Diversity

The age of prosperity is over.

About a year ago Stephen Moore, Peter Tanous and I set about writing a book about our vision for the future entitled “The End of Prosperity.” Little did we know then how appropriate its release would be earlier this month.
Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb’s book “Fooled by Randomness.”
David Gothard
When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.
No one likes to see people lose their homes when housing prices fall and they can’t afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house’s value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.
But here’s the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn’t create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
If you don’t believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they’ll do with Wall Street.
Some 14 months ago, the projected deficit for the 2008 fiscal year was about 0.6% of GDP. With the $170 billion stimulus package last March, the add-ons to housing and agriculture bills, and the slowdown in tax receipts, the deficit for 2008 actually came in at 3.2% of GDP, with the 2009 deficit projected at 3.8% of GDP. And this is just the beginning.
The net national debt in 2001 was at a 20-year low of about 35% of GDP, and today it stands at 50% of GDP. But this 50% number makes no allowance for anything resulting from the over $5.2 trillion guarantee of Fannie Mae and Freddie Mac assets, or the $700 billion Troubled Assets Relief Program (TARP). Nor does the 50% number include any of the asset swaps done by the Federal Reserve when they bailed out Bear Stearns, AIG and others.
But the government isn’t finished. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid — and yes, even Fed Chairman Ben Bernanke — are preparing for a new $300 billion stimulus package in the next Congress. Each of these actions separately increases the tax burden on the economy and does nothing to encourage economic growth. Giving more money to people when they fail and taking more money away from people when they work doesn’t increase work. And the stock market knows it.
The stock market is forward looking, reflecting the current value of future expected after-tax profits. An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output. Just look at the era beginning with President Reagan’s tax cuts, Paul Volcker’s sound money, and all the other pro-growth, supply-side policies.
Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the “retirement test” for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined). The stock market loved Mr. Clinton as it had loved Reagan, and for good reasons.
The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons.
These issues aren’t Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren’t.
I was on the White House staff as George Shultz’s economist in the Office of Management and Budget when Richard Nixon imposed wage and price controls, the dollar was taken off gold, import surcharges were implemented, and other similar measures were enacted from a panicked decision made in August of 1971 at Camp David.
I witnessed, like everyone else, the consequences of another panicked decision to cover up the Watergate break-in. I saw up close and personal Presidents Gerald Ford and George H.W. Bush succumb to panicked decisions to raise taxes, as well as Jimmy Carter’s emergency energy plan, which included wellhead price controls, excess profits taxes on oil companies, and gasoline price controls at the pump.
The consequences of these actions were disastrous. Just look at the stock market from the post-Kennedy high in early 1966 to the pre-Reagan low in August of 1982. The average annual real return for U.S. assets compounded annually was -6% per year for 16 years. That, ladies and gentlemen, is a bear market. And it is something that you may well experience again. Yikes!
Then we have this administration’s panicked Sarbanes-Oxley legislation, and of course the deer-in-the-headlights Mr. Bernanke in his bungling of monetary policy.
There are many more examples, but none hold a candle to what’s happening right now. Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.

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Diversity

The breakdown for Boy Meets World.

Grade 6-Grade 12
The story begins with Cory Matthews and Shawn Hunter as two Philadelphia students who would rather be anywhere than in Mr. Feeny’s sixth grade classroom. Cory’s older brother, Eric, is a very popular tenth-grade student. During the second season, when Cory and Shawn start high school, they meet Mr. Jonathan Turner, a non-conventional English teacher, who is the sometimes-enemy of Mr. Feeny, who is the new principal. Shawn becomes cool and popular at school, but still keeps his friendship with the less popular Cory. Shawn’s mother, Virna, deserts Shawn and his father, Chet, which upsets Shawn greatly. Chet then leaves to find Virna, and Shawn moves in with Mr. Turner. During the third season, Cory begins dating Topanga Lawrence, a girl who, in the first season, was mocked by Cory and Shawn. The two had been close friends as children, but when they were seven, Eric told Cory that girls had cooties, which ended their close friendship. The couple breaks up later in the season but get back together a few months later, when Cory follows her to Disney World to win her back. Eric graduates high school and takes a year off to figure out what he wants to do with his life. Cory and Eric then spend the summer on a road trip. When they return, their father, Alan, decides to quit his job and open a sporting goods store, with Eric as his partner. Topanga’s mother is transferred to Pittsburgh, which is over 300 miles from Philadelphia. The news devastates Cory, but Topanga runs away from her new house and returns to Philadelphia. Topanga’s parents decide that she can live with her Aunt Prudence in Philadelphia until she graduates. Later that school year, Mr. Turner gets into a severe motorcycle accident in which he almost dies. The next year, Eric moves out of his parents’ house and begins college at Pennbrook University. He moves into an apartment with Jack, who turns out to be Shawn’s half-brother. Shawn moves in with them, but he has nothing in common with Jack, which causes a lot of tension. A new student, Angela Moore, moves to Philadelphia and she and Shawn begin dating. Over winter break, the students go skiing on a school trip. Cory breaks his ankle and Lauren, a ski-lodge employee takes care of him. The two kiss, but Cory lies to Topanga, and tells her nothing happened. When Topanga finds out that he lied, they break up. Cory, upset about the breakup gets drunk and is arrested, along with Shawn. The two agree never to drink again, but Shawn breaks the promise and shows up at school drunk. With the help of Angela and Jack, Shawn realizes that alcoholism runs in his family and that he needs to stop drinking when he still can. Cory and Topanga reunite and attend prom together, where they are named King and Queen. On prom night, Cory’s mother Amy announces that she is pregnant. Mr. Feeny decides to retire at the end of the school year and decides to move to Wyoming. Topanga gets accepted to Yale, but Cory doesn’t want her to leave him. At Graduation, Topanga tells Cory that she decided not to go to Yale because she wants to be with him – then, she proposes. The couples’ parents are upset that they got engaged so young, but Cory and Topanga decide to elope. However, at the last minute, they decide that they want to get married “the right way”, in front of family and friends.

