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Europeans can teach Americans something about taking risk.

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Hopefully, by the time you read this, I should have the garage cleaned up:

Ryan on Deficits

Representatives Paul Ryan and Jeb Hensarling discuss our budget situation in the Washington Times, and it's not pretty:

More troubling is the long-term budget outlook, as the nation begins to see the front edge of an entitlement crisis. In the long run, current federal policies are likely to produce $62 trillion in unfunded liabilities, according to estimates by the Government Accountability Office. These long-term problems threaten both the beneficiaries dependent on federal programs and the entire U.S. economy.

They argue that reforming the process is critical to putting our fiscal house back in order.  To that end they propose a number of reforms including giving the budget the force of law and creating and enforcing limits on spending and deficits.

The spending that has characterized the Obama administration has many thinking twice about deficits and the future.  While 2010 may still be near enough to the financial crisis to make deficits seem like the lesser evil.  As we move to 2012 and beyond it is possible that our recent experience will make talk of deficits and a willingness to take a firm stand against runaway spending a much more prominent part of our political discourse.

Favre has Pawlenty in no win situation

While it's clear that the Minnesota Vikings signed Brett Favre, they did so because they had been through several years of suffering with a team that was good, but not good enough. The Favre acquisition was an upgrade to the quarterback position and a chance at making a serious run deep into the playoffs.

Some outside of the area may not be aware of the other motive that Vikings ownership may have had in signing Favre. Namely, they are attempting to build a new home for the Vikings to replace the Metrodome. Doing so might be a bit easier with a winning season and a big name like Favre. The alternative, and there are Vikings fans who fear this is more than just idle talk, is that the Vikings leave Minnesota.

But how to pay for a stadium? A few years ago the Vikings may have been able to persuade the taxpayers to foot the bill and count on a bustling economy to paper over the unseemly side of public funding for private profit. These days, a taxpayer funded stadium seems a lot less likely.

When you add to the mix a governor in Tim Pawlenty who has presidential aspirations, the political calculus can be as difficult as actual calculus.

Writing at the @TAC blog, Sean Scallon says:

This puts Governor Tim Pawlenty in a bit of a bind. Unlike his rivals for the 2012 GOP Presidential nomination, he still has his day job. Certainly he doesn’t want the Vikings to leave the state on his watch so he’s on board with building a new facility, but he’s not offering any solutions on how to pay for it. If new taxes are the only way it gets built, will the Club for Growth forgive him because it was all to pay for a new football stadium? Well, if they didn’t let Mike Huckabee off the hook because of a measly food tax, you can imagine what their reaction will be and what the attack ads in Iowa and New Hampshire will look like. Pawlenty knows this as well as anyone, so it is quite the taxing teaser the young Minnesota governor and would-be president faces over the next two years.

And I thought Favre's move to Minnesota put Packer fans in a bind. We seem to be getting along just fine; for Pawlenty, this dilemma could prove one for which his political playbook simply has no answer.

TARP on Steroids

That's what Congressman Brad Sherman (D-CA) has called the new resolution authority proposal put forth by Secretary Geithner and the Treasury.

Resolution authority is the ability for the government to take over and somehow deal with failing financial institutions. There seems to be a fair amount of agreement that this was something lacking during the current crisis and that this authority is needed to avoid a repeat of the wave of bailouts the financial industry has been riding of late.

Treasury's proposal though, would be a step in the wrong direction. Here's Congressman Sherman's highlights:

The new Resolution Authority, set forth in Treasury’s 253-page legislative draft of October 27, 2009 provides permanent, unlimited bailout authority....

The Secretary of the Treasury has rejected a $1 Trillion limit on this bailout power...

The chief economic effect of Treasury’s proposed unlimited bailout legislation is to cause creditors to lend money on favorable terms to “systemically important institutions” (the top 10 to 25). If the institution cannot repay those creditors, the Government probably will....

This law will allow those institutions which are clearly systematically important (the top 10 to 25) to borrow at a lower cost. This will help the largest institutions get bigger, so they can pose a greater systemic risk.

I suppose it's too much to ask anyone in government not use a crisis as cover for a huge power grab, but couldn't they at least make a pretense toward improving the situation?

This proposal seems little more than an attempt to put into law the system of business friendly back room deals that have proceeded ad hoc over the last year. If this is the shape "change" then we are in for a whole lot more of the same.

The Shape of Financial Reform

Efforts to develop some type of regulatory response to the financial crisis have begun in earnest.

Legislatively, the House Financial Services Committee is drafting legislation which will be the focus of reform in Congress.

Outside of Congress, though, there are other voices making themselves heard. Most notably Obama advisor and former Fed Chairman Paul Volcker who has recently argued, and been mostly ignored, that we need to break up large financial institutions and reinstitute Glass-Steagall. This is the Depression era legislation that separated commercial banking (taking deposits, making collateralized loans) and investment banking (issuing and selling securities, and speculating with their own money).

These two activities were separated until legislative changes in the early 80's loosened some of the rules and then they were removed completely about 10 years ago.

The House reform includes a council of regulators meant to monitor the so-called systemic risks and a way for regulators to force a company they feel is undercapitalized to enter bankruptcy. This is a form of "resolution authority" in a manner of speaking, but some in the Obama administration have other ideas. For example, using a mechanism similar to what the FDIC currently uses to take over failed banks. This idea has been espoused by current Fed Chairman Bernanke.

So the final form of reform remains unclear, but those on the right should take heart. At least that's what Reihan Salam argues at National Review where he says Republicans:

are surrendering the playing field to the Democrats on the pretty darn important question of whether or not we're going to be a market economy or a government-dominated economy. This is insane. Politics and principle are pushing in the same direction.

