Conor Clarke
Conor Clarke is the editor, with Michael Kinsley, of "Creative Capitalism," an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at the Guardian. He is also on Twitter.
Recently by Conor Clarke
Jul 28 2009, 11:25AM
Does Behavioral Economics Make Any Sense?
I spoke with Kenneth Arrow, Stanford Professor and Nobel Prize-winning economist, for about an hour last week. Dr. Arrow is perhaps most famous for the eponymous Arrow's Impossibility Theorem, one of the cooler ideas in public choice economics. But his work is wide ranging and we talked mostly about other topics, including the state of modern economics, the concept of general equilibrium analysis, and behavioral economics.
Jun 1 2009, 5:12PM
Why Fighting Climate Change Is A Bit Like Cheating On Your Spouse
Over at The New Republic, Noam Scheiber and Bradford Plumer have started a nice discussion of an important subject that was bound to come up eventually: The similarities between pollution and adultery. Really. It all started with this point from Robert Frank in the New York Times:
But is this analogy between pollution and adultery really one you'd want to get into bed with?
A British Web site called Cheat Neutral (www.cheatneutral.com) parodies the concept [of carbon offsets]-- by offering a service under which someone who wants to cheat on his partner can pay someone else who will refrain from committing an act of infidelity. The site's founders say they wanted to use humor to demonstrate why the market for carbon offsets is a moral travesty.
But is this analogy between pollution and adultery really one you'd want to get into bed with?
Jun 1 2009, 9:42AM
Now That The Government Owns General Motors...
As you've probably heard by now, Obama is sending General Motors to file for Chapter 11 bankruptcy. And, as you've also probably heard, the United States will become the majority shareholder of the restructured company, with 60% of the stock. Nationalizing a large car manufacturer is interesting and controversial for all kinds of reasons (is Ford, the "last American car company," now competing with America?), and I think Jon Cohn is making some good points here. But this, from Politico, is kind of odd:
The United States "has become the owner of a significant swath of Corporate America"? Really? That has about as much perspective as, um, line drawings before Brunelleschi (or something). So I thought it would be fun to come up with a graphical representation of what the "significant swath" looks like:
Even as it gets set to announce the bankruptcy of General Motors Monday, the Obama administration is struggling to set parameters on how it will act after taking a 60 percent stake in the new company that emerges -- and now that it has become the owner of a significant swath of Corporate America.
The United States "has become the owner of a significant swath of Corporate America"? Really? That has about as much perspective as, um, line drawings before Brunelleschi (or something). So I thought it would be fun to come up with a graphical representation of what the "significant swath" looks like:
May 31 2009, 12:04PM
Drag Me To Hell Over the Mortgage Crisis
If John Hamburg's I Love You Man -- in which Paul Rudd plays a California real-estate agent seeking a best friend in Jason Segel, an investor in "illiquid assets" -- is a subtle and damning portrait of America before the housing crisis, then Sam Raimi's Drag Me To Hell must be our cultural snapshot of the bubble's aftermath.
Well, okay, neither of those things is actually true. But Drag Me To Hell is about a loan officer, played by Alison Lohman, responsible for processing mortgages and foreclosures at a California bank. And the moral of the story is really quite clear: If evil banks continue to foreclose on the homes of helpless old ladies with health problems and fixed incomes, one of them will inevitably turn out to be a gypsy witch with with dark powers who will seek a terrible vengeance by summoning the horrors of the underworld.
Well, okay, neither of those things is actually true. But Drag Me To Hell is about a loan officer, played by Alison Lohman, responsible for processing mortgages and foreclosures at a California bank. And the moral of the story is really quite clear: If evil banks continue to foreclose on the homes of helpless old ladies with health problems and fixed incomes, one of them will inevitably turn out to be a gypsy witch with with dark powers who will seek a terrible vengeance by summoning the horrors of the underworld. May 30 2009, 11:12AM
America Loves Price Controls
Matt Yglesias says the conventional wisdom is not on the side of price controls:
But are price controls really that unpopular? What about, I dunno, limits on executive compensation?
When I took economics, we had a little squib in there about price controls. But it was about something nobody would actually think to do these days . . . mandatory cheap bread or something. It was a historical example. At any rate, it's overwhelming conventional wisdom in the United States that price controls are bad.
But are price controls really that unpopular? What about, I dunno, limits on executive compensation?
May 29 2009, 11:54AM
Taxing Height: Emmanuel Saez Responds to Mankiw
I emailed Emmanuel Saez this morning to see if he had a response to Greg Mankiw's paper on the optimal taxation of height. Saez has done a lot of work on tax progressivity (which I like) and optimal taxation (with which I am less familiar) and recently own the John Bates Clark medal for his contributions. He very kindly responded with the following:
May 29 2009, 11:40AM
Taxing Height: A Response To Mankiw
Greg Mankiw is kind enough to link to my question about his paper (pdf) on the optimal taxation of height and knock me around a bit:
The point of our paper is this: If you are going to take [utilitarian] philosophy seriously, you have to take all of the implications seriously. And one of those implications is the optimality of taxing height and other exogenous personal characteristics correlated with income-producing abilities. A moral and political philosophy is not like a smorgasbord, where you get to pick and choose the offerings you like and leave the others behind without explanation.There are plenty of small things to say about this. Height is not perfectly exogenous -- we can imagine people trying to reduce their height to reduce their tax burden, can't we? -- and the fact that the correlation is not perfect suggests there will be some individuals unfairly affected by a height tax. (On the other hand, as the government's information gets better we could imagine that unfairness disappearing.) But mostly, I want to say this: Isn't moral and political philosophy exactly like a smorgasbord?
May 28 2009, 11:50AM
What Dick Cheney Really Thinks About Deficits
It's good of Dick Cheney to tell the world (via Larry Kudlow) what he really thinks about deficits:
Well, I think the budgets he submitted are way out of whack. I think what it does not only to the short-term deficit but long-term debt situation is very objectionable. [...] We're at a point now where to look at the levels of spending that are being contemplated, six hundred and some billion dollars, for example, in unfunded planning with respect to their medical reforms, somebody's got to pay for that in some fashion.Which is a perfectly fine sentiment. But it's really just fish in a barrel to point out that this is the exact opposite of what Cheney was saying in 2002 (with similarities right down to the budget figure):
May 28 2009, 9:43AM
It Is Time To Tax Tall People
That, at least, is one possible takeaway from a new paper by Gregory Mankiw and Matthew Weinzierl that National Bureau of Economic Research spit into my inbox a couple of days ago. (Link here, though it's subscription only.) The paper has two steps. First, they argue that the consensus among utilitarian optimal tax theorists is that we should be taxing productivity. (Since income is a function of productivity and effort, and we do not want to discourage effort.) Second, they argue that a person's height is strongly correlated with their productivity. So why not tax tall people?
May 27 2009, 2:57PM
Does The Right Need a Center for American Progress?
Douglas Holtz-Eakin, the McCain campaign's top economics adviser and a former head of the Congressional Budget Office, has got it into his head that what conservatives need is a new think tank:
That diagnosis is pretty appealing to me, and I would have thought it would be appealing to liberals like Matt Yglesias and Paul Krugman. But it isn't. Why?
"I think there is now pretty widespread recognition that the Republican Party needs to become demographically broader, more welcoming of different ideas," said Holtz-Eakin, who ran the Congressional Budget Office from 2003 to 2005. "And it's time to think strategically about how to appeal more broadly outside the South."
That diagnosis is pretty appealing to me, and I would have thought it would be appealing to liberals like Matt Yglesias and Paul Krugman. But it isn't. Why?
May 27 2009, 9:47AM
Obama and the End Of Bling
It was only a matter of time till someone wrote this piece, in this morning's Wall Street Journal:
The recession is cramping the style of hip-hop artists and wannabes -- many of whom are finding it difficult to afford the diamond-encrusted pendants and heavy gold chains they have long used to project an aura of outsized wealth.
In an attempt to keep up appearances, celebrity jewelers say rappers are asking them to make medallions with less-precious stones and metals. Some even whisper that the artists have begun requesting cubic zirconia, the synthetic diamond stand-in and QVC staple.
May 26 2009, 4:14PM
Why Are Women Better Off, But Less Happy?
May 26 2009, 1:50PM
Free-Market Magic Will Save Newspapers Any Day Now
The Financial Times editorializes about the future of newspapers like the Financial Times:
Perhaps some of the reporting done up to now by for-profit papers will in future be funded by foundations or trusts. But the industry should not lose faith in the free market. When people really want or need something, they will pay for it, one way or another."When people really want or need something, they will pay for it, one way or another." This argument comes up a lot when the future of journalism is on the table, and maybe it has some merit. But it's really a fairly limited principle, isn't it?
May 26 2009, 11:13AM
Sonia Sotomayor Is Not a Saver
Via Greg Mankiw, here's an interesting little tidbit about new Supreme Court nominee Sonia Sotomayor's personal finances that was in the Washington Post a couple of weeks ago:
Mankiw says his "grandmother would have been shocked and appalled to see someone who makes so much save so little." And I don't really want to offend anyone's grandmother. But if your career aspirations involve being appointed by the president of the United States to a position that requires the advice and consent of the Senate, doesn't it make sense not to own assets?Sotomayor, an avid Yankees fan, lives modestly, reporting virtually no assets despite her $179,500 yearly salary. On her financial disclosure report for 2007, she said her only financial holdings were a Citibank checking and savings account, worth $50,000 to $115,000 combined. During the previous four years, the money in the accounts at some points was listed as low as $30,000.
May 26 2009, 8:34AM
Why The Wall Street Journal Should Like Progressive Taxes
The Wall Street Journal editorial page is upset that Maryland raised its income tax on millionaires. So after bragging about how all the millionaires had left the state, and then conceding that the recession probably just reduced the number the millionaires, the editorial page decides to make this truly odd argument against progressive taxation:
No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions.The Wall Street Journal editorial page can't really believe this, can it? I'd say there is widespread consensus that the exact opposite of what the Journal says here is true: Progressive taxes are useful in recessions precisely because of all that vanishing revenue.
May 25 2009, 4:15PM
Washington Post and RNC Pave The Road to Socialism
It's mildly frustrating that when the Washington Post has a chance to interview Tim Geithner, the Secretary of the United States Treasury, the first question they ask about the administration's policies is: "How is this not socialism?" But it is surely just one big, festering national embarrassment that that the Republican Party actually considered a resolution to rename the Democratic Party the "Democrat Socialist Party" and passed a resolution urging the Democrats to "stop pushing our country towards socialism and governmental control."
May 25 2009, 2:37PM
Deal With the Environment Now, And Social Security Later?
Paul Krugman says Robert Samuelson is a hypocrite because Samuelson is tediously, incessantly worried today about the long-run solvency of the social security trust fund, but isn't so worried about the long-run destruction of the planet via climate change. I have the feeling Samuelson wouldn't agree that the two situations are analagous, but let's assume Krugman is right on the merits: You can't play Cassandra with social security and Zeno with climate change. So, if we have an obligation to be consistent about social security and climate change -- if they are analagous long-run problems -- why can't someone just toss the hypocrisy charge right back at Krugman?
May 25 2009, 1:11PM
How To Find Happiness in Poverty and Thrift
Via Mickey Kaus, here's an interesting paragraph buried in a Wall Street Journal story about Design Within Reach:
Just getting people into stores can be difficult at a time when self-indulgent shopping has lost its allure, says Jim Taylor, vice-chairman of Harrison Group, a market research firm. Dr. Taylor has just completed a consumer study for American Express Publishing that suggests the wealthy no longer really enjoy shopping. What's more, their new, less-materialistic lifestyles are "a lot of fun," he says. "Our happiness scales are up this year for the first time in years."Mickey asks a lot of questions about this: "Is that really true? If so, a big deal, no? ... And why? Perspective? Lower status anxiety? Lower Iraq anxiety? Obama? The power of schadenfreude?" So I spent the requisite 45 seconds digging up the study in question (pdf), and here's what it says about why we're happier spending less:
May 25 2009, 9:50AM
Defending Tax Cheats In One Easy Step
I'm quite impressed by this attempt from some conservative bloggers (Don Surber, Say Anything, etc) to turn the absolute least controversial aspect of Barack Obama's tax proposals into a thriving scandal. Say Anything says "Obama's tax changes are so burdensome and complicated that foreign investors are actually thinking about pulling out of American markets." Don Surber says simply that "Obama wants to dump free trade." What on earth are they talking about?
