It's the Spending Stupid

In only a month Barack Obama's fiscal policy has gone from merely stupid to scary. From today's Journal:

Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Maybe They Should Outsource Chris Matthews

MSNBC host Chris Matthews is now not only trying to spin his bizarre "Oh God!" outburst when Governor Bobby Jindal spoke last night, but he added to this by claiming that the Republicans "outsourced" the speech to him. Now I will give the benefit of the doubt that Matthews was not making some cheap crack about Jindal's Indian heritage, even though Democrats can somehow find racial offense in a political cartoon about a chimpanzee, but I will point out what a stupid comment it is.



The fact is, and being a longtime political pundit Matthews should know this, having a governor give the rebutal is not only not unusual, but the norm. Let's look at who the Democrats had give the rebutals under Bush.

2008 Kathleen Sebelius governor of Kansas
2007 Senator Jim Webb
2006 Tim Kaine governor of Virginia
2005 Senator Harry Reid and Representative Nancy Pelosi
2004 Representative Nancy Pelosi and Senator Tom Daschle
2003 Governor Gary Locke of Washington State
2002 Representative Richard Gephardt

So 3 out of the last 7 (the first, like yesterday's was technically not a State of the Union), and 2 out of the last 3.

The Reality of Manufacturing

I criticize the AP a lot, but this time they get it right.

Manufacturing in the United States isn't dead or dying. It's moving upscale, following the biggest profits and becoming more efficient, just as Henry Ford did when he created the assembly line to make the Model T.

The U.S. by far remains the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007, nearly double the $811 billion in 1987. For every $1 of value produced in China's factories, America generates $2.50.

As I have said before, there is no future in the US for manufacturing cheap goods, it is in high-tech, higher margin items.  Sorry, if you want to spend the rest of your life making cheap sneakers, you will have to move to China.

Guess I Won't Be Drinking Much Beer Down in Oregon

This threatens to ruin my occasional pilgrimage to Powells. Books and beer are about all the state has to offer.

PORTLAND, Ore. -- Five Oregon state lawmakers want to impose a hefty tax on beer and have introduced a bill that brewers say would cripple them.

Four Portland legislators joined a Springfield senator to introduce Oregon House Bill
2461, which would impose a $49.61 tax on each barrel of beer produced by Oregon brewers.

The Presidential Fearmonger

As I have discussed before, this rhetoric by President Obama is both irresponsible and unpresidential. Let's hope it stops.

President Barack Obama has turned fearmongering into an art form. He has repeatedly raised the specter of another Great Depression. First, he did so to win votes in the November election. He has done so again recently to sway congressional votes for his stimulus package.

In his remarks, every gloomy statistic on the economy becomes a harbinger of doom. As he tells it, today's economy is the worst since the Great Depression. Without his Recovery and Reinvestment Act, he says, the economy will fall back into that abyss and may never recover.

This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

I Feel So Much Better With Our National Security In These People's Hands

OK lady, shut up.

WASHINGTON, D.C. - A senior U.S. lawmaker said Thursday that unmanned CIA Predator aircraft operating in Pakistan are flown from an airbase inside that country, a revelation likely to embarrass the Pakistani government and complicate its counterterrorism collaboration with the United States.

The disclosure by Sen. Dianne Feinstein (D-Calif.), the chairwoman of the Senate Intelligence Committee, marked the first time a U.S. official had publicly commented on where the Predator aircraft patrolling Pakistan take off and land.

Oddly Enough, Not a Single Woman Reported Dreaming About Joe Biden

Sorry, but this is kinda creepy.

The other night I dreamt of Barack Obama. He was taking a shower right when I needed to get into the bathroom to shave my legs, and then he was being yelled at by my husband, Max, for smoking in the house. It was not clear whether Max was feeling protective of the president’s health or jealous because of the cigarette.

