Bank Subsidies as Crisis Response

Via WSJ's Real Time Economics I read this from Economics Professor Axel Leijonhufvud on the response to the financial crisis and our current monetary policy:

The Fed is supplying the banks with reserves at a near-zero rate. Not much results in bank lending to business, but banks can buy Treasuries that pay 3% to 4%.

This hefty subsidy to the banking system is ultimately borne by taxpayers. Neither the subsidy, nor the tax liability has been voted for by Congress....

The bailouts of the banks during the crisis were clear for all to see and caused widespread outrage; now the public is being told that they are being repaid at no cost to the taxpayer.

What the public is not told is that the repayments come to a substantial extent out of revenues paid by taxpayers for the banks to hold Treasuries.

Both parties supported the bailouts so neither party seems ready to protest the claim that they are being repaid at no cost to taxpayers.

Even (especially!) if you don't want to hear any more about TARP, the crisis, or monetary policy, I urge you to read the whole short post. It is completely at odds with the official line from Obama, Geithner, & Bernanke (Bush & Paulson as well) and shines a light on a dark side of the response.

Whatever the causes of the financial crisis, I firmly believe that much of our response, whether consciously or not, has been to save financial institutions from their own mismanagement. Regardless of the final balance in the TARP fund, this won't be a zero cost proposition.

In Paul Ryan's State of the Union response, he warned of turning the social safety net into a hammock, where we could fall asleep. Unfortunately, we may have already turned our monetary policy into the proverbial golden parachute, rewarding the very folks who failed so spectacularly leading up to the crisis. This includes not only the managers of large firms, but their boards, shareholders, the media, and especially their creditors.

The argument is that such a parachute was necessary since these firms were in free fall and rather than staying in the plane at 10,000 ft., we were tethered to them as they plummeted to earth. Fine, then we'll all hold our noses and pull the rip cord. But once we are safely back on the ground we need to gather up our golden parachute (tattered and torn as it may be) and leave these guys standing on the tarmac.

Our current policy seems aimed more toward letting these guys fashion a comfortable bed from the chute while too many average Americans suffer through a hard landing largely not of their own making.

Sputtering Sputnik

Among the items from the President's State of the Union speech that drew attention was his reference to our "Sputnik moment." Here is how Slate's Fred Kaplan noted it:

"This is our generation's Sputnik moment," Obama said. As a result, we need to fund "a level of research and development we haven't seen since the height of the space race," with particularly strong investments in biomedicine, information technology, and clean-energy technology. In the same section of the speech, he likened this funding effort to "the Apollo Project," which later put a man on the moon.

Kaplan goes on to fault Obama for advocating renewed investment while at the same time calling for a spending freeze, certainly a contradiction. I wonder if OMB employs any Zen Buddhist analysts. Regardless, the Sputnik reference fell flat for three other reasons.

Since I wasn't alive at the time, I'll just stipulate from the outset that news of the Russian success really was a shock and that Americans genuinely felt the scales fall from their eyes about where they were relative to the Soviets.

I suppose Obama's remark was about the Chinese, but has there really been a Chinese analog to Sputnik? Have the Chinese done something that we haven't? Something that we are incapable of? The answer on all counts is no, at least for now.

Second, with the hindsight of history we know the Soviet experiment failed. They lost. We won. Sputnik was something of a high water mark. Again, it may have seemed incredibly important at the time but since it never ushered in the golden age of Soviet-style Marxism, I'm not sure invoking Sputnik accomplishes the rhetorical heavy-lifting the President was attempting.

Finally, the Sputnik reference implies that we need to go back and do things the way they were done in the Kennedy and Johnson era. Here is how Kaplan ends his Slate article:

But if the U.S. economy is going to do big things—and Obama said, twice, near the end of his speech, "We do big things"—they often don't get there without a spurt of government funding.

This strikes me as spoken by someone who already thinks government spending is a good idea. The examples of innovation Kaplan sites like the Internet and microchips did grow out of government work, true. But that's not quite the same thing as they never would have happened without the government, is it?

Even if we concede that this is the case, how confident can we be that a new round of government investment will yield similar results? Technology, politics, culture, population are all different than they were in 1960. I'd say there is a very good chance that a New New Frontier could easily turn out to be much less than advertised.

Obama's invocation of Sputnik, for me, just reiterates this fixation so many on the left have with the post-war boom years. The idea that we can somehow turn the clock back to that perceived better time is utterly uncompelling. The fact that the "Sputnik moment" turn of phrase has fallen flat may reflect this.

