James Pethokoukis

Politics and policy from inside Washington

Peter Orszag vs. the WSJ

Dec 14, 2009 20:29 UTC

OMB director Orszag didn’t much like a WSJ editorial about the lack of  fiscal prudence of ObamaCare. And he said so on his blog. I think Orszag makes a few reasonable points, like not counting on cost savings from the pilot programs.  But he side-stepped that fact that America will be spending more on healthcare, even if paid for. Then there is this:

For an economist, the irony is rich.  The editorial board that did more to bring supply-side economics – or in George H.W. Bush’s immortal words, “voodoo economics” – to Washington is raising the specter of a fiscally irresponsible health reform bill in which efforts to rein in health care cost growth are an “illusion.”  But the ironies run richer, since an editorial that hurls accusations of overselling cost containment itself displays more impressive rhetoric than substantive content. The Journal makes three fundamental claims. The first is that health reform represents a huge risk to the federal budget, and will end up exploding the deficit, because it relies on an array of speculative policies to control costs. What the Journal misses is the crucial difference between this health reform effort and the flawed supply-side economics that drove the country into the deep deficits of the 1980s.

Me:   1) The 1980s tax cuts saved the US from complete economic collapse, yet Orszag sees them only as an accounting issue. Also, the worst deficit-to-GDP year of the 1980s was like 6 percent. The US may well average that number over the next decade.


Umm Jimmy P, can you explain exactly how “the 1980s tax cuts saved the US from complete economic collapse.” Just askin’.

Also, even as a conservative I must acknowledge that U.S. economic growth has been rather lackluster since the Clinton presidency. So, what’s up with that, why didn’t supply side economics bring us robust growth and prosperity during the Bush years?

Posted by Bill, Fairfax, VA | Report as abusive

Obama vs. Wall Street

Dec 14, 2009 19:41 UTC

A few thoughts on the banker summit at the White House:

1) Some banks were already trying to boost small business lending, such as Goldman Sachs and JPMorgan.

2) Lending was likely to rise anyway as economic growth picks up, so it will be tough to determine if this WH meeting had any independent impact.

3) For the all the talk about loan supply, far less about loan demand and how uncertainty over Obamanomics is chilling small biz expansion plans.

4)  The Obama reform plan is not nearly as tough as the Obama rhetoric.  It doesn’t embrace, for example, the preemptive dismantling of large, interconnected firms. It doesn’t reduce the Federal Reserve’s regulatory reach. It doesn’t restore the law separating commercial and investment banking. It doesn’t even give bankruptcy judges the power to alter mortgages.

5) Banks have clearly lost control of the narrative. Someone needs to highlight the role of government in creating the financial crisis.


Point (5) is well-taken, although I wouldn’t hold my breath waiting for any mea culpas from the likes of Barney Frank or Chris Dodd or Fannie or Freddie or any of the senior bureaucrats who thought they had a winner (and votes) in extending mortgages to unqualified individuals. Moreover, banking regulators who altered reserve requirements to encourage banks to buy mortgage-backed’s rather than holding actual mortgages – by dropping the reserve requirements – have NEVER been fingered as culprits. So much simpler to blame Wall Street and whine about bonuses and compensation, as Mr. Obama DID NOT FAIL to do today. Unfortunately for the banks, the truth is very complicated and, while there is plenty of blame to go around, it wasn’t entirely the banks’ fault. I don’t envy the spot they’re in. The optics are awful.

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Cap-and-dividend instead of cap-and-trade?

Dec 14, 2009 15:37 UTC

The cap-and-trade approach to limiting climate emissions does not seem to be going anywhere in the Senate. But a more-populist bill introduced by Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) might be another option. Its goal is to cut emissions 20 percent by 2020 and 83 percent by 2050. Key difference with the existing cap-and-trade approach (via The Hill):

1) Wall Street may be particularly disappointed in the new bill. The Cantwell-Collins bill, known as the Carbon Limits and Energy for America’s Renewal (CLEAR) act, would restrict trading in a new carbon market to entities regulated by the act, a move that may have more populist appeal. … Banks like Goldman Sachs that looked forward to new profits under the giant secondary trading market created under economy-wide cap-and-trade legislation are unlikely to get on board, however.

2)  It would require fuel producers, rather than fuel users like electric utilities, to hold credits. The credits all would be sold at an auction. The cap-and-trade bills Congress has considered would distribute emissions allowances for free during the initial phase of the program in order to keep energy prices from rising too quickly.

