Streetwise Professor

Bloomberg reports that S&P 500 companies are sitting on a huge cash horde of $1.19 trillion, and cutting back on capital expenditures:

A majority of companies in the Standard & Poor’s 500 stock index increased cash to a combined $1.18 trillion while simultaneously reducing spending, keeping a jobs recovery on hold.

Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 256 companies that ended last quarter with $518 billion more cash than a year earlier after cutting capital spending by 43 percent. Economists say the dearth of investment is keeping the jobless rate at about 10 percent as the U.S. emerges from its worst recession since the 1930s.

“It’s not clear we are going to see the type of growth following this recession that we’ve seen in previous recessions,” Sandy Cutler, Eaton’s chief executive officer, said in an interview yesterday. That view “is leading people to be cautious as to their rate of reinvestment, and right in parallel with that, in terms of hiring additional employees.”

One factor contributing to this reluctance to invest is almost certainly the huge political risk and the associated uncertainty.  Health care, the budget, the instability in the Eurozone, uncertainty about China (e.g., its threats to dump US securities, hissy-fitting about Taiwan), and on and on make this about the most uncertain period in memory.  Far better to wait, keep your powder dry, and wait to see how things shake out before making irreversible investments.  If for only for this reason, Obama and Congress should back off from their grandiose schemes.  Not that that’s likely to happen, which means that corporations are likely to continue to sit on cash, rather than spend it.

Developments here in Texas are having consequences around the world, in places that couldn’t be more different–like Russia.  Specifically, Gazprom has announced that the massive Shtokman gas project in Russia’s frozen north has been postponed.  It may not be unpostponed any time soon.  Part of the reason for postponement is the lingering effect of the financial crisis on the demand for gas in Europe.  But another big part of the reason is that the economics of the project were predicated on exporting liquified natural gas (LNG) to the US.  With the massive production of shale gas in Texas, Louisiana, and Arkansas, the US will not be needing LNG imports any time soon; as a result, the US has supplanted Russia as the world’s largest gas producer.  Indeed, the US may become an LNG exporter.  The technology for accessing shale gas may also open up previously unreachable supplies outside the United States, some of which should be able to reach consumption markets by pipelines, and some in the form of LNG.

Given the centrality of gas to Putin’s (“Gasputin’s”) geopolitical schemes, these developments are to be welcomed.  They should be welcomed by Russians too (though not those feeding at the rent trough); anything that undermines the rents that support the natural state is a boon for those who suffer from its stultifying effects.  These developments may save the Europeans from themselves and their inability to devise a coherent, unified strategy to combat the gas weapon, and reduce the intensity of the Great Game in the Caspian region and Central Asia.   The development of new unconventional gas supplies should also but a serious crimp in any plans for a gas OPEC.  All good.

In other words, drill horizontally baby, drill horizontally.

The development of a more active spot market for gas in Europe, driven by LNG, should also permit a change in contracting for Russian pipeline gas.  Currently, contract prices for Russian gas are tied to oil prices.  Although oil and gas are substitutes, and exhibit some correlation in values, the connection is quite loose.  The development of a spot gas market would permit indexing contract prices for pipeline gas delivered to Europe to European spot prices.  This would reduce, and arguably eliminate, the divergences between gas values and contract prices that create incentives for opportunistic behavior that necessitate rigid contractual terms such as take or pay provisions that are currently the source of friction between Gazprom and European consumers.

The huge ramifications of the technology of drilling for natural gas bring to mind the 1970s James Burke show “Connections.”  What happens in the hot, humid Piney Woods country can shape destinies on the dusty plains of Central Asia or the frozen wastes of Russia.  Truly amazing.

Today’s NYT contains an oped that echoes yesterday’s post “I know where you’re going”:

A recent report by the Institute of Contemporary Development, an influential think-tank close to Mr. Medvedev, called for a number of reforms. To encourage political competition, it said there should be a return to the system of electing governors and senators, practices abolished by Mr. Putin when he was president. The report also called for greater freedom in the media (the state controls 93 percent of all media outlets) to help expose corruption and encourage political debate.

. . . .

The prospects for change in Russia, therefore, are bleak. But public opinion is becoming increasingly resentful of government inaction and the situation could become explosive in the near future. The outside world can only influence developments at the margins. Still, we should not weaken our support for the liberal, democratic forces seeking to change the system. Their fight is ours.

As I’ve written often, it is difficult to envision a way that Russia can escape its purgatory.

