Last Build Date: Fri, 10 Apr 2009 00:30:38 -0600Copyright: Copyright 2009
Fri, 10 Apr 2009 00:30:38 -0600
Even its harshest detractors have to admit that the National Security Act did what it said; TARP is one the great misnomers in U.S. government. So far, the program has had nothing to do with troubled assets and has been used for purposes far afield of the justification -- getting such assets off the balance sheets of the banks -- presented to Congress when it passed last fall.
How many legislators thought that in supporting TARP they were giving the federal government the power to bail out the auto industry, let alone fire a CEO and effectively run companies? When word came down in October that GMAC, the financial arm of General Motors, was considering becoming a bank holding company to get TARP funds, it seemed a violation of the spirit of the law. But GMAC needn't have bothered. Through TARP, government funds went directly to GM and Chrysler, even after Congress declined to authorize them.
As he was using the leverage created by TARP to fire GM's CEO, Pres. Barack Obama guaranteed warranties for GM and Chrysler cars. He set up special warranty accounts -- funded, naturally, with TARP dollars. TARP is an endlessly flexible slush fund that has given the federal government warrant to intervene in the private sector however it pleases.
A lawlessness has inhered in TARP since Bush Treasury secretary Henry Paulson sold it to Congress under essentially false pretenses. The Obama administration continues in the same tradition. The Washington Post reports that the administration will use middlemen to funnel TARP funds to certain financial firms -- explicitly to evade congressional pay restrictions on firms' receiving the money directly.
The administration gets to decide not only who gets TARP funds and on what basis, but whether firms can give the money back. In a meeting with bankers at the White House, Obama told those bank CEOs wanting to return federal dollars that they couldn't yet. The administration is on the verge of extending TARP funds to life-insurance companies, the latest sector of the economy agitating for government largesse. And TARP funds will contribute to the administration's $1 trillion public-private plan to remove toxic assets from the banks, a plan structured to do a naked bootleg around any need for congressional approval.
The last time we had a financial crisis, during the savings-and-loan meltdown in the late 1980s, Congress debated, modified, and passed the Bush administration's plan for what became the Resolution Trust Corp. In the era of TARP, no such legislative signoff on the specifics of a complex, wide-ranging rescue scheme is necessary.
Whatever he thinks of Obama's policies, former vice president Dick Cheney should be delighted as an advocate of executive power. Obama has pocketed, in fact or in theory, all the presidential war powers defended by Pres. George W. Bush, while expanding with relish the executive's role in the economy. In Obama, the national-security state has met the TARP state.
The national-security state is necessary given America's preeminent global role. And some sort of rescue had to pass during last fall's financial panic. But TARP has become a disgraceful transgression of democratic accountability and the wedge for a retrograde, highly politicized industrial policy. Nothing good can come from the TARP state.
Tue, 07 Apr 2009 00:30:20 -0600
North Korea's diplomatic and economic strategy for two decades has been to engage in spectacular acts of international malfeasance to bully and cajole the world into concessions and aid. In between provocations, Pyongyang has promised several times over to abandon its nuclear program. It has never truly given it up, lest it lose its most prized bargaining chip.
As soon as the U.N. Security Council passes another ineffectual resolution regretting the defiance of its last ineffectual resolution (assuming it can manage even that), North Korea knows it will eventually find the Obama administration back at a negotiating table for the charade's next act. Kims, father and son, have managed the Hermit Kingdom's relations with the world with a perverse brilliance.
The meme in the press was how the test launch made Obama's disarmament speech all the more "urgent." It really makes it all the more childish and dangerous. In setting the goal of "Global Zero" (the program of universal disarmament that sounds a little like a new international Coke product), Obama hitched himself to a project as utopian as Pres. George W. Bush's ambition to end tyranny in the world.
In fact, they are essentially the same goal. The bipartisan congressional Strategic Posture Review concluded in an interim report that to achieve Global Zero would require a "fundamental transformation of the world political order." All significant geo-political conflicts would have to end, and all untrustworthy governments disappear. The verification regime would have to be so all-encompassing as to constitute a kind of world government.
The Obama administration thinks Global Zero serves a hardheaded purpose against rogue states. The theory is that our arsenal makes us nuclear hypocrites. Only by pursuing its elimination do we gain the moral standing to pressure other nations to give up their nuclear ambitions.
This is a misreading of the calculations that drive states to seek nuclear programs, and of human nature. If we had zero weapons, there would be even more of a premium on other states' acquiring nukes, for purposes of protection, power-projection, and prestige.
The same weakness undercuts all the lesser arms-control schemes Obama touted in his Prague speech, from the Comprehensive Test Ban Treaty to an international nuclear fuel bank: It's easier to get responsible states to comply than the truly dangerous ones -- or they wouldn't be dangerous.
The nuclear gambit is emblematic of Obama's "excuse me" -- or excuse my predecessor and my country -- diplomacy. He played to the European crowd by chastising Bush and his countrymen for their arrogance. He took responsibility for starting the financial crisis. He noted his country's diminished power, with evident satisfaction. All of this can be justified as winning over Europe with a soft sell, if it weren't that he got nothing for it.
