While the title may be more or less true depending on the reader, the results of a particularly interesting election have hit the papers this morning. Scott Brown, a Republican from the state of Massachusetts, has defeated his opponent Martha Coakley.
Tag Archive for 'Bush'
NY Times delivers this bombshell:
The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.
What went wrong?
Business Cycle, Bush, more Bush, Bush that Obama extended, and Obama.
Their share of the damage (in the same order): 37, 33, 20, 10 (percent)
Politics aside, I think that this is pretty clear evidence that government has grown too big. The national debt is a symptom of that. A surplus disappearing over several years is another symptom of that. As soon as some money frees up, it disappears. People do the same thing, in anticipation of a paycheck, you might go out to eat or buy a few new movies. Except if you start going in the red, you stop your poor spending habits. Once money is allotted for a federal program, it is hard as hell to remove from the budget.
I don’t think our leaders need to quibble about debt as a percentage of GDP, size of the budget, earmarks, etc. They need to seriously consider what services government should provide and what role it should play in people’s lives. I think by bickering about numbers we are missing a fundamental question. Answering that question (provided the answer is what I expect it to be) will do a lot toward solving the other problems.
In the social sciences, you cannot always observe the variable whose effect you wish to measure. For instance, there is no single exact measure of car safety. So, one might use percentage of cars with seat belts or number of airbags. In this case, these variables become a proxy for safety. In other words, they stand in the analysis in place of the unobservable variable.
Using proxies can be dangerous. Sometimes variables will unintentionally serve as proxies for other variables. For example, consider a time-series where number of accidents and the average speed limit is observed each year. Over time, the number of accidents goes down as the speed limit goes up. Does this mean I should drive 80 mph around my neighborhood to avoid an accident? That does not seem to make sense. It seems more likely that safety features and the quality of cars have increased over time, allowing the speed limit to increase while overall the number of accidents falls. Speed limits over time served as a proxy for safety, with undesirable consequences.
Currently, as we are all well aware, the United States is dealing with an economic recession and a financial crisis. Partly, I argue, the government is at fault for this crisis. For the past 6 months, the government has been responding and attempting to remedy the recession and the crisis. Starting with the Bush Administration and continuing with Obama, the willingness of the government to spend money has been pushed upon us as a proxy for confidence. In my opinion, this proxy will also lead to undesirable consequences.
Intuition lends some insight into this ’solution’. If a gambler has lost everything and goes to the bank to borrow a little bit more, to win it all back, would you lend money to him? Rarely, do we, as a society, view borrowing as a solution to debt. Except, of course, in the case of the U.S. government. Historically, we have griped about this debt, but dealt with it and prospered. The size of the government in absolute terms has grown tremendously since the founding of this great nation.
Now, we have what appears to be a specific problem with banking and housing. Perhaps things are not so simple because the government has yet to aggressively address these issues. It appears more willing to spend money on its agenda and bailout corporations. If we had a plan buried in the trillions of dollars we are spending, we expect to see the willingness to spend money be positively related to confidence and recovery, even though, as in the safety-speed example, the plan was the real cause, not the proxy. We don’t have a plan buried in the proxy though. Not that I’ve seen. Not that the Treasury Secretary has proposed. Not that the markets have responded to (positively).
We have an empty proxy for confidence. When that shroud disappears, we will be disappointed with what we see. Trillions of dollars in TARP and a stimulus bill. Money that we can’t get back, but we can only pray serves its role.
I’m curious what people think about this next round of bailouts? It appears that the White House and Democrats have agreed on taking a large stake in the Big 3 automakers.
The benefit for the auto makers? Money. They need capital to operate. It has been no secret that GM, Ford, and Chrysler have been struggling to compete with more modern, foreign car companies. Where does this leave them? Strapped for cash with expensive union contacts, too many dealerships, too many brands, and too many retirees to support. State law makes it nearly impossible for GM to start consolidating its 7000 dealerships (opposed to Toyota’s approximately 1500). Stubborness has made it difficult for GM to abandon one of its eight brands.4 It is no wonder the Big 3 are losing market share.
