The Wall Street Journal Follows Shulmaven on Socializing the Economy

 Today's Wall Street Journal brought with it an important article by economics columnist Greg Ip entitled "U.S. Marches Towards State Capitalism...." (See: https://www.wsj.com/economy/the-u-s-marches-toward-state-capitalism-with-american-characteristics-f75cafa8?mod=hp_lead_pos5 , paywall) In the article Ip outlines how the U.S. is moving towards state capitalism with Trump's demands for a share of NVIDIA's chip exports to China, the golden share in the U.S. Steel takeover and Biden's industrial policy. In my words, socialism with American characteristics. 

Aside from the over-night news about chip exports, Shulmaven made the same case on July 27th where we added tariffs and Biden's DEI policies. ( https://shulmaven.blogspot.com/2025/07/on-road-to-serfdom.html )Whether we call it state capitalism, socialism or fascism, the result is the same. We are entering a world of state controlled economic activity which in the words of Hayek will put us on "the road to serfdom."

On the Road to Serfdom*

 Although few people realize it, the Trump/Biden years will be remembered when the United States took a giant step on the road to serfdom by socializing the economy. The Republicans of yore held up the virtues of the free market; under Trump that is no longer the case. For generations the Democrats have never been comfortable with the workings of the market, but they conceded its ability to generate wealth and to create a mass prosperity. However, today there are growing voices in the Democratic Party to socialize much of the economy.

Under Biden the country embarked on an industrial policy whose goals were to penalize the production of fossil fuels and subsidize clean energy (solar and wind), subsidize computer chip making, and further increase the government's involvement in healthcare, just to name a few. Biden also left the initial Trump tariffs in place. You can't look to the Democrats to support free trade. Further, Biden attempted to micromanage the economy by putting DEI into every nook and cranny of employment law.

Compared to Trump's second term, Biden's industrial policies were chump change. Trump is in the process of jacking up tariffs from 3% to close to 20%, extorted $550 billion from Japan to fund a sovereign wealth fund, made an investment in rare earth producer MP Materials (See: https://shulmaven.blogspot.com/2025/07/the-pentagon-makes-play-for-rare-earths.html), and with a "golden share" gave the president control of U.S. Steel. To me the sovereign wealth fund brings up memories of the corrupt Reconstruction Finance Corporation of 1932-1953, a path to corruption if there ever was one. Although American universities are need of significant reform, Trump's attempt to micromanage them goes far beyond what is necessary.

My sense is that under Trump we are on the road to something that will look a lot like Mussolini fascism where the private sector carries out the will of the state. For those comfortable with Trump, I would warn them what goes around comes around. When the Democrats return to power the economy could soon be turned into a 21st century version of British Labor Party socialism of the late 1940's with the added kicker of having DEI on steroids. Either way, it is not a pretty picture. 

*-With apologies to Friedrich von Hayek

Trump Crosses the Rubicon

In 49 BCE Julius Caesar crossed the Rubicon in northern Italy thereby declaring war on the Roman Senate. The phrase has since come to mean “passing the point of no return.” President Trump with his B-2 bomber strike on three Iranian nuclear facilities has gone where no president has gone before, including Bush II, Obama, Trump I, and Biden. As a result of this action the middle east has been irrevocably changed, hopefully for the better.

 

It remains to be seen how successful the bombing mission was and to what degree Iran will retaliate. It will take time to do a bomb damage assessment, but the early indications are that the damage was substantial. The key question will be how hard the underground Fordow site was hit. (See: https://shulmaven.blogspot.com/2025/06/israel-and-iran-fog-of-war.html )

 

The bombing raid was coordinated with Israeli strikes earlier in the week that took out Iranian air defenses in southern Iran. With the Iranian nuclear threat presumably removed, Israel prime minister Netanyahu will now have a freer hand to make peace in Gaza. He now may be strong enough to deal with the hard right members of his cabinet.

 

When Julius Caesar crossed the Rubicon, he reportedly said “the die is cast.”  The dice are now rolling in the middle east which means the middle east will look quite a bit different than the way it looked two days ago.

 

One last point, Wall Street’s “TACO trade” (Trump always chickens out on tariffs”) may no longer be valid.  (See:

https://shulmaven.blogspot.com/2025/06/my-ucla-anderson-forecast-presentation.html )   If anything, Trump proved that he is not a chicken.     

