It’s been interesting to watch the left attempt to paint the right as obsessive about tax-cuts, to the exclusion of any other method of stimulating the economy. Josh Marshall called it “tax cut monomania”. Of course careful readers who’ve followed this debate know that’s absolute nonsense. The Republicans have bought into the premise that some level of government spending is necessary, except that it should be tightly targeted and provide immediate stiumlus.
Instead they’re faced with this bloated piece of garbage legislation derisively called the “2009 Spend Your Grand Children and Great Grand Children into Debt bill”.
I noted Marshall’s appeal to authority (the sacred macroeconomic texts) yesterday and his claim that macroeconomists couldn’t exactly run controlled experiments to prove their point. But upon reflection, I thought, that’s not precisely true. While it may not fit the classic definition of a “controlled experiment”, Japan’s 2 decade long struggle to revive its economy is about as close as we’re going to get.
And you know what – the lessons learned from that say we’re about to commit the same mistakes they did. President Obama claimed, last night, that spending on infrastructure was the way to go – that it would create jobs and stimulate the economy. But Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, and it did nothing of the sort. Nope, paving over Japan accomplished little in terms of stimulating a down economy.
In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.
In the United States, it has also led to calls in Congress, particularly by Republicans, not to repeat the errors of Japan’s failed economic stimulus. They argue that it makes more sense to cut taxes, and let people decide how to spend their own money, than for the government to decide how to invest public funds. Japan put more emphasis on increased spending than tax cuts during its slump, but ultimately did reduce consumption taxes to encourage consumer spending as well.
Trade and tax cuts along with spending targeted at banking system was how Japan finally pulled out of its doldrums. We already have 700 billion aimed at our banking system, with only half of it spent. That leaves what, if you’re interested in not repeating the mistakes of an economy which has already gone thorugh this sort of thing?
Well it’s certainly not a huge NRA style spending spreed on public works. Japan spent trillions on public works and infrastructure and it didn’t do what all the economists said it would do. Instead Targeted spending on the banking system, tax cuts and the development of trade turned the tide.
Given the present bill it appears we’re going to “Buy American”, refuse tax cuts and spend hundreds of billions on roads and bridges. The Republicans objections to this mammoth pork and relief fest have nothing to do with “tax cut monomania”. It has much more to do with understanding the lessons learned from the Japanese experience and not wanting to repeat them. Democrats, in their arrogance, seem to believe that they can do the same thing as Japan but have a different outcome.
Well, after Democratic assurances that the Fairness Doctrine wasn’t something they planned to pursue, Michigan Democratic Senator Debbie Stabenow muddied those waters again. Appearing on the Bill Press Show she had this to say:
BILL PRESS: Yeah, I mean, look: They have a right to say that. They’ve got a right to express that. But, they should not be the only voices heard. So, is it time to bring back the Fairness Doctrine?
SENATOR DEBBIE STABENOW (D-MI): I think it’s absolutely time to pass a standard. Now, whether it’s called the Fairness Standard, whether it’s called something else — I absolutely think it’s time to be bringing accountability to the airwaves. I mean, our new president has talked rightly about accountability and transparency. You know, that we all have to step up and be responsible. And, I think in this case, there needs to be some accountability and standards put in place.
BILL PRESS: Can we count on you to push for some hearings in the United States Senate this year, to bring these owners in and hold them accountable?
SENATOR DEBBIE STABENOW (D-MI): I have already had some discussions with colleagues and, you know, I feel like that’s gonna happen. Yep.
Really. “Accountability”? What sort of “accountability” is Sen. Stabenow talking about?
What she means is she’d like to see the bane of the Democrats, the one venue that regularly frustrates their efforts, out of business or seriously handicaped.
The arguments for the previous Fairness Doctrine were pitifully inadequate and certainly an infringement of free speech, but radio was a dominant medium at the time and that’s how supporters justified their attempted control of what could or couldn’t be said.
Now, however, even those marginal arguments are obsolete. The choices of media have expanded exponentially. The internet has changed the whole game. To pretend that “standards” and “accountability” must be imposed on a very small part of this media spectrum while ignoring the rest is laughable.
