Posts Tagged ‘George Will’

Must-Reads During This Week: Perfect Storm for Health Reform, Making Controversy, Cyberwar, Limiting Government, Liz Cheney’s Al Qaeda Connection, George Will, and the Coffee Party

Monday, March 8th, 2010

In lieu of a substantial post today (as I’m having trouble getting back into the blog-writing habit), here’s a few links to worthwhile articles.

1. Perfect Storm. Marc Ambinder of The Atlantic explains that a “Perfect Storm Nearly Killed Health Reform; Another Storm May Save It.” However, what Ambinder describes as the “perfect storm” that might save health reform seems to be more properly called Obama’s willingness to wait out bad news cycles.

2. Controversy. Ezra Klein opines usefully on “how to make something controversial“:

The media is giving blanket coverage to this “controversial” procedure being used by the Democrats. But using reconciliation for a few fixes and tweaks isn’t controversial historically, and it’s not controversial procedurally. It’s only controversial because Republicans are saying it is. Which is good enough, as it turns out. In our political system, if Democrats and Republicans are yelling at each other over something, then for the media, that is, by definition, controversy.

3. Cyberwar? Ryan Singel of Wired‘s Threat Level reported some of the back-and-forth among the U.S. intelligence community, explaining why Republicans want to undermine and destroy the internet for national security as well as for commercial reasons. The Obama administration’s web security chief maintains in an interview with Threat Level that, “There is no cyberwar.”

4. Limiting government. Jacob Weisberg of Slate always seems to be looking for the zeitgeist. His piece this week is on how Obama can embrace the vision of limited government.  While all the pieces are there, he doesn’t quite make the connection I want to make: that government is absolutely needed even as it must be limited and its power checked. A post on this line has been percolating in my mind for some time, and now that Weisberg has written his piece, I feel its just about time for me to write mine.

5. Liz Cheney, Al Qaeda Sympathizer? Dahlia Lithwick slams Liz Cheney for her recent ad calling the Justice Department the “Department of Jihad” and labeling some attorneys there the “Al-Qaeda 7”:

Given that the Bill of Rights pretty much evaporates once you’ve been deemed a jihadi lover of Bin Laden, you might think Liz Cheney would be super-careful tossing around such words They have very serious legal implications…Having worked for years to ensure that the word jihadist is legally synonymous with guilty, Cheney cannot be allowed to use it casually to describe anyone she simply doesn’t like.

6. George Will: More Partisan Than Independent? Ezra Klein catches George Will out in a rather telling fit of procedural outrage over the Democrats’ use of reconciliation in the Senate. Plus, Klein uses this nifty chart to illustrate that dramatic change that George Will doesn’t happen to comment upon:

7. Coffee Party. I’m intrigued by this idea, though I don’t know how workable it is.

[Image taken by me over the weekend.]

A Generational Bargain (in which we are getting screwed)

Thursday, June 18th, 2009

Back when California’s looming bankruptcy was in the news, George Will wrote:

California’s perennial boast — that it is the incubator of America’s future — now has an increasingly dark urgency…California has become liberalism’s laboratory, in which the case for fiscal conservatism is being confirmed.

Will may be right about fiscal conservatism – but he’s wrong in laying the blame for California’s problems on liberalism. The fault in California, like the fault in America, is deeper – a refusal by the Baby Boom generation to make tough choices to create a sustainable world, economy, or government. Bill Maher summarized California’s trap best:

We govern by ballot initiative – and we only write two kinds of those: spend money on things I like and don’t raise my taxes.

California’s initiative system aggravated a tendency that has been dominant in American politics for some time now. The problem with California – and America – is a combination of two factors:

  1. a kind of accidental unholy alliance between liberals who push for more government spending to alleviate poverty and better the nation and conservatives who want to cut taxes – with neither group having the power or political will to be fiscally responsible at the same time as they push for their pet projects1
  2. the deliberate plan of the right-wingers who want to “starve the beast” – by which they mean encouraging the irresponsible system above of  increasing spending while cutting taxes (and these right-wingers do this knowing that the system is unsustainable and will crash, which is the only way they see to get rid of popular programs.)

This is a story of the cowardice of politicians and the idiocy of people.

This idiocy – in almost all of its forms – can be traced to the ascent of the Baby Boom generation as they took power with the Reagan administration. By increasing spending exponentially while cutting taxes – creating enormous deficits – Reagan supercharged (stimulated) the economy out of the stagflation of the 1970s. At the same time, he began the American government’s practice of becoming dependent on East Asia – relying on Japan to lend vast amounts of its money as our trade deficit with them grew. Reagan also began the trend of deregulation of industries – allowing them to take greater risks and reap greater profits if they succeeded – which also allowed companies to kick off a merger boom, leading more and more companies becoming too big to fail while they were regulated less and less. All of these steps led to an economy focused more on finance than industry – leading, along with factors due to globalization, to America’s industrial decline. The dominance of the financial sector in the economy, which is well known for its boom and bust cycle, led to a series of economic bubbles – and in fact, an economy in which growth was maintained through bubbles rather than real worth.

Beginning with Reagan, president after president stimulated the economy constantly – to avoid having to take the fall. But this system was unsustainable. As the Baby Boomers “surfed on a growing wave of debt” – both public and private – they sought to use debt to meet their rising expectations in the absence of creating real value. This was the generational bargain at the heart of the Reagan presidency – a bargain that allowed America to spend the Soviet Union into the ground and jumpstart the economy from the stagflation of the 1970s – but that, unchecked, thirty years later, now threatens our future.

