James Pethokoukis

A great point from Pete Davis over at Capital Gains and Games:

On April 1, 2009, 26 coal and manufacturing state Democrats joined all 41 Senate Republicans in favor of Senator Mike Johann’s (R-NE) amendment to the Budget Resolution, S.Con.Res.13, disallowing the use of “reconciliation” to pass a Climate Change bill.  “Reconciliation” would allow passage by a majority vote instead of the 60 votes normally needed to pass major bills.  It would also prevent extraneous killer amendments.  Some of those 26 Democrats may feel secure enough of their reelection chances to vote in favor of a Climate Change bill this fall, but many won’t.  That’s why I’d be surprised if the Senate can pass a Climate Change bill this year.  I could be proven wrong if President Obama can mount enough public pressure on those 26 Senate Democrats to turn them around, but that would be a tall order.

So David Leonhardt of the NYT attempts to explain why the Obama administration was overly optimistic about the economy in its now-infamous “unemployment will not go above 8 percent” forecast:

Here are two possible explanations that the administration was so wrong. And sorting through them matters a great deal, because they point in opposite policy directions. The first explanation is that the economy has deteriorated because the stimulus package failed. Some critics say that stimulus just doesn’t work, while others argue that this particular package was too small or too badly constructed to make a difference. The second answer is that the economy has deteriorated in spite of the stimulus. In other words, the patient is not as sick as he would have been without the medicine he received. But he is a lot sicker than doctors realized when they prescribed it. To me, the evidence is fairly compelling that the second answer is the right one.

Henry Blodget sees it this way:

We suspect Obama, Summers, Geithner & Co. just decided that they had to issue rose-colored projections about the unemployment rate and recovery or they would never have a hope in hell of ramming such huge spending increases through.  And if the forecasts proved optimistic?  Well, by then, maybe everyone would have forgotten.

My spin:  It’s not so much that a more negative forecast would have prevented Obama from spending large amounts of money, it’s that he would have been forced to tilt the stimulus more in favor of tax cuts which work a lot of faster  than government spending (though both are pretty inefficient as “stimulus”).

And Obama wanted to spend billions on his “investment agenda (healthcare, education, infrastructure), not tax cuts.  (And if he had spent the $2 trillion that some liberals wanted on stimulus, it surely would have crowded out the rest of his agenda, plus rattled the bond markets.) So he gambled that monetary policy would keep the economy from getting as bad as it has. And he lost. Did Team Obama purposely give a bad forecast, or did its old fashioned Keynesian approach merely lead it astray? Good question. Either way, it’s the Obamacrats’ economy now.

This is one of my favorite parts of the consumer protection bill:

The Agency shall have no authority under this section to declare an act or practice in connection with a transaction with a consumer for a consumer financial product or service to be unlawful on the grounds that such act or practice is unfair unless the Agency has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Agency may consider established public policies as evidence to be considered with all other evidence.

My spin: I think the whole mortage crisis was “reasonably avoidable” with just a smidgen of consumer education. That is where the solution should be, not ANOTHER agency.

For SF Fed president Janet Yellen, it’s deflation first, inflation later:

I’ll put my cards on the table right away. I think the predominant risk is that inflation will be too low, not too high, over the next several years.  …  First of all, this very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales. Core inflation—a measure that excludes volatile food and energy prices—has drifted down below 2 percent. With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify.

For these reasons, I expect core inflation will dip to about 1 percent over the next year and remain below 2 percent for several years. If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation.

Flood the White House switchboards! Considering that the government is about to be a 34 percent owner of Citigroup, couldn’t Team Obama have quashed the company’s decision to raise rates on 15 million cardholders — just as new curbs legislated by Congerss are about to kick in?

Perhaps, but such a move wouldn’t have made much business sense: a) unemployment continues to rise; b) higher unemployment mean higher default rates; c)  add that to the reality that financial companies already face more writedowns on commerical real estate and other loans; d) the money to deal with these losses has to come from somwhere. So Uncle Sam the stakeholder has different priorities as Uncle Sam the consumer advocate.  Of course, consumers may soon have an official consumer advocate to help them deal with finanicial product issues — such as enforcing new credit card rules. Of cours, one side effect could be higher rates and less credit availability.