3) Under Cantwell-Collins, revenues from the auction would largely go back to low- and middle-income households to offset higher energy costs the new carbon regulations are intended to cause. An average family of four would receive $1,100 annually in rebates, according to Cantwell’s office. In total, 75 percent of the auction proceeds would be returned to low- and middle-income households. The remainder would be distributed to a clean energy investment trust fund.

Me:  This cap-and-dividend approach has been called “100-75-25-0” policy: 100 percent of the permits are auctioned, 75 percent of the revenue is returned as dividends, 25 percent of the revenue is invested and zero offsets are allowed.


We agree on something!! Now show us where the Republican politicians (not a think tank somewhere) other than the Maine outliers are actually behind the initiative.

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Paul Ryan and the future of the GOP

Dec 14, 2009 15:19 UTC

This  commentary from  GOP thought leader Rep. Paul Ryan of Wisconsin really sets the intellectual and political framework for where the GOP might be headed.  He goes after Crony Capitalism, the melding of Big Money, Big  Business and Big Goverment. This is what’s next. Here are some important bits:

1)  Since bringing us back from the precipice however, the Troubled Asset Relief Program [TARP] has morphed into crony capitalism at its worst. … No longer concerned with preserving overall financial market stability, Treasury’s walking around money continues to be deployed to reward the market’s Goliaths while letting its Davids suffer.

2) Washington is working hard to nationalize other sectors of our economy too. The House Finance Committee is pushing a massive financial “reform” bill, effectively creating banking utility companies. The Treasury Department has effectively nationalized the housing finance sector, with Fannie Mae & Freddie Mac demonstrating how fast big businesses, through a federally blessed and backed oligopoly, can fall. Now, on both ends of Pennsylvania Avenue, health care and energy lobbyists continue to fall over themselves to cut their deals–knowing that if they aren’t at the table, they’ll be on the menu.

3) Big businesses’ frenzied political dealings are not driven by party or ideology, but rather by zero-sum thinking in which their gain must come from a competitor’s loss. Erecting barriers to competition is a key to maintaining advantage and market share. With Washington leading the way, it makes sense for the big boys to redirect their resources to their lobbying shop and government affairs office. They’re far less interested in expanding the economic pie than with making certain that they get their slice.

4) For every encroachment into the market by the federal government–under the guise of “reform”–there exist pro-market alternatives that Republicans must articulate and passionately defend. University of Chicago’s Luigi Zingales, who has written extensively on the issue of crony capitalism, reminds policymakers that the path forward requires “adopting a pro-market, rather than pro-business, approach.”


If Ryan ever regretted the vote on Medicare Part D, he must have a short memory. The difference between he and the Democrats in root philosophy in health care is zero. That is why they both put forth Health Care bills. Why? They both believe in the unconstitutional interference in health care by the government using taxes, tax credits to one group so that another benefits. Sounds like a statist to me. Does Ryan’s bill have surface differences. Sure it does. But once you allow an unconstitutional interference, it will end up growing ever larger.

To those who think that the GOP must start somewhere. How about with constitutional laws? If both parties, including Ryan, continually ignore the Constitution, in time human nature leads you to the same place. That we “must start somewhere” and “not be too picky about voting records” has been a hallmark call for the GOP for decades. Where did it get the country? What percent of of GOP in Senate and House voted for Medicare Act of 1965? Two shy of 50%. That is dangerously close to a majority. And over 40 years ago. On a bill often decried by GOP apologists as one-sided vote. When again did the GOP lose its small constitutional government compass? A Republican, incidently from Wisconsin, even helped write the Medicare 1965 bill.

from an AMA article on it see below excerpt: http://www.ama-assn.org/ama1/pub/upload/ mm/369/medicare.pdf

The Byrnes Bill
In contrast to the largely Democrat-backed King-Anderson bill, Republicans in Congress lent their general support to the Byrnes bill. “The bill was submitted by Congressman Thomas W. Byrnes of Wisconsin. Like Eldercare, it called for coverage of hospital and physician services for the aged through the purchase of private insurance. Administration, however, was to be federal. Financing was to come two-thirds from general revenues and one third from deductions on the individual pension checks of those who voluntarily chose to
participate in the program.” (Campion 274)

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