QandO

Archive for the ‘Economics’ Category

We finally got a mixed bag on the employment front this month, a welcome change from the purely awful. However, with everyone focused on “creating” jobs I think this quick synopsis attacking the unrealistic expectations of when and where jobs will come from is well worth reading. This chart gives you an idea of how bad it really has been (click image for larger version)

Yves Smith looks at the problem of how to handle the prospect of the financially weaker members of the European Union possibly defaulting. neither the PIIGS nor their colleague states want to take the steps they may need to take. Markets however are sending a clear message, “Do Something!” The risk goes beyond the direct damage from the potential losses from holding these countries debts. European banks are already shaky, with shaky assets and still a lot more leverage than is safe. I believe Europe’s bear market is likely back on.

European banks are shaky? How provincial of me not to mention our own banks. The coming wave of defaults in the Alt-A and Prime mortgage space are not getting enough attention, Yves helps out there as well. Not only are the losses coming (pretending loans are good only works until they actually default) but the banks are in for some serious lawsuits from all kinds of parties that bought the toxic loans. First in line are Freddie and Fannie. They will still lose at least 400 billion, but they’ll take a good chunk out of the banks hide on the way down.

the phrase “credit specialists at Citi” is not exactly the kind of thing which instills enormous confidence in analysts and investors these days

I think that is an understatement. They want to sell another fancy derivative designed to remove all risk if there is a systemic crisis when, of course, those supposed to pay up will certainly have the money to do so….Right?

Please imagine me banging my head against the keyboard. And no, the response of the Citi Spokesman doesn’t make me feel any different, in fact, it makes me feel worse.

The term liquidity is the pixie dust the financial commentariat uses to obscure what is really going on. I maintain, and have throughout the last few years, that our difficulties have not been a liquidity crisis (though many who had no business exposing themselves individually to liquidity drying up for them certain had a liquidity crisis) but a solvency crisis. David Merkel points out that liquidity always exists, it just goes where the marginal credit buyer has gone. Where insolvency risk seems to be increasing, the marginal buyer can become very scarce and will provide it to areas seemingly exposed to less risk. At the end of the day it is solvency that is our problem, and until we solve that liquidity will go to those perceived to be least at risk. Right now that is the government and those they are backing. Hence a credit crunch for much of the economy.

Speaking of credit, consumer credit has now declined for 11 straight months. A record, and by a long shot. (Click image for a larger version.)

In the “no big surprise department,” and paralleling the argument I made at the time, it has now been shown that the ban on short selling during the crisis did not help support prices and damaged stock market liquidity. In the no surprise at all department the biggest complainers turned out to have fundamental problems that short sellers were pointing out accurately (much better than our regulators.) The loudest complainer of all, Overstock.com and their bizarre CEO, Patrick Byrne. The upshot, they have been cooking their books for years, just like the short sellers were claiming.

Cross posted at The View from the Bluff

Interest rates are at record lows and literally trillions of hastily printed dollars have been pumped into the economy by the Federal Reserve in an effort to stem an even deeper recession. While it is debatable as to whether or not it has really accomplished that goal, what isn’t debatable is at some point, the Fed has to wring that excess money from the economy or risk all sorts of dire consequences.

The Wall Street Journal carries the Bernanke plan for doing so. The centerpiece of that plan is found in the interest rate the Fed pays banks on the reserves it keeps. Right now, that’s .25%. The plan is to gradually raise that rate with the assumption that such rate raises will give an incentive to banks to keep even more money on reserve and thus out of circulation. This “interest on excess reserves” then is the primary vehicle the Fed plans to use to begin to pull money out of circulation.

But that’s a process fraught with risk. Because the immediate effect of any such interest rate increase will be to tighten credit. And depending on the strength of the economy, it has the potential to affect it negatively. Says the WSJ:

Extricating itself from these actions [low interest rates and trillions of infused dollars] will require both skill and luck: If the Fed moves too fast, it could provoke a new economic downturn; if it waits too long, it could unleash inflation, and if it moves clumsily it could unsettle markets in ways that disrupt the nascent economic recovery.

