Archives: November, 2010

Diamond Not Qualified for Fed Board

Tuesday the Senate Banking Committee meets for the second time to consider the nomination of Peter Diamond to a seat on the Federal Reserve’s Board of Governors. Since Professor Diamond was first nominated, he has been awarded the Nobel prize in economics.

Putting aside his academic qualifications, and his misguided views on Social Security, Professor Diamond is not qualified to be a Fed governor for one very simple reason: he is from a Federal Reserve district that already has representation on the Fed.  Paragraph 10-1 of the Federal Reserve Act requires that:

In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.

Mr. Diamond’s Senate paperwork states he is from Massachusetts, which is also the case for sitting Fed governor Dan Tarullo.  In fairness this provision of the law has been ignored and violated in the past.  In fact, both current Fed Governors Duke and Raskin are both from the Richmond district.  As Duke was there first, it would seem clear from a reading of the law and Raskin’s bio that Raskin is serving in violation of the statute.  But then given the actions of the Fed over the last few years, the Fed has certainly shown that it doesn’t feel constrained by statutes.

Bloomberg reports that despite what Diamond’s paperwork says, the White House claims he’s from Chicago.  Not that he’s ever lived there, but because he once gave a lecture at Northwestern.  Next I suspect the White House will claim an extended lay-over at O’Hare is sufficient for residency.

For perhaps the first time in history, all the Federal Reserve governors are from coastal states.  Also every single Fed governor is from a state that Obama won.  Only one governor is from west of the Mississippi river.  How anyone can believe the current make-up of the Board is a “fair representation” is beyond me.  Perhaps this is one explanation for the currently low public opinion of the Fed; it has become more a Cambridge-Wall Street-Washington echo chamber than anything else.

Obama: “I Want to Make Sure That Taxes Don’t Go Up”

Much of the media discussion of the massive tax increase that looms on January 1 uses terms like “extending the Bush tax cuts” or “tax breaks for the wealthy.” In fact, American taxpayers have faced a particular range of personal income tax rates for the past eight years. If the 2001 and 2003 tax laws are allowed to expire, then Americans will see increased tax rates on income, dividends, capital gains, and estates. So the issue is not “tax cuts” or “tax breaks,” it’s whether we should increase taxes in 2011.

It’s good to see that President Obama understands this. At a news conference at the end of the G-20 Summit on Friday, he said:

I want to make sure that taxes don’t go up for middle class families starting on January 1st.

That’s the right way to understand it. Taxes are about to go up. Of course, the problem is that President Obama does want taxes to go up for business owners, corporate executives, and investors on January 1, the very people whose decisions have the most immediate impact on economic growth and job creation.

And that’s the issue we should be debating: Is it a good idea, especially in a time of continuing high unemployment and slow growth, to raise taxes on investors and entrepreneurs?

Remarkable Interest in School Choice in Colorado?

In Douglas County, CO, a jurisdiction with 240,000 residents south of Denver, there is strong public interest in the possible implementation of a sweeping school choice program.  Here’s a blurb from the Denver Post:

Douglas County School District officials say an unexpected level of interest in a retreat exploring school choice today and Saturday is forcing them to add an overflow room and a video feed to allow the public to watch the discussion. The school board is investigating a voucher program that would allow students to use public money to help with tuition at approved religious schools and other private ones. The two-day retreat will discuss the findings of a school-choice task force that has been mulling several issues, including vouchers.

…The board will officially discuss the school-choice recommendations at a meeting Tuesday night, during which the public will be allowed to comment. No Colorado school district has a voucher program.

Here’s a link to the full proposal. I’m told that parents will have a voucher for about $4,500 per child that can be used to finance tuition at any qualifying school. This is more than enough money to cover costs at most non-government schools, and the population is sufficiently large to make this program a dramatic test case.

Keep your fingers crossed that Douglas County officials resist special-interest groups that are seeking to thwart this reform. The teacher unions have been vicious in their efforts to stop this kind of development. If Douglas County succeeds in putting kids first, this could break the logjam and lead to better education policy across the nation.

It’s Fall in Washington and the Livin’ Is Still Good

Drawing on new census data, Newsweek finds that seven of the 10 richest counties in America, including the top three, are in the Washington area. Newsweek’s former sister publication, the Washington Post, summarizes the data. Only three counties in the United States have a median household income over $100,000, and they’re all Washington suburbs.

As we’ve reported here before, these trends began even before the Obama administration started concentrating job creation on the federal sector. In the middle of the Bush bubble, the Washington Post reported:

The three most prosperous large counties in the United States are in the Washington suburbs, according to census figures released yesterday, which show that the region has the second-highest income and the least poverty of any major metropolitan area in the country.

