Bush tax cuts find foe in Greenspan

Alan Greenspan’s post-Fed chair economic line has been quite different from how he wielded power for almost twenty years. His latest seeming apostasy is to call for repealing the Bush 43 tax cuts. I’ll have to admit I agree with the sphinx here. I’m certainly fiscally conservative, but I’m not fiscally stupid, and I’m certainly not one of those fiscal hardliners (hardheaders?) who would prefer to see the United States go completely bankrupt than to implement a serious monetary policy that matches the facts on the ground.

From the link:

It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

Now Mr. Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

White House announces debt commission

Hopefully this group will be more than window dressing for a serious problem. I’m not too certain there are many decent short-term public debt fixes out there, but both the mid- and long-range fiscal outlooks need a basic road map at the very least.

Entitlement spending — Medicare, Social Security, etc. — combined with the ever growing black hole that it is the defense budget will bankrupt the United States before the middle of this century without an application of serious fiscal conservatism. This was the kicker from a link I blogged about yesterday, “At stake ultimately is the United States’ status as a first-class economy.” The subject in question there? The federal deficit.

From the first link:

President Obama will sign an executive order Thursday to set up a bipartisan fiscal commission to weigh proposals to rein in the soaring federal debt, according to a White House official.

The official, who requested anonymity because the President has not made the announcement yet, said the co-chairs of the commission will be Democrat Erskine Bowles, former White House chief of staff for Bill Clinton, and Alan Simpson, former Republican Senator from Wyoming. It’ll be officially titled the National Commission on Fiscal Responsibility and Reform.

Contra Cheney and Rove …

… deficits don’t matter, until they do.

From the link:

Now policymakers’ work is infinitely harder as they wake up to the realization that they must deal soon with the country’s long-term fiscal problems.

At stake ultimately is the United States’ status as a first-class economy.

Obama’s domestic spending freeze announcement …

… is getting a ton of play around the blogosphere today. There’s plenty of cries of capitulation from the right, there’s opining the move is a knee-jerk reaction to Brown winning in Massachusetts, and the Obama-leery left is fairly predictably apoplectic.

You can find a pretty good roundup of opinion on the announcement here at the Daily Dish.

Of all the various takes out there, this from Bruce Bartlett seems to strike closest to my thoughts:

More recently, economist Paul Krugman warned that the Fed’s talk of an early “exit strategy” from easy money sounds suspiciously like that which led it to tighten prematurely in 1936. He believes that the good economic news of recent months does not yet constitute proof that a sustainable recovery is underway and that the danger of a relapse this year is strong as stimulus spending wanes.

Nevertheless, the pressure to at least begin the process of normalization is overwhelming. The Fed has talked openly about new procedures to soak up the bank reserves it has created even as those reserves remain largely idle and unlent. And even Democrats and organizations affiliated with them are urging Obama to get the budget on a sustainable path as soon as possible. John Podesta and Michael Ettlinger of the liberal Center for American Progress recently argued that the primary budget (spending less interest on the debt) should be balanced as soon as 2014, with full balance by 2020.

I’m not terribly worried that Congress will reduce the deficit too quickly; too much of the budget is on automatic pilot or effectively off-limits. Entitlement programs like Medicare will continue to grow for years to come and there is no way that defense spending can be reined in as long as we continue to fight two wars in Iraq and Afghanistan, not to mention the likelihood of new domestic security spending in the wake of an aborted terrorist attack on Christmas day. And it’s far more likely that Congress will appropriate new stimulus measures than cut back on those already enacted.

Libertarians in the electorate

Interesting study from the Cato Institute ( by David Boaz and David Kirby) to find out just how many libertarian voters are out there in the wild pulling levers on election days.

Looking at the loosest possible definition — fiscal conservative/social liberal but won’t self-identify as libertarian — the number is a huge 59 percent. Add the self-definition to the equation and that drops to 44 percent.

The Cato’s stringent definition of libertarian — “correct” answers on three political values questions — still found 14 percent of voters are libertarian. A fairly healthy figure. For the record I consider myself in the second group of the second graf. Didn’t take the Kirby-Boaz survey to see if I fit a higher level of purity. I typically self describe as a “little l” libertarian.

And the ostensibly libertarian Tea Party movement? From everything I’ve read the movement has a lot of libertarian rhetoric, coupled with a lot of anarchic actions. Honest libertarianism isn’t against government. It’s just against needlessly intrusive, large and bad government.