May 24 2009, 4:49PM
Mystery Blogger for the Atlantic Attacks 'Excellent' New York Times Reporter
I'm sure Megan McArdle will have something to say about this, but since I think she's on vacation (could be wrong about that) I thought I'd note that New York Times Public Editor Clark Hoyt has weighed in on the Edmund Andrews flap, which spun out of Megan's post on his wife's bankruptcies. And since Hoyt spends all of one paragraph on the subject, I can just reproduce that here:
On Thursday, [Andrews] came under attack from a blogger for The Atlantic for not mentioning in his book that his wife had twice filed for bankruptcy -- the second time while they were married, though Andrews said it involved an old loan from a family member. He said he had wanted to spare his wife any more embarrassment. The blogger said the omission undercut Andrews's story, but I think it was clear that he and his wife could not manage their finances, bankruptcies or no. Still, he should have revealed the second one, if only to head off the criticism.Not exactly comprehensive, is it?
May 24 2009, 1:40PM
Or Maybe We Don't Need College At All?
This New York Times magazine piece by Matthew B. Crawford -- which makes the case for working with your hands, rather than working in the more abstract realms of "information" -- has lots of lovely food for thought that I can't really do justice in a blog post. But this is the business of writing blog posts, so let's give it a shot.
Simplifying somewhat (and acknowledging that the process of simplification is one Crawford's piece explicitly rejects) the piece has two arguments: The first is that there might be good economic reasons for pursuing a job in certain kinds of manual labor, as opposed to the knowledge economy. The second is that there are good moral or philosophical reasons for doing so: It is easier to feel emotionally connected to labor in a bike shop than an airless cubicle.
Are those good arguments?
Simplifying somewhat (and acknowledging that the process of simplification is one Crawford's piece explicitly rejects) the piece has two arguments: The first is that there might be good economic reasons for pursuing a job in certain kinds of manual labor, as opposed to the knowledge economy. The second is that there are good moral or philosophical reasons for doing so: It is easier to feel emotionally connected to labor in a bike shop than an airless cubicle.
Are those good arguments?
May 23 2009, 2:17PM
Let College Students Get Into Debt
Most of the provisions in the new credit card bill are unobjectionable. Indeed, most of the provisions in the new credit card bill are unobjectionable and slightly redundant, since they would have become law anyway as new Federal Reserve Board credit rules a year from now. (Before that happened, Congress just wanted to get some credit of its own.)
But there is one feature of the new bill that I do find odd: It restricts people under the age of 21 from getting a credit card unless they have a co-signer or an independent source of income that they can use to pay off their balance. But why on earth don't we want college students to take on debt?
But there is one feature of the new bill that I do find odd: It restricts people under the age of 21 from getting a credit card unless they have a co-signer or an independent source of income that they can use to pay off their balance. But why on earth don't we want college students to take on debt?
May 22 2009, 9:30AM
Credit Cards: The Worst Invention Ever?
President Obama is expected to sign the new "credit cardholder bill of rights" later today, and there's been a lot of credit-card craziness floating around the interwebs this week. But I'm still amazed that there are people out there who believe things like this, from James Boyce in the Huffington Post:
NO ONE NEEDS A CREDIT CARD FOR ANY REASON WHATSOEVER. NONE.The all-caps are in the original TO DEMONSTRATE THAT THIS IS A BIBLICAL TRUTH AND NOT JUST SOME GOOFY PERSON'S OPINION. But it is, alas, just some goofy person's opinion. And that opinion is just about as goofy as an opinion can be.
May 21 2009, 7:57PM
Edward Liddy To Step Down As CEO Of AIG
Liddy has been serving as chairman and CEO since September, when Henry Paulson asked him to step off the board of Goldman Sachs and up to the helm of the wobbling insurance giant. He will now stay on until the company -- which is to say the government -- picks a successor. (Or two successors, if they take his advice and split the chairman's seat from the CEO.)
Liddy has been working for a salary of $1 (with some equity and bonus possibilities) and said in a letter to Geithner, "My only stake is my reputation." Well, I think it's safe to say that particular stake was torn from his hands and driven straight through his heart.
Liddy has been working for a salary of $1 (with some equity and bonus possibilities) and said in a letter to Geithner, "My only stake is my reputation." Well, I think it's safe to say that particular stake was torn from his hands and driven straight through his heart.
May 21 2009, 11:34AM
Better Booze Taxes, Worse Soda Taxes
Derek is making some good points here about sin taxes, but wanted to add two notes about taxes on alcohol and taxes on sugary beverages, since the Senate Finance Committee is on the verge of trying to increase them. (Or, in the case of sugary beverages, introducing them for the first time.) If we're going to tax booze and soda, what's the best way to do it? And what will we have left to drink?
May 21 2009, 10:02AM
Maybe Jim Cramer's Not So Dumb. Maybe
Remember that spat between Jim Cramer and John Stewart? The one where Stewart called Cramer a "dartboard that talks"? The one that burned with a length and intensity that deserves its own Wikipedia entry?
Well here's something interesting: Via Ezra Klein and DealBook, I see that two professors at Northeastern have released a new study of Cramer's stock picks (pdf here) and found that he doesn't do so badly. A hypothetical Cramer portfolio had a 12.1% annualized from the middle of 2005 to the end of 2007, compared to 7.35% for Standard & Poor's index. So maybe Cramer's not so bad after all?
Well here's something interesting: Via Ezra Klein and DealBook, I see that two professors at Northeastern have released a new study of Cramer's stock picks (pdf here) and found that he doesn't do so badly. A hypothetical Cramer portfolio had a 12.1% annualized from the middle of 2005 to the end of 2007, compared to 7.35% for Standard & Poor's index. So maybe Cramer's not so bad after all?
May 20 2009, 6:26PM
The New York Times Knows A Lot About Norway
The New York Times, May 13, 2009:
"Thriving Norway Provides an Economics Lesson"
The New York Times, this morning:
"Thriving Norway Provides an Economics Lesson"
The New York Times, this morning:
May 20 2009, 11:32AM
Don't Cut Up Those Credit Cards Yet
I really like the New York Times new Room for Debate blog, but the discussion of the new credit card legislation they've had running for the past couple of days is a bit of a mess. The first contributor, Dave Ramsey, says his preferred method of regulation is a pair of scissors: "Cut them up!" He goes on to write that "There is no positive side to credit card use" and "There is nothing a credit card can do that you can't do with a debit card." Huh? Ramsey wouldn't know a credit card if someone stole his and racked up $7500 in phone-sex charges.
May 20 2009, 8:29AM
How Socialist Europe Is Crushing the United States
It was no doubt painful for the Economist when it half-conceded, a couple of issues ago, that maybe the French economy is doing something right. The French! Somewhere between the socialized medicine and the runaway state planning, they managed to create a series of automatic stabilizers that kept unemployment from shooting through the roof and demand from the falling through the floor. This led to a hearty round of round of soul-searching about various European models waxing as the Anglo-Saxon model wanes.
Somewhat along those lines, I see via the Center for Economic and Policy Research that new comparative unemployment data is available, and America now has higher unemployment than the EU-15. Fancy graph:
Somewhat along those lines, I see via the Center for Economic and Policy Research that new comparative unemployment data is available, and America now has higher unemployment than the EU-15. Fancy graph:
May 19 2009, 11:40AM
One Advantage of the Recession Is That Our Lives Will Be Worse
The Economist lists the cons and pros of the American recession:
That's one of the more spectacularly unconvincing silver linings I've read! The bit about infrastructure is all well and good -- it's conceivable that the recession has created the political will for previously unfeasible public investment projects -- but how can it be true that the recession will make us better off by inducing "more of [us] to work for longer"?
But has the Great Recession made things worse? In theory, it could do. Slumping investment may slow the pace of innovation. Soaring government debt could raise interest rates. Higher taxes, designed to reduce the debt, might dull incentives to work and invest. More regulation, in finance and beyond, could deter innovation. Workers' skills may atrophy as a result of joblessness. On the plus side, well-targeted government spending on, say, infrastructure or education could boost potential output, while the huge wealth that Americans have lost may induce more of them to work for longer.
That's one of the more spectacularly unconvincing silver linings I've read! The bit about infrastructure is all well and good -- it's conceivable that the recession has created the political will for previously unfeasible public investment projects -- but how can it be true that the recession will make us better off by inducing "more of [us] to work for longer"?
May 19 2009, 8:33AM
Is Warren Buffett a Terrible Person?
Michael Lewis on Warren Buffett in the new New Republic:
But isn't this anecdote missing something?
Finally, and most critically, [biographer Alice] Schroeder stresses Buffett's obsession with money, which he famously views less as a unit of exchange than a store of value. Kay Graham once asked him for a dime to make a phone call and Buffett, finding only a quarter in his pocket, went off to make change. In telling the tale of Buffett's rise, Schroeder returns over and over to his pathological stinginess. As rich as Buffett became, he never stopped measuring himself by how much money he had. He tells Schroeder that he pretty much measures his whole life by Berkshire Hathaway's book value, and the reader can't help wondering if that is ultimately how he measures other people, too. "He was preoccupied with money," Schroeder remarks. "He wanted to amass a lot of it, and saw it as a competitive game. If asked to give up some of his money, Warren responded like a dog fiercely guarding its bone, or even as though he had been attacked. His struggle to let go of the smallest amounts of money was so apparent that it was as if the money possessed him, rather than the other way around."
But isn't this anecdote missing something?
May 18 2009, 9:29AM
More Taxation Means More Happiness?
Matt Yglesias says that "the links between taxation, spending, and inequality are the most plausible explanation of the fact that the highest-taxed countries are the happiest.
It can't be that paying taxes makes Danes happy. But plausibly, living
in a relatively egalitarian society makes people happy." Is that right?
May 18 2009, 8:53AM
How to Destroy Blogging With One Easy Law
Two lawyers named Bruce (what are the odds?) had an op-ed in the Washington Post over the weekend that tossed out a bunch of legislative ideas for protecting journalism. Some of the ideas -- antitrust exemptions, tax benefits, easing ownership restrictions and so on -- have been trotted around the showroom plenty of times before and aren't going to turn any heads. And some -- changing the laws governing how search engines can index pages -- involve technical issues that aren't really up my alley. But I thought this suggestion, in particular, would do a fine job of carpet bombing the current internet-media landscape:
May 17 2009, 9:39AM
How Suze Orman Made Deposit Insurance a Gay Rights Issue
May 16 2009, 10:47AM
Why Isn't There A Hedge Fund Bailout?
Joe Nocera makes a good point about this:
For all the talk these last few years about the risks to investors of "secretive, unregulated" hedge funds, they certainly haven't turned out to be the big problem, have they? [...T]housands of hedge funds lost, in the aggregate, hundreds of billions of dollars last year, and hundreds have shut down. But nobody in government is calling for a hedge fund bailout because hedge funds losses, however painful to investors, don't create systemic risks to the nation's financial apparatus. As it turns out, it was the big regulated entities, the banks and investment banks, that were the problem, not the unregulated hedge funds.
May 15 2009, 5:21PM
Obama's Deficit Problem
Boy, lots of healthcare and deficit news today. David Brooks says healthcare costs are the administration's big fiscal issue and Obama had better get serious. Peter Orszag says healthcare costs are the administration's big issue and Obama is getting serious. Obama himself says healthcare costs are his big issues and he's about to get serious. And the healthcare industry says maybe he's getting a little too serious.
To this I can add nothing, except a graph of what our deficit has looked like over the past 70 years:
To this I can add nothing, except a graph of what our deficit has looked like over the past 70 years:
May 15 2009, 2:34PM
Stimulus Checks Are Being Sent to Dead People
That's the conclusion of this new story from Fox News:
But I wouldn't get worked up into an early grave over this.
Antoniette Santopadre of Valley Stream was expecting a $250 stimulus check. But when her son finally opened it, they saw that the check was made out to her father, Romolo Romonini, who died in Italy 34 years ago. He'd been a U.S. citizen when he left for Italy in 1933, but only returned to the United States for a seven-month visit in 1969.
The Santopadres are not alone. The Social Security Administration, which sent out 52 million checks, says that some of those checks mistakenly went to dead people because the agency had no record of their death. That amounts to between 8,000 and 10,000 checks for millions of dollars.
But I wouldn't get worked up into an early grave over this.
May 15 2009, 10:45AM
Why Did a NYT Economics Reporter Take On $805,700 In Subprime Debt?
That's the question that New York Times economics reporter Edmund L. Andrews tries to answer about himself in a new piece for the Times Magazine, which is being previewed on the website this week. And it must be some species of triumph that Andrews manages to make a story about refinancing a complicated mortgage a gripping read. Really!
And while I kept thinking he couldn't have done a good job covering the mortgage crisis while being spanked by it, I read back through some of his old pieces and was surprised to find items like this:
And while I kept thinking he couldn't have done a good job covering the mortgage crisis while being spanked by it, I read back through some of his old pieces and was surprised to find items like this:
May 15 2009, 9:27AM
Will Tax Increases Kill The Recovery?
I wanted to write about Martin Feldstein's Wall Street Journal op-ed in a timely fashion -- which is to say I wanted to write about it yesterday, when it came out. Largely for reasons of procrastination, that didn't happen. Still, the argument he makes ("Tax Increases Could Kill the Recovery") is one that comes up a lot and I want to say one brief -- if slightly wonkish and tedious -- thing about it.
