Free Markets, Free People

Economics

Stimulus bill costs $746k per job

Washington Watch notes that the Obama Administration put out a paper presumably touting the success of the so-called “economic stimulus” bill. The paper says:

In the first 100 days since President Obama signed the American Recovery and Reinvestment Act into law, we have obligated more than $112 billion, created more than 150,000 jobs and helped communities and tribes in every state and territory. But recovery is more than just a compilation of statistics; it’s the return of hope and optimism about the future that comes with making life better for communities and families across the country. And it’s proof of America’s vast capacity to create real progress in the short term as we emerge from an economic crisis that was years in the making.

Jim Harper of Washington Watch comments:

Well, I feel better already!

For perspective, $112 billion is just shy of $370 per person or $1,150 per U.S. family.

Even more perspective…that’s more than $746,000 per job “created.” The United States has lost almost $2.5 million jobs in the first four months this year, 539,000 in April alone. So let’s be honest here, the “stimulus” bill is having no real impact on the job market.

Juxtaposition

Compare and contrast this rehabilitation effort of Timothy Geitner:

After his hellish opening weeks, Treasury Secretary Timothy Geithner started inviting White House economic officials across the street to his conference room for hours-long working dinners that have helped get — and keep — the whole team on the same page.

[…]

Geithner, a former president of the New York Federal Reserve who once looked like he was floundering in one of the administration’s most scrutinized jobs, is emerging in a new position of strength with the media and the markets, just as he launches President Barack Obama’s high-stakes effort to re-regulate the nation’s financial markets.

[…]

The secretary’s advisers acknowledge that his newfound political standing is tied, in part, to the state of the economy, which is now showing early signs of improvement. But Treasury officials also have updated their playbook after his Feb. 10 speech on financial recovery, which was panned by the press and blamed for a 381-point slide in the stock market.

They decided to “let Tim be Tim” and accepted the fact that his strength wasn’t giving a speech in front of a bunch of flags. Rather, they let reporters see him in off-camera, pen-and-pad settings, where he fielded questions with the confidence that his staff saw behind the scenes. He aced an interview with PBS’s Charlie Rose, thriving in a relaxed setting where he could explain issues at length.

… with this bit of economic reality:

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed’s direct purchase of US Treasury bonds.

Richard Fisher, president of the Dallas Federal Reserve Bank, said: “Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature.”

“I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States,” he told the Wall Street Journal.

[…]

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of “creative destruction”, has been running a fervent campaign to alert Americans to the “very big hole” in unfunded pension and health-care liabilities built up by a careless political class over the years.

“We at the Dallas Fed believe the total is over $99 trillion,” he said in February.

“This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them,” he said.

His warning comes amid growing fears that America could lose its AAA sovereign rating.

I guess since the media tried to talk down the economy for the previous eight years, they may as well try and talk it up now that their boy is in the White House. The shame of it is that as the economy worsens, a lot of people are going to be shocked.

Health Care Is Why We’re Broke?

The more I listen to Obama, the more of an ideologue I realize he is and how willing he is to use any opportunity to “justify” his agenda, even those that don’t fit. For instance:

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: “We are out of money.”

C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades.

This is about as twisted a bit of reasoning as I’ve seen in a while. We’re “out of money” because of “health care decisions?”

What total nonsense. This is a politician using a crisis unrelated to “health care decisions” to push his ideology (i.e. that it is government that is the answer in all areas of life). As Glenn Reynolds says:

“I’ve bankrupted the nation, so now your only hope is to pass my healthcare plan.” That goes beyond chutzpah to the edge of pathological dishonesty. Except, I guess, that it’s not pathological if you get away with it. And so far, he has.

Very true – but at some point, as his favorite pastor likes to say, the chickens have got to come home to roost.

From the same interview:

SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?

OBAMA: No. I think that what you’re seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they’re bringing less tax revenue in. And that’s a painful adjustment, what we’re going end up seeing is lot of states making very difficult choices there..

Painful choices? But for the federal government – unprecedented spending spree. The cognitive dissonance there is mind boggling.

~McQ

GM To Be “Chryslered”

I hesitate to call it bankruptcy when it is really a sham of a bankruptcy. In fact, it is the same sham that Chrysler has undergone:

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company’s labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

Sound familiar? So government will now have 5 of 9 board seats, the union has a huge share of the company and bondholders?

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

That’s the offer made and, as you might imagine, bondholders are resisting this. That, of course, gives the administration the same excuse it used to take Chrysler to bankruptcy under its apparently newly written rules which gave government the lion’s share of ownership.

As you might imagine, not everyone is happy. And since this “bankruptcy” is now being politically managed, more politicians are getting into the act.

For instance, on the subject of cutting Chrysler dealerships:

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Should such legislation pass, you can expect something similar with GM.

And some Democrats aren’t particularly happy either:

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler’s bankruptcy plan and GM’s future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers’ restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

Yup, looks like the political bureaucracy is kicking into high-gear and you can just imagine how well this is going to work out, can’t you? That and the fact that contracts will never be viewed in the same light again have to make you fear for our economic future.

How…stimulating!

Apparently the Fed has decided that their doubling of the monetary base in the last 7 months has done so fantastically, that they’re ready to do more of it.

Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they have already committed to buying, according to minutes from the Fed’s April meeting.

