Archives: 03/2009

Obama First Dem President to Support Vouchers

Through his press secretary Robert Gibbs, president Obama has declared that he will reverse congressional Democrats’ phase-out of the DC Opportunity Scholarships program. The scholarships make private schooling affordable for 1,700 poor DC children, most of whom would be forced back into the District’s broken public school system if it were to end.

However – yes, there’s always a however – there’s every indication that president Obama will do the minimum necessary to keep the program going at its current size, and will not help to expand it.

This is nevertheless a crucial milestone. There is finally a major national Democratic leader who is beginning to catch up to his state-level peers. Democrats all around the country have been supporting and signing small education tax credit programs because they realize that these programs are win-win: good for their constituents and good for their long-term political futures.

The old guard of the Democratic party – typified by congressional leaders – still imagines that school choice is bad for them. They still think that they can roll back time to a period when the public school monopoly was inviolate. That time has passed. Real educational freedom is spreading – slowly – around the country. That is not going to stop.

The last Democrats to be found jamming their fingers into the dike, hoping to stop the flight to educational freedom, will find their political careers swept away when that dike finally crumbles.

No Wonder the GOP Has No Credibility on Spending

You would think Barack Obama’s tsunami of federal spending would provide an easy target for Republicans.  But they apparently haven’t learned the right lessons after two successive electoral debacles.

Earmarks don’t account for a lot of money in Washington terms.  You know, just a few billion dollars out of trillions or quadrillions or whatever we are now up to – it’s so easy to lose track!

Nevertheless, earmarks are a powerful symbol.  So trust the “stupid party” to muff its chance.  Reports Politico:

Bashing Democrats on the day President Obama signed the $410 billion omnibus spending bill was the easy part for Republican leaders Wednesday.

But getting Rep. John Boehner and Sen. Mitch McConnell on the same page on earmarks will be a lot tougher.

At a joint press conference designed to present a united Republican front against Democratic spending habits, McConnell (R-Ky.) and Boehner (R-Ohio) appeared to diverge on earmark reform.

“I think the president missed a golden opportunity to really fulfill his campaign commitment to not sign bills that have a lot of wasteful spending and are overburdened with earmarks,” Boehner said. “If you look at the earmark reforms that he proposed, the question I have is, ‘Where’s the beef?”

McConnell declined to answer the question about earmarks, and instead criticized the president’s contention that the omnibus bill was simply last year’s unfinished business.

“Let me tell what was not last year’s business was plussing the bill up 8 percent, which is twice the rate of inflation,” McConnell said. “This bill is not last year’s business. … It further illustrates my point that when you add up the stimulus and the omnibus, the spending in the first 50 days of the administration [comes] at a rate of $1 billion an hour.”

Republicans have tried to come up with a unified earmark reform plan, but have struggled as GOP appropriators are reluctant to sign on. McConnell is on the Senate Appropriations Committee and has called for earmark reforms, but he and many lawmakers defend Congress’ constitutional right to direct spending.

In the omnibus bill, McConnell secured some $75 million worth of earmarks, while Boehner, a long-time critic of earmarks, did not. Boehner says Congress should freeze earmarks for the rest of the year, saying it leads to wasteful and potentially corrupting Washington spending.

Of course, Democrats have taken not.  In signing the latest spending bill President Barack Obama landed a nice blow against GOP hypocrisy:

And I also find it ironic that some of those who rail most loudly against this bill because of earmarks actually inserted earmarks of their own and will tout them in their own states and their own districts.

If Congress can’t take a vow of poverty on distributing pork when the nation faces a $1.3 trillion budget deficit and trillions more in deficits over the coming years, then it isn’t likely ever to be more responsible with the public’s money.

New Podcast: ‘A More Transparent Federal Government’

Online technology offers President Obama more opportunities to increase government transparency than any president before him, says Jerry Brito, creator of StimulusWatch.org and senior fellow at the Mercatus Center.

In today’s Cato Daily Podcast, Brito says that although Obama has taken positive steps toward increasing transparency, there are hurdles in place that are restricting open access to government data.

