The Coming of the New Deal

the first two years of the Roosevelt Administration. . . what anni mirabilis [remarkable years] they were! Those who lived through them can still recall the electric excitement, the surging vitality, the mounting hope, the exhilaration that came over the American people after years of futility and frustration. It was, said Rexford Tugwell, "a time of rebirth, after a dark age.". . it ushered in the welfare state; it repudiated laissez-faire; it marked the rise of labor to a position of equality with industry and capital in our economy; it shifted the center of gravity from state to nation. . . from legislative to executive authority

--Henry Steele Commager, reviewing in January 1959 The Coming of the New Deal, 1933-1935 by Arthur M. Schlesinger Jr.

The stage is set for an American “new deal” in 2009. We seem ready for, in Tugwell’s phrase, "a time of rebirth, after a dark age." As in 1933, Democrats will have all the levers of power in their hands. And the country will look to Obama for action. The situation may not be, as French president Nicolas Sarkozy says, "Le laisser-faire, c'est fini” [is finished]. But people are shifting toward big government.

On the eve of the Democratic convention last August, Ronald Brownstein provided a sober look at the kind of changes we might expect from an Obama administration. In events where policy will pull between left and middle, expect the powerful, pent-up forces of the left—concentrated in the Democrats’ newly enlarged congressional majorities—to prevail. After all, as Brownstein notes, “Obama was shaped by an inner-city Chicago environment in which most political pressure came from the Left.”

The changes could be big. Brownstain quotes former (1984-88) presidential candidate Gary Hart saying, "We are now at the cusp ... of the end of the Nixon-Reagan-Bush era. Obama is poised. . . to be a transformational president and to redefine politics for the next 20 or 30 or 40 years."

Although Brownstein writes, “Obama hasn't attached a label to his agenda” like “New Deal,” preferring instead “change” that allows for maximum flexibility, Brownstein’s evaluation suggests an updated New Deal is on its way:

• Pump-priming. Obama portrays increased public spending on infrastructure, education, research, and other priorities as a key to prosperity, and he has emphatically sided with liberals who say that such investments take precedence over reducing the federal deficit. His programs just for alternative energy, infrastructure, and health care add up to $800 billion over 10 years, and the figures will certainly go higher. And, as Brownstein says, Obama won’t embrace any deficit-reduction target.

• Relief. Obama wants to increase income, payroll, capital-gains, and dividend taxes on upper-income families earning at least $250,000 annually to pay for federal tax credits or checks to 95% of families, with those near the median getting about $1,100 a year.

• Beyond Social Security. Obama’s health care plan will require insurance companies to compete in publicly structured exchanges not only with each other but also with a government-run insurance plan. Because of the add-ons Obama will require (no disqualification for pre-existing conditions, mandatory coverage of all workers), the government-run plan may end up covering most people.

• Alphabet soup. FDR created several government agencies to regulate the economy, and according to Brownstein, Obama will “subject businesses to an array of federal mandates.” Obama has sharply criticized legislation Clinton signed that deregulated the banking and telecommunications industries, saying, "Unfortunately, instead of establishing a 21st-century regulatory framework, we simply dismantled the old one -- aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight."

• Civil liberties. FDR appointed the first of the Warren Court justices who expanded civil liberties in the 1950s-70s. Obama will allow gays and lesbians to serve openly in the military, will repeal the Defense of Marriage Act signed by President Clinton, will reduce the use of mandatory minimum sentences, and he leans sufficiently toward individual rights that, in the words of Jeffrey Rosen, a George Washington University law professor, Obama will be "our first president who is a civil libertarian."

• Isolationism. FDR had to go along with the isolationism of the 1930s. Obama sides with the Left—today’s isolationists—in his recoil from free trade, his commitment to withdrawal from Iraq, and his willingness to meet with the leaders of rogue nations.

Brownstein left out another Obama-FDR parallel: support of unions. Republicans are alarmed about trade union insistence, supported by Democrats, on ending the secret ballot’s protection of workers from union bosses and thugs who will run union organization elections. The bosses want public elections that insure organizers know exactly how workers vote.

The Crisis of the Old Order

the causes of the depression are to be found chiefly in the malpractices of our own Government during the Twenties - the failure of government to adjust itself to profound technological changes; the search for economic self-sufficiency; the bankruptcy of a philosophy which clung tenaciously to shibboleths like the balanced budget and the gold standard. . . the Hoover Administration was all but paralyzed in the face of a crisis that quickly became a disaster.

--Henry Steele Commager, reviewing in March 1957 The Crisis of the Old Order, 1919-1933 by Arthur M. Schlesinger Jr.

Schlesinger admired Roosevelt and wrote 3 volumes about him. His first volume, The Crisis Of The Old Order, 1919-1933, blamed the Great Depression on Hoover and Republicans. Whatever the truth, then and now, historians will likely follow Democrats and the media in blaming our current economic crisis on Bush and Republicans, setting the stage for a new order under Obama and a Democratic congress, bringing massive policy changes come January.

The bleak economic climate grows bleaker. We’ve just ended the worst week in the Dow Jones index’s history. My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), dropped another 1,000 points over two days to -4,801, its new low (index two months old—we run the FOX INDEX whenever it hits new lows). It’s now 71% of the way from healthy to the market bottom hit in October 2002, at the end of the last bust.

Bottom Line: Find Housing Bottom

The good news: central banks in the U.S., the EU, Britain, Canada, China, Australia, Sweden, and Switzerland all coordinated lower interest rates to boost economic activity. The bad news: markets tumbled yet again; my FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), dropped another 900 points to -3,819, its new low (index two months old—we run the FOX INDEX whenever it hits new lows). It’s now 57% of the way to the bottom the market hit in October 2002, during the dotcom bust bear market. No guarantee the current market won’t tear right through those 2002 lows.

At bottom, we’re looking for the point where housing prices hit bottom. James R. Hagerty and Ruth Simon, writing today in the Wall Street Journal, make these points about what’s happening to housing:

 nearly one in six U.S. homeowners are "under water"; owing more on a mortgage than their home is worth and threatening a default that would further stress credit markets. Also, loss of equity makes people less rich and less inclined to shop.

 Among people who bought within the past five years, 29% are under water.

 Among mortgages on one- to four-family homes, 9% were a month or more overdue or were in foreclosure in the second quarter-- the highest level since surveys began 39 years ago.