From the first link:

In our new study, David Kirby and I round up various estimates on the number of libertarian-leaning voters. Our own calculation, 14 percent, is actually the lowest estimate.

We use three questions on political values from the generally acknowledged gold standard of public opinion data, the surveys of the American National Election Studies, and find that 14 percent of respondents gave libertarian answers to all three questions. But other researchers have used somewhat looser criteria and found larger numbers of libertarians:

The chart:

We summed all that up in this handy but not necessarily helpful graph

Teeth gnashing and hand wringing over health care reform

(Update — bold emphasis added because it seems it takes a sledgehammer to make a fiscal point right now.)

I’m sure there’s a lot of both going on behind the Democratic Party scenes. There’s a lot of both going on publicly along with plenty of finger pointing, blaming and dissembling among the left blogosphere. The simple fact is health care reform in its current Congressional form has not, and almost certainly will not, pass because of Democratic ham-fisted policy making. But the GOP is behaving shamefully and shamelessly as an opposition party with no alternative ideas and zero compromise on a very necessary evil.

Yes, health care reform is a very necessary evil. Honest libertarians can be excused from the argument, but fiscal conservatives are lying to themselves or everyone else when they deny health care reform must occur at some point in the near future. Health care as a percentage of income is becoming unmanageable and health insurance costs are killing businesses both large and small.

Without reform health care in the United States will continue to bankrupt people at higher and higher levels of income, and cause untold suffering and early death for the uninsured. And at a point in time looming very soon it will simply bankrupt the entire nation. I’m no fan of too much government influence anywhere, but after looking over the arguments (and sorting through the hyperventilated crap from both the left and the right) I am convinced reform at the federal level is now a necessary evil. Any fiscal conservative who looks at the numbers honestly will come to the same conclusion.

Some funny (interesting, not hah hah) facts about the situation on the ground now that Brown has taken over Ted Kennedy’s Senate seat: the oft pointed out irony that Kennedy’s old seat will end his signature legislation; the fact the Massachusetts electorate already has a state run plan along the lines of federal health care reform so scuttling the current reform efforts causes them no significant pain; that the new GOP senator voted for the Massachusetts plan, but has declared opposition to essentially the same plan on the federal level; the heaviest opposition to health care reform is found amongst voters who either are already in, or soon will be, the massive federal subsidy of Medicare or Medicaid and basically fear their benefits being harmed in some way. Talk about wanting to selfishly eat your children. No health care reform equals a potentially very bleak future for everyone middle aged on down.

TARP costs coming in $200B under expectations

Looks like the Obama administration is going to put some toward the deficit and some toward Main Street. Given the facts on the ground, this sounds like fairly conservative fiscal policy to me. Quite a revelation after the last eight years.

From the link:

The government recently announced that the Troubled Asset Relief Program (TARP), established at the height of the financial crisis last year to recapitalize the nation’s banking system, will cost $200 billion less than expected. Obama wants that money redeployed into additional stimulus initiatives: “This gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street,” Obama said Tuesday.

Getting Main Street hiring again is key to job recovery: Small businesses have created 65% of new jobs in the past 15 years, according to government estimates. Obama’s latest set of proposals includes several brand-new measures, as well as extensions of existing stimulus acts.

We all know …

… the 2000s were a fiscal disaster — tough markets, bubbles growing to bursting by the end of the decade and drunken sailor federal spending by a GOP-led government. The party of fiscal conservatism? Hardly.

Things were bad, but look at the longer view to get an idea of exactly how bad using just one indicator — the S&P 500 index (emphasis mine):

With the ’00s about to flip the odometer to the ’10s, there has been a raft of commentary about how lousy a decade this has been. Stock investors can vouch for that: The ten years since Y2K are on track to produce the worst total returns for investors since the 1930s. And, after the roaring ’80s and ’90s, the disappointment of the last decade is all the more galling.

Indeed, it will be hard for investors to wash the taste of trillions of dollars of losses from their mouths.

In both the 1980s and the 1990s, the broad S&P 500-stock index index provided a total return (which includes dividends) of more than 400%, according to Capital IQ, a Standard & Poor’s business. The total return for the S&P 500 since New Years 2000 has been negative 10.8%.