The Baby Boomers pissed away the prosperity their parents bequeathed them and squandered the opportunities presented to them – and now are busy using their children’s future earnings (our future earnings) to buy their way out of the mess they have created. They avoided the challenges of their times and found people to blame. They focused on OJ Simpson, Britney Spears, Madonna, and Monica Lewinsky – on abortion, Vietnam, gays, and religion – and not on global warming, on campaign finance, on the corruption of our political process, on an overleveraged economy.

After decades of avoiding systematic problems – as the solutions became embroiled in the ongoing culture war – we now must face them. With two wars in the Mid-East, a failing world economy, a growing threat of catastrophic terrorism, and whatever else may come our way, procrastination is impossible. Now it’s time for us to try to salvage this wreck. It remains to be seen if we’re up to it.

David Brooks explained this grave situation facing Obama and the difficult tasks ahead (focusing especially on the growing deficit). Brooks concludes with reasons for hope and despair:

The members of the Obama administration fully understand this and are brimming with good ideas about how to move from a bubble economy to an investment economy. Finding a political strategy to accomplish this, however, is proving to be very difficult. And getting Congress to move in this direction might be impossible.

Your cards do not improve if you complain about the hand you have been dealt. But it is essential to understand how we got here. We also must not be complacent now that a leader who we admire has been given power. Individuals are empowered to a greater extent than ever before in history – for good or ill. Which is why it is never enough to get the right man or woman into public office – even if this is a useful initial step. What we must do – as individuals – is to see the world around us clearly and take steps to effect what changes we can, to live the values we hold in our hearts, to reach out to those affected by our actions.

[Image by orangejack licensed under Creative Commons.]

  1. This is a bit unfair on the national level – as George H. W. Bush and Bill Clinton – with opposition Congresses checking them – proved to be exceedingly responsible, putting America on a sustainable course after the tax-cutting, free-spending Ronald Reagan and before the tax-cutting, free-spending George W. Bush. []

The Limits of the Free Market

Friday, June 12th, 2009

George Will:

Trillions of dollars of capital are being allocated sub-optimally, by politically tainted government calculations rather than by the economic rationality of markets. Hence the nation’s prospects for long-term robust growth – and for funding its teetering architecture of entitlements – are rapidly diminishing.

The president’s astonishing risk-taking satisfies the yearning of a presidency-fixated nation for a great man to solve its problems. But as Coolidge said, “It is a great advantage to a president, and a major source of safety to the country, for him to know that he is not a great man.” What the country needs today in order to shrink its problems is not presidential greatness. Rather, it needs individuals to do what they know they ought to do, and government to stop doing what it should know causes or prolongs problems.

One thing that has frustrated me greatly over the past months has been George Will’s apparently unshaken faith in the perfection of the free market. Here he demonstrates this again – speaking of the “sub-optimal” allocation of resources by the government. I have to wonder what he makes of how the financial sector allocated resources over the past few decades. At this point, I think most of us can appreciate the value of  “sub-optimal” investment when compared to the catastrophic investments the “free market” allowed.

It’s not that I don’t think Will has a point. For one, I tend to agree with his anti-royalist attitude towards the executive branch. And secondly, I agree with him that a free market, by distributing resources and power among many actors, can achieve a kind of collective wisdom – and by allowing constant tinkering and creative destruction we allow for the possibility of positive black swans. This is the genius of the market, rooted in the knowledge that no one person or team of persons can know enough to guarantee the right decision. Instead, the best results are obtained by creating many seperate decision-making bodies and creating a structure that allows those that are actually successful to be rewarded.

But Will doesn’t seem to have noticed the serious flaws in the American and worldwide market – or at least, the only flaws he seems to have noticed are those involving government interference.

Even in the most traditional analysis, bankers got into this crisis largely because they were able to escape regulation. They created shadow banks, derivative products, and other complex financial instruments which were designed to evade any regulations in place. George Will and others will likely point to government-backed organizations like Fannie Mae and Freddie Mac as key causes in inflating the housing bubble – but it is difficult to actually make this case – as these institutions, for their size, weren’t that involved in the subprime mortgage market – and in fact were pushed to become involved by the enormous profits being made by the banks. What Will doesn’t want to acknowledge was that even in this most traditional analysis, the root of the problem is the misalignment of incentives rather than government distortions of the market.

What Will fails to acknowledge is that our markets are constricted by lack of government interference. The freedom of the financial marketplace – especially the distribution of power and decision-making that makes the market work – is severely restricted by the size of our banks. Their size not only makes them too big to fail, it also prevents the market from being free.

Our financial and automobile industries have ended up combining the worst aspects of socialism and capitalism – without the benefits of either – and that is even before the government stepped in.

Think about it – the free market is effective because it prevents any small set of individuals from monopolizing decision-making. Especially in the world today with so much information available and events moving so quickly, the “right” business choices to make aren’t always clear. A free market – by allowing each business to make its own choice – prevents decision-making from falling victim to individual follies. But our current economic system – with it’s enormous corporations – ends up recreating the feudal system in which power is not centered in a single place, but in a handful of powerful “princes.” While these “princes” push for free market reforms, it is not in their interest to actually achieve this ideal free market – as Yglesias points out:

As a market approaches textbook conditions—perfect competition, perfect information, etc.—real profits trend toward zero. You make your money by ensuring that textbook conditions don’t apply; that there are huge barriers to entry, massive problems with inattention, monopolistic corners to exploit, etc.

