Free Markets, Free People
Just go watch, and pay particular attention to the list of side effects:
I’d say the biggest difference between two kinds of “stimulus” is who gets screwed.
I‘ve just been watching Pres. Obama speaking to the Democrats at their luxury retreat. He had a lot of red meat for them. He also spoke passionately about the immediate need for the stimulus package, telling them–and the nation–that passing the bill is absotively necessary. If we don’t pass it, he asserted, millions will be thrown out of work, the economy will collapse, blood and flaming frogs will rain down from the sky, etc., etc., etc.
But what’s even more scary is that the Congressional Budget Office, Congress’ non-partisan budget analysts, has announced that this stimulus bill will do pretty much the reverse of what it’s designed to do.
President Obama’s economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.
CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.
Apparently the president isn’t buying it, and the Democratic majority in Congress has decided that their own budget analysts are full of sh–shamefully inadequate analysis. So,we’re being told by the politicians that their bill is necessary to prevent economic collapse, while the professionals they employ tell us that the bill is worse than inaction.
Who do you beleive?
UPDATE: The CBO’s web site is back up again. The text of the letter states:
Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output), CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. H.R. 1, as passed by the House, would have similar long-run effects.
In other words, 2019 is the year that the bill comes due, and the crowding out effect begins to become a drag on the economy, presumably until that bolus of debt is paid off. In other words, it becomes a long-term–and increasing–drag on GDP growth, as the crowding out effect overrides the increasingly smaller return, if any, from the stimulus.
Dean Baker at American Prospect has an uninformed hissy fit over the amendment GA Sen Johnny Isakson offered to the pork, er stimulus bill. The amendment gives a $15,000 tax credit to those buying a principle residence – note that, principle residence – next year. Baker is sure it is the house flipper’s amendment.
And this is before we get to any gaming. It’s hard to see why tens of millions of people wouldn’t figure out a way to buy a house from a friend or relative and get their $15k. If we can get one-third of the country’s homes to change hands (lots of jobs for realtors) that would be good for $375 billion.
It would have been helpful if reporters had talked to an analyst who could have explained these points for readers.
As much as I criticize the media, someone needs to tell Baker that this information is being and has been reported (I heard it explained when the amendment was first discussed). Below is one example:
The U.S. Senate on Wednesday unanimously approved an amendment to the economic stimulus bill by U.S. Senator Johnny Isakson, R-Ga., that gives a $15,000 tax credit to anyone who buys a home in the next year.
Isakson’s amendment would provide a direct tax credit to any homebuyer who buys any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.
The amendment would allow taxpayers to claim the credit on their 2008 income tax return. It also seeks to prevent misuse by only allowing purchases of a principle residence and by recapturing the credit if the home is sold within two years of purchase.
Pretty clear to me.
That dispensed with, here’s the real reason the left is so up in arms with this amendment:
Somehow, Isakson has this thing costing just $19 billion. Let’s break the Washington rules and try a little arithmetic. Even with weakness in the housing market, it is still virtually certain
that we will sell close to 5 million homes in 2009. The overwhelming majority would qualify for the full credit. So, we get 5 million times $15,000. That sounds a lot like $75 billion.
That’s right – this would put more money in people’s pockets and make less available for the government to spend on dog parks and Frisbee golf courses.
But the ultimate real world cost of this measure has been disputed, with some critics predicting that it would cost much more, given the expected levels of housing sales this year.
Turns out the critics may have been right. The nonpartisan Joint Committee on Taxation has just sent a letter to Chuck Schumer, who’s on the Finance Committee, responding to Schumer’s request that the Committee score an estimate of the measure’s cost.
The total price estimated by the Committee? $35.5 billion — double the original cost, says the letter, which was sent our way by Schumer’s staff.
That’s kind of a big deal, and could actually alter the ultimate cost of the overall bill, potentially creating more complications as this gargantuan measure lurches fitfully towards passage.
Anyone – do you believe that all of the estimates contained in this “gargantuan measure” are dead on? That, among 900 billion of government spending, there will be no cost overruns, budget overruns or cost underestimates?
