Tuesday, March 31, 2009

Whom else can Obama fire?

Scott Ott has the perfect satiric take on Obama's decision to squeeze Rick Wagoner out of GM.
Just hours after firing General Motors CEO Rick Wagoner for mismanaging the giant firm which has thus far received $26 billion in taxpayer cash to stay afloat, President Barack Obama announced that Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi have been placed on administrative leave pending an investigation into similar allegations.

"We cannot give the appearance of using tax dollars to reward leaders who have done a poor job," said Obama. "The message is clear. If you take billions from the taxpayers you answer to a new boss -- the chief executive. In November, I inherited a failed banking system, a failed auto industry and a failed Congress. Americans demand action. Heads will continue to roll."

The president said Reid and Pelosi have "overseen an unprecedented spending binge, while some of their major brands have nearly collapsed through mismanagement, malfeasance and plain old stupidity."

"Their insurance products -- Social Security, Medicare and Medicaid -- are actually elaborate Ponzi schemes," he said, "paying early investors with cash from later investors without creating an ongoing insurance fund. Bernie Madoff is behind bars for doing the same thing."
One can dream, can't one?

Corruption that politicians endorse

Congressman John Murtha explains why it's so much better for him to slip earmarks into bills to get benefits for his district. Otherwise, it would be those shadowy unelected bureaucrats evaluating programs and deciding where the money should go. Much better for the guys who have the most seniority on the Appropriations Committee to make those decisions.
"If I'm corrupt, it's because I take care of my district," Mr. Murtha said. "My job as a member of Congress is to make sure that we take care of what we see is necessary. Not the bureaucrats who are unelected over there in whatever White House, whether it's Republican or Democrat. Those bureaucrats would like to control everything. Every president would like to have all the power and not have Congress change anything. But we're closest to the people."
That's about as clear of an explanation of political corruption as you're going to get from a politician. And ignore what is going on behind the curtain.
Federal agents have subpoenaed records from a CTC subsidiary. In January, they raided Kuchera and carted away boxes of records. In suburban Washington, agents swarmed the offices of PMA Group, an influential lobbying group founded by Paul Magliocchetti, a former Appropriations defense staff member. Mr. Magliocchetti's firm lobbied for a number of companies that benefited from Mr. Murtha's earmarks, including CTC.

The reasons for the investigations remain unclear, but the common thread Murtha critics see connecting it all is the congressman's links to the various operations.

Critics of Mr. Murtha and the earmarks process say the congressman's success in directing federal dollars to businesses in his district has created a sort of triangular trade in politics: He directs earmarks to particular firms that hire lobbyists who, in turn, direct campaign contributions back to Mr. Murtha..

"Mr. Murtha has been a successful manager at the favor factory for many years," said Naomi Seligman, deputy director of Citizens for Responsibility and Ethics in Washington, a watchdog group that has branded Mr. Murtha "one of the most corrupt members of Congress" for his earmarking ways.
Remember when Senator Coburn was calling earmarks "the gateway drug" to corruption. John Murtha can figure as the poster boy of that corruption.

And, as CQ points out, taking care of his district isn't what has gotten Murtha into trouble.
It’s a classic example of setting up a straw man.

Murtha’s critics aren’t opposed to his ability to bring home the bacon; as the chairman, and then ranking member, and then chairman again of the House Appropriations Defense Subcommittee for the last two decades, Murtha’s control over the Pentagon’s purse strings is legendary, and the torrent of cash he has directed back to his 12th District makes the Johnstown Flood look like a spring drizzle.

His critics don’t begrudge him his pork. But they are questioning how close he has come to the line of ethical propriety.
One benefit of Murtha's current scandal is that journalists are revisiting his sleazy role in the Abscam scandal, a scandal that he slithered away from by being labeled simply as an "unidicted co-conspirator," a moniker that is always a selling point in one's elected officials.
In the fall and winter of 1979-80, FBI agents posing as Arab sheiks tried to lure corrupt members of Congress into accepting hundreds of thousands of dollars in bribes in exchange for helping the faux sheiks get around U.S. immigration laws. The “Arab Scam” — Abscam — led to the convictions of five members of the House and one senator.

For his role, Murtha was given the same ignominious label attached to Richard M. Nixon in the Watergate scandal: “unindicted co-conspirator.”

Murtha refused to personally reach into a desk drawer and remove $50,000 cash, and insisted instead that a middleman take possession of the booty. When the FBI agent refused to agree to that arrangement, they agreed to meet again (at which point, the FBI agent hoped, Murtha would feel comfortable enough to take the cash himself). But before that second meeting could take place, the news media exposed the FBI sting operation, and Murtha agreed to testify against his congressional colleagues. After his testimony helped secure convictions, the Justice Department announced that Murtha would face no charges himself.
The PMA scandal is now starting to smell a lot like the Jack Abramoff scandal that tarnished so many Republicans.
The work of those lobbyists took them often to Murtha's Capitol Hill office, as well as those of fellow Democrats Peter Visclosky of Indiana, Jim Moran of Virginia and others on the defense appropriations subcommittee that Murtha chairs. The FBI says the investigation is continuing, highlighting the close ties between special-interest spending provisions known as earmarks and the raising of campaign cash.

For Murtha, Visclosky and Moran, the practice has paved the way for their congressional careers. In 2007 and 2008, the three directed $137 million to defense contractors who were paying Magliocchetti's PMA Group, a lobbying firm, to get them government business. That kind of clout put the midsized 33-lobbyist firm into the big leagues, ranking it in the top 10 in billings among Washington lobbying shops.

At the same time, the three lawmakers received huge amounts of political donations from PMA lobbyists and their clients. Murtha has collected $2.37 million in campaign contributions from PMA's lobbyists and the companies it has represented since 1989, according to the Center for Responsive Politics, which tracks political money. Visclosky has collected $1.36 million; Moran, $997,348.

Those political donations have followed a distinct pattern: The giving is especially heavy in March, which is prime time for submitting written earmark requests. Over the past two decades, $1.1 million has flowed to the campaigns and leadership PACs of Murtha, Visclosky and Moran from PMA and its clients in March alone.
I wonder which other politicians would adopt the Murtha defense that corruption is okay if you're taking care of your district.

Right now the question is - should this guy still be in charge of appropriations for the Defense budget?

Planning to do for the country what they've done for their party

Government spending will often lead to a short-term pop for the economy which is why politicians like to go that route. The problems come further on down the line.

Well, this seems to have been the tactic of the Democratic Party when it comes to their own spending.
Part of the problem for Democrats is debt. The DCCC bet big last fall that it could win seats in regions Democrats never dreamed of representing, taking out large loans to finance an effort that led to a 21-seat victory. By the end of February, the DCCC was underwater financially, with more than $15 million in debt and less than $3 million in cash on hand.
Link via Jim Geraghty who writes,
If Democrats are that spendthrift with their own money, imagine how spendthrift they'll be with yours.

No wonder they like the bailouts. They were as reckless with credit as the wildest house-flipper.

What was once unthinkable is now the plan

When discussion began in December of what to do with the auto companies, some of us argued that the best of the bad choices was to let them go bankrupt and have a structured plan that would allow them to deal with their creditors, workers, and investors. But we were told that this was totally unthinkable and we needed to spend federal money to bail them out. So we did.

And now, guess what? It's now time to do what was once considered unthinkable.
The Obama's administration's leading plan to fix General Motors Corp. and Chrysler LLC would use bankruptcy filings to purge the ailing companies of their biggest problems, including bondholder debt and retiree health-care costs, according to people familiar with the matter.

....GM looks increasingly like it will be forced into filing for bankruptcy protection, sometime in mid-to-late May, in a plan where the automaker breaks into two companies, the surviving entity a "new GM" that maintains key brands such as Chevy and Cadillac and some international units, say several people familiar with the situation.

Stakes in this new GM could be given to creditors and UAW members. It is also possible the new company could be sold whole or in parts to investors.

The auto makers could avoid bankruptcy in the next two months. And there is some brinksmanship still going on in GM's high-level talks with bondholders, union members and creditors.
And as people argued before, the crucial need is to rein in the expenses dealing with labor.
A key ingredient is getting the UAW to agree to an entirely new labor contract, including major reductions in health-care benefits, according to several people involved in the matter. "That's the No.1 wildcard here," one of these people said Monday.

Under this plan, the "good" GM would not be expected to hold the tens of billions of dollars in retiree and health care obligations that hurt the auto maker in recent decades. Instead, those obligations would be transferred to an "old GM," made up of less-desirable brands like Hummer and Saturn, and underperforming plants and other assets. This part of GM would likely sit in bankruptcy much longer while a buyer is sought for the parts or it is wound down. Proceeds from the sale of old GM would go to pay claims to various creditors, including GM retirees.

