How Well Did I Predict the Future? Ten Political and Economic Predictions for Year 2012

12/27/2012
A year ago I made ten predictions in economics and politics. How did I do? I'm disappointed--six out of ten correct. This is good enough to win in investing but I expected better. I give myself a grade of passing. Please see the links analyzing the results below.

12/31/2011
Each of these predictions will be graded a year from now as correct or incorrect. No hedging is allowed. I will grade the list next year as 60 percent, passing; 70 percent, fair; 80 percent, good; and 90 percent excellent. You may or may not like the predicted outcomes. This is how I read the trends.

1. California will pass a ballot measure that raises taxes. CORRECT: prop 31 passed
2. White flight out of California will accelerate. CORRECT link 1 2 3
3.  Liberals will decry corporate control of politics, but neither Barack Obama nor the Republican nominee will seek public financing for the 2012 general election, in order to avoid fundraising limits. CORRECT
4. Inflation will rise over 2011 levels. No, the economy slowed.
5. Obama's health care bill will be ruled unconstitutional by the Supreme Court. No, shockingly SCOTUS ruled that Obamacare is a tax and therefore legal..
6. Participation in food stamps and long term unemployment will decrease only slightly, by one percent or less. CORRECT Food stamp participation continues to skyrocket. link 1 2 3
7. A rating agency will further downgrade U.S. debt. CORRECT link
8. The House of Representatives will remain in Republican hands. CORRECT
9. The Republicans will capture the Senate.No. The Republican turnout was poor.
10. Gold will go down to $1400 per ounce. No. Gold is up again!

Has the Democratic Party Lost its Soul?

Tolstoy plays chess.

The New York Times, a strong advocate of President Obama and the Democratic party, stunned liberals with its article Clinton Tells Russia That Sanctions Will Soon End (P.3, September 9, 2012).

VLADIVOSTOK, Russia — Secretary of State Hillary Rodham Clinton pledged Saturday that the United States would soon lift cold-war-era trade sanctions on Russia, but she did not address human rights legislation in Congress that has so far stalled passage, infuriated the Kremlin and become an unexpected issue in the American presidential race.

In a nutshell, the article states that the Obama administration would like to grant Russia normal trade status, but evil Republicans in Congress support legislation that punishes Russian officials for human rights violations.

I'm being sarcastic of course. Congressional support for human rights legislation is bipartisan, and liberals were not stunned by Obama's attempt to normalize trade relations with Russia. Few cared that Russia supports Syria's dictatorship and, along with China, prevents the world community from doing anything. Few cared that Russia capitalizes from the embargo on Iran, giving the mullahs a way to run around otherwise crippling sanctions. Few cared that Putin suppresses civil liberties in his own country, denying free speech and right to peaceful assembly, and increasing corruption in both government and business. The Russian government is even refusing humanitarian aid from the United States, terminating all programs by the United States Agency for International Development (as described in With Aid Cutoff, Kremlin Recalibrates).

A high ranking Democrat criticizes Russian policy as not working but still says “I do think this president and the secretary of state and vice president have been effective and engaged in pushing back and in building a multilateral coalition, in engaging in areas of the world where we've been able to lead.” 

Pure gobbledygook! Well, you can't have it both ways. It seems that the Carter Doctrine--letting human rights guide foreign policy--is dead. We are back to a policy of realpolitik that is closer to 1970s detente than the more usual musings of the American left; that is, caring for the downtrodden and encouraging liberal democratic reforms. Obama has morphed into Richard Nixon. Obama's "reset" with Russia is complete. If you think the leadership of the Democratic Party has lost its soul now, wait until after the election when Obama has promised Russia's Medvedev that he will have more "flexibility" in working together on arms control and other concerns.

Obama Miscalculates on Recess Appointments

President Obama has badly miscalculated the public's reaction to his "recess" appointments of Richard Cordray as director of a new consumer protection agency and appointments to fill three labor board vacancies. The move is blatantly unconstitutional. The Senate is still in session based on Obama's own Justice Department calculations. Additionally, the Clinton White House considered the Senate in session if they met once every three days, which the Senate did. According to John Boehner (R), the Speaker of the House (link):

This is an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department.  The precedent that would be set by this cavalier action would have a devastating effect on the checks and balances that are enshrined in our constitution.

The White House disagrees, saying the Senate wasn't really in session. They were not conducting business so they did not really meet.

Jay Carney, the White House press secretary, said White House lawyers were confident Mr. Obama had the authority to make the appointment. “When pro forma sessions are simply used as an attempt to stop the president from making an appointment,” he said, then the president is within his rights to move ahead. (link)

Pro forma sessions are still sessions. The courts will decide whether Obama can make recess appointments any time he likes.

The Republicans refused to grant Obama his appointments because they ideologically oppose the creation of a new consumer protection agency, and they wish to keep Obama from claiming any "victories" in an election year. Obama probably felt that these Republican positions were politically unpopular, and he could weather any political storm by calling up his new-found Theodore Roosevelt-style philosophy of increased regulation of business. Indeed, he may win back some liberals that had lost faith in him. Thus a fight with Congress made sense.