Obama pleaded for more troops in Afghanistan, arguing correctly that terrorists emanating from that region pose a more direct threat to Europe. French president Nicholas Sarkozy responded with no additional troops, 150 MPs, and an offer to take one Gitmo detainee when the detention facility closes. At that, Sarkozy pronounced himself greatly pleased to be working "with a U.S. president who wants to change the world and who understands that the world does not boil down to simply American frontiers and borders."
Obama referred at a press conference to every country having its "quirks." This is a cute way of saying all nations have their own character and interests. Other nations may applaud our self-flagellation, but it won't change them.
Fri, 03 Apr 2009 00:28:17 -0600
Obama and Medvedev agreed to negotiate a new arms-control treaty and work together on a host of initiatives from the Afghan War to the Iranian nuclear program. Medvedev -- and his master, Vladimir Putin -- must be delighted enough to consider sanctioning the beating of yet another meddlesome journalist in celebration.
"[The meeting] brought Russia a shot of prestige, upbeat headlines about nuclear-arms cuts and a powerful signal that Moscow has the ear of the new U.S. president," the Associated Press wrote. "The price tag for Russia so far: virtually zero." Medvedev likes that price point.
"We, the leaders of Russia and the United States, are ready to move beyond Cold War mentalities," the joint statement said. With no apparent sense of irony, both sides also pledged to reinstitute a Cold War-style arms-control process, with an alphabet soup of treaties and elaborate compliance mechanisms that recall the days when the fate of the world hung on the U.S.-Soviet nuclear balance.
The Russians revel in this. It makes them feel important and puts the focus on nuclear warheads, their last truly impressive measure of national power. It might be worth indulging the Russians in endless arms-control talk -- in fact, it's a perfect assignment for Vice President Joe Biden -- if it were part of a broader strategic scheme from which the U.S. would benefit. Instead, the arms-control process will likely become an end in itself.
The Obama administration wants to win Russian cooperation in squeezing the Iranian nuclear program. To this end, its chief bargaining chip is the proposed U.S. missile-defense site in Poland. The Russians pretend that this site -- designed to defend against a threat emanating from Iran -- will neutralize Moscow's nuclear arsenal. How ten interceptors can work this magic against 2,800 warheads is never explained.
The flaw with the bargaining chip is that everyone knows it is worthless to Obama. Even if the Russians had no objection, the administration would want to be rid of the missile-defense site -- if it could eliminate the two sites here in the U.S., it would do that, too. Obama officials are suffused with the Left's instinctive hostility to missile defense, an ideological reflex left over from the Cold War.
The Russians can surely get Obama to ditch missile defense in exchange for a more cooperative-sounding version of the same double game they've been playing on Iran. They can cite their votes for Security Council resolutions sanctioning Iran -- once they've been watered down to meaninglessness. At the same time they continue to build Iran's reactor at Bushehr and provide the regime with sophisticated conventional arms, including air defenses.
It's foolish to think the Russians behave this way out of pique at George W. Bush. The Russians have a geopolitical goal of establishing dominance again in as much of Eastern Europe and Central Asia as possible, and will do whatever is necessary to achieve it -- from cutting off fuel to Ukraine, to invading Georgia, to getting us kicked out of our air base in Kyrgyzstan. They view us as a rival power to be frustrated, and therefore our enemy Iran is -- if not their friend -- their useful foil.
Barack Obama didn't claim to see Medvedev's soul, but demonstrates his own form of naïveté.
Tue, 17 Mar 2009 00:30:46 -0600
AIG has been the bailout from hell, dysfunctional and opaque. The government has had to restructure its rescue over and over, throwing billions more into its maw. Only now have we learned the identity of the true recipients of the bailout, the so-called counterparties to AIG's credit default swaps, financial firms strewn around Wall Street and the globe, from Goldman Sachs to Deutsche Bank and France's Société Générale.
AIG first got bailed in the days after Lehman Brothers's bankruptcy put the financial system on the brink and policymakers didn't have the nerve to let another financial giant go down. It was the right call at the time, but the lesson of the AIG fiasco is obvious: Government needs to disentangle itself from the financial sector as rapidly as it responsibly can.
There is nothing about bonuses that's inherently blameworthy. Wall Street has a compensation system that tends to pay lower salaries and higher bonuses -- so what? But that doesn't account for political sensitivities, inflamed by the association of bonuses with Wall Street excess. Those sensitivities become paramount as soon as a firm accepts a dime from taxpayers, and AIG -- after making "all kinds of unconscionable bets," in the words of Fed Chairman Ben Bernanke -- vacuumed up 1.7 trillion of them.
AIG's top seven executives are forgoing bonuses this year, a nice gesture but an insufficient one, when $165 million is going to employees in the financial-products unit whose recklessness brought AIG, otherwise a profitable insurance company, to its knees. The political provocation would only be worse if AIG decided to spend $165 million to take executives of its German and French counterparties on a lavish golf junket in a fleet of Gulfstream jets.