"That is the plan, to the extent it comports with the bankruptcy laws," said one person familiar with the matter.
Perhaps now that the President has come to the realization that more federal bailouts will not be the answer, Gm and Chrysler can get on with what was inevitable.
The administration says a "surgical" structured bankruptcy may be the only way forward for GM and Chrysler, and President Obama held out that prospect Monday.

"I know that when people even hear the word 'bankruptcy,' it can be a bit unsettling, so let me explain what I mean," he said. "What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold."
We could have avoided the $17 billion that President Bush approved for this bailout.

Of course, we're now on the path withthe federal government determining which companies should be bailed out and which should be go into bankruptcy and which should be given a federally-financed slow slide into bankruptcy.

And, as the WSJ points out, Obama and the Democrats still believe that, not only should they be able to squeeze out whichever executives they disapprove of (but not the union executives) but that they should be able to tell the companies which cars they should produce.
Bankruptcy or not, the larger problem here is Washington's industrial policy. Even if Chrysler merges and GM restructures, Mr. Obama wants the companies to make the kind of cars the political class favors, whether or not consumers want to buy them. "The United States of America will lead the world in building the next generation of clean cars," the President said yesterday. He didn't mention a goal of profitability. To that end, Treasury tapped Fiat's know-how in small vehicles for Chrysler and wants GM to move in this direction.

Yet the Treasury's own "viability summary," released yesterday, points out that "GM's product portfolio is more vulnerable to CAFE [fuel-economy] standard increases than the portfolios of many of its competitors." Only nine of GM's "top 20 profit contributors in 2008" were cars; the rest were SUVs and trucks, which are politically incorrect on Capitol Hill and with the green lobbies. Chrysler has a similar problem. Even GM's much-vaunted electric Volt car is "too expensive to be commercially successful," according to Treasury.

In other words, Mr. Obama's industrial policy vision runs directly counter to a strategy that would get the companies back to profitability as soon as possible. To help them sell those unwanted cars, Mr. Obama yesterday was already pledging that taxpayers will cover new-car warranties. And he urged Congress to pass a new "incentive program" (read: subsidy) for "cleaner car" purchases.

All of which is to say that the taxpayer commitment to the Obama autoworks is only getting started. We're glad the Administration is at least talking a tougher line on bankruptcy than Mr. Bush. But the better route would have been to use Mr. Obama's political capital now, at the start of his term, to use bankruptcy to force the companies and their union to make the hard decisions that politics may still let them avoid.

From now on, GM and Chrysler are Mr. Obama's companies, and taxpayers should hold him accountable for every dollar they are forced to spend to save jobs for the UAW and to make cars that Americans don't necessarily want.

Monday, March 30, 2009

Where the Obama budget is leading us

Stephen Moore looks at the looming debt crisis that we will have if the Obama budget goes through. The Obama team is deceiving the public about the size of the debt by using rosy scenarios that Ronald Reagan wouldn't have dreamed of.
There are three ways that the Obama administration is understating the spending and debt levels embedded in the president's budget policies.

First, Obama uses highly optimistic assumptions on how fast the economy is going to grow and how many jobs are going to be created over the next five years. I've worked in a presidential budget office before. Believe me: If you manipulate the economic assumptions on unemployment and GDP growth, you can make the budget deficit in the future be whatever you want it to be. You can even, as Obama claims to do, magically cut a deficit in half without cutting a single program. From 2010-13, the head of the OMB, Peter Orszag, predicts that the U.S. economy will grow at a 4 percent annual pace, when the blue chip-economic forecast is closer to 2.7 percent. Of the 51 blue chip-economic forecasters, the OMB's forecast is more optimistic than all but two.

Liberals used to lampoon Ronald Reagan's budgets--sometimes with merit--for relying on a "rosy economic scenario," but even the Gipper's sunny optimism never led to economic predictions that departed so radically from independent forecasts. It turns out that about 75 percent of the celebrated halving of the deficit that Obama claims in his budget is purely a result of an irrationally exuberant economic model that almost no one believes is very likely. The Republicans on the Senate Budget Committee recalculated the OMB budget deficit assuming the average blue chip-economic forecast. It found that the Obama deficit will be $2.2 trillion higher over ten years.

Next is the hard-to-swallow assumption in the budget that all of the new spending in the $800 billion democratic "stimulus" bill that Obama signed in February will expire after 2011. "We are supposed to believe," says Paul Ryan, the ranking House Republican on the Budget Committee, that "Nancy Pelosi, Charlie Rangel, Henry Waxman, and Ted Kennedy are going to allow spending for programs ranging from education for disabled kids, to Pell Grants, to Head Start, to child nutrition programs to fall off a cliff two years from now." Not likely. When Ryan asked the Congressional Budget Office what happens if the spending for about two dozen of the most politically popular programs is continued, not cancelled, the CBO reported back that the deficit and federal outlays would be $3.27 trillion higher over the next ten years.

Finally, there is the crown jewel of the Obama-Pelosi-Reid domestic agenda: universal health care. This is at the top of the "to do" list of the Obama administration and is unlikely to get pulled back or postponed, as the president made clear in his press conference. Obama has not been specific about what plan he favors or about how much a national health care system will cost, but his budget allocates a $634 billion "placeholder" for that purpose. The consensus opinion, though, is that the lowest possible cost of universal health care is $1.2 trillion, with many estimating closer to $1.5 trillion. So team Obama is off by roughly $600 billion over ten years to cover all of America's uninsured. Obama says he will find ways to reduce health care costs at the same time, and I wish him well, but this is a promise that every president since Jimmy Carter has made and failed to keep.
Right now, about 8.5% of our budget goes to servicing the interest on our debt. Under Obama's plans it will skyrocket. It used to be that the looming crisis was that entitlement spending, particularly Medicare and Social Security were going to crowd out all the rest of the spending in the budget. Now they will be fighting with interest on the debt for the biggest chunk of the pie. And where do you think that will leave all the discretionary spending that our politicians would like to do? And how long do you think that China will continue to underwrite our debt? As Mark Steyn writes,
Where does the world's hyperpower go to borrow more dough than anyone's ever borrowed in human history? More to the point, given that, partly at the behest of Obama and Geithner, almost every other Western government is ramping up national debt to cover massive bank bailouts and other phony-baloney "stimuli," is there enough money out there to buy up the debt that's already been run up? Last week, at the official British Treasury auction, investors failed to buy the full complement of so-called "gilt-edged" 40-year bonds. Two such auctions have already failed in Germany. The U.S. Treasury, facing similar investor reluctance to snap up $34 billion of five-year notes, was forced to increase the interest it will pay on them. The Chinese and the Saudis have long taken the view that it's to their advantage to own as much of the Western world as they can snaffle up, but it's unclear whether even they have pockets deep enough for what America and the many Bailoutistans of Europe are proposing to spend.

What cap and trade will do to trade

The Wall Street Journal points out how the Obama plan for a cap and trade carbon tax will lead to a trade war. Since the cap and trade plan would make the cost of manufacturing in the United States go up, some companies are going to migrate to other countries that aren't so concerned about the environment. The cry will then go up to protect our remaining industries with tariffs on products coming from countries that don't have carbon taxes. And those countries, particularly China, will retaliate with their own taxes on trade. Hello, trade war.
Energy Secretary Steven Chu made the protectionist point during an underreported House hearing this month, when he said tariffs and other trade barriers could be used as a "weapon" to force countries like China and India into cutting their own CO2 emissions. "If other countries don't impose a cost on carbon, then we will be at a disadvantage," he said. So a cap-and-trade policy won't be cost-free after all. Apparently Mr. Chu did not get the White House memo about obfuscating the impact of the Administration's anticarbon policies.

The Chinese certainly heard Mr. Chu, with Xie Zhenhua, a top economic minister, immediately responding that such a policy would be a "disaster" and "an excuse to impose trade restrictions." Beijing's reaction shows that as a means of coercing international cooperation, climate tariffs are worse than pointless. China and India are never going to endanger their own economic growth -- and the chance to lift hundreds of millions out of poverty -- merely to placate the climate neuroses of affluent Americans in Silicon Valley or Cambridge, Massachusetts. And they certainly won't do it under the threat of a tariff ultimatum.

But give Mr. Chu credit for candor. He had previously told the New York Times that "The concern about cap and trade in today's economic climate is that a lot of money might flow to developing countries in a way that might not be completely politically sellable." He is admitting that one byproduct of cap and trade is "leakage," by which investment and jobs are driven to nations that have looser or nonexistent climate regimes and therefore lower costs. At greatest risk are carbon-heavy industries such as steel, aluminum, paper, cement and chemicals that are sensitive to trade and where business is won and lost on the basis of pennies per unit of product. But the damage could strike almost any industry when energy prices "necessarily skyrocket," as Mr. Obama put it last year.

