Rebutting the Buttheads

The official response to the passage of the stimulus bill given by Sen. Murkowski highlights the GOP 's detachment from any semblance of rational thought:

Democrats, it seems, settled on a random dollar amount in the neighborhood of $1 trillion and then set out to fill the bucket. Republicans, on the other hand, thought that we should figure out what was at the root of the problem, and then see how much it would cost to fix.”

Let's review. The objective of the stimulus plan was to fill in the projected GDP output gap. That gap is expected to be $2.9 trillion in the next three years. Okay, here's the hard part Senator. Divide 2.9 by three and you get a number close to one (trillion).

Furthermore we know what the root of the problem is. The economy is in a recession. No need to investigate that point anymore.

What's The Point

I thought winning an election meant the victors have some political capital to expend on shaping policy. Now it looks as if President Obama's first major policy achievement is being derailed in the name of appeasing a few moderates in the Senate. As the Senate version of the plan has taken shape it's lost the edge and won't have the intended impact unless the current formulation is changed.

A group of three moderate GOP Senators (five of you include Sens. Nelson and Konrad) somehow managed to get their hands on the controls and rework the thing. The resulting makeover has transformed the Senate version of the spending bill into neutered shell of the original. A crowning achievement of Centrism. The ability to boost employment and cover the gap in GDP will be hamstrung but, three GOP Senators now support the bill. What's the point?

I don't even see how this can be considered centrism. Wouldn't the even-keeled approach to pare down the bill taken into account both sides of the equation? If the goal was to reduce the size by $100 billion then a true centrist approach would be to look at both spending and tax cuts.

The compromise that came out of the Senate on Friday only cut spending. Even though tax cuts are a form of spending and are not nearly as stimulative as direct spending the tax cuts won out. The goal was to make the bill leaner than before yet as effective in stimulating the economy but this new version is almost half tax cuts.

The failure of this bipartisan folly is evident in largest of the reductions taken in the compromise. I of course am referring to the $40 billion in direct aid to State governments. Economists supporting some kind of stimulus approach agree that this form of spending is one the most effective ways to impact the economy. Mark Zandi's work at Moody's Economy.com has the multipliers for these spending increase ranging from 1.36 to 1.64. Seems to me you would leave this stuff in and go after less targeted spending. That is if you were truly working in good faith and not trying to make political treatments.

That $40 billion would be used by States like (let me think) Ohio. Governor Strickland's was counting on using over $3 billion of that money to plug a budget deficit. Without that money in hand the administration will almost assuredly have to cut much deeper to achieve an balanced budget. The only way that can happen now is through layoffs and possibly tax increases.

So the posturing by our moderate friends will have had the reverse effect of what the stated goal of the stimulus bill is. States cut jobs unemployment goes up but, the tax cuts will still be there as a life line.

Is it time for a group of progressive senators to scuttle this centrist monstrosity before it gets approved? Should the compromised bill be held hostage until the aid to States gets put back in? Surely some of the tax cuts could be removed to offset that addition as to not grow the cost and ruffle feathers. Calling all governors (except Mark Sanford) get up and say something or the future is not going to look too good.

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Cloud Based Education Reform

Ted Strickland's education reform plan has been receiving a good deal of attention and review from everyone. I though it would be refreshing to look at the plan's key points in a non conventional way. So here is Evidence Based Education Reform in word cloud, courtesy of Wordle.



This makes everything seem a little more cohesive.

Don't Trust the Polls

I am spending too much time obsessing over the polling data. As a self professed fivethirtyeight.com junky I enjoy soaking up Nate Silver's latest daily regression of the polls and the matching pretty graphics. Today's composite chart from Pollster.com is crack for the eyes. The familiar spread continues to widen with the last few says of the trend pointing in almost opposite directions. That's a damn work of art.

Sure things look good for Obama and bad for McCain right now. The polls have add for election observer's and make me feel all warm and fuzzy. Don't take solace in the polls though. There is still a lot of campaign left and I won't feel safe until this one is in the bag on November 5th. My worst nightmare is having one of those Bush 2004 hangovers the day after the election. Except this year it would be a head splitting Palin migraine from hell.

Staring at poll data doesn't do anything to get one additional vote. So close out of Firefox or IE7 (dummy) and get off your collective butts. Walk away from the Internets and go early vote (only once) or knock on some doors for the Obama campaign. The stupid little pie charts on fivethirteight aren't going anywhere trust me, I keep checking.

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Talk to Krugman's Hand

I'm one of the many Paul Krugman acolytes who is thrilled over his winning the Nobel Prize. I'm an avid reader of his columns, blog and books. I even manage to peruse some of his academic stuff when I'm feelin' wonky. He of course won the prize for his work on international trade patterns and economic geography not the column. Although most of the attention he has received in the popular press is for his regular column in the NYT and the complimentary blog where he has offered scathing reviews of the Prez and his people.

Krugman has been able to train his analytical thought processes and liberal philosophy on the destructive inclinations of Bush era policies and create a narrative for what went wrong in the intervening years of the Bush presidency. He was just on This Week with George S. and was forced to match wits with that well known economic genius George Will. Dr. Krugman somehow managed to rebut Will's assertion that the troubles in the financial markets are attitudinal not systemic.

