Stinging Hamas

A war even a simple-minded rock star should support.

Best of the Tube This Weekend
We’re taking a long-overdue vacation and will return Monday, Jan. 12. But we’ve left something for you to remember us by: our appearance on this weekend’s episode of “The Journal Editorial Report.” Tune in at 5:30 and 11 p.m. ET tomorrow (or, if you’re an extreme insomniac, at 6 a.m. Sunday) as we look ahead to 2009 with colleagues James Freeman, Rob Pollock and Kim Strassel and host Paul Gigot. At some point Sunday the transcript will be posted at the link atop this item.

We’re also scheduled to appear tonight on “Lou Dobbs Tonight” as part of the political roundtable. That show begins at 7 p.m. ET, with a repeat showing at 4 a.m. tomorrow. Watch us in the second half hour.

Stinging Hamas
One of the silliest rock songs of the 1980s was “Russians,” a solo number by Sting (né Gordon Sumner), erstwhile lead singer for the Police. It was a simple-minded anthem of Cold War moral equivalence that combined truisms (“We share the same biology / Regardless of ideology”) with manifest falsehoods (“There is no monopoly of common sense / On either side of the political fence”) to draw an utterly fatuous conclusion about nuclear strategy:

There’s no such thing as a winnable war
It’s a lie that we don’t believe anymore
Mr. Reagan says we will protect you
I don’t subscribe to this point of view
Believe me when I say to you
I hope the Russians love their children too

Of course, Mr. Reagan knew very well that a nuclear war was unwinnable, which is why he strengthened America’s deterrent capability, protecting us and ultimately making it possible to win the Cold War. However much the Russians loved their children, it took Reagan to free them (and the children of the captive nations of Eastern Europe, the Caucasus and Central Asia) from the monstrous ideology of communism (though to be sure, Russia and some of the others still have big problems).

OK, so Sting got the Cold War wrong. Whatever. But we were reminded of this by a post from blogger David Gerstman on the current war between Israel and Hamas, the terrorist group that holds sway in Gaza. Yesterday, as ABC News reports, an Israeli air strike killed Hamas leader Nizar Rayyan and 15 members of his “family”: four wives, six sons and five daughters.

Unlike the Russians, Rayyan did not love his children. Gerstman tracks down a 2000 New York Times story (written by the notoriously anti-American Chris Hedges) that quoted the terrorist as hoping for his own sons’ deaths:

”There was not a single night that we did not think and talk about Palestine,” Mr. Rayyan said, his eyes moist. ”We were taught that our lives must be devoted to reclaiming our land.”

Mr. Rayyan spent 12 years in an Israeli jail for his pursuit of that end. His brother-in-law was a suicide bomber who blew up an Israeli bus in 1998. His brother was shot dead by Israelis in street protests seven years ago. Another brother was expelled to Lebanon and several more were wounded in clashes.

Today, his three sons–ages 12, 15 and 16–daily join the youths who throw rocks at Israeli checkpoints. All, he said, yearn to be one thing–martyrs for Palestine.

”I pray only that God will choose them,” he said.

The Jerusalem Post’s Khaled Abu Toameh reports that Rayyan got his wish in at least one case:

At the beginning of the second intifada, Rayyan sent one of his sons to carry out a suicide attack in Gush Katif’s Elei Sinai in 2001. Two Israelis were killed. Rayyan was also responsible for a series of suicide bombings and attacks inside the Green Line, including the suicide bombing in Ashdod Port in 2004 in which 10 Israelis died.

As it turns out, the Israel Defense Forces cared more about Rayyan’s children than he did. reports:

Prior to striking Rayyan’s house the IDF tried to warn his family about the imminent attack and urged them to evacuate the place, but they refused to do so.

Ha’aretz reports that this is typical:

The IDF has made frequent use of what is known as “knocking on the roof”: Militants are warned by phone when a residential building used to store arms will be bombed, and told to vacate the premised [sic] together with their neighbors. The weapons caches are hit only after the residents leave.

