GOP leaders are calling on the House majority to give them and the American people a look at the omnibus spending bill in the works. It’s likely to see votes in the next week or two. The bill will spend somewhere in the range of a half-trillion dollars on the operation of the government for the rest of the fiscal year.
Cato at Liberty
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Tax and Budget Policy
Department of Energy Boondoggles
The Wall Street Journal recently looked at the trouble the Department of Energy will have efficiently spending all the extra cash allocated to it under the stimulus bill. The article noted: “The Energy Department has had limited experience pulling off big, transformative energy projects.”
Actually, the department has undertaken big projects many times, but the Journal is correct that it sure as heck hasn’t pulled them off. Indeed, the history of big federal energy projects is one of boondoggle, boondoggle, boondoggle.
Unless President Obama has a magic formula that fundamentally changes the nature of government management, Americans can expect a horribly wasteful energy spending spree in coming years.
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When Will Ford Defend its Interests?
Earlier this week, the Congress and President Obama authorized a $787 billion borrow-and-spend plan to create “or preserve” 3.5 million American jobs. So, could there be a better time than now for GM and Chrysler to announce they will need billions more taxpayer dollars to avoid having to let go hundreds of thousand of workers? How likely is Washington to cut off the auto producers at this particular juncture?
It shouldn’t come as a surprise that GM and Chrysler are asking for a lot more money because, well, the warnings were issued. In fact, Bush’s decision to defy Congress and provide “loans” to GM ($9.4 billion) and Chrysler ($4 billion) back in December wasn’t even intended as a cure all. It was designed to buy time for the producers to come up with detailed viability plans for their next bite at the apple. And as expected, central to both viability plans, which were unveiled yesterday, is more taxpayer money. At the moment, a combined $22 billion is being requested, which would bring the total doled out to just under $40 billion.
Just as stunning as the implied blackmail (give us money or we’ll give you idled workers) being perpetrated by GM and Chrysler is the continued silence of Ford. There is probably no company in America that stands to lose more from taxpayer subsidization of GM and Chrysler. (The foreign nameplate producers in the United States are also penalized by subsidies to GM and Chrysler, but in the current environment it is probably wiser for them to bite their tongues. And Ford is more of a direct competitor with the other Detroit producers than are the foreign nameplates, anyway.)
If GM and Chrysler were no longer producing, Ford would be able to pick up market share and productive assets from the others, and ultimately improve its own long term prospects. By keeping GM and Chrysler afloat with subsidies, the government is implicitly taxing Ford. Ford is facing unfair, government-subsidized competition, of the sort alleged against foreign producers all the time. But in this case, the subsidies are real, direct, quantifiable, and large. Ford is relatively healthy now, but continued subsidization of the others could well drive Ford to the trough, too.
When companies are losing billions per month with sales revenues continuing to shrink, it doesn’t require a finance degree to discern an imminent cash flow crisis. Even if the demand environment were picking up, these companies would still be losing money because their cost structures are impossibly inefficient. GM and Chrysler have nibbled around the edges to cut costs. Brands are being sold off or scrapped. Factories are being closed. Dealership arrangements are being terminated. But none of those changes addresses the big issues, particularly for GM: an unmanageable capital structure (its debt burden is too heavy), unmanageable legacy costs (paying for lavish promises made in the past), and uncompetitive operating costs (including still much higher than industry-average compensation).
Reorganization or liquidation under one of the bankruptcy chapters will condense the timetable for resolving this problem, will save taxpayer money, and very importantly, will speed the return to stability in the automobile market worldwide. It’s time for Ford to speak out on behalf of this solution too.
Stimulus Lobbying Watch
Tim Carney has more details on some companies that hired lobbyists specifically to get a piece of the kitchen-sink spending bill:
For example, the National Association of Home Builders hired Baker & Hostetler a week after Barack Obama’s inauguration to lobby explicitly on the stimulus bill, which, in the end, included an $8,000 credit for home purchases.
Better Place Inc. is an electric car company that hired its first lobbyist — Steve McBee, a former staffer for House appropriator Norm Dicks, D‑Wash. — to push for electric car incentives in the stimulus. The resulting cornucopia included an expanded tax credit for plug-in cars, $2 billion in funding for electric car batteries and $400 million to build an electric car infrastructure, complete with recharging stations.