 On a national basis, home prices peaked in mid-2006 after rising 86% since January 2000. Since peaking, that index has fallen 13%.

 In the second quarter, the median home price was 1.9 times average pretax household income, close to the 1.87 times income norm for 1985 through 2000, before the boom.

That last point is good news. But the article notes housing markets don't tend to turn around quickly. Last round, Los Angeles prices peaked in June 1990, bottomed only in March 1996, and didn't get back to 1990 prices until 2000.

Bad Economy, Democrats Gain in Congress

The Dow is below 10,000 for the first time in four years. My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), dropped to -2,925, its new low (index only two months old—we run the FOX INDEX whenever it hits new lows or less likely highs). Of course, bad news for the economy is good news for Democrats, who are now set for significant gains in Congress.

Stu Rothenberg, in his “Political Report," has Democrats picking up 12 House seats. That’s in line with the “Real Clear Politics” average of the generic Congressional votes, which shows Democrats at +10.3%, roughly 2% better than the generic vote on the eve of the 2006 election, and suggesting a Democratic gain beyond their current 36 vote majority.

Most significantly, Democrats seem on the verge of major Senate gains, a concern addressed earlier here. The “Real Clear Politics” average of state polls indicates the Democrats are favored to pick up 7 Senate seats—Virginia, New Mexico, Alaska, Colorado, New Hampshire, and now, even North Carolina and Oregon [Sen. Gordon Smith, pictured]. Rothenberg makes the same call. With 58 seats, Democrats would likely be able to find two Republicans (try Snowe and Collins of Maine, Specter of Pennsylvania) to cut off filibusters and push through their liberal agenda and activist court appointments. Wow.

Panic to Recession

Congress passed the rescue plan; thank you U.S. senate, including McCain and Obama. Yet the stock market slumped to lows not seen since 2005. Wall Street worries the government’s plan may not free up credit. My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), dropped to -2,429, its new low (index only two months old). Job losses for September reached 159,000, the highest figure in five years , and total job losses for 2008 are already 760,000. Unemployment, which held steady at 6.1%, may rise to 7% before the downturn is over.

Panics are awful, but may be over quickly. We seem to be in a recession.

Debate’s Eve: Will Palin Flunk Politicspeak?

Ross Douthat, the Republican editor of Atlantic, says about Sarah Palin’s performance [pictured w/Tina Fey], "'proficiency on television’ is simply a prerequisite for capable leadership in a mass democracy.” But then Douthat adds,

there's a sense in which the apologists for her performance are getting something right: In the process of performing very, very badly on national television, Palin is holding up a mirror to the rest of the political world, and revealing how the mix of talking points, bluster, obfuscation and BS that nearly all national politicians traffic in as a matter of course sounds when it's filtered through someone who isn't practiced in it, and isn't ready for the spotlight. Her performances reflect badly on her readiness for the vice presidency, no question - but they reflect badly on our whole compromised, spin-happy political class as well.

Douthat has a book, Privilege: Harvard and the Education of the Ruling Class, that takes it for granted we have such a class. And of course we do. Now, Douthat is importantly saying that class has a language that Sarah Palin and millions of other Americans don’t speak, like British upper class English, attacked by George Bernard Shaw in his version of “My Fair Lady.” The Chinese scholar class took this to its extreme with wenyan, a written language the common person cannot understand without the classical education that separated scholar/rulers from the masses. We see this more commonly in the U.S. with “lawspeak.” Now Douthat has discovered we have a “politicspeak.”

It’s all so undemocratic.

Five Weeks, Five Lessons

The election that began in January 2007 is almost over. Only five weeks left. What have we learned?

Elite are very tired of losing presidential elections. In the natural order of things, the national elite (media, entertainment industry and arts, academia, govern- ment bureaucrats, Wall Street and Silicon Valley, liberal churches, nonprofits, foundations)—the meritocracy—run America from their bi-coastal base. Since 1968, several Republican presidents have gotten in the way, even though the media, by undermining the president’s popularity (media's biggest failure: Ronald Reagan in his first six years), still control the national debate. The elite believe the country runs better when one of their own is in the White House. Obama preaches change, but his election is about restoring the meritocracy's control of Washington, the status quo that prevailed from Franklin Roosevelt to John Kennedy, and again under Bill Clinton.

Obama is non-threatening. Here from Linda Chavez, a former Reagan and Bush 41 administration official, quoting from Obama’s memoir to explain how Obama has gotten away with avoiding discussions of his drug use. “It was the same technique he used on his mother when she confronted him in his senior year of high school: ‘I had given her a reassuring smile and patted her hand and told her not to worry, I wouldn't do anything stupid. It was usually an effective tactic, another of those tricks I had learned: People were satisfied so long as you were courteous and smiled and made no sudden moves.’" Obama’s people skills have helped him with voters who don’t share his liberal policies. The media revel in Obama’s skills, spotted them early, and believe he will win where earlier liberals Kerry, Gore, Dukakis, and McGovern lost.

Elite/Obama know best. Southerners Bill Clinton and Jimmy Carter ran centrist, evangelically-friendly campaigns that successfully gained Middle America’s support. But Obama isn’t compromising his liberal orthodoxy to reach beyond the elite’s natural base: the meritocracy including special interest groups led by their own elites (feminists, labor, minorities). He believes he can win by emphasizing pocketbook issues—jobs, healthcare, direct payments—rebuilding the Democratic coalition of 1932-64, when the Great Depression and popular mistrust in business led to greater government control. It’s good old Marxism, socialism, or what Isaiah Berlin called “positive liberty.” An elite, the proletariat’s vanguard, uses government power to bring the masses nearer to equality (even if the overall economy weakens). Thus for over a year, the media have helped Democrats pursue their classic path to power by emphasizing America’s economic difficulties. And now we have Wall Street’s financial crisis.

Elite’s straw enemy: business. Roosevelt viewed the enemy as “malefactors of great wealth.” Unregulated expansion of business power, among other factors, helped produce the Great Depression. But those who sought to expand government needed an enemy, and rich capitalists (class warfare) worked for Democrats as they had for Bolsheviks in Russia and democratic socialists in Western Europe. By 2008, it’s wearing a bit thin. The movie “Iron Man” includes some Taliban-like villains in what seems to be Afghanistan, but the Afghans (?) are in fact manipulated by an evil, rich American capitalist, the movie’s true villain. It's so strange. Democratic fundraisers feast off the fruits of capitalism, Democratic national convention delegates out-earn their Republican counterparts, and liberal Democrats represent four of the five richest congressional districts. It’s all fake—a straw man. Democrats, rich, prosperous, successful, the national elite, struggle to find an enemy to mobilize against. An enemy, that is, other than the real one.