The cost for Detroit? Government oversight, control, and mandates. I would argue that government oversight is probably a good thing because a tough leader can start instituting some of the structural forms that make these companies unprofitable. Government control, on the other hand, is unfortunate, but the consequence of giving these companies tax payer money. Lastly, government mandates appear to be the knife in the heart of Big Auto.
The WSJ shed some light on the issue:
All this is dragged down by federal fuel-economy mandates that require them to lose tens of billions making small cars Americans don’t want in high-cost UAW factories. Understand something: Ford and GM in Europe successfully sell cars that are small but not cheap. Europeans are willing to pay top dollar for a refined small car that gets excellent mileage, because they face gasoline prices as high as $9. Americans are not Europeans. In the U.S., except during bouts of high gas prices or in the grip of a Prius fad, the small cars that American consumers buy aren’t bought for high mileage, but for low sticker prices. And the Big Three, with their high labor costs, cannot deliver as much value in a cheap car as the transplants can.
Read over that passage carefully and a few things become clear. 1 – Even if unions have served a role at some point in the life of these very storied companies, they are now choking them. The problem? UAW donated a lot of money to Obama, they paid 3 million dollars to run a single ad for him a few weeks before the election. It is clear that the solution to Detroit’s woes involve not only reshaping the corporate structure, but reshaping the corporations’ relationships with the UAW.
2- Fuel efficiency standards distort the decisions of automakers. American consumers pay big bucks to drive the cars they want to spend that money on. Think about this carefully. Let’s do it step-by-step:
-Car companies have the choice to make a variety of cars.
-They have inputs like labor, materials, and machinery.
-Those inputs are expensive.
-Consumers have the choice to buy a variety of cars.
-Demand is high for Trucks and SUVs.
-Automakers charge higher prices for Trucks and SUVs.
-They make a profit.
-Demand is low for Cars at the same prices.
-Automakers charge lower prices for Cars.
-They lose money on smaller cars, which sell for less, but still require the expensive inputs.
-Government mandates require Car companies to produce small, fuel efficient vehicles in expensive factories.
-Big 3 become unprofitable.
The government’s solution? Take over the companies and make them produce more fuel-efficient vehicles.
WAIT a second!?!?! Buy a company and pursue its unprofitable business?
But, gas is expensive and people want to stop global warming! Right?…Right? Let’s take the facts from a ‘green living website’:
In 2004, many experts criticized the investment return on hybrid cars. They said that with the economy at the time, at $2 per gallon of gas, it would take 12 years to recover the investment of a hybrid Civic compared to the purchase of an equally equipped Civic powered strictly by gasoline. At that point, the hybrid Civic only averaged seven more miles per gallon than the gas powered Civic. Additionally, the hybrid Civic’s sticker price was $6,000 more.
Additionally,
In 2004, Max Martina, managing director of the Alternative Energy Institute, said that gas prices were going to have to reach $2.50 to $2.65 to cause hybrids to show a five year return on investment.
Gas has to be around $2.50/gallon for your hybrid car to save you any money over buying the standard model. With gas at current prices, it would take approximately 12 years. Not only are hybrids more expensive up-front, the investment is highly sensitive to fuel prices. If its the environment we are worried about, then we’ll have to wait for some kind of carbon tax for producing these cars to be a profitable decision. Until then, it is hard for consumers to justify purchasing these cars because the incentives aren’t in place for people to value global warming in their economic decisions. Furthermore, tax incentives to buy these cars are about to expire as well:
Hybrid tax incentives start to go away when a car maker sells its 60,000th alternative-fuel vehicle, a level Toyota reached in mid-2006 and Honda hit in the third quarter of 2007. The amount of the tax credit is first reduced by 50% before disappearing altogether over several months. Honda’s tax credit, currently $525, will be phased out by Dec. 31, according to the Internal Revenue Service. The Civic credit had been as high as $2,100 before the phase-out began in January 2008.