Media giant Time Warner added to its lobbying army, hiring the firm Parven Pomper Strategies to lobby for broadband subsidies in the bill. These subsidies included $2.5 billion to underwrite loans to get broadband out to rural areas and an additional $4.7 billion in spending on other broadband projects. Similarly, network giant Cisco Systems lobbied for the broadband subsidies in H.R. 1.
Carney calls it “The Lobbyist Enrichment Act.” I wrote about “Obama’s K Street Recovery Plan” a couple of days ago.
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The Obama Recovery Plan: Carter Redux?
The big-spending massive pork barrel bill known as the stimulus package has been signed into law. Richard Rahn reflects back on the economic crisis three decades ago and finds that the Obama plan looks a lot more like the Carter than the Reagan plans. And we know which one of those worked best.
President Jimmy Carter inherited a growing economy but one with relatively high inflation and high unemployment. He left office with the economy in a recession, high unemployment, and a record high inflation and interest rates (the prime rate at one point had reached 21 percent). Mr. Carter’s policies were to maintain the very high marginal income tax rates in effect at that time, coupled with a small expansion in the relative size of government.
Mr. Carter had appointed G. William Miller as Federal Reserve chairman, who proceeded to engage in a very rapid monetary expansion. The inflation disaster caused by the excessive monetary expansion caused Mr. Carter to replace Mr. Miller with Paul Volcker at the very end of his administration.
President Reagan inherited an economic situation even worse than the one President Obama has. When Reagan took office, the economy had been in recession for about a year, the unemployment rate was almost identical to today’s, but the labor force participation rate was smaller, and inflation was out of control. At the time, the newspapers were filled with stories about the “worst economy since the Great Depression” — which, unlike today, was true, and the economic establishment seemed to be bereft of ideas of what to do.
Credit markets were in a mess, and both businesses and consumers were not borrowing because they could not afford the interest rates. President Reagan, unlike his critics, had a clear plan to revive the economy, which included: monetary restraint to stop inflation; large reductions in marginal tax rates to renew the incentives to work, save and invest; and a reduction in nondefense spending as a percentage of gross domestic product (GDP).
Unlike other recent presidents, Reagan actually kept and delivered on his promises, which resulted in high growth (7.2 percent in 1984 alone) and large reductions in the unemployment rate — particularly, inflation. He stuck with Mr. Volcker and his monetary restraint because he understood inflation had to be brought under control, even though he also knew it would necessarily prolong the recession. How many of today’s politicians would be willing to take the heat for the long run good?
It is hard not to ask: do the supporters of the “stimulus” bill really think it will work? Or did they decide long ago that policy effectiveness was irrelevant to their political success?
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Now that the So-Called Stimulus Is Enacted, the Time Has Come to Look at Policies that Actually Improve Economic Performance
The faux stimulus bill will be signed into law today by President Obama. The bad news is that making government bigger will hurt the economy. The good news is that sooner or later there will be a recovery from the current downturn. The real issue is whether long-run growth will be robust. Unfortunately, the evidence strongly suggests that an increased burden of government spending is among the policies that harm long-run economic performance. In a new video, I review the Fraser Institute’s Economic Freedom of the World and highlight the policies that expand freedom and increase prosperity:
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Obama’s K Street Recovery Plan
Not that it needed it — lobbying was one industry that kept on growing during 2008 — the Washington influence business is getting a boost from the Obama-Pelosi-Reid massive spending bill. In a graphic on page A6 of the February 13 edition, not available online, the Washington Post reports that “A Washington Post analysis found that more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” The graphic shows that the number of newly registered lobbying clients peaked on the day after Obama’s inauguration and continued to grow as the bill worked its way through both houses of Congress.
In the accompanying article, the Post notes that — unsurprisingly — the $800 billion spending bill “is not free of spending that benefits specific communities, industries or groups, despite vows by President Obama that the legislation would be kept clear of pet projects.” My favorite, as I’ve noted before, is
a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D‑Nev.).
Here are some other recent headlines from the political class’s newspaper of record: “THE INFLUENCE GAME: Lobbyists work stimulus to end”; “A Lobbying Frenzy For Federal Funds”; “Ohioans Seek Slice of Stimulus Pie”; “Lobbyists Get Around Obama’s Earmark Ban”; “Certain Firms, Industries Got Last-Minute Gifts in Stimulus.”
More on the frenzied efforts to get a piece of the taxpayers’ money in the spending bill here and here.
If you want money flowing to the companies with good lobbyists and powerful congressmen, then the stimulus bill may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers. That’s not a recipe for recovery.