My Review of Ezra Klein's And Derek Thompson's "Abundance"

Two Liberals Take a Walk on the Supply Side

Card carrying liberals New York Times columnist Ezra Klein and Atlantic writer Derek Thompson have created quite a stir with their walk on the supply side. They have concluded that the “blue model” of California, New York and Illinois is not working. Simply put, those states are bogged down with procedural liberalism that makes process more important than the end result. Making matters worse the blue states are guilty of “everything bagel” liberalism where before a project is approved every erogenous zone associated with the Left has to be satisfied. (e.g., union labor, day care, affirmative action quotas for contractors and workers, neighborhood input, affordable housing, environmental protection). 

As a result, nothing gets built, or it takes forever. No wonder house prices are out of control in California. And perhaps more stunning is an "affordable" housing project in Santa Monica was recently approved at an estimated cost of one million dollars a unit.

Procedural liberalism arose in the 1970’s to deal with the excesses of the prior decades where projects were built without regard to the environment and the neighborhoods affected. In response a host of national and state laws were passed to control development. Unfortunately, what seemed reasonable in the 1970’s, turned into monstrosity in the 2000’s. 

The change in the development regime can be seen through the window of Pat Brown’s administration in California from 1958-1966 and his son Jerry’s first administration from 1974-1982. Under the first Brown, freeways, water projects and universities were built. Under Jerry Brown’s administration we were in “the era of limits.” Liberalism stopped dreaming big and when it did with its plans for high-speed rail, it got completely bogged down in a procedural morass.

Klein and Thompson’s solution calls for a radical deregulation of the housing permitting process. They look admiringly at the Texas cities of Houston and Austin. The solution to a housing shortage is to build. However, California’s sacred environmental quality act (CEQA) would have to be drastically amended for this to work. That act has been weaponized by homeowners and environmental groups to stop or drastically curtail developments and by construction labor unions to extort project labor agreements into major development projects. Furthermore, in deep blue Santa Fe, a major neighborhood group is using every available legal channel to block a major solar/battery storage facility. What was designed to halt fossil fuel projects is now being used to halt clean energy projects.

The authors cite what can happen when the regulatory burden is lifted. For example, Governor Josh Shapiro rebuilt a break in the I-95 corridor in less than two weeks. Had the normal procedures been followed it would have taken two years just to go through all of the approvals needed. Similarly, Operation Warp Speed delivered COVID vaccines in less than a year, saving the lives of millions. Unfortunately, the liberals did not want to praise the effort in fear saying something nice about Trump, and Trump himself walked away from it because he worried too much about his anti-vax base. 

Government can work and Klein and Thompson rightly believe that we can return to a more efficient model of government. My own thought is that Roosevelt’s New Deal would never have gotten off the ground if it had to operate within today’s regulatory framework. I would note that where after two years Biden’s electric vehicle charging stations and rural broadband; both of which are bogged down in bureaucratic red tape. 

The buzz around “Abundance” is justified. Whether the silos within the Democratic Party yield to the book’s logic remains to be seen, but one can only hope. If I would have major criticism, it would be that nowhere, do they discuss the abject failure of America’s public schools. I guess the teachers’ unions are too sacred a cow for them. I would note that the path to their abundant society has to be built by an educated workforce.

 

WSJ and Sen. Roger Wicker Follow Shulmaven on Rearmament

 Today's editorial in The Wall Street Journal heeded the call of Senator Roger Wicker (R-Miss.), the ranking Republican on the Armed Services Committee. (See: A Clarion Call for Rearmament - WSJ, paywall). Wicker 's called for increasing defense spending to 5% of GDP, up from the current 3%. Specifically, the editorial noted "Mr. Biden talks about a world at risk from autocracies, but he acts like this is 1992 and the Soviet Union just collapsed. The world today is more like the late 1930s, as dictators build their militaries and form a new axis of animosity, while the American political class sleeps."

This is pretty much what we said on March 8th:

"President Roosevelt's speech which has become to be known as his "Four Freedoms Speech" was delivered on January 6, 1941. Only a week before Roosevelt gave fireside chat where he declared the United States to be "an arsenal of democracy." The difference today is that President Biden is nowhere near declaring America as an arsenal of democracy. Indeed his proposed defense budget will show a meager 1% increase. Given the tone of his speech and the prewar environment we are now living in, he should have called for a massive increase in defense spending. (See: Shulmaven: Shulmaven Anticipates Hal Brands Foreign Affairs Article on Pre-WW II and Today) Thus his rhetoric is way ahead of his actions." (See: Shulmaven: President Biden's State of the Union: Strong on Form Weak on Substance )

Now all we need is for the isolationist Trumpies and head-in-the sand Democrats to heed the call.