AIG says it is contractually obligated to the payouts, although troubled firms find creative ways to pay their employees less than promised all the time, and nothing is stopping more AIG employees from forgoing bonuses. The bottom line is that the bonuses fail the outrage test. Every CEO of a bailed-out firm has to first ask whether a given act will prompt scandalized headlines and cable chatter before he does anything. It's a childish way to run an economy -- and the norm until the private sector is truly private again.
AIG is caught in a public-private netherworld. The government owns nearly 80 percent of it, and government officials handpicked the current CEO, Edward Liddy. The government nonetheless dares not directly run the company, since dealing with complex financial instruments is beyond government's core competence (and apparently beyond even the core competence of many Wall Street firms). Treasury Secretary Timothy Geithner is hard-pressed just to run his Cabinet department.
Republicans and Democrats are now stumbling over one another to give AIG a good populist beat-down, and no one should pity AIG. But what everyone in Washington wants to ignore is that the banking system, festooned with $1 trillion or $2 trillion worth of bad assets, may still need more government attention rather than less. Obama has been taking a pass on cleaning up the banks in favor of passing Great Society II because the issue of the banks is too politically difficult.
Guess what? It just got harder.
Fri, 06 Mar 2009 00:28:51 -0600
Sure enough, Freeman is now president of the anti-Israel Middle East Policy Council, which might not exist without Saudi largesse. In a 2006 interview with a Saudi news outlet, Freeman explained that the council couldn't continue without an endowment it had set up through "the generosity of King Abdullah bin Abdulaziz."
Yes, the king (estimated net worth: $21 billion) is a very generous man. In 2007, Prince Alwaleed bin Talal bin Abdulaziz al-Saud (whose proffered donation to New York City was rejected by Mayor Rudy Giuliani after 9/11) ponied up another $1 million. Whatever else you think of the Saudis, they spare no expense in rewarding their lap dogs.
Before he became ambassador to Saudi Arabia (and then, basically, a Saudi ambassador to the U.S.), Freeman served in China. The enterprising Freeman parlayed his expertise into membership on the international advisory board of the China National Offshore Oil Corporation -- think Exxon, except owned by a dictatorial government. The corporation is, as Eli Lake of the Washington Times has reported, notorious for its connections to the world's nasty regimes, besides the one it serves in Beijing.
Not that that would bother Freeman. He's from the school of foreign-policy realists who think pandering to and making excuses for the world's dictators and terrorists is the sine qua non of sophistication. The Weekly Standard unearthed an e-mail from Freeman about the Tiananmen Square massacre in which he regretted only that the Chinese hadn't cracked down faster and noted, "I do not believe it is acceptable for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government." How charming.
It's not pro-democracy protesters but Israel that is the most intense object of Freeman's ire. He blames the Jewish state for the deadly hatred directed at it, and at us. He thinks we have paid for our support of Israel "with the blood of our citizens here at home," a reference to 9/11. After the attacks, he urged that we "examine ourselves" as we consider "what might have caused the attacks" (perhaps the worldwide export of Saudi radicalism had something to do with it?).
Whether you consider these views odious (right answer!) or courageous, Freeman is a committed partisan in the war over American foreign policy, exactly the wrong profile for a job requiring dispassionate analysis. At the National Intelligence Council, Freeman would supervise the crafting of the National Intelligence Estimate, which represents the consensus of the 16 U.S. intelligence agencies. Whoever controls the extremely influential NIE has a large say in determining U.S. policy.
For years now, Democrats have brayed about the "politicization" of intelligence. Their only real evidence for this charge was that Dick Cheney asked the CIA a few questions. Now they are about to put a blinkered ideologue in the most important intelligence-analysis job in the U.S. government, and congratulate themselves on their commitment to evenhandedness and neutrality.
The position doesn't require Senate confirmation, so the Obama administration can do whatever it wants. But the director of national intelligence, Dennis Blair, didn't tell the White House ahead of time of his intention to appoint Freeman, and even New York senator Chuck Schumer has qualms, giving the White House a ready excuse to dump the appointment. And it should. Don't worry about Freeman. Presumably, his friends will take good care of him.
Tue, 03 Mar 2009 00:30:01 -0600
Obama exaggerated the downside of the economy two weeks ago so he could get more spending, and now he's exaggerating its upside so he can get more spending. The fixed goal is more spending. The means -- the rhetoric, the arguments, the assumptions -- are flexible so long as they serve that ultimate goal.
The past few weeks should have cleared away the debate over Obama's intentions -- is he a pragmatist or an ideologue? Obama is a pragmatist in pursuit of an ideological prize, willing to zig and zag so long as his lodestar of expanded government is ahead of him.
A trope of conservative commentary about the stimulus package was that Nancy Pelosi had rolled the neophyte Obama, producing a sprawling monstrosity that betrayed his talk of pragmatism. This missed the point -- Obama's deference to Pelosi was his pragmatism. By giving Pelosi running room and enduring a few embarrassments, he got what he wanted, which was as much new spending as quickly as the political system could bear. If barely any Republicans could support it, so what? Bipartisanship was a means, not an end.
