Tag: obama

Teddy Roosevelt Is No Model for a President

Cato senior fellow Jim Powell, author of Bully Boy: The Truth about Theodore Roosevelt’s Legacy, writes at Forbes.com today that TR is a bad model for President Obama:

Theodore Roosevelt was the man who, in 1906, encouraged progressives to promote a federal income tax after it was struck down by the Supreme Court and given up for dead.  He declared that “too much cannot be said against the men of great wealth.”  He vowed to “punish certain malefactors of great wealth.”

Perhaps TR’s view was rooted in an earlier era when the greatest fortunes were made by providing luxuries for kings, like fine furniture, tapestries, porcelains and works of silver, gold and jewels.  Since the rise of industrial capitalism, however, the greatest fortunes generally have been made by serving millions of ordinary people.  One thinks of the Wrigley chewing gum fortune, the Heinz pickle fortune, the Havemeyer sugar fortune, the Shields shaving cream fortune, the Colgate toothpaste fortune, the Ford automobile fortune and, more recently, the Jobs Apple fortune.  TR inherited money from his family’s glass-importing and banking businesses, and maybe his hostility to capitalist wealth was driven by guilt.

Like Obama, TR was a passionate believer in big government – actually the first president to promote it since the Civil War.  He said, “I believe in power…I did greatly broaden the use of executive power…The biggest matters I managed without consultation with anyone, for when a matter is of capital importance, it is well to have it handled by one man only …I don’t think that any harm comes from the concentration of power in one man’s hands.”

Also like Obama, TR was almost entirely focused on politics – personalities, speeches, publicity and so on.  He seemed to be concerned about an economic issue only when it became a big problem, particularly if it was big enough to affect the next election.  There wasn’t much evidence of long-term thinking beyond the next election.  Certainly there was no evident awareness of unintended consequences.

Much more here.

Let’s Divest of GM Yesterday

Writing in today’s Washington Post, Charles Lane posits that the time is now for the U.S. Treasury to divest of its remaining 500 million shares of General Motors stock.  I agree with that conclusion, but not with Lane’s rationale or his recommendation for a heavy-handed, government-imposed exit strategy.

Just to recap: the Treasury recouped $23 billion of taxpayers’ $50 billion outlay when it sold GM shares to the public in an IPO in November 2010; the outstanding 500 million shares in government coffers must be sold at an average price of $54 to recover the remaining $27 billion; the IPO price was $33; today’s price is $21.69.  If all 500 million shares could be sold at today’s price, the Treasury would raise $10.8 billion, leaving taxpayers at a loss of just over $16 billion. (Of course, the sale of such a large number of shares would drive the average selling price way below today’s price, resulting in a much larger taxpayer loss.)

Lane is correct to conclude that GM’s immediate future isn’t looking quite so rosy. Demand is tanking in Europe. Concerns remain about whether GM will continue to be able to fund its $128 billion pension plan. And sales of the “game-changing” Chevy Volt have been lagging since the vehicle’s commercial introduction some 13 months ago—well before its engines demonstrated an annoying propensity to spontaneously combust. (Not to worry, says GM’s public relations team: the engines don’t seem to catch fire while being driven, only an hour or two after they’ve been parked in the garage.) Recognizing that that qualifier hasn’t been reassuring enough, GM is now offering to buy back any Chevy Volt it has ever sold, which doesn’t bode well for the bottom line, but also affirms how few of these Government Motors show pieces have even sold.

That grim analysis is the basis for Lane’s preference for government divestment now. There is more downside risk than upside potential. It is an argument based on market-timing, rather than on the principle that bad things happen when the government has a stake in the outcome of a race that it can influence. Sure, the administration would love to divest of GM at a profit to taxpayers. But the longer it is allowed to wait for that train to arrive, the greater the temptation to grease the skids.

The government should divest now. It should have divested in June, when it was first legally permissible to do so.  But the administration (following, by logic, what would have been Lane’s advice at the time) rolled the dice, expecting the stock value to rise. Instead it fell. And then there was this.

But my bigger problem is with Lane’s proposal for a managed divestment.  He writes:

It’s time to cut our losses.  Treasury should start selling its stake in GM.

And I know just the buyer: GM. The company is sitting on more than $33 billion in cash, about triple the market value of Treasury’s 500 million shares, which is roughly $10.8 billion.

Though GM wants to dedicate much of its cash to shoring up its pension plan, it could still absorb most or all of Treasury’s shares, even if Treasury charges a modest premium over the current market price, as it should.