Now the Bush 43 administration and GOP Congress are given a pass on the events of 9/11 and how that disrupted the entire American social structure, including commerce. But that event was over eight years ago, plenty of time for the party of fiscal restraint to get the economy back on track, right? Not so much. And where did the profligate spending go? Into half-assed and outright fraudulent foreign adventures:

Hirsch believes a key factor for stocks in the 2000s was the September 11 terrorist attacks and the U.S. government’s expensive involvement in wars in Afghanistan and Iraq. The Vietnam War hurt stock returns in the 1970s, he notes, while World War II kept the market down in the early 1940s.

Of course Bush inherited what is now considered a highly over-valued market that was ripe for a fall back to earth. September 11 was the balloon bursting sledgehammer and seven additional years of absolutely horrible fiscal policy and economic management has put us where we are right now, and leaving a steaming bag for Obama’s administration that will most likely dominate the bulk of his first term, if not much, much longer.

And right wing media is now happily blaming Obama for the economic conditions on the ground.

TARP funds for deficit reduction?

Even though this move really smacks of naked politics there are far worse things TARP money could go toward than helping to drive down the outrageous deficits racked up over the last eight fiscally irresponsible years.

From the link:

The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.

The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.

The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.

Bruce Bartlett comes out in favor of VAT

Bartlett is an interesting read these days. One of the major supply-siders back in the day, his economic positions seem to have shifted a  bit. He says, and I tend to agree with him, he’s only reacting to the conditions on the ground and his fundamental economic beliefs are no different than when Reagan held the White House. Of course a value added tax was one tax vehicle in the supply-side economic toolbox.

In a move that probably makes the heads of his old pals in the GOP explode, Bartlett writes in Forbes an extended defense of, and recommendation for, a national value added tax.

From the middle link:

few years ago, I concluded that the magnitude of our looming fiscal problem was so enormous that higher taxes were inevitable–and that was long before the recent crisis made matters vastly worse. Moreover, I concluded that the magnitude of this tax increase is so great that it would seriously cripple the economy if accomplished through higher rates on an already dysfunctional income tax system. Reluctantly, I concluded that a value-added tax (VAT) is the best way to raise the revenue that would, in any case, be raised.

When I first made this suggestion in a Los Angeles Timesarticle in 2004, I was building on a large body of tax analysis showing that the VAT is the best known way of raising revenue. When I say “best” I mean that it raises large revenues from low rates and has minimal disincentive effects. In economists’ speak, it has a very small dead weight or welfare cost–the economic output lost by the tax over and above the revenue collected.

Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe’s average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.

My first NewMajority post

Here’s my first offering at NewMajority. The site is dedicated to bringing the GOP back around. I’m going to provide an independent voice coming from the “little l” libertarian stance, plus I’m a voter who votes for both parties with no compunction. Exactly the sort of voter the GOP needs to court to start winning elections again.

The site broke the story on Palin’s campaign clothes going undonated and sitting in plastic garbage bags at the RNC headquarters, and it’s funny because the comment section is already populated with the 20%-ers who will likely keep the party out of anything other than local office for a long-time coming.

I think the idea of NewMajority is great and I’m very pleased David Frum, the founder and editor, has given me the opportunity to contribute to the conversation. The site launched on Tuesday and it’s already embroiled in a bit of GOP controversy.

Regular readers of this blog wonder why I’d contribute to a blog dedicated to bringing the GOP back to prominence? It’s simple. I want at least two viable choices and no third party could hope to challenge the Democrats for many years. There’s just no coalition, organization or structure for that fight from any political party other than the Republicans. I also fear the GOP might just go the way of the Know-Nothings if the extreme edge isn’t sanded down a bit.

Given the opportunity, I’ll contribute to a left-leaning blog and challenge that group from the right. For NewMajority I’m doing just that, only from the other direction.

From my first NewMajority post:

Is it possible to be less than conservative on social issues and still be a part of the Republican coalition? Of course it is. Many voters, such as myself, vote GOP for the fiscal conservatism the party has traditionally espoused. The last several years has shaken that somewhat, but fiscal conservatives are not going to bail on the party for the sins of one administration.

Culturally, the public’s focus regarding the Republican Party is on the Religious Right and a series of hot-button topics such as abortion, gay marriage and stem cell research. One area that gets very little truck these days is civil liberties – particularly the notion that government ought to stay out of our lives. The notion that the individual knows best in terms of life, liberty and the pursuit of happiness. Civil liberties is one area in which true conservatives and libertarians have been largely in agreement.