Hamas has tried placing civilians on the roofs of such buildings when the phone call warning comes in. In these cases, the IDF fired antitank missiles near the building, and in a few cases the residents left.

“Israel is so scrupulous about civilian life,” notes columnist Charles Krauthammer, “that, risking the element of surprise, it contacts enemy noncombatants in advance to warn them of approaching danger.” He sums up the situation nicely:

For Hamas, the only thing more prized than dead Jews are dead Palestinians. The religion of Jew-murder and self-martyrdom is ubiquitous. And deeply perverse, such as the Hamas TV children’s program in which an adorable live-action Palestinian Mickey Mouse is beaten to death by an Israeli (then replaced by his more militant cousin, Nahoul the Bee, who vows to continue on Mickey’s path to martyrdom).

At war today in Gaza, one combatant is committed to causing the most civilian pain and suffering on both sides. The other combatant is committed to saving as many lives as possible–also on both sides.

The moral asymmetry is so great that Israel is on the right side even by Sting’s standards.

Home on Derange
With less than three weeks left until Barack Obama’s inauguration, a Colorado man suffering from Bush derangement syndrome has taken his own life, Fox News reports:

A man who attempted to rob two banks in Aspen, Colo., on New Year’s Eve with four homemade gasoline bombs in what he called a “suicide mission” was found dead early Thursday after sparking a manhunt that shut down the city’s holiday celebrations.

The man, James Chester Blanning Jr., was found dead early Thursday just east of Aspen in rural Pitkin County, said Asst. Chief Bill Linn of the Aspen Police Department during a news conference held on New Year’s Day. Blanning was found in his Jeep Cherokee and died of a self-inflicted gunshot wound to the head.

Blanning left a threatening note, typed in all capital letters:



Sounds as though he and Rod Blagojevich used the same ghostwriter.

The Aspen Daily News has more background on Blanning, who has a history of problems with the law. He was convicted of racketeering in 1996 in a real-estate scam and was also considered a sex offender because of a prior conviction of indecent exposure “for confronting a group of local elected officials while apparantly [sic] wearing only a dildo.”

It sounds as though he had mental problems that long predated the current administration. Yet from the political content of his note, it also sounds as though exposure to the Angry Left might have helped to feed his insanity.

Utilitarians for Jesus
Matthew Parris, just back from Africa, has an essay in London’s Times bearing the provocative title “As an Atheist, I Truly Believe Africa Needs God”:

Travelling in Malawi refreshed another belief, too: one I’ve been trying to banish all my life, but an observation I’ve been unable to avoid since my African childhood. It confounds my ideological beliefs, stubbornly refuses to fit my world view, and has embarrassed my growing belief that there is no God.

Now a confirmed atheist, I’ve become convinced of the enormous contribution that Christian evangelism makes in Africa: sharply distinct from the work of secular NGOs, government projects and international aid efforts. These alone will not do. Education and training alone will not do. In Africa Christianity changes people’s hearts. It brings a spiritual transformation. The rebirth is real. The change is good.

Call it the utilitarian argument for Jesus: Christianity is in some sense vindicated because it has good effects on believers.

How might an anti-Christian atheist respond to this? One answer is that the benefits of Christianity are less important than whether it is true. But even if one concedes the premise, this line of argument gets you only so far. It is an argument against interpretations of Christianity that include belief in propositions that are demonstrably false–e.g., that the Earth is 6,000 years old. But as we have noted, atheists often make the epistemological error of misconstruing matters of pure faith, such as whether hell exists, as empirical questions.

Is there a utilitarian response to Parris’s argument? Certainly atheists frequently try to argue against faith on utilitarian grounds, pointing to all manner of misdeeds or atrocities that have been committed in the name of religion. But the record here is, obviously, mixed, and in the case of Christianity, one has to go back centuries to make a convincing indictment. As regards contemporary Christianity, it is hard to deny that the good vastly outweighs the bad.

Constructing a utilitarian argument in favor of atheism is harder still. It would have to contend with the relatively fresh–and in some cases continuing–atrocities in the officially atheist communist world. Atheism need not imply communism, of course, but utilitarian arguments confront the world as it is, not as it might theoretically be.