The article continues,
“If you look at it strictly from a short-term payback perspective, without the tax credits, hybrids make absolutely no sense for the average driver,” says Kim Korth, president of IRN Inc., a consulting firm in Grand Rapids, Mich. “The tax credit at least made it neutral, if not positive.”
Removing tax credits would extend the time it takes to receive a return on investment on a hybrid car in some cases up to 16 years! That article is from November, gas is has continued to drop since then.
So, what is Congress thinking? Why is the Bush administration agreeing to this non-sense? Making hybrid cars isn’t going to save Detroit! Requiring the Big 3 to make these cars will kill them. In fact, the Chevrolet Volt, an electric car which is getting everyone excited, will cause GM to lose money “for years”.
I know this blog post would disappoint Al Gore, but I think everyone needs a reality check here! This is going to cost a lot of money and involve a ton of special interest? When do we get smart about this?
I can tell you right now, that this NY Times editorial is not the answer:
G.M. said it would offer 15 hybrid models by 2012. Its Chevy Volt, which can travel up to 40 miles on electric power, is scheduled for production in 2010. Chrysler also said it would offer an all-electric automobile. Ford said it would cut trucks, vans and sport-utility vehicles to 40 percent of its portfolio from 52 percent in three years and would put more fuel-efficient engines in most of its cars.
Congress should ask for more
Classic. A NYT article heralding the inception of the unprofitable Volt and wanting Congress to make things worse.
This is a tough question that a lot of people are asking themselves in light of the recent Obama appointments. How can a leader who campaigned on a message of change deliver his promises if he is appointing Washington ‘insiders’ from the Clinton era and his primary opponents? A lot of people would say he can’t. To take one extreme example, Defense Secretary Gates will stay on to administer the war in Iraq. In my opinion, this is a good decision, but it does not bring to mind images of the immediate withdrawal from Iraq that Obama campaigned on. Furthermore, the Clintons will be back in the White House (as Cabinet officials and spouse) and so will some of former-President Bill Clinton’s administration. Again, this does not sound like a radical departure from the past.
Frankly, to me this was all fine and dandy. It is good to see that the President-elect is not being extreme in his choices, especially in foreign policy.
The Financial Times (FT) had a very interesting editorial today that argued against concerns about Obama’s team. I find this article to be both convincing and likely. The article puts the concerns this way:
Familiar faces, Washington observers yawn, promise familiar policies.
These concerns aren’t just coming from the right-wing trying to nay-say Obama, but from his supporters as well. The articles response:
Seen in this light, Mr Obama’s choice of foreign policy heavyweights is significant for its ambition rather than its caution. If he really does want to recast America’s relationship with the world, surrounding himself with seasoned players will make the task easier rather than harder. Why would a president who wanted to change things put the task in the hands of inexperienced acolytes?
This makes perfect sense, if you want to institute change, you do not do it by appoint political lightweights. You need people who can throw their weight around and know the system.
In one final point, the FT piece says this:
In Truman’s adage, the buck stops with the president.
I found this even more interesting, relative to a post I wrote a while back about taking responsibility. I think Bush has done a decent job of doing that, unlike any of the presidential candidates during the campaign. I hope things change once Obama takes office.
Note: this post has been incubating for a while and I decided to publish it in its current form. Part of an effort to get back into political musings.
I am of the belief that this is a critical issue for the GOP to resolve. Conservatives cannot mimic what the Democrats did for the last eight years. I have a post titled “Bush 43″ that has been ruminating in my draft section for more than six months. Bush is not popular among the vast majority of the country, but he is also hated among the vast majority of liberals. This really bothers me, I don’t want to mime this ridiculous behavior.
I have noticed evidence of conservatives reaching out to Obama. One, he campaigned on promises of bipartisanship. Granted, he won, he gets the spoils of that. (No one is expecting a fairness doctrine-esque regulation of the cabinet). Two, every conservative wants to see policies implemented that are best for the country. That doesn’t happen by alienating everyone! Ironically, only a strong Obama presidency will result in this outcome. A strong presidency will be guided by the beliefs of the nation, a moderate-conservative standpoint. I think that we can see this move to the center in Bill Clinton’s presidency.