The other day a friend of mine confided that in the weeks leading up to the election, the Obamas’ apparent joy as a couple had made her just miserable. Their marriage looked so much happier than hers. Their life seemed so perfect. “I was at a place where I was tempted daily to throttle my husband,” she said. “This coincided with Michelle saying the most beautiful things about Barack. Each time I heard her speak about him I got tears in my eyes — because I felt so far away from that kind of bliss in my own life and perhaps even more, because I was so moved by her expressions of devotion to him. And unlike previous presidential couples, they are our age, have children the same age and (just imagine the stress of daily life on the campaign) by all accounts should have been fighting even more than we were.”

Jonah Goldberg on the New Deal

I have covered this a couple of times already, but I don't know if there is a modern political pundit who lays it out any better than Jonah Goldberg.  I wish I could write this well.

In fairness to Sirota, DeLong, and Gross, their argument is more empirical. They rebut the charge that the New Deal “prolonged” the Great Depression by pointing to FDR’s efforts to stabilize the banking system. And they’re right to make that argument. Many of those efforts did help end the Depression, as even Milton Friedman and Federal Reserve chairman Ben Bernanke have argued. But some of those efforts didn’t help. For example, it’s doubtful Gross et al. would defend FDR’s embarrassingly erratic and ultimately destructive behavior during the ill-fated London Economic Conference in 1933. Few would dispute that his decision to blow up the conference as a sop to protectionist Democrats helped prolong the Great Depression, at home and abroad. More generally, the apologists protest too much. Plenty of “normal” and sane people believe the New Deal prolonged the Great Depression. In 1995 a survey by Robert Whaples, published in the Journal of Economic History, showed that half of economists and one-third of historians agreed somewhat or entirely with the proposition that the New Deal prolonged the Great Depression. 

Pork Central

The new Porkulus bill has billions of dollars to fight "global warming" and then also has this (emphasis added):

For example, the latest version contains $2 billion for a clean-coal power plant with specifications matching one in Mattoon, Ill., $10 million for urban canals, $2 billion for manufacturing advanced batteries for hybrid cars, and $255 million for a polar icebreaker and other "priority procurements" by the Coast Guard.

Am I the only one who sees the obvious solution here?

The Wisdom of Joe Biden

If I had the time I would create a blog dedicated to all of the stupid things that Joe Biden says, but that would suck up my time even more than talking about conspiracy theorists.

But let me move for a second to what I was supposed to talk about. I was asked to talk about foreign policy. You know that old joke, you know, an expert is anyone from out of town with a briefcase? I'm out of town, but I don't have a briefcase, and I know a lot of you know as much and more about foreign policy as I do, but it's like that old joke, I hope you Texans aren't offended, but in Delaware that old joke about the Texan who said ‘I don't now much about art but I know what I like?’ Well, I may not know much about it, but I know what I think, and I know what I think we have to do.

It has got so bad that even the One is starting to give him the smackdown.  He should lock him in a closet, but then again He picked him to be VP.

When You Have Lost the New York Times...

Even the New York Times is discussing the failure of mega-government spending to stimulate the economy.

Most Japanese economists have tended to take a bleaker view of their nation’s track record, saying that Japan spent more than enough money, but wasted too much of it on roads to nowhere and other unneeded projects.

Dr. Ihori of the University of Tokyo did a survey of public works in the 1990s, concluding that the spending created almost no additional economic growth. Instead of spreading beneficial ripple effects across the economy, he found that the spending actually led to declines in business investment by driving out private investors. He also said job creation was too narrowly focused in the construction industry in rural areas to give much benefit to the overall economy.

CBO Projects that Stimulus Package a Net Loss

Allah Pundit on Hot Air brings up a Washington Times article discussing a Congressional Budget Office report on the stimulus plan. The Times reports:

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.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary.

Allah then asks if this is correct:

The confusion lies in the term “on net.” Does that refer to the entire period from 2009 to 2019 or the period not including 2009 and 2010, since specific growth numbers for those two years are provided? If the former, then the Times is right and CBO is claiming that the loss in GDP from 2011 to 2019 will wipe out any growth over the next two years for a net loss. If the latter, then the Times is way off.

The letter is available on the CBO website though, so we can take a look, and it seems to back up the negative viewpoint.

