Archives: 03/2009

The Bridge to Your Wallet

The Bridge to Your WalletThe airwaves and Intertubes are filled with images of this bridge in Missouri – the first transportation project in the nation to be funded through the stimulus bill signed by president Obama last month. In their coverage of this project, the media uniformly point to the jobs it has created for local workers, and neglect to reflect on its economic costs.

As Doug Bandow pointed out in his earlier post, even Congress’s own Budget Office expects the stimulus to shrink our economy in the long term. And the CBO’s analysis is arguably too rosy, neglecting the crucial psychological effect of Washington’s unprecedented spending spree on American consumers.

An NBC/WSJ public opinion poll found in January that “60 percent say they’re concerned that the government will spend too much money in trying to stimulate the economy, ultimately increasing the size of the debt.” That’s up from 57 percent who were already terrified by Bailout Mania back in November of 2008. What do people do when they’re scared about the state of the economy? They. Stop. Spending.

Supporters of bailouts and “stimuli” imagine that they can overcome consumers’ tight-fistedness in the short term, but they fail to realize that each new lavish increase in federal spending makes taxpayers more nervous about their ability to repay the ballooning federal debt and about the future of the U.S. economy. So while the Bridge to Your Wallet may have created a handful of local construction jobs in Missouri, it is almost certainly costing many others around the nation.

Cautious taxpayers look at that bridge project, at the mind-boggling accumulation of federal bailouts and stimuli and the biggest federal budget in history, and they cancel major purchases and family vacations. They eat at home instead of supporting their local restaurants. They do exactly the opposite of what the president and Congress are expecting.

If the media insist on doing more stories about the Bridge to Your Wallet, they should look at the polling and spending data showing how Washington’s spending spree is scaring the public into spending less – defeating the very purpose of the stimulus. They should interview restaurant and hotel owners and ask them just how economically stimulated they feel at the moment.

A ‘Stimulus’ Bill that Makes Us Worse Off

Even after being in Washington for nearly three decades, I still occasionally marvel at the stupidity and foolishness of the denizens of Capitol Hill.  Like the recent “stimulus” bill.  There’s no doubt that it is waste and abuse personified, much of it derived from the standard big-spending liberal wish list.  But we were told that wouldn’t matter, since spending, any spending, is what was necessary to get the economy moving.

But it turns out that even the Congressional Budget Office–the legislative branch’s own analytical agency–figures the legislation will make us worse in the long-term.  On Monday CBO reaffirmed its earlier conclusion:

In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment. (Crowding out is unlikely to occur in the short run under current conditions, because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.) CBO’s basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital). Because of uncertainty about the degree of crowding out, however, CBO has incorporated both more and less crowding out into its range of estimates of the long-run effects of the stimulus legislation.

Since CBO expects the U.S. to return to full employment, the impact of the lower GDP will be lower wages:

The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be slightly less productive because the capital stock is slightly smaller.

So, we are going massively into debt and mortgaging the future of the young for the purpose of … shrinking the economy!  Workers will find themselves paying higher taxes to fund wasteful spending while … earning less!  No wonder Washington is such an alien place to most Americans.  Even after spending most of my adult life here, I still don’t get it.

Your Government at Work

In case you are the careless sort who doesn’t ask who is funding all of those wonderful government projects around you, the Obama administration intends to create a special stimulus brand.  Really.

Reports ABC News:

President Obama announced today that his administration will begin stamping an emblem on projects funded by the economic stimulus package so that people can easily recognize the effects of the American Recovery and Reinvestment Act.

All projects will be stamped with the ARRA logo (short for the American Recovery and Reinvestment Act) and lists the recovery.gov website on the emblem.

Aara_logo_2

In remarks at the Department of Transportation this morning, Mr. Obama referenced the new emblems.

“We’re also making it easier for Americans to see what projects are being funded with their money as part of our recovery. So in the weeks to come, the signs denoting these projects are going to bear the new emblem of the American Recovery and Reinvestment Act,” Obama said. “These emblems are symbols of our commitment to you, the American people – a commitment to investing your tax dollars wisely, to put Americans to work doing the work that needs to be done.  So when you see them on projects that your tax dollars made possible, let it be a reminder that our government – your government – is doing its part to put the economy back on the road of recovery.”

