ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Friday, January 30, 2009

This is the end...

my only friend, the end...

Excellent column by Peggy Noonan in the WSJ today. I feared that she had gotten too smitten with Obama over the past few weeks (months?), but she demonstrates that Obama doesn't seem to "get" his own message, at least based on what's contained in the stimulus package.

Look at the Time
In Congress and the boardroom, failure to recognize a new era.

It looks like a win but feels like a loss.

The party-line vote in favor of the stimulus package could have been more, could have produced not only a more promising bill but marked the beginning of something new, not a postpartisan era (there will never be such a thing and never should be; the parties exist to fight through great political questions) but a more bipartisan one forced by crisis and marked by—well, let's call it seriousness.

President Obama could have made big history here. Instead he just got a win. It's a missed opportunity.

It's a win because of the obvious headline: Nine days after inauguration, the new president achieves a major Congressional victory, House passage of an economic stimulus bill by a vote of 244-188. It wasn't even close. This is major.

But do you know anyone, Democrat or Republican, dancing in the street over this? You don't. Because most everyone knows it isn't a good bill, and knows that its failure to receive a single Republican vote, not one, suggests the old battle lines are hardening. Back to the Crips versus the Bloods. Not very inspiring.

The president will enjoy short-term gain. In the great circle of power, to win you have to look like a winner, and to look like a winner you have to win. He did and does. But for the long term, the president made a mistake by not forcing the creation of a bill Republicans could or should have supported.

Consider the moment. House Republicans had conceded that dramatic action was needed and had grown utterly supportive of the idea of federal jobs creation on a large scale. All that was needed was a sober, seriously focused piece of legislation that honestly tried to meet the need, one that everyone could tinker with a little and claim as their own. Instead, as Rep. Mike Pence is reported to have said to the president, "Know that we're praying for you. . . . But know that there has been no negotiation [with Republicans] on the bill—we had absolutely no say." The final bill was privately agreed by most and publicly conceded by many to be a big, messy, largely off-point and philosophically chaotic piece of legislation. The Congressional Budget Office says only 25% of the money will even go out in the first year. This newspaper, in its analysis, argues that only 12 cents of every dollar is for something that could plausibly be called stimulus.

What was needed? Not pork, not payoffs, not eccentric base-pleasing, group-greasing forays into birth control as stimulus, as the speaker of the House dizzily put it before being told to remove it.

"Business as usual." "That's Washington." But in 2008 the public rejected business as usual. That rejection is part of what got Obama elected.
People are getting the mood of the age in their inboxes. How many emails have you received the past few months from acquaintances telling you in brisk words meant to communicate optimism and forestall pity that "it's been a great ride," but they're "moving on" to "explore new opportunities"? And there's a broad feeling one detects, a kind of psychic sense, some sort of knowledge in the collective unconscious, that we lived through magic times the past half-century, and now the nonmagic time has begun, and it won't be over next summer. That's not the way it will work. It will last a while.

There's a sense among many, certainly here in New York, that we somehow had it too good too long, a feeling part Puritan, part mystic and obscurely guilty, that some bill is coming due. Hard to get a stimulus package that addresses that. [...]

I think there is an illness called Goldmansachs Head. I think it's in the DSM. When you have Goldmansachs Head, the party's never over. [...] It is the delusion that the old days continue and the old ways prevail and you, Prince of the Abundance, can just keep rolling along. Here is how you know if someone has GSH: He has everything but a watch. He doesn't know what time it is.

I remember the father in the movie script of "Dr. Zhivago," inviting what's left of his family, huddled in rooms in what had been their mansion, picking up the stump of a stogie and inviting them to watch the lighting of "the last cigar in Moscow."

When you have GSH, you never think it's the last cigar.

But you don't have to be on Wall Street to have GSH. Congress has it too. That's what the stimulus bill was about—not knowing what time it is, not knowing the old pork-barrel, group-greasing ways are over, done, embarrassing. When you create a bill like that, it doesn't mean you're a pro, it doesn't mean you're a tough, no-nonsense pol. It means you're a slob.

That's how the Democratic establishment in the House looks, not like people who are responding to a crisis, or even like people who are ignoring a crisis, but people who are using a crisis. Our hopeful, compelling new president shouldn't have gone with this bill. He made news this week by going to the House to meet with Republicans. He could have made history by listening to them.

Meanwhile, Obama declares that Big Labor now has an open door to the White House and has appointed Joe "I'm a Joe Six-pack b/c I know of a restaurant that closed down 14 years ago and have visited a Home Depot" Biden to lead a task force on the middle class.... which will inevitably decide that the lack of unions is what's causing our middle class such problems.