If Obama felt ill-used by this process, he wouldn't be proposing to duplicate it with his health-care plan. Obama wants to give Congress a few principles and a $634 billion health-care slush fund, and let Congress go at it and write his health-care plan. How it works out exactly doesn't matter so much than it gets done -- and government grows.
Obama has been truest to the centrist image he projected in the campaign in his national-security policy, backing away from Pres. George W. Bush's practices more in his rhetoric than in his actions. He hopes foreign policy can be reasonably managed by his team of heavy hitters -- Hillary Clinton, with her troika of special envoys, Richard Holbrooke, Dennis Ross, and George Mitchell -- while he focuses on the more central goal of more domestic spending.
Nothing can distract from that higher call. The financial crisis is still at the heart of our economic woes, but Obama has refused to grapple with it forthrightly. The contrast with Franklin Roosevelt -- who acted immediately and forcefully to stem his (much more dire) banking crisis -- couldn't be starker. Why punt on the financial crisis? Because bold action means courting considerable political risk, and that could threaten the larger spending agenda. In this sense, the spending is evidently more important than recovery for Obama.
Obama's critics who accused him of "socialism" during the presidential campaign were roundly ridiculed. What rank name-calling! The charge didn't have much resonance because the best (not particularly convincing) evidence for it was Obama's proposed tax credit for workers who don't pay the income tax. But Obama's opponents read him well. He has the heart, if not the affect, of an ideologue. For him, above all else, the spending is the thing.
Fri, 20 Feb 2009 00:30:54 -0600
Schwarzenegger presided over the creation of a budget deficit worse than the one that led to his ousting of Democratic governor Gray Davis in 2003. The state has a $42-billion deficit that state legislators have been holding all-night sessions to try to patch over and that sent Schwarzenegger begging to Washington for a bailout. The state has been buffeted by the housing crisis, but the ultimate cause of the mess is relentless, heedless overspending.
California has roughly doubled its budget during the past ten years -- like the recently passed stimulus bill, except spread out over a decade. Over five years, Gray Davis boosted spending from $75 billion to more than $100 billion, and his "fiscally conservative" vanquisher got it north of $140 billion. Davis managed to keep spending even during the devastating dot-com bust, and Schwarzenegger's election brought only the briefest respite on the inexorable upward climb.
The politicians aren't entirely to blame, although at every sign of the unsustainability of the state's fiscal practices their reaction has been to resort to more gimmicks and borrowing. California's voters have recourse to an initiative process they have used to make responsible budgeting as hard as possible. They passed a proposition in the late 1980s that basically locked up half of state spending for the schools, no matter what. Even in November, with fiscal disaster looming, they passed another $10 billion in bonds for high-speed rail, apparently on the theory that a state can never have enough debt.
The new budget deal will cut about $15 billion in spending and raise roughly the same in taxes, including the car tax over which Schwarzenegger pounded Davis in 2003. The deal has its worthy provisions, but fundamentally it is more of the same. California will remain overtaxed, overregulated, and overburdened by a public sector that is the state's sole boom industry.
Schwarzenegger spoke movingly during his first campaign for governor of what California meant to him, of its dynamism that fostered entrepreneurial dreams. That California is disappearing. Schwarzenegger now governs the Michigan of the West. California has the fourth-highest state unemployment rate in the nation and is routinely ranked among the worst states in its business environment. Almost 1.5 million more nonimmigrants have left the state than moved to it during the past ten years.
Once, Schwarzenegger was supposed to be a model for a more appealing, more moderate Republican Party -- socially liberal, yet fiscally conservative. All he has demonstrated is, to paraphrase Barry Goldwater, that moderation on the road to fiscal ruin is no virtue. The GOP's social liberals are overwhelmingly fiscal liberals, too -- witness the party's social liberals in the Senate signing off on the stimulus bill, liberalism's proudest fiscal accomplishment since the 1970s. As for the Governator, he said hasta la vista long ago.
Tue, 17 Feb 2009 00:39:49 -0600
The House wrote the bill with no Republican input, and when the House and Senate met in a conference committee to hammer out differences in the bills that had passed the different chambers, Republicans were shut out except for those lone three Republican senators who (out of 219 total Republicans in Congress) supported the legislation. Obama himself attacked Republicans for wanting to pass nothing, a blatant straw man.
When the House and Senate reached a deal, the 1,073-page bill was rushed toward passage in roughly 24 hours, with little opportunity for lawmakers, let alone the public, to review it. For sheer heedlessness, the process rivaled that of Franklin Roosevelt's Emergency Banking Relief Act. When FDR's team arrived at a legislative package in the middle of the night in March 1933, the chairman of the House Banking Committee took it onto the House floor, exclaiming: "Here's the bill. Let's pass it." Only three or four copies existed, Jonathan Alter writes in his history of the 100 days, The Defining Moment, and no one read it before passing it on a voice vote.