2024: Volatile Politics, Volatile Markets and the Fed Joins CREEP

Shulmaven did not cover itself in glory in 2023. (See: Shulmaven: 2023: Another Year of Living Dangerously ) We got much of it wrong:

* The economy did not enter a recession.

*Stocks did not trade in a broad range of 4200-3300 and instead approached its all-time high of 4800.

*Bitcoin didn't collapse to below $10,000 and and instead more than doubled to over $40,000.

*Trump was not a spent force and he now seems cruising towards nomination.

* The market has yet to recognize we have entered a new 13-year cycle.

We got a few things right:

*The Fed remained on the warpath for much of the year and wage gains remained solid.

*10-Year Treasury yields stayed above 4% for much of the year. Coincidentally  the yield ended where it stated at 3.9%

* Ukraine struck deep into Russia with missiles and sabotage as global tensions remained high.

Now, in the spirit of being often wrong and never in doubt here are my views for 2024:

* With the S&P 500 trading just below its all-time high and the VIX index at 12, I believe 2024 will be year of high volatility coming from volatile international and domestic politics. Think 1968.

* The stock market appears to be ignoring the warning of former Secretary of Defense and CIA Director Robert Gates where he noted in the November/December issue of Foreign Affairs "The United States now confronts graver threats to its security than it has in decades, perhaps ever."

* In retaliation for attacks on Ukraine's power plants, Ukraine will set ablaze several of Russia's prize West Siberian oilfields.

* Israel will defeat Hamas sufficiently to declare a victory and by yearend Saudi Arabia will be on track to join the Abraham Accords. (See: Shulmaven: Hamas Aggression Must be Punished)

*Domestically all of the signs point to a Trump victory for the Republican nomination and his victory in November, hardly a confidence building eventuality. Nevertheless, I am not yet predicting a Trump victory; I think it is a 50/50 call as of today.

* The Fed will do whatever it takes to avoid a recession in 2024. Their recent pivot is a step in that direction.  Objectively the Fed will join the Committee to Re-Elect the President. (CREEP, the name of Nixon's campaign in 1972.) As a pillar of the establishment and fearful of its independence, the Fed will effectively be all-in for Biden. Thus the Fed will plant the seeds for a very problematic 2025.

* Core CPI will likely run at a 2-2.5% rate in the first half, but accelerate to a 3% run rate by yearend. As a result the yield on the 10-Year Treasury will once again be north of 4%. In keeping with my view that we are in a new 13-year economic cycle, wage growth will remain solid.

* In this environment the S&P 500 should trade in a broad range of 5000-4200, approaching both ends more than once during the year, with the VIX exceeding 30 at least once during the year. Consistent with the past month, the S&P 493 will outperform the Magnificent Seven.

Crunch Time for Ukraine, Israel and the Border

 As I write this an ad hoc Senate committee is attempting to forge a broad border security bill that would attract 60 votes in the Senate thereby paving the way for passing much needed aid to Ukraine and Israel. It is frightening that the national security interests of the United States is being compromised by the Republican wrecker caucus. 

Perhaps more dangerous is the fact that the Republican Party is now home to a Putinista caucus as well that likely will vote against Ukraine aid no matter what the Senate Democrats and Biden offer up on immigration. Indeed the best that can happen to the Democrats is to make a deal on immigration, because if they don't put this issue behind them they could very well be a gonner in the next election.

Not to be out done the Hamas caucus within the Democratic Party will likely vote against any aid to Israel. Thus if any bill comes out of the Senate it will likely be a coalition of the centrists of both parties and I would like to point out that once again my favorite Senator, Kyrsten Sinema (I-AZ) is leading the charge to forge a workable bill. 

However the question remains whether or not the House, which is not in session, would actually pass any Senate compromise. In that body the Putinista caucus would rather have an issue than passing substantive legislation. 

Last week marked the 82nd anniversary of the attack on Pearl Harbor. It would be tragic if Congress' failure to act on Ukraine aid will be remembered as a week of infamy.