So in addition to all the other economic harm, a cap-and-trade tax will make foreign companies more competitive while eroding market share for U.S. businesses. The most harm will accrue to the very U.S. manufacturing and heavy-industry jobs that Democrats and unions claim to want to keep inside the U.S. A cap-and-tax plan would be the greatest outsourcing boon in history. And it may even increase CO2 emissions overall, because the developing nations where businesses are likely to relocate -- if they don't simply close -- tend to use energy less efficiently than does the U.S.
So let's review. A cap and trade plan will result in raising the prices of manufacturing items. It will hurt those business already struggling and lead to more layoffs and more companies moving offshore. And then there will come the looming trade war with China. And the result may be more carbon being emitted into the atmosphere as manufacturing shifts worldwide to nations that have even less environmental controls. Lovely. Just what this country's economy needs right now.

It's just too dang hard to govern

Jonathan Chait has an article in the New Republic arguing that the Democrats have inherent flaws that prevent them from governing effectively. He traces the entire problem to a few recalcitrant senators who are refusing to take advantage of arcane Senate rules to push through the Democratic agenda. He argues that the Republicans were more willing to do so to push through George Bush's policies than Democrats are.
And then, finally, Democrats have locked themselves into a self-fulfilling prophecy. When their party controls all of Washington, things tend to go south quickly. The president's popularity plunges, and soon his copartisans in Congress find themselves scrambling to keep from losing their own seats in the political undertow. It happened to Carter in 1978 and 1980, and again to Clinton in 1994.

And, so, they hedge their bets by carving out an independent identity. It doesn't matter that Obama is popular now, or that a majority of Americans (according to a recent Pew poll) reject the criticism that he's "trying to do too much." If Obama defies history and retains his popularity, they'll retain their seats anyway. They have to worry about the scenario where Obama turns into an albatross.

But, of course, the more Democrats defect, the more the president is defined as an extreme liberal, and the more ineffectual he seems as his agenda crashes upon the shoals. Ultimately, the moderates find there is no escape. Republicans in Congress grasped the futility of beggar-thy-neighbor survivalism, and they stood behind Bush in 2005 and 2006, even as his popularity fell to Nixonian levels. The hard truth for Democrats is that Obama's popularity is bound to fall. The economy will not turn around overnight, and the voters' memory of disastrous GOP rule will grow dimmer and dimmer with time. The one factor within the Democrats' control is whether their constituents see Obama as a strong leader taking action, like Roosevelt or Kennedy, or a floundering weakling, like Carter or first-term Clinton.

It seems impossible to believe that this party, with the challenges before the country so great and the opportunity to address them so rare, would once again follow the path to self-immolation. Yet, somehow, the Democrats can't help themselves.
What Chait really can't stand is that there are moderates in the Senate who are concerned with the opinions of their states and also like to support the economic interests and businesses located in their states. So Democrats elected from more conservative states like Kent Conrad of North Dakota or Ben Nelson of Nebraska aren't jumping all over themselves to push through Obama's health care plans or cap and trade plan in a reconciliation package that would need only 50 votes instead of 60 votes to overcome a filibuster.

While I'd disagree with his premise that those vile Republicans are more willing than Democrats to push through their agenda, the major problem that Chait has with the Senate is that whole democracy thing. Dang those senators who are representing their constituents rather than the party. This is why we have a Senate and don't just have representatives elected at large or have the party select all the senators.

Sure the arcane rules of the Senate are a pain and antidemocratic. But you can't have it both ways and decry the filibuster when your party runs the place but celebrate the role of filibusters and holds when the other party is in control.

We have a two-party system and for a party to win it must encompass a very large tent. So the Democrats range from Evan Bayh and Kent Conrad to Barbara Boxer. That's what happens when you win a large majority - you have all sorts in the tent. And they'll have to govern with the party they have, not the party Jonathan Chait would like to have.

Sunday, March 29, 2009

When students are the legislators

Sorry for the light blogging this weekend. I'm still recovering from the day-long assembly that a student group of about 70 kids that I sponsor held on Friday to debate six bills that the students had written for our own version of the North Carolina legislature. The students had been working for the past couple of months to research and write their bills.

During the course of the daylong debates we defeated bills to provide free public wireless Internet in NC's urban areas, to create a fund to research resurrecting extinct animals, to provide in-state tuition to illegal immigrants to NC state universities, and to provide a state-funded health insurance program in North Carolina. There was a lot of excitement about possibly bringing back the dinosaurs or, at the very least, a dodo, in the students' Jurassic Park bill, but in the end fiscal sanity prevailed and they decided that in a time of a budget crisis for our state, they couldn't afford to fund such a research effort no matter how cool it might seem.

However, the students did pass bills for North Carolina to join the National Popular Vote interstate compact, and to replace the state-mandated Health class with a course entitled Life Skills Potpourri to teach students financial literacy, sex education, First Aid, car maintenance, cooking and home maintenance. I wish I'd had that class when I was in school, particularly the curriculum unit they mandated on basic plumbing. Nutrition is all well and good to learn about, but I'd prefer to know more about how to fix my toilets when they break down! I thought it was interesting to see how eager the kids were to learn more about financial literacy or just such mundane skills as how to change a tire or the oil in their cars. Perhaps their parents should be teaching these things but I bet that there are fewer and fewer parents out there with either the know-how or time to teach their kids the life skills that my students at least wish they knew.

The students had a lot of fun spending the day debating their bills and I always get a real kick out of watching them. Though in my seven years sponsoring this activity with 12 bills written throughout the year, I've noticed that only twice have students written bills that could be considered to limit the size of government - a school vouchers bill and a bill to limit the use of eminent domain to give property to private entities. Otherwise, the students always seem to come up with bills to expand the government by establishing a new program or adding in new regulations. That's just the natural tendency of anyone in a legislature - what is the use of getting there if you're not going to create or establish something. And that is why our government just keeps growing and growing. Few legislators, even my student legislators, spend their time looking around for an opportunity to do less. Alas.

Friday, March 27, 2009

Charities beg to differ with President Obama

At his press conference this week, President Obama claimed that his lowering the tax deduction on charitable donations by the wealthy would not affect charitable giving. But the analyses by nonpartisan organizations project a different result.
President Obama defends his proposal to cut the tax deductions that wealthy Americans can claim for their charitable donations by arguing that the shift would not have an adverse effect on giving, but two independent analyses concluded that the proposal could result in a drop of as much as $3.87 billion for the already reeling nonprofit sector.

In his prime-time news conference Tuesday, Obama pushed back against bipartisan criticism of his plan, which is included in his budget blueprint, by saying that "there's very little evidence that this has a significant impact on charitable giving."

But a report from the Center on Budget and Policy Priorities said total charitable contributions would decline by about 1.3 percent, while the Center on Philanthropy at Indiana University calculated that overall giving would drop by 2.1 percent. The highest-income households would decrease their giving by 4.8 percent, or $3.87 billion, the latter group found.

"Charities and the public need to understand that in the current economic environment, which is creating difficulty for some nonprofits and their constituents already, this public policy change is likely to have an additional negative effect," said Patrick M. Rooney, the philanthropy center's interim executive director.

Under Obama's proposal, the tax deduction for those with incomes over $250,000 -- which is now 35 cents for each dollar donated -- would be limited to 28 percent. That would return the rate to where it was during President Ronald Reagan's administration.
In this bad period for charities as the country's economic woes affect giving, Obama wants to deliver this further blow. They are planning to use the resultant revenues to finance their health care plans. They can't have it both ways and pretend that this is an insubstantial amount of money and then turn around and plan to use that money for some mighty big plans. See they know better how to use that money and tsk tsk the idea of people liking to make their own charitable choices. And they show a total lack of understanding when they maintain that people who want to give won't be considering the deduction change when making their decisions. We can see the thinking behind this approach in the column today in the Washington Post by Joel Berg, an advocate for programs to feed the hungry. Berg argues that charitable donations are an inefficient way to help the needy and that the rich give to hospitals and universities rather than to the truly needy. So, in Berg's mind, it would be much better to just turn to the federal government instead of the myriad of charitable organizations in the United States.

Perhaps President Obama's own lack of a history of giving substantially to charities colors his view that it's okay to limit deductions on charitable giving and turn instead to the federal government. Remember, the Obamas only increased their donations when he started considering running for president.
The Obamas’ returns are striking on a number of levels. They show that the couple made very few charitable contributions, sometimes less than 1 percent of taxable income, until Mr. Obama began his run for the White House.

In 2004, before Mr. Obama entered the Senate, he and his wife gave $2,500 to charity, 1.2 percent of the taxable income. The next year, the donations jumped, to $77,315, or nearly 5 percent of the taxable income.
Ah, if only all those wealthy people across the country would run for the presidency - now then charities would start racking up the big donations!