In short, the stimulus bill was sausage-making worthy of Upton Sinclair's The Jungle. Obama the good-government noodge should have been appalled that his earnest assurances of a new way of doing business were so quickly crushed underneath Nancy Pelosi's high (and highhanded) heel. If, that is, these were Obama's first-order concerns, and they aren't.
To govern is to choose, and Obama has chosen effectively to abandon his commitment to a different, more open process. It's more important to get the substantive achievement than to worry much over how it is achieved, even if it means tolerating legislative strong-arming reminiscent of Tom DeLay in his glory days. "My bottom line is not how pretty the process was," Obama told reporters last week, in complete reversal from three weeks ago.
At the heart of Obama's much-discussed pragmatism is a willingness to shift the means by which he attains his enduring ends -- namely, his political ambition and his policy goals. If his pledge to take public financing stands athwart his ability to bury John McCain under an avalanche of private donations -- well, out with the pledge. When the Rev. Jeremiah Wright can give him an entree into Chicago politics, he's a spiritual mentor; when he obstructs Obama's presidential ambitions, he's under the bus. Given the choice between -- as Ron Brownstein of the National Journal has described it -- passing more public investments in three weeks than Bill Clinton passed in eight years, or honoring the spirit of bipartisanship, it's not even close.
Obama is making the shrewd choice. No one cares about process as much as the impressionable young people and journalists he already has firmly in his hip pocket. All that matters is the state of the economy, and whether the stimulus bill ultimately lives up to its name -- tainted passage or no.
Fri, 13 Feb 2009 00:32:41 -0600
Members of the House Financial Services Committee flogged eight banking chief executive officers the other day, apparently without considering that some of them were already dead men walking. The CEOs were grilled about their lending practices and bonuses, when they should have been asked, "Why does your company still exist?" The head of Citigroup, Vikram Pandit, noted he's getting paid $1 a year, which might be $1 too much given the state of his all-but-bankrupt firm.
The awful truth is that the financial system has at least another $1 trillion hole in it. Either the U.S. government has to continue to try to patch it over with massive--and perhaps ever-escalating--injections of money à lá the Japanese in the 1990s, or it has to take the painful, risky step of letting some of the big, irreparably wounded financial players go down.
Neither choice is appealing, which is why Treasury Secretary Timothy Geithner trotted out his muddle-through, we'll-get-back-to-you-on-details rescue plan. Obama shows no appetite for grasping the nettle of a problem much more difficult technically and politically than asking Congress to shovel billions of dollars at its favorite priorities in a stimulus bill. In his first prime-time press conference, Obama dodged when asked if it would take another trillion dollars to rescue the financial sector--because a simple "yes" would be just too starkly truthful.
As it stands now, the U.S. government is keeping alive banks that would otherwise go bust at the same time it is hectoring them about lending more money--in other words, Japan redux. "Many banks continued to extend credit to insolvent borrowers, gambling that these firms would recover or that the government would bail them out," writes University of Chicago economist Anil K. Kashyap of Japan in the 1990s. "The Japanese government also encouraged banks to increase their lending to small- and medium-sized firms to ease the credit crunch after 1998." The resulting misallocation of capital smothered growth.
Tokyo short-circuited the natural churning of the capitalist system that is the only way to clear out failed companies and unproductive uses of capital. If the U.S. government keeps alive Chrysler and General Motors or Citigroup and Bank of America when they are no longer viable--and have rendered themselves such through poor business choices and foolish risk-taking--it will create a zombie economy without the capacity for self-renewal.
The financial system, of course, is fragile. We have learned that the uncontrolled collapse of an institution like Lehman Brothers is dangerous. Bankrupt banks that are truly "too big to fail" need to be taken over by the government, broken up until they are small enough to fail and sold off, with government eating their toxic assets for now. This kind of semi-nationalization can clear the decks for new, healthy banks that won't be long-term wards of the government or long-term drags on growth.
During the stimulus debate, Obama often cited Japan's cautionary example. But Japan tried a big stimulus, too, even as it left in place its zombie banks. Will Obama heed his own admonitions?
Fri, 06 Feb 2009 05:56:53 -0600
As far as political arguments go, "I won" has its power - provided it's made on behalf of an agenda ratified by the American electorate. But Obama didn't campaign on a sprawling, nearly $1 trillion new spending plan.
If he had pledged in October to double federal domestic discretionary spending in a matter of weeks - including increasing the budget of the National Endowment for the Arts by a third, spending hundreds of millions more on federal buildings and throwing tens of billions on every traditional liberal priority from job training to Pell Grants - he'd have been hard-pressed to win at all.
The president should read the transcript of the third presidential debate. He claimed his program represented "a net spending cut." He called himself "a strong proponent of pay-as-you-go. Every dollar that I've proposed, I've proposed an additional cut so that it matches." He added, "We need to eliminate a whole host of programs that don't work."
Now, no president can adhere to every jot and tittle from his campaign, but the "I won" argument only works if the campaign program matches the governing program.
