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Tag Archive for 'Obama'

Econ 101 – Government Spending

Published on February 17, 2010 in Economics, News and Politics. 0 Comments

In the first year of macroeconomics I don’t think there is a single student who doesn’t leave with some understanding of fiscal and monetary policy. One controlled by legislators and the other by central bankers. Furthermore, even an elementary reading of Keynes or a brief quote in a textbook makes it clear that government spending (a component of GDP) can be an effective way to encourage growth. Although there are negative effects like crowding out private investment and national debt, the argument goes that these temporary short term problems are worth the long term stability hopefully spurred by government intervention.

The lesson that reality has shown is that there is only an extremely weak multiplier effect for government spending, meaning a dollar spent by the government does not spread throughout the economy in the way originally modelled by Keynes. Moreover and a lesson made clear from the 2009 stimulus bill – getting legislators to allocate money quickly and then spending it is nearly impossible. The tendency is for government spending to dovetail recoveries. This seems to be what is happening now:

The approach this week of the stimulus program’s one-year anniversary sparked a fresh round of dueling partisan statements, as Democrats sought to credit the effort with averting a deeper recession and Republicans said the program deserved a failing grade. But in terms of spending, the stimulus is largely incomplete.

As the economy is recovering, the influx of the majority of the U.S. stimulus money will make the recovery look stronger and more swift than it would be absent extra government spending.

Concern for Our Future

Published on February 8, 2010 in Economics, News and Politics. 0 Comments

The question to ask about the president’s eye-popping budget, also rolled out last week, is whether it prepares the country for its future—or shackles it to past decisions that our leaders would rather not confront.

This quote from an article written by the dean of the Columbia Business School summarizes many of my feelings on the subject of the size and budget of the U.S. government. Most of you probably heard recently about the $3.8 trillion Obama budget with future ‘plans’ for reducing the deficit. As I have said many times on this blog, budget deficits and national debt do not concern me too much. It certainly does not worry me nearly as much as a major meltdown of our financial system (which it appears has been avoided). But in the long-run a growing national debt can pose problems for the economic health of a nation. The analogous situation for an individual seems obvious:

Click to continue reading “Concern for Our Future”

Massachusetts Senate Victory

Published on January 20, 2010 in News and Politics. 0 Comments

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.

Click to continue reading “Massachusetts Senate Victory”

Short Post on Cap and Trade

Published on June 26, 2009 in News and Politics. 1 Comment

Mr. Obama on Thursday called it “a vote of historic proportions … that will open the door to a clean energy economy” and green jobs. “It will create millions of new jobs,” Ms. Pelosi insisted.

From: WSJ Link

This makes absolutely no sense to me. It refers to a recent House vote that clears a hurdle for passing a cap and trade bill. I’ll give Obama the claim that it will lead to green jobs. Of course, when you effectively tax carbon through a cap and trade system, it will cause a shift to renewable “green” energy sources. This will likely lead to the creation of green jobs.

Pelosi’s claim that enacting cap and trade will create millions of jobs makes 0 (zero) sense. First, just think about that claim–millions of jobs. We’ve been losing hundreds of thousands of jobs per month. Charging companies for emissions is going to create millions of jobs?

Yes, thousands of jobs will be shifted to other, possibly new, industries, as Obama’s comment indicates. Millions of jobs are not going to appear because of a RELATIVE change in price.

Example: Ketchup becomes more expensive than mustard. The condiment industry employs 100 people. The relative increase in cost of ketchup is not going to cause the total jobs to go to 120 (for instance). Instead, as demand for mustard goes up to lower costs, production will increase for mustard and fall for ketchup. A relative price increase will not effect overall consumption in a way that will dramatically change the total level of employment. Some ketchup folks will move to the mustard industry.

This example is simple, but the logic holds, in my opinion, for analyzing a cap and trade scheme. Especially, against such a ridiculous claim like creating millions of jobs. Shifting jobs is far appropriate.

Alternative example would be an absolute change in price, something that effects overall productivity. If condiments become cheaper, people will change their buying habits to buy more overall. This will increase the employment level because overall production increased. This example could include where mustard benefits more than ketchup and the mustard industry DOES uniquely create a bunch of new jobs.

This post was supposed to be short, but just realize Nancy Pelosi said something ridiculous.

