What the “package” will “stimulate”

Bacon Hunt, as seen in FoxNews:

 

Democratic leaders are hailing the economic stimulus bill as a way to “invest quickly into the economy,” but according to a Wall Street Journal estimate, only about 12 cents of every dollar will actually go to “something that can plausibly be considered a growth stimulus.”

President Obama has defined stimulus as money that would go into creating jobs and moving the economy in the next two years. 

“From the beginning, this recovery plan has had at its core a simple idea: Let’s put Americans to work doing the work America needs done. It will save or create more than 3 million jobs over the next two years, all across the country,” he said during his radio and Internet address last Saturday.

The following measures in the American Recovery and Reinvestment Act have not been included in this list based on any scale of worthiness but merely on whether they fit the definition given by the president of helping stimulate the economy in the next two years. The provisions were identified by FOX News readers prior to the final conference agreement, which is scheduled for votes in the House and Senate in the next two days 

Tucked in among the vast construction projects and tax relief programs is an effort to revive a law that’s been dead for over 60 years that would provide up to $198 million in pensions for Filipinos who fought alongside the U.S. during WWII. U.S. citizens would get $15,000 a year, but even non-citizens would still get $9,000 a year. 

The bill also invests heavily in research and technology. NASA is set to receive $450 million for “Science” and another $200 millionfor “Aeronautics.”

More than $28 billion is being provided to put kids in special education, Head Start and child care and development programs for disadvantaged children.

FOXNews.com readers pored over the package and found a host of expenditures that might not pump money in any time soon. What follows is a list of some of the more fascinating — if less stimulating — items in the bill:

– $100 million for the Lead-Based Paint Hazard Control Grant Program
– $200 million to the Leaking Underground Storage Tank Trust Fund Program
– $300 million for “Violence Against Women Prevention and Prosecution Programs”
– $900 million for the IRS for the “Limitation on Administrative Expenses”
– $1 million for the Railroad Retirement Board for administrative costs
– $2 billion for the Drinking Water State Revolving Act
– $50 million for Health and Human Services to carry out injury prevention programs
– $1.1 billion for studies on the effectiveness of different medical treatments

– $200 million to upgrade labs and facilities for the Department of Agriculture “to improve workplace safety and mission-area efficiencies”
– $10 million for urban canal inspection
– $16 billion to pay for student financial aid
– $1 billion to pay for the U.S. Census
– $600 million to pay for a fuel-efficient federal auto fleet
– $650 million for the Digital Converter Box Program to help the constantly delayed transition from analog television
– $485 million to the Forest Service for “hazardous fuels reduction and hazard mitigation activities in areas at high risk of catastrophic wildfire”
– Up to $1 billion for “summer activities” for youths as old as 24
– $40 million for the occupational research agenda
– $3 billion for the Centers for Disease Control wellness programs and vaccinations
– $410 million for Indian health facilities
– $2.4 billion for carbon-capture demonstrations

 

Obama’s stimulus plan: rush, then wait three days

The Rush to Wait, by Thomas Sowell:

The big story last week was the incredible Congressional rush to pass a bill that was more than a thousand pages long in just two days– after which it sat on the President’s desk for three days while the Obamas were away on a holiday. There is the same complete inconsistency in the bill itself. Despite the urgency in President Obama’s rhetoric, as well as in Congress’ haste in passing a bill which few– if any– members had time to read, much less consider, most of the actual spending will take place next year, at the earliest.

Not even the most Alice-in-Wonderland actions will arouse the suspicions of those who have what William James once called “the will to believe.”

Nowhere was that will to believe greater than in the election of Barack Obama to be President of the United States, not on the basis of any actual accomplishment, but as the repository of hopes and symbolism. His supporters among the voters and in the media are not going to stop believing now.

It will take a lot more than blatant inconsistency for the faithful to lose faith. It may take catastrophe– and there may well be catastrophe.

For some, even catastrophe under Obama can be blamed on George Bush. After all, Franklin D. Roosevelt was elected to an unprecedented third term in 1940, after two terms in which the unemployment rate never fell below 10 percent and was above 20 percent for 21 consecutive months.

FDR also inspired the will to believe– and he also had Herbert Hoover on whom to blame all the country’s troubles.

It may seem strange, to those who never lived through those times, that someone could be President of the United States for eight straight years and nevertheless escape responsibility for mass unemployment by blaming his long-departed predecessor. But we may yet see a re-run of that scenario in our own time.

Nothing in the amateurish way the current administration has begun suggests that they have mastered even the mechanics of governing, much less the complexities of the huge national problems looming ahead, at home and abroad.

The multiple Cabinet nominees withdrawing before their nomination can come to a vote in the Senate are just one example of this amateurism.

Another example was the Secretary of the Treasury holding a much heralded unveiling of his recovery plan, only to publicly embarrass himself and the administration when his speech made painfully clear that there is no plan, but only pious hopes. The plunge in the stock market after his speech suggests how much confidence he inspired.

There is far more to fear from this administration than its amateurism in governing. The urgency with which it has rushed through a monumental spending bill, whose actual spending will not be completed even after 2010, ought to set off alarm bells among those who are not in thrall to the euphoria of Obama’s presidency.

The urgency was real, even if the reason given was phony. President Obama’s chief of staff, Rahm Emanuel, let slip a valuable clue when he said that a crisis should not go to waste, that a crisis is an opportunity to do things that you could not do otherwise.

Think about the utter cynicism of that. During a crisis, a panicked public will let you get away with things you couldn’t get away with otherwise.

A corollary of that is that you had better act quickly while the crisis is at hand, without Congressional hearings or public debates about what you are doing. Above all, you must act before the economy begins to recover on its own.

The party line is that the market has failed so disastrously that only the government can save us. It is proclaimed in Washington and echoed in the media.

The last thing the administration can risk is delay that could allow the market to begin recovering on its own. That would undermine, if not destroy, a golden opportunity to restructure the American economy in ways that would allow politicians to micro-manage other sectors of the economy the way they have micro-managed the housing market into disaster.

Has Barack Obama’s presidency already failed?

Here we transcribe Why Obama’s new Tarp will fail to rescue the banks, by Martin Wolf, at the Financial Times:

 

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a “no brainer”.

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.

 

Obama cartoons (9) – Obama’s legacy

 

Obama cartoons (8) – Elitism

 

 

 

 

 

 

 

 

Obama cartoons (7) – Actions

 

 

Obama cartoons (6) – Inauguration

 

Obama cartoons (5) – The Press

 

 

 

 

Obama cartoons (4) – Fundraising

Obama cartoons (3) – Taxes