The fiscal GOP under Bush 43

Not the least bit fiscally conservative. As a matter of fact, quite the opposite. That’s going to be a tough mantle to bear when the next election cycle rolls around and Republican candidates start in on the empty rhetoric of big-spending Democrats and prudent Republicans.

Yes, the current administration and Congress will be big spenders. It’s not going to be surprising. Disappointing maybe, but no surprise. The surprise will be it’s almost impossible that a Democratic White House, Senate and House will outspend the most recent GOP-controlled White House, Senate and House.

Any new-found GOP fiscal conservatism is going to ring hollow for probably a couple of more election cycles, and very maybe much longer.

From the Cato-at-Liberty link:

House Minority Leader John Boehner tells NPR, “I and most Republicans believe that a smaller, less costly government gives us a healthier economy and a healthier society.”

Reality check: How the federal budget grew during the years of President Bush and a Republican Congress:

Obama the porkbuster

Pork is less a problem dollar-wise than it seems, but it’s insidious and representative of the worst of DC. Getting rid of it has long been a fiscal conservative goal, even spawning a online group of porkbusters.

Looks like Obama shares the goal. One more reason why I’m proud to have voted for him.

From the second link:

President-elect Barack Obama issued a warning Sunday to officials around the country lining up for federal dollars to help projects take off in the struggling economy: No more business as usual.

In an interview on NBC’s Meet the Press, Obama said, “What we need to do is examine: What are the projects where we’re going to get the most bang for the buck? How are we going to make sure taxpayers are protected?

“You know, the days of just pork coming out of Congress as a strategy, those days are over.”

Hats in hand with dirty knees …

… our corporate backbone pleads with the gov’mint for a thin dime.

Sickening.

From the link:

At the very core of the current financial crisis lies the problem of moral hazard.

Moral hazard is the alignment of incentives that encourages the pursuit of short-term gains with scant regard to (or even responsibility for) potential long-term costs.

The U.S. Federal Reserve Bank and the federal government helped create the moral hazard problem, but they are not focused on correcting it. In fact, some recent actions are making the problem more acute.

Former Fed Chairman William McChesney Martin Jr., once said that the role of the Fed was to “take away the punch bowl just as the party got going.” But under the leadership of Alan Greenspan, the Fed not only left the punch bowl on the table, it also spiked the punch.

When equity markets wobbled, the Fed came to the rescue. Yet when he commented on the “irrational exuberance” of the equity markets several years ago, Greenspan admitted no role in creating that exuberance.

More recently Greenspan failed to acknowledge the moral hazard problem in a different context. In his Oct. 23 testimony before Congress, he expressed “shocked disbelief” that self-regulation failed — that financial institutions did not do a better job preventing themselves from getting into trouble.

Greenspan’s shock is itself surprising. He was right to believe that markets could be self-regulating, and he was right to believe that markets should work. What he failed to see, though, was that self-regulation couldn’t work because of the moral hazard that had crept into the way Wall Street operated.

Many of the problems with Wall Street lie with the corporate structure itself. In the idealized world, management should be acting for the benefit of the shareholders, and the shareholders should act through the board of directors to set compensation and power of management.

Cato on the financial crisis

If you’re looking for a libertarian take on the ongoing financial crisis, here’s the Cato Institute’s full slate of offerings.

From the link:

Global Financial Crisis

The Cato Institute has been following the crisis in financial markets since the very beginning. From the sub prime crisis to Fannie and Freddie to the $700 billion bailout, the recent financial events have given our analysts and experts plenty to talk and write about. We decided to pull together the op-eds, podcasts, reports, and publications from our scholars on this issue, so all these resources can exist in one place. We hope it’s a useful tool for your research.

Bailout still in DC debate

Looks like the Senate is voting tonight on a bailout version that might be a bit more palatable to the House GOPers, although I’m with the fiscal conservatives who urge calm over freak-out.

After Monday the markets seem to have settled down to a quiet boil. Major money is flowing into T-bills and away from the open market.

Even though there’s a relative calm, I’ve heard the Martini sisters — Ivana and Anita — are still in high demand on Wall Street. Thanks folks, I’ll be here all week. Be sure to tip your waitstaff and come back Friday for the prime rib lunch special.

