Tag: Bailout

Weak Defenses of Teacher Bailout

As the Obama administration continues to send mixed signals about the proposed $23 billion public-school bailout, rescue advocates are offering some very wimpy defenses of their cause. That is, except for the National Education Association, which has launched a PR blitz for the bailout in its grandest – and most shameless – tradition of using cute kids to get lots of dues-paying members:

OK, enough of the NEA. The more numerous defenses of the bailout try to offer more reasoned and less emotional arguments for the bailout than does the NEA. But not much more reasoned.

Case in point, the The Atlantic’s Derek Thompson, who takes issue with an op-ed I had in the New York Post yesterday making clear that even cutting 300,000 public-school employees – the worst-case scenario – would hardly be the “catastrophe” people like U.S. Secretary of Arne Duncan say it would be. As I wrote, even that cut would only constitute a 4.8 percent reduction in the public K-12 workforce. More important, we have seen decades of huge per-pupil spending and staffing increases in education with essentially no accompanying improvement in academic achievement. In other words, even far bigger cuts than the worst-case scenario would likely have little adverse effect on achievement.

So the worst cuts wouldn’t actually be that big, and they’d likely have little negative effect on achievement. But to Thompson, they’d be akin to the suffering of cold-turkey drug rehab:

At the risk of invoking a cliche, our education system is a bit like a painkiller junkie who just had his wisdom teeth pulled. In the long term, we probably want to wean the patient off drugs. In the short term, the patient happens to be in dire need of some drugs.

Perhaps more troubling than this overwrought analogy is that Thompson dismisses my complaint that the $23 billion bailout would, in addition to being educationally worthless, add to our staggering national debt.  $23 billion, Thompson essentially says, is just too small a piece of federal change to complain about its debt implications.

“Well,” he writes, “if we’re playing the put-it-in-context game, $23 billion is ‘only’ 0.6% of the 2010 budget. An unfortunate bailout, perhaps, but hardly catastrophic…”

OK. If the game we’re supposed to be playing is the “this-expenditure-isn’t-all-that-big” game, then we can forget about ever cutting the $13 trillion debt. Heck, the Defense Department’s budget in FY 2010 was “only” about $693 billion, a mere 5.3 percent of the national debt.

Joining the bailout defense today is White House Council of Economic Advisors chair Christina Romer, who pushes for it in the Washington Post.

In addition to repeating the usual, now thoroughly debunked proclamations of impending educational disaster, Romer rolls out boilerplate about the government needing to maintain high employment in order to keep people spending and paying taxes:

Because unemployed teachers have to cut back on spending, local businesses and overall economic activity suffer. And the costs of decreased learning time and support for students will be felt not just in the next year or two but will reduce our productivity for decades to come…

Furthermore, by preventing layoffs, we would save on unemployment insurance payments, food stamps and COBRA subsidies for health insurance, and we would maintain tax revenue.

Given the at-best highly dubious short-term positive effects of the “stimulus,” it is hard to believe that too many people at this point will find these arguments persuasive. Worse yet, Romer glosses right over the fact that the mammoth debt will eventually have to be repaid, and that that will have huge negative effects for local businesses and everyone else as their money goes from useful pursuits to government debt repayment.

In light of how flaccid the arguments are for the bailout, it’s really no surprise that the Obama administration is sending mixed signals about how much it really wants the rescue. By offering some support – including having the Education Secretary appear at the launch of the NEA’s PR blitz – the administration keeps on the good side of the teachers unions. But by not going all out, the administration doesn’t end up too closely connected to a debt-be-damned expenditure that neither addresses a real emergency, nor has any meaningful connection to education quality.

Public Wants Fed Audit

A new Rasmussen poll has 80% of the American public supporting an audit of the Federal Reserve.  Only 9% of the public oppose, with the rest unsure.