Obama himself seems confused on what exactly "I won" means. In a meeting with Republicans, he brandished "I won" as a defense of his version of tax relief. But he later used "I won" to push back against an excessive reliance on tax cuts, claiming that it had been repudiated during the campaign even though he talked every day on the trail of cutting taxes for "95 percent of working people" and never once mentioned a commitment to extreme deficit spending.
Obama has to make a case for the bill on the merits, a surpassingly difficult forensic task. In a Washington Post op-ed, Obama called for "swift, bold and wise" action, but it's possible to have at most two of those things at once. The current legislation is swift and bold (indeed, shameless) but not remotely wise.
The bill came out of the House with a price tag of $819 billion. It would spend more in 2011 alone than in this year, and more in 2012 and beyond than in this year. Why far-off spending priorities have to be set in a rush now is something no one can explain - except that congressional Democrats want to toss bulging sacks of cash out the door.
Obama writes that the bill "is more than a prescription for short-term spending - it's a strategy for America's long-term growth and opportunity." Fine. A long-term strategy deserves long-term deliberation, the hearings and other processes meant to exercise a check on legislating in a panic.
The Congressional Budget Office notes that "large fiscal stimulus is rarely attempted" and its effects "are very uncertain." The bill is basically a $1 trillion bet on an utterly unproven theory - that scattershot government spending is a magic elixir for an economy in the grips of a financial crisis.
When Barack Obama ran last year, he didn't say he'd engage in faith-based economy policy on a grand scale. He didn't say he'd toss aside the normal processes of governing. He didn't say he'd quickly act to add waste to the federal budget. And he didn't say he'd try to brush away criticism with the mere assertion of his victory.
On the stimulus, when Obama says "I won," he's out of better arguments.
Tue, 27 Jan 2009 00:30:37 -0600
The bright shining original Keynesian conception of the stimulus bill was that it would rebuild the nation's famously "crumbling" infrastructure--roads, schools, the energy sector--while immediately creating jobs. A glorious win-win! If only it were possible to build things quickly enough.
According to the Congressional Budget Office, only $4 billion out of $30 billion in highway spending, $3 billion of $18.5 billion in renewable-energy spending, and less than $7 billion of $14 billion of school-construction spending would be spent in the first two years. If spending will take place in 2011 or later, there's no reason for it to be jammed into a hastily passed stimulus bill.
Unless, of course, Democrats want to use the crisis atmosphere to bypass the normal budgetary process for long-term spending. Almost $16 billion for Pell Grants for college students and $1.9 billion for basic scientific research won't stimulate the economy in the near term. Neither will funding for the National Endowment for the Arts ($50 million) or for the National Mall ($200 million).
Pelosi's old criteria were that stimulus be "timely, targeted and temporary." That was before her caucus weighed in with the tardy, ramshackle, and permanent. Countering the CBO, Democrats note that non-construction elements of the bill reach people faster--both the boosts for food stamps and unemployment insurance and the $275 billion in tax relief. This concedes that putting money directly in people's hands is the timeliest stimulus.
Building on that insight, a cut in the payroll-tax rate--paid by both individuals and businesses--should be the bill's centerpiece. By rights, such a cut should have bipartisan appeal. For Democrats, a payroll-tax cut helps those lower-income workers who don't make enough to pay income taxes. (President Obama already supports a tax credit to offset the payroll tax.) For Republicans, it's a genuine tax cut that benefits employers, too.
But Democrats prefer spending on their pet causes. Many congressional Republicans, meanwhile, foolishly act as if only the income tax matters, when roughly 60 percent of wage earners pay more payroll taxes than income taxes.
A cut in the payroll rate would appear in small increments in workers' paychecks, making it more likely to be spent than a lump-sum payment (like last year's rebate checks). It would increase the take-home pay of strapped workers who would have no choice but to spend it. Finally, it would reduce the cost of labor for employers and make it easier at the margin to make new hires or avoid layoffs.
Nearly immediate, a payroll tax cut would be felt now, at what is likely the nadir of the recession. A halving of the payroll rate would funnel $400 billion to individuals and businesses, for a total of $800 billion. The cut could be indefinite, to be rolled back when the economy picks up again, or made permanent and replaced by something else (say, an increased gas tax). The payroll tax funds Social Security and Medicare, but those programs can subsist on borrowing for now--like the rest of the federal government.
No one can be sure if fiscal stimulus will work. We do know that relief for individuals and businesses right away must help more than subsidizing a wind farm in 2012.
Fri, 23 Jan 2009 00:35:04 -0600
Since the election, Obama has only strengthened his political position with a widely praised transition. He has appropriated the country's first Republican president, Abraham Lincoln, in a historical body-snatching reminiscent of what Ronald Reagan did with Franklin Roosevelt. In his inaugural address, he grounded his vision in the Founding Fathers, sounded a significant conservative note in calling for a return to "old" and "true" values, and defined opposition to him as a stale remnant of bygone ideological debates.