George Will himself has pointed out that those “reforms” that are passed tend to be of a specific sort, following what Will calls, “the supreme law of the land…the principle of concentrated benefits and dispersed costs.” What free market supporters rarely seem to admit is that the free market exists not in spite of the government, but because of it. And today, our market is far from free because the government has failed to protect it – and has instead allowed the worst characteristics of capitalism (exploitation of labor; externalizing as much cost to society as possible, for eg. pollution) with the worst characteristics of socialism (concentration of power and limitation of competition) to create a kind of modern feudal society. In  this feudal society, freedom is enjoyed by the “princes” of finance and industry while the creative ferment of a real free market is formally protected but effectively quashed.

I would like to see George Will take on the limitations of capitalism at some point. As a conservative and an intelligent man, he must see they exist.

[Image by mischiru licensed under Creative Commons.]

Obama’s Grand Bargain (as a necessary response to the deficit problem)

Wednesday, June 10th, 2009

David Leonhardt has a typically excellent piece in the Times with a helpful graph explaining the deficit problem. Leonhardt tells the story of how the $800 billion surpluses left by Bill Clinton have turned into $1.2 trillion deficits – or what he calls the “$2 trillion swing.” He identifies four categories of spending accounting for the swing in descending order of significance:

the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

Leonhardt identifies only 10% of the current deficit as resulting from either Obama’s stimulus package or new spending (which is only 3%). 20% of the deficit is traced to Bush policies set to expire that Obama is continuing – for example, a large portion of Bush’s tax cuts and the Iraq war. 33% comes from legislation signed by Bush – like the Medicare prescription act. And Leonhardt attributes 37% of these enormous deficits – the single largest factor – to the combination of increased counter-cyclical spending (on food stamps, unemployment, etc.) and a decrease in government revenues resulting from the downturn.

This math is a large part of what made those Tea Parties – as well as so much of the Republican opposition – ridiculous. First, these Tea Parties – and most of the opposition – was silent while George W. Bush pushed through legislation account for 53% of the current deficit – but suddenly was up in arms once a Democrat proposed 10% in spending to stimulate the economy and fix some significant problems. At the same time, many of those conservatives who were strong opponents of Bush continue to propose more tax cuts. In fact, during the debate over the stimulus bill, Republicans denounced the deficits being caused by government spending while proposing a tax cut bill that would create even large deficits.

What Leonhardt describes is a nation that has been subjected to the conservative “starve the beast” strategy of cutting taxes and increasing spending. This deliberate policy has brought us to the brink of disaster – as George Will describes:

For years, many conservatives advocated a “starve the beast” approach to limiting government. They supported any tax cut, of any size, at any time, for any purpose, assuming that, deprived of revenue, government spending would stop growing. But spending continued, and government borrowing encouraged government’s growth by making big government cheap: People were given $1 worth of government but were charged less than that, the balance being shifted, through debt, to future generations. In 2003, Republicans fattened the beast with the Medicare prescription drug benefit (Cooper opposed it), which added almost $8 trillion in the present value of benefits scheduled, but unfunded, over the next 75 years.

Liberalism’s signature achievement — the welfare state’s entitlement buffet — will, unless radically reduced, starve government of resources needed for everything on liberalism’s agenda for people not elderly. Conservatives want government limited, but not this way.

Leonhardt quotes Alan Auerbach, an economist at the University of California, Berkeley,

Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it.

And not fixing it is, in a sense, making it worse.

I think Andrew Sullivan has the right tack on this:

I don’t blame Obama for failing to turn all this around in five months, and for running a debt this big right now. I willblame him if he does nothing serious to tackle this in the next year.

Leonhardt has been a reporter with good access to the White House in these early days of the presidency. Which suggests that this article is not coming out of the blue for this administration. In fact, shortly before taking office, Obama talked about the “Grand Bargain” he would need to negotiate to deal with precisely this issue. It seems to me that this piece begins to set the stage for what Obama is looking to do after cap-and-trade and health care are passed – to tackle the issues of tax reform and entitlement reform.

All this makes his continued and extraordinary attempts to woo members of the House and Senate – and his efforts to give them a role in determining policy (as described in Matt Bai’s new article) – essential. As Bai describes:

“One of the mistakes of the past is that when presidents arrive on Capitol Hill with legislation chiseled into stone, it’s not well received,” says David Axelrod, one of Obama’s most influential advisers. “You have to give people a sense of ownership.”

Obama seems to have decided early on that his model for pursuing legislation would be something closer to Ronald Reagan, a president whose political savvy he has often expressed admiration for. Partly by necessity, because he had to work with a Democratic Congress, Reagan was known for providing broad policy frameworks while delegating the details to lawmakers. In this way, he managed to fundamentally reform the tax code and shore up Social Security during his first year in office — achievements for which he gladly took credit, even if Congress didn’t give him precisely what he wanted. To this end, Obama’s chief health care adviser, Nancy-Ann DeParle, has been all over Capitol Hill, consulting with various members and soliciting their advice, but the administration has been careful not to weigh in with too much authority or to make any public pronouncements on the negotiations.

Obama may have been able to push through health care and cap-and-trade with his Democratic majorities and personal popularity. But he needs the Congress and Senate to work with him on tax reform and entitlement reform once the financial crisis has been dealt with. Or perhaps sooner – as the bond market pressures the administration to set a clear path which involves a return to fiscal sanity.