The problem, as stated, is it “costs” the government by putting money precisely where it belongs – in the pockets of the citizens.
And that’s because most of them believe, as Robert Reich does, that government is the only answer:
Regardless of your ideological stripe, you’ve got to see that when consumers and businesses stop spending and investing, there’s only entity left to step into the breach. It’s government. Major increases in government spending are necessary, and the spending must be on a very large scale.
Notice the smuggled premise – that consumer and business spending can’t be spurred by any other means than government spending. Of course that’s nonsense. And the Isakson amendment is one of many ways that can be done. Other obvious means would be a withholding tax cut (or suspension). That’s an instant stimulus.
The CBO says the debt being incurred through this bill will crowd out private investment over the coming years. The key to recovery is private investment which leads to business expansion which leads to jobs.
What part of that don’t the Democrats understand?
Well, if you read Joshua Holland, most of it:
And the GOP’s approach is based on the theory that a “rising tide will lift all boats.” A simple question: how’s that theory been workin’ out for ya?
Mr. Holland, look around you and how you and others live. Then take a trip to, oh, I don’t know, China. Tell us how those boats floated in the past as compared to how they’re floating now. Or India. Or Poland. Or the Czech Republic. Etc.
Many progressives thought that Pres. Obama had abandoned them after the election, but I’ll bet they’re singing a different tune today:
President Barack Obama on Wednesday imposed a $500,000 cap on senior executive pay for the most distressed financial institutions receiving taxpayer bailout money and promised new steps to end a system of “executives being rewarded for failure.”
The limit would apply to top-paid executives at the most distressed financial institutions that are negotiating bailout agreements with the federal government.It also would apply to other banks that receive aid, but they could get around the limits by publicizing to shareholders plans to exceed the salary cap.
The “most distressed financial institutions” will not include those which have already received TARP funds, such as AIG and Citigroup. However, those firms are already subject to caps on executive pay under the statute authorizing the bailout last Fall. And because these companies have all come to the government “with hat in hand,” in Obama’s words, not too many people outside of Wall Street are upset. Yet, Obama does not seem content to stop with these “distressed” companies:
The administration also will propose long-term compensation restrictions even for companies that don’t receive government assistance, Obama said.
Those proposals include:
• Requiring top executives at financial institutions to hold stock for several years before they can cash out.
• Requiring nonbinding “say on pay” resolutions — that is, giving shareholders more say on executive compensation.
• A Treasury-sponsored conference on a long-term overhaul of executive compensation.
This is exactly the sort of creeping socialism that many of us were worried about with Obama’s election. Mind you, McCain would not have been much better, but this sort of heavy handed government interventionism would not have been proposed by his administration, much less tolerated by most Republicans in Congress.
Obama’s proposals are somewhat tolerable with respect to the bailed out companies since they are being funded with tax payer dollars. If these companies are going take the money, then they should have to abide by whatever rules are attached to the funding no matter how onerous. But trying to impose such draconian restrictions on companies that are not being bailed out is nothing more than a direct assault on freedom.
Even if you think that no executive should be paid more than $X more than the lowest paid employee of a firm, or are just angry at the seemingly wasteful and lavish life styles of Wall Street bankers, you still have to find this sort of proposed legislation abominable. Why? Because no matter what you think about executive compensation, the owners and operators of these companies think otherwise. It’s their decision to make about how their companies are run and how well their employees are paid. Unless, of course, you would just fine and dandy with some government bureaucrat deciding that you are overpaid for your position, and that no matter how hard you work you can never make more than $Y.
The only people who would ever agree to such slavery are those who have no ambition and little, if anything, to offer the world in terms of work product. They are not the people who invent the items, create the ideas, or provide the services that make our lives better over time. That is not to say that their efforts are not appreciated, nor that they shouldn’t be rewarded. But neither should we base the engine of wealth creation on their hopes and dreams of sinecure.
