Friday, January 30, 2009

Scolding Wall Street

After the New York comptroller's office reported on Thursday that bonuses in 2008 totaled $18.4 billion, Obama and Geithner lashed out against companies that continued to issue huge bonuses while receiving billions in funding from the Treasury's Troubled Asset Relief Program.

"That is the height of irresponsibility. It is shameful," Obama said Thursday.

Obama is right. The bonus payouts at this point in our economic cycle are shameful. Obama is talking the talk.

But what about walking the walk? Why not hold some of these companies accountable for their actions in the form of penalties and fees? As the nursery rhyme goes, words will never hurt them.

I believe in capitalism. I believe in a free market economy. But our free market is broken right now. The essential element we are missing is accountability. Until the companies in question are held accountable for their mistakes, their wrong-doings, and their bad decisions, no amount of stimulus or bailout will correct the state of our nation.

Thursday, January 29, 2009


I couldn't have said it any better!!

Wednesday, January 28, 2009

How will the stimulus package help?

The article What Are They Buying? by Thomas Sowell can be found on National Review.

Everyone is talking about how much money the government is spending, but very little attention is being paid to where they are spending it or what they are buying with it.
The government is putting money into banks, even when the banks don’t want it, in hopes that the banks will put it into circulation. But the latest statistics show that banks are lending even less money now than they were before the government dumped all that cash on them.
Even if it had worked, putting cash into banks, in hopes that they would put it into circulation, seems a rather roundabout way of doing things, especially when the staggering sums of money involved are being justified as an “emergency” measure.

Spending money for infrastructure is another time-consuming way of dealing with what is called an immediate crisis. Infrastructure takes forever to plan, debate, and go through all sorts of hearings and adjudications, before getting approval to build from all the regulatory agencies involved.
Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010.
Using long drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.
If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit-card purchases beforehand.
If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.
None of this is rocket science. And Washington politicians are not all crazy, even if it sometimes looks that way. Often, what they say makes no sense because what they claim to be doing is not what they are actually doing.
No matter how many times President Barack Obama tells us that these “extraordinary times” call for “swift action,” the kind of economic policies he is promoting take effect very slowly, no matter how quickly the legislation is rushed through Congress. It is the old Army game of hurry up and wait.
If the Beltway politicians aren’t really trying to solve this crisis as quickly as they could, what are they trying to do?
One important clue may be a recent statement by President Obama’s chief of staff, Rahm Emanuel, that “A crisis is a terrible thing to waste.”
This is the kind of cynical revelation that sometimes slips out, despite all the political pieties and spin. Crises have long been seen as great opportunities to expand the federal government’s power while the people are too scared to object and before any opposition can get organized.
That is why there is such haste to do things that will take effect slowly.
What are the Beltway politicians buying with all the hundreds of billions of dollars they are spending? They are buying what politicians are most interested in—power.
In the name of protecting the taxpayers’ investment, they are buying the power to tell General Motors how to make cars, banks how to bank, and, before it is all over with, all sorts of other people how to do the work they specialize in, and for which members of Congress have no competence, much less expertise.
This administration and Congress are now in a position to do what Franklin D. Roosevelt did during the Great Depression of the 1930s—use a crisis of the times to create new institutions that will last for generations.
To this day, we are still subsidizing millionaires in agriculture because farmers were having a tough time in the 1930s. We have the Federal National Mortgage Association (“Fannie Mae”) taking reckless chances in the housing market that have blown up in our faces today, because FDR decided to create a new federal housing agency in 1938.
Who knows what bright ideas this administration will turn into permanent institutions for our children and grandchildren to try to cope with?

I think the point that really needs to get across is that the politicians don't have an interest in solving the problem facing the country. They all know the economy would correct itself if left alone for a year or two. This feels more like a consolidation of power and a move towards a more socialist and centralized government than an actual attempt to rescue the economy.

Monday, January 26, 2009

Libertarian Party on Obama's Bailout

The following was a mass email I received from the Libertarian Party last month regarding Obama's proposed stimulus package. It's an interesting read.

Your Monday Message from the Libertarian Party:

Well, we didn't actually go to Harvard.

In doing some background research on Obama's plans for the biggest public works project since the 1950s, we talked to Harvard economist Dr. Jeffrey Miron about what this means for the economy. Here's what he said:

LP: Does it make much sense, in terms of stimulating the economy, for the government to invest in public works programs that, when built, produces nothing further?

Miron: Overall, no. The argument is that the beneficial effects of stimulus on overall activity are worthwhile, even if from a microeconomic consideration the projects to not make good cost/benefit sense. Thus, in the extreme form, the standard Keynesian position would say it makes sense to have the government hire people to dig ditches and fill them back up.
The theory that underlies this view is not stupid, but not compelling either.
At a minimum, any stimulus should be on things we would want even if they were not needed for a stimulus. I am personally not persuaded there are many things in that category given the levels of current spending.

