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Kudlow: Wait Just a Second!
Tweet Share on Facebook December 22, 2008 Comment (2)Larry artfully expresses something that has been rattling around my noggin:
The TARP plan that debuted in October was described as a way to purchase toxic assets from banks and other lenders in order to unclog the credit system, which is so essential to the efficient functioning of the economy. I supported that plan then, and I still do now.
Unfortunately, the plan has changed, and I feel as though the rug has been pulled out from under me. The shift to investing in various banks and other financial companies is troubling. So far, the Treasury has injected $244 billion of taxpayer capital into 150 companies. There have been no auctions for toxic assets. And now TARP may be used to bail out General Motors.
Where will it end? A recent news story talked about car-rental, ethanol, and equipment-leasing companies asking for TARP funds. After GM, maybe car suppliers and dealers will want TARP. It’s not hard to envision a long queue in front of the Treasury Department made up of various U.S. businesses hoping to get bailed out.
Once you stuff money into the banks, you create a political argument for stuffing money everywhere else. And now I worry that we have entered a period of unprecedented government intervention in the economy. It’s industrial policy on a grand scale; it’s picking winners and losers.
Another story talks about all these new czars in the White House — an energy czar, an urban-affairs czar, a health czar. Paul Volcker and Larry Summers already are economic czars. And a car czar may be announced this week. But all these czars remind me of the Soviet Union, not our great democracy here in the United States. A potential $1 trillion stimulus plan that relies almost solely on government spending is part of the new-New Deal economic-policy disease.
I don’t know how all this will get unwound. TARP has become much greater than I ever believed possible—technically, financially, and symbolically.
Color me very worried. -
Stimulus Skeptics
Tweet Share on Facebook December 22, 2008 Comment (2)Andrew Samwick on the stimulus:
Is some degree of skepticism justified? Of course. There have been only vague references to what is a priority and what is not. In that environment, money is likely to be wasted. The Congress, and particularly the Congressional leadership, needs to step to the fore and assert itself to determine those priorities. As bad as things appear to be in the economy now, they will be worse if we run up another trillion dollars of debt with very little productive investment to show for it.
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Toyota vs. The Big Three
Tweet Share on Facebook December 22, 2008 Comment (2)Somehow when Toyota's CEO says things like the following, I tend to believe him more than Detroit's guys: "We must change to become more slim, muscular and flexible." That was Katsuaki Watanabe on the company's first-ever operating loss.
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Democrats and the Housing Crisis
Tweet Share on Facebook December 22, 2008 Comment (9)I have to admit, the White House makes a good point in its rebuttal to the NY Times story about President Bush's role in the housing meltdown:
The story also gives kid glove treatment to Congress. While the administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market -- even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials -- in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the president in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac.
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When Real Life Intrudes on Fantasy
Tweet Share on Facebook December 22, 2008 Comment (2)This I love, courtesy of the Syracuse Post-Standard:
Ten weeks after a Syracuse City Court judge found that Murbro Parking was required to pay a "living wage" to workers who staffed city-owned garages, the employees are tired of waiting for answers.
In November, they started earning the $13.11 per hour required by the living wage law enacted in 2005 to keep workers under city contracts out of poverty.
But a week later, the employees experienced a less welcome change -- their 40-hour workweek was cut back to 35 hours. Managers' hours were cut, too. One manager said the result was a reduced paycheck, after overtime was eliminated and regular hours were cut below 38.
"How is that helping us get out of poverty?" one garage employee wondered. "It's giving us one thing and taking something else away. Why are they hurting us?" -
Mitt Romney: The Man with the Stimulus Plan
Tweet Share on Facebook December 22, 2008 Comment (23)Over at National Review, Mitt Romney offers up an alternative to Obamanomics ...which bascially looks a lot like his 2008 campaign agenda. Here is a bit:
We should lower tax rates for middle-income families and eliminate their tax on savings altogether — no tax on interest, dividends or capital gains. Let’s also align our corporate tax rate with those of competing nations. These actions will rapidly expand consumption and investment, and right now, time is of the essence.
