A "garbage" stimulus bill

Barack Obama gave his first news conference last night and spread the left's vision of doom-and-gloom, warning of a "lost decade" if we didn't act quickly to stem the faltering economy. Pointedly, he stated that the "Federal Government is the only remaining option to jolt the economy", and criticized Republicans for wanting to focus on tax cuts as a means of stimulating growth.  Just what you would expect a socialist to say.  Government is the answer -- the only answer -- to that which ills us...  And now comes some truth about the vaunted stimulus package, from the mouth of a Harvard economist with solid liberal credentials, Robert Barro (this excerpted from an interview in the Atlantic Magazine courtesy of the WSJ):

Barro: This is probably the worst bill that has been put forward since the 1930s. I don't know what to say. I mean it's wasting a tremendous amount of money. It has some simplistic theory that I don't think will work, so I don't think the expenditure stuff is going to have the intended effect. I don't think it will expand the economy. And the tax cutting isn't really geared toward incentives. It's not really geared to lowering tax rates; it's more along the lines of throwing money at people. On both sides I think it's garbage. So in terms of balance between the two it doesn't really matter that much.

Atlantic: Well, presumably Larry Summers is not an idiot.

Barro: [laughs] That is another conversation. I have known him for 25 years, and I have opinions about that.

Atlantic: Well, presumably Christina Romer is not an idiot if you're . . .

Barro: They've brought in some reasonable people in terms of economic advisers. I don't know what impact they're having, and I suppose they have different views on Keynesian macroeconomics than I have. But I'm giving you my opinion about it.

Spare us the righteous indignation

The President's announcement that he'll crack down on evil CEO's and executives who are abusing their power and making too much money might be a worthwhile expenditure of his time in other circumstances. He promises to cap compensation to $500,000 until all federal loans are paid up, and he's taking 'the air out of golden parachutes'.  When Mr. Obama came out swinging the other day, declaring an end to what he considers to be Wall Street greed, he received loud applause and his minions in the media gave three cheers to the whole concept that big business was finally getting their comeuppance.  His fiery words ignited passion across the airwaves as America felt at least a little better, knowing the fat cats were finally getting their due.  The problem is, this bold new policy is not retroactive, and the righteous indignation is hollow. 

The stimulus package that Democrats will likely push through in the next few days does not provide for the bail out of any major corporations, banks or businesses.  I have not read the entire bill because my computer freezes up when I try to scroll through it (that may be why many legislators have failed to read it in it's entirely, as well).  Had the president imposed his policy retroactively to the banks and companies bailed out last fall, it would have had some viability.  Right now, he's talking about what will happen in the future.  He's apparently going to get tough at some point, but what has happened in the past is not important.

We learned yesterday that $78 billion of our hard-earned tax money used to bail out banks in October has been wasted.  The Treasury bought up stocks in failing banks and paid prices far above the value of those stocks and thus, the American taxpayer got taken to the cleaners. At the time, polls revealed approximately 70% of Americans were against bailing out any failed organization. Our voices were ignored.  Our new Secy of the Treasury, Timothy Geithner, apparently was involved in the entire bail out process, working hand in glove with Henry Paulson. We've been told he must be confirmed for his new position because no one else is qualified.  I think we expected someone with requisite qualifications to correct our problems, not make them worse and create more waste and debt.  Still, we are asked to have the utmost confidence in the direction our leadership is moving on economic matters.

The President is talking about applying his compensation rules from this point forward, so that must mean he has plans to do more bailing out of banks and major business that he hasn't told us about yet.  Is $500,000 now the standard for a year's worth of hard work? If so, will other hard working Americans get their pay raised to that level? What method was used to arrive at this amount? Will it go up when the economy improves or down if it doesn't improve? Will the salaries of other employees working for bailed out companies be mandated by the federal government, as well? Why didn't the president go back to the executives of the bailed out banks, insurance companies and automakers and require them to turn over any 2008 earnings above $500,000 to the Treasury Department in repayment?  We learned not to ask questions during the campaign, so I'm not expecting clarification any time soon.

Goldman-Sachs has apparently decided to back out of the socialist trend of our government taking over the financial sector and claims they will pay back all the money they received from the government.  Some are criticizing them, saying they just want to be able to pay their executives whatever they choose.  That's possible, but perhaps they also want to turn back a portion of the tidal wave of government take-over of every aspect of our lives.

Tax, spend and waste with fearmongering and class warfare as a political agenda. Righteous indignation, indeed.

Dems' thinly disguised power grab

“You never want a serious crisis to go to waste” said Rahm Emanuel, President Obama’s chief of staff. One look at the so-called “Stimulus Package” that doesn’t stimulate but is the biggest aggregation of special interest pork in the history of the Republic tells you exactly what he means. Consider two facts: One, the amount of money this bill would shovel out the front door of the Treasury is- adjusted for inflation- Five times the total amount of money spent by FDR in his first three years in office.

Two, given that all this money must be borrowed, and hoping that the Chinese and others will continue to purchase U.S. debt, the rarely mentioned interest payments alone-347 billion dollars- are the largest single budgetary line item in our history.