Beyond the egregious assault on freedom these proposals represent, there is also a huge question as to their efficacy, regardless of whether the firms are troubled or not (my emphasis):
Compensation experts in the private sector have warned that intrusions into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector’s recovery. They also argue that it could set a precedent for government regulation that undermines performance-based pay.
“One of the big questions is whether it will make it more difficult to recruit and retain executives at these companies,” said Claudia Allen, chair of corporate governance at the Chicago-based law firm of Neal, Gerber & Eisenberg.
The $500,000 cap “is a very tight limit,” she said.
Timothy J. Bartl, vice president and general counsel for the Center On Executive Compensation, said the president’s actions are a unique situation given the government’s role bailing out troubled institutions.
“We do not view it as something that ought to be extended beyond this circumstance,” he said.
I don’t think there’s any legitimate doubt that these will be the effects. Indeed, here are some of the reactions to Obama’s proposals:
Goldman Sachs said yesterday it wants to repay $10 billion it got from Treasury under the TARP to signal the firm is healthy and to escape limitations that came with that infusion of money. “Our financial condition is sound and, subject to approval from regulators, we hope to repay TARP money as soon as practicable,” said Lucas van Praag, a spokesman for New York- based Goldman Sachs.
JPMorgan CEO Jamie Dimon said Feb. 3 that the firm didn’t need capital and didn’t ask for TARP funding. The lender accepted the $25 billion it received from the first capital injection at the request of the government and to help stabilize the banking system, he said.
Goldman has to get permission to repay the government? Does that make sense? Only if the reason the funds were distributed in the first place was to give the federal government control over the market place. I think that’s exactly what Bush (“I’ve abandoned free-market principles to save the free-market system”) and Paulsen had in mind with TARP, and I think Obama is prepared to carry the ball even further into socialist territory.
As far as retaining talented executives, why would any of them stay? If you were making $10 Million per year including your bonuses (not uncommon), why would you stay somewhere that’s forcing you take a 95% pay cut? Of course, many will say good riddance to bad rubbish, and perhaps their right. It’s not like a firm that goes crawling for a federal handout was performing all that well. Except that (a) it’s far from clear that bad management led to the current crisis (although, surely that had something to do with it), and (b) even if it were clear, not every executive or potential executive was responsible. If you are a rising star in your investment bank who has put in exhaustingly long hours to get ahead in hopes of a big payday in the future, why would you stick around where you know your options are limited? These are very smart, industrious and capable people. There are plenty of places where they can go and not be subject to such pay strictures, and that is where they will end up.
Moreover, a part of the proposed regulations practically eliminates the fabled “golden parachutes” for executives:
Obama said that massive severance packages for executives who leave failing firms are also going to be eliminated. “We’re taking the air out of golden parachutes,” he said.
This displays a fundamental misunderstanding of what golden parachutes are. Contrary to popular belief, they are not generous giveaways to failed executives, but instead incentives for failed executives to get out of the way and allow new management. Without these sorts of incentives, management becomes entrenched and complacent. If a proposed takeover threatens to take away the goodies they can vote themselves, then they will forego such proposals and keep cashing in. In order to align management’s interests with the shareholders, golden parachutes were introduced to incentivize firm managers to sacrifice their jobs when the best interests of the company warrant it. Since one of the major problems that everyone seems to have with Wall Street is the failure of effective management, one would think the new rules would make it easier to bring in new blood, not harder.
But none of that matters to Obama:
Mr. Obama said the cap strikes the right “balance” between fair compensation and proper stewardship of taxpayer funds. “This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset –and rightfully so–are executives being rewarded for failure, especially when those rewards are subsidized by U. S. taxpayers.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy — and I will not tolerate it as President.”
Again, it’s hard to generate much sympathy for executives who’ve come begging to Washington. But at the same time, what point is there to heavy handed measures that don’t do anything more than satisfy some people’s jealousy and outrage? Shouldn’t these proposals be designed to put people back to work?
Over at The Corner, there’s a discussion going on about medical records, prompted by this sentence in the “stimulus” plan:
“Computerizing every American’s health record in five years, reducing medical errors and saving billions of dollars in health care costs.”