Real enemy is yahoos. Before the Panic of 2008, just two weeks ago, Obama was in trouble because once again, elite Democrats were caught looking down their noses at average Americans, as represented by Sarah Palin (see here and here.) Of course, educated Easterners and their West Coast cousins know more, know the world, and have earned the status they strive to protect. Screaming peasants, er right-wing Christians, armed with pitchforks, er guns, aren’t going to take the leadership’s castle, er positions, away from them. Don’t yahoos know that without the nobility, er meritocracy, the common folk would be much worse off?

For us, the peasants, the real enemy is the media. Quoting Dallas Morning News columnist Mark Davis:

This is the year that the mightiest networks and newspapers shed all pretense of even-handedness and willfully joined the Barack Obama campaign in a blood oath to defeat John McCain and savage Ms. Palin in the process. . . if the campaign staffers posing as reporters manage to succeed, the celebration will soon be dampened by the cold realization that the clout they once enjoyed is fading fast. . . The once-venerable media giants who used to be our only spigot for news may strive to win back audiences by rediscovering objectivity, but one wonders how many will notice that they are even trying.

An Obama victory may yet save the media.

The Panic of 2008

Wall Street crashed today. Dow down 777 points. It was in point terms the Dow’s biggest single-day drop ever. The U.S. House, where members must run for re-election right now until November 4 (voting is underway in several states and members were supposed to adjourn today to begin non-stop campaigning), is panicked about constituents who don’t understand the rescue (mis-sold as a “bail-out”) package will help them, not rich stockbrokers or bankers. Afraid of losing their jobs, the politicians have panicked. Looking at gutless Democrats (95) and Republicans (113) who won’t vote in the national interest, Wall Street panicked.

In the 19th century, financial crises were called “panics” because when “people believe that the bank will be unable to pay, they will all attempt to withdraw their money. This in itself will ensure that the bank cannot pay, and it will go bankrupt.” We’re back to a classic panic in 2008, and ordinary people will suffer as they did in 1893 and before. On my FOX INDEX, we are now a gigantic -2,345 points away from good health (12,000 Dow, 1,300 S&P, 2,500 NASDAQ). Going backwards. Headed down.

We need at least one bipartisan leader who can bring our pigmy politicians together.

Obama Debates Bush: Does It Work?

Barack Obama, contrary to the prediction here, didn’t attack McCain as more neoconservative than Bush. He was satisfied to repeat the mantra that Bush was wrong, and McCain represents more of the same. McCain bit once, and tried to separate himself himself from Bush. Mostly though, McCain ignored the thrust.

McCain instead went after Obama on a series of known Obama problem areas, and by doing so, kept Obama on the defensive, which included the several times Obama said, “John is absolutely correct.” The related atmospherics seemed to work better for McCain—he looked straight ahead and referred to Sen. Obama, while Obama looked directly at McCain, addressed McCain as “John,” smirked and made gestures of disagreement.

Here are two other perspectives. Dick Morris, a Republican (and ex-Bill Clinton) advisor, says Obama won because he won on the economy, and the economy (the first third of the debate) is the big issue. And Frank Luntz, a Republican pollster who worked hard to assemble a focus group made up entirely of Las Vegas “undecideds,” reported the group went strongly for Obama, and most appreciated Obama’s detailed criticism of McCain’s Iraq policy pre-surge.

The media will spin the debate for Obama, and should be able to leave voters who didn’t watch with the impression Obama won, if in part because foreign policy is McCain’s strong suit, not Obama’s.

Obama Wants Economic Crisis to Sink GOP

We are in a terrible economic crisis. And tonight Obama told CBS's Katie Couric, “It’s pretty frustrating for Democrats, having seen the mismanagement that’s taken place over the last several years, to feel like we’ve got to step in and get somethin’ done.”

Obama thinks Bush is responsible for the economic crisis. I get that. But then Obama suggests because Bush caused the crisis, it’s too bad Democrats have to “step in” and solve it. Presumably he’s frustrated he can’t just allow the crisis to tank the Republicans who caused it, even if Wall Street’s collapse took millions of innocent people with it.

That’s how I read Obama’s words. Thanks, Barack.

How to Attack McCain’s Foreign Policy: A Debate Preview?

In 1976, Richard Holbrooke was 35, and managing editor of Foreign Policy, the new, edgier, more openly Democratic foreign affairs publication. Holbrooke prepped Jimmy Carter for his foreign policy debate with Gerald Ford, a big task because the ex-Georgia governor had no foreign policy experience, and Ford had been part of Washington since 1948 as a congressman, vice president, and president.

Holbrooke performed his task brilliantly, coaching Carter to attack Ford from the right for being soft on Communism. Carter's opening blast at Ford so unhinged the president that later in the debate, Ford proclaimed—contrary to fact—that Poland and Eastern Europe were not under Soviet domination. Ford’s error cost him the election. Carter rewarded Holbrooke by offering him any sub-Cabinet foreign policy job he wanted (Holbrooke chose East Asian assistant secretary).

In 2008, Obama has Holbrooke on board, late because Holbrooke had been Clinton’s chief foreign policy advisor. Now Holbrooke may well be prepping Obama for Friday’s foreign policy debate, seeking to repeat his 1976 triumph. So what surprise will Holbrooke have for McCain?

A recent Foreign Affairs article (of 8,000 words) suggests Holbrooke may be advising Obama to attack McCain as even more neo- conservative than Bush. Holbrooke also may counsel Obama to switch the conversation to economics, arguing the economy is crucial to a strong foreign policy.

Holbrooke's article included the following points Obama could use against McCain:

 Although the economy is usually treated as a domestic issue, reviving it is as important to the nation's long-term security as is keeping U.S. military strength unchallengeable.

 [On oil,] Obama has a far more comprehensive plan, with an ambitious goal for emissions reduction, a market-based mechanism that has broad support among economists on the left and the right, and substantially greater investments than McCain's plan in technologies that will help achieve these goals. McCain stresses . . .offshore drilling. This is hardly a serious long-term solution. . .

 [The U.S. and China should develop] joint projects on energy-saving, climate-change-friendly technology [to] increase. . .energy efficiency and [reduce] carbon emissions in both countries. . . carbon capture to clean coal. . .