Extending Home Buying Credit Would be a Mistake

The $8,000 tax credit for first time home buyers is about to expire and there is a push in Congress to extend it. Simon Johnson and James Kwak in the Washington Post remind us of just how bad an idea this is:

The main argument for the tax credit is that it stimulates the economy and stabilizes the housing market. Seen purely as a stimulus, the tax credit is highly inefficient. The National Association of Realtors claims that the credit created 350,000 new sales; the Calculated Risk blog calculates that this means the government is paying $43,000 for every extra house sold

What some would call "stabilizing" home prices really just means keeping them at an artificially high level, but this simply can't go on forever:

This would be just the latest chapter in a long history of government policies to boost housing prices -- the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners.

This credit, the Cash For Clunkers program, the talk of a VAT with a delayed start all of these are touted as solutions to our economic woes. The reality is that these are nothing more than short term gimmicks whose distorting effects delay, but don't eliminate, the necessary adjustments to the economy. Most likely making those adjustments more painful in the process.

I bet EF Hutton never gave advice like this

Tyler Cowen gets this question:

Suppose you were given a large amount of money (say $10 million) and you wanted to make sure that you would remain (relatively) wealthy in as many future states of the world as possible. Where would you invest it? Remote arable land? Organizing a cult of followers?

To which he replies:

If you have $10 million, the safest thing to do is to diversify across currencies, buy government securities of various kinds, hold $1.5 million in gold, and otherwise not invest at all. Oh yes, invest in some cheap hobbies. In a real crunch remote land is worthless -- transport costs -- and your cult followers are as likely to betray you as not.

Creed's advice for aspiring cult leaders:

Frozen Rates or Frozen Credit?

Senatus:

Credit card rates “would be immediately frozen under new legislation introduced Monday by Senate Banking Committee Chairman Chris Dodd (D-Conn.),” The Hill reports.

“We worked long and hard to enact the safeguards included in the Credit CARD Act,” Dodd said in a statement. “And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded. This bill would end those abuses and further protect customers today.”

But is the behavior of card issuers an attempt to "get around" Congressionally imposed rules? The Market Ticker (H/T Dad29) has a different take (his emphasis):

• Citibank's credit-card terms change implies a willingness to accept and even provoke a complete and intentional destruction of their credit card business as a very high probability outcome, given that nobody in their right mind will accept a 30% interest rate who has an alternative. The obvious implication is that only those who can't transfer balances out will remain and if your credit is that impaired there's a good chance you will default - either intentionally or otherwise. This too implies foreknowledge of a near-complete impending freeze in the credit markets.
  
  
• The change in terms on credit accounts is NOT confined to Citibank. I have received a fax from a customer of Infibank with substantially identical terms, in which both the standard and penalty rate was adjusted to 29.99%. This strongly implies that whatever Citibank smells the problem is not confined to them.

Two very different views on what the change in credit card rates indicates. This will be one to watch.

Lawton Won't Run

Nothing new on that here. Go check out Lakeshore Laments.

Guess there's no point in submitting that great post on De Pere Schools spending increase to WisOpinion tomorrow.

Somebody want to let me know what the shelf-life of this is going to be?

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How much is Gatsby still worth every year? Wonder if the rich really are different.

Understanding WWI is key to understanding the 20th century.

I was on the fence about closing Gitmo, but if REM says we should then I agree.

My twins aren't nearly as scary as these sets of twins.

Lawyers, Guns, & Meatloaf:

De Pere Increases Spending, Increases Taxes.

From the Press Gazette:

The De Pere School Board on Friday adopted a $37.4 million budget for the 2009-10 school year.

That's up about 5.35 percent from $35.5 million for 2008-09.The board also adopted a total tax levy of $18.5 million, which includes both general fund and debt service levies. That's up about 3.36 percent from $17.9 million for 2008-09.

At this point, someone more prone to indignant ranting on their blog might wonder exactly what the extra spending is going towards?

In case the school board hasn't heard, there isn't any inflation. That goes for the wages of many workers right here in Northeastern Wisconsin.

Constantly increasing spending with little or no corresponding increase in achievement is far too common in our public school system. Breaking this feedback loop is a daunting and monumental task; a relatively small district like De Pere could provide the perfect laboratory for some radical thinking about how to do so.

This decision, though, shows that the current leadership is content to follow the same well-trod path of so many other school districts around the country. Both the students and the taxpayers deserve better.

Wheat from Chaff Commentator Edition

Via Dad29.

Vox calls the imposition of pay restrictions on financial executives "A minor, but legitimate intervention."

We also get this sharp piece of advice:

Look very closely at any commentator, so-called conservative or otherwise, who complains about this action by the White House being somehow "anti-capitalist". If he was also a supporter of the bailouts last November, you should never, ever, consider taking him seriously again, because he's either an untrustoworthy hypocrite or he's too dumb to even realize his inconsistency.

Unfortunately it's probably more of the latter, and you just can't fix dumb.

House Committee Votes to Create CFPA

The House Financial Services Committee voted to create a Consumer Financial Protection Agency today:

On Thursday, the House Financial Services Committee approved its final version of the Consumer Financial Protection Agency Act of 2009 by a 39 to 29 vote....

The vote largely came down along party lines, with Reps. Walt Minnick of Idaho and Travis Childers of Mississippi the only Democrats to vote against the bill, while Rep. Mike Castle of Delaware was the only Republican to vote in support of it.

The bill (HR3126) will create a new federal agency to regulate consumer financial products. The bill summary indicates that the agency will still have some considerable powers, though two high profile portions were scrapped in committee. The requirement that companies offer a simple ("plain vanilla") version of their products and the ability of states to enact their own tougher regulations. Huffington Post reports:

Democrats also compromised on a keystone reform that would have allowed tougher state laws to act in tandem with new federal regulation. Frank and the White House wanted states to have free rein to get as tough as they chose, while pro-business Democrats and Republicans sought to exempt large national banks from state standards.

So much for states' rights.

Given the recent failures of regulation, I'm skeptical of attempts to prevent a repeat of the current crisis through additional regulation. On the other hand, perhaps regulation that focuses on products rather than on firms could prove to be one part of a revised, and more successful, regulatory regime.

Read more at: http://www.huffingtonpost.com/2009/10/22/house-committee-passes-co_n_330038.html

Pay Cuts at Bailed Out Banks

NY Times:

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.

Some executives, like the top traders at A.I.G., will face tight limits on their pay.

First, pay limits at AIG? Wha? Why isn't this company out of business yet? Do we still need them to launder the US Government money being funneled to all those other Wall St. firms (yes Goldman, that means you)?

Alex Tabarrok at Marginal Revolution laments (and I don't think he's kidding):

There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere.

He may be right that this won't work as advertised, but is there really any need to desparately hang on to the management team that walked your company right up to the edge of the cliff and then pushed it over?

Catholic League Continues the Culture War

Catholic League President Bill Donohue has a column in the Washington Post's On Faith section which pulls no punches when it comes to describing what he sees as our state of decay:

There are many ways cultural nihilists are busy trying to sabotage America these days: multiculturalism is used as a club to beat down Western civilization in the classroom; sexual libertines seek to upend the cultural order by attacking religion; artists use their artistic freedoms to mock Christianity; Hollywood relentlessly insults people of faith; activist left-wing legal groups try to scrub society free of the public expression of religion; elements in the Democratic party demonstrate an animus against Catholicism; and secular-minded malcontents within Catholicism and Protestantism seek to sabotage their religion from the inside.

And that is just the opening. He also doesn't fear to tread where so many within the church do:

Secularists within Catholicism and Protestantism are so out of control that it makes one wonder how any serious-minded person would ever accuse these religions of being oppressive.

He saves this sharp criticism for the close:

The culture war is up for grabs. The good news is that religious conservatives continue to breed like rabbits, while secular saboteurs have shut down: they're too busy walking their dogs, going to bathhouses and aborting their kids. Time, it seems, is on the side of the angels.

I can understand that some are unwilling to accept that Catholicism is the cure for what ails us, but even for those folks I think you would be hard pressed to refute Donohue's indictment of our culture's attitude toward religion and religious believers.

Though if you read the comments, it's obvious this type of commentary touches a nerve with a lot of folks and their own personal bias makes it impossible for them to recognize what is going on right in front of their noses.

Some of the commenters are simply frothing with rage! I especially like the guy who said this commentary shouldn't have been published since it lacks "understanding of the Establishment Clause of the First Ammendment," guess he forgot about that pesky freedom of the press part.

Paul Ryan on Inflation

Congressman Paul Ryan has a very accessible and even-handed discussion of the possibility of inflation at The Journal Times.com. Even though the piece has the ominous title of Inflation's Looming Shadow it is a very measured description of the current situation:

Over the past year, the Fed has more than doubled the monetary base (Figure 2) in order to fund the broad array of programs it has used to try to ease credit conditions in our economy. Some tend to refer to this as the Fed simply “printing money,” but it is important to point out that the lion’s share of the increase in the monetary base is due to a large expansion in bank reserves. This has not caused inflationary pressure because that money is not yet circulating in the broader economy...

Ordinarily, very low interest rates and an increasing monetary base would tend to stimulate borrowing and spending, but the economy appears stuck in a situation that economists refer to as a “liquidity trap.” The standard monetary pumps are primed, but the release valves to the broader economy – the banks – remain clogged.

Ryan then argues why even thought it is not currently a threat, we are right to be mindful of the possibility of future inflation:

As the economy recovers and the normal lending, borrowing and spending channels open up, the Fed will need to start draining these large bank reserves from the system or else severe price pressures will result. In short, to control inflation, the Fed will have to trigger in essence another credit crunch by pulling money out of the banking system, at the very time business lending begins to pick up. But the Fed may be too slow to act or tempted to keep its monetary policy too loose for too long, which could lead to yet another credit and asset bubble.

Be sure to go read the whole thing. Even if you don't usually agree with Ryan or have no idea who Paul Ryan is, this brief description is an excellent tool for understanding our current situation.

De Pere Considers Levy This Friday

On Friday October 23rd the De Pere Unified School District (that's the east side) will hold a meeting at 7:30 AM to vote on the 2009-2010 tax levy. The levy under consideration is $18, 513, 034. From the meeting agenda:


For comparison, here is the levy that was approved last year

Healthcare Reform Goes Stealth

From The Hill:

Senate Finance Committee chairman Max Baucus (D-Mont.) on Monday sought to squash claims that Democratic leaders were drafting final healthcare reform legislation behind closed doors.

Which, of course, means they are doing just that. For the record, I think this is a bipartisan phenomenon, but that still doesn't make it right.

For me though, it is not at all clear who should be more worried by this development, those who oppose the legislation or those that favor it. Which group has more to lose by a move to craft the legislation in secret seems like a 50/50 proposition to me.

Rahmblin' On

The healthcare debate continues to trudge along this week and with the latest numbers on the deficit, it appears the cost of reform will be front and center. Specifically the question as to whether or not the reform will add to the deficit. Here is the non-partisan OpenCongress blog:

the Senate Finance Committee version — has actually been scored by the Congressional Budget Office to produce $81 billion in savings over the next ten years.