Every economic decision made by the Bush Administratio, Congress, and Obama are exact replicas of decisions made by Hoover and FDR.
  • Increase financial uncertainty and eliminate the rules of the game? Check! (Thanks, W!)
  • Increase financial uncertainty about the future because the new administration's governing philosophy hasn't been truly uncovered, vetted, etc? Check!!
  • Ridiculous and ineffective demand-side stimulus in 2008? Check!!
  • Increase the power of labor unions to make starting and continuing a successful business enterprise an impossibility? Check!!!
  • Increase the amount of onerous regulation on businesses? CHECK!!!
  • Increase the price of energy so that businesses cannot afford to operate? CHECK!!!!!!
  • Signal to the financial community that future tax rates (already the highest in the world) will be higher in the future (and that it's patriotic to pay them - unless you're a politically connected future Treasury Secretary)? CHECK!!!
  • Pass a stimulus bill which provides neither stimulus nor fiscal discipline, but rather delivers on 40 years of unfulfilled dreams? CHECK!!!
  • Insert your political wishes into business decisions of companies that you are supposedly attempting to help? CHECK!!!
  • Call (and potentially enact) laws that are protectionist? Check!!!
  • Deflect any blame that can be laid on the government's (and politicians') involvement onto the backs of businesses and general greed? CHECK!!!!!
  • Begin the process of blaming any future contraction on the previous administration? CHECK!!!!!
My only solace is that John McCain would be only marginally better in a similar situation.

And that's no solace at all.

Your Co-Conspirator,
ARC: St Wendeler

Wednesday, January 28, 2009

The Non-stimulating "Stimulus"

Pretty good post by Megan McArdle over at The Atlantic on the stimulus package. I'll interrupt with my comments throughout.

Jan 27 2009, 3:30 pm by Megan McArdle
Good. Fast. Expensive. Pick Two.
But in the context of stimulus, eighteen months is a long damn time. Eighteen months is, in fact, about how long it takes a stimulus to work through the system. If for no other reason, that ought to be a little worrisome for progressives because that means the stimulus won't have even 2/3 of its full effect until after midterms.
18 months in the 21st century might accurately be compared to 5-10 years in previous decades. The pace of business (and of the decisions that are made) has significantly increased over the years thanks to technological innovations. Even if federal government spending on condoms, sod for the national mall, etc were truly stimulating, the stimulus won't come in time to change anything in the economy.
It is simply not "even truer" that conservative intransigence is causing worse delays than the focus on spending the money on massive new projects. It's not even as true. It's not true at all. No matter how you assess the relative benefits of spending to tax cuts, tax cuts could be 95% out the door in April. So could many other kinds of rapid government spending--preventing fare cuts on transit systems, sure, but also repainting all the faded yellow lines on highways, or repairing park benches, redecorating government offices, etc.

Not sure of the stimulative effects of repairing park benches (what's the "multiplier effect" there???), but it is true that tax cuts would have an immediate stimulative effect.

And why is it that Dems previously framed tax cuts as "spending," yet when they call for stimulus spending, they forget this framing?

And the benefit of cutting taxes at all income levels? In addition to being quick, it's intelligent. 300 million individuals making individual decisions in the aggregate will be more efficiently spent than spending decisions made by 100 bureaucrats. (Could you make effective decisions on how to wisely spend $10,000,000,000 that had been assigned to you?)
Why does speed matter so much? Because the primary argument for fiscal stimulus right now is not that we need to alleviate the pain of a temporary economic contraction--that's what things like beefier unemployment insurance, food stamps, and housing assistance are for (the first and the last are very good ideas, by the way.) The argument is that we're in danger of a liquidity trap--that we could end up at a permanently lower level of output, as described by Keynes and popularized by Paul Krugman in the story of the Capitol Hill Baby Sitting Collective. (Though it's worth noting that the ultimate solution was to double the money supply...)
The basic idea is that if everyone is afraid to spend money because they might be laid off, and sits at home in the dark, all the people who made money selling the things they used to buy will get laid off--and so will they, because they're part of "everyone". The government basically shocks us into a higher level of output by spending the money we're afraid to.