Lane proposes this under the guise of some perverse fealty to a “free-enterprise economy,” as it would spare shareholders from the stock price-depressing impact of an unnatural 500 million share dump. But those shareholders knew the risks they were taking when they purchased GM stock in the first place. They certainly knew that the largest single shareholder didn’t intend to hold its position for very long. Lane’s argument for protecting those shareholders in the name of free-enterprise in unconvincing, if not misplaced.

Furthermore, Lane’s zeal for sticking it to GM seems to eclipse any real commitment to free markets. Forcing GM to divert resources from where management wants to commit them in order to achieve some favorable political outcome (a smaller taxpayer loss) is just as coercive as some of the administration’s actions on the road to GM’s nationalization in the first place.

GM should not be entitled to any favors or exceptional treatment by virtue of its ownership structure. To be certain of that, it should be 100 privatized yesterday. But likewise, GM should not be subject to compensatory or otherwise countervailing policies designed to punish or remove any perceived advantage. For starters, it is impossible to measure the benefits received or the penalties suffered with any precision. Demanding that GM not be exposed to special treatment goes in both directions.

 

The Antidumping Lobby’s Power to Destroy Jobs

President Obama claims to support America’s exporting and so-called “green jobs” industries, but he also likes rules that restrict the importation of critical inputs to those industries. Austin Bragg and I produced a short video detailing how antidumping duties serve to nudge American manufacturers offshore or out of business. The examples we cite are American manufactured products that fall squarely into the category of “green.”

Facebook it. Tweet it. And read more of Dan Ikenson’s heavy lifting on the antidumping issue here, here and here.

Helping to Explain Greece’s Collapse in a Single Picture

Politicians in Europe have spent decades creating a fiscal crisis by violating Mitchell’s Golden Rule and letting government grow faster than the private sector.

As a result, government is far too big today, and nations such as Greece are in the process of fiscal collapse.

But that’s the good news – at least relatively speaking. Over the next few decades, the problems will get much worse because of demographic change and unsustainable promises to spend other people’s money.

(By the way, America will suffer the same fate in the absence of reforms.)

Here’s one stark indicator of why Greece is in the toilet.

Look at the skyrocketing number of people riding in the wagon of government dependency (and look at these cartoons to understand why this is so debilitating).

 

By the way, Greece’s population only increased by a bit more than 16 percent during this period. Yet the number of bureaucrats jumped by far more than 100 percent.

And don’t forget that this chart just looks at the number of bureaucrats, not their excessive pay and bloated pensions.

With this in mind, do you agree with President Obama and want to squander American tax dollars on a bailout for Greece?

American Education, From Camelot to Obamaville

The president has relentlessly called for a more extensive—and expensive—federal role in education. Here’s just one example:

The human mind is our fundamental resource. A balanced Federal program must go well beyond incentives for investment in plant and equipment. It must include equally determined measures to invest in human beings—both in their basic education and training and in their more advanced preparation…. Without such measures, the Federal Government will not be carrying out its responsibilities for expanding the base of our economic… strength.

And if we spend all those new federal dollars on k-12 education, the president promised that “it will pay rich dividends in the years ahead.”

But here’s the strange part: in that same speech, the president made this seemingly ridiculous claim:

Our progress in education over the last generation has been substantial. We are educating a greater proportion of our youth to a higher degree of competency than any other country on earth.

It’s actually not so ridiculous when you learn that the president who said it was John F. Kennedy, in February of 1961. Back then, we really had been making educational progress.

Aside from the ill-fated National Defense Education Act of 1958, the federal government had made no attempt to improve k-12 academic achievement or attainment in the four decades before JFK… and yet, as he noted, American education did in fact improve during that period.

But within a couple of years of JFK’s assassination, Congress passed the Elementary and Secondary Education Act, now known as the No Child Left Behind Act. And in the four plus decades since, the feds have spent roughly $2 trillion trying to improve outcomes and attainment. Over that course of years, both graduation rates and academic achievement at the end of high school have been flat or declining.

Perhaps it could be argued that JFK couldn’t have known better. There was no history showing him what an expensive failure U.S. federal education spending would turn out to be. But the same cannot be said of President Obama, or of those in Congress who continue to tell the public, and presumably themselves, that fed ed. spending is a useful “investment.”

Today, we can look back at a half-century of failed federal education programs. We can think about how much better off the U.S. economy and our children would be if we hadn’t thrown $2 trillion at a calcified school monopoly that cannot spend money efficiently.