It’s pretty easy to drop interest rates and pump money into a down economy. But going the other way is not at all as easy. “Skill and luck” are understatements. Timing will have to almost be perfect. The problem is, should markets get skittish because of moves by the Fed that it sees as having a negative effect, things could break negatively quickly and spiral out of control. While the Fed would like everyone to believe this is a piece of cake – and will continue to tell us it is – it’s not at all an easy thing to do. The desire of those talking positive about the ease of draining the monetary swamp is to bolster confidence and allay fears if possible so a panic which could undermine the whole plan doesn’t develop. That, however, is going to be extremely difficult:

The nature of its exit from today’s unusually low interest rates will affect everything from mortgage rates and what companies pay on short-term borrowings to the rates savers earn. The timing and sequence of the steps are the subject of intense speculation in financial markets.

At the risk of boring the living hell out of you, I want to stress that this plan may be one of the most important plans in quite some time. If it isn’t executed perfectly, we could see a quick slide back into recession or rampant inflation. Read the whole article if you get a chance. The Fed has some other contingencies and plans as well. But as you’ll see as you read through them, all present the possibility of having a very negative downside if the strength of the economy is misread and/or the execution of each portion of the plan isn’t almost perfect.

The economic high-wire act – without a net – the Fed is about to embark upon is a very difficult one. Yes, it’s necessary and, in fact, critical – but it isn’t going to be easy. And if screwed up, could be pretty devastating to a recovering economy.

~McQ

When the NY Times entitles anything, especially an editorial, starting with “The Truth About …”, you should be immediately suspicious.  As Arnold Kling says, that normally means “The liberal elite narrative about …”.  And it’s editorial, “The Truth About The Deficit” is no exception.  The first part of the editorial is spent on a selective history lesson which makes all of our troubles, as you might imagine, something brought on by the GOP’s focus on tax cuts for the wealthy.  Nevermind that they were across the board marginal cuts – this narrative won’t die.

The entire bit of revisionist history (with the normal “blame Bush” tautology) is aimed at justifying this paragraph:

Americans should be anxious, for reasons including the huge deficit. But the cold economic truth is this: At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.

What the NYT and the Krugman’s of the world believe is government spending can be substituted for private spending and have the same result – economic growth. And that economic growth, spurred by this spending, will create jobs. But if you think about it, unless the government is buying goods and services produced by the private sector, that’s most likely not going to happen, is it? Temporary jobs located in “infrastructure improvement,” unemployment benefit extensions and jobs “programs” don’t create jobs. Private sector growth does. And when government is borrowing .40 cents for every dollar it spends, it starts to dry up the private credit market. That means if there is a desire to expand, the credit isn’t as readily available as it would be if the 800 pound credit hog weren’t in the market.

Then there’s this:

To truly tame deficits will require serious health care reform …

To which Kling replies:

In Washington, serious health care reform means “fixing” private health insurance. But our deficits are caused not by problems in private health insurance. They are caused by the structure of Medicare and Medicaid. That is where we need reform. But the Times and other liberal mouthpieces need to create a narrative that makes it sound as though unsound government programs are the fault of the private sector.

Spot on. This has been the most irritating part of the “health care reform” issue. It is the public programs – which neither party will touch – that are breaking the bank, yet we continually hear politicians on the left talk about “greedy [private] insurance companies” as the sole reason health care costs or so high. In fact, without private health care insurance to pay the difference, Medicare and Medicaid would have foundered long ago. But the point is the deficit problem is not one caused by private insurance.  It has no effect on public debt.  That is caused by the mismanagement of the government programs. And other than a passing wave at “stopping waste, fraud and abuse” – the promise of every politician since the inception of those programs, and accomplished by none of them – this “reform” package ignores the real problem while attacking the private market.

But back to the primary point of the NYT’s attempt to persuade you that deficit spending – massive deficit spending – is a good thing:

Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. Otherwise, collapsing demand sets in motion a negative, self-reinforcing spiral in which lack of demand — for goods, services and new employees — leads to ever deepening economic weakness.

And here’s the undeniable economic truth about the snake oil they’re peddling:

The narrative is that we are suffering from a shortfall in demand. The reality is that the private sector has decided that workers should be hired on the basis of profits, rather than on the basis of debt. The government may choose to make a different decision, of course, but that will not necessarily strengthen our economy.

One of the many economists not at all in agreement – despite President Obama’s claim to the contrary – with the prescription that deficit spending is not only good, but necessary. And while they can blame the situation on anyone they choose, the decisions being made to run up this massive debt based on some pretty flaky economic logic are theirs and theirs alone.