Reliving the 1930's - Part 5

We started this series in March 2014 ( Shulmaven: Reliving the 1930s)  with Putin taking Crimea and using his proxies in eastern Ukraine and the last one was in April 2017 with  Trump’s and Obama’s vacillation in Syria in 2013 and 2017. ( Shulmaven: Reliving the 1930s - Part 4) With this blog I go further in that I now believe that we are no longer in the Post-Cold War Era, but rather we are now in what future historians will call a pre-war era.

 

Instead of facing the Berlin-Rome-Tokyo Axis we now face the Russia-China-Iran North Korea Axis We see this new axis playing out in Ukraine, Gaza, and the Taiwan Straits. All the signs were there in the 1930’s with Japan invading Manchuria in 1931 and the heart of China in 1937; Italy invading Abyssinia in 1935, and Germany reoccupying the Rhineland in 1936. However, it was not until 1938 that they were taken seriously.

 

In terms of economic policy protectionism was the order of the day in the 1930’s and we now witness the Biden Administration continuing and amplifying Trump’s protectionist trade policies. Although Biden’s trade policies conflict, he remains a committed internationalist. However, the Republican Party is reverting to its 1930’s form with its America First withdrawal from the world.

 

At home America’s college campuses look like prewar Germany where in many cases it is no longer safe for Jews to walk freely to class. Although anti-Zionism has always been a cover for antisemitism, recent events have ripped off all of its pretentions of being anti-Israel while still liking Jews. Nevertheless, unlike the 1930’s, Jews in America have more to fear from the Left than from the Right when the Father Coughlin’s of the world ruled the airwaves.

 

Further unlike the 1930’s when America had real leadership under Franklin Roosevelt, today’s divided government is challenged by a Putinista faction in the Republican Party that is implicitly allied with the new axis of evil. Be warned the clock is ticking.

  

Random Thoughts on the Economy and the Stock Market - No. 5

 *-Contrary to what we have been thinking the stock markets as measured by the S&P 500 surged to  its highest level of the year and is just a touch off its August high. The stock market responded to strong employment growth in May and the signals coming out of the Federal Reserve that there will be the first pause in their rate hiking policy that began over a year ago. Further the White House and the Congress agreed to deal over the debt ceiling that postpones that issue well past the 2024 election. For that proviso alone Biden won the debt ceiling stand-off.

*- Obviously the May employment data indicates that my call for the recession starting that month was way off the mark. (See: Shulmaven: Has the Recession Arrived?) Nevertheless, with household employment down by 310,000, compared to a 339,000 increase in nonfarm payrolls, and the the unemployment rate rising to 3.7% all is far from perfect in the labor market.

*-  Little noticed last week was updated guidance from Equity Residential, the owner of 80,000 upscale apartment units,  which indicated that same store rents were up 6% from a year ago. This is hardly the news that the Fed has been looking for. Rents increasing anywhere near that level will make it impossible for the Fed to achieve its 2% inflation target.

*- Treasury bill and bond issuance is about to surge as the government reverses its special measures to avoid breaching the debt ceiling. This action will drain reserves from the system and put upward pressure on interest rates.

*- Net, Net. I would be a seller of the rally.

My Amazon Review of Jon Hilsenrath's "Yellen: The Trailblazing Economist....."

Always Prepared

Wall Street Journal economics reporter Jon Hilsenrath has written a deservedly hagiographic biography of Janet Yellen, perhaps the most consequential economic policy official of the past twenty-five years. Yellen is the only person in history to have served in all three top economic policy posts of our Nation, Chair of the Council of Economic Advisors (under Clinton), Chair of the Federal Reserve Board (Under Obama) and Secretary of the Treasury (under Biden). Along the way she was President of the San Francisco Fed. Hilsenrath’s book is written along three strands: a biography of Yellen, a love story between her and her fully supportive husband Nobel Laureate economist George Akerlof, and a history of the macroeconomic policy debates from the 1960’s to the present.

 

Born into a 1946 Jewish middle class family in Brooklyn where education was the highest priority, Yellen excelled in school. She was always well prepared and from the vantage point of this less than stellar kid from adjacent Queens you might say she was a “goody two shoes.” She went on Brown University and then on to an economic Ph.D. from Yale under the very distinguished Keynesian economist, James Tobin. Harvard hired her, but ultimately did not give her tenure. Too bad for Harvard.