Unfortunately the poll did not ask specific questions over whether such an audit should cover monetary policy or just the Fed’s 2008 bailout activities.  So while the poll is likely to keep pressure on Congress, during its conference negotiations over financial regulation, to retain some audit of the Fed, the likely result is that Congress will leave out any real, on-going audit of monetary policy. 

After Sen. Bernie Sanders essentially gutted his own amendment, Senator Dodd and the Obama administration agreed to a minor audit of the Fed’s emergency lending programs.  Ron Paul, sponsor of the House version of the audit, quickly labeled this as a “sell-out”.  Fortunately Congressman Paul looks to be a House conferee on the bill, so some hope remains of a full audit being included.

Opponents of a Fed audit claim this would undermine the Fed’s political independence.  Sadly what opponents, including many economists, are missing is that the Fed is currently far from independent of politics.  This is again an area where the public gets what the experts miss, as just 20% of poll respondents thought the Fed has acted independently.  A full 60% felt the Fed was too much influenced by the President, getting at a crucial point concerning Fed independence:  it is independence from the Executive branch that is critical.

Fed Ed on the Move

There’s a lot to learn about what’s going on in federal education policy today, and none of it is good.

First, Steven Brill offers a revealing look at the Race to the Top evaluation process in a piece that can be added to the ever-growing pile of evidence that Race to the Top isn’t even close to the objective – or, I’d add, powerful – catalyst for meaningful reform that the Obama administration insists it is.

Second, it appears that congressional Democrats are preparing to pass a Harkin-proposed, Obama-endorsed, $23 billion bailout for teachers by attaching it to an “emergency” appropriation for the war in Afghanistan. (Passing major – and highly suspect – education legislation by attaching it to something totally unrelated? Sound familiar?) And what’s the nice thing about “emergency” legislation? No need to worry that the outlay would add to our already insane federal deficit; that can’t be allowed to interfere with saving the world (or public schooling lard).

Finally, looming on the horizon is the release of final standards from the Common Core State Standards Initiative. The Obama administration is trying to coerce all states to adopt the standards by linking adoption to Race-to-the-Top competitiveness and, potentially, Elementary and Secondary Education Act funding.

The good news is that on June 2 – potentially the very day the standards will be released – you can catch what has sadly been a rarity so far in the push for national standards: a real debate about whether national standards will actually improve educational outcomes.  My answer is that there is no meaningful evidence that national standards drive superior results, but joining me to debate that right here at Cato will be the Heritage Foundation’s Lindsey Burke, Sandra Boyd of Achieve, Inc., and the Fordham Foundation’s Michael Petrilli. It will be a debate that must be replicated across the country before we make any further move to adopt one standard for every public school in America. You can register here to see our debate live, or catch it online at Cato.org.

The feds are on the move in education, and the more we learn about their plans, the more obvious it is that they must be stopped.

Ron Paul, the Chamber of Commerce, and Economic Freedom

Tim Carney has a blog post at the Examiner that’s worth quoting in full:

The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R-Tex. — certainly one of the two most free-market politicians in Washington — gets the lowest score of any Republican.

Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:

  • Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
  • Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
  • Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.

(Rep John Duncan, R-Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)

I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free-market agenda:

Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.

Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro-business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro-business” is not the same as “pro-freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.

I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber’s position than to Ron Paul’s. But to suggest that Paul is wrong to vote against business subsidies – or that DeMint was wrong to vote against Bush’s 2008 stimulus package and the $700 billion TARP bailout – certainly does illustrate how much difference there can be between “pro-business” and “pro-market.” Instead of “Spirit of Enterprise,” the Chamber should call these the “Spirit of Subsidy Awards.”

The IMF Is Urging Governments to Impose Regulatory and Tax Cartels to Benefit Politicians

Price fixing is illegal in the private sector, but unfortunately there are no rules against schemes by politicians to create oligopolies in order to prop up bad government policy. The latest example comes from the bureaucrats at the International Monetary Fund, who are conspiring with national governments to impose higher taxes and regulations on the banking sector. The pampered bureaucrats at the IMF (who get tax-free salaries while advocating higher taxes on the rest of us) say these policies are needed because of bailouts, yet such an approach would institutionalize moral hazard by exacerbating the government-created problem of “too big to fail.”