But the only reason Congress has been able to meet (or come anywhere close to) Obama’s goal of budget neutrality for health care reform is that they are planning to shunt a big chunk of the actual costs into a separate bill. That bill, the Medicare Physicians Fairness Act of 2009, is scheduled for a vote in the Senate this week. [E.A]

Seems like a pretty clear example of creative accounting, right? Well chief of staff Rahm Emanuel was asked about this on CNN's State of the Union program on Sunday:

KING: ... $250 billion Medicare fix to doctors. The administration has asked the Senate to do that outside of health care reform. And right now, there is no way to pay for it.

EMANUEL: Yes, but, John, in fact is -- the president -- this is one of the gimmicks that was done year after year in Washington...

KING: So why do it now? If it's been done year after year, why not end it?

EMANUEL: And the president's budget, in fact, he included it in his budget when we negotiated that and we passed the budget. The first year, it's paid for.

What happens is, everybody says, you know, don't worry about it, and then they just pass it on. We've made a difference.

But the first piece of controlling the deficit is health care. I will also say the next step, is also important, is paying pay as you go. In the 2000 era, starting in 2001, the discipline of the '90s that led to a surplus was pay as you go. That was eliminated, basically allowed to lapse. And we passed three tax cuts, a prescription drug bill that led to $5 trillion of red ink run up -- the biggest red ink run-up in the shortest period of time in American history. Literally over half the nation's debt is accumulated in the last eight years.

Huh? I'd highlight the important part, but someone will have to translate this for me first. That last paragraph is nearly incomprehensible. At the very least, it is insufficient as a response to the question of why this particular $250 billion isn't being counted against the cost of healthcare reform.

WI Congressional Fundraising

From the Journal Sentinel:

• Sen. Russ Feingold (D-Wis.) has raised $8.7 million since his last election in 2004 and has $3.1 million on hand for his 2010 re-election bid.

•  Sen. Herb Kohl (D-Wis.) self-finances his Senate bids and is not up for re-election until 2012. Kohl, a millionaire, reported raising $279,000 so far, all but $2,000 of it from his personal wealth.

•  Rep. Paul Ryan (R-Janesville) raised more than any other Wisconsin House member, bringing in $257,000 in the last three months alone for a total of $833,000 this year. His campaign now has $1.4 million in the bank.

• Rep. Jim Sensenbrenner (R-Menomonee Falls) has raised $111,000 this year and has $404,000 in the bank.

•  Rep. Gwen Moore (D-Milwaukee) has raised $180,000 this year and has $39,000 for her run. Moore is considered to be in a safe seat and does not typically do much fund-raising.

•  Dan Mielke, a Rudolph Republican who hopes to challenge Obey once again for the House, reported raising $367,000 this year, but most of it - $333,000 - was his own money.

The link has some additional information. Including the surprising fundraising by Republican challengers in WI.

All That Glitters is Goldman Sachs

News of huge profits and bonuses at investment bank Goldman Sachs have caused some to cry foul. While this would be expected from certain quarters, I think this latest round of criticism really ought to have folks like Goldman worried.

First, here's economist Russ Roberts with a commentary that appeared on NPR:

Normally, I'd say it's nobody's business. What people get paid is best left to the marketplace.

But Goldman Sachs is different because those of us on the outside are really on the inside. Goldman Sachs was propped up with our money. Not the money it took directly from the government and paid back. The money that AIG gave it that really came from the taxpayer....

We have to stop rescuing the reckless. We have to let people who make bad decisions bear the consequences.

Profit and loss. The rest of us live that way. Wall Street can too.

Roberts is a professor at George Mason University and has a free-market perspective. When he criticizes Goldman, it definitely has a different flavor than the type of criticism that comes from an economist like Paul Krugman.

Then there's libertarian blogger Megan McArdle:

Whatever they really think, deep in their hearts, they're certainly doing their best to give the impression that they believe they are entitled to collect huge paychecks no matter what happens, and have the taxpayer pick up the tab for their mistakes.

Admittedly, these two voices on the right are probably in the minority at lease in terms of speaking out publicly. At times it seems the national Republicans oppose all government interventions, except those that help big business get even bigger.

It's refreshing to hear some thoughtful criticism of the situation from the right. More importantly, such criticism is crucial to forming a useful and effective response to the financial crisis.

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Bipartisan Burgers - The Weekly Standard stops at In-N-Out

Radio is a sad salvation:

One Theory on why Kagen Voted for Cap and Trade

When I went to Representative Steve Kagen's August listening session on healthcare, I was struck by how many people were still angry about his vote on cap and trade. Several people got up and spoke out against it, many saying they also contacted his office to express their views. If I remember correctly, one guy went so far as to produce a spreadsheet of possible cost implications of the legislation that he had assembled by polling businesses in Wisconsin.

Given the vocal opposition to the bill, why would Kagen still vote for it? Well liberal blogger Matthew Yglesias offers this:

The point is, for a first cut at predicting legislator behavior you should look at their partisan affiliation, not the views of their constituents. Beyond party affiliation, there is evidence that constituent public opinion makes a different. But legislators have a fair amount of leeway.

He's convinced that party affiliation is a good proxy for voting record and that the actual wishes of constituents matter, but maybe not as much as we all would like to think. Yglesias doesn't believe this is a good thing, but it is an observable tendency.

I think he usually bemoans this phenomenon when conservative Democrats refuse to support the Obama/Pelosi legislative agenda citing concerns back home or when Republicans don't support legislation that opinion polling suggests is popular among some part of the electorate.