When I read Feldstein's headline I thought, "But none of the tax increases take effect until 2011!" And while Feldstein anticipates that argument, I'm not sure his response makes a lot of sense:
When I read Feldstein's headline I thought, "But none of the tax increases take effect until 2011!" And while Feldstein anticipates that argument, I'm not sure his response makes a lot of sense:
May 15 2009, 8:44AM
When a Billion Dollars Equals a Trillion Dollars
I don't know if it's a huge problem for public policy, but it certainly seems like some kind of problem that, as Matt Yglesias says, most everyone has trouble processing differences between large numbers. That handicap is why the Obama administration can propose $100 million in cuts from a budget of trillions and expect something other than to be laughed out of Washington. It would be kind of funny if Dr. Evil hadn't already made this joke a while ago.
That said, I thought Matt's solution to this problem was not altogether satisfying:
That said, I thought Matt's solution to this problem was not altogether satisfying:
May 14 2009, 5:12PM
Google's Asia Fail
I was having some trouble with Google this morning, but it's kind of reassuring to know that several million people were having some trouble too. And yet this explanation from Google is not altogether reassuring:
May 14 2009, 4:16PM
George Will's Historical Analogies
I am all for the sanctity of contract, but I thought this analogy from George Will, on Obama and the rule of law ("Tincture of Lawlessness"), was a bit much:
This is not gross, unambiguous lawlessness of the Nixonian sort -- burglaries, abuse of the IRS and FBI, etc. -- but it is uncomfortably close to an abuse of power that perhaps gave Nixon ideas: When in 1962 the steel industry raised prices, President John F. Kennedy had a tantrum and his administration leaked rumors that the IRS would conduct audits of steel executives, and sent FBI agents on predawn visits to the homes of journalists who covered the steel industry, ostensibly to further a legitimate investigation.
May 14 2009, 11:29AM
Why Does Simon Johnson Say The Stimulus "Worked"?
Is it really time to declare that the first stimulus "worked"? It's been three months since the stimulus bill passed, and the administration itself has said it will take far longer to see it bear fruit. But this doesn't stop Simon and Johnson and Peter Boone from declaring mission accomplished on the New York Times Economix blog: "The First Fiscal Stimulus Worked."
Huh? It looks to me like they're in search of a provocative hook to talk about the second part of their post -- should we have a second stimulus? -- which is perfectly understandable. But the evidence they present in favor of the proposition that the first stimulus worked is woefully thin, and even the evidence they do have should be laden with various ifs, ands and buts. Their argument:
Huh? It looks to me like they're in search of a provocative hook to talk about the second part of their post -- should we have a second stimulus? -- which is perfectly understandable. But the evidence they present in favor of the proposition that the first stimulus worked is woefully thin, and even the evidence they do have should be laden with various ifs, ands and buts. Their argument:
May 14 2009, 10:41AM
Providence Wants to Tax College Students
The mayor of Providence, Rhode Island, seems to be under the impression that the presence of several large colleges and universities is a drain on the "resources" of the city, instead of a gigantic boon to its economic and cultural well being. Thus does he reason himself to one of the stupidest public policy proposals ever.
May 14 2009, 9:12AM
Servants Make The Best Economic Indicators
May 13 2009, 6:57PM
How Badly Does Obama Want Wage Controls?
I agree with Henry Blodget that it's hard to imagine a way in which industry-wide wage controls "could be implemented that wouldn't be an absolutely terrible idea." Sure, wage controls would probably be a terrible idea. But I read the Wall Street Journal's big piece on this subject and didn't really see a whole lot of evidence that "wage controls" were what Obama was after. Instead I saw a whole lot of vague and vacillatory hints that didn't really indicate Obama had anything specific in mind:
May 13 2009, 4:17PM
Why Not Fire All The CEOs?
One surprising consequence of the financial crisis is that not many CEOs have been fired. A new report from Booz & Company says that 14.4% of the 2,500 biggest publicly traded companies replaced their CEOs in 2008, up from 13.8% in 2007. And in the US and Europe, the rate of CEO turnover actually fell. What gives? Well, the thinking is this: Scapegoats are a nice thing to have when asset markets implode. But so is certainty. And firing your CEO in the middle of a financial crisis doesn't seem like the appropriately risk-averse thing to do.
But I also thought the Booz report was strange to read in light of this new Atlantic article (more shameless shilling) about how, contrary to the cult of Steve Jobs, CEOs don't actually matter:
But I also thought the Booz report was strange to read in light of this new Atlantic article (more shameless shilling) about how, contrary to the cult of Steve Jobs, CEOs don't actually matter:
May 13 2009, 10:52AM
What Makes Us Happy? Not Jobs..
Joshua Shenk's Atlantic essay on happiness has gotten plenty of response (see David Brooks in this yesterday morning's New York Times), but one thing that I find striking about the piece is how little focus there is on material gains as the right route to happiness. When the doctor in charge of the Grant Study lists the factors that predict happy aging -- education, stable
marriage, not smoking, not abusing alcohol, some exercise, maintaining a healthy
weight and employing "mature adaptations" -- there is no mention of career success or even career stability. Relationships matter; incomes don't.
This comports pretty well with my general understanding of self-reported happiness studies and gives me a chance to print my second favorite graph in the history of economics:
This comports pretty well with my general understanding of self-reported happiness studies and gives me a chance to print my second favorite graph in the history of economics:
May 13 2009, 9:13AM
AIG: We Don't Need Your Help (For Now)
Does anyone still care about AIG? Probably not. But on the offchance someone out there is still sharpening a pitchfork: CEO Edward Liddy will be back on the hill later today to testify before the House committee on Oversight and Government Reform. I've put his full testimony is at the end of this post.
It's been just about universally reported that Liddy will say AIG doesn't need any more government money (AP, AIG's Liddy: We don't need more government money; ABC, CEO Liddy: No More Bailouts Needed For AIG). That's kind of true, but comes with a pretty big caveat. From Liddy:
It's been just about universally reported that Liddy will say AIG doesn't need any more government money (AP, AIG's Liddy: We don't need more government money; ABC, CEO Liddy: No More Bailouts Needed For AIG). That's kind of true, but comes with a pretty big caveat. From Liddy:
May 12 2009, 2:22PM
Soda Taxes are Coming. What's the Problem?
The idea of taxing soda to pay for health care came up on the blog a couple of weeks ago, but now the Center for Science in the Public Interest is actually planning on proposing such a tax. That proposal is coming in for a fine round of snark (see Ann Althouse, Michele Bachmann, etc) so I thought I would self-plagiarize for a bit, and repeat why I can't really get excited about the whole controversy.
May 12 2009, 12:07PM
Obama To Cut Taxes For the Rich
Nice little scoop from Bob Williams of the Tax Policy Center, who wades into the weeds of the Obama administration's tax plans and returns alive, bearing news that the administration actually cutting taxes for some high-income earners:
The administration's tax proposals call for hiking the top two tax rates from 33 and 35 percent to 36 and 39.6 percent and raising the threshold to get into the new 36 percent bracket. For couples, that bracket would start at $231,300 in 2009, up from $208,850; the starting point for singles would climb from $171,550 to $190,650.
May 12 2009, 10:26AM
Even At Citigroup, Money is Fungible
It's great that Citigroup is lending again, but it's strange to see headlines like, "Citigroup Lends Nearly $45 Billion in TARP Funds." Money is fungible! Citigroup received $45 billion in TARP funds, but the money it lends can come from any corner of its coffers -- each dollar is equally effective.
This is really a minor point. But I thought it was annoying when banking executives claimed that their bonus payments "would come out of operating revenue, not government bailout funds." That was a terrible argument and it deserved to be heartily mocked. By the same principle, banks don't deserve any special praise when they decide to start lending again using special "government bailout funds" instead of regular plain-vanilla dollars.
This is really a minor point. But I thought it was annoying when banking executives claimed that their bonus payments "would come out of operating revenue, not government bailout funds." That was a terrible argument and it deserved to be heartily mocked. By the same principle, banks don't deserve any special praise when they decide to start lending again using special "government bailout funds" instead of regular plain-vanilla dollars.
May 12 2009, 8:51AM
White House Takes Revenge on Rick Santelli and Friends
Rick Santelli can get on the Obama administration's case by ranting on television. But the administration can get on Rick Santelli's case by changing the tax code! On page 110 of the administration's tax green book (pdf) -- the detailed explanation the administration's tax plans, which came out yesterday -- there is a small provision that would end preferential tax treatment for certain derivatives and commodities traders, like Santelli and his friends on the floor of the Chicago Mercantile Exchange. The proposal:
May 11 2009, 4:46PM
Cap and Trade Has Nothing To Do With Wall Street
But I see, via David Wiegel, that 29% of the American public thinks "cap and trade" does, in fact, have something to do with regulating Wall Street. Meanwhile 24% of the public correctly identifies it as having something to do with the environment and 17% incorrectly identifies it as having something to do with health care. A slight plurality pleads ignorance. Hmmm.
May 11 2009, 3:31PM
Robert Samuelson is Not a Fan of the Corporate Tax
There is much that I find agreeable in Robert Samuelson's column on the corporate tax, but I don't understand the upshot of this paragraph:
Most countries don't tax the foreign profits of their multinational firms at all. Take a Swiss multinational with operations in South Korea. It pays a 27.5 percent Korean corporate tax on its profits and can bring home the rest tax-free. By contrast, a U.S. firm in Korea pays the Korean tax and, if it returns the profits to the United States, faces the 35 percent U.S. corporate tax rate. American companies can defer the U.S. tax by keeping the profits abroad (naturally, many do), and when repatriated, companies get a credit for foreign taxes paid. In this case, they'd pay the difference between the Korean rate (27.5 percent) and the U.S. rate (35 percent).
May 11 2009, 2:14PM
The Future of Local News is the Wall Street Journal
This Financial Times piece has some good details on The Wall Street Journal's plan to start charging for content: It looks like the Journal is going to start using micropayments to charge for content. But I also think the FT might have buried the lede. Seems like this is also big news:
[Dow Jones editor in chief Robert] Thomson said the Journal saw an opportunity in its US metropolitan rivals' weakness, adding: "We're going to move in on each of the big cities."
May 11 2009, 11:54AM
How Fast We'll Grow After the Recession
True to its word, the administration released a huge number of tedious-sounding budget documents this morning (eg, "Dimensions of the Budget"). Run, don't walk, to find them here. As Tim Fernholz says, the newsiest non-healthcare item in the document dump is probably the the revised deficit estimate -- it's going to be about $90 billion higher this year than in February.
But the budget release is also of full of nice raw data about the economy. I've slogged through about 2% of the whole thing, but let me stop and recommend this chart on what economic growth has looked like after previous recessions:
But the budget release is also of full of nice raw data about the economy. I've slogged through about 2% of the whole thing, but let me stop and recommend this chart on what economic growth has looked like after previous recessions:
May 11 2009, 9:38AM
McDonald's Has Plans to Offer PhDs (Really)
It's kind of irresistible that McDonald's has a training facility called Hamburger University that, according to this old MarketWatch article, actually seems to offer a degree in "Hamburgerology." Ha ha ha. But according to the Financial Times McDonald's is getting slightly serious about this education stuff and now has hopes to offer a full-blown phD. The FT reports:
May 11 2009, 8:43AM
Don't Hold Your Breath For Corporate Tax Reform
Later this morning the White House is releasing new details on the budget, which will include new details on its plan to reform the manner in which foreign corporate income is taxed. I got the sense last week that the proposed changes were party of a larger scheme to overhaul the corporate tax. Deputy National Economics Council Director Jason Furman wrote that the "administration's plan is intended as a major, first step" in addressing problems with the tax, and Obama himself said these changes were a "down payment on the larger tax reform we need" to make our tax system fairer and more efficient.
But administration officials argued this weekend that while such plans were still possible they were not in the works.
But administration officials argued this weekend that while such plans were still possible they were not in the works.
May 10 2009, 3:44PM
America: Not Now, Or Ever, A Thrifty Country
Catherine Rampell has a piece in this morning's New York Times observing that "The economic downturn is forcing a return to a culture of thrift." But that observation depends a lot on how you define "return" and "thrift," and while it's clear American savings rates are on the rise -- they've been so unsustainably low that it's hard to expect anything else -- it's less obvious that Americans are becoming truly thrifty. That's because America is not a thrifty country.
May 9 2009, 10:46AM
Don't We Have Enough Financial Crime Already?
Via Mark Thoma, I see Benjamin Friedman has a nice piece in the New York Review riffing on George Akerlof and Robert Shiller's Animal Spirits. But I thought Friedman had an odd parenthetical here:
Wait, does anyone think criminality helped caused the current crisis? To paraphrase Warren Buffett: When the tide goes down you realize who isn't wearing swimming trunks. But it's not like the tide goes down because someone's swimming nude.