But what is particularly disturbing about the latest IMF scheme is that the international bureaucracy wants to coerce all nations into imposing high taxes and excessive regulation. The bureaucrats realize that if some nations are allowed to have free markets, jobs and investment would flow to those countries and expose the foolishness of the bad policy being advocated elsewhere by the IMF. Here’s a brief excerpt from a report in the Wall Street Journal:

Mr. Strauss-Kahn said there was broad agreement on the need for consensus and coordination in the reform of the global financial sector. “Even if they don’t follow exactly the same rule, they have to follow rules which will not be in conflict,” he said. He said there were still major differences of opinion on how to proceed, saying that countries whose banking systems didn’t need taxpayer bailouts weren’t willing to impose extra taxation on their banks now, to create a cushion against further financial shocks. …Mr. Strauss-Kahn said the overriding goal was to prevent “regulatory arbitrage”—the migration of banks to places where the burden of tax and regulation is lightest. He said countries with tighter regulation of banks might be able to justify not imposing new taxes.

I’ve been annoyingly repetitious on the importance of making governments compete with each other, largely because the evidence showing that jurisdictional rivalry is a very effective force for good policy around the world. I’ve done videos showing the benefits of tax competition, videos making the economic and moral case for tax havens, and videos exposing the myths and demagoguery of those who want to undermine tax competition. I’ve traveled around the world to fight the international bureaucracies, and even been threatened with arrest for helping low-tax nations resist being bullied by high-tax nations. Simply stated, we need jurisdictional competition so that politicians know that taxpayers can escape fiscal oppression. In the absence of external competition, politicians are like fiscal alcoholics who are unable to resist the temptation to over-tax and over-spend.

This is why the IMF’s new scheme should be rejected. It is not the job of international bureaucracies to interfere with the sovereign right of nations to determine their own tax and regulatory policies. If France and Germany want to adopt statist policies, they should have that right. Heck, Obama wants America to make similar mistakes. But Hong Kong, Switzerland, the Cayman Islands, and other market-oriented jurisdictions should not be coerced into adopting the same misguided policies.

Lehman’s Failure Taught Us Nothing

Several commentators have reacted to Senator McConnell’s floor statement regarding the Dodd bill as a defense of “doing nothing”.  And accordingly argue that such a position would be, in the words of Simon Johnson, both dangerous and irresponsible.  This familiar canard is based upon the oft repeated assertion that the failure of Lehman proved that we cannot simply let large financial companies enter bankruptcy.

The simple, but important, fact is that we have no idea what would have happened had we let AIG and Bear go into bankruptcy proceedings.  Nor do we know what would have happened if Lehman had been saved.  Macroeconomics does not have the luxury of running natural experiments to determine the impact of a corporate failure.   Scholars have an obligation to accurately reflect the uncertainties in the debate.  Those that assert Lehman proved anything, are being at best disingenuous, and at worst, dishonest.

Let us, however, put forth a few things we do know:

  1. We know none of Lehman’s counterparties failed as a result of Lehman’s failures.  Just as we know none of AIG”s counterparties would have failed if they did not get 100 cents on the dollar from their CDS positions.  So where exactly is the proof of contagion?
  2. We know we had a nasty housing bubble.  We were going to lose millions of jobs in construction and real estate regardless of what we did.  We knew financial institutions heavily invested in housing would suffer.  How exactly would saving Lehman have prevented any of that?

The debate over ending bailouts and too-big-to-fail will not progress, we will not learn a thing, if we let simple, empty assertion pass as fact.  Much of the public remains angry at Washington because those responsible, such as Bernanke and Geithner, have never laid out a believable or plausible narrative for the bailouts.  It always comes back to “panic.”  If we are ever to hope to return to being a country governed by the rule of law, rather than the whims of men, then we need a lot more of an explanation than “panic.”