The tipoff on what the Democrats are up to is revealed in the way they (aided by the media echo chamber) relentlessly describe the country’s economic condition as the “Worst since the Great Depression”.

The truth however is very different. Our economy while certainly bad is only the “Worst since the Carter Administration”. In that period unemployment touched double digits, inflation hit 12%, interest rates an astonishing 21 %, and gasoline prices-adjusted for inflation- were higher even than the recent four dollars per gallon. Today these key indicators of economic hardship are nowhere near as bad as the Carter years.

So, why are Democrats desperately determined to utterly ignore the Golden Age of Jimmy and rush all the way back to the Great Depression as the proper benchmark for today’s economic crisis?

There are two reasons. First, using the Great Depression as a comparative allows Democrats to cast George Bush in the villainous role of Herbert Hoover, and even better lets Obama masquerade as the Second Coming of the liberal God FDR.

Now for Democrats it just wouldn’t do to describe Bush as merely “the worst President since Carter”, particularly since that would get people thinking that maybe Barack Obama is the new Ronald Reagan.

The second, and far more ominous reason is that by invoking the “Great Depression” and the economic horror stories associated with it (e.g. 25% unemployment) the Democrats hope to create a climate of fear and anxiety among our citizens that will in turn facilitate their radical agenda of a massive power transfer that will transform all the major sectors of our economy- education, environment, energy, health care, labor relations etc. Only by persuading the public that the economic crisis is truly calamitous and catastrophic in scope can the Democrats justify and sell the sweeping, even revolutionary changes they have in mind.

Needless to say, these sweeping changes are not talked about openly. Democrats long ago learned the imperative of a “stealth strategy” (i.e. say one thing while planning to do another).

In broad stroke the true liberal goal is the transformation of America into a statist social welfare society along European lines. Remember, these are the people who tried to impose Hillary Care, still praise the rationed Canadian health care system, and even find good things in Fidel Castro’s approach to public health.

The means of achieving this Brave New World are simply put, redistribution of wealth and income. Remember Barack Obama’s unguarded remark to Joe the Plumber: ”Aren’t things better for everybody when you spread the wealth around?”

Up until now these Democratic goals have been hidden behind vague promises-e.g. affordable health care for all, tax cuts for 95% of us. Now, with the “stimulus” the Democrats have been compelled to put in writing for the first time a list of specifics. The result is an appalling compendium of “good ideas” put together by Nancy Pelosi and friends,that is only a down payment on the even bigger and better ideas that will soon follow.

Now if the economic crisis is as catastrophic as the Democrats would have us believe, then it logically follows that these good ideas must be signed into law real fast, at least fast enough to insure that the public has no real chance to look at them, and Congress has no chance to debate or significantly alter the most expensive piece of legislation in history.

There will however be ample time-one day- for our grandchildren to ask us incredulously: “What were you thinking”?

William Moloney’s columns have appeared in the Wall St. Journal, USA Today, Washington Post, Washington Times, Philadelphia Inquirer, and The Baltimore Sun.

What 'stimulates' American commerce?

If Republicans can modify or delay the “stimulus” package, we might be in the midst of a debate over whether our economic woes can be overcome with government policies that encourage production or consumption. That is not likely for, as “post-partisan” President Barack Obama let slip, “We [meaning Democrats] won.” There has been a major divide between parties over this question at least since the Great Depression, and especially since President Reagan led a successful charge for cuts in income tax rates that gave rise to a 25-year boom.

The two opposing views are supply-side and demand-side political economy. The first holds that prosperity is driven by business enterprise, facilitated when income and other tax rates are low. The second maintains that the cause is consumers with spending power, boosted when federal spending “primes the pump” with new government programs.

Let us admit that supply and demand are as inseparable as the concave and convex sides of a curved line. No one can buy what is not for sale and nothing can be sold when there are no customers. But bearing in mind that commercial republics like the United States are vastly more prosperous than primitive societies largely dependent upon agriculture, we must consider that something accounts for the difference.

That “something” is the entrepreneur, who neither commands wealth nor depends upon the beneficence of others. Unlike landed aristocrats or powerful oligarchs, those in business for themselves provide a good or service which a sufficiently profitable number of people need or want, and freely choose.

The supply-side approach demonstrated its capacity for fostering national prosperity when Congress in 1981 reduced the highest income tax rate from 70 to 50 percent, and decreased the number of brackets from 14 to five. Double digit inflation, unemployment and interest rates all fell to lower levels.

In the early 1960s President Kennedy effectively made the case that the existing top tax rate of 91 percent on incomes of $200,000 yielded little revenue to the government because wealthy persons legally shielded their income in ways Congress had made possible with tax breaks.

Why is this? The explanation lies in a combination of human nature and mathematics. High tax rates are, to say the very least, burdensome. So if they can avoid it, people will find ways around them. If someone earns a million dollars and is taxed at 91 percent, that only theoretically (but not actually) nets the government $910,000 . For if he reduces his taxable income through various tax shelters to, say, $500,000, the government gets only $455,000. And even this is fanciful.