By now everyone realizes that excessive risk-taking, systematic mispricing of assets, and, often, plain reckless behavior (not to mention some instances of criminality, although to date surprisingly few of these have come to light) helped cause the current mess.
Wait, does anyone think criminality helped caused the current crisis? To paraphrase Warren Buffett: When the tide goes down you realize who isn't wearing swimming trunks. But it's not like the tide goes down because someone's swimming nude.
May 8 2009, 4:26PM
The Government Gets Its Way With Chrysler
It looks like Obama will win in Bankruptcy court:
The small but staunch lenders group that stood against the government-orchestrated sale of Chrysler said today it will withdraw its public opposition after two of its largest remaining members dropped out.
The decision came after OppenheimerFunds, the New York-based asset manager, and Stairway Capital, a hedge fund on Long Island, who were leading the effort, determined that the group was no longer large enough to be effective in court.
May 8 2009, 2:57PM
Why Doesn't CNBC Have More Faith in the Market?
Ezra Klein says read Moe Tkacik's big takedown of CNBC, so I read it. And it's worth it. I'm not sure the piece has a tight theory for why the network is so profoundly annoying to watch, but it's full of grating television anecdotes. And some of that makes me wonder if CNBC -- tedious cheerleader for the stock market -- need to have a little more faith in it.
May 8 2009, 11:14AM
Unemployed Bankers Can Always Go Work for the FDIC
A couple of weeks ago there was some debate over whether it was legal for the FDIC to start doing things beyond guaranteeing deposits -- like, say, guaranteeing billions of dollars in non-recourse loans used to purchase toxic assets. But I think William Seidman makes a good point about the FDIC, which is that giving it all these new tasks will, not surprisingly, require hiring thousands of new FDIC employees:
May 8 2009, 9:37AM
Stress Test "Adverse Scenario" Looks a Lot Like Reality
One of the points that the administration's bank stress-test summary makes again and again and again is that the results are all rather hypothetical. "The estimates are not forecasts or expected outcomes," says page two of the results (emphasis in the original). They are "the products of a two‐year‐ahead 'what if' exercise conducted under two alternative macro scenarios." The first what-if scenario is the expected path of the economy. The second what-if scenario is "more adverse" -- a deeper and more protracted downturn.
The stress-test report says it is "virtually certain that the economy will not evolve in lockstep with either." Really? As far as I can tell the economy is evolving in lockstep with the adverse scenario. Or maybe it's a little worse.
The stress-test report says it is "virtually certain that the economy will not evolve in lockstep with either." Really? As far as I can tell the economy is evolving in lockstep with the adverse scenario. Or maybe it's a little worse.
May 7 2009, 5:56PM
Morgan Stanley's Taste for Commercial Real Estate
I was surprised to see Morgan Stanley on Marc's list of banks that need to raise capital. But this nice little chart from the full stress-test results -- one of the many "adverse scenario" doomsday projections -- helped put that in perspective:
May 7 2009, 5:11PM
The Stress Test Results
May 7 2009, 4:51PM
Taxation: Always and Everywhere Unfair
Chris Beam -- good friend, perfectly decent roommate -- has a Slate piece arguing that if business interests are going to attack Obama's recent corporate tax proposals, they should avoid all the complicated talk about economics -- "supply chains" and so forth -- and harp on basic issues of fairness. And perhaps they should. But here's my question about this: If by "fairness" we mean "everyone competes on equal tax footing," can a world containing many countries with many different tax codes ever be fair?
May 7 2009, 1:50PM
Rupert Murdoch: The Era of Free News is Over
Via the Guardian, I see Rupert Murdoch plans to start charging for New Corp newspapers online. I suppose this was coming eventually, but it's still a big deal. Writes Andrew Clark:
May 7 2009, 12:34PM
Why Peter Orszag Reminds Me of John McCain
I just got off a conference call with Budget Director Peter Orszag in which he talked about the newly released details on the Obama budget. Most of what was under discussion was the $17 billion in new cuts, which has been gently mocked as a drop in the $3.4 trillion ocean of a budget. Orszag's defense was this: "We can no longer afford broken window budgeting." Which meant: Even if the program cuts are small, perpetuating small, crappy programs sends the wrong signal -- namely, the signal that we are willing to perpetuate small, crappy programs.
May 7 2009, 9:28AM
Treasury to Banks: "Please Fire Everybody"
This statement from the Federal Reserve seems to have the most stress-test preview details. The full, non-leaked results will be posted at 5pm tonight. The banks that needs more capital will have until June 8 to come up with plan, and until November 9 to implement that plan. But I thought this paragraph, tucked into the middle of the release, had a charmingly euphemistic way of suggesting that the banks might also consider firing a bunch of their managers:
May 6 2009, 4:47PM
Economics Textbook Showdown
One of the many fun things about Greg Mankiw's blog -- besides the passive-aggressive spats with Paul Krugman -- is that he has an admirably shameless way of shilling for his own textbooks. (See, for example, here, here, here, here, here, here and here -- all pulled very quickly and more or less randomly from the past two months.)
I used those textbooks in college and think they're pretty great. But when I read that Tyler Cowen and Alex Tabarrok are releasing their own Macroeconomic Principles textbook I was reminded of an old post from Mankiw:
I used those textbooks in college and think they're pretty great. But when I read that Tyler Cowen and Alex Tabarrok are releasing their own Macroeconomic Principles textbook I was reminded of an old post from Mankiw:
May 6 2009, 12:24PM
America: a Land of "Extreme Saving"
Over at his new Atlantic Correspondents blog, Edward Tenner says that America is a land of extremes:
We consumers can't get it right, living beyond our means during bubbles when we should be saving, and throttling back in downturns, putting each other and countless people overseas out of work. In January the award-winning British economic journalist Anatole Kaletsky even wrote a column with the ferocious headline "Punish Savers and Make Them Spend Money" -- and a Harvard counterpart, N. Gregory Mankiw, has recently made similar suggestions.
May 6 2009, 11:13AM
Lose Weight: Spend More Time Eating
May 6 2009, 9:56AM
A 9/11 Commission for the Economy? Good Luck
Via Politico, there is a congressional vote later today that is expected to create a commission to look into the causes of the financial crisis -- a commission modeled, roughly, on the 9/11 Commission. Yes, yes, blue-ribbon panels are supposed to be for when you don't want to get anything done. But this time everyone is promising that they really, definitely, want to get something done. For sure. From the report:
May 6 2009, 8:55AM
Tax Havens: An Innocent Way to Avoid Double Taxation?
I'm not sure there are two words that can summon the specter of government oppression quite like "double taxation." If the government gets to double dip in your wallet, what won't it do? And for exactly this reason those words being deployed against the administration's plan to close various loopholes on the taxation of foreign business income. A small problem with this strategy is that it turns out not to be true.
May 5 2009, 5:58PM
Average AIG Bonus: $8,831.72
Politico just blasted around a story noting that AIG has revised the estimate its 2008 bonus awards to almost four times the company's original estimate: "AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008." But reading the whole article didn't exactly revive the populist bloodthirst. Quite the opposite. It's true that the company paid almost four times as much in bonuses as was originally reported. But the new figure covers more than eight times as many employees!
May 5 2009, 4:58PM
Richard Florida's New Atlantic Blog
Richard Florida, like Richard Posner, has a new blog on the Atlantic website. His first post is about a new Pew poll on American consumption patterns that Felix Salmon and the Economist and others have also commented on. Writes Florida:
May 5 2009, 4:16PM
The Cato Institute Doesn't Understand Corporate Taxes
Since, as Ryan Donmoyer and others have reported, the business lobby is gearing up for a big fight over the president's proposed changes to the corporate tax, I am going to try to be somewhat diligent about tracking arguments for and against the proposal. ("This is going to be the biggest fight for the corporate
community in the next two years," says one lobbyist.) And a post over at Cato's @Liberty blog does such a wonderful job of misrepresenting Obama's plan that I figure I will start there.
May 5 2009, 1:32PM
Judging Barack Obama's Bout with the Tax Havens
Barack Obama's proposal to close foreign loopholes on the corporate income tax does not, alas, lend itself to to easy agitprop. (Even more so than usual, because the full details of the plan won't be released until Friday.) But it's the first big showdown between the administration and the business lobby (or is it the 17th?), and there is a fat chunk of federal revenue at stake. So what's in Obama's proposal? And is it a good idea?
May 5 2009, 10:26AM
Five Reasons Why You Should Worry About Tax Havens
I have a funny feeling that when someone like Michelle Malkin spends a couple of sentences mocking the administration's plan to change the rules for by which international business income is taxed (it is both a "knee-slapper" and a "snort-inducer"), it's because she doesn't understand it. Corporate tax havens are complicated. Really complicated!
But whatever you think of the corporate tax in general -- and in a tax fantasy world, we might want to scrap it in exchange for other things -- it's clear that the current system for taxing international business income is screwy and needs changing. Whether or not the president's plan is the right solution is something I will try to take up in a later post. But for now, here are five problems with the current system for taxing international corporate income:
But whatever you think of the corporate tax in general -- and in a tax fantasy world, we might want to scrap it in exchange for other things -- it's clear that the current system for taxing international business income is screwy and needs changing. Whether or not the president's plan is the right solution is something I will try to take up in a later post. But for now, here are five problems with the current system for taxing international corporate income:
May 5 2009, 8:53AM
Has the Housing Market Hit Bottom?
Sacramento County, California, drank more housing bubble kool-aid than almost anywhere else in the country, and experienced the correspondingly large drop in home prices, spike in foreclosures, and rise in backlog of unsold houses. But now the New York Times says home sales are on the rise, and has the fancy-looking graph to prove it:
May 4 2009, 1:47PM
Let Tim Geithner Be Beautiful
I'm not sure I buy the controversy -- via BloggingStocks and Clusterstock -- over Tim Geithner being named one of People Magazine's Most Beautiful People. The case against Geithner seems to be (1) His brother is an executive at People Magazine, so there's a potential conflict of interest, and (2) Geithner is not beautiful.
May 4 2009, 11:43AM
What Would Jack Kemp Do? (About Mortgages)
Mortgage cramdowns have been in the news recently because the Senate's bankruptcy bill -- which would have allowed bankruptcy judges to modify some mortgages -- went down in flames on Thursday. And Jack Kemp has been in the news because he died on Saturday. So I thought I would put the two together and note that one issue on which Kemp bucked the Republican Party consensus was mortgage cramdowns. In fact, he recently penned a Los Angeles Times op-ed backing some form of the cramdown.
May 4 2009, 10:13AM
Richard Posner's New Atlantic Blog on the Economy
I'm very pleased that Richard Posner is now blogging for the Atlantic. I've worked with Judge Posner in the past and became instantly envious of his ability to churn out top-notch prose at the drop of a hat. That apparent pathology for writing is actually what led to this blog: as Judge Posner says in his first post, he filed the manuscript of his new book about the financial crisis and then realized he had much more to say. A slice:
May 4 2009, 9:21AM
AIG Would Have Paid the Bonuses Anyway
Ryan Grim had a nice scoop over the weekend: He uncovered a September 2008 letter from AIG's SEC filing in which Edward Liddy talks about the company's bonuses (or some portion of the bonuses). According to the Liddy letter, AIG committed to paying the bonuses even if the company experiences a "Change in Control":
May 4 2009, 8:37AM
Boston Globe to Close?
The New York Times Company, which owns the Globe, has filed a notice with federal authorities that it plans to shut the Boston paper. Under the Worker Readjustment and Retraining Notification Act, the Times Company has 60 days to extract any final concessions from the four unions, at which point it will be allowed to shutter the paper. David Warsh has lots of good backstory on the Times ownership of the Globe. So does the Boston Globe.
The paper is seeking just shy of $20 million dollars in concessions from its four unions: $10 million from the Newspaper Guild, $5 million from the mailers, $2.5 from the drivers and $2.2 from the pressmen. My understanding is that the mailers and drivers have both come up with adequate concessions, and the Newspaper Guild and pressmen are holding out. But what I don't understand is why those concessions, if granted, would stabilize the Globe. The paper is expected to lose $85 million this year. Losing $65 million isn't exactly a robust business model.
The paper is seeking just shy of $20 million dollars in concessions from its four unions: $10 million from the Newspaper Guild, $5 million from the mailers, $2.5 from the drivers and $2.2 from the pressmen. My understanding is that the mailers and drivers have both come up with adequate concessions, and the Newspaper Guild and pressmen are holding out. But what I don't understand is why those concessions, if granted, would stabilize the Globe. The paper is expected to lose $85 million this year. Losing $65 million isn't exactly a robust business model.
May 3 2009, 8:11AM
Obama: No Love For Wall Street
New York Times economics columnist David Leonhardt has a big interview with Barack Obama in this morning's magazine that, as Matt Yglesias and Tyler Cowen note, is worth reading largely because it shows the president's grasp of economic policy issues. It's long and substantive and conducted without any handlers in the room.
