James Pethokoukis

Politics and policy from inside Washington

Should Obama’s econ team resign in protest?

Mar 10, 2010 21:05 UTC

They won’t, of course. Kind of extreme. But Cato’s Richard Rahn makes an interesting intellectual case:

Despite all of this intellectual brainpower and experience within the Obama economic team, Obamanomics has so far been defined as a series of seemingly ad hoc decisions based on neither economic theory nor philosophy. … Though the Obama administration adopted traditional Keynesian “stimulus” deficit spending during the recession, even the Keynesians thought deficits should only be run at the bottom of the business cycle, not throughout the business cycle, as is being proposed.

When Richard Nixon decided to institute price and wage controls against the advice of his CEA chairman, Paul McCracken, Mr. McCracken resigned. His successor as chairman, Herb Stein, was able to keep his intellectual integrity by famously stating, “This administration believes that price and wage controls are best administered by people who do not believe in them.” Some of President Reagan’s political advisers were furious that Reagan’s acting CEA head, William A. Niskanen, would not say and endorse things he did not believe. Lawrence B. Lindsey, George W. Bush’s first head of the National Economic Council, was vilified by many in the administration for correctly stating that the cost projections for the Iraqi war were grossly understated.

Advisers cannot expect to win every issue, but to be effective andtruly do their job, they have to know which issues are important enough to either win or resign over.

Me: At the very least, Team Obama has to be going crazy about the lack of effort on trade.

Paul Ryan’s budget roadmap is flummoxing Washington

Mar 10, 2010 20:38 UTC

Washington doesn’t know how to handle Rep. Paul Ryan’s outline for how to balance the budget without raising taxes. House Majority Leader Steny Hoyer says the Wisconsin Republican’s plan is “unsustainable.” (Well, it makes Big Government unsustainable.) And an analysis from the Tax Vox blog takes issue with his revenue estimates.

Of course, the issue here is spending, spending, spending. The Washington Consensus is that taxes must go up, that it is not politically possible to cut spending. Ryan is trying to prove that consensus wrong with a little bit math and little bit of moxie.<

COMMENT

Paul Ryan appears to be the only guy in Washington with some common sense and the ability to clearly articulate his views in a non-partisan manner.

Posted by Johnba | Report as abusive

California Screaming

Mar 10, 2010 19:42 UTC

Here are some fun facts about California’s fiscal situation, in light of state college students protesting a 32 percent tuition hike (via WSJ):

1) In 1999, the Democratic legislature ran a reckless gamble that makes Wall Street’s bankers look cautious. At the top of a bull market, they assumed their investment returns would grow at a 8.25% rate in perpetuity—equivalent to assuming that the Dow would reach 25,000 by 2009—and enacted a huge pension boon for public-safety and industrial unions.

2) It let firefighters retire at age 50 and receive 3% of their final year’s compensation times the number of years they worked. If a firefighter started working at the age of 20, he could retire at 50 and earn 90% of his final salary, in perpetuity

3) In 2002, the state legislature further extended benefits to many nonsafety classifications, such as milk and billboard inspectors. More than 15,000 public employees have retired with annual pensions greater than $100,000.

4) In the last decade, government worker pension costs (not including health care) have risen to $3 billion from $150 million, a 2,000% jump, while state revenues have increased by 24%.

5) This year alone $3 billion was diverted from other programs to fund pensions, including more than $800 million from the UC system.

6) The governor’s office projects that over the next decade the annual taxpayer contributions to retiree pensions and health care will grow to $15 billion from $5.5 billion, and that’s assuming the stock market doubles every 10 years. With unfunded pension and health-care liabilities totaling more than $122 billion, California will continue chopping at higher-ed.

How ObamaCare is killing free trade

Mar 10, 2010 17:37 UTC

Brazil’s threat of tariff retaliation over U.S. cotton subsidies is only the latest eruption of rising protectionism around the world. President Barack Obama isn’t doing much to quell protectionist sentiment in the U.S., either. His passivity could prove costly.

Not that Obama has a problem with trade. In his State of the Union speech to Congress last January, he stated an ambitious goal of doubling U.S exports by 2015. It is trade policy that he seems uncomfortable with. That bold declaration in the speech was a direct result of lobbying from Obama’s economic advisers. But the wonks aren’t driving U.S trade policy in the Obama administration. The political team is. Its priority is passing healthcare reform. To pass healthcare reform, Obama needs his core union support. And a push for new trade agreements would alienate Big Labor.

So Obama has not nudged Congress to pass long-stalled treaties with Colombia, Korea and Panama. Instead, the emphasis has been on get-tough actions such as slapping preliminary duties on tires from China and bricks from Mexico. Nor has he tried to energize the Doha trade talks, pushing Brazil to first litigate via the World Trade Organization and now retaliate. And in the U.S., high unemployment has encouraged protectionist forces in Congress. A bipartisan House group just introduced a new bill to abandon the North American Free Trade Agreement, while one in the Senate is pushing for action against China because of its weak currency policy.