To do this, Obama needs the trust and support of a large majority of Congressmen and Senators. And he needs to mobilize public and elite opinion to support a significant change in our tax and spending policies. This article by David Leonhardt strikes me as an attempt to set the stage for this soon-to-be debate.

[Picture by Peter Souza courtesy of the White House.]

Theories of the Financial Crisis: Greed

Thursday, May 21st, 2009

George Will may seek to defend greed (Or maybe not – it’s actually kind of hard to tell.) – along with Ayn Rand and other market fundamentalists.

But just about everyone else lists it as a fundamental cause of the financial crisis. Will tries to make the case that free markets punish greed. But what Will presumes is that an unregulated market is a free market – and on this fundamental point he is wrong. The market Will describes is not one heavily regulated by the government – but it is regulated by ebay which in this instance takes on the role of the government for this small market. The financial markets on Wall Street though were largely unregulated – especially the shadow banking system (which was created in such a way as to be unregulated) – and they were in this sense free from government interference. But they were controlled by a small number of individuals – and in this sense were part of a world where freedom was available only to a princely few. Will makes the point that greed is an immutable human characteristic – and thus does not account for the booms and busts of our business cycle (and of financial crises such as this.) But what does is the combination of perverse incentives for short-term profit (indeed a form of legal fraud), a relaxation of the regulations designed to keep the markets stable that tends to occur when Republicans have power, and greed.

There has always been an historical wariness in America about the combination of greed and concentrations of wealth – focusing on a national bank, on various financiers, on “the malefactors of great wealth” and indeed, on Wall Street. The people, in their wisdom, could see that this concentration of financial power undermined the democratic distribution of political power. But by the 1980s, there was an additional reason to be wary – as Ronald Reagan unleashed a money revolution. This money revolution – like all revolutions – was the commingling of many forces – globalization, the ad-hoc Bretton Woods II agreement, and the relaxation of regulations and reduction of taxes. This revolution helped to concentrate an increasing percentage of the world’s wealth in the hands of a small number of Wall Street (and also London) bankers. The function of these bankers – their expertise – was to balance risk and profit to their customers’ satisfaction – to maximize profit for themselves and their customers while minimizing (or controlling for) risks. As a small percentage of individuals accumulated more and more wealth around the world, these individuals entrusted more and more of this wealth to Wall Street bankers – and the more money the bankers controlled, the bigger their cut. As Michael Osinski explained in a piece for New York magazine:

When you’re close to the money, you get the first cut. Oyster farmers eat lots of oysters, don’t they?

This closeness to the money created an easy money culture – in which enormous sums money were distributed whether they was deserved or not and the culture began to prize attempts to satisfy the bottomless desire that is greed. Wall Street bankers took on the culture of gamblers – except with the market going up, everyone made money. The long boom began to create perverse incentives – as risks began to seem safer, as luck and a rising tide and short term profits made everyone seem like geniuses, they all became accustomed to a certain lifestyle. Financial innovations sought to overturn many of “the fundamental rules of banking” including “that default risk is an inevitable liability of the business.” The combination of innovation and the culture of greed and gambling led to greater and greater risks being taken.

As steady foundations of banking – both as a business and as a culture deteriorated – and as the cautionary tales of Oliver Stone’s Wall Street and Liar’s Poker morphed into guides – a new culture of excess developed – excessive greed, excessive pay, excessive drinking, excessive spending, excessive personal risks, and eventually excessive professional risks. Wall Street bankers began to betray all the symptoms of the easy money culture – like gamblers whose knew their earnings were ephemeral and that every up would be followed by a down to be followed by an up – as long as they could stay at the table. But as Matt Taibbi wrote,  “this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires…”

Osinski tells a story of how this easy money culture affected the individuals:

Now that I was spending more time on the floor, I wondered why the men’s room always stank. Then one afternoon at three, when I was in there taking a leak, I discovered the hideous truth. Traders had a contest. Coming in at eight, they never left their desks all day, eating and drinking while working. Then, at three o’clock, they marched into the men’s room and stood at the wall opposite the urinals. Dropping their pants, they bet $100 on who could train his stream the longest on the urinals across the lavatory. As their hydraulic pressure waned, the three traders waddled, pants at their ankles, across the floor, desperately trying to keep their pee on target. This is what $2 million of bonus can do to grown men.

This easy money culture warped the incentives at Wall Street firms as well – as they were structured in such a way as to generously reward short-term success (without controlling sufficiently for long-term failure.) Rather than being paid large salaries, most of a banker’s income was handed out in enormous bonuses based on yearly performance. As long as fees were generated, as long as this quarter’s profits were growing – bankers would be rewarded with enough profits to last a lifetime. This alone is enough of an incentive to cause massive fraud. But at the same time, the culture of Wall Street ensured that money would be spent ridiculously, ostentatiously, and quickly. 

Perhaps no one has been more articulate in his visceral disgust for the excesses of Wall Street than Matt Taibbi of Rolling Stone

[I]t’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial – we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.

The story of AIG – in its way – symbolizes better than anything else what this culture did to Wall Street. Back to Taibbi:

AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders – people who wear seat belts and build houses on high ground – and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people’s money would make his dick bigger.

A culture of greed and excess – a lack of respect for tradition – a market free only to a princely few – negligence bordering on fraud with regards to the evaluation or risk – and an increasing percentage of the world’s wealth concentrated in the hands of a few. Together, these were the recipe for this financial disaster. 

