval rating in France rivals that of our Congress.

It is all starting to remind me of the whole arms control farce of the 1970s, when agreements supposedly in service of disarmament were really just fancy covers for regulating the further buildup of arsenals. But it kept everybody happy: bread and circuses for the politicians, and jobs for the “arms control community.” Not until Reagan came along and threatened a new technology (SDI) did the fundamentals change.

And there’s a lesson there for climate change.  The vast minuet of climate negotiations, with their “goals and timetables,” amount to a cover for continuing business as usual. (As we’ve noted before, Germany is building several large new coal plants, while shutting down their emission-free nuclear plants. This is not what serious people would do.) Regardless of what you believe about the issue, nothing real is ever going to happen until new sources of cheap, scalable energy are developed that make hydrocarbon energy obsolete. Until then everything is a sideshow designed to keep politicians and bureaucrats busy, and the shallow, superficial climate campaign happy and engaged.

It’s The Economy, Stupid

As Peggy Noonan points out in her weekend WSJ column, the “war on women” theme isn’t working so splendidly for Democrats: “This one is old and mined out.”  Even more cutting is this line:

The advertisement that most captures the 2014 cycle is from Kentucky’s Alison Lundergan Grimes : “I’m not Barack Obama.” She looked for all the world like Christine O’Donnell, who uttered the most famous words of her 2010 cycle: “I’m not a witch.”

Ouch!  Meanwhile, poll analyst extraordinaire Karlyn Bowman notes that “people are really feeling beat down by this economy.”  Here’s six minutes with Karlyn about the numbers:

So why aren’t Democrats talking about the economy?  What happened to Carville’s Razor—“It’s the economy, stupid.”  If you want to see the simple reasons why a large numbers of Americans perceive the economy more clearly that the White House, check out “12 Charts That Show The Permanent Damage That Has Been Done to the U.S. Economy” by the cheerily named EconomicCollapseBlog.  All 12 tell a story, but the one on the labor force participation rate is probably the most significant:

Fred Chart copyEleven days and counting.