Topic: Government and Politics

Tony Soprano Earmarks

A commentary from Jeff Birnbaum of the Washington Post aired on American Public Media’s Marketplace yesterday.  The topic was the evolving alternative to earmarks, what Birnbaum calls “phonemarks.” 

Here’s the basic idea (from the transcript available at the Marketplace website):

Eager to avoid the bad publicity of legislative earmarking, lawmakers are secretly calling or writing bureaucrats and demanding that they fund their pet projects by fiat. These projects-via-telephone, or “phonemarks,” are the hottest new gimmick on the Washington scene.

Executive branch officials can dole out millions of dollars with impunity. And they avoid the scrutiny of the public, since they are done quietly and without any disclosure.

Earmarks actually have to be written down in a public law. Phonemarks, on the other hand, are accomplished through bureaucratic sleight-of-hand and nobody but the lawmaker and the bureaucrat need to know for sure.

My preferred descriptor is “Tony Soprano earmarks.”  As I wrote in a January 22 column for Business Week:

Even if transparency leads to fewer earmarks, there are no promises these projects won’t reappear in other ways and other places. The congressional budget process is nothing if not a game of reinvention. You could call spending items Happy Funtime Projects instead and sock them away in another part of the budget, but they will remain the coin of the realm on K Street.

Of course, Congress could simply give a bucket of money to an agency with no strings attached. But then a member of the Appropriations Committee would write a letter to the department head suggesting something like: “Gee, wouldn’t it be nice if Project X got some of this pot of money?”

Can you really blame a government department head who reads a letter like that—from a member of Congress who controls his budget and oversees his agency—and obliges? It would strike anyone in that position as similar to Tony Soprano saying to the corner grocery store owner: “Nice little place you got here. Damn shame if anything were to happen to it.”

Now for a secret.  The big problem in Washington isn’t earmarks.  They’re just a symptom of the real problem: policymakers who believe the federal government should be all things to all people.  Pork projects – disclosed or not – are inevitable in such an environment no matter what you call ‘em.      

The Search for the Libertarian Vote

An NPR report on independent voters in Nebraska included this comment from a hospital diversity director: “There’s a large group of people in this country that believe in smaller government, that believe in balanced budget. I think that’s a pretty popular concept. Where [the Republicans] run into trouble is strict adherence to a couple of social issues.” As we’ve been saying.

What does a diversity director do in Nebraska, anyway? I’m thinking he tries to persuade people that “the farmer and the cowman should be friends.”

Hot Stock Tip

“For the past four years, the Clintons have jetted around on Vinod Gupta’s corporate plane, to Switzerland, Hawaii, Jamaica, Mexico — $900,000 worth of travel. The former president secured a $3.3 million consulting deal with Gupta’s technology firm,” according to the Washington Post.

The hot tip? Short the stock of any technology firm that values Bill Clinton’s advice at $3.3 million.

Senate Amendment Guts Immigration Reform

The Senate’s vote yesterday to cut the number of temporary worker visas in half knocks a big hole in the comprehensive immigration reform proposal now being debated in Congress. As I’ve written in a recent Free Trade Bulletin, allowing a sufficient number of foreign-born workers to enter the country legally to meet the obvious demand of our labor market is absolutely necessary if we want to reduce illegal immigration.

Ignoring our policy advice, the Senate voted 74-24 to adopt an amendment by Sen. Jeff Bingaman (D-N.M.) that would cut the number of annual temporary “Y visas” from 400,000 to 200,000. That number is almost certainly too low to provide the workers that our growing economy needs to fill jobs at the lower end the skill ladder for which there simply are not enough Americans available to fill them. The result, if the lower cap stands, will be continued illegal immigration.

The irony is that many of the senators voting to drastically reduce temporary visas are the same senators who warn that we should not repeat the mistake of the 1986 Immigration Reform and Control Act. That bill legalized 2.7 million illegal immigrants but was unable to stop more immigrants from entering the country illegally despite beefed-up enforcement. The real flaw of the 1986 law, however, was its complete lack of any temporary worker program to provide for future, legal workers.

By adopting the Bingaman amendment, a majority of senators have turned the current reform effort into something much more like the failed 1986 law. They have kicked the illegal immigration can down the road, leaving it to a future Congress to find a lasting solution.

Care to Wager on That?

We are hearing a lot about presidential polling these days. It’s easy to doubt the results of these polls: few respondents have focused at all this early on the presidential elections.

But there’s a better way to get information about how the presidential election is going: the Iowa Electronic Markets. These markets allow people to invest in futures contracts on specific events like the outcome of a presidential election or nomination. For example, if you own a futures contract on Hillary Clinton, and she wins the Democratic nomination, your receive $1 (and zero if she does not get the nomination). The relative prices of these contracts aggregate investor predictions about the outcome of the presidential races. Such predictions should be better than alternative forecasts since people in the markets have every reason to be as well informed as possible and have the chance to make money if they have superior information about the outcome of an election. Indeed, such markets have done better than traditional polling in predicting electoral outcomes.

How are things going these days at IEM? On the Democratic side, Hillary Clinton looked to be in trouble in early April; Barack Obama’s contract had drawn even in value. Since then, however, Hillary’s contract has steadily gained about 20 percent in price while Obama’s has lost about a quarter of its value. Obama did close a similar gap in contract value during the first two weeks of March so the Illinois senator is hardly out of the game. But the trend should be disconcerting for Obama. It looks like he needed the New Hampshire primary to fall ten months earlier than it will.

On the Republican side, the leader for the past two months has been “none of the above” or more specifically, an unnamed candidate other than Giuliani, McCain or Romney. Giuliani has generally and slowly trended downward over the past two months. McCain fell rapidly in March and stayed down until early May when he rose rapidly, passing Giuliani briefly last week. Now, however, McCain is falling as rapidly as he rose. He now trails both Romney and Giuliani. Romney has experienced three sharp upward spurts followed by equally rapid declines. Unlike Hillary, none of the top three seem to be gaining ground toward the nomination. The IEM strongly suggests that someone other than Giuliani, McCain or Romney will be the eventual nominee.

You can also buy a contract on the November 2008 result. Currently a Democratic winner-take-all contract goes for sixty cents; the GOP one goes for forty cents. Both contracts have gained (or lost) about ten cents since the end of the 2006.

In sum, there’s money to be made here if you believe Obama or John Edwards will get the Democratic presidential nomination. There’s even more money to be made buying a futures contract on a Republican victory in 2008. As a great investor once said (to paraphrase): “the moment to invest everything is the moment of absolute and complete pessimism.” The smart money is saying we are going to have our first female president in 2009. So there’s money to be made betting (um, investing) against that result.

A final thought: Shouldn’t someone check the White House accounts to make sure the president isn’t buying every DEM08 winner-take-all contract on offer? That would explain a lot.