~McQ

Yesterday we were told the nation’s employers “unexpectedly” shed more jobs last month than forecast.  Today we’re told that despite that, the unemployment rate “surprisingly” decreased to 9.7%.

Unsurprisingly I don’t believe a word of it.  Call me a cynic, call me a skeptic, but I just don’t believe much of anything coming out of the government these days (I know, let’s call it a “deficit of trust”).  Don’t forget that 9.7% number comes on the heels of a report saying the government forgot to count over 800,000 lost jobs last year.

When the government releases Friday’s unemployment report, nearly a million jobs could be erased. The change won’t show up in the monthly report. Rather, the expected job will show up in the government’s revised job losses from April 2008 to March 2009, showing the labor market was in much worse shape than we knew at the time.

So here we are, rampant and exceedingly high unemployment, no relief in sight and the unicorns and rainbows crowd are spinning the numbers and telling us all is well and getting better.

Well, economic well-being, like is said of politics, is all local.  And for the most part, the locals aren’t buying the spin.  Here’s the brutal truth:

An unemployment rate that’s projected to average 10 percent this year will likely weigh on consumer spending, preventing the biggest part of the economy from accelerating. Without additional gains in sales, companies will be forced to keep cutting costs, limiting staff in order to boost profits.

“Businesses are simply postponing their hiring for as long as possible,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report. “The willingness to hire is not there.”

Fewer customers, less spending. Less spending, less of a need to make things.  Less demand for products means less demand for more employees.

Key line: “Without additional gains in sales, companies will be forced to keep cutting costs, limiting staff in order to boost profits.”

And that’s precisely what they’re doing.  The Labor Department reports:

Nonfarm business sector labor productivity increased at a 6.2 percent annual rate during the fourth quarter of 2009, the U.S. Bureau of Labor Statistics reported today. This gain in productivity reflects increases of 7.2 percent in output and 1.0 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) This was the first quarterly increase in hours worked since the second quarter of 2007 (0.9 percent). Productivity increased 5.1 percent over the last four quarters –more than during any similar period since output per hour rose 6.1 percent from the first quarter of 2001 to the first quarter of 2002.

Even the Riddler could puzzle this one out.  Worker productivity has increased 5.1% over the last four quarters.  But unemployment has continued to grow.  What does that mean?  Well it means companies and businesses have found a way to increase production with fewer employees.  And that, as the key line above suggests, boosts profits.

Now that productivity increase can come in many ways.  Simply distributing the same (or even increased) work load to fewer employees.  That’s happening all over the place now.  Then, in certain industries,  automation replaces employees (it doesn’t require health insurance, vacation days, a 401k and isn’t represented by a union).  And in some places it’s a combination of both plus modified business models. 

The bottom line is there’s not likely to be that much hiring if and when the economy actually turns around unless a huge increase in demand is realized.   And even then, employers are likely to try to hold out as long as possible, given their productivity gains, until those productivity gains are neutralized.  I’m sure there’s a tremendous gap between now and that point.  Then add in the market instability brought on by pending legislation like health care reform and cap-and-trade, and you can see high unemployment in the future for quite some time.

But the unicorn and rainbow crowd are going to tell you everything, relatively speaking, is getting better.  The fact that your relatives are all unemployed and your job isn’t looking so hot at the moment either will cause you to doubt their assertions.  Do.  Doubt them I mean.  They’re as full of crap as a Christmas goose.  And that’s becoming more and more obvious each day as we watch this dance of the dodgers continue.  Because, you know, you can’t handle the truth.  No, that’s not true.  If they tell you the truth, they too will be unemployed.

“Deficit of trust?”

A true understatement.

~McQ

E.J. Dionne has apparently mistaken Joe Biden’s passion for intelligent thought.  In an interview with Biden, Dionne quotes him as saying:

“We will continue to be the most significant and dominant influence in the world as long as our economy is strong, growing and responsive to 21st-century needs. And they relate to education, they relate to energy, and they relate to health care.”

On he went: “Give me a break. So many people have bet on our demise that it absolutely drives me crazy. . . . There’s sort of an attitude that is both politically directed by our Republican friends but also believed by a fair number of people that we just can’t make this transition in the 21st century.