Back during the height of the Hadley CRU scandal, I suggested that an open access, networked, distributed model should be considered as an alternative to the current, journal-dominated, hierarchical, peer review system.  University of Alabama-Huntsville climatologist John Christy has suggested that this could serve as a replacement for the highly politicized, deeply compromised, hierarchical, IPCC process:

The IPCC selects lead authors from the pool of those nominated by individual governments. Over time, many governments nominated only authors who were aligned with stated policy. Indeed, the selections for the IPCC Fourth Assessment Report represented a disturbing homogeneity of thought regarding humans and climate.

However, voluminous printed reports, issued every six years by government-nominated authors, cannot accommodate the rapid and chaotic development of scientific information today. An idea we pitched a few years ago that is now worth reviving was to establish a living, ‘Wikipedia-IPCC’. Groups of four to eight lead authors, chosen by learned societies, would serve in rotating, overlapping three-year terms to manage sections organized by science and policy questions (similar to the Fourth Assessment Report). The authors would strike a balance between the free-for-all of true science and the need for summary statements.

It is definitely worth a try.  This is happening in an informal way in the blogosphere.  It should be incorporated into the IPCC process, sooner rather than later.

In today’s Moscow Times, Vladimir Ryhzkov writes about the Institute of Contemporary Development’s report “21st Century Russia”.  The report’s basic conclusion echoes a long-standing SWP theme: Russia’s fundamental problem is institutional, most notably the absence of any institutional checks on the predations of the state, and the predations of private interests under the protection of important elements of the state.  In other words, the natural state is antithetical to Russia’s development.

Ryzhkov repeats some pretty stunning statistics about the “accomplishments” of Putinism:

In the latest Global Competitiveness Report 2009-10, Russia dropped 12 spots in the ranking from the previous year — to No. 63 out of 137 countries. The reasons for Russia’s fall were: a shortage of effective state institutions (ranked 110th in the world), an insufficiently independent judicial system (ranked 116th), a lack of protection of ownership rights (ranked 119th) and government favoritism toward individual companies. In 2001, when Putin promised to strengthen the state and lead Russia to prosperity, the country’s overall competitiveness ranking was actually higher (ranked 58th), and the rankings for the quality of its institutions and protection of ownership rights were twice what they are today. So much for Putin’s promise to “strengthen the state.”

I’m with Ryhzkov until the last sentence.  He suggests that the statistics he cites reflect a weakness of the state.  No, no, no.  They are in fact a very predictable consequence of the increase in state power.  It is well known that a state that is powerful enough to protect property is powerful enough to take it, unless it is somehow constrained from doing so.  Putinism means an expansion of the discretionary powers of the state, the ability of it and its agents to intervene selectively, and a decay in the institutional checks on this power.  The swelling of unchecked and arbitrary discretionary authority is a threat to liberty and property, and an anathema to modern development.  The decline in freedom and the security of property is a feature, not a bug, in Putinism.

Ironically, by identifying the economic, political, and civic progress of a country with the authority and reach of the state, Ryhzkov falls prey to a characteristically Russian error.  It is that very state-centric attitude that has been Russia’s curse since the days of Muscovy.

Ryhzkov describes the all too predictable response of the statists to the ICD’s report, namely, to posit a false choice: if you oppose Putinism, you must favor the anarchy of the 90s:

As expected, United Russia and propagandists loyal to Prime Minister Vladimir Putin viciously attacked the report, accusing its authors of trying to return the country to the “wild ’90s” and even of thirsting to dismember Russia, a scenario that former U.S. National Security Adviser Zbigniew Brzezinski famously described in his 1997 book “The Grand Chessboard.”

(This style of argument is not unheard of in the comments section, BTW.)

But this socio-politico-economic dualism is false.  There are alternatives other than anarchy and dominance.  Russia’s problem, and the challenge facing the ICD authors and their supporters, is how to get to one of these more humane alternatives.  The statists have advantages and exploit them ruthlessly; it keeps the citizenry atomized and apathetic through dominance of the media, propaganda, and ruthless suppression of any semblance of organized protest.  An atomized and apathetic populace is incapable of mounting serious opposition, and if history provides any guide, when the Russian populace ceases to be atomized and apathetic, it turns anarchic and violent.  Hardly an environment conducive to the development of the institutions that the ICD report identifies as essential to Russia’s development beyond Nigeria with snow, however attractive as those institutions are to a classical liberal like me.

In other words, the ICD has chosen a great destination, but getting there from Putinland will take a miracle.

