James Pethokoukis

Politics and policy from inside Washington

The green jobs mythology, again

Aug 5, 2009 01:31 UTC

Joel Kotkin, whom I have been following for 20 years, continues to hit on all cylinders. This is a bit from an article worth reading in full:

This latest economic fad is supported by an enormous industry comprising nonprofits, investment banks, venture capitalists and their cheerleaders in the media. Their song: that “green” jobs will rescue our still weak economy while saving the planet. Ironically, what they all fail to recognize is that the thing that would spur green jobs most is economic growth. … Ultimately, environmentalists need to realize that the road to a green economy does not lie in promoting hysteria, guilt and self-abnegation while ignoring prohibitive costs and grim economic realities. Green enthusiasts should focus on promoting a growing economy capable of generating both the demand and the ability to pay for more planet-friendly products. After all, the economy needs green jobs less than green jobs need a thriving economy.

Ron Paul’s Fed audit idea: Are there any economists in favor?

Aug 4, 2009 16:04 UTC

I have taken a lot of heat about my coverage of Ron Paul’s idea to audit the Federal Reserve.  I would love to do a piece on economists in favor of the bill. So I am looking for names.  Now these have to be professional economists, people making a living from teaching or consulting. No self-taugt experts. Please leave names in the comment section below. And here is a bit from the good doctor himself on his bill:

The big guns have lined up against HR 1207, the bill to audit the Federal Reserve. What is it that they are so concerned about? What information are they hiding from the American people? The screed is: transparency is okay except for those things they don’t want to be transparent.

Federal Reserve Chairman Ben Bernanke, argues that HR 1207, the legislation to audit the Federal Reserve, would politicize monetary policy. He claims that monetary policy must remain independent, that is; secret. He ignores history because chairmen of the Federal Reserve in the past, especially when up for reappointment, do their best to accommodate the president with politically driven low interest rates and a bubble economy.

Bernanke argues that the knowledge that their discussions and decisions will one day be scrutinized will compromise the freedom of the Open Market Committee to pursue sound policy. If it is sound and honest and serves no special interest, what’s the problem?

He claims that HR 1207 would give power to Congress to affect monetary policy. He dreamt this up to instill fear, an old statist trick to justify government power. HR 1207 does nothing of the sort. He suggested that the day after an FOMC meeting, Congress could send in the GAO to demand an audit of everything said and done. This is hardly the case. The FOMC function under HR 1207 would not change.

The detailed transcripts of the FOMC meetings are released every 5 years, so why would this be so different and what is it that they don’t want the American people to know? Is there something about the transcripts that need to be kept secret, or are the transcripts actually not verbatim?

Fed sycophants argue that an audit would destroy the financial markets’ faith in the Fed. They say this in the midst of the greatest financial crisis in history brought on by none other than the Federal Reserve. In fact, Chairman Bernanke stated on November 14th 2007, “A considerable amount of evidence indicates that Central Bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance”.

They also argue that an audit would hurt the value of the U.S. dollar. In fact, the Fed, in less than a 100 years of its existence, has reduced the value of the 1914 dollar by 96%.

They claim HR 1207 would raise interest rates. How could it? The Fed sets interest rates and the bill doesn’t interfere with monetary policy. Congress would have no say in the matter and besides, Congress likes low interest rates.

It is argued that the Fed wouldn’t be free to raise interest rates if they thought it necessary. But Bernanke has already assured the Congress that rates are going to stay low for the foreseeable future. And again, this bill does nothing to allow Congress to interfere with interest rate setting.

Fed supporters claim that they want to protect the public’s interest with their secrecy. But the banks and Wall Streets are the opponents of HR 1207, and the people are for it. Just who best represents the public’s interest?

The real question is: why are Wall Street and the Fed so hysterically opposed to HR 1207? Just what information are they so anxious to keep secret? Only an audit of the Federal Reserve will answer these questions.

COMMENT

pwn3d!

Posted by dvictr | Report as abusive

Cash for clunkers: a bad idea and a false promise

Aug 4, 2009 15:55 UTC

David Rosenberg of Gluskin Sheff weighs in on cash for clunkers, the feel-good story of the Summer of 2009, and why it reminds him of a similar phenomenon earlier this decade (bold is mine):

In the aftermath of 9-11, the Big Three unveiled 0% financing to rejuvenate auto sales, which were moribund at the time. So what happened was that motor vehicle sales soared from 16.1 million annualized units in September 2001 to 21.7 million in October — a 3,643% surge at an annual rate! Retail sales skyrocketed 6.6% that month (+116% at an annual rate), a record that holds today. And instead of declining, as was expected, real GDP recovered at a 1.4% annual rate, with the consumer expanding 6.4%, at that time, the best performance in two years.