6 in 10 Americans Fundamentally Unserious About Spending

If the Tea Party has had any affect on the national conversation about government spending and debt, it isn't apparent in the latest numbers from Gallup (via Memeorandum):

PRINCETON, NJ -- Prior to the State of the Union address, a majority of Americans said they favor cutting U.S. foreign aid, but more than 6 in 10 opposed cuts to education, Social Security, and Medicare. Smaller majorities objected to cutting programs for the poor, national defense, homeland security, aid to farmers, and funding for the arts and sciences.

The federal budget is around $3.5 trillion. This size alone virtually guarantees there is room to cut spending everywhere.

We spend hundreds of billions of dollars on defense, Social Security, and Medicare/Medicaid each. I find it hard to believe that around 60% of Americans don't think we can find any room for cuts in programs that run to the hundreds of billions.

WI AFL-CIO Wrong On HSA's

The Wisconsin AFL-CIO released a statement on Governor Walker's proposed tax credit for contributions to health savings accounts (HSA's). I don't know how to describe it any other way than to say that their stance strikes me as archaic and out of touch with a modern global economy. I don't find anything in their preferred approach to health insurance attractive and I don't see how it benefits workers in today's economy.

They write:

We are concerned about the unintended consequences of further encouraging the proliferation of high-deductible insurance plans tied to health savings accounts. This approach is projected to have an adverse effect on the cost and quality of comprehensive employment-based health coverage.

Employer sponsored coverage in part grew out of WW-II era wage controls. I can't be the only one that thinks it strange that your health coverage is determined by what occupation you choose, can I? As far as the comprehensive nature of coverage goes, that is not insurance. Insurance is intended to hedge against loss from uncertain events. I believe that including routine care in "insurance" distorts the prices of that care. The burden of those distorted prices hurt the least well off the most.

They continue:

Affordable group insurance relies on a broad and mixed risk pool. It is anticipated
that younger and healthier employees will be attracted to the HSA/high-deductible coverage and take their chances.

People covered by high deductible plans haven' left the pool of the insured. They have just chosen lower premiums in exchange for higher deductibles. Yes that means they will pay more in the event of medical claims, but in exchange they pay lower premiums. You have to look at both of these together.

And finally:

Older workers, those with families, and others with chronic health problems
are more likely to need the traditional, comprehensive health coverage. Over the long term, the remaining pool of people in the traditional plans will have higher medical costs, the cost of those plans will soar, and that option will become even more unaffordable for employees who need comprehensive coverage.

I assume "older workers" mean folks not yet old enough for Medicare. In addition to having higher medical costs than, say, a 20 year-old, these folks are likely to earn more, have more savings, and have lower expenses. Additionally, what is the case for a person of average health needing comprehensive coverage? Why can't they plan for some level of medical expenses, just like they would for housing, food, and anything else that you need as part of the natural course of life. Insurance could then be purchased in case of a large claim.

I do believe there is gap in the insurance market, but it is not one the AFL-CIO acknowledges here. This is the group of people who we don't expect to have major medical issues, but do. These are the children with cancer or rare genetic diseases and the 35 year-olds in need of an organ transplant. I agree we need to find a way to address these cases as I don't think that anyone in a country as rich as ours should go bankrupt because of their health.

The Obama reform addresses this by simply prohibiting insurers from denying coverage to these folks. How well this will work remains to be seen, but this approach doesn't strike me as particularly transformational.

For the poor we have Medicaid, for the aged we have Medicare. For the vast majority in between, who are largely healthy, an HSA plan could be the right choice. For Wisconsin to handicap these plans through our tax system, when the federal government and so many other states do not, is a backward approach to health care. The Wisconsin AFL-CIO is doing workers a disservice by opposing Walker's tax credit for HSA contributions.

Is the GOP the Party of Nation Building?

Herman Cain is a long shot to win the 2012 GOP presidential nomination. While his name may not register on polls of average voters, he is a serious candidate and many close observers of the GOP know who he is and like much of what they see.

Cain is identified with the Tea Party movement, a movement not typically associated with foreign policy. In a recent interview with Slate's Dave Weigel, Cain would have been well advised to stick to spending and debt and just pass on international issues. Instead he offers us this:

I support the surge in Afghanistan but I would have sent those troops earlier than the president sent them," said Cain. "I don't know, because I'm not privy to all of the intelligence, if we can win in Afghanistan. If we can, then I would have never announced a withdrawal date. And so the first thing that I'd do [if elected] is summon the experts to find out can we win. If the answer is yes, what is it going to take? And I'm not going to broadcast it to our enemies as to when we're going to get out of there."...