Barack Obama imagines himself a colossus standing bestride the political world subsuming all the disagreements of the past 30 years in himself. William Herndon said of his friend Lincoln, "his ambition was the little engine that knew no rest." Obama's is the engine that knows no bounds.
Taking office amid economic turmoil in 1981, Reagan famously said, "In this present crisis, government is not the solution to our problem; government is the problem." Obama's rejoinder was that "the question is not whether our government is too big or too small, but whether it works." He thus wipes away a defining dispute of recent American politics with a wave of the hand and a declarative sentence. Obama portrayed the debate over the size of government, the efficacy of the market, and how to protect the country as consisting of a series of false choices resolvable by a pragmatic commitment to pursuing what works.
This is a central contradiction of Obama's speech: He praised "hard choices" in theory--as all politicians do--while presenting the actual choices that have bedeviled us for decades as a mirage. George W. Bush's second inaugural speech had a whiff of utopianism in its confidence in the universal march of liberty. Obama's utopianism is in positing that legitimate tensions between desirable things--American leadership and warm relations with allies, etc.--don't exist.
There's a presumption in Obama's soaring pragmatism. Does he believe that he considered every major issue in our national life from a stance of pure ideological neutrality and the answers just happened to coincide with what the Senate Democratic caucus believes 96 percent of the time? One hopes not. Obama the pragmatist said he will end government programs that don't work, but he has been in public office since 1997 and never notably crusaded against wasteful and inefficient government.
This raises the larger question: Does Obama mean his rhetoric? If he were to follow through on his inaugural oratory he'd run a "kadima" government, a centrist one holding as many frustrations for partisan Democrats as gratifications. If he doesn't, he'll simply toss nonideological drapery over the usual Democratic agenda.
So far, the evidence points to the latter. Obama's reaction to the recession has been to propose an enormous spending bill that throws money at every typical Democratic priority. The research is decidedly mixed on whether this kind of fiscal stimulus works, and the Congressional Budget Office says that only $135 billion of the $355 billion in discretionary spending in the House stimulus bill would be spent by October 2010.
If this is Obama's idea of an empiricism in public policy that will sweep all before it, watch for the currents to get icy and storm clouds to gather.
Tue, 20 Jan 2009 00:29:23 -0600
What undergirds Obama's assuredness? First, there's his own talent, of which he is quite aware. According to The New Yorker magazine, he told someone he was interviewing in 2007 for the job of his political director: "I think that I'm a better speechwriter than my speechwriters. I know more about policies on any particular issue than my policy directors. And I'll tell you right now that I'm gonna think I'm a better political director than my political director." Obama is a crown prince of America's aristocracy of merit. He rose from unlikely origins to march through the country's elite institutions--Columbia, Harvard, the University of Chicago--gathering the credentials to match his brainpower.
Then, there's his campaign during the past two years--technically nearly perfect and harmonious to the point of boring. Obama clearly believes he can transfer his skill at managing the campaign to managing a government buffeted by a financial crisis and two wars. By layering strong-willed, talented people with responsibility for the same policy areas in Cabinet positions and in the White House, Obama has signaled a remarkable faith in his ability to extract what's best for him from spirited internal debate and jostling.
Obama also knows that during the past two years he has understood the political moment better than any other national politician and been able to give voice to it with his gifted pen. Obama's speech at the Jefferson-Jackson Dinner in Iowa in November 2007 launched him in the Democratic primaries. Obama could deliver the same speech today--shorn of some of its harsher lines crafted for a caucus audience--and it would seem just as appropriate as back then, in its call for change and post-partisanship. Obama could be forgiven for thinking that in uniquely tapping into the moment, he's uniquely suited to address its challenges.
Finally, there's history. If Obama's appropriation of Lincoln has been audacious, as the nation's first African-American president he obviously has a symbolic bond with the Great Emancipator. Obama is cool to a fault, but occasionally the import of his journey to the White House has gotten to even him. He choked up practicing his acceptance speech at the Democratic Convention when he invoked Martin Luther King Jr. As the crowds thronged to see him on his train ride to Washington retracing Lincoln's trip there, he was visibly moved. The temptation to feel himself a man of destiny has to be almost overwhelming.
There's a danger in that, of course. Americans prize a jaunty optimism and self-confidence in their presidents--part of the political charm of Franklin Roosevelt and Ronald Reagan. The pitfall is if self-assurance gives way to self-regard. At the Western Wall in Jerusalem last summer, Obama left a note praying for, among other things, protection against pride. The most powerful man in the world at age 47, regarded worshipfully by his admirers and with apparently not a doubt about his own capacities, Obama needs that prayer more than ever. He must resist hubris and surely--flush with this moment--is confident he can do that, too.
Fri, 16 Jan 2009 00:34:35 -0600
Should we want Obama to propose a quasi-militaristic program to empower business cartels to set prices, on the model of FDR's National Recovery Administration? Should he take his cue from FDR and prosecute businesses that discount their products, giving strapped consumers a break? Should he triple taxes, hiking excise taxes on common consumer goods and imposing an entirely new payroll tax on employment? Should he crib from FDR's speeches and demonize business and investors? Should he create government make-work jobs and pay people to clear trails in the national parks and unemployed artists to paint murals in post offices?