 McCain's . . . vague "League of Democracies" . . . sounds like an expansion of an organization, the Community of Democracies, created by former Secretary of State Madeleine Albright that still exists . . . [And w]hatever McCain says, his "League," unlike the forum created by Albright, would be viewed by everyone as an attempt to create a rival to the UN. . . not even the United States' closest allies -- let alone . . .India -- would support a new organization with such a mandate.

 [Bush let] Hamas, the terrorist organization, run in the 2006 Palestinian elections, with disastrous results, while backing away from democracy promotion in Egypt.

 The [new] president should . . . tackle. . .the arc of crisis that directly threatens the United States' national security -- Turkey, Iraq, Iran, Afghanistan, and Pakistan.

 [To help in this area, issue] a clear official ban on torture and clos[e] the detention facility at Guantánamo Bay, Cuba, which now holds only 260 prisoners. . . Obama supported, and McCain opposed, an important statutory requirement to hold the CIA to the same standards for interrogation as the military, as mandated in the U.S. Army Field Manual.

 McCain supports or takes harder-line positions than the Bush administration. . . it is impossible to ignore the many striking parallels between him and the so-called neoconservatives . . .

 McCain[‘s] position on Iran. . . is tougher than that of the Bush administration. . . ("Bomb, bomb, bomb, bomb, bomb Iran," he once sang at a public rally). Coupled with his criticism of the Bush administration's deal with North Korea and his call to throw Russia out of the G-8, his position suggests a deep, visceral aversion to talking . . . skepticism of diplomacy as a frontline weapon in the United States' national security arsenal. . . Obama's closer to the traditional default position of almost everyone [including] loyal pro-McCain Republicans, such as James Baker, Robert Gates (before he became secretary of defense), Henry Kissinger, and Brent Scowcroft. . . [Talking to Iran] would strengthen the United States' position . . . with other Muslim states, regardless of its outcome.

 the toughest [Afghanistan-related] challenge is the insurgent sanctuaries . . . of western Pakistan. . . which can destabilize Afghanistan at will -- and has. . . Nothing -- not even Iraq -- represents a greater policy failure for the outgoing administration.

Read this blog!

On Monday, this blog looked at the financial crisis hitting Wall Street, and praised Paulson for his series of actions that included letting Lehman Brothers fail that day. On Tuesday, the market recovered.

The blog also said,

Obama should be able to capitalize on this latest financial crisis, true front-page news. When times are bad economically and Republicans are in charge, voters gravitate back to Democrats.

Two days later, Obama, who had been trailing McCain in the polls for over a week, moved back in front.

Then Wednesday, this blog opined that that day’s stock market’s drop “shouts out” for “bolder action”—creation of a new Resolution Trust Corporation as recommended by former Fed chair Paul Volcker and others—adding, “I’m sure Hank Paulson’s noticed the market’s panic.” Yesterday, Paulson acted to form just such an entity, and the market went up. Two items, both on target.

And just look at these earlier entries:

Victory in Iraq means turning the country over to a democratically-chosen government, whatever its policies. Defined in those terms, we’ve won in Iraq, even if few yet say so. In January, just four months after the surge started producing measurable results, the blog asked, “Is Peace Breaking Out?” And in August, I eliminated the monthly Iraq report, a blog feature since its early 2006 days, saying “Iraq's level of violence has subsided to the point where U.S. forces are hardly waging a war.”

In July, the blog said Obama should select a female vice president, because if he didn’t, McCain might do so himself. Obama could have saved himself a bundle of trouble had he selected a woman.

A February blog entry identified Obama as “very likely to be our next president,” and pointed to the New York Times’ above-the-fold, front-page 3,000 word story, with bylines from four reporters suggesting McCain had an affair with a telecommunications lobbyist nine years previous, as the opening salvo of a campaign during which the media would do everything within its power to elect Obama and defeat McCain. Obama still looks like our next president, and it’s now widely accepted the media is bending the truth to elect him.

The Reform We Need

“We are in the midst of the worst financial turmoil since the Great Depression. Absent bold action, matters could well get worse.”


So say Nicholas F. Brady, treasury secretary 1988-1993, Eugene A. Ludwig, U.S. comptroller 1993-1998, and Paul A. Volcker, federal reserve chairman 1979-1987. Writing in the Wall Street Journal, they have recommended creation of a new Resolution Trust Corporation that is discussion topic A at least until markets open tomorrow. The three wisemen make the following points:

 Neither the markets nor . . . regulatory orders, bank examinations, rating downgrades and investigations can do the job. Extraordinary emergency actions by the Federal Reserve and the Treasury [are] insufficient.

 the system is clogged with enormous amounts of toxic real-estate paper that will not repay. . . This paper, in turn, is unable to support huge quantities of structured financial instruments, levered as much as 30 times.

 We should move decisively to create a new, temporary resolution mechanism. . . -- such as the Resolution Trust Corporation of the late 1980s . . [--] able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating.

 Such a stabilizing mechanism . . . by buying paper that otherwise is effectively not trading, [would] restore liquidity to the marketplace. . . allow for a more orderly liquidation of this paper, and the chance . . . to recover a portion of its value. . . lessen the number of foreclosures. . . [and save] sick institutions that are so clogged with the troubled paper they cannot continue as independent entities.

The stock market’s rejection of government’s lifeline to AIG—the market’s now, according to my FOX INDEX, 1935 points away from good health (12,000 Dow, 1,300 S&P, 2,500 NASDAQ)—shouts out for even bolder action. I’m sure Hank Paulson’s noticed the market’s panic.

Investment Bank Meltdown

In March, Wall Street had five major investment banks. After today, there are two (Goldman Sachs and Morgan Stanley). Bear Stearns, Lehman Brothers, Merrill Lynch—three former giants—gone. Gone.

Justin Lambert, writing in the Wall Street Journal (subscription), credits Hank Paulson for making sure the U.S. in its current financial crisis doesn’t repeat Japan’s mistake of the 1990s, when government authorities kept propping up banks facing liquidation and thereby prolonged the crisis for a decade. Some banks have to fail for the rest to survive and for the system to recover.

Since Paulson last March helped Bear Stearns place its assets under JPMorgan Chase’s umbrella (the government had to rescue Bear Stearns because of its significant derivatives market holdings), the Federal Reserve then extended short-term government credit to threatened financial institutions (didn’t work for Lehman because creditors wouldn’t lend to it anyway), and the previous weekend, Paulson nationalized Fannie Mae and Freddie Mac to save the mortgage market and bring the two giants’ mismanagement under control. One can argue that the net effect of each action, including Paulson’s letting Lehman fail, helps the economy.