And the situation could worsen. To appease Congress and continue its recent populist tilt, the Obama administration will likely toughen language about China in the Treasury Department’s April report on currency policy. The next step would be to declare China a currency manipulator in the October report, right before the November mid-term elections.

If Obama really wants to rebuild America’s international stature and boost the global economy, trade is a perfect place to start. At the moment, world trade is projected to expand by just 4.3 percent in 2010 and by 6.2 percent in 2011, according to the World Bank. Not good enough, given a big drop in 2009. Once healthcare is either passed or defeated, Obama needs to get that trio of trade agreements passed. And he needs to defuse tensions with China. In short, Obama needs to lead.

COMMENT

Jerry:

I believe the name of your plan is “Reign in Hell”, right?

HOOAH!!!

We’ve had our bit o’Hell!

Let’s let all those kleptocrats in the turd world and the U.N. General Assembly have theirs.

Let’s let most of the EUropansies defend themselves for a change.

Most of the rest of the world hates the U.S. even when we are risking U.S. lives and spending billions in U.S. money to help them after tidal waves, earth quakes, typhoons, invasions, local economic crisis, famines, etc.

Screw them all. No more blood or treasure to help anyone aside from allies we can really count on. Let’s put our own house in order first and just elliminate any likely threats in the quickest, cheapest, most effective manner possible

Viva Fortress America!

Posted by Armageddon Rex | Report as abusive

The Obama Boom?

Mar 10, 2010 14:21 UTC

This Bloomberg story gives it the old college try with “Obama Defies Pessimists as Rising Economy Converges With Stocks.” It points out that the economy is expanding, job losses are down and stocks are up.

But that is not really the point is it? Unemployment is still twice as high as the average of the past two decades, and the recovery shows every signs of being a sluggish one given the depth of the downturn. Plus, the massive amount of public debt makes what growth there has been seem artificial. Certainly the public doesn’t seem to buying it, a view reflected by the cautious tone of the White House. Lots of talk about pulling the economy back from the brink, less talk about a new Morning in America.

COMMENT

A lot of rah-rah out of the White House would be viewed with some suspicion nowadays, James. A more sober, measured attitude is in keeping with the times. That said, I read the article you mentioned and the writer had a point. Take it from a guy who’s no fan of Mr. Obama, a bit of optimism might be in order, a break from the relentless gloom on these pages. The American economy has an astonishing resilience that allows it to re-invent itself in ways unforeseen by all you pundits. Have some faith for a change.

Posted by gotthardbahn | Report as abusive

5 obstacles for ObamaCare

Mar 10, 2010 13:59 UTC

How is the healthcare reform endgame shaping up? The always insightful Dan Clifton of Strategas Research boils it down (as outlined by me):

1) The timeline continues to get pushed back which essentially means healthcare will not get done before recess and members will get an earful during the break (support for healthcare is upside down and opposition is twice as intense relative to support). Because the bill is unpopular, members are not pressing to vote on this bill.

2) According to one press report the House wants to skip passing the Senate bill entirely and use a “self executing rule” when the reconciliation bill passes then the Senate bill would also automatically pass. Just the fact that this is being contemplated shows how difficult it is for the House to round up the votes for passage, even before the abortion issue is taken into consideration.

3) And Sen. Conrad threw cold water on this self executing rule insisting that the Senate bill needs to be signed into law before the reconciliation fix could be enacted.

4) Another major hurdle developing is the question about whether the House bill can go right to the Senate floor – the legislation would have to go through committee. And while this delays the process (when time is of the essence) the more important point is that this could kill the bill if the legislation needs to go through the Senate Finance Committee with Blanche Lincoln being the deciding vote. Note she came out against reconciliation again yesterday despite her primary challenge.

5) And then there is the abortion issue. Since reconciliation rules will not permit a ban on abortion funding as needed to get the remaining votes for healthcare, the best strategy for passage was to pressure Senate Republicans not to oppose the provision in the Senate bill. The Catholic Bishops were successful in a similar move in the House last November but the Senate Republicans made it clear yesterday they will oppose the language, even if they agree with the policy. The only path forward in the House is to keep all the supporters of this bill in the yes column, get nearly all the Stupak supporters to defect despite their opposition to the Senate abortion language, and then convert a handful of no votes to yes, despite the fact that 37 of the 38 Dems that voted no are from Republican districts. And all this with a short timeline.

COMMENT

In other words, passage is rather unlikely. Perhaps Mr. Obama will then get the message about lost causes.

Posted by gotthardbahn | Report as abusive
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