 

Yellen then goes on to work for the Fed in Washington, D.C. There she meets her husband to be in that well known singles meet-up place, the Fed cafeteria. It was almost love at first site and they were very sympatico with their soon to become New Keynesian outlook. You could call title it, “nerds in love.”

 

After leaving Washington, D.C. the couple ends up teaching at UC Berkeley in the 1980’s. Before too long with her growing acclaim as a labor economist, Yellen is appointed to the Federal Reserve Board in 1994. It was there where I met her at the infamous Fed consultants meeting in late 1996 on the roaring bull market in stock prices. Although our conversation was brief, I found her to be a kind, friendly and caring person. Those three attributes come though in Hilsenrath’s writing. 

 

In 2004 she was named President of the San Francisco Fed and from that vantage point she warned of the growing housing bubble that would soon almost take down the entire economy. From there she moved back to the Federal Reserve Board and in 2013 became its Chair where she became a strong advocate of bringing down unemployment. To her the unemployment rate was not a statistic, but rather represents real people struggling in life. However, with the arrival of Trump, unlike Greenspan and Bernanke, she was not reappointed. I guess a five-foot grey-haired woman was not what Trump had in mind to be Fed chair.

 

Biden, on the other hand, leaped at the chance to appoint her as his Secretary of the Treasury. Just as in her role as CEA chair Yellen was uncomfortable be in a political role as Secretary of the Treasury. She went along with the $1.7 trillion rescue plan, despite misgivings, but still she underestimated the inflationary fires that were being kindled underneath the economy. Thus, part of her legacy will be the path of inflation over the next few years.

 

There is far more to Hilsenrath’s wonderful tribute to Yellen. Indeed, Yellen has paved the way for female economists in the 21^st Century, a notable accomplishment.  One more thing, I commented on Yellen on several occasions in my Shulmaven blog including one where I noted that she was not the fairy godmother for the stock market.(See:Shulmaven: Yellen, Yellen You Got Tapering on Your Mind*, Shulmaven: Two History Lessons for Janet Yellen, Shulmaven: Memo to the Stock Market: Janet Yellen is not Your Fairy Godmother ) When I presented it, I pictured her with in a fairy godmother outfit with a magic wand in her hand. In her own way Janet Yellen always had a magic wand in her hand.

For the full Amazon URL see: Always Prepared (amazon.com)

The Unravelling

 

The world as we have known it for the past 30 years is over. The era of low inflation, ever-falling interest rates, ever-rising stock prices, globalization, and geopolitical stability among the major powers is unravelling. Russia’s invasion of Ukraine has signaled that a new Cold War is upon us and making things worse was the Xi-Putin communique at the Beijing Olympics which marked the beginning of a renewed authoritarian alliance against the West. What this means is defense spending is going to ramp up bigtime with inflationary consequences.

 

The COVID pandemic has taught us that globalization and just-in-time inventory processes have made supply chains far more fragile than we had thought. As a result, higher buffer stocks and the moving of production closer to final demand will increase economy wide costs.  The inflationary process is being exacerbated by the rush to decarbonize the economy with its attendant underinvestment in oil and gas.  As they say, short term pain for long term gain. We are also relearning that reckless fiscal and monetary policies can bring about the high inflation we are now experiencing. It seems that Milton Friedman and his ideas about money are being resurrected from the dead.

 

Domestically there are too many eerie parallels to 1940 America where the Charles Lindberg America First group linked up with the Communist Party to oppose U.S. intervention in support of beleaguered England. Just the other day showboating lefties Alexandra Ocasio Cortez and Cori Bush linked up arm and arm with the right-wingers Paul Gosar and Matt Gaetz seeking Congressional preauthorization before sending troops in support to Ukraine, a move that President Biden said is off the table. And, of course, we have Tucker “Tokyo Rose” Carslon singing Putin’s praise every night on Fox.

 

This witch’s brew means inflation will remain higher for longer, a secular bear market for bonds, a very volatile stock market and as ugly as our politics are today, it will get worse.