One measurement of how well government's actions work is Wall Street’s short-term reaction. Right now, my FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ) is over 1500 points from being well—a long way. Obama should be able to capitalize on this latest financial crisis, true front-page news. When times are bad economically and Republicans are in charge, voters gravitate back to Democrats.

Congressional Election Climate Changing

Lydia Saad, writing for the Gallup organization, implies what’s becoming clear for the first time: Democrats are worried about losing congressional seats. Gallup’s latest generic congressional poll of likely voters has Republicans ahead of Democrats 50% to 45%, a margin of 5%. Such a result is unlikely to hold; it’s part of the post-convention bounce Republicans are gaining across the board. But if that 5% margin did hold, Republicans would regain control of congress.

The Pew poll, on the eve of the 2006 congressional elections, had Democrats ahead of Republicans by 8%. In the end, Democrats in 2006 garnered 7% more votes than Republicans across that nation, which led to a 30 seat gain and control of congress. For Democrats to retain their current congressional margin, they should have a generic congressional poll lead of around 8%. A drop below that level suggests Republican congressional gains.

The changed congressional climate is as sudden as Sarah Palin’s rise. Pew and Gallup-USA Today polls over the summer, covering June 18 to August 23, recorded an average 12% margin for Democrats over Republicans in the generic congressional vote. During that same time, Stu Rothenberg was estimating a Democratic gain of 8 seats in the House. Rothenberg’s estimate was in line with the above-mentioned Pew-Gallup polls (which showed Democrats upping their 2006 margin from 8% to 12%). And in line with conventional wisdom that Democrats would gain congressional seats in 2008.

That was then. Now, a new ballgame.

Elite Echo Chamber Can’t Hear the People (II)

Here is more about how the American elite misses what’s going on in Middle America. From Clive Crook, Financial Times (UK) commentator:

Democrats speak up for the less prosperous; they have well-intentioned policies to help them; they are disturbed by inequality, and want to do something about it. Their concern is real and admirable. The trouble is, they lack respect for the objects of their solicitude. Their sympathy comes mixed with disdain, and even contempt. Democrats regard their policies as self-evidently in the interests of the US working and middle classes. Yet those wide segments of US society keep helping to elect Republican presidents. . . for much of the media, the fact that Republicans keep winning can only be due to the backwardness of much of the country.

Democrats [cannot seem to] contain their sense of entitlement to govern in a rational world, and their consequent distaste for wide swathes of the US electorate. . . [T]he fathomless cultural complacency of the metropolitan liberal rules . . .out [winning]. . .Democrats need to learn some respect. . . develop some regard for the values that the middle of the country expresses when it votes Republican. Religion. Unembarrassed flag-waving patriotism. Freedom to succeed or fail through one’s own efforts. Refusal to be pitied, bossed around or talked down to.

Caroline Glick, a Jerusalem Post columnist, similarly notes how elite ideas—meant for themselves—obviously don’t carry to the masses:

the Left's ideology, whether relating to women's rights, human rights, academic inquiry or war and peace is not universal but tribal. . . [W]hen the Left is challenged on any one of its signature issues, because it cannot actually make a case for the universal applicability or even logic of its [tribal] views, it tends instead to embrace the politics of personal destruction while ignoring the obvious contradictions between its stated beliefs and actual behavior.

A tribe. Indeed, a tribe.

While conservative commentators may match their liberal counterparts in their ability to explain America’s current divisions, it doesn’t get us to where we want to be, a nation working together—elite, minorities, and working class whites—for the benefit of all. Dick Meyer, affiliated with NPR after a career with CBS News and author of Why We Hate Us: American Discontent in the New Millennium, says it’s untrue we are a nation divided into "two Americas." Meyer maintains “the vast majority of Americans. . . are pragmatic, independent and un-partisan in their basic views. They are eclectic: ‘liberal’ on some matters, ‘conservative’ on others.” Meyer’s view is a useful, heat-of-the-election-campaign reminder that the middle usually dictates election outcomes. It’s where both Obama-Biden and McCain-Palin should be looking for votes.

Elite Echo Chamber Can’t Hear the People (I)

George Will shows how the elite, even if Republican, can misread modern American politics when he writes, “The central principle of republican government is representation, under which the people do not decide issues, they decide who shall decide. The second is: Elections decide not whether elites shall rule but which elites shall rule.” I have argued against Will’s view here, where I say Republicans have been forced to listen to the people in order to recapture power.

Now Sarah Palin is helping everyone understand the national division between elite and masses. Conservative David Frum offers these facts that back Palin and implicitly refute Will:

 [For] Bill Clinton, Al Gore, Joe Lieberman, John Kerry and John Edwards. . . the decisive event of their lives was the letter admitting them to an elite university or law school -- or both.. . . The Democratic Party runs strongest where formal educational attainment is widest. . . Of the 10 states with the highest proportion of college graduates, Obama will almost certainly win at least seven, with only Virginia, Colorado and New Hampshire offering any hope to McCain. Of the 10 states with the lowest proportion of college graduates, McCain will probably win at least nine, with only Nevada contestable by the Democrat. . . Almost 45% of the population of Massachusetts has a university degree, compared to only 14% of the population of West Virginia.

 Since 1990, college-educated America has experienced a sexual counter-revolution. The odds of divorce have steeply declined . . .out-of-wedlock childbirth remains uncommon. To . . . college-educated women, the life story of the Palin family may seem . . . disturbing. [Their] children may get pregnant at 17 -- but they do not carry the baby and they do not marry the father. Teen marriage increases the odds of divorce; teen motherhood interferes with education – so educated America frowns on both. . . In non-college America, however, it’s still the 1970s. The odds of divorce remain as high as ever, and the rate of out-of-wedlock births among white women has jumped past 25%. . . the Palin story.

 Media commentators habitually refuse to acknowledge the implications of this class divide. During the Republican convention, . . . a big “Daily Show” billboard. . . read: “Welcome rich, white oligarchs.” Never mind that surveys of delegates showed that more Democratic than Republican delegates had incomes over $100,000. . . With [Obama,] Democrats have intensified their image as the party of minorities and the upper part of white America. . . the educated. . . By choosing Sarah Palin, Republicans. . .have reasserted their identity as the party of white working-class America.