This habit of bucking the wishes of constituents for the concern of the party can have a way to come back to haunt a candidate, especially a marginal Democrat like Kagen. This is the kind of vote that Pelosi usually would give a pass on, but I think this one was too close for that.

It remains to be seen if this will hurt Kagen in 2010. If even a portion of the feelings from August remain, I don't see how it can't.

Reid Ribble Fundraising

The Ribble campaign issued a press release with the fundraising number for the period that ended September 30th:

Earlier today, Reid Ribble, a lifelong Wisconsin resident and 25 year business owner, filed his first quarterly fundraising report with the Federal Election Commission. Ribble reported raising $130,291 since announcing his candidacy for Wisconsin’s 8^th Congressional District in July.

The reporting deadline was today and these numbers weren't on the FEC site yet, neither were the numbers for any of the other candidates. Once those are up, I will post them as well.

Paul Soglin's Concern for Republicans

In a post that appeared on WisOpinion earlier this week, Paul Soglin lamented the fate of moderate Republicans:

The election of President Barack Obama last fall and the accompanying reaction from the extreme right wing worsens the condition of moderate Republicans. Here in Wisconsin, especially around metropolitan Milwaukee, where right-wing talk radio with Charlie Sykes and Mark Belling sways listeners, moderate Republicans continue to come under siege.

He goes on to note the fact that some Republican party activists are taking on GOP incumbents (gasp!). Perhaps a GOP incumbent bailout package should be considered?

Soglin's concern though, is little more than a rhetorical trick. It appears his definition of a moderate Republican is a Republican that agrees with his policy positions. There are plenty of people that do agree with him, and they are called Democrats.

The idea that if you don't agree with Soglin you are an extremist is ridiculous. I can see, however, that it could sway some voters who think of themselves as centrists. Especially when you look at his list of areas for agreement, most of which are so vague that it would be hard to argue against them. For example, "the value of investment in infrastructure." Even an extremist prefers bridges that don't collapse and might occasionally want to use the interstate highway system.

As I have argued, there is a need for a re-balancing among conservatives and the Republican party in general. Where the passionate populism that is so much in evidence today is tempered with ideas grounded in principle and developed through sober reflection.

Republicans who feel the same should work toward that end. Spreading the message that principled opposition to wrong-headed policies doesn't make you an extremist. Opposing your principles so that you can be called moderate though, does make you a fool.

Consumer Financial Protection and Paternalism

Megan McArdle cautions that Paternalism is Still a Problem and cites the Consumer Financial Protection Agency as an example of this continuing danger. She cites an argument that the new paternalists

argue that government-appointed experts should limit the choices available to consumers in order to prevent them from making poor decisions because of ignorance or cognitive bias. After all, they claim, experts are likely to know better than ordinary consumers which products are too risky for us to use.

But, so the argument goes, these same experts have no way to measure the benefits to consumers that are lost by limiting or banning certain choices. Unable to compare the costs and benefits, these experts have no business making such decisions. At least that's what McArdle thinks.

The immediate problem I see with this is that some of the recent financial innovations had absolutely no benefit to either of the parties to the transaction, and that is something that experts (and even some non-experts) could determine from the outset. Take, for example, those so-called NINJA (no income, no job or assets) loans that were made. People who bought homes they had no way to pay for are now left in foreclosure and lenders are left with a bad loan on their books. The only people that may have benefited would have been intermediaries that arranged the transaction for a fee.

This is like a game of musical chairs, but instead of taking away one chair, you take away all of them. The only way not to lose is to simply walk out of the game. Unfortunately for the homeowner and the lender, neither are able to simply walk away. Why can't we outlaw these types of products? Whose welfare is being reduced by these types of loans no longer being available?

The CFPA is an idea that has been championed by Elizabeth Warren, and one that I think has merit. But at the same time, I too worry about our continued enfeeblement at the hands of the government.

But in this case, there are simply some financial products that do not enhance welfare and due to their potential for damaging consequences, should not be permitted. If you don't like the idea of banning certain financial products, perhaps we could apply a doctrine of strict liability to producers of such potentially harmful goods.

Beyond the scope of the products that can be identified as non-beneficial, application of the CFPA's power to ban certain products is more problematic. An alternative might be to give the CFPA the power to review and analyze all financial products prior to their sale to the public. The CFPA could then produce an analysis of the product that would have to be provided to the consumer. Obviously, this is similar to disclosure laws we have now, but if the CFPA has as its goal consumer protection I believe the disclosures would take a much more understnadable and useful form.

Proponents of the CFPA might argue that without true regulatory power it would be meaningless, but I don't buy this. In these days knowledge is power. Any move that increases the ability of consumers to understand the transactions they undertake is a step in the right direction.

Reid and the Rule of Law

Tyler Cowen of Marginal Revolution:

Harry Reid is telling the Senate Judiciary Committee that the real reason health insurance is so expensive is that they're evil monopolists...

There is talk of repealing the antitrust exemption enjoyed by the insurance industry. Whether the exemption is a good idea or not, I do not know. The relevant event is that the insurance industry seems to have turned against Obama's health care reform. Everyone who cares about American democracy and rule of law should be complaining about Harry Reid, Patrick Leahy and their allies in this move. So far I don't hear the outcry.

Set aside for a minute whether or not this is a good idea. Is it a good idea politically? Is Reid ready to hurt his personal chances in order to advance the Democrat agenda?

De Pere Considers 3.5% Levy Increase

The Unified School District of De Pere (that's the east side of the river) is considering a 3.5% increase in the property tax levy according to Superintendent Dr. Benjamin Villaruel. In an email to me Villaruel indicated:

At this time, we are anticipating a 3.5% increase in the property tax levy. Last year’s property tax levy was $17,911,333. We are anticipating a levy for this year of $18,541,799.

