Topic: Government and Politics

Obama’s K Street Recovery Plan

Not that it needed it – lobbying was one industry that kept on growing during 2008 – the Washington influence business is getting a boost from the Obama-Pelosi-Reid massive spending bill. In a graphic on page A6 of the February 13 edition, not available online, the Washington Post reports that “A Washington Post analysis found that more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” The graphic shows that the number of newly registered lobbying clients peaked on the day after Obama’s inauguration and continued to grow as the bill worked its way through both houses of Congress.

In the accompanying article, the Post notes that – unsurprisingly – the $800 billion spending bill “is not free of spending that benefits specific communities, industries or groups, despite vows by President Obama that the legislation would be kept clear of pet projects.” My favorite, as I’ve noted before, is

a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D-Nev.).

Here are some other recent headlines from the political class’s newspaper of record: “THE INFLUENCE GAME: Lobbyists work stimulus to end”; “A Lobbying Frenzy For Federal Funds”; “Ohioans Seek Slice of Stimulus Pie”; “Lobbyists Get Around Obama’s Earmark Ban”; “Certain Firms, Industries Got Last-Minute Gifts in Stimulus.”

More on the frenzied efforts to get a piece of the taxpayers’ money in the spending bill here and here.

If you want money flowing to the companies with good lobbyists and powerful congressmen, then the stimulus bill may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers. That’s not a recipe for recovery.

The Blogosphere Has Corrected the Record

Will Paul Krugman?

At a Heritage event, Arnold Kling said:

Back in September when they were talking about taking $700 billion dollars to unclog the financial system I wanted to yank Henry Paulson out of the TV screen and say to him: “Keep your hands off my daughter’s future.” But he got away with it. For me it felt like sitting there watching my home being ransacked by a gang of thugs. And now we’ve got a new gang of thugs and they are doing the same thing.

Careless blogging and hyper-ideology twisted that into a knock on President Obama and imputed racism to Kling. Krugman incorporated it all into a column decrying the “ugliness of the political debate” over Obama’s stimulus.

Well, Paulson’s TARP and Obama’s stimulus are ugly, and so evidently is the cacophony in the echo chamber where Krugman gets his information. But not Kling.

President Honors Pledge to Post Bills Before Signing

… or does he?

Friday afternoon, the White House blog announced that the American Recovery and Reinvestment Act of 2009 was posted online for public comment. This looked like good evidence that the President intends to honor his campaign promise to post legislation online and take public comment for five days before signing it.

But it’s not great evidence of that.

The Whitehouse.gov post went up at 2:05 pm, but the House didn’t vote until 2:24 pm and the Senate voted at 05:29 pm. (Click on the “votes” to see how your representatives did.) As of Saturday afternoon, the Thomas legislative tracking system doesn’t indicate that the bill has been presented to the President yet. And news reports indicate that the President will sign the bill on Monday, three days after it was “pre-posted.”

Regular order, Mr. President. When a bill is presented to you, post it online (at a consistent place on your Web site, not just at ad hoc URLs as you’ve done up to now). Then wait five days, reviewing the comments of the public as you promised to do when you asked the public to elect you.

The steps the White House has taken toward implementing the President’s promise are good steps. (In this Cato daily podcast, I characterized the President’s record on transparency so far as “mixed.”) But the promise is not fulfilled until bills receive five days online airing after they have been presented.

Presentment is a distinct, constitutional step in the legislative process. Until every non-emergency bill is posted online for five days after presentment and before signing, President Obama will look like he’s being driven by events and maneuvered by his elders in Congress.

The Last Word on Fiscal Stimulus?

From “the best-selling Principles of Economics textbook [which] has been teaching students in a clear, unbiased way for 40 years.” Campbell R. McConnell, Economics: Principles, Problems, and Policies.  McGraw-Hill, 7th edition, 1978.

The Last Word: The Impotence of Fiscal Policy
Some economists feel that fiscal policy is an impotent and unpredictable stabilization tool.

Well, as I wrote in a 1977 Tax Review article (reprinted 1w permission of the Tax Foundation, Inc.):

The real question is whether or not conventional fiscal policy works as advertised. If fiscal policy works, and its impact is properly measured by the size of the full employment deficit, then it should be possible to find some correlation between either the level or direction of the full employment budget and some measure of current or subsequent economic activity. George Terborgh tried to find some such link back in 1968, in The New Economics, but found only a weak correlation that turned out to be perverse. That is, larger full employment surpluses were associated with faster economic growth. More rigorous tests by economists at the St. Louis Fed, and again at Citibank, had no more luck in uncovering the magical properties of the full employment budget. A sharp shift toward larger full employment deficits did not prevent the recession of’ 1953-54, for example, nor the mini-recession of 1967. In 1946, a $60 billion reduction of Federal spending (equivalent to $400 billion today) was followed by a vigorous boom, and a combination of tax cuts and higher spending in 1948 (the equivalent of S75 billion today) was followed by a sharp recession.