The problem with greed is that it is unsustainable. It exists in a cycle, like all unsustainable desires. Government regulation, like morality, seeks to control and channel greed in less destructive ways – to mitigate the effects of this cycle. The true cause of this financial crisis was not greed – but the ideology that held that finally the immutable human vice of greed had been overcome with clever financial innovation and the magic of the market.

(more…)

Obama and the Rule of Law

Monday, May 18th, 2009


Right-wingers and some conservatives are trying out a new approach in their attacks on Obama – as you can see from the growing meme on the right that Obama has no respect for the Rule of Law. I’ve come across this meme in a George Will column, a Wall Street Journal editorial, and in a blog post by Jim Manzi for the National Review / The American Scene all last week. All three authors have focused on one particular event – Obama’s role in the Chrysler sale/bankruptcy/bailout. I for one am glad to see the National Review and Wall Street Journal finally coming around to accepting the importance of the Rule of Law after eight years of promoting George W. Bush’s blatant disregard for the law – but I digress.

The past eight years have demonstrated to many Democrats and liberals the vital importance of the respect for the Rule of Law to a well-functioning state – as President Bush concentrated more and more power in the White House and asserted authorities both beyond and over the law – which is why an accusation that President Obama is not respecting the Rule of Law must be taken seriously.

It is hard though to take the example all three authors use seriously – Obama’s intervention in the Chrysler mess. I can understand why people might object to what Obama did – if you consider unions to be a malevolent force, you certainly don’t want them helped out – and it is unseemly that they donated so much to Obama only to be rewarded now (of course, the creditors also gave Obama a great deal of support.) But neither of these objections is based on Obama disrespecting the Rule of Law.

Certainly, even these authors are not accusing Obama of disrespecting the Rule of Law in the same manner as George W. Bush – who did not believe he was bound by law when acting to protect Americans. The unitary executive theory he accepted and Cheney, Addington, and others used, is a direct assault on the idea that the president is bound by the law. Obama does not take this position.

These authors make a big point of the fact that Obama is abrogating contracts – but this objection is a bit silly. Obama is not a party to these contracts – and thus has no obligation to honor them personally. The Contracts clause of the Constitution – the Law which it is being alleged Obama has broken – was meant to constrain the individual states rather than the President or even the Congress. Congress was in fact given the power to abrogate contracts through bankruptcy proceedings in the Constitution. Obama – in intervening in the case of Chrysler – helped to negotiate an out-of-court settlement of the matter. Out-of-court settlements happen all the time – and are welcomed by overburdened judges who see it as better to allow all sides to come to an agreement rather than having to order them to agree.

To call this a violation of the Rule of Law is disingenuous at best.

What these authors are right to be concerned about is the concentration of power that undermines the system of the Rule of Law – as the government’s role in backstopping the finance and auto industries leaves it with enormous leverage. But their fears should be allayed by the fact that most of these interventions are temporary. (Of course, George Will is on the record disbelieving this based on the old adage – as are all of Will’s beliefs – that once government has taken a power, it will not give it up.)

Liberals have continued to voice a different set of concerns about Obama’s respect for the Rule of Law – pointing to the many Bush administration positions Obama has accepted. But they key difference between Bush and Obama is that even as Obama may be putting forward positions on these issues which are controversial, Obama has given the sense he will concede if his legal means of asserting these claims are defeated. Bush in at least one instance refused to end a clearly illegal program despite the fact that his own Justice Department had declared it illegal. 

I do find a few areas of concern. The power of the executive branch has grown enormously in the financial crisis – between the Stimulus Bill and the bank bailout. While in the short-term this may be necessary, if steps are not taken, this would undermine the balance of power between the federal government and the states. While this in itself is not a violation of the Rule of Law – it does weaken the system which together helps maintain the Rule of Law. And it is this that conservatives and right-wingers seem to be ojecting to – but their rhetoric about the Rule of Law being disregarded is hyperventilationist – and for those who did not likewise say the same of our previous president, hypocritical.

But by far the most disturbing manner in which Obama is undermining the Rule of Law is in how his administration is keeping Bush’s policies on the matter of Bagram. The Supreme Court’s ruling on the rights of detainees to certain basic rights at Guantanamo was in a large part based on the idea that our government should not be able to deprive an individual of rights merely by moving them to a particular location. But this is exactly what the Obama administration is claiming with regards to the detainees brought to Bagram from around the world. Our nation’s freedoms are grounded in our traditions. This includes a respect for contracts, a balance of various powers, and an energetic chief executive – but at it’s base, our traditions are grounded in a single, fundamental restriction on the state. To quote Winston Churchill:

The power of the executive to cast a man into prison without formulating any charge known to the law, and particularly to deny him the judgment of his peers, is in the highest degree odious, and the foundation of all totalitarian government whether Nazi or Communist.

State Capitalism and Government (In)Efficiency

Wednesday, May 13th, 2009

Ian Bremmer’s most recent article in Foreign Affairs on state capitalism was rather interesting and analytical regarding the role of the government in an economy – until this sentence cropped up:

Deeper state intervention in an economy means that bureaucratic waste, inefficiency, and corruption are more likely to hold back growth.

Bremmer articles has gotten more than the usual amount of attention – George Will for example made it the basis for a column. Will rejects one of Bremmer’s basic premises though – that in the developed world, the recent forays into state capitalism are temporary:

[Bremmer] probably is wrong because he underestimates the pleasure politicians derive from using their nation’s wealth as a slush fund for purchasing political advantage.