 

My Amazon Review of Adi Schwartz's and Einat Wilf's "The War of Return: How Western Indulgence of the Palestinian Dream Has Obstructed the Path to Peace"

 

The Palestinian Right of Return: Get Over It

 

Journalist Adi Schwartz and former MK Einat Wilf, both members of the Israeli Left, have written an important book making the case that the biggest obstacle to Israeli-Palestinian peace is the mistaken belief and Western indulgence of the belief that Palestinians have a right to return to Israel proper. In essence the right to return is a rejection of the Israeli state whose Jewish population would be demographically overwhelmed. This is a demand that no Israeli government can accept. The notion of a right of return is especially galling because how can there be refugees from a war that ended over 70 years ago?

 

Traditionally the role of the U.N. High Commission for Refugees (UNHCR) has been to rehabilitate and resettle refugees. That precisely was the process after World War II and the India/Pakistan split of 1947. Going back in history there was a mass separation of Turks and Greeks after the Turko-Greek War of 1919-20. The Turks in Greece moved to Turkey while the Greeks in Turkey moved to Greece. Further, if you can believe this, any descendant of someone living in 1948 Israel now living in the United States can be classified as a refugee by the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA). Something like this has never happened before.

 

Indeed UNRWA, despite its name is not really a UN organization. The UN funds a small management fee, but the bulk of its funds come directly from Western contributions. The organization is not really on the UN budget. The U.S. was the leading contributor until 2018 when President Trump ceased making contributions in 2018. In 2021 the Biden Administration restored U.S. contributions.

 

Meanwhile UNRWA has effectively become a Palestinian front organization where it is the second largest employer on the West Bank, and it actively promotes the culture of Palestinian victimhood. The Palestinian are being victimized by their own culture of victimhood. As the authors note the original sin of introducing the right of return was not a Palestinian, but rather the UN diplomat Count Folke Bernadotte. In part the right of return notion was put in place to placate the Arabs and thereby keep the Soviets out of the Middle East. Were it not for Cold War politics the whole notion would never have seen the light of day.

 

As a result, UNRWA’s operation of the Palestinian camps, which are really cities in their own right, became hothouses for Palestinian nationalism, something that really did not exist until the 1960s. It was in the camps that the return ideology got so cemented that no Palestinian politician can back away from.

 

Schartz and Wilf correctly argue that peace talks between the Palestinians and the Israelis broke down in 2000 and 2008 over the right of return issues. It was not about borders or the final status of Jerusalem. Thus, instead of being a side issue, the right of return is the central focus of the Palestinians. It means that the peace process faces a long winding road ahead of it. As Wilf and Schwartz argue the phasing out of UNRWA is a precondition for getting the Palestinians to accept reality.

For the full Amazon URL see: The Palestinian Right of Return: Get Over It (amazon.com)

An Open Letter to Minority Leaders Mitch McConnell and Kevin McCarthy

Dear Leaders:

 

I want to wish you a Merry Christmas but unfortunately, I do not believe you will have a happy New Year unless you mend your ways. It seems that every day you are working to divide our country and to be sure many Democrats are playing the same game. Nevertheless, you do not have to participate in allowing the “Squad” following Democrats to wreck our country too.

 

Here are a few suggestions:

 

Go all out in supporting COVID vaccinations and get your respective caucuses to make public service announcements in their states(districts) urging vaccinations. You do not have to worry about Trump on this; he already gave you all the cover you need. Afterall do you really want fewer Republican voters come November?

 

You should encourage Mitt Romney to get together with Biden/Schumer/Pelosi to make a deal on the child tax credit. Romney has some very good ideas on this topic.

 

On voting rights, you should sit down with Joe Manchin and produce a reasonable compromise that can get 60 votes in the Senate that you can sell to the Democratic leadership. Let the Democrats turn it down if they chose to do so.

 

Lastly, and perhaps most important, you should censure any one of your members who refuse to testify before the January 6^th Committee. I know this will go against your grain, but history is a stern judge.

 

Yours in the Spirit of the Season

The Democrats are Fighting the Last Fiscal War

 Just as generals tend to fight the last war, so too do politicians. The Democrats are remembering the lesson of 2009 where the fiscal package approved by President Obama and the Congress was woefully lacking amidst the Great Financial Crisis. At the time both housing and stocks were in the toilet and the banking system plumbing was clogged up with bad loans. 