“I want to tell you something, because if we cede the ground to those who suggest that — I don’t mean foreigners, I mean domestic critics — that somehow, we are destined to fulfill [historian Paul] Kennedy’s prophecy that we are going to be a great nation that has failed because we lost control of our economy and overextended, then we might as well throw it in now, for God’s sake. I mean it’s ridiculous.”

“We will continue to be the most significant and dominant influence in the world as long as our economy is strong, growing and responsive to 21st-century needs. And they relate to education, they relate to energy, and they relate to health care.”

Read the highlighted paragraph carefully. What is Joe Biden equating a strong economy with? “Education, energy and health care”.

What is he really saying?

That increasing government intervention is the answer to a strong economy.  That the answer lies in education (reform), energy (cap-and-trade) and health care (reform).  IOW, unlike in any previous era, Joe Biden is claiming government is the key to building wealth and economic prosperity.  Not one mention in his clueless tirade about markets, economic freedom, entrepreneurship or business.  None.  In Joe Biden’s world, economic strength seems to depend solely on government.  The fact that the 18th, 19th and 20th centuries of United States history show him up for the windbag he is, apparently doesn’t phase him.  Or Dionne either, for that matter.  It is pure liberal economic cluelessness crossed with Joe Biden’s usual verbal flatulence.  Dionne apparently buys into it.

In fact Dionne goes on to say:

Beneath the predictable back-and-forth between Obama and his Republican adversaries over government spending lies a substantively important difference over how the United States can maintain its global leadership.

[...]

For Republicans, American power is rooted largely in military might and showing a tough and resolute face to the world. They would rely on tax cuts as the one and only spur to economic growth.

Obama, Biden and the Democrats, on the other hand, believe that American power depends ultimately on the American economy, and that government has an essential role to play in fostering the next generation of growth.

Republicans believe that “American power is rooted largely in military might?”

Really!? 

So all those charges of “friends to big business” and “the party of business” were  just so much hot air – that it’s always been about “military power” and nothing else? How purposefully tendentious does one have to be to live in Washington, cover politics for a living and write something like that? 

And then to claim that the GOP’s “one and only spur to economic growth” is the tax cut is absolutely stunning.  You have to wonder if alcohol or weed (or both) were present and in use when this was being written (and I’d have to wonder about those 3 layers of editors as well).  If they can’t use that as an excuse I’m at a loss to explain the sheer cluelessness of such a statement.

Jennifer Rubin at Commentary jumped on this as well:

Republicans don’t care about economic growth? Just military might? Hard to see where he gets that, considering that the post-Reagan conservative movement and the Republican party have been devoted to market capitalism. Indeed, the slur on Republicans has been that all they cared about was wealth creation. Oh, but they are just interested in “tax cuts.” Well, that and free trade, modest regulation, legal reform, and other conditions that spur economic growth, investment, and wealth creation.

If Dionne really believes what he wrote he has no business writing political opinion columns for anyone, much less the Washington Post.  That’s the most ill informed sentence I’ve seen in some time.  And his sentence touting Obama, Biden and the Democrat’s belief that the economy is what America’s power depends on is refuted by Biden’s own words.  Biden is saying the economy depends on government.  Therefore “America’s power” depends on government’s management of the economy – not the economy itself.  When he claims it all depends on “education, energy and health care”, he’s parroting the Democrats agenda for more government intervention, regulation and intrusion.  If you don’t believe that, Rubin provides the proof:

Dionne considers this all trivial or dim because he and liberals are convinced that government creates wealth, that public spending creates jobs, and that expansion of the public sector is the way to a brighter future. In fact, he congratulates the president for cheering on the competition in statism with other powers. In the State of the Union, Dionne recalls, the president vowed that no nation would get the jump on us when it comes to government programs. (”Meanwhile, China is not waiting to revamp its economy. Germany is not waiting. India is not waiting. These nations aren’t standing still. These nations aren’t playing for second place. They’re putting more emphasis on math and science. They’re rebuilding their infrastructure. They’re making serious investments in clean energy because they want those jobs.”)

That’s right, in the SOTU, Obama stressed precisely what Biden is saying and Dionne is parroting.  China – of all places – was first on Obama’s list of nations to apparently emulate.  And not in the sense you’d like to believe.  He didn’t say China’s entrepreneurs are turning that economy around.  He’s talking about government.  The government of  China, the government of Germany, the government of India – they are the purported engines of economic recovery and wealth creation.