The New Deal has been much discussed lately as the country has plunged into its worst financial crisis since the 1930s. And an amazing event has occurred: The Left has admitted that the New Deal in fact did not--as all Americans learned in their schoolbooks--end the Great Depression. For the longest time, the New Deal coasted on a glorious reputation that shielded it from its record. As Mark Twain remarked, "Once a man acquires a reputation as an early riser, he can start sleeping until noon every day."
In 1938, the unemployment rate was back to 19 percent, as the country swooned into "the depression within the depression." FDR's advocates say the problem was that, after economic gains, he pulled back too soon on his program of deficit spending. As Jim Powell, author of FDR's Folly, points out, this concedes that FDR had failed to foster a business climate strong enough for recovery. (Have any of Obama's boosters noticed, by the way, that a program of massive deficit spending that will be quickly rolled up as soon as the economy begins to recover is exactly what Obama is proposing now?)
The worst mistake of the New Deal was keeping wages and prices artificially high, thus suppressing employment and consumer demand. UCLA economists Harold L. Cole and Lee E. Ohanian calculate that FDR's pro-labor policies kept both wages and unemployment 25 percent above what they would have been otherwise. (The old saw was that the Depression wasn't so bad--if you had a job.) "Salaries and prices fall when unemployment is high," Ohanian has explained. "By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
Most analysts agree that World War II ended the Depression. The Left tries to appropriate the war for the New Deal by characterizing it as simply a public-works program writ large--as if global cataclysm, with millions killed, countries overrun by invading armies, and major cities reduced to rubble were just the thing we needed to get an economy moving again. During World War II, 12 million men were conscripted into the military, food was rationed, and people couldn't buy consumer goods like cars and appliances. Suffice it to say, its utility as a model for economic recovery is quite limited.
FDR was a prodigious political talent, whose high spirits and well-chosen words inspired the public, and a man of great personal courage. He left his imprint forever on American government, for better or worse. He was an exceptional wartime leader. Much can be said in his favor--but he didn't end the Great Depression. Barack Obama, take note.
Tue, 13 Jan 2009 00:30:31 -0600
-- Not getting congressional buy-in on detention policy immediately after 9/11. Going to Congress would have forced more deliberation when the administration was rushing into the hasty improvisation of Gitmo and made it harder for Democrats to grandstand once it became controversial.
-- An ineffective management style. Bush the "CEO president" wisely wanted to delegate. Alas, the quality of some of his Texas loyalists wasn't particularly high, and when people under Bush failed, his first instinct was to stand by them stalwartly (see Rumsfeld, Don) rather than to hold them accountable.
-- Not replacing George Tenet after 9/11. Someone should have taken responsibility after the terror attacks. Tenet's exit wouldn't have prevented the WMD debacle, but at least he wouldn't have been around to give his dramatic "slam-dunk" demonstration in the Oval Office.
-- Deferring to his generals. Bush believed that his job was to listen to his generals and give them what they wanted. This made him overly passive during much of the Iraq War. It wasn't until his generals had nearly lost the war that Bush fully stepped up to his role as commander in chief, going around the brass to order the surge, the most successful and consequential initiative of his second term.
-- Not taking charge during Katrina. As soon as the National Weather Service bulletins were warning of the possible destruction of an American city, Bush should have rode herd on the tangled homeland-security bureaucracy and, once the storm hit, federalized the response to save New Orleans from the incompetence and limited capabilities of its state and local governments.
-- Too much accommodation of a GOP Congress. Bush got what he wanted out of Congress at the price of looking the other way from burgeoning earmarks and a creeping culture of corruption. More triangulation at the expense of his own party's leaders would have served Bush -- and perhaps the ill-fated GOP majority -- well.
-- Not reading enough history. Bush has admirably applied himself to an extensive reading program as president, but if he had absorbed more history before taking office -- particularly about military matters -- he'd have had a better grounding to make important decisions.
-- Refusing to settle the internal war within his administration. The acrimony between the State Department and CIA on the one hand and the Defense Department and vice president's office on the other was poisonous and debilitating. It hampered the prosecution of the Iraq War and led to the "Scooter" Libby mess that was the highest-profile "scandal" of an otherwise relatively clean administration.
-- Underestimating the power of explanation. By temperament and ability, Bush was more a "decider" than a "persuader." He's not naturally drawn to public argument, giving his administration its unfortunate (and not entirely fair) "my way or the highway" reputation at home and abroad.
-- Ignoring health-care reform too long. By the time Bush unveiled a serious and sensible health-care reform in 2007, it was DOA, leaving Democrats with the initiative on this crucial issue.
Oddly enough for a president denounced as an executive monster by his perfervid critics, many of Bush's mistakes involve not being active enough or taking a stronger hand. How that came to be so with a president who believed so deeply in strong leadership should long occupy Bush, and fair-minded historians.