And reflecting on that history, perhaps we’ll find the wisdom not to repeat it.

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Little Student Loan Relief, and Never for Taxpayers

Today’s big news is that the Obama administration – thanks to those crisis-ignorin’ creeps in Congress – is going off on its own to reduce purportedly devastating student loan burdens. Well, that’s the message. The reality is that the proposals just tinker around the edges, meaning debtors are getting little relief while the notion that it’s okay to stick taxpayers with other people’s obligations is advanced.

What would the administration’s proposals do? There are several little wrinkles, but basically this: New, income-based repayment rules will be hurried a bit so that borrowers’ payments are capped at 10 percent of discretionary income (likely meaning income above 150 percent of the poverty line) rather than 15 percent, and remaining debt would be forgiven after 20 years rather than 25. In addition, borrowers with loans from both the now-defunct guaranteed loan program – loans through banks that are almost completely backed with federal money – and loans that come directly from Uncle Sam can consolidate those loans and get an interest rate reduction. In point of fact they could do the same thing before, only the administration is offering a .25 point interest reduction in addition to the .25 points that were previously offered.

Here, though, is the really miraculous part: According to the U.S. Department of Education, “these changes carry no additional cost to taxpayers.” Don’t ask how that can be – they don’t say – just rest assured!

For what it’s worth, these changes probably won’t cost taxpayers a whole lot, at least in Washington spending terms. Many borrowers don’t have both guaranteed and direct loans, and a normal federal loan has a ten-year term, meaning most borrowers probably aren’t still paying back twenty years down the line. Finally, while college prices are without question out of control, the average debt for a student graduating with any debt is still only around $27,000. That’s a heck of a lot closer to a car loan than a mortgage.

That said, the idea that any of this won’t cost taxpayers is bunk. They ultimately back all federal student loans, so unless Washington intends to send in the 82nd Airborne to force lenders with remaining guaranteed loans to write them off – which maybe I shouldn’t put past the feds – lenders will get paid. And any direct loans that get less money returned are immediate taxpayer losses. And yes, direct loans probably do make money for the federal government, but those receipts were pledged to Obamacare and deficit reduction when the Student Aid and Fiscal Responsibility Act was rolled into the health care bill to make the CBO numbers come out right. Change the revenue, and it means you’ve saddled taxpayers  with more health care costs, or less supposed deficit reduction, than had been promised with Obamacare. And don’t even get me started on how any reduction or forgiveness of debt encourages students to borrow more and pay even higher tuition prices.

In light of all this, it looks like everyone is being sold a bill of goods by the administration: borrowers won’t get much relief, and taxpayers will indeed get saddled with additional costs.

As You’ll See, Student Loans Hurt Us All

Suddenly, student loans are nearing the top of the nation’s public policy debate. Indeed, President Obama is expected to make a big speech about them on Wednesday. Why the sudden ascendance? Probably because the burden of student loans is one of the few things OWSers are clearly angry about, and that has raised questions ranging from whether such loans should be dischargable in bankruptcy, to whether they help fuel the Saturn V rocket of college price inflation. And last Sunday GOP presidential contender Ron Paul jumped into the fray, suggesting we eliminate the federal student loan program entirely.

Paul is right about phasing out federal student loans. Unfortunately, that’s likely the last thing President Obama will propose.

The first reaction to hearing such a proposal is that it’s Grinch-level heartlessness, stealing a better future from low-income kids. That is almost certainly what the president would say, and such a reaction would likely poll well. That’s why he’s expected to propose lowering interest rates, easing repayment, and other borrower-friendly measures. But as I lay out in a Cato Policy Analysis to be released imminently, by most indications federal student aid and other taxpayer-fueled subsidies aren’t good for anyone. (Well, anyone not employed by a college or university, the ultimate receiving end of all the forced largesse). By artificially—and hugely—boosting consumption, they ultimately lead to massive tuition inflation, encourage millions of unprepared people to take on studies they never finish, and pour H2O into already watered-down degrees. In other words, student aid—including federal lending—is likely a net loss to both students and society.

But I’ve already said too much. If you want to get a lot more on this—and more on the many unintended evils of federal college policies—stand by for the release of my study. And if you’re in DC, come to Capitol Hill Thursday for a briefing on the subject with me and Rep. Virginia Foxx (R-NC). It should give OWSers, libertarians, conservatives, liberals, and anyone else lots to think about.