Is it any surprise then to find that he, Biden and liberals like Dionne are of the opinion that more government and more government spending is the path to economic success?  A former community organizer, a professional politician and professional pundit all claiming that the laws of economics are null and void and that the path to proseperity is through bigger and more expensive government?  All we need now is Hugo Chavez to add some real intellectual economic heft to that group [/sarcasm].

All the more reason to be thankful the supermajority in the Senate will be history at 5pm today.  The “party of no” has its work cut out for it.

~McQ

The progressive base is having conniptions over the failure of President Obama to get his agenda through Congress despite having supermajorities. Now that Obama is making token gestures (however feeble [via:HA]) towards fiscal sanity, they are experiencing political apoplexy:

As noted in quick hits by BDB and rayj, [UPDATE] and by David in a diary that just caused me to push back this diary’s publication time, Obama has now gone off the deep end. After passing a stimulus that most economists (not just liberal ones) said was too small, and that was made even more inadequate by being heavily tilted toward poor-performing tax-cuts, Obama is now intentionally recreating FDR’s mistake of 1937, when he prematurely cut back spending to try to balance the budget, and sent the country into a new recession.

[...]

Specifically: He’s going to announce a spending freeze on domestic programs (but not, of course, on the military) that is “projected to save $250 billion.” The rationale is that he wants to appease folks worried about runaway deficits. Which is just what FDR was worried about in 1937.

This is Bush-style idiocy. There is no other word for it.

The cause of this consternation is magical thinking on the part of the author, Paul Rosenberg.

Here, to remind you, is the chart I put together during the stimulus debate, showing, among other things, the relative ineffectiveness of tax cuts vs. spending in generating jobs, which is the key to getting the nation out of this recession–the only way that we can rationally hope to start bringing down the deficits:

While some tax cuts are much better than the real stinkers, it’s virtually a given that once Obama starts talking about tax cuts, the GOP is going to start demanding that Bush’s tax cuts be made permanent. Not only–as you can see from the chart–are these about the least helpful tax cuts of all, they are also heavily skewed toward helping the rich and the super-rich.

If you look closely at the chart you will be unsurprised to find that government spending is calculated to provide substantially more “bang for the buck” in creating wealth and jobs. That’s unsurprising because this chart is intended to support a progressive prescription for the economy. Of course it will show government as the answer.

Without arguing the statistical or modeling specifics behind the chart, there is one glaring item that reveals how much magical thinking went into its creation. By far the most “stimulating” actions set forth are “Temporary Increase in Food Stamps”(calculated to create 9,803,333 jobs), “Extending Unemployment Insurance” (9,236,667 jobs), and “Increased infrastructure Spending” (9,010,000 jobs). The closest tax-cutting measure, according to this analysis, in job creation is a “Payroll Tax Holiday” which is estimated to create 7,253,333 jobs. Do you see the problem?

How, exactly, do food stamps and unemployment benefits create jobs? Arguably, spending on infrastructure could create construction jobs on a temporary basis, although that hasn’t proven to be the case with the stimulus bill that was passed. But there is simply no logic to the idea that providing government benefits to the poor and unemployed will serve to create jobs, much less 9 to 10 million of them. That’s just magical thinking.

Rosenberg provides this explanation for the employment fairy (from Mark Zandi of Moody’s Economy.com):

Income support

The House stimulus plan includes some $100 billion over two years in income support for those households under significant financial pressure. This includes extra benefits for workers who exhaust their regular 26 weeks of unemployment insurance benefits; expanded food stamp payments; and help meeting COBRA payments for unemployed workers trying to hold onto their health insurance.

Increased income support has been part of the federal response to most recessions, and for good reason: It is the most efficient way to prime the economy’s pump. Simulations of the Moody’s Economy.com macroeconomic model show that every dollar spent on UI benefits generates an estimated $1.63 in near-term GDP.x Boosting food stamp payments by $1 increases GDP by $1.73 (see Table 2). People who receive these benefits are hard pressed and will spend any financial aid they receive very quickly.