Nancy Pelosi at war with the moderates of the Senate Democrats

Every party with total control of both houses of Congress eventually comes down to a battle between the House and Senate. I can remember the sniping of the House Republicans at Bob Dole and the Senate Republicans when they wouldn't pass some aspects of the GOP agenda after the 1994 takeover of Congress. The Senate just doesn't work like the House and the powers given to the minority in the Senate force the Senate into taking more moderate stances in order to pull in a few senators from the other party. Pelosi and the more moderate Senate Democrats are now in opposition to each other over whether a national health plan should be crammed through under budget reconciliation rules that disallow the filibuster. She's all set to do so in the House and is ready to take on Republicans who oppose the plans and the evading of regular rules.
“I believe that it’s absolutely essential that we come out of this year with a substantial health care reform — substantial health care reform legislation. I believe that that is best served by having reconciliation in the package,” Pelosi said.

As for Republican warnings that reconciliation would be a partisan move that would undermine cooperation on anything else, Pelosi’s view is, bring it on. “Some of these same people on the Republican side didn’t have a problem with it — and we have their quotes — when President Bush wanted to put forth his tax cuts to the wealthiest people in the America,” she said.
While tax cuts are part of the budget procedure so it wasn't really an evasion of the budget rules to put them into the budget, implementing an entirely new health care policy needs to be covered under normal rules which allow a full debate of the options. And the Senate moderates recognize this and don't like Pelosi attempting to railroad them. Max Baucus, Senate Finance Committee chairman is not being cowed by Nancy Pelosi.
On Thursday, Baucus (D-Mont.) told POLITICO that the House was making a big mistake by going that route, saying putting health care through the budget process would prompt a partisan battle that will undermine health care policy. And he said a health care law would end up as “Swiss cheese” since it would be watered down from budget rules that can be used to block provisions that do not directly affect mandatory spending or revenues.

“The fact of the matter is that I don’t think the House is really thinking through the affect that reconciliation is going to have on the end game,” Baucus said. “And the end game is much more in jeopardy under reconciliation.” Baucus added that “many, many Democrats” in the Senate do not think it’s a wise move.

This argument over procedure has pit Democratic leaders against committee chairmen from their party, who, along with Republicans, are warning against using the fast-track budget process to enact one of Barack Obama’s signature initiatives.

Sen. Ben Nelson of Nebraska, a conservative Democrat who is skeptical of the proposed spending increases, said adding reconciliation provisions would cost Democrats his vote.
But the Democrats are still trying to use the threat of going the reconciliation route in order to get what they want.
Senate Democratic centrists say that would be a bad idea, a poke in the eye of Republicans that would be sure to haunt the Democrats later. Senate Democratic leaders think reconciliation should only be used as a last resort. And Obama administration officials, including Office of Management and Budget director Peter Orszag yesterday, say it should be a last resort, but they won’t rule it out.
This is the framework of compromise. Work out an agreement with us or we will cram through whatever we want. The House Republicans had similar problems with the Senate Republicans, but that is the nature of both houses. Remember the outrage over the Republicans' threats to change the rule allowing filibusters over judicial nominations. This so-called "nuclear option" was portrayed as a total rejection of Senate tradition and would lead to Democrats resort to their own mutually assured destruction if the Republicans went that route. The Gang of 14 brought together Democratic and Republican moderates to craft a plan of mutual disarmament. It sounds as if some of the same folks are concerned with similar nuclear option plans for passing health care proposals. For whatever it's worth, the Senate has its own prized rules and they'd rather maintain those rules for tomorrow than yield on them for a single policy victory today.

Thursday, March 26, 2009

How to measure the effects of the stimulus package

The AP's Calvin Woodward peels back the curtain a bit on what goes into all the claims about what the stimulus may or may not do. All such predictions are based on models that are built on assumptions whose dependability we really don't know.
But precise trajectories are impossible to plot and even approximations can be wildly off, as the authors of these forecasts acknowledge, usually more readily than the policymakers who use them to promote the plan.

Flip through the stacks of economic analyses underpinning the stimulus plan and you find a lot of throat-clearing qualifications and angst:

_"Very uncertain."

_"Difficult to distinguish among alternative estimates."

_"We confess to considerable uncertainty."

_"Subject to substantial margins of error."

In other words, who really knows?

Economic modeling may prove to be a haywire navigational device in this crisis.

"Large fiscal stimulus is rarely attempted," Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, told lawmakers. "For those reasons, some economists remain skeptical that there will be any significant effects, while others expect very large ones."

Zero to nirvana? Even for economists, who routinely differ among themselves, that's a range beyond the norm.

....Assumptions are piled atop assumptions, rules of thumb, historical experience, theory and more than a little hope.

A family budget is a set of building blocks of income and expenses, simple addition from the bottom up.

The stimulus projections are top down, a matter of economic multipliers and complex division infused with things that may or may not happen.

The government estimated how much the spending and tax cuts might grow the economy. Then that effect was translated into projected job growth overall. Then that theoretical pie was divided into chunks to show what each state and sector of the economy might get out of it.

All of this without knowing, for example, how exactly states will spend money they get from Washington. Or how money going directly to a bridge or manufacturer will support other jobs in the communities.
How much faith can we put in the sorts of assumptions that the administration used to sell its stimulus package?
_Every one-point gain in the gross domestic product will translate into 1 million jobs.

_For every two jobs directly created by the stimulus spending, a third job will be indirectly created. The 2-to-1 ratio is rough and varies considerably by sector.

_For each dollar states receive from Washington, they will decide to use 60 cents to avoid spending cuts, 30 cents to avoid tax increases and 10 cents to reduce drawdowns of their rainy day funds.

_A tax cut has only one-quarter of the value of a spending increase of the same size, in terms of expanding the economy.

_Every dollar spent on unemployment benefits is worth $1.63 of quick economic expansion. Food stamps boost the economy even more.
If one of these assumptions is off a bit, the whole model will be off a lot. Predicting the future is a shaky business, even for macroeconomists, but especially for politicians.

How the Supreme Court might look at the tax on executive bonuses

Richard Epstein of the University of Chicago argues today that the Supreme Court is not likely to strike down the recently passed House bill taxing bonuses received by executives in companies receiving bailout funds. Going through the history of how the Court has looked on previous tax provisions passed by Congress, he is not optimistic that they would balk at this bill on any of the arguments that have been put forward of the bill as being a bill of attainder, ex post fact law, or unlawful takings.
Nevertheless, a constitutional attack against any such law that might emerge faces an uphill battle. Since the New Deal, if not earlier, the courts have allowed Congress and the states to decide which economic activities to tax, and how.

Two basic principles that animated our Constitution appear to have no traction today. One holds that property is the guardian of every other right. The second asserts that voluntary exchange is the source of general peace and prosperity. Today's Supreme Court looks to neither principle for guidance.

What about the suggestion that the current tax is either a bill of attainder -- legislation directed at punishing particular individuals -- or an ex post facto law, both of which are forbidden? No luck. A bill of attainder has to name a small group of individuals, and the class of financial executives affected by the legislation under consideration is too large to fit comfortably into that category. The prohibition against ex post facto laws has been held to cover only criminal laws, not taxes. And as for the constitutional provision against the impairment of contracts, that only limits state, not federal, power.
It's all very discouraging. We are left to put our faith in the Senate and the President to realize that such a bill would not be conducive to the sort of public-private partnerships that they're hoping to form in order to address the toxic assets. The President seems to be waking up to the reality that governance by throwing a demagogic snit is perhaps not the best tactic to use in economically parlous times. If Epstein is correct that the Court would uphold the law, let's hope that the President applies the brakes as the Senate considers the bill. Perhaps the Senate could fulfill the role that George Washington said it was designed for - to be the saucer to cool the tea heated up by the House.

Fact-checking the President

Factcheck.org points out the, shall we say, misstatements from the President's press conference.
* He said his budget projections are based on economic assumptions that “are perfectly consistent with what Blue Chip forecasters out there are saying.” Not true. The average projection by leading private economists is now for substantially less economic growth than the administration’s forecast assumes.

* He said he is reducing “nondefense discretionary spending” to less than it was under the past four presidents. Not true. His own forecast for the final budget of his four-year term puts this figure higher than in many years under Reagan, Clinton or either Bush.

* He said he was “angry” about “inexcusable” bonuses paid to AIG executives. But he glossed over the fact that his own aides insisted on watering down a Senate-passed amendment that might have prevented payment of such bonuses.

* He repeated that his budget is projected to cut the federal deficit in half by the end of his term. That’s true, but deficits also are projected to shoot up again later unless big policy changes are made.