A more promising argument would be to note that in the West specifically, a slow decline in religious belief has been accompanied by political liberalization, economic prosperity and technological innovation. It is not immediately evident, however, that the decline in belief is primarily a cause, rather than an effect, of these other trends. And it is also the case that America is at once more religious and more liberal, prosperous and innovative than the nations of Western Europe.

We will concede that we were predisposed to agree with Parris’s argument. We’ll see if those inclined to disagree can do a better job of arguing against it.

Cold shoulders

Russia and Ukraine

Cold shoulders

An annual spat between Russia and Ukraine over gas supplies turns nasty

 GAS conflicts between Russia and Ukraine have erupted at the turn of each of the past three years. So when Russia cut off gas to Ukraine on New Year’s Day, the news failed to make big headlines. The European Union, which imports a quarter of its gas from Russia, watched the two sides exchange accusations, but tried to stay out of the row, treating it as a purely technical dispute. In Ukraine itself the mood was relatively calm: the country stocked up on Russian gas months ago and has enough reserves to last it until the spring.

But on Monday January 5th this week the two sides pushed the conflict to a new level. First, a court in Kiev unilaterally annulled a transit agreement between Russia and Ukraine. A few hours later Vladimir Putin, Russia’s prime minister, publicly ordered Gazprom, the state-controlled energy giant, to reduce gas supplies to Europe through Ukraine by the same amount that Ukraine was “stealing” from Russia.

Ukraine strongly denies that it is stealing anything. Hryhory Nemyria, Ukraine’s deputy prime minister, says instead that Gazprom’s erratic behaviour is threatening to undermine a complex transit system. He argues that Ukraine was merely taking enough gas to ensure that it continued to function and that Russia was unreasonable in its demand that Ukraine should compensate European customers for the loss.

It is still unclear who was ultimately responsible for shutting off supplies to Europe. But by Wednesday parts of the continent were left without much-needed imports. Slovakia, Hungary and Bulgaria were hit particularly hard but the gas freeze was also felt in Germany, France and Italy. As the row escalated, Mr Putin ordered that no gas should cross the Russian-Ukranian border.

Russia has been trying to portray Ukraine as an unreliable transit country which is jeopardising European energy security and which is unfit for European integration. Ukraine, for its part, says that the conflict has exposed Russia (again) as a bully which uses gas as a political weapon. For now it has some good cards, including large gas reserves and falling demand from industrial users. Nor does Ukraine have to worry about direct agreements with European customers, whereas Russia has a contractual obligation to deliver gas to Europe. An added problem for Russia is that its storage reservoirs are full: unless it starts pumping soon it may have to start burning off the surplus.

The row has several layers. One concerns money. For years Ukraine has been paying well below market prices for its gas. Gazprom says that Ukraine, which last year paid $179.50 for 1,000 cubic metres of gas, should pay market prices (which, at the moment, are more than twice as high). In a move towards a resolution, Russia and Ukraine agreed in October last year to a gradual transition to market prices and long-term direct contracts.

But gas is not an entirely freely traded commodity: its delivery is partly dependent on the transit pipeline controlled by Ukraine. While underpaying for Russian gas, Ukraine was also under-charging Gazprom for the transit to Europe. Its fee of $1.70 for 1,000 cubic metres of gas per 100km is half that charged by other European countries. Gazprom has offered to sell gas to Ukraine at $250 for 1,000 cubic metres while leaving the transit fee unchanged. Ukraine has said it would pay $201 if Russia increases the transit payments to $2.

If this were a purely commercial dispute, a compromise would be found. But political undercurrents are just as important. Little love is lost between Ukraine and Russia, especially since the Orange revolution of five years ago. More recently Russia accused Ukraine of supplying arms to Georgia during the war in August and has said it would take this into account when forming its policy.