President Obama has been very clear about making sure that Americans know where every dollar goes…the problem though so far, is that we have a Web site called Recovery.gov, but there isn’t much there yet.

The Joys of Global Gridlock

The G-20 Summit in London on April 2 will feature politicians from around the world jockeying to promote bad ideas. Thankfully, there is a silver lining to this dark cloud since the United States and Europe do not agree on which bad idea deserves the most prominence. As the Wall Street Journal explains, the United States wants more nations to squander money of Keynesian-style schemes (see here to understand why bigger government is not stimulus). The Europeans, meanwhile, want to persecute tax havens and give the Keystone Cops at the IMF more money:

The U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation. In President Barack Obama’s first foray into economic diplomacy, Washington will urge the shift at a summit next month in London, U.S. officials say, as markets look for a unified plan of action from the world’s most economically powerful nations. Washington’s focus is at odds with France, Germany and other European nations that want the Group of 20 summit on April 2 to focus on rewriting rules governing financial markets. … U.S. officials, who could receive support from China and other countries with big stimulus programs, contend additional government spending is needed to reduce the depth and length of the downturn. Britain also may have an easier time seeing eye-to-eye with the U.S. than other European countries because both London and Washington are concerned that tighter financial regulation could harm their financial centers. Administration officials also say the G-20 isn’t ready to put new regulations in place, so focusing in that area would be counterproductive. … Even if the U.S. gets its way, the G-20 won’t ignore financial regulation. The G-20 has approved the concept of regulating the world’s largest financial institutions through international “colleges” of regulators.

The International Herald Tribune has more details on the misguided European proposals. At no point, though, is there any explanation of why the global economy would benefit from a bigger and more powerful IMF. The IMF certainly did not correctly predict the current financial turmoil. Nor has the IMF either correctly identified the government policy mistakes that caused the crisis or proposed policies that would help resuscitate the global economy. So why reward the bureaucrats with more money and power? The attack against tax havens is even more dubious. Desperate politicians like Gordon Brown are seeking scapegoats to distract voters, but it is unclear why tax havens should be blamed for asset bubbles caused by weak monetary policy and housing subsidies in “onshore” nations:

European finance ministers intend to push for a doubling of resources for the International Monetary fund to $500 billion, and to back the use of sweeping new sanctions against tax havens, according to a draft document. Confronted by a deepening global economic crisis, the top financial officials in the 27 European Union member countries are expected to agree in principle Tuesday to provide additional temporary funding for the IMF if necessary, and to support significant tightening of financial regulation. At a meeting in Brussels, the EU finance ministers are due to endorse a draft document, already approved by senior officials from national capitals, that will align the positions of European governments before the meeting of the heads of the Group of 20 developing and emerging economies in London next month. “It is essential,” the document says, “that the IMF has the appropriate financial means to assist countries particularly affected by the current crisis. EU member states support a doubling of IMF resources and are ready to contribute to a temporary increase if needed.” … The draft document…calls for the definition of a set of criteria by which to judge those that do not comply with international standards. “A tool box of sanctions” would be used to deal with such tax havens, the draft adds. These would include “the capacity to prohibit sales of financial products generated in these jurisdictions and the capacity to restrict companies’ operations into and from these jurisdictions.”

Gridlock generally is a good thing in Washington. If Republicans and Democrats are fighting, it slows the pace of legislation – which almost always protects liberty and prosperity. On the international level, where politicians scheme to set up cartels for the benefit of governments, gridlock is even more desirable.

Switzerland, Austria, and Luxembourg Defend Financial Privacy…and Get Support from the Czech Republic

The Birmingham Star reports on how Switzerland, Austria, and Luxembourg are defending their human rights policies of protecting financial privacy:

Switzerland, Luxembourg and Austria are fighting attempts to put them on blacklist for being tax havens and over-secretive in banking rules. Luxembourg officials hosted discussions with the Swiss and Austrian finance ministers over the weekend, resulting in a demand for involvement in talks on the issue prior to the G20 summit next month. Luxembourg treasury officials said the small European group wanted to be involved in the debates about bank secrecy which were currently being discussed in meetings to which they did not belong, such as the G20.