One of the most dramatic claims came not from Obama but from a reporter who asked about children “who are sleeping under bridges and in tents across the country” and who said 1 child in 50 is “homeless.” The truth is far less dramatic. The study he cited doesn’t just count children with no roof over their heads. It also includes those whose families are staying with friends or family members, in hotels and motels, in trailer parks or in housing deemed to be “substandard.”
And then there was the moment which Jim Geraghty calls out when the President claimed to know more than the experts in the field when he was asked about the effect of reducing the tax deduction for charitable donations made by the wealthy.
QUESTION: It's not the well-to-do people. It's the charities. Given what you've just said, are you confident the charities are wrong when they contend that this would discourage giving?

OBAMA: Yes, I am. I mean, if you look at the evidence, there's very little evidence that this has a significant impact on charitable giving.
So all those charities that were concerned should just relax and take Obama's word for it that rich people won't alter their charitable donations if the tax code is tinkered with.

Mickey Kaus called foul
on that question by Kevin Chappell of Ebony using the phony 1 in 50 homeless children statistic.
This is one of those statistical assertions that you know is BS before you even set out to show it's BS. If you just live here and go around with your eyes open you know it's BS. Sure enough, it's BS! Chappell's question is based on this study by an anti-homelessness advocacy group with every incentive to maximize the estimate of the problem. 1) The report apparently counts all people who are "homeless" even one night over the course of a year. That's very different from saying that one-in-50 are homeless at the same time--e.g., "now." 2) More significantly, the report counts as "homeless" families who've "doubled up"--e.g., moved in with relatives--apparently on the grounds that while these children in these families do have a home, they don't have "a home of their own." That's not what most people mean by homeless, and not the image Chappell conjures (tent cities, sleeping under bridges). Will I be "homeless" if Fire Mickey Kaus succeeds and I have to move in with my brother's family? Don't answer that. ... The study also counts families living in motels and trailer parks--again, lousy living arrangements, maybe, but not what we usually mean by "homeless."
It would be almost humorous to see how the statistic's authors twist and play with figures in order to come up with that number except that once a number like that seeps into the public news stream it gets picked up and repeated by credulous people like this reporter and accepted by the President of the United States in a primetime press conference and soon that which is phony becomes the new reality.

How's Obama's agenda doing?

Byron York thinks that Obama is seeing a good part of his agenda getting thrown under the bus by our economic bad times.
At his news conference Tuesday night, President Obama stressed the four most important goals he hopes to accomplish this year: health care reform, energy legislation, education reform, and deficit reduction. But by the end of the hour-long session with the White House press corps, Obama had retreated on three of the four. On energy, he defined progress so far down that virtually any action would satisfy his request to Congress; on health care, he was vague and noncommittal; and on the deficit, he insisted against widespread skepticism that he can reduce the deficit despite a budget that projects a tripling of the national debt in the next decade.
All his grandiose plans that would have totally remade our economy and the role of the federal government are coming up against the hard realities of what can get passed through a Congress growing skittish about all the spending and the effects on the economy. And much of that pushback is coming from his fellow Democrats.

It's too early for Republicans to do victory dances. There are still many, many debates to be had and political battles to be fought. But if we can get through this year without having Obama's health care proposals, whenever he unveils them, crammed down our throats, without seeing our energy payments increased throughout the economy under his cap and trade proposals, and without a massive spending package that would create deficits as such a large percentage of GDP that we haven't seen since WWII, conservatives could heave big sighs of relief.

When we're facing an economic situation such as we have rarely seen, just as Obama keeps telling us, perhaps it's the time to waste a crisis.

Wednesday, March 25, 2009

Another voice on AIG

The New York Times publishes a letter today from Jake DeSantis, an executive in the AIG financial products division who is quitting. As he lays out his reasons for quitting, it is clear how shamefully our politicians have demagogued this issue.
I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.
And now politicians like Andrew Cuomo and Connecticut Attorney General Richard Blumenthal along with our solons on Capitol Hill have launched a witch hunt against anyone who worked for AIG or any of these big banks receiving bailouts.
The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.
Alas, attorneys general are politicians first and foremost.

In this environment, some of those very financiers being so demonized today are the very ones who will have to step up to join in Tim Geithner's plan for the toxic assets. As Vincent Reinhart points out in the WSJ today, the Geithner plan depends on those same financiers deciding to go into business with the federal government in order to make outsized profits.
Public officials want this problem to go away without being stuck with the smoldering wreckage of large and complicated financial institutions. That requires buying assets quickly from problematic firms at the highest prices possible.

Private investors want to make a profit. That can best be achieved by delaying purchases, thereby lowering prices and sticking the government with as much of the loss as possible.

The possibility of outsized profit, made possible by government guarantees and matching capital contributions, is the carrot government can offer to those with private capital willing to commit to the enterprise. The problem is that Congress has been demonizing the financial sector and considering ex post expropriation of bonuses.

For the PPIP to work, the government will have to use the expertise of much-vilified financial professionals, create massive expected profit opportunities to entice capital, and tap places where there are deep pools of money -- including sovereign wealth funds. If the PPIP [Public-Private Investment Program]is successful, is there any chance that Congress would not be holding hearings complaining about the massive rewards to those who took on the risk? Unless members of Congress cool the heat of their rhetoric, the potential profits Mr. Geithner is putting on the table will simply be left there.
I'm sure that there are a lot of financiers out there who will be willing to take the risk that they can make profits by going into partnership with the federal government with the government absorbing the major portions of the risk. But we can all picture the wails of anger and furious oversight hearings that will erupt when, years from now politicians find out that these guys actually made a profit on this plan.

Haunting in Connecticut

You know, when I first heard that there was a horror movie out called "Haunting in Connecticut," I thought it was about Senator Dodd's political career. But it turns out that it is somewhat based on a fanciful tale told about an actual house in Connecticut that was once inhabited by another Connecticut politician - Representative Chris Murphy.
Turns out Murphy lived there in the second-floor apartment with two other guys right out of college.

Sadly, he experienced no such “paranormal activity,” he told Shenan.

He lived there for a year and a half — until the gang got kicked out because the house was sold. “We were unhaunted — at least as far as we know,” he said, adding dryly: “Maybe this stuff happens very quietly.”

Part of the house’s mystique is that it’s a former funeral home, a fact that the congressman and his friends were woefully unaware of. They just thought: “It was so cheap, it had hardwood floors and really ample parking out back,” Murphy said, “but that’s because it was a former parking lot.”

It wasn’t until their second day living there, when the plumber came, that the house’s past was “revealed” to the three 22-year-olds. So, what up with the story? These guys didn’t experience one drop of ghost-ness? “The story goes, the family living on the first floor was significantly behind on their rent and one of the ways they were trying to get out of paying the back rent was to come up with a story about the house being haunted.”

Tons of media outlets, even “Inside Edition,” did a feature on the house back in the day. Says Murph: “In the middle of the interview, a car careens into the driveway, almost runs down a camera crew, and out of the car is the woman who lives in the second-floor apartment, screaming, ‘I live in the second floor, and it’s not haunted! Those people are trying to get out of paying their rent!’” he said. “That gave us confidence to live there. ... So we made it out alive.”

And then they became the most popular gang on the block. “Everybody wanted to come over and visit us,” Murphy says. “We threw a lot of good parties in that haunted house.”
So when you hear that there is a horror movie based on a true story, remember that it is really based on a family trying to get out of paying their rent and a bunch of young guys partying with their friends. I think the Dodd movie would have been a lot scarier.

A bit of luck for conservatives

Last week the word was that the Democrats were going to cram through a health care plan through the Senate under budget reconciliation rules that allow them to pass a budget with only 50 votes instead of the 60 that are needed when the opposition filibusters a bill. If they had done this, the Republicans opposed to the health care proposal would have had to hope that enough Democrats would vote against the bill to sink it. Fat chance. So all the Republicans could do is complain and threaten noncompliance in other areas.

But now the Senate Democrats have blinked and decided not to use the reconciliation maneuver to ram through such an important policy change. The House Democrats were ready to use the tactic, but then they don't have to worry about those pesky Senate rules. Senator Kent Conrad, the Senate Budget Committee Chairman, however, has put the kabosh on using reconciliation to get around the filibuster rules in the Senate.
House Budget Committee Chairman John Spratt, a South Carolina Democrat, said his panel will take up a plan tomorrow to use “reconciliation” to pass health care legislation. That procedure, if adopted by both chambers of Congress, would allow Democrats to approve the legislation without any Republican votes.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he opposes using the tactic to approve Obama’s agenda. Lawmakers probably won’t work out their differences on the issue until next month when they finalize their budget plans for the year.
Other moderate Democrats like Blanche Lincoln and Max Baucus had also apposed the tactic and so it seems that the Senate will have a chance to debate the health care policy in the open and fully consider all its ramifications rather than rushing the thing through as part of the budget plan this summer.