Cain spent some more time explaining his view of the war on terror—"we're going to be in this war forever" —and the Iraq War. "The people of Iraq, they wanted to become a democracy," he said. "If they did not want to become a democracy, I do not think President Bush forced it upon them. Once it was clear that they wanted to become a democracy, President Bush pledged to help them do that. I know enough from the reports that I've read that this is something the Iraqi people wanted."

In a similar vein, here's Dad29 calling out Wisconsin's new Senator, Ron Johnson, for some wishful thinking on Afghanistan:

The Senator proposes that a US presence (and lots of literacy, training, money, and lives) will transform a country of poppy-growing/goat-herding Muslims into a functional Western-law based society.

Good luck with that, Senator

It's almost enough to make me wish for candidate George W. Bush circa 2000, but we all know how that turned out.

I don't know how to break it to these guys, but a successful transition to a smaller federal government will mean less of everything at the federal level, including foreign interventions.

I have never voted for a major party presidential candidate. If the GOP stays true to form and nominates "the guy whose turn it is" which, I guess, this time around is Mitt Romney, I expect my streak to be intact at least until 2016.

With the buzz around an outsider candidate like Cain, I thought maybe this time around the GOP would instead opt for "the guy with the best ideas." If Cain's foreign policy represents that model, it makes me wonder just how serious the GOP is about reducing the size of the federal government.

Green Bay March for Life

This Saturday is the anniversary for Roe v. Wade.

Mrs. RWC & I believe the end to abortion will come through changing the hearts of people. Both the founder of NARAL and Roe (yes, the Roe) are now pro-life advocates. We also believe that more/better/improved birth control or education isn't going to eliminate abortions.

If you believe life begins at conception, you need to be very careful about the choices you make in this area. All hormonal forms of birth control (pills, shots, implants) cause early abortions as a secondary function and there is really no way for someone using them to know which function is preventing a pregnancy at any given time. This information played a big part in our decision to being open to having more children. We also feel strongly that part of the reason we "need" abortion is because of the changes contraception has brought to our society. Watch this short video.

Even though real change will only come through transformed hearts and minds, that doesn't mean we should wait passively for it to come.

I hope you will consider joining us for the Green Bay March for Life at Baird Park (corner of Mason and Webster) this Saturday, January 22 from 6:30pm-7:30pm. This event goes on no matter the weather, so dress appropriately. Feel free to bring a sign and a flashlight or candle to carry. If you don't live in the Green Bay area I'm sure a quick internet search will turn up a march in your area. If you can't make it to a march, please take a few minutes on Saturday to pray for an end to abortion.

Thanks to my lovely wife for her work on this post.

WI & IL Headed In Opposite Directions on Taxes

Walker uses Ill. tax increase to bolster Wisconsin - Bloomberg

MADISON, Wis. (AP) — Gov. Scott Walker tried to take full advantage of Illinois lawmakers passing dramatic tax increases Wednesday, saying Wisconsin would welcome any businesses from its neighboring state that care to relocate.

That's the headline. Beyond that, as noted by Bloomberg and elsewhere, WI taxes are still higher than those in Illinois, even after the increase.

Liberal advocacy group Think Progress took this point and ran with it, calling this "responsible budgeting" noting:

This will allow Illinois to solve a massive $15 billion budget deficit without gutting state programs.

Rather than avoiding "gutting" programs, I'd say this means they've avoided controlling spending.

While it's true that taxes in Wisconsin remain higher than Illinois, trends matter as well as levels.  It's clear that these are two states headed in opposite direction when it comes to tax policy.

I guess if Illinois residents want to pay more for government with a history of corruption they are free to do so.  I, on the other hand, will take Wisconsin's currently higher tax burden along with Governor Walker's pledge to reduce it.  All the other stuff that makes Wisconsin better than Illinois, will just be icing on the cake.

Wis Dems Keep Up Attacks on Steineke

Judging from the rhetoric coming from the Wisconsin Democrats and the ostensibly non-partisan One Wisconsin Now, Jim Steineke is the most dangerous man in NE Wisconsin.

First there was this from OWN:

Rep. Jim Steineke of Kaukauna who said, "I propose phasing out the corporate income tax altogether, because I think the corporate income tax doesn't do anything real beneficial to any of us." Of course, his crazy idea to blow an even bigger hole in the budget deficit is a blip on the Crazy Radar compared to his 100-page long police report.

Then today, Fairly Conservative highlights a Wis Dems press release with this:

GOP Drunk Driver Heads Scott Walker Drunk Driver Protection Push.

Jim Steineke Had DUI, Hit-And-Run Convictions

When I saw the OWN piece I didn't do anything beyond note it, since relatively few people probably got the reference to the "police report." Apparently, the Wis Dems felt the same way I did and put a much finer point on it in their release.