Obama said that he just lost patience with Congress stonewalling him: “I refuse to take ‘no’ for an answer. I am not going to stand by while a minority in the Senate puts party ideology ahead of the people we were elected to serve” (link above). Do not let Obama's words enter your mind. This was a cold political calculation, earning political points by using Congress as the whipping boy. How do we know? The following headline says it all:  "Dem NLRB ‘recess’ appointments rushed, don’t appear on White House nominee list"  (link here).

However, he gravely miscalculated the political fallout from a court decision that goes against him. And that is probable. If the courts rule that Obama's recess appointments are illegal and did usurp Congress' power, not only does he lose the appointments, but he comes off appearing like a frightening authoritarian to the moderate voters.

Since Congress was doing a great job of being unpopular without any help from Obama, this fight can only damage Obama in the polls. It is a miscalculation similar to Franklin Roosevelt's court packing bill of 1937. During the Great Depression the American people recoiled from the idea of an imperial White House, able to rule without checks from the other branches. They will react similarly now.

January 25, 2013 and July 17, 2013 update:
I was wrong on the public's reaction but correct on the appointments' unconstitutionality. See Obama recess appointments unconstitutional here. A third district appeals court overturned Obama's appointment here. This court looked at the history and Founders' intentions for recess appointments, and concluded that recess appointments may be made only when Congress adjourns for a long time. Next up, Supreme Court. To be continued...
June 26, 2014 update:
In a unanimous decision the Supreme Court viewed the recess appointments as unconstitutional. While the ruling was not as strong as the lower court ruling against recess appointments, the message was clear.

Obama and Theodore Roosevelt

I will introduce this topic, Obama and Theodore Roosevelt, with a December 7, 2011 transcript from Real Clear Politics:

MICHAEL MOORE, ON CNN: Well, "The Washington post" three weeks ago had this investigation and they said that President Obama has now raised more money from Wall Street and the banks for this election cycle than all -- than all eight Republicans combined. I don't want to say that, because if that's the truth, that Wall Street already has their man and his name is Barack Obama, then we've got a much bigger problem.

But I think President Obama, if he were here in the room, the question I would ask him is why are they your number one contributors? Why are you taking this money?

MORGAN: It's fascinating to find out why they're doing it. I'll ask him.

MOORE: What are they expecting in return in the second term from you? Right now, here's what we do know. Goldman Sachs was your number one contributor the 2008 election. And we have not seen anyone from Goldman Sachs go to jail. We have not seen the regulations, Glass/Steagall, put back on to Wall Street now three years after the crash.

Why hasn't that happened? President Obama, we the people need you to take them by the throat and say, damn it, this is the United States of America; you don't steal from the working people of this country. And this is the way it's going to be.
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Let's think about this Michael Moore exchange. People are just figuring this out now--that Obama and the Democrats prostitute themselves for political donations from investment bankers? It's not (only) the Republicans that are in the back pocket of Wall Street?

What's fitting is that the Michael Moore transcript speaks to the policies of Theodore Roosevelt (TR), so I particularly enjoyed Obama reliving Theodore Roosevelt's famous New Nationalism speech in Osawatomie, Kansas. There are plenty of interesting quotes from Obama's speech.

Obama: Those at the very top grew wealthier from their incomes and their investments – wealthier than ever before. But everybody else struggled with costs that were growing and pay checks that weren't – and too many families found themselves racking up more and more debt just to keep up....Banks and investors allowed to keep packaging the risk and selling it off. Huge bets – and huge bonuses – made with other people's money on the line.

Not one of these bankers went to jail, by the way. It's too bad that Obama did not read this line from TR's New Nationalism speech: "I believe that the officers, and, especially, the directors, of corporations should be held personally responsible when any corporation breaks the law." Instead Obama said:

And in 1910, Teddy Roosevelt came here to Osawatomie and he laid out his vision for what he called a New Nationalism. "Our country," he said, "means nothing unless it means the triumph of a real democracy … of an economic system under which each man shall be guaranteed the opportunity to show the best that there is in him." Now, for this, Roosevelt was called a radical. He was called a socialist – even a communist. But today, we are a richer nation and a stronger democracy because of what he fought for in his last campaign: an eight-hour work day and a minimum wage for women, insurance for the unemployed and for the elderly, and those with disabilities; political reform and a progressive income tax.

Obama's use of TR was misleading. He did not make two important facts clear. TR had not been president for two years, and he and his Progressive Bull Moose party lost the 1912 election and the party dissolved shortly thereafter. The American people rejected TR's approach in 1912. But, OK, let's look at what TR said and meant in his speech. TR believed in a progressive income tax on those with "big fortunes," not you and me. TR also said (in the New Nationalism speech) that "capital has its rights, which are as worthy of protection as any other rights." That doesn't sound very communist. He says that wages and hours should be reasonable but mentions neither an eight-hour day or a minimum wage. He mentions " national laws to regulate child labor and work for women," but gives no specifics. Perhaps this came out of his campaign at another point, but it was Woodrow Wilson that passed the income tax (promising a top rate of ten percent) and Franklin Roosevelt and the New Deal 23 years later that would put many of these ideas into legislation.

Most importantly, TR also said in the speech: "There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done."

Obama seems to have glossed over that line too. Real progressives should stop taking donations from groups that work against the society they want. Fake progressives just go after the money.