And even the House Democrats have blinked on using reconciliation to rush through the cap and trade proposals to address global warming.
"I'll put it this way: It is not included in the budget that I will present to my colleagues," Senate Budget Chairman Kent Conrad (D-N.D.) said yesterday on ABC's "This Week." "I have said for weeks, I don't think it is the right way to write substantive legislation, because if you get into the details -- and we won't do that here -- it just doesn't work very well."

Conrad added, "But what they're -- what they're talking about ... is negotiating leverage, sending a signal that it still remains open."

House Speaker Nancy Pelosi also is not focused on reconciliation, according to House Natural Resources Chairman Nick Rahall (D-W.Va.). Rahall met last week with Pelosi, Rep. Ed Markey (D-Mass.), Rep. George Miller (D-Calif.), about 10 coal-state Democrats and United Mine Workers Association President Cecil Roberts to discuss coal, climate change and the budget.

Reconciliation came up in the meeting. "But that didn't take more than 10 seconds," Rahall said. "The speaker is not worried about that at this point."
The Democrats are very eager to pass such legislation, but perhaps now that it could become a reality, they're pausing to think how imposing something that would raise the price of everything in our economy that uses energy would affect any hopes of an economic recovery. And all those representatives from states that depend on coal and oil might be having second and third thoughts.

So for now, conservatives who oppose both Obama's health care and his cap and trade proposal have an opportunity to fight the policy out in debate and through regular procedure. They'll need to marshal their best arguments if they're going to win these policy arguments. They had no chance when the Democrats, flushed with their exhilaration over their 2008 victory, were poised to cram them through. Now there is a chance that they can modify such proposals for the better. It will be up to them to build on that opportunity, slight though it is.

Add in Arlen Specter's announcement that he will vote against cloture on labor's major priority - card check legislation that would do away with secret ballots in union elections and force mediation for employer-employee disputes - and we have another blow to the Obama agenda.

Clinging to their Madoff money

Usually when some financial big wig is revealed to be a sleaze and a crook, politicians who have received the dirty money rush to donate the money to charity. But the Democratic National Committee still han't gotten around to donating the $100,000 that they received from Bernie Madoff. Now that this is being pointed out in the press, expect them to rush to dump the cash. But what has taken them so long?

Tuesday, March 24, 2009

Do you want these guys running our economy?

Thomas Sowell highlights the phony behavior of politicians like Barney Frank and Chris Dodd who, in trying to dodge their own culpability in our economic mess by striking out at the head of the populist masses whose anger they're doing the best to stoke.
Death threats to executives at AIG, because of the bonuses they received, are one more sign of the utter degeneration of politics in our time.

Rep. Barney Frank has threatened to summon these executives before his committee and force them to reveal their home addresses — which would of course put their wives and children at the mercy of whatever kooks might want to literally take a shot at them.

Whatever the political or economic issues involved, this is not the way such issues should be resolved in America. We are not yet a banana republic, though that is the direction in which some of our politicians are taking us — especially those politicians who make a lot of noise about “compassion” and “social justice.”

What makes this all the more painfully ironic is that it is precisely those members of Congress who have had the most to do with creating the risks that led to the current economic crisis who are making the most noise against others, and summoning people before their committee to be browbeaten and humiliated on nationwide television.

No one pushed harder than Barney Frank to force banks and other financial institutions to reduce their mortgage-lending standards in order to meet government-set goals for more home ownership. Those lower mortgage-lending standards are at the heart of the increased riskiness of the mortgage market and of the collapse of Wall Street securities based on those risky mortgages.

Sen. Christopher Dodd has played the same role in the Senate as Barney Frank played in the House of Representatives. Now both are summoning government employees and the officials of financial institutions before their committees to be lambasted in front of the media.

Dodd and Frank know that the best defense is a good offense. Both know how hard it would be to defend their own roles in the housing debacle, so they go on the offensive against others who are in no position to reply in kind, given the vindictive powers of Congress.

This political theater is in one sense cheap beyond words. In another sense, it is costly beyond words.
And while we're fingering Dodd and Frank, don't forget Rahm Emanuel who was, reportedly, at the table when the limits on AIG bonuses were taken out of the stimulus bill.

These guys were part of the entire problem in the first place. They were out in front in demanding that banks make all sorts of irresponsible loans because their main concern was increasing the homeowning numbers regardless of the ability of people to keep up with the mortgages that they were signing up for.
Securities based on risky mortgages are what toppled financial institutions, but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail for which everything else was to be sacrificed, including commonsense standards for making home loans.

Politicians and bureaucrats micro-managing the mortgage sector of the economy is precisely how today’s economic disaster began. Why anyone would think that their micro-managing the automobile industry, or executive pay across a wide sweep of other industries, is likely to make things better in the economy is a mystery.

The real point is to pander to envy and resentment against people who make a lot of money. Envy is always referred to by its political alias, “social justice.” But to put the lives of the wives and children of executives at risk for the sake of Beltway grandstanding shows how low our political saviors have sunk.
And you can throw in Senator Grassley whose politics of demonization has sunk so low that he was recommending suicide to the AIG executives. Are these the guys you want designing how our economy will work? They're skilled at political theater and demagogic rhetoric, but know nothing about running a business. All they want to do is deny their own culpability in today's economic woes and then turn around and finger a villain despicable enough to distract voters' attention away from what they themselves were doing behind the curtain.

Nancy Pelosi's administration

Just as several conservative writers have noted, Richard Cohen also thinks that President Obama has given up his domestic agenda into the hands of Nancy Pelosi. And she's taken the ball and run with it.
The tale of two political figures was written one day last week when Pelosi went down into the well of the House and pitched the bill to heavily tax the bad people at AIG who received big bonuses. Using the tax code to exact punishment for political reasons is both bad policy and bad law -- why not put gun-shop owners and cigarette manufacturers in the 100 percent bracket? -- but it hurtled through Pelosi's branch of the government with nary a hearing and few discouraging words, and only the mildest suggestion from the president that the bill was really a dumb idea.

The pressure for the legislation was great. In just a day, Charlie Rangel, chairman of the House Ways and Means Committee, went from opposing the idea to introducing the very bill he had earlier denounced. Rangel had all the stock phrases ready -- stuff about shattered dreams and greedy executives, which is all true enough -- but he was right when he first said that the tax code should not be used as a "political weapon." With such an about-face, it's a miracle he did not wind up in traction.

As for Obama, around the time this extremely ill-considered piece of legislation was flying through Congress and Pelosi was waxing very hot indeed on television, the cool president went on the Jay Leno show. His appearance was historic, we were solemnly told, but it also turned out to be useful for him to get out of town. The most toxic asset in Washington was fast becoming Congress, where the Democratic leadership was threatening to send him an awful bill that could be very hard to veto. With friends like these . . .

Earlier in the administration, the White House allowed Congress to write the $787 billion stimulus bill. It was bad enough that the candidate who promised change had no choice but to prop up some of the country's most reviled or antiquated institutions -- financial firms, auto manufacturers, etc. -- but what's worse is that the bill came blinged with extra spending. That allowed Republicans to pose as longtime and passionate opponents of pork, producing a noxious cloud of hypocrisy that drifted from the Capitol to the White House. This was not the fresh air of change but the stale air of business as usual.

Something similar happened with the $410 billion omnibus spending bill. Earmarks were permitted. This was not the president's bill since it originated under the previous administration, but Obama did not fight the earmarks or seem upset by them and indeed pronounced them yesterday's news. The speaker, as is her wont, got her way and so, once again, change was parked at some scenic overlook, biding its time until it is allowed into Washington. It is already way late.
Did all those Republicans and independents who voted for Obama really plan on his outsourcing his agenda to the likes of Nancy Pelosi and her cohort in the House? Because that is what they've gotten for their votes. Perhaps 2010 will reawaken in the American people the delights of divided government.

Listening to Iran's dissidents

Bret Stephens wonders if President Obama's deep concern for civil rights will extend to paying some attention to the Iranians lying in prisons because they dared to march in a parade or blog about the government.
Barack Obama extended the olive branch to Iran's leaders last Friday in a videotaped message praising a "great civilization" for "accomplishments" that "have earned the respect of the United States and the world." The death of Iranian blogger Omid-Reza Mirsayafi in Tehran's Evin prison two days earlier was, presumably, not among the accomplishments the president had in mind.

....Whether Mirsayafi's death cows or emboldens Iran's dissident bloggers remains to be seen. Not the least of their considerations will be the attitude of Mr. Obama, who in his videotaped address went out of his way to speak of "the Islamic Republic of Iran," thereby giving the mullahs claim to a nation, and a civilization, they have done so much to oppress and degrade. Yes, an American president must look first, second and third to American interests. But a presidency predicated on the view that our values are our strength should not forsake those values for diplomatic expediency, much less betray our friends abroad who live, and have died, by those values.