But what all these gimmicks do is bring forward consumption — they don’t “create” anything more than a brief spending splurge at the expense of future performance — the pattern gets distorted as opposed to there being any real permanent change in the trend. Auto sales dropped the next three months, following which they came right back down to around 16.0 million units; retail sales also fell each of the next three months.

Now there was also a production part to the story, and automotive output rebounded hugely in November (+4.2%) and December (+3.4%) of 2001, with the three-month trend finishing the year at a +25% annual rate. The ISM index jumped from the 40.8 low in October 2001 to over 50.0 by February 2002 and then to a peak of 54.4 in June.

Autos can be a really big swing factor and they are like motherhood to politicians but in reality, they account for less than 3% of spending and 2% of output in the U.S. economy. But even after a 3,643% annualized surge that got so many people excited over V-shaped recovery prospects back in late 2001 and early 2002, let’s have a look at what the GDP performance (percent change at an annual rate) actually was back then:

2001Q3: -1.1%

2001Q4: +1.4%

2002Q1: +3.5%

2002Q2: +2.1%

2002Q3: +2.0%

2002Q4: +0.1%

COMMENT

Just wanted to post up the following quote from a yahoo finance article on people’s experience with the “Cash for Clunkers” program. It clearly supports my position that most clunker participants would have purchased a used vehicle.

Respondent was dealing with a failing Buick, and had 2 choices.

“I was going to get her a used car, but Cash for Clunkers made it possible to buy a new Elantra. It was an absolute no-brainer.”
http://finance.yahoo.com/family-home/art icle/107474/what-i-got-with-cash-for-clu nkers.html?mod=family-autos

I think that it is very clear that the clunkers program will not necessairly bring new auto sales forward, but will certainly impact used car sales. I believe this respondents position is fairly common.

Posted by Greg | Report as abusive

Cash for clunkers, a new government entitlement?

Aug 4, 2009 14:55 UTC

The great Stan Collender over at Capital Gains and Games makes a point I wish I would have concerning cash for clunkers:

If the Senate goes along this week, spending will be increased substantially — $2 billion is still a great deal of money — so the dealers and manufacturers that want to sell more new cars will continue to have a federal subsidy to do so and the clunker owners who moved too slowly to get the benefit in the first few days will still be able to participate. … At most this is a reconfirmation that very little has really changed in the budget debate. Even those who over the past few months have been routinely and resoundingly criticizing the federal deficit as being too high are willing to tolerate it being even higher if they personally benefit from the spending increase or tax cut being considered. It’s still everyone else’s subsidies, benefits and tax reductions that are questionable.

COMMENT

I think that this program is the MOST WASTE of money there ever was. Why in the name of sensibleness, are they pouring into the engine a glass like substance that kills the automobile? A lot of these automobiles are really not “clunkers” but good used cars that people that don’t have much mone can buy! How more stupid can our government get only to make money move around? Government needs to keep their nose out of business and let business take care of itself. I hate paying taxes for such foolishness! We close down auto plants, we put more and more people on the street out of work and we come up with some hairbrain scheme to supposidly solve the problem. This country has lost it’s vision and bearing. Only the Lord can straighten it out!

Posted by Howell | Report as abusive

5 reasons why Obama will hike middle-class taxes

Aug 4, 2009 10:16 UTC

JamesPethokoukiscrop.jpgC’mon, how about some Walter Mondalesque candor from the Obama White House on taxes? Yes, yes, it was 25 years ago this summer that the Democratic presidential candidate self-immolated on the issue at his party’s convention in San Francisco. But surely Americans have become more urbane and sophisticated since then as to what makes for sound economic policy, oui?

[Find out five ways to boost the economy and create jobs]

Nope. If you had any doubt that higher taxes are still poisonous policy in center-right America, all you had to do was listen to White House Press Secretary Robert Gibbs yesterday. He briskly and precisely walked back the White House from the ambiguous statements made by Tim Geithner and Larry Summers on the Sunday chat shows. “I am reiterating the president’s clear commitment in the clearest terms possible that he’s not raising taxes on those who make less than $250,000 a year,” Gibbs said.