Complicating matters further are political rivalries within Ukraine itself, where the prime minister, Yulia Tymoshenko, is vying with the president, Viktor Yushchenko. On December 31st Ms Tymoshenko was poised to fly to Moscow to conclude difficult negotiations over gas, but Mr Yushchenko apparently undermined her effort. (According to a different version, Moscow cancelled her visit.) As tricky is the vested interest of a controversial intermediary between Russia and Ukraine, which is part owned by Ukranian individuals and partly by Russia’s Gazprombank. It was set up under Mr Yushchenko’s watch and Ms Tymoshenko wants to scrap it.

Europe has long abstained from Russia’s gas relationship with Ukraine. It may now have no choice but to get involved. The main lesson from this spat, Gazprom’s executives argue, is the need to speed up the construction of an alternative pipeline which bypasses Ukraine. Ukraine says that closer integration with Europe is the only way to enhance energy security. But the most important lesson is that unless Europe diversifies its energy supplies it will remain a hostage to Russia’s unpredictable relationship with its neighbours.

Israel Resumes Gaza Assault After Break for Aid

Israel Resumes Gaza Assault After Break for Aid

As Civilian Suffering Increases, Plan for Distribution of Supplies Is Announced; Diplomatic Efforts for Cease-Fire Continue

Israel’s security cabinet Wednesday approved a continuation of its ground assault in the Gaza Strip, and resumed strikes in the territory after a lull it called to expedite the distribution of humanitarian aid.Israeli officials said a high-ranking negotiating team had been approved to pursue a more permanent cease-fire plan put forth late Tuesday by Egypt and France. The proposal is aimed at halting the fighting between Israel and the Hamas militants ruling over Gaza. It is also intended to alleviate what United Nations officials call a deepening humanitarian crisis in the territory.

Israel said Wednesday it would observe a three-hour cease-fire every other day to allow aid to be distributed in Gaza.

Nevertheless, movement of crucial aid into and throughout the war-torn territory was still slow Wednesday, pushing already-dire conditions for Gaza’s 1.5 million people toward a crisis.


Israeli soldiers mourn the death of fellow soldier Alex Mashavisky at his funeral in Beersheba on Wednesday, the day after Mr. Mashavisky was killed during Israel’s offensive in the Gaza Strip.

Around 683 Palestinians have been killed in the Israeli offensive, including more than 100 children, and roughly 3,000 have been wounded, according to U.N. officials. Ten Israelis have been killed, including three civilians.

Israel showed little urgency Wednesday in its public diplomacy, despite growing international pressure to end the conflict.

Israeli Prime Minister Ehud Olmert had been expected by some diplomats to fly to Egypt Wednesday. But Israel’s state radio reported Wednesday that lower-level negotiators, including an army general and Mr. Olmert’s diplomatic adviser, could arrive in Egypt as early as Thursday. Egypt’s Foreign Minister Ahmed Aboul Gheit also said an Israeli team was coming to Egypt on Thursday to discuss the peace initiative.

Mr. Olmert’s spokesman said Wednesday that the team wouldn’t soften the government’s position that a cease-fire would have to include a complete cessation of attacks by Hamas, as well as an international monitoring body to be stationed on the Egyptian-Gaza border to ensure that Hamas can’t replenish its weapons arsenal.

Israel says it doesn’t want to increase Hamas’s legitimacy by negotiating a cease-fire directly with the group, and it wants the terms of any new agreement to increase the power of Palestinian President Mahmoud Abbas and his Fatah party, Hamas’s rivals.

Despite a flurry of other negotiating tracks, including talks pursued by Turkey, Cairo has become the hub of diplomacy over the Gaza conflict in the past few days. Egypt has served as a mediator between Israel and Hamas before, helping to broker the six-month cease-fire between the two sides, which ended last month.

In the absence of clear diplomatic leadership from the U.S., Egypt’s President Hosni Mubarak and French President Nicolas Sarkozy appear to be trying to step into the void. Hamas sent a delegation of its representatives from Syria and Lebanon to the Egyptian capital on Tuesday to discuss a proposed cease-fire plan announced by the two leaders.