Shortly after Mr. Obama's inauguration, Mr. Sanjari put his name to an open letter to the new president, signed by several prominent young Iranian dissidents, calling on him "to pay special attention to the repressive, unaccountable nature of the regime" that now threatens and provokes the U.S. and our allies. Its conclusion is as fitting a tribute as any to Mirsayafi's notable and too-brief life:

"Mr. President, you marked your first day in the White House by ordering the closure of the Guantanamo Bay prison. But in our country, many Guantanamos exist, only our Guantanamos are home to students, women's rights activists, labor organizers, political activists, and journalists. We, as former student activists who spent time in Iranian prisons under inhumane conditions, call on you and all those who defend human rights, freedom and equality to express solidarity to the people of Iran as they wage their struggle for freedom."
I rmember all the attention that the American people paid to Soviet dissidents back during the 1970s and 1980s. We knew their names and what they had done to be swept away to the Soviet gulags. It should be even easier now to follow their stories with all the modern communications technologies that we have now. Iran is a menace following the model of the Soviet Union when you consider their efforts to destabilize the entire Middle East. Will Obama listen to the voices of Iran's dissidents or is he to enthralled by the possibility that his golden voice and pliant attitude will be sufficient to mark a new relationship with Iran?

Monday, March 23, 2009

Time to stop campaigning and settle down to governing

President Obama might be achieving the unthinkable with his trip-whammy appearances this past week on ESPN, Leno, and 60 Minutes. Even some of his fervent supporters are starting to think he would be better off to get out of campaign mode. Here is Mike Lupica, no right-wing plant, criticizing the overexposure of Obama.
It is easy to see what Obama is going for here. He runs the country the way he ran for President, taking his message straight to the people, not letting it be filtered through Fox News or right-wing radio or anything else. Leno and "60 Minutes" and his inevitable next visit to Jon Stewart are his version of FDR's fireside chats, and he constantly reassures the country himself that we're going to come through this all right.

"The more I can break out of the bubble, the better I am," he said the other day.

Sometimes, though, it seems the bubble is about to burst, and that he is about to become the first American President to suffer from overexposure before his first 100 days are up, that he is trying way too hard. Lately, he leaves the impression that he is on television more than Chris Matthews. Maybe his wife can be the one to tell him to dial it down a little, that he got the gig.

He is a brilliant communicator, even if his defenses of Tim Geithner start to sound like George Bush saying, "Heck of a job, Brownie," to bungling FEMA Director Michael Brown after Hurricane Katrina. He has brilliant language in him. I believe he is going to eventually be called a great President, even as he has inherited the worst economy since FDR and a much more dangerous world.

He is so much better than the loud and occasionally weepy screamers from the right, the ones who act as if they have to save the country from him, as if they're better Americans than he is, that there is nothing to discuss.

But he was elected to be the smartest guy in the room, not the most popular kid in class. And not the next "American Idol," trying to win a new text vote every single day.
I think all these appearances of Obama all over the place is an example of overlearning the mistakes of the previous president. One of George W. Bush's biggest weaknesses was his inability to "sell" his policies. He'd give a few speeches and then the White House would be relatively silent as they'd get hammered from all sides. Obama has learned the lesson that it is essential for the president to use his bully pulpit to sell his programs. And I really have no problem with the President talking to ESPN about his brackets or going on Leno or Sixty Minutes. It's just the whole picture together. It's pretty bad when the guys on the sports radio I tune to on the way to work to hear a discussion of the NCAAs spend a half hour discussing whether the President's NCAA brackets are just a part of his campaign mode and then discuss the analysis by Nate Silver in 538 as to whether the President skewed his picks to swing states.

Obama and the AIG bonuses

The Obama administration seems to be retreating from the populist craziness that took over Capitol Hill last week as the House of Representatives sped through their 90% confiscatory tax on the AIG bonuses. Some sanity seems to be taking place among the President's advisers.
The Obama administration appears to be dialing back its support for the bonus tax legislation generally, and particularly the bill passed by the House last week.

After the House passed the bill, the White House issued a statement from President Barack Obama saying “I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.''

But on Sunday, a top administration economist was much less enthusiastic, calling the bill “dangerous.”

“The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people,” Jared Bernstein, Vice President Joe Biden's chief economic adviser, told George Stephanopoulos, host of on ABC News' "This Week.”

Bernstein continued “That may be a dangerous way to go. That said, let’s see what comes out of the Senate. He has not said he won’t sign this bill. Let’s see what comes out of the Senate. Let’s see what gets to his desk.”

....Also on Sunday, Christina Romer, chairwoman of the White House Council of Economic Advisors, would not say whether Obama would sign bonus tax legislation.

“That obviously is a decision for the president,” Romer told Fox News Sunday host Chris Wallace. “What he has said is that he is going to look at any legislation and I’m sure he will do that.”

Administration officials have privately expressed concerns that both the House and Senate bills could lead to an exodus of employees or whole companies from TARP, as well as other government-sponsored financial rescue efforts, the Wall Street Journal reported last week.

The Senate bill is less punitive, but could affect more companies receiving bailout funds. It would impose a 35 percent excise tax on the companies that paid bonuses and a 35 percent tax on the employees receiving them.

But Sunday’s comments by Bernstein and Romer were the first public acknowledgement by the Obama administration of opposition to the bills, which may face a tougher ride in the Senate.
Well, couldn't the President exercise some actual leadership and publicly state his position as to where he stands on the tax on bonuses. Is that like, you know, sorta his job?

As Suzanne Garment writes today, it is part of the President's job to try to sensibly channel populist anger, not be out in front leading it.
Precisely because the president speaks for the country, it is his job, and not just Mr. Summers's job, to weigh the economic consequences of his words. The president's job is not to express populist anger but to address the anger and talk sense to it.
As the Secretary of the Treasury unveils his long-awaited plan to involve private companies in winding up the bad bank assets in the TARP program, the administration is going to need the involvement of private companies to help government out. It's probably not a great idea to have the President out there demonizing the sorts of people whose help he's going to need in the TARP plan. Already Congress is looking to see what other recipients of government bailout funds gave out bonuses to their employees. The Presdient continued to walk back from the House resolution in his appearance on 60 Minutes.
Still, Obama would not endorse legislation moving through Congress to tax nearly all the bonuses of executives at AIG. Asked if the measure is constitutional, the former law professor said: “Well, I think that as a general proposition, you don't want to be passing laws that are just targeting a handful of individuals…And as a general proposition, I think you certainly don't want to use the tax code—is to punish people.”

“So let's see if there are ways of doing this that are both legal, that are constitutional that uphold our basic principles of fairness, but don't hamper us from getting the banking system back on track,” Obama said.
Well, if that's the way he feels, why doesn't he put forth his own proposal instead of just reacting to the House bill. That is what leadership is. But Obama seems to prefer being in reactive mode as he outsourced his stimulus plan to the Democrats on the Hill and is planning to let them take the lead on health care. And now he's sending forth his own contradictory smoke signals on these executive bonuses instead of proposing his own solution.

Be assured that AIG is not alone. And from one side of the government's mouth, Congress will be demagoguing those companies, and with another, the White House will be asking those companies to help out with the bad bank assets. Don't act surprised when companies listen to both sides of government's voice and decline the opportunity to work together with the government to unwind those toxic assets.

UPDATE: The WSJ expresses very well why the House's bill is so dangerous.
With such a sweeping assault on contracts and punitive taxation, Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America's competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation. Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn't matter to growth or incentives. It is a revival of the philosophy of redistributionist "justice" of the 1930s, when capital went on strike for an entire decade.

The financial system will suffer in particular, just when the Obama Administration is desperately seeking more private capital to ride out future losses. Facing such limits on the ability to reward talent, every bank CEO will try to pay off the TARP as soon as possible, whether or not this leaves the bank with a weaker capital base. Hedge funds and other investors that Treasury needs for its new Public-Private Investment Program, or for the Federal Reserve's TALF, will also be warier, if they'll play at all. Treasury may promise nothing punitive for these programs, but that's also what it said about the TARP.

The other Smoot-Hawley comparison relates to our new President. Herbert Hoover sent mixed signals about the tariff until he finally bent to a panicked GOP Congress. President Obama has behaved in the past week as if he can appease and "channel" Congressional anger without being run over himself. So not only did he incite the Members last Monday, he welcomed the House bill on Thursday. By the weekend, cooler White House heads were whispering that the mob had gone too far, but it will take more than words to kill this terrible legislation. Mr. Obama will have to fire a gun in the air -- which means threatening a veto.
He needs to show that he's tough enough to stand up to not merely Republicans and Rush Limbaugh, but his own party when it is in the midst of enjoying their phony populist outrage.