On the spending front, infrastructure projects should be a high priority. But because infrastructure projects involve engineering, environmental studies, permitting and contracting, they can take a long time to actually boost the economy. ... We should also invest to free us from our dependence on foreign oil, not by playing venture capitalist, but by funding basic research in renewables, material science, combustion, nuclear reprocessing, and the like. During the 2008 campaign, virtually every candidate agreed on the need for an “Apollo-like mission” to achieve energy independence. Now is the time to start. ... There is a danger that new spending and deficits will lead to runaway inflation, flight from the dollar, and another economic crisis. It is essential, therefore, that Congress and the president commit to reform entitlement spending as soon as the economy recovers.Me: Eliminating taxes on investment while at the same time fixing entitlements would be a powerful policy combo to improve the economy and confidence. It is also interesting to note that Romney-nomics remains probably the purest expression of the New Gingrich economic philosophy: Cut taxes but also spend big money on key basic research areas.
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5 Reasons Why the Economy Might Recover Faster Than You Think in 2009
Tweet Share on Facebook December 22, 2008 Comment (27)Let's all hope Barack Obama is wrong when he says that getting the U.S. economy straightened out "will take longer than any of us would like — years, not months. It will get worse before it gets better." And let's pray that Joe Biden is way off when he says the economy is in danger of "absolutely tanking." But, to be honest, far more economists would pretty much agree with those pessimistic statements than the number that wouldn't. (Though that is a good contrarian sign.) Most regular Americans, too. Still, there are a numbers of reasons to think that the economy might, just might, shift back into gear faster than most of us think or hope:
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Bush Big 3 Bailout: Nope, It's Bad
Tweet Share on Facebook December 19, 2008 Comment (11)This IHS Global Insight analysis tell me all I need to know about President Bush's automaker bailout. You know those tough changes and goals that the UAW will have to meet? Turns out, not so much :
These targets are nonbinding however, and may be adjusted if the automakers can demonstrate a business case as to why they should be changed. ... This is a band-aid for the auto industry; the amount of money being loaned to the automakers is insufficient to see the automakers through what is shaping up to be a worst-case sales scenario in 2009, and is less than half of what the automakers requested in congressional hearings earlier this month. In essence, it is a $17.4-billion football that the Bush administration is punting to the incoming Obama administration, allowing Barack Obama and his team more time to formulate deeper plans that will loan much more money to the automakers.
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Bush Big 3 Bailout: Maybe Not So Bad
Tweet Share on Facebook December 19, 2008 Comment (3)It now looks like that to get that $17.4 billion, big changes will need to be made (via the NYTimes):
The loan deal requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers in the United States.
The debt reduction and the cuts in wages were central components of proposal by Senator Bob Corker, Republican of Tennessee, who had proposed bailout legislation. Those talks had deadlocked on a demand by Republicans that the wage cuts take effect by a set date in 2009, while the union had pressed for a deadline in 2011.
Me: Butwill he Obama White House and a possible "car czar" change the terms of the deal? ...
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Obama Unbound!
Tweet Share on Facebook December 19, 2008 Comment (2)Irwin Stelzer in the Weekly Standard lays it out for us:
Obama sees himself as a transformational figure. The government already has effective control of the banking and mortgage markets. Obama has appointed Tom Daschle to organize a step-by-step takeover of the health-care sector. Carol Browner, perhaps the greenest of America's politician/regulators, is charged with transforming the energy sector by substituting wind, sun and batteries for coal-fired electricity generation and gasoline-powered vehicles, at whatever the cost. New York City housing commissioner Shaun Donovan's claim to his new post as head of HUD is his record of attempting to increase the role of government in the housing sector. There will be more, but you get the idea: Obama will expand the federal government's reach every bit as much as did during Franklin Roosevelt during his New Deal.
Obama will also expand and rebuild the nation's infrastructure--and the term "infrastructure" is being very broadly construed. He plans to pour hundreds of billions--more likely, at least a trillion--into new roads, bridges, schools, and into repairing existing facilities; investments in human capital--read teachers' salaries--will also come under the infrastructure umbrella. The incoming president has been told and professes to believe that the states have numerous projects "shovel-ready", and has the enthusiastic support of his trade union allies, who know that when the federal government funds a project, union wage levels are protected, and most of the jobs go to members of the construction and other unions.
