"Am I therefore become your enemy,because I TELL YOU THE TRUTH...?"
(Galatians 4:16)

"'Manchurian Candidate" Starts War on Business

March 9 (Bloomberg)Back in the 1960s, Lyndon Johnson gave us the War on Poverty. In the 1970s, Richard Nixon launched the War on Drugs. Now that we have seen President Barack Obama’s first-year legislative agenda, we know what kind of a war he intends to wage.It is no wonder that markets are imploding around us. Obama is giving us the War on Business.Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue?He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough,the whole financial sector would be gone before voters could demand action.Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”These steps would create near-term distress. If our Manchurian Candidate leader really wanted to knock the country down for good, he would have to provide insurance against any long-run recovery.There are two steps to accomplish that.
Discourage Innovation
First, one way the economy might finally take off is for some entrepreneur to invent an amazing new product that launches something on the scale of the dot-com boom. If you want to destroy an economy, you have to persuade those innovators not even to try.Second, you need to initiate entitlement programs that are difficult to change once enacted. These programs should transfer assets away from productive areas of the economy as efficiently as possible.Ideally,the government will have no choice but to increase taxes sharply in the future to pay for new entitlements.A leader who pulled off all that might be able to finish off the country.Let’s see how Obama’s plan compares with our nightmare scenario.Treasury Secretary Timothy Geithner has been so slow to act that even liberal economist and commentator Paul Krugman is criticizing the administration for “dithering.” It has gotten so bad that the Intrade prediction market now has a future on whether Geithner is gone by year’s end. It currently puts the chance of that at about 20 percent...
Commentary by Kevin Hassett
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