Rapidly growing Loudoun County has emerged as the wealthiest jurisdiction in the nation, with its households last year having a median income of more than $98,000. It is followed by Fairfax and Howard counties, with Montgomery County not far behind.

This of course reflects partly the high level of federal pay, as Chris Edwards and Tad DeHaven have been detailing. And it also reflects the boom in lobbying as government comes to claim and redistribute more of the wealth produced in all those other metropolitan areas.

To slightly amend a ditty I posted a few years ago,

Mamas, don’t let your babies grow up to be cowboys,

Don’t let ‘em make software and sell people trucks,

Make ‘em be bureaucrats and lobbyists and such.

Feds-Vs.-Feds Dispute Called ‘Stupidest Lawsuit Ever’

Bloomberg opinion columnist Jonathan Weil calls it the “stupidest lawsuit ever.” Freddie Mac, the hopelessly busted government-sponsored mortgage enterprise, owes $3 billion in back taxes to the Internal Revenue Service, or at least so says the IRS. The management at Freddie disputes this, and has filed a lawsuit in Tax Court contesting the bill. This might have made some sense back in the days when the outfit was putatively private, but in the mean time Freddie has become an explicit and complete ward of the federal treasury. So if it wins its case, the taxpayers will not be obliged to pay anything to the taxpayers, while if it loses, the taxpayers will have to shell out a goodly sum to the taxpayers.

There will, of course, be transaction costs. Freddie has hired the highly rated, very expensive law firm of Shearman & Sterling to make sure the dispute is litigated fully, rather than being resolved by flipping a coin, arm-wrestling or just marking the whole mess to zero, as some actual taxpayers might prefer if consulted about the matter.

You’d think as various sectors of the economy have slid (or been pushed) into the “public sector” in the past few years, we would at least have the slight consolation of not having to pay to litigate disputes between them and the rest of the government. But no such luck. Incidentally, a few years back, hyperactive Connecticut attorney general (and now U.S. Senator-elect) Richard Blumenthal filed a lawsuit alleging that an entity called the Connecticut Siting Council was violating the law; the Connecticut Law Tribune pointed out with some bemusement that the CSC was itself an arm of the state government, which meant Blumenthal was in effect suing his own client. He should feel right at home when he arrives in Washington.

President Obama Represents UAW Rather Than U.S. in Korea Trade Talks

This has been a tough month so far for President Obama and his policies.

After the “shellacking” that he, his party, and his domestic policies suffered at the hands of American voters last week, his international economic policies were no more popular among his counterparts at the G20 summit this week in Seoul, South Korea.

Even the sympathetic editors at the New York Times declared in a front-page (print edition) headline this morning: “Obama’s Economic View Is Rejected on World Stage: China, Britain and Germany Challenge U.S.—Trade Talks with Seoul Fail, Too.”

The other leaders at the summit were right to reject the president’s demands that China be singled out for its currency policies, as I’ve written before, and the South Korean government was right to reject his demands for changes in the U.S.-Korea trade agreement that has been waiting for more than three years for congressional approval.

Although not perfect, the U.S.-Korea agreement is a solid step forward. As my Cato colleague Doug Bandow wrote in a recent study, the agreement would sharply reduce trade barriers between our two nations while deepening our commercial and security ties with a key democratic ally in the Asian Pacific.

The Koreans rightly refused to substantially alter the sections of the agreement relating to automobiles. The agreement would eliminate tariffs on all automobile trade between the two countries. Ford, Chrysler, and the United Auto Workers union oppose the deal, claiming that it does not address non-tariff barriers that allegedly hinder U.S. exports to the Korean market.

As I posted in this space a few days ago, there are perfectly normal market reasons why Americans buy a lot more Korean cars than vice versa. The real agenda of Ford, Chrysler, and the UAW is not to gain greater access to the Korean market, but to prevent any greater access of their Korean competitors to the U.S. market.

The talks in Seoul this week reportedly foundered on the specific U.S. demand that Korea relax its emission and mileage standards so that U.S. automakers can more easily modify their cars for the Korean market. How ironic. It has become part of the Democratic mantra on trade that agreements must strengthen the environmental and labor standards of our trading partners. Yet here U.S. negotiators were strong-arming the Korean government to weaken its own standards while the Obama administration seeks to impose higher mileage and emission standards on cars sold in the United States.

There is still time to save the U.S.-Korea agreement and to present it to the potentially more trade-friendly Congress that will convene in January. But for now, President Obama has chosen to serve the narrow interests of two domestic automakers and their union rather than the overall economic and strategic interests of the American people.

This Week in Government Failure

Over at Downsizing Government, we focused on the following issues this week: