James Pethokoukis

Politics and policy from inside Washington

Maybe Obama should have pulled a Christie on infrastructure stimulus

Oct 22, 2010 19:30 UTC

Cause it really hasn’t worked out so well, as The Economist outlines.  The magazine criticisms are as follows:

First, and most important, a relatively small share of the bill was actually devoted to infrastructure. But even on the broadest definition of the term, infrastructure got $150 billion, under a fifth of the total. …Just $64 billion, or 8% of the total, went to roads, public transport, rail, bridges, aviation and wastewater systems.

Second, hopes for an immediate jolt of activity were misplaced. … By October 2009 even the fastest programs—those under the highway and transit headings—had seen work begin on just $14.3 billion-worth of projects.

Meanwhile the bill’s most notable project, high-speed passenger rail, threatens to become a debacle.  … Freight companies worry that new passenger services will simply increase congestion. Any new rail service, meanwhile, is unlikely to be particularly fast. The Recovery Act dedicated $8 billion for high-speed trains, a sizeable sum but not enough for any train that is actually high-speed.

Me:  OK, so the infrastructure plan wasn’t the greatest. Also, the tax “cut” portion of the plan was poorly structured. Is is any surprise that the US is looking at a continuation of the New Normal slow-growth, high unemployment scenario?

Will GOP midterm win help reelect Obama in 2012? Maybe not

Oct 21, 2010 18:07 UTC

The Washington consensus is that if the GOP takes at least the House, it will give Obama a political foil and give his 2012 election hopes a big boost. And, the media tell us, the GOP presidential field is weak:

Sniping from the sidelines will be potential Republican challengers to Obama in 2012. The road to the presidential proving grounds of Iowa and New Hampshire is already well-trod by more than a dozen possible Republican candidates. The group ranges from Tea Party champion Sarah Palin to former Massachusetts Governor Mitt Romney and Minnesota Governor Tim Pawlenty. Experts believe Obama would match up well against any in this group — if the economy is on the mend and the jobless rate is trending downward from its current 9.6 percent.

But political analyst John Ellis paints a different potential scenario:

What might be an alternative story line? One answer would be: increased volatility. A darker answer might be: political instability and unrest.

As a nation, we are struggling with overwhelming debt at every level of governance and across a vast swath of the electorate. There are at least (at the very least) 15 states and countless municipalities that are functionally bankrupt. The states that are bankrupt, by any real accounting, include New York, New Jersey, Massachusetts, Connecticut, Illinois, California, Nevada, Arizona, Colorado, Ohio, Wisconsin, Louisiana, Missouri, Oregon, Washington and Michigan. They can’t (literally can not) meet their pension obligations. They won’t be able to pay for their ever-rising health care costs. Education costs are eating up too much money (although this will abate somewhat as the echo boom generation matriculates) and virtually every state (and municipality) has huge bond obligations, the proceeds from which papered over previous shortfalls. Oh, and one other thing, the economies in all of those states are stagnant, at best.

Once the last infusions of stimulus money run dry, what remains is a vast desert of debt. The idea that an over-leveraged electorate can be called upon to make up the shortfall is a non-starter. They can’t pay down their own debt and municipal debt and state debt and federal debt. The math simply doesn’t work. They end up with no take home pay.

This is the real avalanche that is about to hit American democracy. The avalanche in two weeks results in Nancy Pelosi no longer being the Speaker of the House. The avalanche of debt that hits beginning in 2011 and keeps on coming will shake our political system to its foundation. That’s the avalanche that matters.

President Obama can either get ahead of this avalanche by proposing a vast restructuring of government debt and obligations while aggressively promoting a venture-based economic growth agenda or he can be consumed by the rubble. The same holds true for the next Republican presidential nominee. He or she needs to be ahead of the avalanche to survive its inevitable onslaught.

Me: Austerity won’t sell. Growth and prosperity will. Whoever gaffs that, wins.