As Bill [that's board treasurer Bill Van Beek] stated, a big part of the reason that we were able to minimize the levy increase is that the Board restructured (advanced refunded) a total of $5,000,000 in debt service payments. The Board was able to do this because of their practice to take long term debt out only 10 years as opposed to 15 or 20 years. In addition, the board will refinance some of its debt in 2011 when some notes become callable. Without such restructuring, the levy increase could have been about 13% to 15%. In addition, the board reduced the budget by about $300,000 in June when we learned that the State was restricting our revenues because of the decline in general purpose tax revenues....

we received $23,312,396 in state aid (equalization aid) for the 08 – 09 school year. This year, we are anticipating $22,535,403 in state aid (the exact amount will be sent to us by the state on October 15) which equates to a reduction of $776,993 from our last school year.

District enrollment for 2009-2010 is up 1.24% bringing the total to 3,741 students. Putting the levy at $4,956 per student and the state equalization aid at $6,023 per student.

While I do appreciate the board's efforts to keep the levy down and to reduce spending in light of current circumstances, it would have been preferable in my mind if they could have reduced spending even further and kept the levy unchanged or with a very minimal increase. In a time of high unemployment and very low inflation, an increase of even 3.5% can seem high. Of course, when seen in comparison to Appleton's proposed levy increase of 9.7%, perhaps De Pere is doing something right.

Finalization of the state aid amounts are upcoming, after which the levy amount will be finalized. According to Treasurer Van Beek, the vote on the budget and levy amount has been set for Friday 10/23 at 7:30 AM. If you are interested in attending, you can call the district office at 337-1032 to confirm that this has not changed. If you are interested in making your voice heard on this issue, I suggest you do it before the final vote. You can find contact information for the school board members at this link. Contact information for the superintendent is here.

Profile of Elizabeth Warren

Mother Jones has a short but good profile of Professor Elizabeth Warren, head of the Congressional Oversight Panel (the panel that is watching over the $700 billion TARP program). In it they discuss her two transformative experiences that have brought her to where she is today. And where she is can be a tough place:

Indeed. In April, Thomas Cooley, a Forbes columnist, blasted Warren for politicizing the oversight panel to advance an anti-bank agenda, and one of the five-person panel's two Republican members, Jeb Hensarling, has criticized her for focusing the commission's work "on issues not central to our mandate." He also pushed for releasing the transcripts of the panel's private meetings, a move that Warren resisted because, a spokesman says, the members need to have "candid discussions" about their ongoing investigations.

Hensarling's criticism may be legitimate, but sometimes it comes across as little more than an attempt to stifle Warren's reform efforts. With the popularity of the Tea Party protests one might think that there would be some room in the Republican agenda for meaningful but sensible reform. I mean, Hensarling isn't there to serve the interests of the financial services sector, is he?

But it's not just Republicans that have a problem with Warren. The article also mentions Obama economic adviser Larry Summers:

But a Warren colleague at Harvard (who admires her) notes that Summers—who as Harvard president speculated that women may not have the same innate math and science ability as men—might share the sentiments of fellow Harvard economists who dismiss Warren as insufficiently theoretical.

Mathematical models predicting a collapse of this sort could only happen once every hundred years were ubiquitous on Wall Street, so I don't see how Summers can argue we suffer from a theory deficit. Maybe he suggest we fight theory with theory?

It's the Democrats who hold power, so Summers' attitude towards Warren matters more than Hensarling's. Still, as an aspiring Republican, it would be nice to see the party make good on its rhetoric about representing real people.

Reconsidering Beck

The question as to whether or not conservatism is dead has been making the rounds lately. Steven Hayward writing in The Washington Post makes clear that this is not the case. The headline of the piece asks if conservatism is brain dead, but in reality Hayward's analysis turns on a question of balance:

During the glory days of the conservative movement, from its ascent in the 1960s and '70s to its success in Ronald Reagan's era, there was a balance between the intellectuals, such as Buckley and Milton Friedman, and the activists, such as Phyllis Schlafly and Paul Weyrich, the leader of the New Right. The conservative political movement, for all its infighting, has always drawn deeply from the conservative intellectual movement, and this mix of populism and elitism troubled neither side.

Hayward argues this traditional balance is now largely lacking. He calls the Tea Party movement "authentic," but, "unfocused." He also discusses the conservative portion of the opinion media and includes a surprising take on Glenn Beck:

Okay, so Beck may lack Buckley's urbanity, and his show will never be confused with "Firing Line." But he's on to something with his interest in serious analysis of liberalism's patrimony. The left is enraged with Beck's scandal-mongering over Van Jones and ACORN, but they have no idea that he poses a much bigger threat than that. If more conservative talkers took up the theme of challenging liberalism's bedrock assumptions the way Beck does from time to time, liberals would have to defend their problematic premises more often.

I don't have cable, so I don't watch Beck, but this is the first time I have seen him discussed as tackling the issue at the heart of the opposing ideology. Lately, it seems many on the right want to focus on the question of whether or not Beck is bad for the movement. Hayward argues convincingly that he is not, and that there is no need to work to minimize or derail his efforts.

What is needed, it seems, is the passion conservatism currently displays combined with ideas resulting from clear thinking, articulated sharply.

A movement whose passionate side is grounded by rigorous thought will be far better suited to withstand the force of the passionate winds, regardless from which direction they blow.

It is also a movement that I, and many others, would find appealing. Even if it included Beck.

You know that joke about two seasons in Wisconsin?