Although the situation is far different today the President Joe Biden and his Democrats are moving forward with a $1.9 trillion relief/stimulus package on top of the $900 billion approved in December. This at a time when the Congressional Budget Office estimates the output gap at $420 billion. Estimating the output gap is tricky so let's assume it is about $1 trillion half the current proposal.  Further too much of the money is going to people who don't really need it and state and local governments are far more flush than what was estimated only a few months ago. As former treasury secretary Larry Summers recently argued, the money would be far better spent on long term projects that will improve the productivity and the health of the economy and the citizenry.

Remember today's economy, despite the pandemic, is in far better shape than in 2009. Both the housing and stock markets are booming and most Americans are flush with cash. To be sure the bottom 20% of the economy and the businesses associated with it are in a world of hurt and that is where the aid ought to be focused. 

My guess is that by the summer, the economy will be much stronger with higher inflation than what most economists now expect and as a consequence the willingness of the electorate to spend  on long term investments will wane. Therefore it would be far better to take out $900 billion from the Administration's package and reserve it for long term investments. Further tying a minimum wage increase to the package will only make it worse for the hard hit restaurant industry thereby delaying its recovery. 

Picks and Pans for the Biden Cabinet

 In November I offered my out of the box ideas for a Biden unity cabinet. (Shulmaven: Some Out of the Box Ideas for a Biden Unity Cabinet). His cabinet has turned out far too conventional, but he did latch on to my idea of having D.C. Circuit Court of Appeals Judge Merrick Garland to be Attorney General. Below you will find my views on several of the Biden nominees who, by and large, will make for a pretty good cabinet.

Picks 

Merrick Garland, Attorney General - He is clearly a class act who will clean up the stench in the Justice Department.

Tony Blinken, Secretary of State - He is an experienced foreign policy hand who has the complete trust of Biden. When he speaks our allies and adversaries will know that he speaks for the president.

Janet Yellen, Secretary of the Treasury- She knows policy and knows Washington and will work well with Fed Chair Powell.

Gina Raimondo, Secretary of Commerce - Currently governor of Rhode Island and former founder of a private equity firm. She has worked well with the Rhode Island business community and a close friend of mind believes that she is one of the smartest people he has ever met.

Gary Gensler, Securities and Exchange Commission Chair - He is an ex-Goldman Sachs partner and headed the Commodity Futures Trading Commission, He will be a tough yet fair cop for Wall Street.

Victoria Nuland, Under Secretary of State for Political Affairs- She is an experienced diplomat known for her very tough views on Putin.

Pans

Deb Haaland, Secretary of the Interior - She is a very ideological  one term congresswoman and a member of the Navajo Nation. She lacks the temperament and the administrative experience to run a 70,000 employee department.

Xavier Becerra, Secretary of Health and Human Services - Another ideologue who lacks administrative experience. If Biden wants unity, his litigation record in California will make it hard for him to break bread with people who legitimate concerns about immigration and abortion. Thankfully Biden's very experienced COVID task force will be walled off from him.

Wendy Sherman, Deputy Secretary of State- She gave away the store with the Iran nuclear deal. Blinkin will have to maintain a very tight reign on her activities.

The Ryan Choice

Mitt Romney's choice of House Budget Chairman Paul Ryan as his running mate is a strong governing choice, but it represents very risky political choice. By this choice Romney has decided to play on President Obama's playing field by making this presidential election a choice on the future direction of the country, instead of a referendum on the sad state of the economy. You can bet on it, that the airwaves will be be filled with Obama ads showing Romney and Ryan throwing granny off the medicare cliff, while a few fat cats are toasting their tax cuts with glasses of champagne.

Nevertheless Paul Ryan is a strong campaigner and he, more than any of the other VP hopefuls, can articulate the case that the United States is on a fiscally unsustainable path.  This election will be about big things, not small bore stuff. No matter what President Obama says, he knows and most senior Democrats know, medicare, medicaid and social security have to be reformed. Simply put, the postwar entitlement state has run out of gas and the Democratic leadership continues to lie to the American people about it. The Republicans lie when they say the fiscal problems of the the United States can be solved without any tax increases. As an aside the big loser from today's announcement is Vice President Joe Biden. He will have his work cut out for him when he meets Ryan in their debate.

In terms of governing, should the Romney-Ryan team win in November they will be able to hit the ground running with respect to the budget. This would be an enormous advantage given the fiscal situation our Nation faces. Furthermore, as a complete outsider, it looks to me that Romney and Ryan really get along; they are both highly focused numbers people.