It's also been picked over pretty well for notable quotes, but I thought Obama's answer in response to one question was notable and a bit odd. Leonhardt asked: Are there tangible ways that Wall Street has made the average person's life better in the way that Silicon Valley has? And the president answered:
It's also been picked over pretty well for notable quotes, but I thought Obama's answer in response to one question was notable and a bit odd. Leonhardt asked: Are there tangible ways that Wall Street has made the average person's life better in the way that Silicon Valley has? And the president answered:
May 1 2009, 5:45PM
Casting the Hedge Funds as Villains
I thought this Washington Post article on the Chrysler creditors who wouldn't take the administration's deal -- and thus tipped the whole jumbled apparatus into bankruptcy court -- was pretty strange. The negotiations were complicated, in part because it's hard to make an apples-to-apples comparison between what the UAW will get, what Fiat will get, what Canada will get, and what the hedge funds were offered. But instead of trying to sort out the details -- I recommend the Treasury's fact sheet as a decent place to start doing that -- the Post mostly speculates about how smart it was for Obama to start attacking the hedge funds:
May 1 2009, 2:46PM
NYT Exposes Barack Obama's Republican Agenda
The New York Times seems to have had a clever idea for a piece -- "Justifying His Fiscal Policies, Obama Borrows From the G.O.P." -- that, alas, makes no sense. It's really too bad when clever ideas run aground on the inconvenient shoals of reality. From the Times:
May 1 2009, 1:56PM
Economists are Employed, But Do They Like Their Jobs?
Greg Mankiw links to an article that says there is no unemployment among phD economists. (With an analogy that might be too timely, he says it's like "being an undertaker during a plague.") But isn't there almost certainly underemployment among phD economists?
From the US News article:
From the US News article:
May 1 2009, 11:07AM
Canada's Plot to Become the United States
Alex Tabarrok posts a graph that compares US and Canadian government spending as a percentage of GDP, and finds that the two are at almost the same level: a little under 40% of GDP. The "US is becoming Canada," warns Eric Crampton. "Damn that hurts," mourns Alex. And indeed it does.
But if you look at the graph, it's pretty clear the big shift has less to do with any drastic change in American spending patterns, and far more to do with a drastic change in Canadian habits:
But if you look at the graph, it's pretty clear the big shift has less to do with any drastic change in American spending patterns, and far more to do with a drastic change in Canadian habits:
May 1 2009, 9:48AM
Would You Tax Soda to Pay For Health Care?
Via Matt Yglesias and Ezra Klein, I see that the Kaiser Foundation has some interesting figures on public support for using sumptuary taxes to pay for health care. In particular, lots of respondents were upbeat about with this question: "In order to help pay for health care reform and provide coverage for more of the uninsured, would you favor or oppose increasing taxes on items that are thought to be unhealthy, such as soda, alcohol, junk food, and cigarettes?" Kaiser found:
Apr 30 2009, 4:30PM
Building a Stronger Canadian Auto Industry
One odd little detail that I haven't seen come up in too many news reports on the Chrysler bankruptcy -- but that does make an appearance in the Treasury's fact sheet -- is that the Canadian government will get a share of the company:
Apr 30 2009, 3:20PM
Will Union Ownership Destroy Chrysler?
Some Chrysler critics are worried about the fact that the UAW is getting a 55% share in the company, but I'm not sure the fear makes a huge amount of sense. The critics all share the premise that some portion of the automaker's woes are the result of exorbitant demands from an unaccountable union. But if that's the premise, handing a majority stake to the union can only have one of two consequences: It will change the incentives of the union -- such that they realize their demands were bad for the company -- or it will run the company (further) into the ground and leave the union to pick up the pieces. More accountable union no matter how you slice it.
Most don't expect the first opinion -- improving the incentives -- to happen, but I don't understand the complaint. Paul Ingrassia, for instance, writes in the Wall Street Journal:
Most don't expect the first opinion -- improving the incentives -- to happen, but I don't understand the complaint. Paul Ingrassia, for instance, writes in the Wall Street Journal:
Apr 30 2009, 1:37PM
What Obama Said About Chrysler
Barack Obama's comments on Chrysler were pretty short, so I've pasted them after the jump. (The "laughter" was right there in the official White House transcript.) No big surprises, except that the smackdown between the administration and the non-cooperative creditors was a little more explicit than you might have expected. Obama:
And indeed, they're probably doing Obama a favor by not cooperating. I wonder if any of them will respond publicly.
While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them.
And indeed, they're probably doing Obama a favor by not cooperating. I wonder if any of them will respond publicly.
Apr 30 2009, 11:19AM
What Does the Chrysler Bankruptcy Change?
So Chrysler is headed for bankruptcy, and Obama is headed to the podium at 12pm to deliver comments on the state of the auto industry. More details will spill out today, along with top management at the company and various recriminations between the government and the creditors. But the Chrysler bankruptcy is not a surprise -- it's been likely since last month's viability determination (pdf) -- and it's not clear that it changes all that much.
Apr 29 2009, 4:55PM
How Google Does Unemployment Data
Google has a cool new feature that lets you play around with publicly available data. Search for "unemployment rate" and the top result should be a tool that lets you compare changes in unemployment around the country. You can, for example, graph the total US rate and compare it to the rate in a few counties in Michigan, home of the American auto industry:
Apr 29 2009, 2:57PM
Barack Obama Versus the Tea Parties
If there's still mileage in the Tea Party story, it's now Barack Obama's fault! At his 100th-day townhall meeting in St. Louis, the president said:
"Those of you who are watching certain news channels on which I'm not very popular, and you see folks waving tea bags around, let me just remind them that I am happy to have a serious conversation about how we are going to cut our health care costs down over the long term, how we are going to stabilize Social Security."
"But, let's not play games and pretend that the reason [for the deficit] is because of the Recovery Act."
Apr 29 2009, 12:29PM
Why the Heck is Government Spending Falling?
The fact that the US economy contracted by 6.1% in the first quarter of 2009 is crappy, but only slightly surprising. This, on the other hand, is pretty strange:
Why on earth is federal government spending falling, after rising last quarter? The whole Keynesian theory, love it or leave it, is that an increase in government demand can make up for a decline in private demand. So where's that increase in government demand?
Federal government spending decreased 4.0%, after rising in the fourth quarter by 7.0%. State and local government outlays fell 3.9%, after going down by 2.0% in the fourth quarter.
Why on earth is federal government spending falling, after rising last quarter? The whole Keynesian theory, love it or leave it, is that an increase in government demand can make up for a decline in private demand. So where's that increase in government demand?
Apr 29 2009, 10:33AM
Emmanuel Saez on American Tax Progressivity
The fact that Emmanuel Saez won the John Bates Clark medal seems like a reasonably decent excuse to write one more time about tax progressivity. Saez is best known in the blogosphere for his work on inequality, but he has also written many papers on optimal tax theory and empirical tax history. Indeed, the JBC Medal commendation says his work has created a "resurgence of academic interest in taxation," and what that lacks in sexiness it might make up for in fact.
Saez has a paper called "How Progressive is the U.S. Federal Tax System?" (pdf), which seems like a plausible entry point for trying to answer a question that has come up a couple of times here -- like, I dunno, How progressive is the U.S. federal tax system?
Saez has a paper called "How Progressive is the U.S. Federal Tax System?" (pdf), which seems like a plausible entry point for trying to answer a question that has come up a couple of times here -- like, I dunno, How progressive is the U.S. federal tax system?
Apr 28 2009, 4:54PM
Yet More Bad News for BofA's Ken Lewis
It's probably not a good sign for Bank of America CEO Ken Lewis that, a day before the company's shareholder meeting, the largest public pension fund in the country says it will vote against him. From the press release:
Apr 28 2009, 3:29PM
What Would Taxes Look Like if Arlen Specter Were King?
Via Matt Yglesias, I see that soon-to-be Democrat Arlen Specter supports a flat tax. Indeed, he has introduced flat tax legislation since 1995 -- often energetically, and with Grover Norquist at his side. "Flat tax" is a bit of a slippery term -- after all, Rahm Emanuel and Ron Wyden once introduced a flat tax -- but the Specter version isn't especially complicated. It would be a 20% tax on individual and business income, with a few deductions kept around for good measure. What would that look like? Why, it would look a little something like this:
Apr 28 2009, 12:42PM
The Sound of Newspapers Dying
Will the Wall Street Journal be the biggest newspaper in the country? It might, but not for an especially happy reason. New details on newspaper circulation came out yesterday afternoon and -- who'da thought -- they aren't pretty:
The average daily circulation of U.S. newspapers declined 7% in the six-month period ending March 31, according to the latest data from the Audit Bureau of Circulations, reflecting an increased rate of decline over the last two measured periods.
[...] The most spectacular year-over-year declines in daily circulation were seen at the New York Post, down 21%; the Atlanta Journal Constitution, down 20%; the Newark Star-Ledger, off 17%; the San Francisco Chronicle, down nearly 16%; and the Boston Globe, where circulation dropped 14%.
Apr 28 2009, 10:43AM
When Millionaires Flee High Taxes
Apr 28 2009, 8:24AM
The Stimulus Spending Isn't Fast Enough
The administration's website for tracking the stimulus spending, recovery.gov, has started to fill up with loads of useful information that is worth checking out. In particular, take a look at the spending updates. Bob Williams of the wonderful TaxVox blog says the spending has "gotten off to an encouraging start" and we should "watch to see how the game plays out." I agree with the latter part: It's too early to judge the stimulus. But I really don't see what's so encouraging about the information the government has released. If anything, it's evidence that the government had better spend faster!
Apr 27 2009, 4:53PM
Gales of Creative Destruction Hit Photography
It seems unlikely that photographs will ever die, but will photography? Esquire's cover this month -- Transformers' Megan Fox -- was shot in video, with a single frame selected for the cover. I can't tell the difference. So I wonder: will we need still-frame photography in the future if video cameras can do the trick?
Apr 27 2009, 3:35PM
Is Adderall Good for the Economy?
One consequence of reading Margaret Talbot's New Yorker piece on neuro-enhancing drugs is that it made we want some. (Indeed, the piece itself had a nice way of pulling this off, since my attention span is so addled by the Internet that it took me about three sittings to finish it.) But in addition to all sorts of ethical questions -- is the appropriate analogy steroids at the ballpark or plastic surgery at the beach? -- the existence of productivity enhancing drugs raises a variety of economic questions. Would we be better off with a world in which we can pop productivity enhancing drugs like they were Flintstones Vitamins?
Apr 27 2009, 12:55PM
Geithner's Calendar, By The Numbers
The New York Times was kind to post a big PDF
of Tim Geithner's schedule from when he was head of the Federal Reserve
Bank of New York, and I spent most of the morning wandering through it
for items of interest. I've put some raw quantitative data -- who did
he meet with, and how often? -- after the jump.
But the most interesting detail, in a way, is the dog that didn't bark: I can't find any mentions of Barack Obama, or Joe Biden, or transition head John Podesta in the entire schedule. There are a few scant references to meetings at the transition office -- about a half dozen in December and January -- but as far as I can tell there is no contact with the campaign or the president-elect before that, and no specific mentions of the president-elect at all. (The calendar runs from January 2, 2007 to January 11, 2009.) And since Geithner's November 4 schedule is packed from 7.30am to 7.15pm, I doubt the man had time to vote.
But the most interesting detail, in a way, is the dog that didn't bark: I can't find any mentions of Barack Obama, or Joe Biden, or transition head John Podesta in the entire schedule. There are a few scant references to meetings at the transition office -- about a half dozen in December and January -- but as far as I can tell there is no contact with the campaign or the president-elect before that, and no specific mentions of the president-elect at all. (The calendar runs from January 2, 2007 to January 11, 2009.) And since Geithner's November 4 schedule is packed from 7.30am to 7.15pm, I doubt the man had time to vote.
Apr 27 2009, 10:26AM
The Short, Happy Life of Timothy Geithner
This morning's New York Times has 5,000 words and 658 calendar pages that contain a bunch of new details about Timothy Geithner's time as president of the Federal Reserve Bank of New York. On detail seems to be that Geithner played a fair amount of tennis and basketball, and attended a downright gluttonous number of dinners. But the big detail from the Times piece -- besides the bailout anecdote in the piece's lede -- seems to be that Geithner was approached about becoming CEO of Citigroup. I'm not sure that's quite the same as saying, per Clusterstock, that he was offered the top job, but it nonetheless suggested a new level of coziness:
Apr 27 2009, 8:28AM
Bringing Econ Critics Into the Fold
I see that the Congressional Budget Office's new Panel of Economic Advisers, a group of economists that meets twice a year to discuss economic outlook, now includes Nouriel Roubini and Simon Johnson, two consistent policy critics and general economic doomsayers.