From the intro:

At your request, the Congressional Budget Office (CBO) has conducted an analysis of the macroeconomic impact of the Inouye-Baucus amendment in the nature of a substitute to H.R. 1. CBO estimates that this Senate legislation would raise output and lower unemployment for several years, with effects broadly similar to those of H.R. 1 as introduced. In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO’s baseline economic forecast.

Later in the letter:

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. CBO has not estimated the macroeconomic effects of the stimulus proposals year by year beyond 2011.

It indicates several times in the paper that its methodology is calculating a not a year by year change, but a cumulative change from the baseline. Here it is in the endnotes. From table 1:

Estimated Macroeconomic Impacts of the Inouye-Baucus Amendment in the Nature of a Substitute to H.R. 1, Fourth Quarters of 2009, 2010, and 2011
2009 2010 2011
GDP (Percentage from baseline)
Low estimate of effect of plan 1.4 1.2 0.4
High estimate of effect of plan 4.1 3.6 1.2

And from table 2:

Note: For each option, the figures shown are a range of "multipliers," that is, the cumulative change in gross domestic product over several quarters, measured in dollars, per dollar of additional spending or reduction in taxes.

So the Washington Times, and Allah Pundit are more or less correct, the CBO predicts that by 2019 the cumulative effect on GDP will be .1% less than it would be otherwise. Of course this is not a huge difference, I suppose it matters whether you want your cake now or later, but it does lend credence to Michelle Malkin referring to it as the Generational Theft Act of 2009.

A Trade War?

Earlier I brought up the question of a possible trade war. Burton Malkiel, the author of the excellent A Random Walk Down Wall Street, addresses the issue further in today's Journal:

As the world-wide recession deepens, protectionist sentiments are rising. The House of Representatives' version of the economic stimulus bill contains a provision that only American-made steel and other products be used for the infrastructure projects. Wrapped in the cloak of "Buy American" patriotism, the Senate version of the bill contains even stronger anti-free-trade provisions.

This Buy American momentum is bad economics, and by threatening to destabilize trade and capital flows, it risks turning a global recession into a 1930s-style depression. Asked about Buy American on Tuesday, President Barack Obama told Fox News that "we can't send a protectionist message." He said on ABC News that he doesn't want anything in the stimulus bill that is "going to trigger a trade war." He's right.

Yes, I would agree that he doesn't want a trade war, but that doesn't necessarily mean he won't start one. In reality it is really up to Congress, and they do not seem settled on the matter.

US senators voted overwhelmingly, late on Wednesday, to require the "Buy American" provisions "be applied in a manner consistent with US obligations under international agreements".

However, an amendment put forward by Republican Senator John McCain which would have removed the clause altogether was defeated.

Speaking before a vote on that amendment, Mr McCain warned that if the provisions were passed it would "only be a matter of time before we face an array of similar protectionism from other countries - from 'Buy European' to 'Buy Japanese' and more".

The problem with this of course is that "in a manner consistent with US obligations" is a matter of interpretation, and any law which promotes favoritism towards US companies can still provoke a backlash, as other countries will just do the same thing.

President Obama could of course veto the bill if he feels the language is too strong, but he is not very likely to do that after arguing that not passing the bill will bring on a catastrophe.

This is Transparency?

Geez, this guy makes Bush seem eloquent.

New Deal Policies and the Persistence of the Great Depression

Earlier I posted an excellent editorial by professors Harold Cole and Lee Ohanian in which they argue that the New Deal made the Great Depression worse, or at least last longer. In it they discuss their academic research, which I fortunately was able to find. I haven't managed to read the whole thing, and it is quite technical at times, but rather interesting. From the conclusion:

The recovery from the Great Depression was weak despite rapid productivity growth, and was accompanied by significant increases in real wages and prices in several sectors of the economy. A successful theory of the recovery from the Depression should account for persistent low levels of consumption, investment, and employment, the high real wage, and the apparent lack of competition in the labor market. We developed a model with New Deal labor and industrial policies that can account for sectoral high wages, a distorted labor market, and depressed employment, consumption, and investment despite normal productivity.