On other hand, if the income tax rates are lowered, the enterprising businessman is more likely to invest more and earn more on his money. If he then makes two million dollars under a more favorable tax regime, at 50 percent that yields a million dollars, or more than twice as much as he actually paid under the higher tax rate.

Thus, not only did this policy revive stagnant commerce, it yielded more revenue for the government than ever. Indeed, even substantial federal deficits each year during the Reagan years put no drag on our growing prosperity. We had high defense spending to face down the Soviet military threat along with increases in social welfare spending, but lowered tax rates kept commerce humming.

The demand side approach was first implemented in the administration of Franklin Roosevelt. Income tax rates, which already had risen in the previous administration, went even higher, causing the recession inherited from Herbert Hoover to expand into a Great Depression as the government added agencies and bureaus on an unprecedented scale.

Deflation and high unemployment plagued us during FDR’s first two terms, and only World War II’s demands for armaments and supplies turned the corner. Then, for the first time, income tax was withheld from pay checks to ease the pain of taxing not just the wealthy (who can’t pay it all) but everybody else with any income.

Currently, Democrats are saying that the failures of the New Deal were due to the federal government not spending enough money fast enough. But that is just so much blowing of smoke, for even the government cannot spend money fast enough to stimulate anything except a passion for the political power made possible by enlargement of government beyond its constitutional functions.

The government cannot spend us into prosperity and certainly cannot pay for it with confiscatory tax rates which free people will always find ways to avoid, if they do not move their enterprises elsewhere. Real political economy consists in restraining the government, not unleashing it.

No taxpayer bailout for Colo. pensions

When President Bush and Congress first proposed a financial bailout for Wall Street investors last September, a grassroots chorus - from the Left and the Right -decried using public taxpayer funds to pay off the debts of private investors. In Colorado, the state's largest pension fund has lost 25 percent of its investment assets - $11 billion - in the past year, jeopardizing its long-term ability to pay retirement benefits promised to some 413,000 current and former government employees.

A year ago, after enjoying a 10 percent return on investment, assets of the Public Employees Retirement Association had grown to $41 billion or about 78 percent of the funds needed to pay $53 billion in promised benefits to retirees.

Now, PERA's assets have fallen to barely $30 billion. An estimate by the legislature's Joint Budget Committee pegged PERA's current funding ratio at 56.8 cents on the dollar, using 2007 liabilities. However, the actual number is undoubtedly worse given that PERA's liabilities (i.e., promised benefits) grow by more than $3 billion annually.

PERA officials, as is typically the case, aren't asking the legislature for hasty changes. While that may be wise as it applies to PERA's investment strategy (which generally exceeds its benchmarks), failure to deal with PERA's unaffordable benefit structure is irresponsible. At last, that costly reality may be inescapable, even for PERA and its apologists.

Even in a strong year like 2007 when PERA's investments grew by 10 percent, its liabilities still grew faster, adding $160 million to its funding deficit.

PERA lawyers assert that benefits can be retroactively increased (as they have been), but that once increased, those benefits can never be reduced, even for someone who has worked just one day for a PERA employer. But what if those increased benefits threaten the solvency of the fund? PERA had behaved as if that could never happen.

Worse still, PERA's party line is that the responsibility to make up for any shortfall rests with taxpayers, represented by state and local governments who contribute to PERA's pension funds on behalf of their employees.

With that in mind, it's worth explaining how PERA's retirement plan is funded.

State government, most school districts and many cities and counties deduct 8 percent from their employees' paychecks and send it to PERA, along with a 10.15 percent employer contribution and a 1.5 percent supplemental contribution (which will increase to 6 percent by 2013 to help return to full funding). That's a total contribution rate approaching 24 percent of payroll ­ compared to 12.4 percent for Social Security.

That money, more than $1.25 billion a year, is invested by PERA staff with direction from the PERA board of directors, 80 percent of whom are themselves PERA beneficiaries. Taxpayers have no meaningful input.

In short, PERA rewards its members with higher benefits when its aggressive investment strategy pays off but soaks taxpayers for a bailout when that strategy backfires.

If PERA can simply charge its losses to the taxpayers, no wonder it sees no urgency in an unfunded liability of nearly $30 billion or an unsustainable benefit structure or funding models that assume incredible rates of return for decades into the future.

That certainly sounds like using public taxpayer funds to pay off the debts of private investors. While that's a great deal for PERA members, most of whom can retire at age 55 and collect $2,658 a month, it's a lousy deal for other taxpayers on Social Security where the retirement age is 67 and the average monthly benefit is $1,089.

Because PERA won't go belly up tomorrow, the expedient course is to kick the problem down the road. When the day of reckoning finally arrives, current PERA board and staff will be long gone.

After contributing generously to fund state employees' retirement and giving those employees virtually unlimited control over their pension investments, Colorado taxpayers deserve to be freed from this heads-they-win, tails-you-lose proposition.

If PERA beneficiaries want their pension fund to invest aggressively, they should also bear the responsibility if those investments backfire.

Former State Treasurer Mark Hillman served as a member of the PERA board ofdirectors. To read more or comment, please go to www.MarkHillman.com