COMMENT

The reason that state budgets are completely decimated? Because the lion’s share of their booty was from property taxes! The states that are listed above are the one’s where the housing market was hit hardest, upwards of 40-50% declines. Show me ANY place (govt or business) in the world where a 40-50% drop in the biggest source of revenue doesn’t lead to big trouble. But, of course, it’s Obama’s fault. You… just… don’t… get it! AT THE STATE LEVEL no less! Sigh…

If people are disenfranchised with the current president it’s not because the MSM has given him a free pass, it’s because they don’t know their asses from a hole in the ground and continually misinform the public (both sides of the MSM.) They completely obfuscate the real issues and turn it into something completely different. Then the public gets mad because they think that the President is either lying or oblivious because the media presents everything incorrectly. Political spin is what’s helping destroy America because the public is never properly informed – one has to look outside the America media sphere to find informed journalism that weighs facts.

And let’s also be frank in saying that the old normal of the last 25 years has been fueled almost exclusively by debt. Complaining that growth that is not supercharged by increasing the debt load is poor or bad and Obama’s fault is so ridiculous as to be laughable and should be ignored outright. I find it so deplorable that people can be so duplicitous as to say that we can achieve growth in the short term by cutting debt – NO! that is NOT true as the 70s proved. We’re in for a long ugly period of adjusting our balance sheets, govt, business and consumers.

I’m sure you’d blame the 70s on Carter, but Nixon/Ford set up the conditions that were met by Carter. And while Carter had his share of missteps, none were quite as badly received as the economy being in a low growth, high inflation environment. So he inherited a shite economy and didn’t improve it fast enough because he wasn’t willing to open the pandora’s box of rampant debt accumumlation and deregulation. Now, if you want to stand for cutting debt/deficits – sure, I’ll be on board, but you can’t expect that growth will suddenly double by spending less. It’s really simple math.

Posted by CDN_finance | Report as abusive

Fannie and Freddie and Barney

Oct 21, 2010 17:02 UTC

IBD‘s great Capital Hill blog makes a good point about F&F and the midterms:

That’s more bad news for Rep. Barney Frank, D-Mass., who’s in the political fight of his life with Republican Sean Bielat. The businessman and Marine reservist has laid into Frank, now chairman of the House Financial Services Committee, for his long support of Fannie and Fannie.

The government-sponsored enterprises were a major cause of the financial crisis. With their implicit — now explicit — taxpayer guarantees, Fannie and Freddie were able to expand and leverage far more than any truly private company could, and they used that heft to plow into subprime loans.

Back at a 2003 hearing, Frank pooh-poohed Republican and regulator concerns about the size and scope of Freddie and Fannie, saying he didn’t want to emphasize “safety and soundness.” Instead, he said, “I want to roll the dice a little bit more in this situation towards subsidized housing.”

COMMENT

Acetracy,

How is it Dems can whine about Republicans blocking Obama’s agneda when they, the GOP are a minority, yet they cannot fathom how the Dems could block any reform to Fran and Fred?

did you ever hear of a super-majority?

Posted by contessa61 | Report as abusive

Fannie and Freddie could need $363 billion in taxpayer funds by 2013

Oct 21, 2010 14:32 UTC

Ugh.

The Federal Housing Finance Agency (FHFA) today released projections of the financial performance of Fannie Mae and Freddie Mac (the Enterprises) including potential draws under the Preferred Stock Purchase Agreements (PSPAs) with the U.S. Department of the Treasury. To date, the Enterprises have drawn $148 billion from the Treasury Department under the terms of the PSPAs. Under the three scenarios used in the projections, cumulative Enterprise draws range from $221 billion to $363 billion through 2013.

The FFHA ginned up three different underlying economic forecasts:

ffha1

And then ran the numbers:

ffha2

Is Geithner the next to leave Obamaland?

Oct 21, 2010 13:39 UTC

The man behind the Volcker Rule and the bank tax will soon be leaving Washington. That’s right, Obama political adviser David Axelrod is headed back to Chicago. What, you thought I meant Treasury Secretary Timothy Geithner? As for Geithner, he will more than likely be at Treasury for the duration, though in some ways he has a better skillset for the National Economic Council. Here’s a bit from my recent Reuters Breakingviews columnette on Obama’s pal:

Treasury secretaries are typically former CEOs, prominent politicos or longtime presidential pals. A career technocrat, Geithner didn’t tick any of those boxes. Instead, he was part of the crisis-response troika, along with Ben Bernanke and Hank Paulson. Effectively, Geithner was hired to be a fixer.