Apr 19 2009, 1:21PM
More on Tea Parties and Higher Taxes
I was traveling and away from the Internet for most of last week, and will be traveling and away from the Internet for most of this week. But I did want to note a couple of columns from Bruce Bartlett that I thought had nice raw data on a question that came up last week: The relative burden of American taxes.
Apr 15 2009, 6:07PM
The Evolutionary Origins of Taxation
I thought Natalie Angier's piece on the evolutionary theory behind modern taxation was a lot of fun but not really convincing:
It turns out that giving up a portion of one's income for the sake of the tribe is such a ubiquitous feature of the human race that some researchers see it as crucial to our species' success. Without ritualized taxation, there would be precious little hominid representation.
Apr 15 2009, 3:39PM
Anyone Can Be a Tax Cheat!
I suppose it was inevitable that someone would write this story today: Americans are upset that they have to pay their taxes today when Secretary of the Treasury Tim Geithner, who is the putative head of the IRS, did not. Or at least he didn't pay them when he was supposed to pay them.
But I don't think there's really a double standard here (at least if you're not an employee of the government). Americans get away with this all the time! In fact, as Chris Beam reports:
But I don't think there's really a double standard here (at least if you're not an employee of the government). Americans get away with this all the time! In fact, as Chris Beam reports:
Apr 15 2009, 1:27PM
What Are Tax Day Tea Parties Protesting?
About these tax-day tea parties: It's obviously fine if citizens want to exercise their first amendment rights and hold protests. Admirable, even. And if these protests are underwritten by corporate backers or supported by various media organizations (there seems to be some debate about this), that's OK too. First Amendment rights all round!
But what I don't understand is why these rallies are being held to protest, among other things, "higher taxes." (Higher spending is another matter.) There is a widespread perception that Obama is raising taxes willy nilly, so maybe this is worth clearing up.
But what I don't understand is why these rallies are being held to protest, among other things, "higher taxes." (Higher spending is another matter.) There is a widespread perception that Obama is raising taxes willy nilly, so maybe this is worth clearing up.
Apr 15 2009, 10:57AM
Why are State Taxes Less Progressive?
Oregon is planning to raise its tax on beer by 1,900%, which seems like both an irresistible tax-day story and a good chance to write about the differences between state and federal taxes.
In general taxes on consumption goods with negative externalities -- like cigarettes and gasoline and, arguably, alcohol -- are desirable. But taxes on non-luxury consumption goods also tend to be regressive: Bill Gates might be worth a million times as much as the average American, but he does not, alas, consume a million times as much beer. Probably not even half that.
In general taxes on consumption goods with negative externalities -- like cigarettes and gasoline and, arguably, alcohol -- are desirable. But taxes on non-luxury consumption goods also tend to be regressive: Bill Gates might be worth a million times as much as the average American, but he does not, alas, consume a million times as much beer. Probably not even half that.
Apr 14 2009, 6:54PM
Goldman's Big Earnings and Orphaned Losses
I have been in meetings today but want to quickly post the PDF to Goldman's first-quarter earnings report:
goldman Q1 earnings.pdf
There has been some fuss over the fact that Goldman made December -- a month in which they had huge losses -- "disappear" (Paul Krugman's word) by switching to an annual calendar from an accounting calendar that ended in November. (In other words, its 2008 fourth quarter ended in late November and its 2009 first quarter started in January -- making December an "orphan month.") But it now seems to be the case that this was just required when the company became a bank holding company.
Floyd Norris dings Goldman for not publicizing the losses anyway, since regulators that required the calendar switch didn't "force Goldman to avoid any mention of the December orphan month in the text of its earnings release." But it's not really a surprise that the bank would avoid trumpeting its own losses. That's journalism's job! And the December losses are right there on page 10 of the document above.
goldman Q1 earnings.pdf
There has been some fuss over the fact that Goldman made December -- a month in which they had huge losses -- "disappear" (Paul Krugman's word) by switching to an annual calendar from an accounting calendar that ended in November. (In other words, its 2008 fourth quarter ended in late November and its 2009 first quarter started in January -- making December an "orphan month.") But it now seems to be the case that this was just required when the company became a bank holding company.
Floyd Norris dings Goldman for not publicizing the losses anyway, since regulators that required the calendar switch didn't "force Goldman to avoid any mention of the December orphan month in the text of its earnings release." But it's not really a surprise that the bank would avoid trumpeting its own losses. That's journalism's job! And the December losses are right there on page 10 of the document above.
Apr 14 2009, 10:32AM
Why Americans Don't Hate the Income Tax
Gallup does a poll on Americans' views of the income tax every year, but this year it actually finds that a majority of Americans think the tax they pay is either "about right" or "too low":
Apr 14 2009, 9:24AM
Does the Olympics Help An Economy?
Matt Yglesias says that even though competition to host the Olympics is fierce, "the
reality is that cities only very rarely manage to reap the financial
windfall that Olympics-boosters advertise." Ryan Avent responds with the argument that the Olympics help leaders overcome "significant constraints in trying to get necessary policy changes put in place":
The games often get cities to undertake massive infrastructure investments, many of which have been in limbo for decades. London's program of transit expansion in advance of the 2012 games is well documented for instance. Now, London may lose money on the games themselves, and it may end up throwing some money away investing in soon-to-be underused natatoria, but the new transit capacity will be around forever, boosting the local economy. Hard to see how that expansion doesn't easily pay for the games in just a few years.But a newly delivered NBER paper by Andrew K. Rose and Mark M. Spiegel takes a third position: hosting a mega-event might not have immediate tangible benefits but it might have a large effect on national exports. They write: "We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event." Here's the abstract:
Apr 13 2009, 4:46PM
Fact-Checking Ari Fleischer on Taxes
Former George Bush Press Secretary Ari Fleischer thinks the tax code is too progressive and wants to start from scratch with a new code that has no deductions or credits. Maybe there is some merit to this, but I think his case against the current tax code is misleading. He writes in this morning's Wall Street Journal that the current system is out of control because:
Sure, this story is largely accurate. (A few small quibbles: The latest CBO data is through 2006, not 2005. And Fleischer's 72.8% refers only to the income tax. As a share of all federal taxes, the top decile pays 55.4%.) But Flesicher's story also seems terribly incomplete.
A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything. Their burden keeps getting heavier.
As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).
Sure, this story is largely accurate. (A few small quibbles: The latest CBO data is through 2006, not 2005. And Fleischer's 72.8% refers only to the income tax. As a share of all federal taxes, the top decile pays 55.4%.) But Flesicher's story also seems terribly incomplete.
Apr 13 2009, 12:20PM
Did the AIG Fuss Hurt Taxpayers?
A piece in this morning's Wall Street Journal, containing an interview
with the head of AIG's financial products division, raises the possibility that the fuss over AIG's bonuses has hurt taxpayers by increasing turnover at the company:
American International Group Inc.'s financial-products unit is on track to wind down by year end, but the controversy over bonuses that led to the loss of some key people may have made the process more costly for taxpayers, the unit's head said.I am willing to believe that the controversy over AIG bonuses damaged morale and made it harder for the company to do its work. But the fact that 20 of the unit's 370 employees left the company isn't anything to write home about. It looks just about average to me.
AIG Financial Products head Gerry Pasciucco, in his first extensive public interview since the bonus dustup last month, said 20 of the unit's 370 employees quit amid the controversy, in which taxpayers and members of Congress decried retention payments to employees at the unit that helped topple the big insurer.
Apr 11 2009, 2:11PM
Does Greed Make You A Bad Person?
Matt Yglesias reiterates his side of a listserv debate about the ethics of the banking industry:
I was saying that whatever one thought should be done with large financial institutions as a policy matter, surely we could agree that the executives at these institutions are primarily bad people.He continues:
Apr 10 2009, 4:57PM
Does the Internet Hurt Journalism?
Over on the homepage, my colleague Cyra Master writes up the results of an Atlantic "insiders poll" that responds to the following question: "On balance, has journalism been helped more or hurt more by the rise of news consumption on the Internet?" Just shy of two-thirds of the 43 insiders say the internet has hurt more than helped.
I was surprised by this answer. But I think the answer depends in large part on whether you approach the question from the supply side or the demand side.
I was surprised by this answer. But I think the answer depends in large part on whether you approach the question from the supply side or the demand side.
Apr 10 2009, 10:30AM
Plenty of New State Taxes
The Wall Street Journal reports that at least ten states are planning major sales or income tax hikes to close budget gaps: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin.
The most interesting of these, I think, is Arizona -- which, in addition being one of the states hardest hit by the recession (its budget gap this year is $3.4 billion) has both a Republican governor and a Republican legislature. They are now facing off over $1 billion in proposed tax increases.
This happens because states, unlike the federal government, cannot deficit spend. And I would bet that as state tax revenues continue to tumble there will be more state-level Republicans who are willing to stomach tax increases. The breakdown of state budget shortfalls looks pretty bipartisan:
The most interesting of these, I think, is Arizona -- which, in addition being one of the states hardest hit by the recession (its budget gap this year is $3.4 billion) has both a Republican governor and a Republican legislature. They are now facing off over $1 billion in proposed tax increases.
This happens because states, unlike the federal government, cannot deficit spend. And I would bet that as state tax revenues continue to tumble there will be more state-level Republicans who are willing to stomach tax increases. The breakdown of state budget shortfalls looks pretty bipartisan:
Apr 10 2009, 8:47AM
A Free Market Solution to Pirates
Amid all this concern about pirates in the Indian Ocean, Tim Fernholz notes that the Competitive Enterprise Institute has proposed a free-market solution to the problem of pirates:
Apr 9 2009, 4:33PM
The Sky-High Popularity of Larry Summers
Two Code Pink protesters crash his speech earlier today at the Economic Club of Washington. Video is available.
As far as the substance of the speech goes, he said, interestingly, of the bank plan: "I do think that this will be a program that can be used opportunistically in a number of types of situations by institutions."
As far as the substance of the speech goes, he said, interestingly, of the bank plan: "I do think that this will be a program that can be used opportunistically in a number of types of situations by institutions."
Apr 9 2009, 1:37PM
Is Every Bank a Winner?
Don't these two parts of the bank stress tests seem, you know, contradictory?
And:
Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs "exceptional assistance," the government, that is, taxpayers, will provide it.
And:
Regulators recognize that for the tests to be credible, not all of the banks can be winners. And it is becoming increasingly clear, industry insiders say, that the government will use its findings to press certain banks to sell troubled assets. The hope is that by cleansing their balance sheets, banks will be able to lure private capital, stabilizing the entire industry.
Apr 9 2009, 1:12PM
Tax Day Tea Parties
Riding the coattails of Rick Santelli's February 19 CNBC rant, a group of conservative organizations has organized a series of rallies set for April 15 -- tax day. The organization's website says Santelli "set out on a rant to expose the bankrupt liberal agenda of the White House Administration and Congress," and "called for a 'Chicago tea Party' where advocates of the free-market system could join in a protest against out of control government spending."
That's not what I remember at all. In fact, if you watch the original Santelli rant, it's clear he's pissed about mortgage modifications. He suggests holding a rally in Chicago in July. It had nothing to do with taxes or spending or April 15.
That's not what I remember at all. In fact, if you watch the original Santelli rant, it's clear he's pissed about mortgage modifications. He suggests holding a rally in Chicago in July. It had nothing to do with taxes or spending or April 15.
Apr 9 2009, 12:51PM
Not Quite the Road to Serfdom
Conservative blogs are freaking out about a new Rasmussen poll that shows only 53% of the country prefers "capitalism" over "socialism." I don't love the poll result ether, but I also don't really know what else to expect: we're in the middle of a financial crisis, and there is a widespread sense that over-exuberance in the marketplace had something to do with it. That's how the pendulum swings.
Apr 9 2009, 11:02AM
Preparing for Economic Warfare with China
The Pentagon is running a new war-game scenario:
The article suggests that the United States is defeated by China in at least one such scenario.
But instead of military brass plotting America's defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS - all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world's leading economies.
The article suggests that the United States is defeated by China in at least one such scenario.
Apr 9 2009, 10:03AM
The Other Warren Commission Report
The Congressional Oversight Panel, led by Elizabeth Warren, released its six-month TARP report Tuesday evening (PDF). If documents could wield a pitchforks, this one wouldn't. But it does contain one little sliver of populist outrage. The report judges TARP by four criteria -- transparency, assertiveness, accountability and clarity. The current administration gets "mixed" results. (And, based on Warren's video introduction, Hank Paulson gets points only for "assertiveness." Which seems fitting.) And the report's reading on accountability seems especially harsh. It says that any bank plan must include:
Apr 9 2009, 9:24AM
Summers and Conflict of Interest, Ctd
I'm not especially eager to dive back into the briar patch over Larry Summers' income. But Greg
Sargent's piece about big liberal blogs being furious over not getting
advertising revenue from liberal interest groups casts the notion of a conflict of interest in an odd light. Several bloggers complained to Sargent that they are often asked to push a group's message but get no advertising revenue in return. In response to the criticism, one of those groups, Americans United for Change, says it will start advertising on the blogs.