I’m Not Convinced

Published on June 24, 2009 in News and Politics. 0 Comments

I watched an interview with President Obama by Diane Sawyer. I am not convinced by President Obama’s arguments. Who are these people that suggest we do nothing? These supposed people are the focus of Obama’s arguments. His argument goes along the lines of ‘the people who say we do nothing have the burden of proof.’ If these people do not exist, then there is no actual opposition to Obama’s argument, as framed by him. That is a pretty easy argument to win.

Furthermore, it problematically paints opponents of the Administration’s plan as people who want to do nothing. This seems to be the actual strategy of Obama’s health care strawman. This is not reality. There are Republicans who are proposing reforms that focus on fixing our current system through market reforms, adjusting the tax code, and nationalizing the insurance market.

[Sens. Tom Coburn of Oklahoma and Richard Burr of North Carolina, and Reps. Paul Ryan of Wisconsin and Devin Nunes of California] proposal — called the Patients’ Choice Act — is to leave in place the tax deduction companies receive for providing employees with health insurance and to create a “Medi-Choice” tax rebate that will give individuals $2,200 and families $5,700 to spend on health insurance.

The rebate will make health insurance more affordable, especially for young people. It also will make health insurance portable, which will free people from being locked into jobs they hate because they are afraid of losing their health insurance.

One issue that bothers me that people don’t seem to be talking about is the impact of adding healthcare to the government’s budget. The current recession has made one thing abundantly clear, state budgets are not rock solid. This is not new news though. Yes, California is suffering incredibly bad right now and using federal money to finance its operation, but Minnesota has had several budget crises. What happens during a recession? States cut back. Right now, states are cutting healthcare benefits to children. The only way to avoid this is to make healthcare a dedicated part of the budget and let the federal government run deficits, if necessary, to finance it.

Again, I implore people to ask themselves this question: If competition and price-cutting is the answer, why don’t we foster an environment for healthcare that creates a more competitive industry?

The private market may not be able to handle this public-option because the market is so riddled with regulation. There are a lot of reforms that we have not tried yet. Before we commit the government to financing our healthcare system (a truly dangerous proposition), let’s try these things first.

Wow = :(

Published on June 9, 2009 in Politics. 3 Comments

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.

Telling Quote from the OMB

Published on June 9, 2009 in Politics. 0 Comments

From ABC News’ White House Correspondent Jake Tapper’s questioning:

ORSZAG: It includes a lot. I mean, again, if — look, if health care costs grow at the same rate over the next four decades as they did over the past four decades, Medicare and Medicaid go from 5 percent of the economy today to 20 percent of the economy by 2050. That is the core driver of our entitlement problem.

If we succeed in bending that curve, we will have done more to improve the long-term health — fiscal health — of the nation than any other single thing we could do. Which is not to say other things aren’t important, but what I’m saying is, over the next two months we have an opportunity, our best shot, at addressing that problem, and that’s what we want to do. (emphasis added)

I am pretty concerned about what health care reform means for the country. I have a lot of thoughts on it and want to post more in-depth, but I thought this quote from a WH press conference would be a good start.

This quote has nothing to do with ’socializing’ health care in the United States. It does have a lot to do with the Obama Administration’s recent foray into health care industry meetings. The OMB has cited studies out of Dartmouth reporting that regional health care costs differ dramatically with no tangible results. The belief of the Administration is that if costs can be lowered to the cost of the low-cost region, the cost of care will drop without diminishing the quality of care.

That is the basis for the bolded portion of the quote. I think it is interesting that in a quote about health care, the meaning of health has to be clarified to fiscal health. In particular, he is talking about fiscal health to the year 2050. Will Obama’s policy help actual health care over the next four decades? That does not seem to be a concern of this policy.

It seems to me that it takes several key assumptions to accept the conclusion that regional cost differences can be eliminated and the quality of not care will be change. It is pretty common that health care procedures are the most expensive during their initial use, as companies attempt to recoup R&D costs. If some of the regional discrepancy comes from introducing new procedures, do we want to eliminate those costs?

Philosophically, this issue stands as extremely interesting to me. In a competitive industry there are strong incentives for efficiency. To maximize profits a firm needs to minimize costs. Government, on the other hand, is no model citizen for efficiency. If cost savings are really the way out of the entitlement mess that we have created for ourselves, shouldn’t we maximize the incentives for a competitive industry to flourish?