Will implicitly accepts Bremmer’s above point here – pointing to a reason why government is less efficient than the market – because politics begins to affect it and detract from the bottom line.

Last night, I was at a discussion hosted by the Council on Foreign Relations with Bremmer and Felix Rohatyn on “the state’s growing influence on liberal market economics” – and this question came up a few times. Several people commented on this – and the questioned what I took to be the conventional wisdom on this subject. One, a banker or economist of some sort who assisted Eastern European countries by aiding their government entities (such as phone companies, etc.) transition from a Communist to a capitalist economy. He made it clear from his experience that these government entities were inefficient and wasteful. Rohatyn though made the point that this occurred in a closed, non-transparent economy – and these factors contributed to waste more than government involvement. Rohatyn also made the point – which had Bremmer nodding – that as we could see thanks to our insights into GM and the financial companies – that they seemed rather wasteful and inefficient as well. Rohatyn seemed to think efficiency was only possible if the right person was leading an organization – whether it be GM or the DMV. But I think it may be more a matter of transparency and competition. These are the essence of a free market – which for me should not be defined as the absence of the state from a market, but the presence of choice, of transparency, of competition. The state can engage in practices which destroy or undermine a free market – subsidizing certain companies and declaring monopolies by the state for example. The state must be mindful of how it affects the market if it chooses to compete with private companies.

All of this would be moot though if government is less efficient than private companies. But I wonder – and this is a question – if there is any proof that government is more inefficient than the private market. I mean – I can tell you from my own experience that government can be inefficient. But I can also tell you that private companies also can. In terms of health care, at least some studies have found that Medicare is more efficient at providing health care than private insurers – as they eliminate the first step of illegally rejecting all payments on claims as a matter of course.

Of course – the many examples of government efficiency are legendary – but wasn’t it one of our bastions of capitalism that spent millions on his own personal bathroom. Of course, waste is less galling if it isn’t done with our own money. But I’m hoping someone out there has a study proving this – or disproving it.

It seems to be one of those ideas that are just accepted – conventional wisdom.

Taxing the Wealthy

Tuesday, May 5th, 2009

Liberal orthodoxy has made the state dependent on a volatile source of revenues – high income tax rates on the wealthy.

That’s George Will in his most recent column. As phrased, I’m not sure it makes sense. A tax rate is not a source of revenue. A tax is. And while an income tax rate can be volatile – that doesn’t seem to be Will’s point – it is that the revenue generated from the tax is. So, let me correct Mr. Will:

Liberal orthodoxy has made the state dependent on a volatile source of revenues – taxes paid by the wealthy.

Now, I won’t argue about the volatility of any financial strategy based on depending on just a few individuals to generate revenue. 

But let’s pose a hypothetical for a moment. What if those that made over $200 million were taxed at a lower rate than everyone else – let’s say 18% – and those who made less than $100,000 were taxed at a 35% rate. And what if – even given this, the revenue generated from taxing those making over $200 million far exceeded the vast majority who made less.

Wouldn’t that complicate things just a bit?

And now, what if it were true?

The stats here are national – not based on California which Will is talking about. And there are only concerning the top 400 taxpayers who despite being just over 1/one millionth of the population, pay nearly 2% of all income taxes. But based on my previous research, I’m pretty confident the pattern holds – that those at the top of the income scale pay a lower rate of taxes than those at the bottom (Warren Buffett famously explained that he was taxed at a lower rate than his secretary)  – and yet because wealth and income is so concentrated in America, the richest 5% pay about 60% of all taxes.

Volatility is built into any system in which wealth is concentrated – which is why I’m not sure Will’s point here is well-founded. What does he suggest is a more stable type of taxation? If wealth were distributed more broadly, then our economic system – and tax revenues  – would undoubtedly be more stable – but I doubt this is what Will wants. If consumption were taxed rather than income, then the system would likely be even more unstable – especially in a downturn such as now when everyone is cutting back. So, what is the solution?

The 7 Layers of Opposing Obama’s Response to the Financial Crisis

Wednesday, March 4th, 2009

Opponents of Obama’s response to the financial crisis have taken a number of approaches their disagreement. As with all political opposition, these approaches begin with a seemingly common-sense question or objection – and use it as a lever to attack their opponents. Governor Bobby Jindal for example used a bit of each of the following approaches to go after Obama – though not quite committing to any of them fully. I’ve paired many of these approaches with the most prominent individuals who have become associated with them – and tried to respond to them. What is common among them all is a desire to tap into the inchoate rage that this crisis is engendering among all Americans – and to try to focus that rage on Barack Obama. What is lacking among these approaches is a compelling or plausible alternative.

I. Do we need to do anything at all? (James K. Glassman)

George Will memorably attacked this point as a strawman on This Week. But it’s not, even if it is unfair to attribute this view to most Republicans. James K. Glassman (hereinafter called “Dow 36,000” after the book he coauthored) wrote a much-talked about piece for Commentary making the argument that nothing need to be done. The article was cited by House Minority Leader John Boehner among others – and was perhaps the first anti-Obama argument to gain traction in the stimulus debate. Mr. Dow 36,000 made the argument that the Austrian business cycle best explained our current mess – and that our best option would be to do nothing and hope things got better, that we trust the market to provide if only we have enough faith in it’s benevolence and restrain our sinful (government) interference.

What Mr. Dow 36,000 failed to account for was that the stability of societies around the world is dependent on economic growth and the opportunity this brings. The opiate of the masses unhappy with their governments is no longer religion – it is the hope that results from economic growth, the miracle and curse of rising expectations.