Our results suggest that New Deal policies are an important contributing factor to the persistence of the Great Depression. The key depressing element behind these policies was not monopoly per se, but rather linking the ability of firms to collude with paying high wages. Our model indicates that these policies reduced consumption, and investment about 14 percent relative to their competitive balanced growth path levels. Thus, the model accounts for about half of the continuation of the Great Depression between 1934 and 1939.

New Deal labor and industrial policies did not lift the economy out of the Depression 51 as President Roosevelt and his economic planners had hoped. Instead, the joint policies of increasing labor’s bargaining power, and linking collusion with paying high wages, impeded the recovery by creating an inefficient insider-outsider friction that raised wages significantly and restricted employment. The recovery would have been stronger if wages in key sectors had been lower. 52

None Dare Call It Science

The anti-war fringe has been pushing the Lancet medical study claiming that 600,000+ Iraqis have died as a result of the war (and that was several years ago). I have argued against it on a couple of occasions, and Slate did a particularly good column on it. Now there is even more reason to doubt their conclusions.

Gilbert Burnham said in the Lancet medical journal in 2006 that 650,000 civilians had died since 2003 - a figure far higher than other estimates.

A polling association in the US said Dr Burnham had refused to supply "basic facts" for its inquiry into his work.

It did not comment on the accuracy of his conclusion.

The American Association for Public Opinion Research (AAPOR)began investigating Dr Burnham's work .

Reproducibility is of course one of the key parts of the scientific method. They should be begging for people to review their work, not blocking them.

The Lost Library Book

With all that is going on right now, sometimes it is nice to just read a story like this. From a Southern California radio station, via the Best of the Web.

Chesley Sullenberger has a problem. He borrowed a book from the Danville Library – and it’s overdue. To complicate matters, the book was an interlibrary loan from Fresno State.

Sullenberger contacted librarians and asked for an extension on the loan and a waiver on the overdue fine. The reason? The book is in the cargo hold of the US Airways plane that made an emergency landing last month in New York’s Hudson River. Sullenberger is the pilot who made that landing. No one was seriously injured.

Fresno State library officials were impressed with Sullenberger’s sense of responsibility… and waived all fines and fees, even the one for losing the book. The library’s going one step further: when the replacement book goes up on the shelf, it will have a special template in front, dedicating it to Chesley “Sully” Sullenberger.
Oh, by the way. The topic of that book? Professional ethics.

The One Politician Dumber than Joe Biden

That is 6 billion this year alone! Although Barack Obama promises to save 3 million of those....

More On the Great Depression

I discussed recently how I thought the government helped make the Great Depression even greater. Helpfully an editorial in the Wall Street Journal today by economists Harold Cole and Lee Ohanian assists me in making my case.

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.

Unfortunately not everyone reads history. And one of those people we just elected president.

The European Union warned the US yesterday against plunging the world into depression by adopting a planned “Buy American” policy, intensifying fears of a trade war.

The EU threatened to retaliate if the US Congress went ahead with sweeping measures in its $800 billion (£554 billion) stimulus plan to restrict spending to American goods and services.

Gordon Brown was caught in the crossfire as John Bruton, the EU Ambassador to Washington, said that “history has shown us” where the closing of markets leads — a clear reference to the Depression of the 1930s, triggered by US protectionist laws.

Can We Question Their Patriotism Yet?

Vice President Joe Biden, back during the campaign:

Noting that wealthier Americans would indeed pay more, Biden said: "It's time to be patriotic ... time to jump in, time to be part of the deal, time to help get America out of the rut."

Which makes all their appointments interesting:

The failure by the former Senate majority leader to pay taxes on the free use of a car and driver for several years, first reported Friday by ABC News, complicates Daschle's nomination and erodes the chances that it will sail through the Senate.

Daschle said tonight he did not realize his car service was income and not a gift from a good friend.

After the closed-door session, the Democratic senators on the Finance Committee expressed support en masse for their former colleague.

"There is a completely understandable, rational, reasonable and acceptable explanation" for his mistakes," Sen. John Kerry, D-Mass., said.

As I said earlier, how scary is it for a $700 billion bailout being run by a guy who can't figure out how to use TurboTax.