LP: Is there a high chance of damage to the economy by implementing a public works program such as that proposed by Obama?

M: There is certainly the possibility of adverse effects. New programs tend to last and have bad effects on incentives and efficiency.

LP: What do you predict to happen should Obama's proposal be implemented?

M: I think the economy will recover in 6-12 months, with or without the stimulus.

LP: Is the best prescription for economic recovery keeping the government out of the economy?

M: In my view, yes.

Miron brings up a great point about the lasting effects of new government programs. In fact, it was program of the New Deal that was at the center of the latest economic troubles: Fannie Mae.

Additionally, the idea that government can, quite literally, dig itself out of this current economic trough is patently absurd. In doing so, the government often makes things much worse for the economy. You might say that the government pays to dig its own grave--or, at least one for the taxpayers.

There are several major problems with Obama's public works plan, aside form the fact that government is making a mistake by even trying to take a hands-on role in the market.

Cost/Benefit Ratio - It is not a guarantee that construction projects will continue to bring any economic benefit upon completion, and "building for the sake of building"--as is Obama's objective--is an invitation for wholesale government waste. This is like what Miron referred to as "government hir[ing] people to dig ditches and fill them back up." Public works projects that benefit the economy more than the cost of production may be pursued for this reason (at least by those that agree with government intervention, as clearly the Libertarian Party does not); however, no public works program should be undertaken for the sake of simply creating jobs. Some economists, like Economic historian Price Fishback, predict that "such public-works spending would crowd out a significant amount of private construction," on top of being a waste of taxpayer money.

Limited Scope - Public works programs benefit one specific industry, and even a smaller amount of those in that industry. Not every construction firm is able to handle the renovations of a bridge, or the construction of a new school. Most of those that would benefit from a large-scale public works program would be large and specialized firms. As such, a construction-based stimulus would have no demonstrative benefit outside of the construction industry. These types of plans "suffer from a common problem–they will end up generating employment for highly specialized businesses and workers, rather than stimulating economic activity more broadly," says economists Susan Woodward and Robert Hall. "Thus a program that funnels money to construction firms and their workers mainly raises their incomes and employment levels and has relatively little effect elsewhere."

Too Slow For Impact - One main element of any economic stimulus plan is rapid and immediate relief. Relief plans that take too long to implement often kick-in after they are needed. This is a major complaint with most stimulus packages that are proposed, and large-scale public works programs are one the best examples of this delay. Many of these projects will take too long to get from legislation, to planning, to approval, and finally to the actual construction phase in order to have their intended impact. What we will eventually have is massive construction spending during a time where an economic stimulus is not needed.

Magic Money - One of the oft cited objections with Bush's economic policies was his penchant for massive government spending without any plans to offset this spending with cuts in other areas. As a result, trillions have been added to an already exploding national debt. A huge problem with Obama's public works program is that it will add at least $700 billion (and most likely more, in the end) to our national debt, and Obama has stated no plans on how he hopes to address the deficit. Most Keynesians will overlook this fiscal imbalance, but when the spending appears to have no real economic benefit (should it fail the already-established cost/benefit test), then Keynesians must even wonder if there is a point to the spending.

Overall, the moral of the story is this: Obama's public works plans carry no attestable benefit, and much unknown risk. On top of this, there are several other better options for economic keeping government out of the economy altogether, and letting it work itself out.
In this economic crisis, the best options for economic stimulus are ones of less government action--not more government action. If government wishes to do anything, we suggest it simply cut taxes. Tax cuts are always a good thing, and their economic impact much more proven.
This way, taxpayers benefit, the economy rebounds and government still gets that warm-fuzzy feeling inside like it did something good.

Live free,

Andrew Davis
Director of Communications
Libertarian Party

Obama Wins

From Politico: Obama to GOP: 'I Won'

“We expressed our concerns about some of the spending that’s being proposed in the House bill,” House Minority Leader John Boehner said after meeting with Obama.

“How can you spend hundreds of millions of dollars on contraceptives?” Boehner asked. “How does that stimulate the economy?”

It doesn't. This is a hint of what our new stimulus package is going to include: millions of dollars of worthless pet projects that will do nothing to turn the economy around. But that's the way politics operates. A nice spending package is put together, full of worthwhile projects. Then this is added, and that is added. The millions pile up. And suddenly contraceptives have become an important piece of the legislation.

How do these people get away with this? And how do they sleep at night? This is not how I want my tax money spent!!!

Pelosi suggested that the package, currently at $825 billion, could become even larger.

“It has grown,” Pelosi said, “and we’re still in the process.”

It's going to be funny to see what else these people can find to spend our money on.

But worst of all are the refundable tax credits that will be paid out to those who don't earn enough to pay taxes. In essence, the government will now be using my tax money to pay people for being poor!! How do I get in on that deal? Why would people want all these new jobs the government is creating if they are going to be paid by the government to sit around and do nothing?