The trouble for the Democrats though, is that these issues are not news to anyone who paid attention. They were out in the open during the campaign. A campaign that included an attack ad on Steineke featuring an unflattering mug shot (I think he had a mullet) which seemed designed more to embarrass him personally than inform voters. Here's the Press Gazette from October 27, 2010:

Steineke obviously sought damage control when he met with us, as he and his campaign staff indicated they thought opposition groups eventually would use the traffic incidents against him. But the candidate answered the board's questions honestly and in a straightforward manner, rather than skirting the issue or making excuses for what happened then. He spoke sincerely about his reservations in deciding whether to run and related discussions with his family that were held knowing the incidents were likely to surface.

Despite all this, Steineke won election anyway.

So why all the attention given to Steineke? One possibility is that former Representative Tom Nelson is looking to retake his old seat and the attacks by the Wis Dems and OWN could just be the opening salvo in the 2012 campaign (anyone ready for that to start?).

Jim Steineke has a responsibility to be diligent about not repeating his past mistakes and I hope that he takes that responsibility seriously. In the meantime, OWN and the Wis Dems should just drop this from their playbook. These issues weren't winning ones in the last election and they still aren't. Continuing to focus on Steineke's past does nothing to address the issues that voters really care about.

Walker: Right on Supermajorities and Regulatory Reform

A bill requiring a supermajority vote in the legislature for any tax increases has been included in Governor Scott Walker's early legislative agenda aimed at improving Wisconsin's economy.

I believe that if legislators want to show they are serious about not raising taxes, they should, you know, just not raise taxes. That being said, signals are important in politics and in life and if this is intended as a signal then this approach is perferable to the alternative that some members of the GOP would prefer, a constitutional amendment requiring the supermajority vote.

Here's Mike H. at Letters in Bottles:

That said, I think he needs to be careful with legislation like this. While I think it's an excellent idea to require a supermajority for tax increases - or a statewide referendum - this particular legislation isn't the way to go. This really is a watered down version of TABOR or the TPA and anything that would require a supermajority of either house of the legislature should be done as a constitutional amendment. Doing this through an ordinary bill could be portrayed as an end run around the constitution and the citizens of the state.

There are more than enough votes to get this passed as a constitutional amendment and I think we would be much further ahead as a state if we went that route.

My objection to the constitutional amendment route is that it places limits on the actions of legislators, the people most directly responsible to the voters. To my mind, this is exactly backwards of the way things ought to be.

In a government of, by, and for the people our elected representatives should have reasonably wide latitude to govern as they see fit. This latitude will naturally be checked the regular elections as set forth in our founding documents.

The modern administrative state that is government in so much of America functions exactly opposite of this. While we seek to constrain our elected officials, unelected officials at the myriad regulatory agencies are tasked with creating and enforcing rules that may or may not have been part of, or intended by, the original legislation actually voted upon. This backdoor method of lawmaking also allows less courageous elected officials to achieve a desired legislative outcome without having to actually vote on the specific language that will become the law of the land. How many times in the debate surrounding health care have we heard that so much of the law remains to be written?

Governor Walker, however, has already taken steps to address this. From the Governor's Office website:

Madison—Today Governor-elect Walker announced the second piece of legislation for the Wisconsin is Open for Business Special Session, which contains an overhaul of Wisconsin’s overall regulatory process....

Walker’s legislation will take a multi-pronged approach to improve Wisconsin’s regulatory climate. First, it will state that an agency may not create rules more restrictive than the regulatory standards or thresholds provided by the Legislature. Second, it will allow rules to be challenged in the county circuit court where the plaintiff resides. Third, this legislation will require the Governor to approve proposed rules. Additional regulatory reforms will be included in the final version of the special session legislation.

Opponents can call this a power grab, but I'd call it making sure that laws are made by lawmakers. The fact that citizens can challenge rules in a manner more convenient for them is just a bonus.

On the question of a supermajority requirement to raise taxes Walker's approach is preferable to a constitutional amendment. His proposal for improving agency rule making has the potential to shift governance away from unelected regulators and back toward elected officials where it belongs.

Walker's Tort Reform

A prominent place among Governor Scott Walker's early legislative blitz has been reserved for a tort reform bill that leaves me scratching my head to say the least. I'm skeptical of tort reform generally, but this bill in particular appears to leave something to be desired. A defense of it on job creation grounds seems particularly shaky.

I sometimes worry that my friends on the right are so passionate about tort reform primarily out of disdain for trial lawyers. A disdain stemming in no small part from the fact that the trial lawyers primarily support Democrats with their political contributions. But is that really any reason to fight so hard for tort reform?