So this comes down to power and control. And it requires a willingness to ignore the tenets of liberty and heritage of free speech embodied in the Constitution. I have no doubt that Democrats are more than willing to do exactly that in their effort to consolidate their power.
If you recall, all of us here at QandO had a rough time understanding how the government was going to pay for something when it didn’t know the value when it announced it was going to buy distressed bank assets.
Common sense says you don’t buy something on the way down, but instead wait for it to bottom out before jumping in. As we’re now learning, the government lost between 64 and 78 billion dollars when it doled out that first quarter of a trillion dollars:
According to the testimony of Harvard Professor Elizabeth Warren, who is chairing the Congressional Oversight Panel for TARP, Treasury doled out $254 billion for bank assets worth only $176 billion – an overpayment of $78 billion of taxpayer funds. She has also noted that Treasury has not cited any reason for the overpayment. According to the Congressional Budget Office’s independent estimate released a month ago, Treasury overpaid $64 billion.
This is the same institution that now is going to spend 900 billion of borrowed, taxed or printed money. Apparently everyone who is for doing that believe the outcome will be different this time.
Congress clueless about retreats
Based on the stimulus discussion now underway, I think the last two words are redundant.
(Update noon CST – Sorry, I was reading something on Commentary Magazine, saw the “Commentary” in the headline of this article, and got momentarily confused about what I was reading. Bryan Pick was kind enough to tip me off. Thanks, Bryan.)
Stephen Spruiell and Kevin Williamson over at NRO have put an excellent “stimulus package” summary together.
I’m going to give you an condensed summary from their work. Make sure you read the whole thing.
$50 million for the National Endowment for the Arts
$380 million in the Senate bill for the Women, Infants and Children program
$300 million for grants to combat violence against women
$2 billion for federal child-care block grants
$6 billion for university building projects
$15 billion for boosting Pell Grant college scholarships
$4 billion for job-training programs, including $1.2 billion for “youths” up to the age of 24
$1 billion for community-development block grants
$4.2 billion for “neighborhood stabilization activities”
$650 million for digital-TV coupons; $90 million to educate “vulnerable populations”
POORLY DESIGNED TAX RELIEF
$15 billion for business-loss carry-backs
$145 billion for “Making Work Pay” tax credits
$83 billion for the earned income credit
STIMULUS FOR THE GOVERNMENT
$150 million for the Smithsonian
$34 million to renovate the Department of Commerce headquarters
$500 million for improvement projects for National Institutes of Health facilities
$44 million for repairs to Department of Agriculture headquarters
$350 million for Agriculture Department computers
$88 million to help move the Public Health Service into a new building
$448 million for constructing a new Homeland Security Department headquarters
$600 million to convert the federal auto fleet to hybrids
$450 million for NASA (carve-out for “climate-research missions”)
$600 million for NOAA (carve-out for “climate modeling”)
$1 billion for the Census Bureau
$89 billion for Medicaid
$30 billion for COBRA insurance extension
$36 billion for expanded unemployment benefits
$20 billion for food stamps
$4.5 billion for U.S. Army Corps of Engineers
$850 million for Amtrak
$87 million for a polar icebreaking ship
$1.7 billion for the National Park System
$55 million for Historic Preservation Fund
$7.6 billion for “rural community advancement programs”
$150 million for agricultural-commodity purchases
$150 million for “producers of livestock, honeybees, and farm-raised fish”
$2 billion for renewable-energy research ($400 million for global-warming research)
$2 billion for a “clean coal” power plant in Illinois
$6.2 billion for the Weatherization Assistance Program
$3.5 billion for energy-efficiency and conservation block grants
$3.4 billion for the State Energy Program
$200 million for state and local electric-transport projects
$300 million for energy-efficient-appliance rebate programs
$400 million for hybrid cars for state and local governments
$1 billion for the manufacturing of advanced batteries
$1.5 billion for green-technology loan guarantees
$8 billion for innovative-technology loan-guarantee program
$2.4 billion for carbon-capture demonstration projects
$4.5 billion for electricity grid
REWARDING STATE IRRESPONSIBILITY
$79 billion for State Fiscal Stabilization Fund
You add it up. Estimates say that only 17% of these funds would be spent in the first year.
No – pork and relief.
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.