The American elite has earned its status through educational achievement and hard work, whether in national politics, the bureaucracy, academia, the media, Silicon Valley and Wall Street business, non-profits, foundations, or the entertainment industry. How then, could this group embrace the views of the very people they've worked to separate themselves from? It’s natural to lead, not listen.

Unemployment Up Significantly

Unemployment is at 6.1%, its highest level since September 2003. Until last month, unemployment had been 5.5% or lower every month since July 2004, so this jump is significant. Inflation is up this year, with oil playing a role. Obama says, “the typical working age family's income is down $2,000 since George Bush took office,” but actually adjusted for inflation, family income is up $1,200 between 2001 and 2007, the statistical series’ latest year.

Economic Worries Grow

The stock market was down sharply today. We are once again in bear market territory, with the market down 21% since last October, after rising in July and August. It is down even though oil prices are dropping. Wall St. smells problems with the global economy—in Europe, in Asia—and believes oil is dropping for this bad reason, not just because of U.S. demand reduction. The U.S. itself isn’t doing well, with unemployment indicators up, and retail sales moving downscale, to Wal*Mart. My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ) is at its new low of -1,116 (index a month old). Bad news for the country, good news for Democrats.

How Did We Get Here?

Wow. Today, maybe longer, Sarah Palin is the most amazing woman in America.

Here from the Obama-supporting Mother Jones reporter David Corn:

Democrats beware—[Palin] demonstrated she's handy with a rhetorical stiletto and can slice Barack Obama and Joe Biden while flashing a stylish smile. . . Palin read her lines with flair and confidence. And—can we be frank?—she looked darn good doing so. She was with the program: this election is not as much about change, hope, or issues as it is about the measure of [Obama] . . . It's some ticket: a made-in-small-town- America working mom and the man who goes off to war to protect her way of life.

Obama-Biden are ahead, and the economy [entry above] helps them stay there, but Palin balances the excitement quotient that was all Democrats, all the time, for 19 months.

I see seven factors that transformed “excitement v. Bush” into a more balanced Obama("excitement")-Biden v. McCain-Palin ("excitement") contest.

1. Clinton miscalculated in January 2007, thinking that to become the first female president, she would have to be strong on defense. To avoid the John Kerry, primary-general, flip-flopper trap, Clinton refused to go for primary victories by apologizing for her Iraq war vote.

2. Obama, who would have made a great vice president on a Clinton ticket, realized he could energize the Democratic left and beat Clinton by making her Iraq vote his major issue.

3. The leading Republicans—Giuliani, McCain, Romney—all had problems with the party’s base, weakening the prospective GOP ticket. Clinton-Obama became the real presidential election fight.

4. But then, the successful Iraq surge transformed the Republican race, helping McCain, left for dead six months earlier, squeak through to a February victory. Even with his base problem, McCain had broader general election appeal.

5. And then, Democrats developed “buyers remorse” over Obama, prolonging the Democratic primaries and making it harder for Obama to accept Clinton as his vice president.

6. Obama failed to see how much Clinton’s being a female contributed to spring’s primary excitement, and declined to put a woman—Clinton or Kansas Governor Kathleen Sebelius—on his ticket, possibly because he feared Clinton, and feared picking Sebelius would offend Clinton.

7. McCain chose Palin, shoring up his base and grabbing his share of 2008’s election excitement.

The Amazing Mrs. Palin

If life imitates certain art, Sarah Palin may do fine. The fictional precedent is the BBC show “The Amazing Mrs. Pritchard” [picture], about a middle class wife who got fed up with the system and through an extraordinary series of steps, ended up running the United Kingdom. Mrs. Prichard was surprisingly tough, agile, and political, but what most carried through this provincial (Yorkshire) mom were her obviously authentic, “from the kitchen” values and speeches, which resonated with Britain’s electorate.

We’ll know more about Palin’s history-making chances after tomorrow.

National Journal Defends Obama “Most Liberal” Label

The National Journal has run an article explaining how Obama ended up with the most liberal Senate voting record in 2007. Editor Charles Green “mutter[ed] a profanity” when Obama came in at the top of their survey, because he knew he would catch grief for the ranking. Biden does come in at #3, as links in the article make clear. Obama ranked lower before last year (16th in 2005, 10th in 2006).

CNN's Kyra Phillips Digs for Dirt

CNN afternoon anchor Kyra Phillips is in Alaska to dig up what she can on Sarah Palin. In this report, Phillips was so excited she could hardly contain herself. She had run down a rumor (false) that Palin had faked her last pregnancy on behalf of her daughter. Phillips had found several people willing to talk about the fact that Palin’s 17 year-old daughter is currently pregnant, and Phillips had gathered support from the National Association for Reproductive Rights for her belief that Palin’s endorsement of abstinence-only sex education had in effect led to Palin’s daughter’s pregnancy. Finally, Phillips was enthusiastic about what she called “troopergate” (a term originally used to deal with Arkansas state troopers who protected then-Governor Clinton’s extracurricular activities--isn't it fun to turn the Republicans' witch hunts back against them?), the investigation of whether Palin attempted to fire a state trooper involved in a custody battle with Palin’s sister.

It all seemed inappropriate for a major news organization, particularly Phillips’ obvious excitement. Three stories: one false, two true, zero new.

McCain Scores

“[In picking a vice president,] the primary responsibility is to select one who will immediately take your place if necessary”

--John McCain, November 28, 2007

OK, that was yesterday’s wisdom. As I have written, Obama goofed, and it was up to McCain—blessed with the opportunity to go second—to capitalize on Obama’s error of bypassing a female in the year Clinton produced 50% of the electoral excitement. I’m so impressed McCain did what he had to do: pick a woman. Palin is better than Hutchinson (a Washington insider) or Firoina (discharged CEO). Good going, John!

Here are three reasons, from many, McCain did right:

1.

"Barack Obama should have begged Hillary Rodham Clinton to be on his Democratic ticket. John McCain may well be about to bring that chilling fact home to Barack Obama."

--Tennessee Guerilla Women (a blog)

Obama proved too weak to take the Clintons on board; his weakness contrasts with Kennedy’s strength in 1960, when JFK added near enemy Lyndon Johnson to his ticket in order to win (Reagan did the same with Bush 41 in 1980).

2.

“McCain has to be bold and daring and take the election away from the Democrats. . . Pawlenty is safe in a year when McCain needs to be bold.”