Mr. Dow 36,000 believes that if our economic heart seems to have stopped beating, the answer is to have faith that our blood will continue to flow. “We don’t need stimulus – we need to calm down,” he says. But the only rational response is to shock the heart back into action, to stimulate it.

II. But do we need to spend all this money?

Yes, if not more. The basic theory of Keynesian stimulus is that when the aggregate market demand for goods and services enters into a decreasing spiral.

Less demand = Lower prices = Less supply = Less jobs = Less demand = Lower Prices = etcetera

When an economy enters this cycle, Keynes believed, the government must step in and increase demand by spending more than it receives in taxes. (If it taxed to make up for it’s increased spending, it would not be adding demand but merely redistributing it.) Projections indicate that the US gross domestic product will fall by $2.1 trillion in the next two years. Which is why some Nobel-prize winning economists were frustrated that Obama’s plan was so small that it will not be able to make up for the drop in demand.

Joe Scarborough pointed out on Meet the Press last Sunday that, as all deficit spending is stimululative, the last eight years of the Bush presidency have been Keynesian stimulus too:

Scarborough uses this point to make out Obama’s stimulus to be more of the same, except with the stimulus directed towards the bottom 95% of Americans instead of the top 2%. He’s not entirely wrong, but to continue the metaphor above – if someone’s lifestyle choices have put enormous pressure on their heart, as they snort cocaine or take speed or otherwise constantly overcharge their heart, the first step to getting them healthy is usually to get them to stop putting so much pressure on their heart. But if their heart beat is dropping rapidly, or their heart has stopped, then the first step is no longer to remove the cocaine from their system but to inject them with someone that will energize their heart. This is a stimulus. And this is the reason Obama’s economic team is increasing our deficit in the short term.

III. What about tax cuts? (Eric Cantor)

The Republicans proposed a $3.1 trillion dollar permanent tax cut as their alternative to Obama’s $780 billion dollar spending/tax cut stimulus. That they continued to criticize Obama for fiscal irresponsibility and accused him of “generational theft” while supporting this bill aptly demonstrates that this was a pure political play. But if nothing else, the sheer size of the Republican alternative stimulus suggests what the reports of the nonpartisan Congressional Research Office concluded: tax cuts work slower and have less stimulative effect than almost any kind of spending measures. This is why more than half of Obama’s bill is spending.

IV. Fine. But even if this works, the deficit will be out of control! (John McCain)

Damn right it will. Hell – after eight years of rapidly decreasing taxes coupled with the largest increase in domestic spending since the War on Poverty and two large and seemingly unending wars, the deficit was already out of control. Even before that, as Bush failed to respect the “lockbox” that Al Gore promised to protect with the extra funds raised by Social Security taxes, we were in trouble. But even if we had saved all of this money paid into the Social Security program which is owed to me and you in a few dozen years (or less) the rapidly escalating cost of health care would leave our government with a deficit of over $60 trillion dollars over the next few decades.

Which is why Obama has been talking about dealing with America’s long-term fiscal problems since he was on the campaign trail – and especially since he was elected. In the weeks before his election, Washington was taken with his idea of a “Grand Bargain.”

But none of this will matter if the economy doesn’t begin growing again. If the first step to recovery is deficit spending to get the economy going again – continuing the above metaphor, using paddles, injections, whatever to get our economic heart functioning again – the next step is to clean up our act and take a fiscally responsible approach to governing and entitlement spending – in other to stop the irresponsible behaviors that helped create the crisis. If our economy is still stagnant, we will need to dismantle a good portion of our federal and state governments. But if the stimulus works, and the economy begins to grow again, adjustments can be made. Another point that Obama and his Director of the Office of Management and Budget Peter Orzag have made clear is that the first step to solving America’s long-term fiscal problems is tackling the problem of our rapidly escalating health care costs – which thanks to their rapid growth make up an ungodly percentage of our unmet future commitments. This is why Obama sees health care reform as one of the first steps that needs to be taken – to stop the rapidly escalating costs of health care.

V. Do we really need to help all these losers? (Rick Santelli)

Yes, we do. Obama has described his economic team as a bunch of mechanics who are trying to fix the machine that is our economy. When a mechanic sees that a spring or a lever or a cog isn’t functioning properly – and this piece is preventing the machine from working – the mechanic knows the problem will not be fixed by lecturing the piece or letting it fail for not properly doing it’s job. The correct thing to do is to replace it or glue it or do whatever is necessary to make the piece function as it must. Yes, the bankers whose job it was to properly calculate risk and make money instead spectacularly failed to understand the risks they were taking and lost money; and yes, the liars and idiots who took our mortgages they couldn’t afford should be punished too. But while one bank failing is just, a failure of our banking system could paralyze the economy. And while an idiot who took out a loan he couldn’t afford should get his house foreclosed upon, too many foreclosures will take down a neighborhood. Both of these are part of systemic problems which has resulted in downward spirals.

Obama, in taking this approach, seems to be combining some elements of Hayek’s warnings about the limits of the discipline of economics and the failure of the best-laid plans with Keynes’s fierce urgency of now – a kind of trial-and-error, scientific approach to financial crisis management as opposed to a more ideological, morality-driven approach associated with partisans of the left and right.