Apr 8 2009, 11:36AM
Life Mirrors Art: Spies Attack U.S. Grid
Isn't there a Bond movie about this?
If there's a policy implication here, it should be to recast the debate over the smart grid. (A debate that was last seen in the stimulus bill.) Either that, or we should hire a legion of more advanced super spies.
Cyberspies have penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system, according to current and former national-security officials. [...] Intelligence officials worry about cyber attackers taking control of electrical facilities, a nuclear power plant or financial networks via the Internet.
If there's a policy implication here, it should be to recast the debate over the smart grid. (A debate that was last seen in the stimulus bill.) Either that, or we should hire a legion of more advanced super spies.
Apr 8 2009, 10:29AM
Nassim Taleb's Weird Wish List
Felix Salmon says Nassim Nicholas Taleb's FT listicle is "necessary and impossible." I'd say it's impossible and ... odd. Some of the items seem perfectly reasonable, if also perfectly idealistic: as Salmon says, observing that "nothing should ever become too big to fail," in a world in which just about every modern economy is too big to fail, is a bit quixotic.
And many of the items have a strange aphoristic feel to them: What is fragile should break early while it is still small. And: People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. And: Do not give children sticks of dynamite, even if they come with a warning. It's like Confucius, crossed with the metaphors of a tenth grader.
But what's frustrating is that Taleb doesn't even make a feeble effort to produce policy prescriptions. The closest he comes is to say that we need to change our capitalist structure "voluntarily":
And many of the items have a strange aphoristic feel to them: What is fragile should break early while it is still small. And: People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. And: Do not give children sticks of dynamite, even if they come with a warning. It's like Confucius, crossed with the metaphors of a tenth grader.
But what's frustrating is that Taleb doesn't even make a feeble effort to produce policy prescriptions. The closest he comes is to say that we need to change our capitalist structure "voluntarily":
Apr 8 2009, 9:15AM
Who Gets Hit By The Estate Tax?
Almost in time for the debate over the Senate's vote to increase the estate tax exemption to $5 million, the Tax Policy Center has updated its tables on who the tax hits and for how much. What I like about the tables is that its easy to compare the effects of current law (in which the exemption returns to $1 million) to the Obama plan (in which the exemption is an inflation-indexed $3.5 million) and the Lincoln-Kyl plan ($5 million exemption) that the Senate passed last week.
The estate tax debate tends to boil down to issues of fairness that render the above information more-or-less useless. But the empirical debate is still interesting. And one thing it shows is that the choice between the Obama plan and the Lincoln-Kyl plan isn't a choice between a world in which fascist stormtroopers break up the plots of every small farmer and a world in which various would-be aristocrats can accumulate their way back to the 19th-century.
The estate tax debate tends to boil down to issues of fairness that render the above information more-or-less useless. But the empirical debate is still interesting. And one thing it shows is that the choice between the Obama plan and the Lincoln-Kyl plan isn't a choice between a world in which fascist stormtroopers break up the plots of every small farmer and a world in which various would-be aristocrats can accumulate their way back to the 19th-century.
Apr 7 2009, 4:43PM
Who's Fibbing About Unemployment?
The full results of the new CBS/NYT poll contain all sorts of weird nuggets about public opinion and the economy that aren't reflected in the write-ups. Here's one that I find representative and strange:
This can't possibly be right, can it?
Are you currently employed, or are you temporarily out of work, or are you not in the
market for work at all?
Currently employed: 52%
Temporarily out of work: 17%
Not in the market for work: 15%
Retired: 16%
This can't possibly be right, can it?
Apr 7 2009, 4:02PM
Does the Geithner Plan Violate the FDIC Charter?
Andrew Ross Sorkin's column in this morning's New York Times comes tantalizingly close to the conclusion that the Geithner bank plan -- which uses FDIC-backed loans -- violates the FDIC charter:
But a couple of thoughts on this.
The F.D.I.C. is insuring the program, called the Public-Private Investment Program, by using a special provision in its charter that allows it to take extraordinary steps when an "emergency determination by secretary of the Treasury" is made to mitigate "systemic risk."
Simple enough, but that language seems to bump up against another, perhaps more important provision. That provision clearly limits its ability to borrow, guarantee or take on obligations of more than $30 billion. [...] The exact legalistic language says that it "may not issue or incur any obligation" over that limit.
But a couple of thoughts on this.
Apr 7 2009, 9:51AM
Newspaper in Search of Endowment
The bankrupt Star Tribune, Minnesota's largest newspaper, is testing the proposition that its journalistic output is a community service worth endowing. It has launched a community website to court a new owner and explore alternative business models.
Apr 6 2009, 5:32PM
Treasury Changes the Rules of the Game
It's hard to know what to make of the fact that the Treasury Department
is extending the application deadline and "refining" the guidelines for
the Legacy Securities Public-Private Investment Program. On the one hand, expanding the pool of eligible applicants might temper some of the fairness-based criticisms that the plan has received. (I.E. -- why can only the big players get non-recourse loans?) On the other hand, extending the application deadline is something you do when the first round of applicants is a bit weak.
Apr 6 2009, 4:34PM
Jeffrey Sachs Misses the Boat
Writing in the Huffington Post, Jeffrey Sachs says he has a new criticism of the Geithner bank plan:
But as far as I can tell, there's nothing new about this argument at all. (Here's Karl Denninger making the same argument way back in the stone age of March 23.) And, more importantly, the situation Sachs describes can't take place under the Treasury rules.
Insiders can easily game the system. [...] Consider a toxic asset held by Citibank with a face value of $1 million, but with zero probability of any payout and therefore with a zero market value. An outside bidder would not pay anything for such an asset. All of the previous articles consider the case of true outside bidders.
Suppose, however, that Citibank itself sets up a Citibank Public-Private Investment Fund (CPPIF) under the Geithner-Summers plan. The CPPIF will bid the full face value of $1 million for the worthless asset, because it can borrow $850K from the FDIC, and get $75K from the Treasury, to make the purchase! Citibank will only have to put in $75K of the total.
But as far as I can tell, there's nothing new about this argument at all. (Here's Karl Denninger making the same argument way back in the stone age of March 23.) And, more importantly, the situation Sachs describes can't take place under the Treasury rules.
Apr 6 2009, 2:49PM
How Unequal is the United States?
I see that the Congressional Budget Office has updated its sexiest data set: The Distribution of Federal Taxes and Household Income. The CBO data is always three years behind -- the 2009 update brings it up through 2006 -- and the current crisis will no doubt shift the landscape of American income. But the data set is still the best look at equality and redistribution in the country. Inequality and progressivity are in the eye of the beholder, but here are a few highlights:
Apr 6 2009, 1:26PM
The Dollar is Being Replaced?
Maybe Congresswoman Michelle Bachmann was on to something when she worried about the dollar being replaced by a new currency. But it turns out the threat isn't China or the G-20 but local communities that decide they need to increase the money supply by printing scrip.
My head starts to hurt when I think about the macroeconomic implications of something like this, so I'm going to post a link to Paul Krugman's classic article on the imploding, scrip-issuing, baby-sitting co-op and leave it at that.
My head starts to hurt when I think about the macroeconomic implications of something like this, so I'm going to post a link to Paul Krugman's classic article on the imploding, scrip-issuing, baby-sitting co-op and leave it at that.
Apr 6 2009, 11:41AM
Why We Shouldn't Let Newspapers Die
What to do about the rapidly disintegrating newspaper industry? Michael Kinsley answers:
Would it be "sadly compromised"? Not really.
How about nothing? Capitalism is a "perennial gale of creative destruction" (Joseph Schumpeter). Industries come and go. A newspaper industry that was a ward of the state or of high-minded foundations would be sadly compromised.
Would it be "sadly compromised"? Not really.
Apr 6 2009, 9:46AM
That Geithner Double Standard
There has been some question about whether Tim Geithner and the Obama administration have been applying a different restructuring standard to the auto industry than they have to the banks. Geithner has now basically acknowledged that this is true:
"When in the future -- or I would say, if in the future -- banks need exceptional assistance in order to get through this, then we'll make sure that assistance comes with conditions, not just to protect the taxpayer, but to make sure this is the kind of restructuring necessary for them to emerge stronger," Mr. Geithner said on CBS's "Face the Nation." "Where that requires a change of management and the board, we will do that."
Apr 6 2009, 8:42AM
Your Guide to Populist Anger
The Times has a graphical breakdown of CEO compensation at 198 publicly traded companies. The graphic tracks the percent change in a CEO's compensation against the percent change in his company's share price and profits. The three don't line up that often.
Apr 4 2009, 1:36PM
The Great (Boston) Globe Itself?
The New York Times is apparently threatening to close the Boston Globe unless it gets $20 million in concessions from the paper's union. (It will probably get some concessions from the union.) But that $20 million is starting to look like chump change next to the paper's expected $85 million loss in 2009.
Apr 4 2009, 1:34PM
Larry Summers is Writing a Book
Or at least his financial disclosure form (pdf) says he's taken an advance for one.
Apr 4 2009, 1:20PM
Who Cares About Larry Summers' Income?
Larry Summers spent the past couple of years making a lot of money. His financial disclosure form, released yesterday afternoon, shows he received $5.2 million in compensation from the hedge fund D.E. Shaw. His standard speaking fee seems to have been $60,000. He earned that, give or take (mostly give), for speaking before Citigroup, JP Morgan, Skagen, Goldman, Lehman Brothers and American Express. Another $60,000 from Brookings. Another $34,000 for his column in the Financial Times. It adds up.
The full disclosure makes for juicy reading -- reading about other people's money always does -- and I've stuck the PDF at the end of this post. But, try though I might, I can't share much enthusiasm for the belief, now gospel on the left and implicit in the news reports, that Summers' past income constitutes a problem for policymaking in the present. This sort of financial disclosure story is a wonderful occasion to trot out well-worn chestnuts about "conflict of interest" and the "appearance of impropriety." But reading about an appearance of impropriety is like eating an appetizer for dinner: not altogether satisfying. What's the actual impropriety? Here are five reasons to doubt that there is one.
The full disclosure makes for juicy reading -- reading about other people's money always does -- and I've stuck the PDF at the end of this post. But, try though I might, I can't share much enthusiasm for the belief, now gospel on the left and implicit in the news reports, that Summers' past income constitutes a problem for policymaking in the present. This sort of financial disclosure story is a wonderful occasion to trot out well-worn chestnuts about "conflict of interest" and the "appearance of impropriety." But reading about an appearance of impropriety is like eating an appetizer for dinner: not altogether satisfying. What's the actual impropriety? Here are five reasons to doubt that there is one.
Apr 3 2009, 4:15PM
More Ways to Cheat the Geithner Plan?
The FT reports that big banks are thinking of buying each other's toxic assets with the government subsidy:
But if the government doesn't want certain institution's to participate as buyers, it doesn't have to let them. It can reject applicants under the legacy securities half of the program, and it can restrict the bidding under the legacy loans side of the program. What's interesting about the plan above is that the government isn't necessarily opposed to it, because it thinks there is useful price discovery information to be obtained by letting banks bid on each other's assets. One capital market adviser with knowledge of the plan writes:
US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury's $1,000bn (£680bn) plan to revive the financial system.
The plans proved controversial, with critics charging that the government's public-private partnership - which provide generous loans to investors - are intended to help banks sell, rather than acquire, troubled securities and loans.
But if the government doesn't want certain institution's to participate as buyers, it doesn't have to let them. It can reject applicants under the legacy securities half of the program, and it can restrict the bidding under the legacy loans side of the program. What's interesting about the plan above is that the government isn't necessarily opposed to it, because it thinks there is useful price discovery information to be obtained by letting banks bid on each other's assets. One capital market adviser with knowledge of the plan writes:
Apr 3 2009, 3:31PM
Obama: Protecting Banks from the Pitchforks
Politico has some new details on last week's meeting between Obama and banking execs. Among other things, Obama is reported to have said:
"My administration is the only thing between you and the pitchforks."
Apr 3 2009, 12:15PM
OECD: Tax Havens Should be Ashamed
There was apparently some controversy at the G-20 over whether the meeting's financial declaration could include an endorsement the OECD's list of non-compliant tax havens. The final answer was, "No, it can't." So the G-20 just published the following observation:
And indeed the OECD did publish such a list. It consists of:
We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of information.
And indeed the OECD did publish such a list. It consists of:
Apr 3 2009, 10:43AM
Are Newspapers Vital?
Senator Benjamin Cardin has an op-ed in this morning's Washington Post, defending his proposed law to let qualified newspaper companies obtain non-profit status. I've written about the law before, and I still wish, where Cardin writes things like "Newspapers provide a vital service," that he instead said "newspapers provide a vehicle for vital newsgathering." There's nothing vital about a bundle of dead trees! When people get worried about the fate of the industry and the fate of democracy, they're worried about a decline in the amount and quality of information available to citizens. They're not worried about the medium for transmitting the information.
