Topic: Government and Politics

The $700 Billion Honeypot

The Washington Post reports:

[There is] an army of accountants, financial advisers, asset managers, lobbyists and others descending on Washington as part of the government’s attempts to rescue the economy and bail out industries.

Big consulting firms like PriceWaterhouseCoopers and Ernst & Young have booked extended-stay apartments and blocks of hotel rooms. Out-of-town financial experts are scouting for office space, expecting to lease it for several months as they help do work for Treasury and others.

Commercial real estate brokerage companies have pulled lawyers and salesmen who usually put together deals on downtown offices to work out loans and foreclose on properties. Some have dubbed themselves the “TARP team” after the Treasury’s Troubled Asset Relief Program created to sort through assets.

“Everything from the policies, the regulations, to the money and the contracts to do the work will be emanating out of Washington, so people want to be here,” [lawyer Larry] Wolk said. “Wall Street has moved to K Street.”

National crises often provide a stimulus to the Washington economy….

“Firms see this as a potential gold mine,” said Anirban Basu, an economist and chief executive of Sage Policy Group in Baltimore. For Washington, “that has to translate into business sales, high-powered restaurant meals, business suit purchases, and travel and luxury hotel stays. We often talk about D.C. being different economically than the rest of the country and this is perfectly true. I don’t see much evidence of a slowdown here.”

As I wrote two years ago, “When you spread food out on a picnic table, you can expect ants. When you put $3 trillion on the table, you can expect special interests, lobbyists and pork-barrel politicians.”

‘After’ the Imperial Presidency?

Jonathan Mahler has a smart, informative feature on executive power in this week’s New York Times Magazine. I object only to the title, “After the Imperial Presidency.” As Mahler’s piece makes clear, the title could have used a question mark, at the very least.

Mahler writes:

Come January, the current administration will pass on to its successor a vast infrastructure for electronic surveillance, secret sites for detention and interrogation and a sheaf of legal opinions empowering the executive to do whatever he feels necessary to protect the country. The new administration will also be the beneficiary of Congress’s recent history of complacency, which amounts to a tacit acceptance of the Bush administration’s expansive views of executive authority. For that matter, thanks to the recent economic bailout, Bush’s successor will inherit control over much of the banking industry. “The next president will enter office as the most powerful president who has ever sat in the White House,” Jack Balkin, a constitutional law professor at Yale and an influential legal blogger, told me a few weeks ago.

Some prominent commentators — Jack Goldsmith and Jeffrey Rosen among them — have noted the “irony” that an administration monomaniacally committed to the growth of presidential power has allegedly weakened the presidency with its unilateralism and contempt of Congress. Given the powers the office retains and continues to accrue, that’s an irony that’s hard to savor. As Mahler notes, “it’s worth keeping in mind that in the final year of Bush’s presidency — while facing a Democratic Congress and historically low approval ratings — he was able to push through a federal bailout bill that vested almost complete control over the economy in the Treasury secretary (who reports to the president), not to mention a major rewriting of the 1978 Foreign Intelligence Surveillance Act that will make it easier for the White House to spy on American citizens.”

Indeed, Mahler documents how political realities— and in Obama’s case, perhaps, the prospect of actually taking power — led both candidates to move away from their early criticisms of Bush-style “deciderism,” and flip flop on torture (McCain) and wiretapping (McCain and Obama).

In explaining the post-9/11 growth of executive power, Mahler properly focuses on the twin problems of congressional cowardice and poisonous partisanship. In the Bush years, all too many congressional Republicans put party unity over institutional responsibility. That’s a common vice under unified government, which may be why Mahler hardly sounds optimistic when he quotes Senator Levin: “When I asked Levin what needs to happen for Congress to take back the rest of the ground that it ceded to the executive branch during the Bush years, he replied predictably, ‘We need a Democrat in the White House.’”

For further reasons to doubt that the Imperial Presidency is behind us, check here and here.

How Many Psychiatrists Does It Take to Change the GOP?

Just one, but the GOP has to want to change.

There’s an interesting difference between the post-election opeds written by House Minority Leader John Boehner (R-OH) and Rep. Jeff Flake (R-AZ) in the Washington Post

Flake admits the GOP has made mistakes:

I suggest that we return to first principles. At the top of that list has to be a recommitment to limited government. After eight years of profligate spending and soaring deficits, voters can be forgiven for not knowing that limited government has long been the first article of faith for Republicans.

Boehner writes of the same principles and that the GOP has a lot of work to do, but betrays no awareness that the GOP may have done anything wrong over the past eight years.

I guess this may take a while.

P.S. - A suggestion for Mr. Boehner: drop the talking point that the GOP will “offer health-care reforms that empower patients and doctors.”  Physicians have many legitimate gripes, but government has already done too much to empower doctors at the expense of patients.  Just focus on empowering patients.

The Ballad of Ron Paul

The Onion offers a lyrical farewell to the Ron Paul campaign (via Brian Doherty):

WASHINGTON—After piling the last of his Campaign for Liberty signs in the back of a beat-up Ford truck Thursday, Rep. Ron Paul (R-TX) once again abandoned his candidacy for president and rode on out toward the low western sun, but not before vowing to come back to Washington “when [the country] is ready.” “When the river swirls and the wind blows, and when uncontrollable inflation forces us to revert to the gold standard, and the Federal Reserve bank is exposed as the unconstitutional, neofascist cabal it really is, you’ll see me coming over that hill,” said Paul, leaving a dusty cowboy hat and a stack of “no” votes on his seat in the House of Representatives. “But don’t you fret, America. If you ever feel like your government is getting too big or too intrusive, just give a little whistle, and there I’ll be. I’ll be there quicker’n you can spit.” Although no one has seen or heard from the Texas congressman since Thursday, sources report the Ron Paul for President campaign has gained an additional $2.3 million in contributions since his disappearance.

Hearing the echoes of Tom Joad in that “final speech,” and noticing that in fact Ron Paul has been all over the airwaves as practically the only congressional critic of the bailout and the policies that led to it, I got to musing about another working-class icon, Joe Hill:

I dreamed I saw Ron Paul last night,
Still running on TV.
Says I “But Ron, you lost ‘em all”
“I’ll never quit” said he,
“I’ll never quit” said he.

“The Money Power beat you, Ron,
they beat you, Ron” says I.
“Takes more than Fox to beat ideas,”
Says Ron “I didn’t quit”
Says Ron “I didn’t quit.”

“In South Carolina, Ron,” says I,
“You stood up to the war.
Then Rudy knocked you back again.”
Says Ron, “But I was right.”
Says Ron, “But I was right.”

From Baghdad back to Main Street,
In every funeral hall
Where grieving moms inter their sons,
it’s there you find Ron Paul,
it’s there you find Ron Paul!

And taking on the Fed Reserve
and smiling with his eyes,
Says Ron, “The bailout cannot work,
It’s time to privatize.
It’s time to privatize.”

From Texas up to Washington,
in every lecture hall,
Where working men defend their gold,
it’s there you find Ron Paul,
it’s there you find Ron Paul!

I dreamed I saw Ron Paul last night,
Still running on TV.
Says I “But Ron, you lost ‘em all.”
“I’ll never quit” says he,
“I’ll never quit” says he.

Obama’s Pledge to Cut Wasteful Spending

President-elect Obama has talked the talk about cutting wasteful federal spending. Now we will see whether he can walk the walk. You can review his budget reform promises here.

Some notable pledges:

  • Eliminate “ineffective government programs.”
  • Expand and improve www.usaspending.gov.
  • Expose corporate welfare.
  • Ensure that all ”non-emergency” bills passed by Congress are posted on the web for five days before he signs them. 
  • Eliminate “waste and inefficiency” in government through a new investigative “SWAT team” that reports directly to the president.
  • Enforce tougher new standards on the Office of Management and Budget’s current “PART” program, which grades program effectiveness.
  • “Enforc[e] standards when programs continually fail” by ”cutting program budgets or eliminating programs entirely” or other reforms.
  • “Eliminate wasteful redundancy” in government.
  • “Eliminate government programs that are not performing” by means of a “line-by-line” budget review.
  • Slash earmarks to the 1994 level.