Another advantage is that these programs are already operating and can quickly deliver a benefit increase to recipients. The virtue of extending UI benefits goes beyond simply providing aid for the jobless to more broadly shoring up household confidence. Nothing is more psychologically debilitating, even to those still employed, than watching unemployed friends and relatives lose their sources of support.xi Increasing food stamp benefits has the added virtue of helping people ineligible for UI such as part-time workers.

Whatever the virtues of income support, and even if that support will be quickly spent in the economy, there is no justification for concluding that it will expand the economy. At best, it can stabilize a downturn by maintaining some level of consumer spending. But that does not expand the economy in any way, shape or form, and it certainly doesn’t create jobs an unprecedented level as suggested by Rosenberg.

Indeed, in order to give money to the poor and jobless, the government has to take money fr0m someplace else. Since it doesn’t create anything, the government will either (i) tax those who are working and creating wealth at higher rates, (ii) borrow money, or (iii) print money. Again, these are not wealth producing actions, but instead wealth destroying ones. It is true that, assuming such income support shortens a downturn, tax receipts will eventually outpace the costs of funding those supports. What is not true is that the government benefits will create jobs.

On the one hand, of course, I don’t want to discourage the left from turning on Obama (enemy of my enemy and all that). It just pains me to see it done based on such absurd premises.

How’s that 401(k) working out for you?  Well, if the Obama administration has its way, you won’t have to worry about that any more.

Apparently, you’re too stupid and lazy to be trusted with your own retirement planning. So, what you need is for the government to “urge” you to convert your 402(k) plan to a government annuity.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

TaxProf has a roundup of some useful links concerning this, but here’s the key takeaway:

There literally isn’t enough money in the world to float the T-notes the Treasury must issue in order to prop up our unsustainable spending path.  There are, however, about $3.6 trillion in funds just sitting in 401(k) accounts.  If the government can urge–or force–you to convert your 401(k) into T-note funded annuities, the Treasury can continue to issue those notes to float the government’s deficit.  Essentially, you’ll be converting your retirement funds into an IOU from the government…just like your social security account has already done.

This will allow the Treasury to keep borrowing money–from your retirement–in order to keep issuing more debt that they may or may not be able to pay back to you

Don’t you just love non-falsifiable government claims?

Why here’s one now:

The Obama administration, in its latest progress report on the $787 billion stimulus program, said both the overall economy and employment continued to be in better shape at the end of 2009 than they would have been without the government’s help.

Better shape, hmmm? Wasn’t this the same stimulus which promised it would keep unemployment below 8% if passed? Yet here we are at 10% with no real relief in sight. Wasn’t this the stimulus which was promised to create or save millions of jobs? Even the administration has finally given up making such claims, instead quietly changing the way it makes such determinations and including pay raises and anything even remotely job related on which the money was spent. So when further claims, such as this, are made, they should be taken with a large and skeptical grain of salt:

Though unemployment reached 10 percent at year’s end—two percentage points higher than the peak that the council forecast when the administration proposed the stimulus package to Congress nearly a year ago—the number of jobs was between 1.5 million to 2 million greater in the fourth quarter than it would have been without the recovery plan, the council said.

This is the same council that made the 8% claim and changed the rules for counting “saved and created” jobs. If anything, their claims should be completely disregarded.

This is the stimulus which was claimed to be so necessary to the recovery, yet of the $787 billion signed into law, only $263 billion has been spent. How is that a stimulus? The theory is the government pumps money into the economy as quickly as possible to “stimulate” growth and hiring. Yet this particular bill is structured so that less than half the funds are spent within what most would consider the critical first year? That alone tells you two things about this particular bill:

1. It had little to do with stimulus and a lot to do with pork. In fact, it appears to be a 100% pork bill despite the President’s claims to the contrary. Just because individual earmarks weren’t in the bill doesn’t mean this bill isn’t a compilation of wasteful spending and pet projects. They were simply written up differently than they normally are. There was never any intention of spending this money to jump start the economy as witnessed by the amount spent in the first year and its lack of effect. It can be credibly claimed, in contravention of the administration’s claim, that it hasn’t done anything to stimulate economic growth. Don’t get me wrong, I’m not in favor of the spending that has been done or its continuation, but any objective analysis would make the point that $263 billion in a contracting 14 trillion dollar economy is likely to have little effect if any at all. So far the numbers seem to verify that.
2. Any claims made about the bill’s effect should be viewed very skeptically. In reality, this bill was a spending bill, not a stimulus bill. It was the bill which allowed Democratic legislators (and a good number of Republicans) to spend money on things they’d been unable to get through the body in the past. Again, its structure and the items upon which the money were spent make the argument pretty handily. Its failure to “stimulate” as advertised is precisely why there is talk of a second stimulus. There never was a first.