--Jay Cost

3.

[Palin] gives fence-sitting whites who feel they ‘ought’ to vote for Obama because of the historic nature of his candidacy an excuse to find history on the other side”

--Noah Millman

The “New Class”

Conservative commentator Michael Medved articulates a strong contradiction coming out of the Denver Democratic convention that I had felt, not yet verbalized. Democrats are full of stories of how they (Biden, Hillary, Michelle and brother, Barack, Virginia’s John Warner) rose from modest beginnings in the great American self-reliance, hard work, family values tradition. But then all say we need government to help everyone else. As Medved puts it, “these smug and preening politicians suggested that we’re brilliant and strong and special enough to make it to the top without government help, but most of the mere mortals who are watching us on TV will get nowhere at all unless we somehow use taxpayer money to assist them.”

Medved adds,

The contradictions emanating from the Democratic convention—praising individual stories of opportunity and upward mobility, while decrying the general disappearance of opportunity and mobility-- actually mirror the most puzzling anomaly of recent public opinion polling. By overwhelming majorities, Americans describe the state of the country as dire and desperate, while similarly lopsided majorities rate their own status as successful, satisfying and optimistic.

Medved attributes the contradiction to “media alarmists and complaints from politicians” that have convinced Americans “the nation at large teeters on the verge of collapse and destruction.”

I think these Democrats are sincere. Blessed with extraordinary talent that explains their success, they truly believe it’s government that will elevate the rest of us, who compared to them, indeed do “teeter on the verge of collapse and destruction.” These Democarts are the “vanguard of the proletariat,” Milovan Djilas’ “New Class." And as outdated as the Soviet Union.

Advice for Obama

You have to laugh. Dan Gerstein, who describes himself as a Democratic strategist, begins his Wall Street Journal opinion piece “Obama Should Just Be Himself” by rejecting the off-broadway play’s pitch, “I Love You, You're Perfect, Now Change.” Gerstein suggests Obama doesn’t have to change at all to win.

Gerstein then tells Obama to advocate education reform, saying, “No challenge is more consequential for our country than closing the achievement gap in our urban schools and raising the competitiveness of our workforce. And no special interest has done more to stand in the way of change in our public schools than the teachers unions that dominate Democratic politics.” Gerstein wants Obama to “embrace [the] aggressively pro-innovation set of principles" of Gerstein's client, Democrats for Education Reform.

As we saw earlier, Obama has yet to favor education reforms that union members see as sticks, not carrots. “You’re Perfect, Now Change.”

To Rule in a Democracy, One First Listens

America has a ruling class. Its parts control both parties. The larger part of the ruling class is Democrat, has been since the late 1960s, and became increasingly so with the presidency of George Bush, who represents the party hardy, rich kids the hardworking wealthy majority learned to detest in college (all I really need to know I learned at freshman orientation). For America’s meritocracy, the enemy is the lazy and overpaid—mostly Republican.

Republicans, a minority of their class, in the 1960s linked up with “the Silent Majority”, Middle Americans who felt left out of the Democratic Party that intellectuals took over in 1968. Intellectuals were limousine liberals who escaped Vietnam and pushed racial equality in working class neighborhoods and schools. Middle America still believes in God, and associated much of what’s wrong in America—feminism, sexual freedom, crime, legal abortion, bussing, affirmative action—with the rise of secularism. And Middle America, which disproportionately died in Vietnam, believed America stands for principles worth dying for overseas.

The 1960s change, which politically led to Republicans controlling the White House, Congress, or both after every election beginning in 1968 except 1976, 1978, and 1992—34 of 40 years—means Republicans are a minority of the ruling class, but the natural ruling party of a center-right, faith-based country.

Democrats want the political power that comes from controlling the White House. As leftwing blogger Glenn Greenwald, in Salon.com ironically put it (Greenwald thinks he’s a representative of the masses, as in “vanguard of the proletariat”): “Preserving ‘the centralization of government power in the White House’ is the best and most effective means devised thus far for allowing the political elite to run the country without interference from the dirty, stupid masses. . .”

Whether or not Democrats capture the presidency depends on whether or not they can view the country the way average Americans do. In a democracy, winners don’t ignore “the dirty, stupid masses,” they fight on their behalf.

McCain Should Pick Kay Bailey Hutchison for Veep

I said the next vice president should be a woman. Obama goofed. Now it’s set up for McCain to pick a woman vice president. Dick Morris has pointed out that there is only a 2% difference between men and women backing Obama. Historically, says Morris, 10-15% more women than men back the Democrat. Women are upset Obama passed over his historical opportunity to select Clinton, so seem to be withholding their support.

Morris says McCain should capitalize on Obama’s error by selecting Sen. Kay Bailey Hutchison of Texas. Martin Sieff at upi.com dismisses former Hewlett-Packard chief Carly Fiorina, my previous choice, saying McCain will suffer by associating with a CEO-type in an election where corporations are unpopular. Sieff also backs Hutchison as the only possible female choice. So do I.

The Elitist

“John McCain can’t remember how many houses he owns.”

-- Gov Tim Kaine (D-Va.)

If Obama seems disconnected from Middle America, what’s one to say about John McCain, who with his wife may have twelve houses? Even though Obama and his wife made $4 million over the past two years, the McCains seem to be richer. McCain appears unfocused on the economy issue, and Democrats are saying, “no wonder.”

If the economy is bad, and if world events allow the economy to be the issue that decides the election, McCain loses. Having too many houses helps him lose bigger.

I’m puzzled as to why McCain’s gaffe on his number of houses doesn’t just knock him out of the race right here and now. I’m getting it wrong, I think, because I'm an intellectual, not a working class voter. Working stiffs, as opposed to intellectuals, expect their leaders to be richer, so McCain’s houses aren’t so big an issue. What does matter is whether or not the candidates really understand working class problems, and more important, whether candidates have a way to fix them.

Since 1968, Republicans have understood the average voter worries about a government that takes more than it gives. Democrats are the party of government, and gain power when people believe government will give them more than it will take. 2008 seems such a time. That’s why it’s so important for Republicans to build mistrust in Obama’s true agenda. Obama being different from working class voters, not being one of them, is a worry. He may take from them to help some other group. McCain, for all his houses, seems to be a regular guy. Is Obama?