The CBO scores the President's budget

I remember when Democrats regarded the CBO estimates as sacred. That was when they could wave the CBO analysis around and say how a tax cut would increase the deficit and how horrible that would be. Well, now the proverbial shoe is on the other foot. We'll see how sacred the CBO scoring of President Obama's budget is now when it projects huge deficit increases as far into the future as we can look. If the President's plans get passed, we will be adding, as the WSJ writes, a permanent level of deficit that would have been unimaginable just a few months ago.
As a share of GDP, CBO says this means spending will hit an astounding 28.5% in fiscal 2009, which ends this September, and still be at 25.5% next year, staying at close to 23% to 24% of the economy for the next decade. As CBO dryly notes, this is "above the average of 20.7 percent over the past 40 years." Even CBO's estimate is conservative because it assumes that most of the spending in the stimulus bill will be temporary, though Democrats are already planning to make much of it a permanent part of the budget baseline.

Where does this take the Obama budget deficit? Up into the great beyond. This year's deficit will hit 13.1% of GDP and next year's will still be at 9.6%, assuming a healthy recovery, and then never get below 4.1% for the entire decade. These deficits assume the passage of Mr. Obama's enormous tax increases in 2011 and $629 billion in new cap-and-tax carbon revenues. The share of debt held by the public will double -- to 82.4% in 2019 from 40.8% in 2008.
And this will be a permanent change because of the new entitlements that Obama is planning to add to national health care.
And by the way, all of this is without including the costs of Mr. Obama's plan to offer "free" health care for the middle class. The White House budget includes only a "down payment" on health care, with every serious person figuring it will cost at least $1.2 trillion, and probably more. Incredibly, Democrats on Capitol Hill are, with White House encouragement, talking about jamming health care through Congress with a special procedure that requires only 50 Senate votes.

At least after World War II, spending could, and did, decline rapidly when the country demobilized. In this case, with the bulk of federal spending geared toward income maintenance and transfer payments that have political constituencies, that won't happen. And that is part of Mr. Obama's plan. One unstated but clearly implicit goal of his budget is to put in place spending programs that make ever-more Americans dependent on government and that will require a permanently higher level of taxation to finance. All of this is being done in the name of addressing income inequality.
The plan now is for the Democrats to put through the health care plan under reconciliation rules that would not need 60 votes in the Senate so that opponents can't launch a filibuster to slow down or stop the plan.

So enjoy the CBO numbers now. The projected deficit will be soaring even higher once the Democrats stuff in their health plans later this year.

Friday, March 20, 2009

This is a good message to send - props to Michelle Obama

Conservatives enjoy beating up on Michelle Obama, but if she spends her time in the White House, as she did yesterday, visiting high schools and delivering this message to kids who will listen to what she is saying, it will be a very good thing.
Student: How did you get where are you?

MO: There was no magic. Parents working class, mother stayed home until I went to high school. Repeated some details of her background.

She told the kids, don't worry about what your friends say, or teachers who don't think you can do something. "Work hard, do your best."

She said: "I wanted an A, I wanted to be the person who had the right answers. People said, you talk like a white girl - I don't know what that means."
Mrs. Obama has a remarkable bully pulpit and she is planning to use it to reach out to students in Washington's troubled schools to deliver her message.
More talk about college and exploring options. Don't be a in a big rush to have children.

Pool was then led out to a room that houses the New Heights Teen Parent Program. For those not too familiar with DC, Anacostia High is one of the city's lower-performing schools, with regular violence and teenage parents in attendance. One of the signs on the wall listed baby supplies that can be acquired through the "Baby Bonus Bucks Redemption Program." There was also a sheet advertising the dates of the SATs.

Jocelyn Frye, FLOTUS's policy director, briefed the pool while we waited. Some direct quotes:

"One of the things she's spoken with all of us [about] is really reaching out to students who face challenges, not to necessarily, oh let's just touch the students who are doing the best. To visit schools that have challenges. But yet have a lotta opportunity and a lotta potential. And Anacostia was a place like that. There are other schools we could have gone to as well - where a lot of times students feel like people forget about them or don't really think that they have a lot of opportunity or potential. So we thought, well this a place to start."

"I thnk one of the things that happened when she went out to Mary's Center is a lot of students there were wondering, why are you here? And I think her point is that, don't think that we're so removed from you."

She wanted make sure the students know that "there was a time when we weren't all that different from you. So I th[i]nk this is part of the education policy, in the sense that we want to make sure that every school has students in it that believe that they can accmplish whatever they want. And believe that high standards are not something that's removed from them."
Let's face it - this is a message that will resonate much more with these kids when it comes from Michelle Obama than if it had come from Laura Bush or Hillary Clinton or any previous First Lady. Cheers to her for delivering it and I hope she carries out her promise to do more of such events.

Beware of government by demagogic deflection

Sure people are angry after hearing about the AIG bonuses. But, as Charles Krauthammer points out, the solution from Congress is even worse.
And there is such a thing as law. The way to break a contract legally is Chapter 11. Short of that, a contract is a contract. The AIG bonuses were agreed to before the government takeover and are perfectly legal. Is the rule now that when public anger is kindled, Congress will summarily cancel contracts?

Even worse are the clever schemes being cooked up in Congress to retrieve the money by means of some retroactive confiscatory tax. The common law is pretty clear about the impermissibility of ex post facto legislation and bills of attainder. They also happen to be specifically prohibited by the Constitution. We're going to overturn that for $165 million?
Instead of spending a week searching for the most over-the-top rhetoric to attack AIG executives, perhaps our nation's leaders could turn their attention to the real problems bedeviling the economy.
Geithner has been particularly maladroit in handling this issue. But the reason he didn't give the bonuses much attention is because he's got far better things to do -- namely, work out a rescue plan for a dysfunctional credit system that is holding back any chance of recovery.

It is time for the president to state the obvious: This recession is not caused by excessive executive compensation in government-controlled companies. The economy has been sinking because of a lack of credit, stemming from a general lack of confidence, stemming from the lack of a plan to detoxify the major lending institutions, mainly the banks, which, to paraphrase Willie Sutton, is where the money used to be.

Obama has been strangely passive about this single greatest threat to the country. In his address to Congress and his budget, he's been far more interested in his grand program for reshaping the American social contract in health care, energy and education.

Obama delegates to Geithner plans for a bailout -- and Geithner (thus far) delivers nothing. Obama delegates to Nancy Pelosi and her congressional grandees the writing of all things fiscal -- and gets a $787 billion stimulus package that is a wish list of liberal social spending, followed by a $410 billion omnibus spending bill festooned with pork and political paybacks.
Krauthammer then turns to another goodie for the Democratic base slipped into the stimulus bill.
That bill, we now discover, contains, among other depth charges, a Teamster-supported provision inserted by Sen. Byron Dorgan that terminates a Bush-era demonstration project to allow some Mexican trucks onto American highways, as required under NAFTA.

If you thought the AIG hysteria was a display of populist cynicism directed at a relative triviality, consider this: There are more than 6.5 million trucks in the United States. The program Congress terminated allowed 97 Mexican trucks to roam among them. Ninety-seven! Shutting them out not only undermines NAFTA. It caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade coming out of 40 states.

The very last thing we need now is American protectionism. It is guaranteed to start a world trade war. A deeply wounded world economy needs two things to recover: (1) vigorous U.S. government action to loosen credit by detoxifying the zombie banks and insolvent insurers, and (2) avoidance of a trade war.

Free trade is the one area where the world indisputably turns to Washington for leadership. What does it see? Grandstanding, parochialism, petty payoffs to truckers and a rush to mindless populism. Over what? Over 97 Mexican trucks -- and bonus money that comes to what the Yankees are paying for CC Sabathia's left arm.
Yup, just what our economy needs and what the fragile Mexican government needs - a full-fledged trade war in order to cater to teamster truck drivers. As Rich Lowry wrote yesterday,
Our third-largest trading partner, the Mexicans have retaliated by saying they will impose tariffs on 90 U.S. industrial and agricultural products, worth $2.4 billion in 2007. So the cost of this “victory” against Mexican trucking will be borne by farmers and manufacturers around the country. The tit for tat is unlikely to escalate into a full-blown trade war, but we send a dreadful signal by violating a trade agreement at a time when protectionist pressures are rising worldwide.

Pres. Barack Obama says he’ll find a way to address Mexico’s complaint consistent with safety concerns. Since those concerns are a proxy for flat-out opposition to Mexican trucking, it’s not clear how that’s possible.

Democrats profess to love our allies — unless they want to trade with us. Mexico joins South Korea and Colombia among friends we are stiffing on trade. Perhaps if they got together and started an illicit nuclear-weapons program, they would be treated with more solicitude.
The politicians want to deflect our attention from the real problems so that they can slip in goodies for their own supporters and score points by their demagogic rants against the villain du jour. Meanwhile the bonfire continues.