There are the usual (and valid) privacy concerns. But Iain Murray goes further, and wonders:
I’m not sure why insurance companies haven’t insisted on it, but my guess (and I stress it is a guess) would be some regulations related to privacy, which was the source of the AMA and ACLU’s opposition in the past.
From someone sitting inside the world of healthcare software, perhaps I can enlighten things a bit. Privacy is only one of a host of challenges. A bigger obstacle is the difficulty involved. Creating the software that manages patient data electronically is, to put it bluntly, beyond the capabilities of almost all software developers. It’s really, really hard.
Here are some of the challenges in creating such software:
1. The data is very complex. It’s not just numbers and text; it includes all kinds of media, which needs to be interpreted and annotated.
2. The data evolves rapidly over time. New tests are constantly being created.
3. How the data is interpreted varies rapidly over time. Today’s rule might be “you need a prostate exam if you’re over 50 and blah, blah”, but a cheaper, less invasive test next year might mean it changes to “you need a prostate exam if you’re over 40, period.”
4. The users are very difficult to please. Doctors are the most difficult users I’ve worked with in an entire career of software development. They won’t sit still for two weeks of training. If it’s too hard to use, they just won’t use it. They’ll keep using paper. (Given the responsibilities with people’s lives they have, that’s understandable.)
5. There are laws (HIPPA) concerning privacy that are difficult to design for. The rules are not prescriptive, so you don’t really know if you have satisfied the law until some auditor tells you whether you have.
6. Existing systems are very fragmented, and typically include only a small minority of information such as prescriptions. But that data must still be brought in. So transitioning to a new system is very, very hard because all kinds of weird data must be imported. That transition has to be right; errors introduced during transition would be a huge legal risk.
I’m not sure it was even possible to satisfy all these constraints with technology until the very recent past. We now have much better technology for user interfaces, and better technology for transporting records around. But it still takes extreme architectural and design skills to create a system that can incorporate entirely new types of data and rules by clinicians without the involvement of a programmer.
That means in particular that this can’t be a big government job. The IRS and their four billion dollar debacle showed the problems government has with creating large systems. I simply don’t think any government effort could attract and keep the talent needed for this task.
Even private entities in the healthcare world have trouble with complex systems. HCA Healthcare attempted to write a next-generation patient accounting system, and wrote off some $130 million, and I’m pretty sure the actual amount of money spent (on a system that was thrown away) was much higher than that.
It’s easy for liberals, and even some “compassionate conservatives” to see the opportunity for saving lives and saving money, and just want to pass a law to make it happen. I don’t think I have to tell the people who frequent this site why that’s a bad idea. We could end up wasting tons of money.
But there’s a potential outcome that’s even worse. If an inadequate, buggy, brute force, low tech system were rushed into being, and its use was mandated, that would block the adoption of an innovative, more modern, better system that could be developed later. We would effectively be frozen into using that system, just as the air-traffic control system was frozen on old, obsolete technology for decades.
To sum things up, there is enormous opportunity to improve healthcare by applying technology to clinical patient data. But it’s a huge challenge too. And the more government tries to push it before it’s ready, or to command it into being the more likely that the potential won’t be reached.
The Democrats just couldn’t bring themselves to eliminate the “Buy American” provison of the stimulus bill. They owe Big Labor and I”m sure Big Labor reminded them of that prior to the vote:
On another contentious issue, the Senate softened a labor-backed provision requiring that only U.S.-made iron or steel used in construction projects paid for in the bill. A move by Sen. John McCain, R-Ariz., to delete the so-called Buy American requirement failed, 31-65.
But with Obama voicing concern about the provision, the requirement was changed to specify that U.S. international trade agreements not to be violated.
Read that last line carefully. How in the world does keeping the “Buy American” requirement not violate US international trade agreements?
Hope and change.
The promises are going faster than a pizza at a Weight Watcher’s Convention.
The Promise: Obama pledged during his campaign that he would give the public five days to review a bill before he signs it.