One of the tales about derivatives clearing, told repeatedly by Timmy! Geithner and Gary Gensler is that the clearing fairy magically makes counterparty risk disappear.  The reality is that it doesn’t make it disappear: it just moves it around.  And not necessarily in a better way, as members of the CME clearinghouse clearly understand.

Many of these members are extremely leery of the CME’s plan to clear CDS.  This week, according to Bloomberg and DJ (not online, fortunately), big brokers Newedge and MF Global came out forcefully against the CME proposal precisely because they fear that clearing CDS will allocate the risk their way, and their customers’ way:

Newedge USA LLC, the largest U.S. futures broker, and MF  Global Holdings Ltd. are urging the U.S. to prohibit CME Group Inc. from using customer funds to back credit-default swap  trades alongside futures transactions in its clearinghouse.  The brokers said the lack of an underlying frequently traded contract for credit-default swaps, such as a future based on the swaps, made it too difficult to price the derivatives for risk-management purposes, according to a Feb. 4 joint letter the companies sent to the Commodity Futures Trading Commission.

“We do not believe it would be appropriate for the commission to now require futures customers to effectively cross guaranty CDS risk, however remote some may suggest the likelihood of a cleared CDS default to be,” the firms and CME Group members wrote in the letter. “MF Global and Newedge are not satisfied that the risks to futures customers’ funds and to our own guaranty deposits — risks we never signed up for — may adequately be assessed or contained.”

The Newedge/MF Global broadside gives the lie to other clearing fairy tales: namely, that contractual standardization is sufficient to make instruments appropriate for clearing, and that clearinghouses magically create transparency.  To the contrary, clearinghouses consume transparency/information: they need liquid markets with active price discovery to work effectively, and contractual standardization is not sufficient to ensure such liquidity.

Note their concern that risks may not be adequately assessed.  This requires information  about pricing and risk characteristics.  This information is hard to come by for many CDS, particularly single-name CDS.  Moreover, dealers may have better information than a clearinghouse.

In other words, clearing is not magic.  It doesn’t make risk disappear.  At best, it reallocates it.  Moreover, it can actually create problems, rather than mitigate them, when the clearer lacks the information to price the risks properly.  Newedge and MF Global, and before them Thomas Peterffy, the FIA, and Penson’s Chris Heymeyer, recognize that.  When will those who want to mandate clearing as broadly as possible figure it out?

Via Economist’s View, a couple of articles that demonstrate how some people are, as Keynes said, the slaves of some defunct economist.  The economist in this case being, ironically, Keynes himself.

First Robert Reich:

1. Government spending needed to offset the continued reluctance of consumers and businesses to spend. You don’t have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging, the public sector has to borrow and spend in order to keep the economy moving forward.

No, you don’t have to be an orthodox Keynesian.  That is a sufficient but not necessary condition for believing such silliness.  Note the confident, imperative language: “As long as the private sector is deleveraging, the public sector HAS TO BORROW and spend.”   In other words, people individually have decided to reduce their leverage, so the state has to borrow on their behalf, promising to use compulsory means to repay said borrowings.  Yeah?  Says who?

Wouldn’t it be wise to ascertain just why people want to adjust their leverage before rushing out to undo their choices using fiscal policy?  Doesn’t it raise at least a few doubts to recognize that since one of the contributors to the financial crisis was arguably excessive household and corporate leverage that deleveraging might be a good idea, not to be reversed by government fiat?  It’s hard to imagine a more succinct expression of the we-know-better-than-you-idiots mindset that lies at the root of the stimulus tribe.

And the chief of that tribe is, of course, Paul Krugman, who said this:

What has been lost above all, Krugman argued, is an appreciation of ideas developed in the 1930s — most notably the economist John Maynard Keynes’s broad view that in certain circumstances government spending is the best tool to instigate an economic recovery. [Revolt, Paul: All you have to lose is your chains!]  At a time when interest rates are minimal and can hardly be lowered to spur private investment, Krugman argued, Keynesian thought is especially vital, despite some loud arguments to the contrary.

. . . .

“In the 1970s, a lot of schools stopped teaching old-fashioned macro,” said Krugman on Friday. “MIT being one of the places you could still get it.” (In addition to receiving his PhD at MIT, Krugman taught at the Institute in two stints, totaling more than 15 years, between 1980 and 2000, when he moved to Princeton.) As a result, he added, “What’s striking is how many people there are in their 30s and 40s in the profession who haven’t encountered this idea, that fiscal stimulus helps.”