Senator Obama has been a partner of Senator Coburn’s in various budget transparency reform efforts. Now Coburn’s office tells me that they will hold the new president’s feet to the fire on his promises in this campaign document.

One suspects that the sort of “waste” Senator Obama is thinking about cutting here is small potatoes compared to the large cuts that really need to be made in the $3 trillion budget. But it will be interesting to see how hard Obama pushes even these modest reforms through the increasingly liberal Congress.

Switching Sides?

Orin Kerr at the Volokh Conspiracy (via the New York Times) cynically predicts some reversals of position by both Democrats and Republicans in the coming months:

1) Republicans Must Now Oppose Executive Power; Democrats Must Be In Favor Of It. In the last few years, Republicans have been the defenders of executive power: A muscular executive has been needed to fight the war on terror. On the other hand, Democrats have opposed a strong executive on the ground that it threatens the rule of law. Please note that these arguments must now switch. Republicans must now talk of the dangers of executive power; Democrats must now speak of how a strong and agile executive branch is necessary to a modern democracy.

2) Republicans Must Now Oppose Judicial Confirmations; Democrats Must Be In Favor. In the last few years, Republicans wanted an up-or-down vote on judicial nominees; one of their leading blogs on the judicial confirmations was ConfirmThem.com. On the other hand, Democrats focused on the importance of carefully evaluating judicial candidates. Please note that these arguments must now switch, too. Republicans should now visit RejectThem.com (still an available domain name, btw — won’t be for long!), and Democrats should emphasize the need for a quick up or down vote.

3) Republicans Must Now Favor Legislative Oversight; Democrats Must Now Oppose It. You get the point by now. Yup, everyone has to switch sides on this one, too. If we all stick to the script, in 6 months the old arguments of the Bush era will be long forgotten. (Oh, and extra credit to those who charge the other side with hypocrisy for changing sides without noting that they have changed sides, too.)

Well, he might be right. And we may also see Republicans once again waxing eloquent about how the filibuster protects minority rights and Democrats railing against its obstructionism. But I’ll note that here at the Cato Institute we try to be nonpartisan. I think we always favor due consideration of judicial nominations, followed by confirmation of those who properly understand the Constitution and its limits on power. We’ve criticized President Clinton’s abuse of executive power and President Bush’s — and the general problem. We’ve called for congressional oversight when Republicans were in the White House and when Democrats were.

We hope that the new president and the 111th Congress will restore civil liberties and checks and balances. If they don’t, Cato scholars will point that out.

Correspondence with a Presumed Proponent of Auto Bailouts

As a supporter of free trade, I’m used to getting angry letters and emails whenever I do media. Below is one of the more civil, reasonable emails, which I received following my appearance on last night’s Lou Dobbs:

I would have liked to see the rest of what you said about the auto industry on the show but what I did see angered me. You said something to the effect that bad business decisions by the Detroit automakers should not get them a bail out and that one of them should be allowed to fail is what I heard you say. I am assuming that the out of control greed that has run unchecked for years and terrible government policies have allowed the investment banks to basically destroy thousands of peoples lives should deserve a bail out. My thinking is that none of them should get one penny. As for the auto companies failing. Lets see. The banks fail then they will not lend to anyone now. I with a 780+ credit score can no longer get a loan for a car which then hurts the auto company is one cause. The fact that people are losing their jobs by thousands is not helping, the people losing their houses and high gas prices are killing the sales of cars. I don’t know if you know that if lets say GM goes under 100’s of thousands jobs could be lost. Engineers, designers, line workers, computer guys, and so on, not to mention all the other business that supply the automakers. Did you give any of this any thought? I also would like to know what you think about the good paying jobs that go overseas. Plus can you tell me one benefit to this Global economy has had for the USA. Please don’t give me the cheaper prices line either.

