Tag: aid

Moody’s Caves In to Political Pressure on Municipal Bonds

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

Weekend Links

  • The hard truth about end-of-life care in America.
  • If current trends continue, the U.S. government will soon spend a greater portion of GDP on Medicare and Medicaid than Canada now spends on its entire single-payer government-run system. Here’s a way to fix that.

So Much for Making Money on the Bailout

Reports the Washington Post:

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers’ rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report, which is scheduled to be released Wednesday.

Well, it’s only money.  And with the taxpayers facing more than $100 trillion worth of unfunded liabilities, what’s a few more wasted dollars?!

Sticking Around Afghanistan Forever?

I’ll confess one of the arguments that I’ve never understood is the claim that the U.S. “abandoned” Afghanistan after aiding the Mujahadeen in the latter’s battle against the Soviet Union.  Yet Secretary of Defense Robert Gates apparently is the latest proponent of this view.

Reports the Washington Post:

Defense Secretary Robert M. Gates said in an interview broadcast this week that the United States would not repeat the mistake of abandoning Afghanistan, vowing that “both Afghanistan and Pakistan can count on us for the long term.”

Just what does he believe we should have done?  Obviously, the Afghans didn’t want us to try to govern them.  Any attempt to impose a regime on them through Kabul would have met the same resistance that defeated the Soviets.  Backing a favored warlord or two would have just involved America in the ensuing conflict. 

Nor would carpet-bombing Afghanistan with dollar bills starting in 1989 after the Soviets withdrew have led to enlightened, liberal Western governance and social transformation.  Humanitarian aid sounds good, but as we’ve (re)discovered recently, building schools doesn’t get you far if there’s little or no security and kids are afraid to attend.  And a half century of foreign experience has demonstrated that recipients almost always take the money and do what they want – principally maintaining power by rewarding friends and punishing enemies.  The likelihood of the U.S doing any better in tribal Afghanistan as its varied peoples shifted from resisting outsiders to fighting each other is a fantasy.

The best thing the U.S. government could do for the long-term is get out of the way.  Washington has eliminated al-Qaeda as an effective transnational terrorist force.  The U.S. should leave nation-building to others, namely the Afghans and Pakistanis.  Only Afghanistan and Pakistan can confront the overwhelming challenges facing both nations.

Federal Pay: Response to the Critics

My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:

First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).

Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.

Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.

Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.

A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).

That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.

Bringing the States Back In

afghanistanIt’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.”  That said, let me engage in a little bit of it.

What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff.  And to an extent, it is about each of those things.  But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.

The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.

Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan.  When that happens, India and Pakistan are still going to live in the neighborhood.  They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much.  Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan.  In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country.  Until you grasp that nettle, you’re really just fumbling around in the dark.

Find a solution for that in your COIN manual.

Afghanistan Now Is Truly Barack Obama’s War

Afghanistan is voting for president. Unfortunately, the outcome, even if a fair result, is unlikely to matter much. The war will continue.

In 2008 President Barack Obama was seen as the anti-war candidate.  In fact, his reputation reflected his prescient opposition to the Iraq war, but he said little to suggest that he was out of sync with Washington’s interventionist consensus.

We see his status quo foreign policies with his support for continued NATO expansion as well as maintaining American garrisons around the globe, including in South Korea and Japan.  But his escalation in Afghanistan most obviously demonstrates that he is a man of the interventionist left.

He is now making it clear that Afghanistan is his war.  Reports Reuters:

President Barack Obama will seek to shore up U.S. public support for the war in Afghanistan on Monday just days before an Afghan presidential election widely seen as a major test of his revamped strategy.

Obama will address a military veterans group in Phoenix at a time when U.S. combat deaths are rising amid a troop buildup against a resurgent Taliban, and polls show a softening of public backing for the eight-year-old war.

Hoping to reassure Americans, Obama is expected to sketch out why he believes the Afghanistan policy he unveiled earlier this year is working and why the United States must remain committed to stabilizing the war-ravaged country.

The political risks for him are enormous.  Anything bad that happens in Iraq can be blamed on George W. Bush.  But any failure in America’s nation-building mission in Afghanistan – and failure is the most likely outcome in any nation-building in Afghanistan – will be seen as his responsibility.

And American and other coalition military personnel, as well as the Afghan people, will pay the price.