Uhm, people stopped teaching it because it didn’t work.  And “this idea, that fiscal stimulus helps” is, just that: an idea, and not one that has received empirical support.   Indeed, most of the empirical evidence goes the other way: fiscal stimulus either has no effect, or is actually counterproductive.

I know that his name is “Robert,” but I always find myself calling him “Dick.”  I wonder why that is?

Actually, I don’t.  He is the most insufferable, appalling, obnoxious, dishonest, and thuggish press secretary in memory.  And stupid, too.  What is his mission in life?  To make Scott McClellan look good?  One would have thought that Mission Impossible, but Gibbs has succeeded beyond anything Tom Cruise could ever aspire to.

But Gibbs is just the most visible member of the Chicago Creepocracy that infests this Administration.  And I say that as a native Chicagoan.  The whole gang is repulsive.  I have known of Axelrod since the ’80s.  He was appalling then.  He is worse now.  And it goes downhill from there.

I remember with some fondness the Old School Chicago pols of the 70s and early 80s.  They were unseemly, to be sure.  But they had a roguish charm, a comedic element, a shot-and-a-beer down-to-earthiness that the current crowd lacks completely.  Gibbs, Emmanuel, Axelrod, Jarret, and the rest are haughty, arrogant, supercilious.  All the thuggishness, with none of the roguish charm. You could laugh reading Royko send up the Daley-era pols and flunkies. There are few things more comic than the Council Wars of the early-80s, or the circus that resulted in the selection of Alderman Sawyer to replace Harold Washington.  There is nothing funny about this bunch.

And one thing you could say about the old Chicago gang is that it stayed in Chicago.  The new Chicago gang is inflicting itself on the entire country.  Less humor.  Bigger stage.  Bad combination.

The show is getting very bad reviews.  Indeed, the coalescing conventional wisdom is that these jokers are responsible for Obama’s cliff dive.  (A competing explanation is that you idiotic people are to blame for not recognizing the wonderfulness that is the modern Washington political class.)

Surely, they have contributed.  But this explanation wreaks of the old story of the Czar being betrayed by his boyars and officials.  The Czar, of course, is faultless: it is his underlings that have failed him.

It’s an old explanation/rationalization/excuse, and almost always wrong.  It’s wrong in this case.  As usual, responsibility ultimately rests at the top–with Obama.  Whatever dysfunctions of the modern Chicago political culture Axelrod reflect, Obama reflects too.  They were all marinated in the same juices.  They all evolved in the same political swamp.  They share a mindset.  And an attitude.

Which means that getting new advisors will have absolutely no effect.  It’s not like Obama is a hostage of a cabal of Chicago schemers, and that liberating him from their clutches would restore sanity and class.  He’s a part of the cabal, not its prisoner.

Reader R makes the comparison between Obama’s Chicago gang and Russian politicians.  I think that there is a definite comparison between the new Chicago crowd and the Putin crowd (although Obama and Putin are quite different.  I hope.)  The combination of arrogance and thuggishness, and the utter disdain for any who dare oppose them, are shared defects.  Perhaps the common denominator is one-party political systems rife with criminality.  That’s Moscow, and that’s Chicago.  Our saving grace is that our system is more capable of change, and it is possible to throw the bums out, or to neuter them, without revolution.  Historically, revolution has been Russia’s only way out–or rather, out of one mess into another.  We have the opportunity to use Constitutional and peaceful political means to send Dick, I mean Robert, and the others back to the political cesspool from whence they came.

The FT has an interesting article about the difficulties and uncertainties facing cap & trade schemes, even in Europe where they’ve been implemented.  A good part of the article focuses on the loss of intellectual coherence in climate policy in Europe, as regulations and taxes are being mooted to reduce CO2 emissions.  Such command and control bolt-ons are inconsistent with the basic concept of cap & trade, which is that by determining a price of carbon the market will induce efficient responses to reduce emissions on all relevant dimensions:

And the more the carbon market shrinks in its ambitions, the more it faces a broader threat: that of losing touch with its original objective. Credits could continue being traded in the old way. But if the main thrust of carbon reduction is tackled by other means, the market could face questions about its social utility.

But to me, the most interesting part of the article relates to the arcane area of offsets:

Nibble, nibble. Then we come to the aforesaid vexed question of offsets.

That is the system whereby EU companies build projects in developing countries – which are not subject to carbon caps – and thereby earn the right to emit more back home. The premise is that each project emits less than the existing version – or less than some notional alternative, which is not the same thing.

There is scope for abuse here. And, some claim, there is growing protest among locals who might not be too keen on a pulp mill or dam at all, let alone one built with foreign capital. Hence the curious sight reported by one environmentalist of thousands of Thais last year waving placards reading “Stop selling carbon credits”.

Since offset-based credits account for only a fifth of the total, the simplest solution might be to abandon offsets altogether. But that would be resisted by EU industry, since the whole job of meeting carbon targets would thereby fall on EU plants. It would also be a further reduction in the scope of the scheme.

For those not familiar with offsets, these are basically projects that absorb greenhouse gases or lead to reduced production of said gases by substituting low emissions technologies for high emissions ones.  Planting a forest that absorbs CO2 is an example of an offset.  The party planting the forest would receive CO2 credits based on the amount of carbon absorbed by the forest which could be sold.  The income from the sale of the permits can be used to recoup the costs of creating the offset, and earning a return on the capital committed.

As the article notes, Europe relies on offsets for about 20 percent of its CO2 reductions; the US ACES bill passed by the house depends even more heavily on offsets.

I teach (along with colleagues Victor Flatt and Praveen Kumar) what is likely the first university course in carbon trading offered in the US (and perhaps globally).  While teaching the course, prepping for it, and listening to my colleagues and student preparations, I have become convinced that although there is a strong conceptual case to be made for offsets (if it is cheaper to capture carbon somehow rather than reduce carbon output on other margins), the practical difficulties make it highly problematic to rely heavily on them.

The practical objection relates to transactions costs, notably what is sometimes called the measurement branch of transactions cost economics.

Every transaction involves some measurement.  Measurement is costly, and like all costs, it is desirable to economize on these expenses.  Measurement costs can be so large as to make some transactions prohibitively expensive.  Economizing on measurement costs can also affect the nature of transactions.  (As a prosaic example, to prevent excessive, wasteful measurement, it may be economical to package several pieces of fruit in sealed packages, rather than allowing consumers to pick over individual pieces.)

In my lectures in the carbon trading class, I discuss how commodity measurement issues have posed challenges in commodity markets, and how market participants have developed mechanisms to address these challenges.  Based on this history, and and an understanding of the unique issues associated with carbon and especially carbon offsets, I conclude that measurement problems are likely to be extremely knotty in this context.

The root problem is that incentives to monitor quality differ between transactions for “bads” like carbon, and transactions for goods, like wheat or oil. In transactions for private goods, the buyer has an incentive to monitor the quality of the good provided by the seller.  Moreover, the parties to the transaction have an incentive to develop ways to balance the costs and benefits of improved measurement.

In contrast, in a market for pollution, almost by definition the “consumer” in the transaction has no incentive to monitor.  Since the effects of the bad are extremely diffuse, the willingness and ability of those “consuming” it to monitor it are minimal.  Indeed, this is  one of the sources of transaction cost that must be invoked to justify the public regulation of CO2 emissions in the first place (in lieu of private Coasean bargaining, or reliance on torts).

So third parties must do the monitoring.  But this is likely to be very burdensome, for a variety of reasons.  At any point in time, it is a non-trivial problem to monitor the amount of carbon absorbed by any offset project.  Think of the challenges of measuring the amount of carbon absorbed by a forestation offset project.

Moreover, offset projects are supposed to be permanent.  Think of the forest example again.  If the forest burns down, the carbon captured–which has resulted in the distribution of valuable CO2 permits to the developer–is released.  Conceptually, you could provide the appropriate incentives by requiring the developer to acquire and retire an amount of carbon emission permits equal to the amount of CO2 released by the fire.  But here we face a stock-flow problem: the developer may be on the hook for say, 50 years worth of permits.  The developer has every incentive to retain very little capital, and just declare bankruptcy in the event.  So, to give the appropriate incentives to trade-off the benefits and costs of risk of loss of permanence, it may be necessary to require the purchase of insurance; or bonding requirements; or capital requirements.  But how do you price the insurance?  How do you determine the bond or capital that gives the right incentive?  Offset projects differ in permanence loss risks; who measures that risk (which will vary by project and by the efforts of the operator of the offset to control the risk of release) and prices it so that developers have the incentive to create the right mix of offsets?

Presumably we will see the creation of offset rating agencies to address some of these issues.  In light of the financial crisis, enough said?

And here’s another thought apropos the financial crisis.  I predict that if offset projects are created, financial instruments will be created to distribute (“slice and dice”) the risks of loss of permanence, and the risks of underperformance.  Specifically, I predict the creation of CDOs–carbon derivative obligations–that will create offset tranches from portfolios of offset projects.  The lower rated tranches will bear the first risk of loss of performance, the mezzanine tranches the second risk of loss, and the AAA pieces will only fail to pay out completely if the offset portfolio’s performance is so poor that the less senior tranches are wiped out.

After all, failure to produce the anticipated/promised amount of carbon offset is almost exactly analogous to a default, which is just the failure to produce a promised cash flow.  It is therefore to be expected that the risks will be managed, sliced, and diced in very similar ways.

But permanence isn’t the only issue.  Offsets are also supposed to be “additional,” meaning that a particular offset project wouldn’t have been created even without the prospect of receiving valuable carbon credits.  For instance, if the ability to sell natural gas or power makes a project to capture methane viable even absent the inducement of carbon credits, providing such credits provides an excessive incentive to create such projects.

And just how does one measure additionality, exactly?  It requires a detailed understanding of the economics of a particular project.  (The issues here are very complex.  Think of a wind power project.  Wind power is erratic, and typically requires backup from fossil fuel units to maintain reliability.  It’s not trivial to model what the actual amount of fossil fuel consumption that is eliminated by a wind project.)   Moreover, and even more problematically, since these projects are durable, it requires an understanding of the but for equilibrium; what does the equilibrium long term supply curve for these projects look like in the absence of a subsidy (via the provision of credits)?; what alternative technologies are being displaced?  Any measurement of these quantities is highly, highly subjective, and built on layer after layer of assumptions.

These problems would be pretty daunting even if enforcers/measurers had good incentives, and were not subject to influence.  But how does one incentivize those making the evaluations?  How does one economize on influence costs, which are likely to be quite substantial?  Again, all of the problems with rating agencies that culminated during the financial crisis occur in spades here.  And when one considers that offsets are to be created internationally, corruption and enforcement problems may be particularly acute in some jurisdictions.

In other words, offsets sound great in theory, but are likely to be extremely expensive in reality, especially if they are introduced on large scale.  These expenses need to be taken into consideration when evaluating the costs and benefits of cap & trade generally, or of specific cap & trade plans.  Moreover, these costs may prove so prohibitive that it would be better to eschew offsets altogether, or sharply circumscribe their use.  But this will mean that the cost of carbon will be that much higher as the burden of adjustment to caps will be forced onto other margins subject to diminishing returns.

From my perusal of various sources, it doesn’t seem that the measurement issue has been adequately analyzed, or measurement costs adequately quantified.  As a result, it is likely that the costs of a cap & trade system will be far greater than have been estimated.  That is a sobering thought.

In light of Obama’s populist pivot, last week in the WSJ Michael Barone had an interesting analysis of the history of American populism.  Barone is spot on drawing the distinction between leftist “soak the rich” populism and libertarian populism.  The best part of the analysis focuses on Jacksonian populism, which is of the latter strain:

Ask anyone reasonably well versed in American history to name our most populist-minded president, and you’ll likely hear the name of Andrew Jackson. He was the son of Scots-Irish immigrants, raised on the frontier, and he ran the first democratic (and Democratic) campaign. A gang of Jackson’s roughneck supporters, so the legend goes, rushed to the White House after his inauguration and tore the place apart.

But Jackson was not a “spread the wealth” populist. On the contrary, he opposed the American System of John Quincy Adams and Henry Clay to have the government build roads and canals and other public works. He killed the central bank and paid off the national debt.

Jackson argued that government interference in the economy would inevitably favor the well-entrenched and well-connected. It would take money away from the little people and give it to the elites.

That view seems to be shared today in what I have called the Jacksonian belt, the broad swath of America settled by the Scots-Irish from the Appalachian chains in Virginia southwest to Texas. The Obama administration argues that Democratic big government and health-care programs will help the little guys. Jacksonians today, as in the 1830s, don’t agree. [Emphasis added.]

Redistributionist populism of the variety that Obama is now appealing to is quite different in its attitude towards government power.  There are some points of intersection–both Jacksonians and left-populists detest banks–but for the most part the two populisms are diametrically opposed on most economic issues.  And don’t even start on issues relating to the military, terrorism, and foreign policy.

The current political situation in the United States is, in essence, a conflict between Jacksonian-libertarian populists who are deeply suspicious of government power (in large part because of their belief that the government serves specific economic interests) and progressives using populist rhetoric to advance an agenda that would lead to a massive increase in the reach of government power.  This will lead to considerable rhetorical confusion as both sides will employ populist tropes to advance their respective causes.  It’s therefore quite important to keep the distinction in mind, and Barone’s article is an excellent primer on the subject.