Here’s my response:

Thanks for your thoughtful comments.  More often than not, the messages I receive from people who disagree with my perspective tend to be nasty and poorly articulated.  So, yours is a welcome dissent.

I am opposed to interventions of any kind. The Wall Street bailout and the subsequent partial nationalization of what were private U.S. financial institutions is in essence a penalty on prudent behavior and a subsidy for risk taking. It is patently unfair and grievously unwise to use taxpayer dollars to insulate people or institutions from the consequences of their actions, as it is unfair and unwise to deprive risk takers of the full fruits of their efforts.

The story is no different in the auto industry. Yes, the industry employs thousands of workers and there are many jobs in related industries that depend on a healthy (or at least functioning) auto industry. I am sympathetic to your suggestion that auto’s woes are at least in some part attributable to the credit freeze, which is a response to, among other things, circumstances beyond its control. But there’s much more to the picture than the one you seem to want to paint of the auto industry as an innocent victim. 

The fact is that much of the Big Three’s problem is self-made. The credit crunch and the contraction of demand is just the latest dark cloud, and a problem that affects all industries, not just autos. Thus, if there is a bailout for Detroit, where, how, and why do we draw the line to exclude other manufacturers, home builders, coal miners, and masseuses, who are all suffering from the same contraction in demand caused in part by the credit crunch? Don’t tell me we should bail everyone out. For starters, we can’t afford that.

Detroit’s problems predate the financial meltdown. Management and labor, together, consigned the Big Three to a future of troubles when ridiculously liberal work rules that flew in the face of basic economics were agreed upon, requiring management to pay workers at 90% of their salaries when they were laid off. The “Cadillac Platter” of health and retirement benefits granted to the UAW also dramatically raised the cost of producing vehicles at unionized auto plants in the United States. And let’s not forget about the far-in-excess-of-average manufacturing wages that auto workers “won” through concessions by management over the years. Management agreed to all of these conditions — and labor pushed them — because both sides assumed that the U.S. governent would come to the rescue (that the industry was too big to fail) when the chickens came home to roost over this inefficient, uncompetitive cost structure. That, to my mind, reflects labor’s and management’s greed.

On the demand side, Big Three management demonstrated an egregious failure of imagination, if not downright dereliction of duty, in assuming that large pick-up trucks and SUVs would never fall out of favor. Of the top 10 selling cars (not trucks or SUVs) in the United States, Big Three offerings have barely made the list this decade. Not one has been a top 5 seller. Shouldn’t producers try to make things that people want to consume before scapegoating their failures and seeking government bailouts?

One of the points I made in my interview with the Lou Dobbs show that didn’t make it to air is that a bankruptcy and liquidation or two in the auto industry wouldn’t be the end of the world. In fact, it would be a welcome development for the producers and their workers who remain in operation. They would be able to compete for a larger share of a pie that is currently shrinking, but will again expand. Which companies remain and liquidate should be determined by market forces, not by the coercive, thieving actions of the Michigan congressional delegation and Governor Granholm. 

I think an instructive example for the auto industry is the U.S. steel industry. During this decade, the steel industry responded to waning fortunes and dozens of bankruptcies by finally allowing unproductive, inefficient mills to shut down. As a high fixed cost industry with dozens of producers at the time, the industry finally did what is should have done long ago: it consolidated. In 2001, 12 firms accounted for 75% of U.S. hot-rolled steel production. In 2007, 3 firms accounted for over 80 percent of hot-rolled steel production. The consolidation has afforded the steel industry an alternative to requesting bailouts in the face of declining demand: it curtails output, which affects prices favorably for the mills. If there were fewer automakers in the United States making products Americans wanted to buy, and if labor costs were more variable and less fixed by unaffordable contracts, the auto industry might be similarly equipped to weather storms.

As to your questions about my views on trade, there is plenty of commentary and analysis on our website (www.freetrade.org) that I invite you to check out.