The theory of fiscal policy is almost as messy as the evidence. If deficit spending is financed by borrowing from the private sector, there is no obvious stimulus-even to that undifferentiated thing called “demand.” Whoever buys the government securities surrenders exactly as much purchasing power as is received by the beneficiaries of Federal largess. There would be a net fiscal stimulus only if there were no private demand for the funds needed to cover the added Treasury borrowing. Otherwise, lendable funds are just diverted from market-determined uses to politically determined uses.

There may be a stimulus in some circumstances if the deficit is financed by a more rapid increase in the money supply, but this is really a monetary stimulus, not a purely fiscal effect.

In the long run, resources allocated through the government must displace those allocated through markets, and growth of government spending must be at the expense of the private sector. The government has only three sources of revenue – taxes, borrowing, and printing money – and increasing any one of those must reduce the private sector’s command over real resources. Although deficit spending may at times be a short-run stimulus to nominal demand, it is also a long-run drag on real supply-siphoning resources from uses that would otherwise augment the economy’s productive capacity, and instead diverting those resources into hand-to-mouth consumption through government salaries, subsidies, and transfer payments.

So, the theory and evidence suggests that fiscal policy is essentially impotent, or at least unpredictable, except as a device to promote inflationary monetary policy and/or to reduce investment and growth.

Historic and Transformational

Speaker Nancy Pelosi says that the massive spending bill Congress is about to pass is “historic and transformational.” She has a point. Here’s a visual of what it’s helping to do to the federal deficit:

(Source: Strategas Group via PowerlineBlog)

The federal budget is already plunging into deficit. It hardly seems the time to add another $800 billion of spending. Doing so may very well prove to be transformational, like pushing the economy over a cliff.

The Washington Post reports, “The Obama administration’s economic stimulus plan could end up wasting billions of dollars by attempting to spend money faster than an overburdened government acquisition system can manage and oversee it, according to documents and interviews with contracting specialists.”

And as noted here previously, lobbyists have loaded the bill down with special-interest provisions, such as “a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas,” a project favored by Harry Reid. A levitating train from Fantasyland to a city built on gambling. If that isn’t a metaphor for this bill, I don’t know what is.

But it’s not the only one. The Post also notes funding for lithium batteries, Filipino veteran payments, small shipyards, North Carolina-made TSA uniforms, and “clean coal.”

Given all that, it’s especially disappointing that President Obama and Congress continue to ignore his campaign promise to let all legislation be publicly available for five days before he signs it. In this case, even members of Congress had trouble getting their hands on the actual $790 billion bill they were expected to vote on. Congress should listen to Bill Niskanen:

This is the fifth time in my adult life that the president has asked for or asserted unprecedented authority on an expedited basis with little or no congressional review. Each of the prior occasions turned out to be a disaster.

Obama’s Shock Doctrine

At the Guardian, I argue that President Obama and Rahm Emanuel are carrying out just what Naomi Klein predicted in The Shock Doctrine. Except that, as usual, it’s not deregulation and budget cutting that governments turn to in times of crisis. It’s more money and more power:

Last year the US economy was hit with one shock after another: the Bear Stearns bail-out, the Indymac collapse, the implosion of Fannie Mae and Freddie Mac, the AIG nationalisation, the biggest stock market drop ever, the $700bn Wall Street bail-out and more — all accompanied by a steady drumbeat of apocalyptic language from political leaders.

And what happened? Did the Republican administration summon up the spirit of Milton Friedman and cut government spending? Did it deregulate and privatise?

No.

It did what governments actually do in a crisis — it seized new powers over the economy. It dramatically expanded the regulatory powers of the Federal Reserve and injected a trillion dollars of inflationary credit into the banking system. It partially nationalised the biggest banks. It appropriated $700bn with which to intervene in the economy. It made General Motors and Chrysler wards of the federal government. It wrote a bail-out bill giving the secretary of the treasury extraordinary powers that could not be reviewed by courts or other government agencies.

Now the Obama administration is continuing this drive toward centralisation and government domination of the economy. And its key players are explicitly referring to their own version of the shock doctrine. Rahm Emanuel, the White House chief of staff, said the economic crisis facing the country is “an opportunity for us”. After all, he said: “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before” such as taking control of the financial, energy, information and healthcare industries….

Occasionally, around the world, there have been instances where a crisis led to free-market reforms, such as the economic reforms in Britain and New Zealand in response to deteriorating economic conditions. Generally, though, governments seek to expand their power, and they take advantage of crises to do so. But they rarely spell their intentions out as clearly as Rahm Emanuel did.

Stop Hiding the Stimulus Bill

Here’s Paul Blumenthal of the Sunlight Foundation on the closed process being used to ram through the deficit-spending/economic stimulus bill:

[I]t is not just Republicans who are being denied access to the bill. Reporters, bloggers, and the general public are being denied an opportunity to review one of the most important pieces of legislation sent through Congress in a long time. Anyone who wants should express that, whatever the partisan reasons for denying access to the bill, the American people deserve a right to review this legislation. Slamming it through without letting anyone see, save for 7 or 8 congressmen and some staff, is not fair to the public or the legislative process.

This is a dangerous practice that the Democrats ran against in 2006 and now, in the majority, are unfortunately using to block their opposition’s attacks. The majority Democrats should maintain their previous position on running the most open and honest government by allowing the public to review this legislation. Anything less is unacceptable.