And this is the Catch-22 we're facing. No one is willing to spend because of the implied risk of the economy and their personal economic future. The driving factors for this uncertaintly are numerious, but here are a few of the main issues:
  • New Obama administration which answered very few questions during the campaign, resulting in very few people understanding the man's core principles and how he'll lead the agenda.
  • The Democratic congress, which has very few guard rails from keeping it from implementing its most radical, anti-capitalist agenda.
  • The lack of free market proponents in either party, but especially the GOP. The fact that McCain was the nominee of the GOP - and would likely have a similar approach to "finding a solution" - does not increase people's confidence in our economic future.
  • The uncertainty infused by the Bush Administration and Hank Paulson - the first stimulus and the actions by the Feds in the fall of 2008 had disastrous long-term effects on the market, although they may have avoided severe pain in the short-term. Right now, no one knows what the rules of the game are (and the only thing I know is that I am not too big to fail).
Sorry... back to Megan
Though you wouldn't think it from the really quite shocking incivility emanating from the pro-stimulus side, the empirical evidence that this works in a large industrial economy like ours is basically nonexistant. The problem is, we have very, very few examples to test on: America during the Great Depression, and Japan in the 1990s. And neither America nor Japan managed to stimulate their way out of their troubles. You can argue--and many do--that this is because we, and they, didn't stimulate enough.
e.g. Paul "Krazy Eyes" Krugman)
That may be true. But unless you can forward test your theory, it's a just so story. . . as we just painfully found out about the "It was all the Fed's fault" narrative of the 1930s banking collapse. There is no excuse for calling people who question your highly theoretical model fools and charlatans.

I would point out to Megan here that we do have empirical evidence that shows the stimulative effects of tax cuts, both historical and recent.
What we've got, since Japan really never did emerge from its lost decade, is basically one fact: America entered World War II in a depression, and emerged from World War II without one. Hopefully, the relevant variable was the massive, massive amount of spending, rather than any of the other explanations one can plausibly build about the effect of Total War on depressions--like the slaughter of some of your excess labor force, or the substitution of more immediate fears of being killed for panic about the financial future.
So if we're going to do stimulus, judging from our not-very-good best example, what we want to do is pack a massive wallop as quickly as possible, to shock those "animal spirits" back into a more normal economic rhythm. I am skeptical that this will work even if tried, for reasons I have outlined elsewhere. But if we are going to try it, we should be focusing less on the Democratic wish list and more on figuring out where money can be most quickly and effectively spent.

Unfortunately for this country, the Dems in Congress don't really understand economics, capitalism, free markets, or American entrepreneurship.

All they know is how to win in the game of political influence.

Your Co-Conspirator,
ARC: St Wendeler

Sunday, January 25, 2009

New "Special Interests" Set Up Shop

I thought that the Obamessiah & the Democrats were going to get rid of special interests!

Google ready to pursue its agenda in Washington

Its employees supported Obama and four Googlers served on his transition team. Now the Internet giant hopes to win support for so-called network neutrality and expanding high-speed Internet access.
By Jim Puzzanghera and Jessica Guynn

6:18 PM PST, January 23, 2009

Reporting from Washington — Another inauguration took place in Washington this week -- Google Inc. officially became a political power player.

In October, Google was only hours from being sued by the Justice Department as a Web-search monopolist. Today, less than three years after it made its first Washington hire, the Internet giant is poised to capitalize on its backing of President Obama and pursue its agenda in the nation's capital.

Google's executives and employees overwhelmingly supported Obama's candidacy, contributing more money than all but three companies or universities. And only DreamWorks employees gave more toward inauguration festivities.

Google Chief Executive Eric Schmidt campaigned for Obama and was one of four Googlers on his transition team. He is now as likely as any corporate chieftain to get his calls to the White House returned.

At the top of the company's policy priorities are two that consumer advocates largely champion. First, it wants to expand high-speed Internet access so people can use its Web services more often. It also is pushing for so-called network neutrality: prohibitions on telecommunications companies charging websites for faster delivery of their content.

"Google is not just a benign corporate entity. It has a variety of special interests," said Jeff Chester, the executive director of the Center for Digital Democracy, who has sparred with Google over data-privacy issues. "They're in a great position to push their agenda through with the support of the president and the Democrats in Congress."

But Google's newfound political ties heighten concerns about its grip on the online advertising market. The company could play better defense against strong competitors trying to curb its influence.

Last fall, Justice Department lawyers, who had been lobbied heavily by Microsoft Corp. and large telecommunications companies, were about to sue Google on antitrust grounds. They wanted to block its controversial search-advertising partnership with Yahoo Inc., but Google abandoned the deal rather than fight in court.

Competitors worry about Google's close relationship with the Obama administration, said Bill Whalen, a research fellow at Stanford University's Hoover Institution.

"The question going forward is: Will Google turn into just another business entity looking for favors in Washington, or will it manage to keep the 767 flying at 30,000 feet above the political din?" he said, a playful reference to the Google founders' private plane.

As I've said numerous times, the negative connotation of "special interest" should not be assigned to private enterprises (individually or groups of people in business together) that are seeking them, but rather on the government officials who continuously seek to increase their power so they can have this very influence over individuals (or groups of people in business together).

The amount of money spent lobbying our government is not an indication of the power of businesses, but the government. And, for many companies, their lobbying representatives in D.C. and state capitols around the country are in some cases more strategic to their future than their R&D and business development organizations.

Your Co-Conspirator,
ARC: St Wendeler