His brutal honesty in assessing the dismal failures of movement conservatism as exercised through the current occupiers of the administration has made him a lightning rod for the wrath of conservative bloviators. I've lost count of how many times Bill O'Reilly has referred to Krugman as a socialist. I'm sure there will be plenty more howling from right wing pundits that were already reeling from Al Gore's Nobel Prize selection last year.

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Timely Fiscal Wake-Up Tour at CSU

Now seems like the right time to start talking about the financial future of government.

The Cleveland State University Levin College of Urban Affairs will be hosting the Fiscal Wake-Up Tour on October 2nd. The tour is a series of forums organized by something called the Concord Coalition. Included in that panel discussion are some experts from other think tank type organizations that work with the Concord Coalition, these include Heritage Foundation (righty), Brookings Institution (moderate to left) and the Peter G. Petersen Foundation.

Notice the event uses the word "Fiscal" in its name. This implies a focus on the other piece of the economic puzzle that will have to be addressed if this nation is able to regain its hope for future solvency. Sounds like an interesting concept to foster a grassroots level recognition and discussion of the looming crisis that is facing government at all levels. The Levin College is a respectable organization and the event holds promise to be enlightening. Details are here.

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My Proposed Addition To MOAB 2008

Let's be frank the House Republicans know that approving the President's Mother of All Bailouts plan is another stake in the heart of the free market bonanza that they so adore.  Why not just come out and state what this bailout says about the conservative view point of financial market regulation.

The original section 21- Definitions becomes Section 22.  My proposed new section is as follows:

Sec. 21  U.S. Government's Renouncement of Free Market Ideology

Recognizing the irreparable harm that deregulated markets have caused to the American financial system and taxpayer the United States government shall no longer adopt, emulate or embrace any of the following ideologies or principles in design or creation of subsequent laws governing financial or commercial activities:

1) Efficient Market Hypothesis or any other delusional belief that market prices always reflect an accurate value of an asset and that market players always act in a rational manner. 

2) Limitless use of leverage, speculation, arbitrage, hedging, short selling and securitization of debt in formulation of laws governing the financial sector or agency rule making.

3) Any other Friedmanite beliefs in weak regulatory frameworks, self regulated and self correcting markets and blind faith in an unchecked free enterprise system.  Any dependence on Reaganomics, Rubinomics or Voo Doo Economics in any shape or form.

This should dissuade the government from allowing us to get bit in the ass for at least another seven to ten years.  You know the adage, everything old is new again.

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GSE Bailout, the Quick Run Down

I was one of the lucky few to sit through the 11AM announcement on the 'Big Bailout' of mortgage lenders Freddie Mac and Fannie Mae. Treasury Sec. Henry Paulson gave a run down of the plan to force these two giant-ass financial institution into federal conservatorship and be privately run no more. This move represents the third or fourth wave in the housing crisis and there is more to come. As average Americans trying to enjoy the beginning of the NFL season we are left pondering the impact of this news

Here is a quick run down of the nine point plan that Paulson outlined during today's annoucement. I wrote them down myself as I listened so I'm not linking to any sources just yet. In no particular order of importance:

1. The companies will be open for business tomorrow albeit under a different structure.
2. Both GSE's can continue to issue MBS.
3. The FHFA, a newly created regulatory entity will assume oversight of both GSE's
4. The CEO's of both companies are out
5. New guys start tomorrow, they are from the financial sector.
6. Stock dividends are gone, duh.
7. A lobbying moratorium is in place, no more privte jets.
8. The Treasury will inject capital by purchasing new preferred stock and opening a line of credit.

I am missing one point in the plan from my notes but the details can be read here, here or here.

So what does this mean to the presidential election? It depends on your philosophy on private versus public enterprisewhen it comes to the housing market I guess. Maybe the real question on this dilemma can be summed up in one phrase, "it's the liquidity stupid". More on that later.

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The Bankruptcy Reform I Told You So

Remember that one time in 2005 when Congress did the bidding of the credit card companies and passed a bankruptcy reform law? It was supposed to help credit card companies and other financiers of short term credit mitigate the abuses of the bankruptcy system. In return there was an explicit (by my recollection) reciprocation offered by said firms to lower rates and fees associated with their business line.

That seemed like a load of bull crap from the start but the GOP controlled Congress was on a roll back then and the bill written by the same firms that would benefit from its passage was passed and signed into law. It even had plenty of help from moderate Dems like some guy named Ted Strickland. The whole sordid affair of the influence peddling in the case of this wretched law has been well documented in books like The Broken Branch by Ornstein and Mann.

Fast forward to 2008 were the stories of our collective economic anxiety and oil price angst fill pages of newsprint on a daily basis. The NYT ran a piece on the strangle hold that credit providers maintain over their hapless borrowers and the massive growth of revenue generated from the endless credit cards and loans that we consumerist Americans seem to be so addicted to. The payoff is the empirical indication that the bankruptcy reform law did not save us money but rather made money for it's supporters. The article cites a study conducted at a little known institution called Harvard University:

Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.

The“2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.

What can we learn from this? The current economic malaise that hovers around us has some root in the supplication of special interests as was the clear case with the 2005 law on bankruptcy reform. The lobbyists and campaign advisers that candidate X prefers to surround themselves with makes a difference to the poor saps that may end up at the wrong end of special interest crafted policies. A real critical difference if you are just trying to ride out the current economic tempest.