Please pay no attention to the inflation lurking behind the curtain.  Our benevolent overlords have everything under control.  So, why more monetary loosening.

Officials, meanwhile, projected an even deeper recession than they expected three months earlier and a more sluggish recovery over the next two years as labor markets remain under pressure.

Huh.  So much for that “turned the corner’ crap from last month.  But that’s OK.  because, you see, if you’re in the middle of a bursted bubble cused by overly loose monetary policy in the first place, then the way to get back on track is an even looser monetary policy.  That’ll fix you right up, you see.

At least, that’s what the Harvard econo-boys tell us.  And they are, of course, the Best and Brightest.

Meanwhile, the DoL reports that weekly claims for unemployment for last week were revised upwards to 643,000, but this week’s numbers were only 628,500.  So, that’s a nice little downward tick.  Except that we’ve got all those upcoming claims from shutting down car dealerships for Chrysler and GM.  Let’s call that 2,000 dealerships with an average of–I’m just spit-balling, here–25 persons per dealership left unemployed.  Let’s call it 50,000 new claims ahead.

So Will The Federal Government Bail Out California?

Is it too big to fail? Megan McArdle believes the possibility certainly exists (I mean was Arnie really in DC yesterday just to see the sights). Says McArdle:

If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.

But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.

Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.

But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.

My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.

Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.

Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.

~McQ

Meanwhile In California …

The expected happened:

California voters soundly rejected a package of ballot measures Tuesday that would have reduced the state’s projected budget deficit of $21.3 billion to something slightly less overwhelming: $15.4 billion.

The defeat of the measures means that Gov. Arnold Schwarzenegger and the state Legislature will have to consider deeper cuts to education, public safety, and health and human services, officials have said.

Propositions 1A through 1E – which would have changed the state’s budgeting system, ensured money to schools in future years and generated billions of dollars of revenue for the state’s general fund – fell well behind in early returns and never recovered.

The only measure that voters approved was Proposition 1F, which will freeze salaries of top state officials, including lawmakers and the governor, during tough budget years.

Schwarzenegger, however, still doesn’t get it:

In a written statement Tuesday night, Schwarzenegger said that he believes Californians are simply frustrated with the state’s dysfunctional budget system.

“Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions,” the governor said.

In reality it has nothing especially to do with the state’s “dysfunctional budget system”, but instead with the state’s profligate spending which has landed it in overwhelming debt. And the most “constructive solutions” would be to – wait for it – cut spending.

Why is it I have a feeling that such a solution will be mostly absent from whatever CA legislators come up with?

~McQ

Quote of the Day

Although Herbert Hoover is rarely cited when one thinks of “immortal words”, these few paragraphs from Hoover (from James T. Flynn’s “The Roosevelt Myth”, HT: the Heritage Foundation) should certainly give you pause:

In every single case before the rise of totalitarian governments there had been a period dominated by economic planners. Each of these nations had an era under starry-eyed men who believed that they could plan and force the economic life of the people. They believed that was the way to correct abuse or to meet emergencies in systems of free enterprise. They exalted the state as the solver of all economic problems.

These men thought they were liberals. But they also thought they could have economic dictatorship by bureaucracy and at the same time preserve free speech, orderly justice, and free government.

These men are not Communists or Fascists. But they mixed these ideas into free systems. It is true that Communists and Fascists were round about. They formed popular fronts and gave the applause. These men shifted the relation of government to free enterprise from that of umpire to controller.

Consider the “car czar”. Look at the Chrysler board. Imagine government run health care. Cap-and-trade. Etc.

After that bit of reality from today, read Hoover’s further observations:

Directly or indirectly they politically controlled credit, prices, production or industry, farmer and laborer. They devalued, pump-primed and deflated. They controlled private business by government competition, by regulation and by taxes. They met every failure with demands for more and more power and control … When it was too late they discovered that every time they stretched the arm of government into private enterprise, except to correct abuse, then somehow, somewhere, men’s minds became confused. At once men became fearful and hesitant. Initiative slackened, industry slowed down production.

Look around you and tell me what you see. The future? It’s to be found in Hoover’s words from 1940.

~McQ

Tax The Rich? Watch The Inevitable Happen

Many states have decided the financial relief they need to make up for their profligate spending sprees of the recent past and their present budget short-falls is to be found in raising the taxes of their “rich” citizens.

With states facing nearly $100 billion in combined budget deficits this year, we’re seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the “fair” way to close his state’s gaping deficit.

But there’s a problem with the plan. As the WSJ points out, these citizens and their money are mobile and while they may prefer to live in the states listed above, they simply don’t have too. And with the plan to significantly increase taxation for them, now there’s a good reason not too:

The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Notice that the exodus from the high-tax states to low-tax states with more opportunity has been significant since 1998. But now with the plan to increase taxes again on the “richer”, high-tax states are providing even more of a financial incentive for those in higher income brackets to leave them and move to low or no-income tax states. While such a relocation might have had marginally positive financial results for those leaving in the past, high-tax states are about to make relocation for financial reasons a no-brainer. And states like California and New York can hardly afford to run off the class of tax payer that presently pays the largest percentage of state taxes.  But, with alternatives available, that’s precisely what they’re getting ready to do.

And when that happens, who ends up making up for the state’s shortfall?

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

Heh … what a surprise.

~McQ