If the brand of American conservatism espoused by the GOP really is about individual freedom and responsibility, why is it that the government should need to step in and limit the awards handed out by juries? Juries, after all, are comprised of individuals.

It is possible to argue that medical malpractice is an area where limitations on jury awards may make sense. Medical issues often involve matters of life and death in addition to the fact that medical science has not yet conquered many common diseases. This combination could make some cases very difficult for juries to distinguish actual malpractice from the fact that we just can't cure everything.

Current law already limits noneconomic damages in malpractice cases, Walker seeks to apply this limit to cases involving long term care facilities. While long term care is related to medical care, it's not exactly the practice of medicine. Long term care would seem to be a setting where juries could accurately assess the responsibility of the parties and award appropriate damages. Is there any evidence that they are unable to do so here in Wisconsin?

Then there's this baffling passage from the Legislative Reference Bureau's analysis of Walker's tort reform bill:

The bill provides that a health care provider is not guilty of the crimes of causing the death of, or bodily harm to, an individual by negligent operation or handling of a dangerous weapon, explosives, or fire, if the health care provider is acting within the scope of his or her practice or employment.

So if a doctor prescribes two sticks of TNT and you blow yourself up, he's not guilty of a crime?

Finally, there's the question of jobs, which Walker has said is his top priority. If in fact state laws limiting noneconomic damages against long term care facilities attract those types of businesses, do you think they will attract facilities that provide relatively high quality or a relatively low quality care? Which type of facility has more to gain by such a law? At the very least there is the potential for primarily poor performers to be lured by the cap on damages. Jobs with these employers may not be the type we should be actively seeking to bring to Wisconsin.

I support Governor Walker and wish him success. I'm open to any convincing argument for this tort reform bill, but I haven't seen one yet. With the looming budget problem and continued economic weakness, I worry that the Governor may have miscalculated by including this bill as part of his special early agenda.

Mike Tate Nominates Paul Ryan for Sainthood

My bold.

Paul Ryan, Sean Duffy, Reid Ribble Already Break Promises

"For Sean Duffy, Paul Ryan and Reid Ribble, talk is cheap," Democratic Party of Wisconsin Chair Mike Tate said Wednesday. "They posed for holy pictures whenever they could, but now that the election is over, so are their promises."

Holy pictures? I'm wondering if this isn't just a typo, but I can't for the life of me figure out what it should be. If anyone has an idea, please let me know.

Why I'm Not a Libertarian

This is Chris Beam writing in New York Magazine:

The Trouble With Liberty

Libertarianism lies crosswise to the partisan split, giving its adherents a kind of freethinker, outcast status. This can be especially attractive for young people. “When I was 19, libertarianism was an argument for being awesome,” says Will Wilkinson, a former Cato scholar who now blogs at The Economist. It’s about flouting convention and rejecting authority—the political equivalent of getting an eyebrow ring. It’s also an excuse to indulge your most selfish instincts. But you don’t have to call it “selfishness.”

Wilkinson's a smart guy and excellent writer, and despite his departure from Cato, is taken seriously as a libertarian thinker. But I have a hard time taking him seriously.

Perhaps this is unfair, but I wonder if an "argument for being awesome" would also include something along the lines of, "we need public transportation so that are roads aren't full of impaired drivers on their way home from legalized marijuana dispensaries."  How serious is that?

Libertarian self-worship is no less utopian than the state-worship of many on the left. I don't care what flavor of eschaton you are peddling, immanentize it someplace else.

Capper v. Folkbum on Milwaukee Safety

First, here's Folkbum on whether or not it's safe to live in Milwaukee:

Whatever you may think of life here in the urban hellhole that is Milwaukee, it's a lot safer than life in a lot of those exurban hellholes to the north and west of here.

But in the course of taking suburbanites to task for outrage over the Mayfair Mall incident, Capper suggests this may not be the case. In fact there may be a lot of crime going on that goes unreported.

this sort of thing is, most unfortunately, not all that uncommon in the poorer parts of the city. However, because it is so commonplace, it barely makes the news anymore, unless it is somehow extraordinarily sensational.

The local paper no longer covers every mugging in the inner city. They don't mention when a corner store on the corner of 27th and Vliet St has an unruly customer causing mayhem. They don't report every beating, every bit of vandalism or any other "petty crime" which happens in the poorer areas of our community. Heck, I personally doubt that even most of them get reported to the police anymore.

With two guys from the same side in such stark disagreement, I'm not really sure who's correct. Any thoughts on who could serve as a tiebreaker?