Update: Recently, we have Obama reaching out to McCain in a formal meeting. Also, Obama has indicated he might keep on Defense Secretary Gates. I hope we see more of this kind of “reaching across the aisle”. It needs to go both ways though because conservatives will absurdly alienate themselves otherwise.
As his presidency draws to an end, he told CNN that some remarks on Osama Bin Laden and the Iraqi insurgency would have been better left unsaid.
Mr Bush also said he regretted speaking in front of a “mission accomplished” banner only a month after troops were deployed in Iraq.
BBC NEWS | Americas | Bush recalls moments he regrets.
I haven’t lived through too many presidencies, but I think its admirable that a public servant can leave office with a realistic vision of what happened. Granted, approval ratings are not high for our 43rd president, but I think this atmosphere is preferable to hubris.
It would have been incredible to sit on the meeting that took place between President George W. Bush and President-elect Barack Obama.
It has been reported that they talked about the economy, the financial crisis, and the war. Obviously, there is a lot more to the American presidency than “the issues”. The presidency is a way of life. I’m curious how their dialogue played out. Considering the campaign rhetoric about the Bush administration, the proceedings had to be slightly awkward:
Obama: “Hello, I just won your job because of your low approval ratings.”
Bush: “Hi…”
*Laughter from Michelle and Laura*
Anyway, what really strikes my interest is the following question: How do you pass the baton for the most powerful position in the world?
Something has been bothering me lately. It has been plaguing my conscience and running rampant throughout this blog.
Things go wrong. It happens. We depend on the leaders we elect to use a philosophy consistent with our own to avoid mistakes. They happen none the less. As citizens in America’s polity, the officials we elect are accountable to us in a unique way.
Currently, it is clear that political actions have had ramifications in the economy. It is also clear that foreign policy decisions by our political leaders have resulted in a war in Iraq and Afghanistan.
Where does the buck stop?
Harry S. Truman promised that the buck stopped at the President’s desk. I don’t think we have the same level of responsibility among our political leaders today. I think that President Bush has taken responsibility for the wars:
“The situation in Iraq is unacceptable to the American people, and it is unacceptable to me,” Bush said. “Where mistakes have been made, the responsibility rests with me.”
Bush’s approval ratings show that the American people are not completely satisfied with this. In other words, it is too little too late.
Recently, Alan Greenspan took some responsibility for his part in our current economic woes:
The 82-year-old Mr. Greenspan said he made “a mistake” in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”
My question is where will the buck stop in 2008? Will it keep going back to Bush? If the Democrats are elected, I think Bush will be blamed for the next 8 years. I think McCain got it right when he said Obama isn’t running against Bush. I think the entire DNC needs to realize this:
“Senator Obama, I am not President Bush,” said McCain in the third and last presidential debate Wednesday night after Obama pointed out that he had voted for Bush’s budget proposals. “If you wanted to run against President Bush, you should have run four years ago.”
The problem is that Americans are not happy with the buck stopping with a Republican in the White House. The party needs to convince people that the buck will stop with John McCain and he’ll take responsibility for the future of America.
If Bush keeps getting blamed, when will we move on? Bush did not have a great presidency, only history will show how it is really viewed, but we need to move on. Every candidate is campaigning on change, but if we don’t change our mindset to the future and to ownership of our actions, there will not be real change.
I’d like to see Congress take responsibility for subsidizing mortgages, Democrats take responsibility for Congress post-2006, and the next president take responsibility for the future. The past affects our future, but we cannot keep blaming the past or we will never move on.
In other words, the raison d’être for tax cutting. I believe there are two primary reasons:
1) Freedom
2) Revenue
Obama has been campaigning on tax cuts, but has usurped the philosophy for tax cutting. In fact, his tax plan does the opposite. Now, if you are sick of hearing about this, I apologize, but I think reading this post will be worthwhile to you.