Secretary of State Condoleezza Rice extended her stay in New York Wednesday in order to discuss the Egyptian-French initiative and other possible diplomatic avenues aimed at forging a cease-fire, U.S. officials said. Ms. Rice met with Egypt’s foreign minister, Ahmed Aboul Gheit, as well as other senior Arab and European diplomats.

[Gaza Conflict]

Gaza Conflict Intensifies

See the steps that led up to Israeli troops entering Gaza.

Ms. Rice said the U.S. applauds Egypt’s efforts toward a cease-fire. “We’re supporting that initiative. I’ve been in very close discussions with my Arab colleagues, but also with the Israelis about the importance of moving that initiative forward,” she said.

Washington is supporting Israel’s demand that Hamas’s ability to rearm and smuggle contraband into the Gaza Strip needs to be addressed before a sustainable cease-fire is put in place.

Hamas leaders have indicated their willingness to pursue another cease-fire with Israel, as long as Israeli troops leave Gaza and the army eases a months-long blockade of the territory. Israel has said it needs to seal Gaza’s border for security reasons, following Hamas’s takeover of the territory in the summer of 2007.

During the three-hour lull in fighting by Israel, Hamas also held its rocket fire. Before and after the break Wednesday, however, Israeli artillery and fighter jets bombed 40 targets in Gaza, according to Israeli military officials.

Hamas-linked militants, meanwhile, launched rockets that hit deep into southern Israel. At least eight Palestinians were killed by Israeli attacks, according to Palestinian officials. No Israeli casualties were reported Wednesday.

Stimulus on Track, Despite Huge Deficit

Stimulus on Track, Despite Huge Deficit

President-elect Barack Obama’s economic team is pressing ahead with a costly economic-stimulus plan despite a projected $1.2 trillion budget deficit this year.

The incoming administration is convinced that international lenders will be more likely to keep the U.S. government afloat if they see aggressive action to emerge from recession, and that the potential costs from insufficiently bold action are greater than the dangers of rising interest rates from swelling deficits.

And Mr. Obama appears ready to up the ante. In an interview with CNBC on Wednesday, he acknowledged that the plan’s price tag, currently $775 billion, is likely to rise. “We’ve seen ranges from 800 [billion] to 1.3 trillion and our attitude was that given the legislative process, if we start towards the low end of that, we’ll see how it develops,” he said.

UPI Photo /Landov

President-elect Barack Obama sees the risk of not spending enough to be greater than the risk of larger deficits.

Mr. Obama and his senior economic aides confronted projections from the nonpartisan Congressional Budget Office on Wednesday that the federal deficit will reach $1.2 trillion in the fiscal year that ends Sept. 30. That would shatter the nominal dollar record of $455 billion set in fiscal 2008. Measured against the size of the economy, the deficit — at 8.3% of gross domestic product — is expected to eclipse the postwar record of 6% in 1983.

Mr. Obama pledged Wednesday to attack surging spending on entitlements such as Social Security and Medicare, and he promised to lay out specific federal programs to cut when he unveils his first budget blueprint next month.

But he also framed the dilemma he is inheriting Wednesday as he introduced at a news conference a new federal “chief performance officer,” Nancy Killefer, a senior director at the management consulting firm McKinsey & Co. “If we do nothing, then we will continue to see red ink as far as the eye can see,” the president-elect said. “And at the same time, we have an economic situation that is dire, and we’re going to have to jump-start this economy with my economic recovery plan, creating three million jobs. That’s going to cost some money.”

Mr. Obama will deliver what aides describe as a major speech on the economy Thursday morning at George Mason University in Fairfax, Va., where he will detail his plans to tackle the recession.

In the next decade, the CBO forecasts the federal government piling on more than $3.1 trillion in additional debt. In the short run, the government faces a $166 billion plunge in tax revenue compared with last year, the CBO says.

Spending will grow this year by almost $622 billion. More than half of that growth will come from the Wall Street rescue fund and the federal takeover of mortgage giants Fannie Mae and Freddie Mac. Unemployment compensation will nearly double, to $79 billion from $43 billion last year. Nutrition assistance will surge to $50 billion from $39 billion.