[edit] College
Shawn, Topanga, Cory and Angela join Jack and Eric at Pennbrook. Rachel McGuire, a new student from Texas, moves in with Eric and Jack, causing tension as both boys have crushes on her. Angela and Shawn break up and, despite Cory’s efforts, decide to stay just friends. Mr. Feeny returns to take some classes, but then is offered a teaching job at the university. During their freshman year, Stuart, one of their professors, hits on Topanga, causing Cory to shove him through a window. Cory is almost expelled, until the Dean realizes what the motivation for the shove was. Shawn writes a poem for a contest, but decides not to read it. Cory reads it without his permission, upsetting Shawn because the poem was about how he still has feelings for Angela. Shawn and Jack’s father, Chet, then comes to visit and tells the boys he will stay this time. Shawn doesn’t believe him and, during an argument, Chet has a heart attack and dies. Shawn, devastated about his father, goes on a road trip and decides not to go back to Philadelphia. Cory can’t convince him to come back, but Chet’s ghost helps Shawn to make the decision. Amy gives birth to a son, Joshua, but he is in an intensive care unit due to a lung defect. The family is very nervous, but Joshua makes it through. Mr. Feeny has had a crush on the Dean since he arrived at Pennbrook and decides to ask her out. The couple eventually gets married. Jack and Rachel begin dating, so Eric moves out. Topanga’s parents show up and tell her that they are getting divorced. Topanga, who is devastated, calls off her wedding to Cory because she doesn’t want to end up like her parents. Angela’s father shows up and Shawn tries to impress him so that he will put in a good word with Angela. Angela, however, doesn’t want to get back together with Shawn because she is afraid she will leave him like her mother left her father. The couple, however, reconciles. Cory and Topanga reconcile as well, and begin to re-plan their wedding. The couple finally gets married, after a huge fight between Shawn and Cory in the middle of the wedding. When the couple returns from their honeymoon, they realize they don’t know where they are going to live, because the dorms they had planned on living in are off-limits to married couples. They move into the married dorms, which are disgusting apartments, but Cory fixes up the apartment for them. The friends then get into a friendly war, with two teams – Cory, Shawn and Topanga against Jack, Angela and Rachel. However, when the war is taken too far, the friendships end. Mr. Feeny and Eric attempt to bring the friends back together, and after a flash into the future shows what life would be without each other, the friends reconcile. Topanga and Eric then decide to go on a diet, but Cory and Shawn misinterpret Topanga’s change in behavior and appetite as her being pregnant. Word gets out, and soon everyone thinks she is pregnant. She finally announces, at her surprise baby shower, that she isn’t expecting. She and Cory discuss having children, but decide to wait until they are ready. Angela’s father shows up again, this time to ask Angela to go to Europe with him, where he will be stationed for a year. This news greatly upsets Shawn, but he tells her to go because he wants her to have time with her father, something he never had with Chet. Eric, Rachel and Jack graduate from college. Topanga gets an internship at a prestigious law firm in New York City, but decides not to take it for Cory’s sake. Cory, however, decides to move with her to New York because he wants to be a supportive spouse. Eric and Shawn decide to move with the couple. Jack joins Rachel in the Peace Corps after Jack’s rich stepfather stops sending him money. Before Eric, Cory, Shawn and Topanga leave for New York, they make one last stop in Mr. Feeny’s classroom, where he gives them one last piece of advice for the real world.