Sunlight Before Signing: Too often bills are rushed through Congress and to the president before the public has the opportunity to review them. As president, Obama will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days.
The Reality: Broken with the 2nd bill he signed.
The House gave final approval on Wednesday to a bill extending health insurance to millions of low-income children, and President Obamasigned it this afternoon, in the first of what he hopes will be many steps to guarantee coverage for all Americans.
5 days? He didn’t even wait 5 hours.
Hope and change.
This circus needs a couple of more clowns:
When retired Marine Gen. Anthony Zinni told the Washington Times that he was offered the job of U.S. ambassador to Iraq before being passed over in favor of diplomat Christopher Hill, he did not say that one of the outrages of the experience was that his friend of 30 years, fellow former Marine Corps commandant and now national security advisor James L. Jones, had offered him the job, and then failed to tell him when the decision was changed.
“Jones had called me before the inauguration and asked if I would be willing to serve as ambassador to Iraq or in one of the envoy jobs, on the Middle East peace process,” Zinni told Foreign Policy. “I said yes.”
“Then two weeks ago, Jones called,” Zinni continued, “and said, ‘We talked to the secretary of state, and everybody would like to offer you the Iraq job.’ I said yes.
“The president called and congratulated me,” Zinni said.
Sounds like a done deal, doesn’t it? And Zinni, who was a staunch Obama supporter and harsh critic of the Bush administration’s conduct of the Iraq war thought it was too. In fact, he even met with Hillary Clinton, and again, everything seemed on track.
Then he didn’t hear from anyone for a week. He finally reached Jones one night and Jones told him, ‘We decided on Chris Hill.’”
Needless to say, Zinni was less than pleased and, when offered the ambasadorship to Saudi Arabia, told Jones to stick it where the sun doesn’t shine.
So trying to figure out who the “we” is in “we decided on Chris Hill” I happened to read a piece by Michael Goldfarb at the Weekly Standard.
I just had a conversation with one Republican who speculated that Richard Holbrooke may have been at the center of the current mess over who will serve as U.S. ambassador in Iraq. According to the scenario he laid out, despite Jones having offered the job to Zinni — an offer from one retired four-star to another — and Clinton having confirmed the offer, Holbrooke interceded on behalf of his protege, Chris Hill, urging Clinton to reserve the Iraq post for someone who had spent a career in the foreign service.
You just knew Clinton was at the bottom of this somewhere. And no surprise that Holbrooke is in the middle of it too. Nice. Essentially tell a guy he has the job and then avoid him for a week. Real class.
If you’re wondering what the excuse is going to be when they’re finally asked to explain it, well, here it is:
[T]he former senior official said, it might also have been problematic that until the end of 2008, Zinni had been executive vice president of defense contractor Dyncorp, which has hundreds of millions of dollars worth of business in Iraq. “If I was a responsible senator, I would scream about having the number two Dyncorp official” as ambassador to the country where it’s making so much money, the former official said.
How could a ‘responsible Senator’ scream about anything after putting a tax cheat in the Treasury post? They were also on the verge of puttin one into HHS had he not withdrawn.
Another embarrassment for the Obama administration (created by Hillary Clinton – and mark my word, this won’t be the last), which is becoming quite adept lately at creating them.
Hope and change.
Yesterday, President Obama expressed outrage at Wall Street’s “excesses” and said he would cap the salaries of CEOs in institutions getting federal bailout money to $500,000 a year. If that isn’t absurd enough:
Adding to the outrage was a flurry of reports that after taking taxpayer rescue funds, some big banks were still planning to purchase corporate jets, planned executive junkets to Las Vegas and Monte Carlo, or had spent millions of dollars on office renovations.
Can’t have that – well, except if you’re the Democrats:
The House Democratic Caucus spent more than $500,000 in taxpayer money over the past five years for its annual retreats at resorts in Pennsylvania and Virginia.
On Thursday, Democrats will head to the Kingsmill Resort and Spa in historic Williamsburg, Va., for the three-day planning powwow. The resort boasts multiple championship golf courses, a full-service spa and six restaurants.