Nearly two years in, it’s Mission More or Less Accomplished. The St. Louis Fed’s “financial stress index” — incorporating various interest rates, yield spreads and bond indices — is currently 0.48 after hitting a peak of 5.09 in October 2008. Even the pilloried bank bailout gets better with age. (It was certainly better than outright bank nationalization). Geithner deserves considerable credit for it, especially his push for “stress tests” to be included.

But a new set of skills may be required for the next two years. Obama soon will need help from his Treasury secretary advancing a new budget agenda after his ballyhooed deficit commission issues its report in December. The job also will require pushing Beijing to trade more freely while tamping down on protectionist sentiment at home, redoubling efforts on unemployment and finely honing a tax policy.

Geithner might not be the obvious candidate for most of this modified job description. Before he got to the Fed in 2003, his education and career had been more focused on international affairs than domestic issues. And Geithner could still present political liabilities given earlier personal tax missteps and his dicey relations with Congress.

But if not Geithner, who? Wall Street bosses are still radioactive, while recruiting Clinton administration veterans could look desperate. The scarcity of obvious replacements is highlighted by the permanent presence of media mogul and New York Mayor Michael Bloomberg’s name on the Beltway circuit, despite his repeated denials of interest in the job.

Most importantly, Geithner seems still to have the full confidence of his boss. That’s probably more than enough for him to keep his spot on the team.

Me: I think Geithner has it about right on China trade, and he certainly takes the budget deficit seriously. He is even sounding better on “King Dollar, as my friend Larry Kudlow puts it. It’s really no joke that he could have comfortably been a member of John McCain’s cabinet.  On tax policy, he and the rest of Team Obama have it totally wrong.  Raising the U.S. tax burden in the current system is anti-growth and thus terrible for the nation’s long-run solvency.

Arguing for deflation

Oct 20, 2010 13:41 UTC

Ed Yardeni gives it a try:

Why is  [Bill Dudley of the Federal Reserve]  so sure that the Fed is so powerful when the CPI inflation rate is so close to zero despite the Fed’s extraordinary efforts to reflate the economy over the past few years? Could it be that while the Fed may be able to control inflation, it can’t do much to stop deflation? Macroeconomists like Mr. Dudley are convinced that inflation is always a monetary phenomenon. I agree that rapidly rising inflation is always a consequence of excessively easy monetary policy. Tight monetary policy, if tough enough, can always lower the inflation rate. However, the deflationary pressures of recent years can be attributed to lots of non-monetary developments including the IT revolution, the rebound in productivity growth, the proliferation of free trade following the end of the Cold War, and the emergence of low-wage emerging countries like China. There’s not much that the Fed can do to stop deflation caused by these forces. Indeed, the Fed shouldn’t even try, since such deflation tends to boost the purchasing power of consumers, which is a much better stimulus program than any reflationary policy promoted by the Fed.

Making sense of Sarah Palin’s third-party threat

Oct 19, 2010 19:53 UTC

For Sarah Palin, it’s Tea Party first, Republican Party second:

Some in the GOP, it’s their last shot, it’s their last chance. We will lose faith, and we will be disappointed and disenchanted from them if they start straying from the bedrock principles. … If they start straying, then why not a 3rd party?

A few observations:

1. She’s in, but not as a third-party spoiler. Let me reiterate that I think Palin is almost certainly running for president as a Republican. So does the Romney campaign. So does Weekly Standard reporter and Palin expert Matthew Continetti:

I do [see her running]. I see her endorsing candidates and joining them on the trail, raising money through her political action committee, establishing a national voice through her books and upcoming television series, and engaging the Obama administration through television appearances, Facebook, and Twitter. Palin sees her influence in Republican circles, sees her continued popularity among Republicans, sees the potential weaknesses in Obama, and sees the potential parallels between the 1980 election and the 2012 election. She’s getting ready.