Well if you don't, the two seasons are winter and.....construction!

It appears that portions of Brown and Winnebago Counties are actually going to be down to just one season, and it ain't winter. From the website US41wisconsin.gov:

US 41 is a 200-mile stretch of highway connecting two crucial economic regions in Wisconsin: southeastern Wisconsin and the Fox Valley. Work on the US 41 Project will span over 17 miles of highway in Winnebago County from 2009-2016, and 14 miles in Brown County from 2010-2016. The project includes: traffic lanes expanded from four to six-ten lanes; 13 interchanges reconstructed; 16 interchanges improved, with 13 of those interchanges completely rebuilt; 44 roundabouts added; 17 traffic cameras installed; and an eight-lane Lake Butte des Morts Causeway. This project represents a significant step forward for Wisconsin and its economy.

I don't travel 41 to or from work, but I know many people who do. I am also smart enough to stay away from 41 on game day, but I have been in heavy traffic on 41 northbound on the night before opening day of deer season.

It sounds like this is something those of us in this area will have to get used to. If you live up here, or are just interested, follow the link above and be sure to check out the gallery page. It has some graphics of the revised highway including the cross streets and the roundabouts.

The Press Gazette has coverage here. They include a slide show of the design options for the bridges.

McArdle on Health Care Reform

Progressives are watching the whole health care legislative process with utter dismay as it produces a monster of a bill that not even its mother could love--and trying to love it anyway, on the grounds that it's a start. But this ridiculous hodgepodge, this hypertrophied Rube Goldberg apparatus, is not some startling aberration of the political process, induced by some Republican dark magic. This is the kind of thing the American political system produces. This is why all of our programs have a substantial element of the inexplicable and bizarre.

This is my new favorite four sentence description on the legislative process.

Go read the whole thing here.

A Wisconsin Plan to Fix Foreclosures

Writing at Econbrowser, Morris Davis, an assistant professor at UW Madison, details a plan he calls WI-FUR that he and his colleagues have developed to address the home foreclosure problem.

Davis argues that addressing the foreclosure situation is more important than ever. This is due to the fact that we are moving from a scenario where foreclosures were primarily on risky subprime loans that were largely speculative, to the case where foreclosures are happening on loans that would be paid except for the current, and quite possibly persisting, high rate of unemployment.

First, Davis explains why unemployment is a critical part of the foreclosure problem:

Why does unemployment lead to a foreclosure when a house is under water? Consider the case of Wisconsin. In Wisconsin, UI benefits are capped at $1,452 per month. According to the 2007 American Community Survey, the average mortgage payment including all mortgages and taxes in Wisconsin is approximately $1,200. If the unemployed make their mortgage payment, they have roughly $63 per week available for food, transportation, and other necessities. After spending down their assets, the unemployed have no choice but default. They cannot sell their house, because they would have to write the bank a check at closing. They cannot make their mortgage payment, because they would have no money left for food.

Then, he describes the WI-FUR plan:

The WI-FUR plan (here for details) specifies that all unemployed receiving UI benefits also receive a housing voucher that can be used to pay the mortgage. The housing voucher would be computed such that, on average in each state, homeowners pay 30% of their UI benefits on their mortgage -- the voucher would cover the balance. In Wisconsin, for example, we advocate for an average voucher of about $764. This would make up for the shortfall in a $1,200 mortgage payment if households pay 30% of their UI benefit ($436 = 0.30 × $1,452) towards their mortgage.

Davis himself was skeptical about foreclosure relief as the housing downturn became obvious due to the fact that bailing out people that were engaged in speculation and lost seems like a bad idea. Now, however, he is convinced now that the steep decline in housing prices combined with high unemployment due to the recession make addressing the foreclosure problem imperative.

Republican Recruiting Trend & WI-8

**Update: Welcome NY Post readers. You might want to check out The Other McCain's coverage of NY23 too. Sounds like he might be coming for a visit**

Chris Cillizza of the Washington Post:

The decline in President Obama's poll numbers -- and those of his party -- over the first eight months of his administration has led to a bumper crop of Republican recruits in the House as GOP candidates who sat on the sidelines for the last two election cycles are now leaping at the opportunity to run....

Analyzed broadly, Republican recruitment -- coupled with the vast number of seats they lost in the 2006 and 2008 elections -- has allowed the party to stretch the playing field considerably and, by so doing, put in place the pieces of a 20-plus seat gain in 2010 if the national environment continues to move their way.

Obviously that's a big "if" in that last sentence, but I can't help but wonder if this sentiment could have some affect on the congressional race here in Northeastern Wisconsin.

While the declared Republican candidates so far are strong, it wouldn't be surprising in the least if someone with greater name recognition and political infrastructure in this area looked at this trend and decided to jump in the race.

Cizzilla also cites The Cook Political Report, which shows WI-8 as "Lean Democratic." While this is not as weak as "Toss Up," the fact that Kagen can get elected twice and now manages to only muster a "Lean" even when he doesn't have a widely known opponent must add to the temptation to run.

It remains to be seen if there is enough support for any Republican candidate to make WI-8 one of the districts that switches parties in 2010. It's possible that this trend could make an appearance here in Northeastern Wisconsin. If it does, this could make the Republican primary even more exciting and among the most important in the national Republican effort to make gains in the House.

We just call the baby "FICA"

Writing in the Wall Street Journal, Jonathan V. Last has a great column about the economics of large families which uses the example of the Duggar family as its jumping off point.

It is almost too good to excerpt, so go read the whole thing. But here are a few bits that I found particularly appealing:

The family tends toward plain clothes, warehouse-club portions and the New Testament. And yet the discomfort with the Duggars is not merely an expression of class snobbery. It has partly to do with their hyperfertility. There is a creeping anti-natalism in America that has made having large families a radical act.