VI. Obama’s plan sucks. It isn’t working yet!

The stimulus money hasn’t begun to be spent. And the banking and mortgage fixes have yet to be fully implemented – so  of course it’s not working yet. Obama recently explained that the ups and downs of the stock market are a flawed indicator – just as the ups and downs of campaign polling is often flawed. Obama bet his campaign on a strategy of ignoring the day to day and conceding the daily media wars and never trying to boost his daily poll numbers. Instead, he focused on the fundamentals. And he won. His economic team’s approach to the financial crisis is similar. The falling stock market is merely a symptom of the crisis. It is a waste of time to treat a symptom when the root cause is not being addressed – but if one is able to treat the root cause, the symptom will be cured as well.

Obama has elected to do what needs to be done to fix the economy as a whole – and this means helping people whose decisions were poor, people who were greedy, people who were stupid, and yes, losers too. No matter how distasteful, the situation bankers and mortgagees must be helped in order to fix the economy.

To reiterate, the Obama plan has several steps:

  1. Fixing the mortgage and banking mess.
  2. Arresting the downward economic spiral touched off by these messes with government spending to stimulate demand.
  3. Put our government on a fiscally sane path by tackling the enormous gap between our spending promises and revenue generation in the area of entitlements – and at the same time, reigning in deficit spending as soon as this crisis has passed. (These steps are necessary to prevent those who we currently owe from panicking.)

VII. I hope he fails! Socialist! Communist! Marxist! Terrorist! Black Hitler! The Antichrist! Nobama! (Rush Limbaugh)

In fairness to Rush, he’s only publicly expressed a few of these sentiments. I’m not sure that he’s called Obama a black Hitler yet – but I’m sure he’s joked about it. This approach presumes that Obama has a quasi-secret agenda he is trying to impose on America – and that this agenda is so awful, it would be better to suffer another Great Depression or worse than to capitulate. Rush has described Obama as acting in bad faith, as being deranged, as having a mental illness (which Rush diagnoses as liberalism), and as all manner of awful and un-conservative things. Rush is a true propagandist and ideologue – and he has become the rallying point for movement conservatives.

His critiques now have power as the anticipatory fear of what Obama might do overwhelms the sense of what Obama is doing – and if Obama fails, Rush will be hailed as a visionary and a leader. But if Obama continues to display the conservative temperament and pragmatism that won him the election, then he will be as little remembered as Father Coughlin with his anti-Roosevelt screeds.

Rush – like proponents of failed ideologies everyone – continues to maintain that the conservative movement did not fail, but rather that it never truly had the power to achieve it’s agenda.

(more…)

What’s Wrong With the Stimulus Plan

Tuesday, February 3rd, 2009

Aside from the partisan power play that seems to be motivating most of the Republican opposition to the stimulus plan, there are a number of fair-minded criticisms.

First, the plan lacks the Obama touch – the deft promise to cut those programs that don’t work and to make sure the ones that are around still do work, the libertarian paternalistic designs of Cass Sunstein, the nimble government program that does not coerce but merely offers opportunity. Of course, there is a sensible reason for this. The stimulus is needed right now – and it will take time to design new programs with this balancing between libertarian principles and liberal ends in mind. So, Obama has decided that this stimulus package must work within existing programs – which Republicans have used as an excuse to attack those programs.

Second, there is not a clear exit strategy. Many of these spending measures and tax breaks are supposed to be emergency measures that the government will only maintain during this crisis – but new spending and cuts in taxes both are hard to roll back. The idea that taxes are hard to raise is, of course, the basis of the “Starve the Beast” strategy that conservatives adopted (as described by George Will):

For years, many conservatives advocated a “starve the beast” approach to limiting government. They supported any tax cut, of any size, at any time, for any purpose, assuming that, deprived of revenue, government spending would stop growing.

But they found out that spending was also hard to cut:

But spending continued, and government borrowing encouraged government’s growth by making big government cheap: People were given $1 worth of government but were charged less than that, the balance being shifted, through debt, to future generations.

Obama’s stimulus plan involves both increasing spending and cutting taxes. The question is – can we then raise taxes and cut spending after this is over? Obama has clearly indicated he intends to – and to shore up America’s long-term fiscal solvency by dealing with entitlement spending too. If he is able to pull off this Grand Bargain, then he will belong in the rank of the best presidents. If he is not, then this temporary increase could have disasterous effects.

Third, by trying to act so quickly, there will inevitably be unintended consequences. To avoid as many of these as possible, the bill should be cleaner and its provisions should work faster.

Fourth, as Robert Samuelson wrote in the Washington Post:

As it turns out, President Obama didn’t make the tough choices on the stimulus package. He could have either used the program mainly (a) to bolster the economy or (b) to advance a larger political agenda, from energy efficiency to school renovation…There were tough choices to be made – and Obama ducked them.

This bill is something of a muddle so far, in part because of the need for speed, and in part because Obama has let the House and Senate Democrats craft the bill, waiting to give his input until the conference in which the bills passed by the House and Senate will be reconciled.

Fifth, the bill offers both short term stimulus measures and downpayments on longer term (and worthy) projects. A stimulus bill should only include spending in the short term. The 75% goal Obama has set is too low. Every dime in the stimulus package should be out by the end of 2010. Kay Bailey Hutchinson ably stuck to this point in her Meet the Press appearance this past Sunday. Her confident demeanor and obvious grasp of policy made me wonder what had led John McCain to bypass her in choosing his Vice Presidential nominee. 

In short, most of the bills problems seem to come from the speed with which it is being forced out. This is a tradeoff Obama seems to be willing to make – as this bill is intended primarily to demonstrate that stimulus is coming and the problem is being taken seriously.