Whatever recovery has gone on in the economy has been largely a result of factors other than this bill. That includes the positive 3^rd quarter GDP numbers they try to trot out as “proof” of the stimulus’s efficacy. Those numbers were driven by the cash for clunkers program, a program outside the stimulus bill, and were largely illusory. They were illusory because it was “growth” driven strictly by government spending, it was temporary growth because it was simply stealing from future sales, and when all the dust settled, that was quite apparent to those who analyzed the results.

What this present claim is all about is message preparation. These claims, which really don’t stand up to scrutiny at all, are being made now for a reason. The president has a State of the Union address coming up soon and needs some “good news” very badly. That’s why these non-falsifiable claims are being tossed out there now. Establishing these claims and repeating them often enough is done in the hope of having them become “conventional wisdom” by the time the SOTU address rolls around. Then when the President makes these claims, an uncritical press will parrot them, establishing them as “fact” for the administration and a part of the narrative that will be repeated in 2012.

That is how the game is played, folks.

~McQ

Jake Tapper, today, asking Presidential spokesperson Robert Gibbs about the bank tax:

TAPPER: On the fee for banks, without asking for any details, how can you guarantee that this, that this fee, tax, levy, whatever it ends up being, is not passed on to consumers and they take another hit when it comes to Wall Street?

GIBBS: Yeah, well, look, obviously, Jake we’ll have a chance to go through the structure of this. The economic team has worked for quite some time on a structure that will ensure that what taxpayers gave to banks to ensure their safety and security, in a time of crisis, is paid back in full. And I can assure you that is one of the things the economic team has taken into account in the structure.

Unless the “structure” plans to ensure bank fees aren’t raised in any other area to capture the money this “fee, tax, levy, whatever” from the banks, then of course banks are going to pass it on. If the “structure” is going to prevent such a raise in fees anywhere within the bank, then this isn’t a new tax, it’s a government takeover of the banks.

~McQ

I wondered why Arnie was recently extolling the virtues of all things Obama and telling us what a super  job he’s been doing.  It’s about the only transparent thing I’ve seen out of anything to do with government this entire last year:

Facing a budget deficit of more than $20 billion, Gov. Arnold Schwarzenegger is expected to call for deep reductions in already suffering local mass transit programs, renew his push to expand oil drilling off the Santa Barbara coast and appeal to Washington for billions of dollars in federal help, according to state officials and lobbyists familiar with the plan.

If Washington does not provide roughly $8 billion in new aid for the state, the governor threatens to severely cut back — if not eliminate — CalWORKS, the state’s main welfare program; the In-Home Health Care Services program for the disabled and elderly poor, and two tax breaks for large corporations recently approved by the Legislature, the officials said.

Tough beans. California spent its way into this deficit mess, it can cut spending to work its way out of the mess. Joe Sixpack in New Jersey has no responsibility for the profligate tofu eaters in the California legislature that have gotten the “Golden State” in the fiscal shape in now enjoys. And Joe shouldn’t be stuck with bailing them out. Joe’s state has problems of its own.

It is about time that fiscal reality began to dawn not only at a federal level, but at state levels as well. And that means living within a budget and keeping it balanced, just like millions of Americans are required to do on a daily basis. The fact that California has lived beyond its means doesn’t mean the taxpayer, via the federal government, is there to solve the problem when California can’t afford its profligacy anymore.

Bailing out California would also set a horrible precedent.  49 other states facing cuts in services or getting a hand out are going to be in line demanding theirs.  Whether it is 8 billion, 80 billion or 800 billion, the federal government has no business sending money it doesn’t have to a state that so poorly managed its finances. This was the state that was built on liberal ideas. Now they have to face the reality that those ideas cost real money. Money they don’t have. Let them figure it out and live with the results.

And Democrats, if you do decide to bail them out, you’re just adding a another deeply etched line to your electoral tombstone in 2010.

~McQ