But those figures likely understate the problem. The debt total doesn’t include the stimulus plan, estimated at $775 billion but likely to go higher as it winds through Congress. It assumes all of President George W. Bush’s tax cuts will expire on schedule in 2010, although Mr. Obama has promised to extend all of them except those affecting families earning more than $250,000. And it assumes that Congress will allow the alternative minimum tax to grow unchecked. The AMT went into effect in 1969 to ensure that the super wealthy pay income tax, but it is increasingly hitting the middle class. Extending the Bush tax cuts and holding the AMT at bay by linking it to inflation would add a further $761 billion in debt.

In past recessions, surging deficits have been fed by an upward spiral. The Treasury had to sell more government bonds. To attract buyers, interest rates would rise, leading to ever higher interest costs for the government and higher deficits. This year, federal interest payments are expected to plunge by more than 20%.

Obama Fills New Watchdog Position


Only two weeks away from his inauguration, President-elect Barack Obama appoints another member to his administration and responds to questions regarding Roland Burris and the conflict in Gaza. Video courtesy of Fox News.

[Barack Obama Taps Killefer for Performance Post] Getty Images

Barack Obama announces Chief Performance Officer Nancy Killefer.

That is because foreign governments, financiers and savers are stashing their money in Treasury bonds. They will continue to do so until the world economy recovers, Obama aides and congressional leaders agree. But deficit hawks worry that economic recovery will present other investment opportunities and could lead to a rapid flight from U.S. government debt. That would cause a surge of interest rates and possibly “an inflationary bow wave out in the future,” said Senate Budget Committee Chairman Kent Conrad, a Democrat from North Dakota.

Senior Obama economic officials have been studying that scenario closely. For now, Democratic economists say even with a trillion-dollar deficit, there aren’t enough Treasury bills to satisfy world demand for a savings safe harbor. The economic crisis has actually put much of the world at more risk than the U.S. And an aggressive response — both through fiscal stimulus and the second $350 billion tranche of the Wall Street bailout fund — will be more reassuring, not less.

But the Obama team recognizes that position won’t last indefinitely. The ratio of debt to GDP has to stop growing and must stabilize at what they see as a reasonable rate. The problem is determining when to ratchet back the stimulus. Obama officials are determined not to pull back too fast for the sake of fiscal discipline and risk plunging the economy back into recession.

“When you start seeing the private sector lending again, when credit is flowing to families and businesses, they can get auto loans, they can support their mortgage, that the job market has stabilized, then we will want to pull back,” Mr. Obama said on CNBC.

On Capitol Hill Wednesday, top Democrats for the first time broadened the stimulus discussion to rank-and-file lawmakers, beginning Wednesday to lay the groundwork for action in the House and Senate later this month.

—Greg Hitt and Naftali Bendavid contributed to this article.

Peter Schiff 1/6/09 – CNBC (discussing the Obama stimulus)

The Long-Term Damage of Bush’s Statism.

The Long-Term Damage of Bush’s Statism.

Bloomberg reports that a growing number of experts are now admitting that Bush’s huge expansion of government will cause immense long-run damage to the economy and living standards:

    The Bush administration’s $13.4 billion rescue of GM and Chrysler is a fitting finish to a year in which governments around the world expanded their role in the economy and markets after three decades of retreat. The intervention comes at what may prove to be a steep price. Future investment may be allocated less efficiently as risk-averse politicians make business decisions. Whenever banks decide to lend again, they are likely to find new capital requirements that will curb how freely they can do it. Interest rates may be pushed up by government borrowing to finance trillions of dollars of bailouts. “We’re seeing a more statist world economy,” says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. “That’s not good for growth in the longer run.” It’s not good for stocks either, says Paola Sapienza, associate professor of finance at Northwestern University’s Kellogg School of Management. Slower economic growth means lower profits. Shares might also be hurt by investor uncertainty about the scope and timing of government intervention in the corporate sector. … The increase in the government’s role in the economy has been breathtaking. The U.S. looks set to rack up a budget deficit of at least $1 trillion this fiscal year, while the Federal Reserve has already increased its balance sheet by $1.4 trillion since last December. By way of comparison, U.S. gross domestic product last year was $13.8 trillion. Winding back the intervention may not be easy, says Sapienza, who has studied the effect of government ownership on bank lending. When Italy nationalized banks in 1933, “the architects who designed the system envisaged it as temporary,” she says. “It was in place until the end of the 1990s.” … greater government involvement will make businesses less likely to deploy capital in ways that spur growth and profits, says Eric Chaney, chief economist at AXA SA in Paris and a former official at the French finance ministry. Carmakers may be slower to innovate or cut costs, and financiers may shy away from lending to entrepreneurs. “It’s the job of companies, not governments, to take risk and accept the consequences,” Chaney says. “There is no incentive for governments to take risk, so they won’t.” … Until recently, “investors could, broadly speaking, ignore the role of the government when thinking about markets” says Alex Patelis, chief international economist at Merrill Lynch & Co. in London. “This period is over.” … “We’ll end a financial crisis with a fiscal crisis,” says Vito Tanzi, former director of fiscal affairs at the IMF. “We’ll get out with very large public debt and very large public spending. That, for sure, will slow down the rate of growth for the next 10 years or so.”

Keynesian Economics Is Wrong: Bigger Gov’t Is Not Stimulus

Bottoming Signs

Bottoming Signs

Here and there are some small signs that the economy is at least bottoming — a crucial stepping stone to meaningful recovery.

For example, the ISM non-manufacturing services report released today for December came in at 40.6 on the composite index, compared to 37.3 in November. New orders, employment, backlogs, and exports all ticked higher than the previous month. So did the overall-business-activity index. It’s still a recession reading, but a small increase is better than a decline.

The November factory-orders report showed non-defense capex rising at a 3.9 percent annual pace, the first increase in four months and the best gain in 10 months. Computer orders surged 12.5 percent.

Pending home sales — which tracks home re-sales under contract, according to the National Association of Realtors — declined again overall. But out West pending sales continued to increase, and they are up 27 percent since the August 2007 bottom.

Commercial construction rose 0.7 percent annually in November, and is up 12.1 percent over the past three months.

And in the November personal-income report, real disposable income jumped 1 percent for the month and is up 7.1 percent at an annual rate over the past three months. Real consumer spending in that report rose 0.6 percent in November.

These income and spending gains were largely a function of plummeting inflation, where the PCE deflator has fallen 6.1 percent annually over the past three months. That, of course, is largely a function of collapsing oil and retail gas prices. The gasoline drop is probably worth $350 billion as a consumer-purchasing-power tax cut. This is a key recovery mustard seed. So is the outsized growth in the money supply as measured by M1 and M2, fueled by the gigantic increase in the monetary base as the Fed continues to expand its balance sheet.

Additionally, the credit freeze continues to thaw. The three-month LIBOR rate is all the way back to 1.4 percent. And corporate bond rates continue to decline, a signal that private capital markets are starting to function again. The 30-year mortgage rate is holding around 5.3 percent.

At a recent conference in San Francisco, academic economists were very pessimistic, expecting recession to last through the whole year. But easy money and low retail gas prices may be a lot more stimulative than the academics think.

President-elect Obama said today that we should expect trillion dollar budget deficits for the next few years. But do we really need this unbelievable increase in the size and scope of government? Art Laffer is very gloomy about big-government spending and borrowing. He believes deficits of this magnitude and a large increase in the government share of GDP are liens on future tax hikes that will slow the economy’s potential to grow.

It was Milton Friedman years ago who taught us that the real tax burden on the economy is best measured as the government spending share of GDP. That measure has been falling for over 20 years, until President Bush’s second term. Now Obama’s plan will ratchet this tax burden much higher.

My point? We don’t need all this. Lower tax rates for large and small businesses along with easier money and lower gasoline prices will get us on the right track to increase the economy’s potential to prosper.

Once again, I ask what the Republican party intends to do. Will it be me-tooism? Or will they provide a choice, not an echo?

Pat Toomey on Obama Stimulus Bill


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