But what’s so clear, Mr. Gibbs? “Commitment” in this context is a schemer’s word, the much-weaker-yet-more-conniving sibling of “guarantee.” Did Broadway Joe express a mushy “clear commitment” to winning the 1969 Super Bowl? Clearly not. In any event, feel free to ignore Gibbs or any other White Housespinmeister who gives the impression that President Obama raising middle-class taxes would be the equivalent of playing himself in a Hollywood biopic — so unlikely as to be fanciful. It’s not and here’s why it will happen eventually:

1) Obama knows the budget math doesn’t work. Put aside today’s budget mess. It’s gospel among center-left wonks (the kind of folks who give Obama economic advice) that structural government spending as a percentage of GDP is headed sharply higher over the long term because of entitlements — and there’s little that can be done about it. The ratio has been around 20 percent or so the past few decades, and number crunchers forecast a sharp rise to 25 percent (best case scenario) to 30 percent (worst case) of GDP over the next few decades. Tax revenues typically hover around 18 percent of GDP. That gap — representing $500 billion to $1 trillion a year — will need to be closed or else cause economic chaos. The possible answers: a) less spending, b) higher tax revenues from higher growth, or c) higher tax revenues from higher rates on the non-wealthy. Oh, and the wonks are convinced “a” is a political impossibility and “b” an economic one. They’re wrong, but that’s what they think.

[See if Obama's big economic gamble is paying off]

2) Obama seems to prefer tax hikes to spending cuts. Reduced future healthcare spending needs to be a huge part of the budget solution, and ObamaCare doesn’t make the grade at this point. Right now the various Obamacrat plans actually make things worse by failing to “bend the curve.” What’s more, Obama has proposed nothing as president to make Social Security solvent. And during the campaign, his preferred fix was higher payroll taxes rather than commonsense measures like extending the retirement age or changing how benefits are calculated. Of course, Obama has also proposed raising income, investment, corporate and energy taxes. Cut spending or raise taxes – forObama it’s an easy pick, unfortunately.

3) Obama has already tried raising taxes. Let’s, for the sake of argument, ignore the increased federal cigarette tax that would certainly seem to be a violation of Obama’s tax pledge. Call it a misdemeanor offense. But what about his cap-and-trade proposal, a de facto energy tax on everyone? Before the plan was modified in the House, the White House expected the plan to bring in some $80 billion a year from 2012 to 2019 by auctioning off carbon emission permits (probably to pay for healthcare reform). And making energy more costly is as about as broad-based a tax as you can get.

[Find out how healthcare taxes would affect you]

4) Obama’s advisers are for higher taxes. Let’s review, for example, what White House economic adviser and guru Larry Summers said on Sunday about tax hikes: “There is a lot that can happen over time. It is never a good idea to absolutely rule things out no matter what.” Indeed, Summers won’t rule it out because he thinks all the Bush tax cuts need to go, not just the ones for so-called rich folks. Here is Summers from earlier this year on Meet the Press when he put no qualifiers on letting the Bush tax cuts expire at the end of 2010: “I don’t think there’s any question they have to be repealed. The country can’t afford them for the long run. … They can’t be, they can’t be part of the long-run budget picture.” Not for anyone, it seems.

5) Obama doesn’t seem to think high taxes are harmful. Think about this: Not only was the top income tax rate a stratospheric 70 percent when President Reagan took office in1981, the tax code was not indexed to inflation. A lethal combo for economic growth. But here’s what Obama wrote about the Reagan tax cuts in The Audacity of Hope: “The high marginal tax rates that existed when Reagan took office may not have curbed incentives to work or invest, but they did distort investment decisions — and did lead to the wasteful industry of setting up tax shelters.” That’s it! Heavens, if Obama doesn’t think the pre-Reagan tax code wasn’t a disincentive to working, saving and investing, is there any tax system that he would find anti-growth?

Bottom line: The belief in the need for higher, European-style taxes (like a VAT) fills the policy cloud that surrounds Obama. It’s hard to overstate this. It’s right up there with global warming. Obama knows he faces a looming fiscal crisis and higher taxes will be his weapon of choice. To paraphrase Mondale, “Obama will raise middle-class taxes. He won’t tell you (yet). I just did.

COMMENT

What about help for the lower class?

Posted by Natas | Report as abusive
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