And guess who’s jetting in to say “hi”:
Tonight, Obama takes his first trip as president on Air Force One for a one-day “out and back excursion” to the House Democratic Caucus retreat at the Kingsmill Resort and Spa in Williamsburg, Va.
To be fair, the Republicans had their retreat as well. But the Republicans aren’t carping about executive pay and company junkets at the presidential level, are they? And don’t forget about the recent Democratic corporate junket with Citi.
What, there’s no place in DC in which the Dems could “retreat” to do any of this?
If a President is going to insist on box lunches and Day’s Inns for others, it might be wise to look at cutting back on a few things himself (like no more $100 a pound Wagyu beef?). But that’s leadership. And leadership is usually developed throughout life by doing things, not talking about them. So turn down those thermostats, America – while they grow orchids in the Oval office.
Hope and change.
Marshall’s premise is that we are, without a doubt, headed for the “Greatest Depression Ever” if Republicans don’t just capitulate and spend a trillion bucks on whatever it is the Democrats say we should spend it on.
The discussion of what to do on the Democratic side tracks more or less with textbook macroeconomics, while Republican argument track either with tax cut monomania or rhetorical claptrap intended to confuse. It’s true that macro-economics doesn’t make controlled experiments possible. And economists can’t speak to these issues with certainty. But in most areas of our lives, when faced with dire potential consequences, we put our stock with scientific or professional consensus where it exists, as it does here. Only in cases where it goes against Republican political interests or economic interests of money-backers do we prefer the schemes of yahoos and cranks to people who study the stuff for a living.
The link, if your wondering (or even had to wonder) is to Paul Krugman.
So let’s recap. Only the sacred texts hold the answer. But it’s also true that “macro-economists” can’t conduct “controlled experiments”. And it is also true that economists can’t speak to these issues with certainty.
But, by George, we should listen to them anyway. And certianly not to Republican “cranks” and “yahoos” who only have the interests of “money-backers” at heart and are truly only opposing this for political gain.
No word from Marshall as to why a Senate of 57 Democrats and 2 Independents caucusing with the Dems can’t seem to get this passed, but assuredly the reason is the Republicans and their repudiation of the sacred texts.
And correct me if I’m wrong (speaking of controlled experiments), but the last time we did the Paul Krugman macro thing in the ’30s, the results were less than stellar.
Of course, at some level, why would Republicans be trying to drive the country off a cliff? Well, not pretty to say, but they see it in their political interests. Yes, the DeMints and Coburns just don’t believe in government at all or have genuinely held if crankish economic views. But a successful Stimulus Bill would be devastating politically for the Republican party. And they know it.
Obviously Marshall hasn’t paused long enough in his rant to take a breath and realize that the stimulus package is going to pass in some form. What he’s whining about, and casting aspersions over, is the fact that the Senate Republicans (and the House Republicans as well) refused to bow at the altar of the the newly annointed and take that package of bacon without checking to see if it was spoiled. And besides, if the Republicans only have the interests of “money-backers” at heart, I’d be pleased to hear an argument which logically supports their desire to “driv[e] the country off the cliff” economically.
Yup, doesn’t resonate with me either.
If the GOP successfully bottles this up or kills it with a death of a thousand cuts, Democrats will have a good argument amongst themselves that Republicans were responsible for creating the carnage that followed. But the satisfaction will have to be amongst themselves since as a political matter it will be irrelevant. The public will be entirely within its rights to blame Democrats for any failure of government action that happened while Democrats held the White House and sizable majorities in both houses of Congress.
The public, of course, is showing much more sense than Marshall, with support for this massive mistake dropping to 37% according to Rasmussen.
And, to be clear here, if (and when) the bill does pass (since it is clear that Marshall hasn’t figured that out yet – it isn’t “if” but “when and with what”) then Republicans will be able to hold Democrats responsible for creating the debacle that follows, correct?
So either way – the failure to pass it or the responsibility for the failure that occurs when it passes – rest in the lap of Democrats.
Works for me.
Hope and change.