Of course, I’m sure the program has nothing to do with the desire to win political points for bringing goodies to the voters.  No one in Washington thinks like that.  On the other hand, when the inevitable abuse and waste emerges, the administration might begin tearing off its brand as quickly as it once put it on.

Grand Juror Got Too Uppity

Peter Atherton was thrown off a grand jury for asking too many questions of the prosecutors.  Here’s an excerpt from Legal Times:

Back in 2001, fellow grand jurors quickly became irritated with Atherton, saying he was disruptive and was holding up the process with all of his questions about probable cause and burden of proof, according to court records.

It was Atherton’s first time on a grand jury when he showed up for service that April. He says he became concerned the jury was rushing through cases, indicting individuals without having a full understanding of the crimes.

Filing an indictment against someone is serious stuff.  The process should be slow and deliberative.  Alas, the old saw is that prosecutors can get grand juries to indict anything–even a ham sandwich.  Atherton’s experience lends support to that–skeptics who question authority apparently can’t be tolerated.   For a related case, go here.  For my primer about the grand jury process, go here.

‘Real Regulators’ Redux

Sunday’s episode of 60 Minutes featured a man named Harry Markopolos who repeatedly reported Bernie Madoff’s scam to the Securities and Exchange Commission. The SEC did not investigate.

Steve Croft: How many times did you send material to the SEC?

Markopolos: May 2000. October 2001. October, November, and December of 2005. Then again, June 2007. And finally, April 2008. So, five separate SEC submissions.

Croft: And in spite of all of the things that you did, it still ended up in disaster.

This is a reminder of what I observed in a recent post here called “A Real Regulator.” CNBC’s Erin Burnett had called for a “real” regulator in the wake of Madoff, to which I replied:

When regulators fail to address a problem ahead of time, when they regulate inefficiently, when they hand their rulemaking organs to the industries they are supposed to oversee, those are all the actions of real regulators. That’s what you get with real regulation.

Markopolos isn’t grinding this same ax against goverment regulation. He says, “… [S]elf-regulation on Wall Street doesn’t work.”

So the question is posed: What allowed this to happen?

I don’t think this huge fraud occured in a “self-regulatory” environment. It occured in a regulated environment. Regulators failed to do their jobs, but investors had abandoned their responsibility to look into the people and firms with which they placed their money. They believed that the SEC was taking care of that.

It wasn’t, so nobody was minding the store. Ultimately, the SEC served as a partner to the crime, providing the “confidence” that made a success of Bernie Madoff’s confidence game.

Back to Markopolos:

That’s typically how the SEC does it. They come in after the crime has been committed, they toe-tag the victims, count the bodies, and try to figure out who the crooks were, after the fact, which does none of us any good.

Is “self-regulation” the alternative to government regulation? No. And neither is deregulation. The alternative is market regualtion, where individuals, responsible for the soundness of their purchases and investments, investigate and study who they do business with. Scams like Madoff’s would have shorter duration and do less damage if investors were not under the impression that they were protected by government regulators. Of course, our policymakers are likely to double-down on the bet on governmental regulation, even though we all just witnessed its failure.

I’m Speechless

Treasury Secretary Tim Geithner, testifying today to the House Ways and Means Committe, said that the Obama administration had inherited “the worst fiscal situation in American history” but that “additional spending is necessary because the previous administration was unwilling to make long-term investments in health care, energy and education.”

Since these ridiculously inconsistent statements have left me speechless, I’ll refer you to Tad’s previous entry.

New Podcast: ‘Climate of Extremes’

With a polarized debate among the scientific community over climate change, what about experts who admit that climate change is real, but don’t think it’s the end of the world?

In today’s Cato Daily Podcast, Cato Senior Fellow in Environmental Studies Patrick J. Michaels explains the problem with the global warming debate.

Either it seems you think the world is coming to an end from climate change, and pronto, or you say there is no such thing as climate change.…Now it’s gotten to the point where if you say climate change is real, but it’s not the end of the world, both poles of the debate get angry at you.…But, in fact, that is the truth: climate change is real; it’s modest. It’s proceeding at a rate that is below the statistical rates predicted by the climate models; in other words, those models are in the process of failing.