Washington Post Ombudsman Owns Up to Media Bias

"It doesn't look good," writes Deborah Howell, the Washington Post's ombudsman [picture]:

Democrat Barack Obama has had about a 3 to 1 advantage over Republican John McCain in Post Page 1 stories since Obama became his party's presumptive nominee June 4...In overall political stories from June 4 to Friday, Obama dominated by 142 to 96. Obama has been featured in 35 stories on Page 1; McCain has been featured in 13, with three Page 1 references with photos to stories on inside pages...This dovetails with Obama's dominance in photos, which I pointed out two weeks ago.

"This is not just a Post phenomenon," Howell writes. She reports that the Project for Excellence in Journalism has monitored campaign coverage in large and medium-circulation newspapers, broadcast evening and morning news shows, news Web sites, major cable news networks, and public and other radio. Its latest weekly report shows that for the eighth time in nine weeks, Obama received significantly more coverage than McCain.

Also, the Center for Media and Public Affairs reports that late night jokes on Leno, Letterman, and O’Brian and from Comedy Central’s John Stewart and Stephen Colbert over January-July “favored” McCain over Obama 549 to 382. And that was before McCain said he’s unsure how many homes he owns.

Is Obama’s Pain Our Pain?

Obama says, “my story is your story.” We believed Bill Clinton could “feel” our “pain.” But Obama, predicted here to run his general election campaign as a Son of Kansas, really has to sweat to jam his book-length (Dreams of my Father) resumè into a Middle American pigeon hole. Obama is brilliant, successful, talented and hardly an average American. His dreams are to rebalance America toward leadership by the meritocracy that ran the nation out of Washington from 1933 to the mid-1960s. The very elite Middle America mistrusts.

I like the way Edward Luttwak, the noted military historian, talks about the problems facing America today:

the immense wealth of the US—a country of 19,000 local airports and a Mediterranean's worth of private pools—is being eroded by seemingly insurmountable political inhibitions against pragmatic remedies for key problems, from illegal drugs to mass transport, to healthcare. (The latter—including the monstrous Medicare programme that pays for quintuple bypasses for 97 year olds at a total cost that will soon exceed the Pentagon's entire budget—now consumes 16 per cent of the US economy).

Towering above even Luttwak’s difficulties—a public education system run to benefit its employees, not its customers.

Not Liberal, but Sick?

Barack Obama said Monday, "Mr. McCain, the economic disaster is happening right now, maybe you haven't noticed." Where are we economically? If the average voter believes he or she is suffering, that means something. But we are not in recession, unemployment isn’t unusually high at 5.7% (it averaged 5.8% in the 1990s), and the price of oil has fallen to where SUV sales are on the rise again.

It’s not a good time, and the stock market, a predictor of the near-term economic future, has dropped over the past two days to 800 points below “healthy” (Dow 12,000, S&P 1,300, NASDAQ 2,500) on my Fox Index. The picture, though, hardly justifies Obama’s use of the phrase “economic disaster.”

For Obama and Democrats, the real “disaster” will be an economy healthy enough to keep Barack out of the White House. Obama’s elite, liberal base isn’t large enough to elect a president. In general, the American masses and their elite are in two different camps. But liberals have the money, the intellectual firepower, and the media domination including of the entertainment industry needed to, in Lincoln’s words, “fool all of the people some of the time.” And Democrats can lay claim to being able fix an economy (through Keynesian pump-priming) wrecked by Republican mismanagement. So a sour economy is key to Obama’s victory, and so Obama will see bad economic news whether or not it is there.

FOX Index Jumps on Oil Price Drop

The stock market rose significantly today. Oil declined nearly $4 to about $116, a drop of 3%. Since its early July peak, crude oil futures have declined 20%, and are back to levels left in early May. The market is responding positively not only to the drop in oil prices, but also to rising U.S. productivity, which should mean a stronger dollar and a reduced inflation threat. The S&P 500 is within 4 points of its healthy floor of 1300, and the Dow and NASDAQ also rose sharply, cutting the below-floor deficit of the FOX Index from -648 to -336, a reduction of nearly ½.

Monthly Iraq Index Obsolete?

Our latest monthly highly abbreviated version of the Iraq Index, published and updated twice a week by Michael O'Hanlon of the Brookings Institution, shows evidence that Iraq's level of violence has subsided to the point where U.S. forces are hardly waging a war. If violence returns, we will resume tracking it. For now, and one hopes forever, a monthly Iraq Index report seems unnecessary.

The summary for July follows:

Americans Killed in Action, Iraq (monthly average)
2003: 32
2004: 59
2005: 56
2006: 58
2007: 63
2008: 26
July: 5

Americans Killed in Action, Vietnam (monthly average)
1965: 128*
1966: 420
1967: 767
1968: 1140
1969: 785
1970: 413
____
* = First U.S. combat troops arrived in Vietnam, 5.3.65
Vietnam table compiled by Galen Fox using Defense Department sources.

Crude Oil Production (m. bbls./day)

Prewar Peak: 2.50
Goal: 2.20 (Revised upward, 1/08)
actual: 2.54 (7/08)

Electricity (megawatts)

Prewar: 3,958
Goal: 6,000
actual: 4,570 (7/08)

Since our previous monthly report, the monthly American KIA total fell from 19 in June to 5, the lowest count for any month of the Iraq war. More have died on single days earlier in the war. Iraqis, not Americans, are taking the lead in what military combat missions are still underway. [Please note: the number of KIA is almost always lower than the media-reported total of American deaths, which covers all causes, including non-hostile. Our Iraq and Vietnam figures are KIA only.] American combat forces will be leaving Iraq; it's a question of how fast, how soon.

In July, oil output rose from 2.51 to 2.54 million barrels a day, the highest monthly total ever. Revenue from oil exports continues to hit all-time highs, with June's total the highest on record (July's total will grow with later sales figures added). As with oil, output for electricity increased, growing from 4,470 megawatts in June to 4,570 megawatts in July, the fourth highest monthly total ever. Electricity output in the 4,500 megawatt range is significant because Iraq needs 8,500 megawatts to meet its demand, and gets up to 4,500 megawatts from privately-owned generators.

FOX Index Declines

Stocks dropped heavily yesterday, amid concerns about oil pipeline disruptions in Turkey, below-expectations quarterly earnings at Wal-Mart and AIG, and an increase in weekly jobless claims. I consider Wall Street to have reached a base level of health when the Dow is at 12,000, the S&P 500 at 1,300, and the NASDAQ at 2,500. Currently, the indexes are -648 below base, falling from yesterday’s -377.