From the first link:

Senate leaders scheduled a Wednesday night vote on a $700 billion financial bailout package after accepting tax breaks and a higher limit for insured bank deposits in a bid to win House approval and send legislation to President Bush by the end of the week.

Top lawmakers said the Senate proposal, worked out after a day of maneuvering behind the scenes, would include tax breaks for businesses and alternative energy and higher government insurance for bank deposits.

“It has been determined, in our judgment, this is the best thing to move forward,” said Senator Harry Reid, Democrat of Nevada and the majority leader, in announcing the surprise move. The House was expected to vote on Friday.

Newt Gingrich pans the bailout

Newt Gingrich puts in his two cents on the proposed financial sector bailout offered up by the Bush 43 administration. His voice joins those of other true conservatives who are concerned about scope and sheer breathlessness of this stupid non-solution to a very real problem.

From the WSJ’s Political Perceptions link:

For those watching the Washington tea leaves, one sure sign that Treasury Secretary Henry Paulson faces problems selling his Wall Street bailout plan came Sunday, when Newt Gingrich posted his views online.

The former House speaker’s posting, on National Review Online, was a clarion call to fellow conservatives to slow down the rush to pass the plan and to start raising serious questions about it. “Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess,” Mr. Gingrich wrote.

In an interview Monday, Mr. Gingrich was even more pointed. He predicted “a populist reaction of the first order” against the Wall Street rescue and called on the president to dump his economics team and “try again.” For good measure, Mr. Gingrich’s think tank plans to release poll findings Tuesday showing public skepticism about bailing out financial firms.

As that suggests, the one thing that’s become clear in the last day or so is that the path toward congressional approval of the $700 billion financial-sector rescue plan won’t be nearly as smooth and clear as many thought when the idea emerged late last week. When the Democratic speaker of the House and the Republican presidential nominee both demand similar changes, that’s a sure sign trouble is brewing.

Follow the money …

… to the Democratic Party. Even though all the news right now is focused on the Democratic presidential primary, the larger story for this election cycle is the big money donations flowing to both parties.

In a clear hedging of bets, corporate America is giving to the Democrats in record numbers. This has profound implications on all the races, particularly the downticket races that will fill Senate and House seats. And don’t discount state and local contests, either.

To my mind the GOP completely squandered an opportunity to showcase limited government and fiscal responsibility over the first six years of the Bush 43 regime while holding the White House, Senate and House of Representatives. Instead the GOP somehow became the party of extreme deficit spending, cronyism and incompetence.

Most likely this November the GOP will get a major slap-down. Count me among those who hope it happens, and is a major wake-up call to get the GOP back on the track of fiscal conservatism. Without that, I have little to no reason to pull a GOP lever. And I’d sit out before ever pulling a straight Democratic ticket.

From the CFO.com link covering the “big four” accounting firm’s donations this cycle:

For the first time in more than a decade political campaign contributions from the accounting industry are starting to shift toward Democratic candidates.

Political action committees (PACs) for the Big Four accounting firms and the American Institute of Certified Public Accountants have favored Republicans in doling out corporate campaign contributions since the late ’90s. But the 2006 election seems to have instigated a shift.

According to recent Federal Election Commission data, PACs for KPMG, Deloitte & Touche LLP and PricewaterhouseCoopers have noticeably increased their contributions to Democrats since the party took control of Congress in the midterm elections.

For example, according to FEC filings, Deloitte still gives more of its total contribution (61.6 percent) to Republicans than to Democrats. But the percentage going to Republicans has fallen. In 2007 and the first two months of 2008, Deloitte increased the percent of its total contributions going to Democrats by 13 percent over the 2006 election season.

PwC, too, upped contributions to Democrats 12.8 percent over 2006. KPMG started increasing donations to Democrats even earlier. In 2006, KPMG gave ten percent more to Democrats than it did in the 2004 election season and has given 7 percent more in the current election season than it gave in 2006.

PACs for Ernst & Young and the AICPA have increased the percent of their contributions going to Democrats as well, although the increases are smaller. Each has contributed 7 percent more to Democrats this election season than they did in 2006.

Contributions typically increase during presidential election years because of the expensive race to the White House. But while most of the country is watching the presidential race play out, accounting firms have so far focused their largesse on legislators in Congress and the Senate.