If my experiences with a family of six children are typical, anti-natalism has left the "creeping" stage and gone "rampant" and what constitutes a "large" family has been defined downward quite dramatically.

Toward the end of the 19th century, industrialization pulled children out of the work force, limiting the contributions they could make to the family. Then Social Security, and later Medicare, began to give to the state the responsibilities that children once had for the financial care of aging parents.

Whatever its merits, the welfare state is a disincentive to childbearing.

The author goes on to cite the often quoted Department of Agriculture statistics about the cost of raising children. He also includes the important, but often overlooked, cost of foregone wages by a parent that chooses not to work outside the home.

He also argues that people should stop dismissing large families like the Duggars and learn to appreciate them. If not for the right reasons, then at least for their own self-interest; today's children become tomorrow's taxpayer after all.

The Duggars have mortgaged their financial futures for their children. Yet we're the ones who will benefit. In 1940 there were 160 workers paying the tab for each person collecting Social Security. By 2006, there were just 3.3 workers supporting each pensioner. The Social Security Administration estimates that by 2034, there will be only 2.1 workers for each person collecting a government retirement check.

In an era when it is rare for a bourgeois couple to have even three children, the Duggars are helping subsidize our retirement at considerable costs to themselves. Instead of mocking them, we ought to thank them.

Hey! I don't make over $250K

Speaker Pelosi has suggested that the enactment of a Value Added Tax (VAT) be considered. From The Hill:

A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night.

Pelosi, appearing on PBS's "The Charlie Rose Show" asserted that "it's fair to look at" the VAT as part of an overhaul of the nation's tax code.

"I would say, Put everything on the table and subject it to the scrutiny that it deserves," Pelosi told Rose when asked if the VAT has any appeal to her.

The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.

Now I'm not one of these absolute anti-tax zealots. I believe there are legitimate functions of government at many different levels and carrying out those functions require revenue. I do believe, though, that the revenue ought to be generated in the most open and forthright manner; with full acknowledgement by our elected officials that what they are doing is confiscating money for the purpose of providing government services. Pelosi seems to agree, based on her, "scrutiny it deserves," comment.

Not so fast. The Hill ends its report with this:

The Speaker also emphasized that any reworking of the tax code would not result in an increase in taxes on middle-class Americans.

To think that a tax on manufacturers at each stage of production wouldn't ultimately be passed on to consumers, including middle-class Americans, strains credulity to the breaking point.

We may not call it a tax, which would allow President Obama to live up to his campaign promise not to increase taxes on those making less than 250 thousand dollars a year, but people will see increased costs of goods nonetheless.

This inability to trace out the consequences of legislation is an epidemic among our lawmakers and is one of the major reasons for our chronic crises, which inevitably lead to another round of legislative "fixes".

In the case of a VAT, the consequences seem so obvious that for someone of Pelosi's stature not to recognize them is frightening.

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For a WI version of stealth taxation, see Dad29 on Doyle's Deceptions.

Defeat the Debt Ad

Nearly spewed coffee all over myself when I saw this ad with young people pledging to "allegiance" to the national debt and to the Chinese government since they are holders of that debt:


Here's a link to the Defeat the Debt website.

*The Sages*

Before Bear Stearns, AIG, & Lehman, there was the collapse of Long Term Capital Management (LTCM). Investor Warren Buffet described that collapse as an

example of what happens when you get (1) a dozen people with an average IQ of 160; (2) working in a field in which they collectively have 250 years experience; (3) operating with a huge percentage of their net worth in the business; (4) employing a ton of leverage.

Sound familiar? The current crisis had its precursors and a few men of unusual character were able to resist the foolish trends that lead to the current collapse. That's the point of Charles Morris' book The Sages. Morris presents a brief sketch of George Soros, Warren Buffet, and Paul Volcker and how these men were able recognize the downside to the financial industry's recent destructive practices when so many others either could not or would not.

The book doesn't fully cross over into hero-worship territory, though it comes close. Still, it provides a succinct look at how not everyone was fooled into thinking a collapse like the current one could never happen and is well worth its short read.

Two additional highlights include a scathing attack on the economics forecasting profession that Morris unleashes in the final chapter and a lengthy quote from a May 2008 speech by Volcker that includes this:

[T]he United States as a whole [has become] addicted to spending and consuming beyond its capacity to produce. The result has been a practical disappearance of personal saving, rapidly rising imports, and a huge deficit in trade.

If Volcker is right, we may not recognize 'recovery' even when it is in full swing.

Proposed Brown County Budget Released

The proposed 2010 budget for Brown County has been released. The Green Bay Press Gazette reports:

Brown County Executive Tom Hinz has proposed a 2010 budget that would increase spending about $4.1 million, add $7 of tax to every $100,000 of property value, and cut 13 full-time positions....

The total proposed budget of $240,412,022 $240 million includes a tax levy of $84,741,235 about $85 million. If approved, it would raise the tax rate from 4.5444 to 4.6122 per $100,000 of property value , an increase of 1.4920 about 1.5 percent.

While I don't envy the county government in their task of budgeting during such tough economic times, I read this description and I see taxes up, spending up, services cut. As an outsider looking in, this seems like an odd combination.

While a tax increase of 1.5% may seem slight, there are undoubtedly families in Brown County that will be negatively impacted by this amount. In a high unemployment and stagnant wage environment, even a modest increase can loom rather large.

You can read the proposed Brown County budget here. At the link there is also a message from County Executive Tom Hinz.

The supervisors will vote on the budget on November 9th.