Obama’s tax plan gives welfare-like tax credits to people only paying payroll and social security taxes, while taxing small businesses and the upper tax brackets more. Therefore, a substantial number of people who aren’t paying taxes anyway (because most receive a rebate for payroll taxes anyway) receive a cut, while the rest of the tax payers pay more or are incentivized not to advance.
Thesis: In a time of economic crisis, tax cuts can stimulate the economy by increasing the disposable incomes of those who create jobs and those who purchase consumer goods. Using the phrase ‘tax cuts’ to woo voters is disingenuous when the tax plan will raise taxes for the individuals who create jobs and provide tax credits those not paying taxes.
In other words, if you’re not paying taxes now, a tax rebate will not incentivize you not act differently because it does not save you any money. To clarify further, the tax cut has not restored the opportunity cost that the tax removed. Keep in mind, that number not owing anything that will receive a tax credit is 44% of Americans.
Now, let’s get into those two reasons a little more.
1) Freedom:
Plain and simple, taxes not only distort markets and result in a dead weight loss, but they restrict individuals’ disposable incomes. Lastly, freedom provides the philosophical justification for limiting government.
A. Market Distortion:
Generally, taxes get passed on to consumers and change the position of the equilibrium between the supply and demand schedule. The taxes, I’m attacking here distort not a market for goods, but for a production factor, in particular labor. It would be fair for a concerned voter to be wary of tax increases across various parts of the economy because it all likelihood it will affect you, but I think income-related taxes hit home a lot closer for most people. The market is distorted because as I’ve blogged about before incentives are skewed to favor tax brackets with increased benefits. For instance, let us say for simplicity you are currently earning $10. Let’s say that a promotion would give you an increase of $1 to $11. The catch is that you lose $0.80 of benefits because you move to the $11-20 bracket from the $0-10. Therefore, you net $0.20 by advancing. This is a simple example, but it shows how the incentives to advance your career can be diminished.
B. Disposable Income
Your income minus taxes. All else equal, an increase in income will result in an increase in disposable income. All else equal, an increase in taxes will result in a decrease in disposable income. What do we do with disposable income. We save and we consume. Where does savings go? To banks and then out to businesses to invest. Beside productivity and technology what is a major factor in economic growth? Investment. Where does consumption spending go? To businesses. Where do business spend money? Paying workers and buying things from other businesses who pay their workers.
You can see how the economy is pretty complicated, but the relationships can be pretty simple.
C. Philosophy.
We live in a society where our government is empowered by the citizens. If we take the philosophical justification out of the equation, it would be a lot easier to argue that the government take everything and dole it back out equally (although, Hayek might have a few things to say about that).
The point is that taxes represent government control and involvement in citizen’s lives. There should be some level of taxation, the government does have a role in the world, but the more we expand this role, the more difficult it becomes to limit that power.
It is in the interest of all of our individual freedoms to consider philosophically how we want to interact with our government. I believe that the federal government should have a limited role and as such should leave people’s money to themselves. I believe that state and local governments can make meaningful differences in their communities, but it comes more difficult when they are in a power struggle with the federal government.
2) Revenue.
The Laffer curve.
Tax revenues can increase when taxes are lowered. In 2007, after the Bush tax cuts, the federal government had record tax receipts. Now of course, in our current economic situation, the deficit is looming larger and larger, but that does not mean tax cuts are not a suitable remedy for economic stimulus.
The real question is when will politicians stop blaming Bush for the current economic situation. Bush has not had the best presidency and I’m not sure what my own approval rating of him is, but I can say that the economy is a lot more complex than any involvement with it Bush has had. Furthermore, I think we have a few executives and quite a few Congresspeople to blame first. A bit of leadership from the White House and Republicans could have done some good though.
What worries me more than anything is that the disapproval of the Bush 43 years and our current economic crisis would justify an Obama presidency taking radical steps and never taking responsibility (look out for a responsibility in politics post). Therefore, this tax plan would go through and I think make our economic situation worse, but would Obama take responsibility or would he blame Bush?
I think the answer to that question is a no-brainer.
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