For instance:
Hospital A in Region 1 is providing services at cost X.
Hospital B in Region 2 is providing services at cost Y.
X

Therefore A has an incentive to move to Region 2 and sell it's services at a lower cost, thus making a higher profit than Hospital B. It seems if this discrepancy can be resolved the greenback would have induced these savings long ago, unless entrenched government policies are preventing those changes. Chiding from the Obama Administration does not seem like the solution. I'm guessing that government intervention and tax incentives are not aligned to create a low-cost market for health care. Just a guess. Maybe we should try that first?

Proxies for Confidence

Published on February 19, 2009 in Economics and Politics. 2 Comments

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.

Obama Administration Sheds 500,000 Jobs

Published on February 16, 2009 in Economics, Politics and Uncategorized. 0 Comments

When we found out the U.S. economy lost about the same number of jobs in January, Obama chided Republican congressmen for not passing stimulus legislation faster. Now, with little fanfare the Obama administration has downgraded their estimate of the stimulus bill’s ability to generate jobs. In fact, it moved form 4 million jobs down to 3.5 million jobs. Of course, the people in January who lost their job are real, not fictional estimates about a ill-planned and rushed bill. They have families, needs and concerns. Futhermore, many Americans have worries about what the future holds.

Republicans chided Obama and House Democrats for not thinking about the opportunity cost of this bill. In other words, if we spend $1, what opportunities do we give up in the future. Put one more way, by spending $1 on ‘the arts’, we give up $1 toward aiding the credit markets or $1 for preventing a home from foreclosing, or from giving up $1 by cutting the taxes of businesses or individuals.

The federal deficit could balloon up to as much as 14% of GDP that is huge. Many economists and politicians (as well as myself) agreed that budget deficits and the national debt should not be a huge concern, especially considering the amazing reputation of government-issued debt from the Treasury (how we finance the debt). If we have a suitable means to finance the debt and the money we are spending seems to be necessary, then we should do it without a concern for debts and deficits. That equation changes when the yearly deficit is predicted to be 14% of GDP. That means the government is spending more than it is taking to the point of being 14% of our entire economy. The world’s largest mind you. That is a dangerous precedent and we have to think about coming back from that.

In 2004 and after, politicians and military advisers warned not to go on a military junket with out an exit plan. Do we have an exit plan for the stimulus bill and the crisis? It does not appear so. The new Treasury Secretary gave us a new proposal that was nearly as vague as Henry Paulson’s. That makes me believe we have just authorized Congress and the President to throw the kitchen sink at the list of solutions to fix the economy. If the Treasury Secretary, hand-picked to deal with this crisis, doesn’t have a specific solution, why are we authorizing Congress to pass a hodge podge bill with different pet projects and Keynesian rhetoric?

We should really think about this crisis…and given a $1 trillion dollars (less than spending a million dollars everyday since Christ’s birth), we should be able to fix this. Throw a $1 trillion against the wall, maybe it’ll stick, but it won’t solve the crisis. Target a $1 trillion solution at the root(s) of the problem and I suspect we’ll get something done.

Obama Appointees

Published on February 3, 2009 in News and Politics. 0 Comments

Ms. Killefer is the third Obama nominee to confront tax problems. Treasury Secretary Timothy Geithner was confirmed despite disclosure about his failure to pay certain taxes. Tom Daschle, Obama’s pick for Health and Human Services, is under scrutiny for his delinquent payment of some $140,000 in taxes and interest.

-From WSJ

Treasury Secretary, Potential Department of Health and Human Services Secretary, and former contender for the new performance officer appointment all have one thing in common. Okay, beside being chosen by Obama for a cabinet level post…Tax Problems!

I don’t like taxes very much either, as you could probably tell from my blogging during the election. I feel good about not paying taxes when I shop for clothing in Minnesota. The state loses maybe $30 in revenue. Truthfully, I’d rather give Minnesota $30 than the federal government, but they don’t give me a choice, so I’d rather just keep my money. The tax problems we are talking about for Daschle are about $140,000. That is a lot of money. What does this say about him and his eligibility to serve the President?

This post is a bit rambling, but I think it shows something that several people have been outed for corrupt activities. Whether its Blago in IL or any one of these 3 appointees. People in government are acting unethically and expecting to get away with it.

Pay your taxes. Lobby your legislators to lower the tax rate so you pay less!

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