2. She has a shot. I also think she can certainly win the GOP nomination and presidency. The media-created caricature of her has created such a low competence hurdle that she only needs to be as well-spoken/well-versed on policy as the typical member of Congress to clear it.  In fact, she may already be there. And don’t underestimate the Dancing with the Stars factor.  Bristol Palin’s time on the show is allowing America to see a whole another side of the Palin family, one that seems firmly in tune with middle-American culture.

And the bigger the GOP primary field — and it is looking like it could be quite crowded right now — the better it is for her (and Mitt Romney). As for the general, two more years of abnormally high unemployment — twice as high as the typical level for the past generation — has created  for vulnerability for Obama that is hard to measure. But the midterm results will give a big hint.

3.  She has a potent potential agenda. If I were plotting a Palin campaign, I would encourage her to run on a free-market populist agenda. That would mean pushing free trade agreements while attacking Obama for being soft on Chinese protectionism. That would mean advocating less cumbersome financial regulation while attacking Obama for not breaking up the big banks on Wall Street. That would mean advocating lower corporate taxes but reducing corporate loopholes and subsidies. In short, portray Obama as soft on banks, China and big business.  That, and him being a big spender and taxer who has failed to turn around the U.S. economy, natch.

4. She’s Ronald Reagan — at least a smidge. Palin frequently invokes the name of the 40th president. Of course, she can’t match his decades of debating public issues before winning the presidency in 1980. But like RR, Palin has been maligned and downgraded by the media and punditocracy. But when Reagan stood next to Jimmy Carter and got to make his case in his own words, opinions changed.

COMMENT

I never really had a problem with John McCain – a tad old, but generally a pretty reasonable guy. But I will NEVER forgive him for bringing this woman to (in her words) ‘Lame-stream media’ and giving her an agenda to push. If Neo-Cons could take off their partisan hats and instead put on thinking hats I would sleep so much better and Sarah Palin would return to obscurity – or Hollywood?

Also – though not as if Americans care – but the rest of the world thinks LESS of Sarah Palin than even her most strident haters in America. Food for thought…

Posted by CDN_finance | Report as abusive

Is the Democratic comeback fizzling?

Oct 19, 2010 17:09 UTC

Numbers from Gallup seem to say it is.

Gallup’s tracking of the generic ballot for Congress finds Republicans leading Democrats by 5 percentage points among registered voters, 48% to 43%, and by 11- and 17-point margins among likely voters, depending on turnout. This is the third consecutive week the Republicans have led on the measure among registered voters, after two weeks in September when the parties were about tied.

For Republicans to lead, or even be at parity with Democrats, on the generic congressional ballot indicates they are in a good position to win a majority of House seats in the upcoming elections. This is because of Republicans’ typical advantage in voter turnout, which in recent years has given that party an average five-point boost in support on Election Day.

If the elections were held today and roughly 40% of voters turned out — a rate typical in recent years — Gallup’s Oct. 7-17 polling suggests Republicans would win 56% of the vote — 8 points greater than their support from registered voters, and 17 points ahead of Democrats, at 39%. If turnout is significantly higher, Republicans would receive 53% of the vote (a 5-point improvement over their registered-voter figure), and the Democrats, 42%.

gallup

Relitigating the 1990s boom

Oct 19, 2010 16:32 UTC

Over at e21, former Bush administration official Joel Harris provides a nice reminder about the real  foundation of the 1990s boom. And it was not the Clinton tax increases:

The story of the 1990s economy holds an important lesson for today’s tax debate, but it’s not the one the Administration intends by invoking it. While the Clinton-era expansion did indeed take place under higher tax taxes, it was largely due to crucial changes in IT production and investment that led to growth and once-in-a generation productivity gains. The lesson here is a basic but important one: the past doesn’t predict the future. If the Administration believes there are similar productivity gains on the horizon that will lift the U.S. economy out of its financial crisis-induced hangover, it should explicitly identify the source of these gains. Otherwise, the 1990s experience provides no guidance for what to do about the tax policy set to expire on January 1.

  •