Tag: recession

Obama’s New Numbers

A new ABC/Washington Post poll is out.  The trends are not comforting for the White House.  President Obama’s approval rating - probably the most important number for a president these days - continues to drop. Approval by independents has fallen by 9 points over his term.  Support for his handling of the economy now garners the approval of barely half of respondents.  The number of people who see him as an “old-style tax and spend” Democrat has risen by 11 percentage points; the number who see him as a new Democrat “careful with public money” has dropped by about the same number.

A majority of the public now rejects a second spending splurge. Most now give avoiding deficits a higher priority than increasing spending, even to fight the recession.

The number of people in the poll identifying themselves as independents is at a post-1981 high. Most of those people may well vote most of the time for one of the major parties. For now, neither party is attracting much loyalty.

Surely some Democrats in Congress must be starting to wonder how far they should follow the president and his desire for ever greater spending.

America Suffers When Washington Wins

The Washington Post has a “feel-good” story about how the huge expansion in the federal government has created a relatively strong job market in the D.C. area.

The story mentions that the federal workforce will expand by another 200,000 during the Obama years. Yet at no point does the author bother to mention (or perhaps even understand) that all these new bureaucrats are financed by draining resources from the productive sector of the economy.

A sample:

They came in droves wearing dark suits and carrying résumés yesterday — some lined up for a block in the hot sun waiting for the doors to open — to the only employer in this dismal economy hiring by the thousands: the federal government.
More than 6,000 people jammed into the National Building Museum in Washington to apply for openings at 75 agencies, including the departments of Treasury, Homeland Security, Justice, Veterans Affairs and Energy. 

[I]n the government, added [an applicant from] Silver Spring, “you get stability, you get great benefits and [an opportunity] to move up and progress in your job.” The federal government represents about one-third of the Washington region’s $401 billion economy. Some analysts said they think the ramp-up in federal hiring and spending will help the area emerge from the recession before most other metropolitan regions. From May 2008 to May 2009, the region lost 55,000 jobs. But during that same period, nearly 20,000 jobs were created, mainly in the federal government and federal contracting sector. 

…The Partnership for Public Service, a nonprofit that sponsored the job fair and is surveying federal agencies to determine their staffing needs, estimates that the government will hire about 600,000 people over the next four years, as many as 120,000 of whom would work in the Washington region. The federal workforce, currently at 1.9 million, is expected to grow to about 2.1 million during the Obama administration, according to the Partnership for Public Service. That is comparable to the staffing level during the Johnson administration’s Great Society programs of the 1960s.

Back to the Bad Old Days of High Marginal Tax Rates

As Mike Tanner has written, the health care bill means a big tax hike – indeed, a lot of tax hikes.  It also means a reversal of one of President Ronald Reagan’s great achievements, bringing down the top marginal income tax rate. 

Reports the Washington Times:

Small-business owners are warning that the economy would suffer under a health care bill proposed by House Democrats, which would drive tax rates for high-income taxpayers to levels not seen since before President Reagan’s tax reform of 1986.

The top federal income tax rate, which Mr. Reagan and a bipartisan Congress lowered from 50 percent to 28 percent, would reach 45 percent in 2011 if Congress and President Obama enact the surtaxes that are part of the health care reform plan that House Democrats announced Tuesday.

Small-business owners, who would take a direct hit from the surtaxes, expressed dismay over the proposal, saying it would force them to curtail hiring and reduce wages amid the worst recession in a generation.

“If they institute a 5 percent surtax on income, it will have a severe impact on small businesses that are already hurting,” said Michael Fredrich, whose Wisconsin company, MCM Composites, molds plastic parts.

“We run maybe three days a week, sometimes four days a week, sometimes zero days,” he said. “I can tell you that at some point, people … running a small business are just going to say, ‘To hell with it.’ “

Individuals tend to focus on their tax burden.  After all, our overall tax bill reflects the amount of money we lose as legislators speed about the country allegedly “serving” us while promoting their own political ends. 

Marginal tax rates more directly affect decisions on saving, investment, business formation, work effort, job creation, and more.  Even politicians not enamored of the “rich,” whatever that term means, should recognize that we all benefit from an economic system which encourages entrepreneurship.

Proponents of big tax hikes might want to recall Aesop’s Fable, The Goose that Laid the Golden Eggs.  Wreck the economy, and the health care system will crash too.

Federal Workers Not Underpaid

The head of the Office of Personnel Management claims that federal workers are underpaid compared to private sector workers by 20 percent, on average. Federal unions and other cheerleaders for the bureaucracy have been making similar claims for years.

I’ve pointed out the dramatic acceleration of federal compensation over the last decade and the excessive generosity of federal worker benefits.

Federal workers are not underpaid.

Now a Human Resources expert writing in The Washington Post backs up my claims. Lily Garcia writes:

The primary advantages of working for the federal government are generous benefits, solid pay, and relative job security, a combination that is challenging to find in the private sector, even in the best of times … In addition to these benefits, federal employees, contrary to popular belief, are paid relatively well.

One policy implication is that federal worker compensation would be a good place to look for budget savings to reduce the federal deficit. We could start with a two-year freeze on federal salaries to save about $20 billion. During a recession, private wages are not increasing, so why should federal wages?

An Overdue Reckoning in the Auto Sector

Bloomberg reports:

General Motors Corp., facing a probable bankruptcy filing by June 1, is telling 1,100 “underperforming” U.S. dealers they will be terminated as the automaker starts shrinking its retail network.

Most of the closings will occur by October 2010, and none are happening now, Detroit-based GM said today. The targeted outlets will have until the end of the month to appeal the decisions, GM said, without specifying the stores on the list.

The shutdowns are the biggest U.S. automaker’s first step toward paring domestic dealers to a range of 3,600 to 4,000 from 5,969 by the end of 2010.

To be sure, it is a very sad day for thousands of workers and businesses around the country.  But we’re in the midst of a deep recession, which may be nowhere deeper than in the auto sector.  Demand for cars and light trucks has absolutely tanked, which means the economy has an excess supply of inventory, productive capacity, and retail capacity.

Dealerships are closing, as they should be. Chrysler’s in bankruptcy, as it should be. GM is headed for bankruptcy, as it should be.

But this all should have happened long ago…

…long before President George W. Bush had the chance to circumvent the wishes of Congress to give Chrysler and GM more than $19 billion (not including GMAC) from the TARP allotment,

…long before President Obama had the chance to promise billions more and assume a large operational role for the U.S. government in Chrysler’s and GM’s future operations,

…long before President Obama had the chance to create a huge moral hazard by strong-arming Chrysler’s preferred lenders into taking pennies on their loan dollars, while giving preference to claimants of lesser priority,

…long before Ford, Toyota, Honda, BMW, Kia, and the rest of America’s automobile industry were implicitly taxed by the government’s insistence on preventing two firms from exiting the market or substantially reducing their presence in accordance with established bankruptcy provisions.

And most certainly, long before other businesses in other industries started to get the idea that failure is the new success.

Now Is Not the Time to Reduce Credit Card Availability

With the House having passed credit card legislation and the Senate scheduled to take up its own bill this week, one questions keeps coming back to me: What’s the hurry?

We are in the midst of a recession, which will not turn around until consumer spending turns around—so why reduce the availability of consumer credit now? And the Federal Reserve has already proposed a rule that would address many of Congress’ supposed concerns. The Fed rule will be implemented July 2010. Were Congress to get a bill to the president by Memorial Day, as he has asked, the Federal Reserve and the industry still couldn’t implement it before maybe January, if they were lucky.

Congress should keep in mind that credit cards have been a significant source of consumer liquidity during this downturn. While few of us want to have to cover our basic living expenses on our credit card, that option is certainly better than going without those basic needs. The wide availability of credit cards has helped to significantly maintain some level of consumer purchasing, even while confidence and other indicators have nosedived.

It was the massive under-pricing of risk, often at the urging of Washington, that brought on our current financial market crisis. To now pressure credit card companies not to raise their fees or more accurately price credit risk, will only reduce the availability of credit while undermining the financial viability of the companies, ultimately prolonging the recession and potentially increasing the cost of bank bailouts to the taxpayer.

As Treasury Secretary Timothy Geithner has repeatedly said, some of the biggest credit card issuers will not be allowed to fail (think Citibank, American Express, Capital One, KepCorp) should they suffer significant losses to their credit card portfolios. Will taxpayers ultimately be the ones covering those losses?

Congress should also further examine the wisdom of restricting credit to college students under the age of 21. Outside of the obvious age discrimination, why treat adults between the ages of 18 and 21 any differently from those above 21? The basic premise of college is making sacrifices today in order to have a wealthier tomorrow—accordingly being able to borrow against that better tomorrow should be an option for any college student. Just as some small number of college students don’t benefit from college, some don’t benefit from credit cards, but throwing the “baby out with the bathwater” hardly seems the idea solution.

Brother, Can You Spare A Trillion?

With the economy in a deep recession and policymakers turning to massive government intervention in an attempt to create jobs and bolster the financial system—it feels like the 1930s all over again.  Today’s new New Deal is rapidly unfolding, with the Obama administration and many lawmakers making it clear that any question of the success of FDR’s New Deal policies was resolved long ago: government intervention worked, and history bears repeating.  

However, there are deep disagreements about the New Deal, and whether Roosevelt’s policies deepened the depression and delayed recovery. 

Join us at the Cato Institute on June 1 to be a part of a highly informative half-day conference. Recognized national experts will discuss the economic and legal impact of the New Deal, and how its legacy is being used and misused to shape policy responses to current economic hardships.