Equally important, the Czech Republic is standing up for the sovereign right of jurisdictions to have strong human rights laws. The Finance Minister correctly explains that Switzerland’s laws should not be sacrificed on the altar of bigger government. The EU Business reports:

Czech Foreign Minister Karel Schwarzenberg defended Switzerland on Sunday against threats by EU member states to put it on a tax haven blacklist, saying sovereignty is “worth more” than lost taxes. “Certainly tax coffers here and there miss out on a couple of million euros… The independence of a country and the traditions of an independent, neutral Switzerland is however worth more than that,” Schwarzenberg said. “Why must one spoil that at all cost?” he added in an interview with the Swiss newspaper NZZ am Sonntag. The Czech Republic holds the rotating presidency of the European Union, and Switzerland has come under intense pressure in recent months over its banking secrecy laws.

Why Bank Stocks Rose on Bernanke’s Remarks

In a CNBC spot with Steve Liesman & Erin Burnett, I tried to explain why investors in bank stocks had good reason to be pleased with part of Fed Chairman Ben Bernanke’s speech.  Judging by the response of Steve and Erin, and others on CNBC over the following day,  I must not have been persuasive.

For clarification, I am quoting the exact language from Bernanke’s talk, with my emphasis added.

My main point is that Bernanke admitted that when it comes to the “financial crisis” of some big banks, this is largely an artifact of unduly harsh regulation being applied at the worst possible time:

There is some evidence that capital standards, accounting rules, and other regulations have made the financial sector excessively procyclical–that is, they lead financial institutions to ease credit in booms and tighten credit in downturns more than is justified by changes in the creditworthiness of borrowers, thereby intensifying cyclical changes.

For example, capital regulations require that banks’ capital ratios meet or exceed fixed minimum standards for the bank to be considered safe and sound by regulators. Because banks typically find raising capital to be difficult in economic downturns or periods of financial stress, their best means of boosting their regulatory capital ratios during difficult periods may be to reduce new lending, perhaps more so than is justified by the credit environment. We should review capital regulations to ensure that they are appropriately forward-looking…

Bernanke emphasized the regulators’ dangerous habit of raising capital requirements and loan loss reserves simply because of a strict mark-to-market misinterpretation of the “fair value” of mortgage-backed securities.

He noted that:

Determining appropriate valuation methods for illiquid or idiosyncratic assets can be very difficult, to put it mildly. Similarly, there is considerable uncertainty regarding the appropriate levels of loan loss reserves over the cycle. As a result, further review of accounting standards governing valuation and loss provisioning would be useful, and might result in modifications to the accounting rules that reduce their procyclical effects without compromising the goals of disclosure and transparency.

The key here is Bernanke’s criticism of the rigid use of Basel capital standards, not mark-to-market information per se (which would be harmless if it did not trigger foolish regulations). When combined with Barney Frank’s similar comments on the same day, it begins to look as though sensible economics might finally take priority over dubious bookkeeping.

Let’s Be Fiscally Responsible, Starting Tomorrow

In his famous book, Confessions, the 5th-century theologian Augustine wrote that he used to pray before his conversion, “Lord, make me chaste, but not just yet.”

That quote came to mind as I read the news a moment ago that President Obama plans to sign the $410 billion catch-all appropriations bill even though it contains 8,500 “earmarks” that will cost taxpayers nearly $8 billion.

Recall that as a candidate, Obama said he and Democratic leaders in Congress would change the “business as usual” practice of stuffing spending bills with pet projects. Those earmarks, submitted by individual members to fund obscure projects in their own districts and states, typically become law without any debate or transparency.

Saying he would sign the “imperfect bill,” President Obama offered guidelines to curb earmarks … in the future. “The future demands that we operate in a different way than we have in the past,” he said. “So let there be no doubt: this piece of legislation must mark an end to the old way of doing business and the beginning of a new era of responsibility and accountability.”

Lord, make us fiscally responsible, but not just yet.