And a nitpick. Cardin writes: "I want to make clear that this proposal would involve no infusion of federal taxpayer money." Well, that's kind of fudging it. This kind of proposal must involve an infusion of taxpayer money. Increasing the ease with which one can claim non-profit status will reduce tax revenue. Since Cardin is not proposing an equivalent decrease in spending, a decline in tax revenue must be offset by higher taxes in the future. But maybe a robust news industry would let people know about this kind of thing.
And a nitpick. Cardin writes: "I want to make clear that this proposal would involve no infusion of federal taxpayer money." Well, that's kind of fudging it. This kind of proposal must involve an infusion of taxpayer money. Increasing the ease with which one can claim non-profit status will reduce tax revenue. Since Cardin is not proposing an equivalent decrease in spending, a decline in tax revenue must be offset by higher taxes in the future. But maybe a robust news industry would let people know about this kind of thing.
Apr 3 2009, 9:47AM
The Senate's Estate Tax Hypocrisy
The estate tax is the hardiest perennial of policy debates, and the fairness and revenue implications of Senators John Kyl and Blanche Lincoln's plan to reduce the rate and increase the exemption level have been amply covered elsewhere.
But I do find it slightly ironic that the Senate passed (51-28) this estate tax amendment on the same day that it "unanimously agreed...that no taxes should be raised on charitable contributions to pay for health care reform." This is a reference to President Obama's exceedingly unpopular proposal cap the top rate for charitable deductions at 28 percent, which is "something a number of charities complain will lead to a drop-off in charitable giving." I assume the senators who voted for the unanimous agreement feel the same way.
What's odd is that reducing the estate tax rate will also lead to a drop-off in charitable giving. And if the United States Senate is convinced that any decline in charity is unacceptable, then 51 senators should not have voted for the estate tax amendment.
But I do find it slightly ironic that the Senate passed (51-28) this estate tax amendment on the same day that it "unanimously agreed...that no taxes should be raised on charitable contributions to pay for health care reform." This is a reference to President Obama's exceedingly unpopular proposal cap the top rate for charitable deductions at 28 percent, which is "something a number of charities complain will lead to a drop-off in charitable giving." I assume the senators who voted for the unanimous agreement feel the same way.
What's odd is that reducing the estate tax rate will also lead to a drop-off in charitable giving. And if the United States Senate is convinced that any decline in charity is unacceptable, then 51 senators should not have voted for the estate tax amendment.
Apr 3 2009, 9:06AM
663,000 Jobs Lost in March
From the Bureau of Labor Statistics:
Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent. [...] Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors.
Apr 2 2009, 5:32PM
Empty Rhetoric or New International Regulation?
I've read the G-20's Declaration on Strengthening the Financial System several times, and I can't decide if it actually creates a new international body with new regulatory powers, or just renames a pre-existing, toothless organization, and then spends several hundred words churning over platitudes about the need to "strengthen international cooperation" and "improve standards" and produce "effective oversight."
Apr 2 2009, 4:15PM
What Greenberg Said About AIGFP in 2002
In contrast to his defensive and self-serving testimony today, here's what then-CEO Hank Greenberg said about AIG's financial products unit on the company's 2002 Q3 earnings conference call:
Super AAA indeed!
[T]hey're doing a very good job, and we're pleased with their results, and I think that it will continue doing what it's been doing in the past. [...] my belie[f] is that the stuff we're writing there is Super AAA portfolios.
Super AAA indeed!
Apr 2 2009, 3:31PM
Who Is Hank Greenberg Trying to Fool?
At today's congressional hearing on AIG, former CEO Hank Greenberg was asked: "Do you take any responsibility at all?" To which he responded:
Well, it's pretty easy to be responsible for something -- the financial crisis and collapse of AIG -- that happens when you're "not there." Greenberg ran AIG from 1968 until 2005. AIG's financial products unit opened shop in 1987. It started writing credit default swaps in the late '90s. All under Greenberg's watch. That doesn't mean it's all his fault. But it does mean his claims of angelic purity are starting to look increasingly preposterous.
No I don't.Gosh. In a separate interview with the Wall Street Journal he elaborates: "I don't feel any responsibility at all. How can I be responsible for something that occurred when I'm not there?"
Well, it's pretty easy to be responsible for something -- the financial crisis and collapse of AIG -- that happens when you're "not there." Greenberg ran AIG from 1968 until 2005. AIG's financial products unit opened shop in 1987. It started writing credit default swaps in the late '90s. All under Greenberg's watch. That doesn't mean it's all his fault. But it does mean his claims of angelic purity are starting to look increasingly preposterous.
Apr 2 2009, 12:40PM
Does Geithner Now Favor Nationalization?
For the past couple of days there's been talk about a perceived double standard at the heart of the administration's auto policy. From the left, or thereabouts, comes the question of why Obama would force out GM CEO Rick Wagoner but leave Bank of America's Ken Lewis in place. From the right, more or less, comes the question of why Obama would jettison Wagoner but allow Ron Gettelfinger to keep the top job at United Autoworkers.
Most of the discussion focused on the symbolic nature of the management shift: The administration needed to create the perception a new direction, show it was getting tough, and so forth. But now it's become clear that the administration is also interested in replacing all or some of GM's board. And Tim Geithner is defending that move in substantive terms -- not as part of a symbolic "new direction." Here's what he told Katie Couric:
Most of the discussion focused on the symbolic nature of the management shift: The administration needed to create the perception a new direction, show it was getting tough, and so forth. But now it's become clear that the administration is also interested in replacing all or some of GM's board. And Tim Geithner is defending that move in substantive terms -- not as part of a symbolic "new direction." Here's what he told Katie Couric:
Apr 2 2009, 10:55AM
Is It That Easy to Cheat Geithner's Plan?
BusinessWeek has a rundown of loopholes in Geithner's bank plan. The first one is:
Banks may be able to finance the sale of their own troubled loans, lending money to the public-private partnerships that buy the assets. A bank's loan to the partnership would be buttressed by an FDIC guarantee. Administration officials confirm that the Treasury may allow such seller financing.There is clearly some misunderstanding here -- not necessarily on the part BusinessWeek, but on the part of ... someone. The kind of self-dealing described above is actually dealt with in the Treasury's original white paper on the bank plan, but it's confusing as hell. To wit:
Apr 2 2009, 9:03AM
The G20 Supports New Global Currency
Via this morning's Wall Street Journal, I see that the G20 supports increasing IMF special drawing rights by between $100 and $250 billion.
I hope we hear soon from Congresswoman Michelle Bachmann, who has been telling us that this sort of thing is actually a vast conspiracy to replace the dollar with a new global currency.
I hope we hear soon from Congresswoman Michelle Bachmann, who has been telling us that this sort of thing is actually a vast conspiracy to replace the dollar with a new global currency.
Apr 1 2009, 4:47PM
Where Ryan's Crazy Graph Came From
I poked fun at Paul Ryan's 100-year federal spending graph in an earlier post, but I wanted to do a follow-up on exactly where this nutty figure comes from. The same graph appears in the full alternative budget, so it's worth figuring out. Here's the alternate version of the same graph:
Apr 1 2009, 2:56PM
Read Obama's Lips: New Taxes?
This Associated Press story about Obama breaking his campaign promises by raising the tax on tobacco products seems like a bit of a stretch. The promise in question? Obama's September 2008 claim that "no family making less than $250,000 a year will see any form of tax increase" under an Obama presidency. The increase in question? An additional 62 cent tax on each pack of cigarettes.
Apr 1 2009, 12:47PM
Paul Ryan's Crazy Budget Graph
I'm still reading the Republicans' alternative budget (pdf), but I did want to highlight this graph from Republican Paul Ryan's Wall Street Journal op-ed on the subject, because it's pretty stupid:
Apr 1 2009, 9:32AM
Kathy Sebelius's Tax Problems
Mar 31 2009, 5:26PM
Big Government Will Set Your Salary?
One of the nice things about the Internet is that you no longer need to rely on a journalist's description of a bill: You can dig up the bill and read it yourself! (If you can handle the excitement, of course.) And in the case of Byron York's piece in the today's Examiner -- "Beyond AIG: A bill to let Big Government set your salary" -- it's worth going back to the primary sources.
York's piece and the bill in question have gotten a lot of attention. Michelle Malkin worries that compensation restrictions might be coming to "all US companies, not just TARP recipients." Little Green Footballs frets that the new bill will "allow the government to determine how much all employees of businesses that accept federal money should be paid." (The post's headline: "A Bill to Let Big Government Set Your Salary.") And NewsBusters carps that the bill would give Tim Geithner "veto power over salaries at every company into which the government has inserted its intrusive claws." (Headline: "Congressional Committee Passes Bill Controlling ALL Pay at US-Involved Companies.")
I am willing to bet that none of these people has read the bill, because all of their descriptions are wrong.
York's piece and the bill in question have gotten a lot of attention. Michelle Malkin worries that compensation restrictions might be coming to "all US companies, not just TARP recipients." Little Green Footballs frets that the new bill will "allow the government to determine how much all employees of businesses that accept federal money should be paid." (The post's headline: "A Bill to Let Big Government Set Your Salary.") And NewsBusters carps that the bill would give Tim Geithner "veto power over salaries at every company into which the government has inserted its intrusive claws." (Headline: "Congressional Committee Passes Bill Controlling ALL Pay at US-Involved Companies.")
I am willing to bet that none of these people has read the bill, because all of their descriptions are wrong.
Mar 31 2009, 2:46PM
So Maybe We Can't Tax Back AIG Bonuses
First I thought that the proposals to tax back bonuses from AIG would be unconstitutional for bill of attainder reasons. Then Larry Tribe convinced me that it would be easy to design a tax bill that passed constitutional muster. But now I see that the Congressional Research Service has issued a report (pdf) on the constitutional implications of the tax clawback proposals, which concludes that "the strongest arguments against their constitutionality seem to arise
under the bill of attainder analysis." So I'm going to give up on the question and just paste their test after the jump:
Mar 31 2009, 12:08PM
Is Obama's Auto Plan "Unprecedented"?
If there is one word that is being used to describe the administration's plan for automakers, it is "unprecedented." The Hill says some Republicans "criticized what they saw as an unprecedented intervention into private industry by the government."
But if there were one other word to describe the plan, it would be ... "precedented." David Brooks, for instance, writes that Obama's decision to keep the automakers out of bankruptcy is "an extremely precedented move."
And some get the best of both worlds. John McCain described the plan as "unprecedented window dressing." His point seemed be that the plan is unprecedented only because it's so thoroughly precedented, which is to say the plan isn't unprecedented enough. What the heck is going on?
But if there were one other word to describe the plan, it would be ... "precedented." David Brooks, for instance, writes that Obama's decision to keep the automakers out of bankruptcy is "an extremely precedented move."
And some get the best of both worlds. John McCain described the plan as "unprecedented window dressing." His point seemed be that the plan is unprecedented only because it's so thoroughly precedented, which is to say the plan isn't unprecedented enough. What the heck is going on?
Mar 31 2009, 10:50AM
Obama Won't Stop Your Tears
Michelle Malkin was going postal this morning about "new federally subsidized counseling services" for those suffering from economic hardships. Sounds like a crazy government boondoggle, right? Indeed it does. And Drudge seems to agree.
But, fortunately for taxpayers and unfortunately for critics, the new "services" in question actually consist of a single page on the website of the Substance Abuse & Mental Health Services Administration. The page contains barely more than a thousand words.
But, fortunately for taxpayers and unfortunately for critics, the new "services" in question actually consist of a single page on the website of the Substance Abuse & Mental Health Services Administration. The page contains barely more than a thousand words.
Mar 30 2009, 5:10PM
Obama Won't Repair Your Car
The conservative blogosphere is indulging itself in a bit of snark over this part of Obama's auto-industry speech:
"Expect that same excellent service that you have grown to love from your local DMV," says Gateway Pundit, tongue planted firmly in cheek. Ed Morrissey raced his way to the same gag a few hours later, with even more delicate sarcasm: "This is great news -- for fans of the DMV." (Italics in the original -- in case you missed the joke.) More high quality snark here, here and here.
But I doubt any of these people has actually read the plan.
[I]n case there are still nagging doubts, let me say it as plainly as I can -- if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe.
In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warranty.
"Expect that same excellent service that you have grown to love from your local DMV," says Gateway Pundit, tongue planted firmly in cheek. Ed Morrissey raced his way to the same gag a few hours later, with even more delicate sarcasm: "This is great news -- for fans of the DMV." (Italics in the original -- in case you missed the joke.) More high quality snark here, here and here.
But I doubt any of these people has actually read the plan.
Mar 30 2009, 3:11PM
America No Longer Invented the Car
Among other things, earlier today Barack Obama made the case for why America needs a car industry. In his words, the industry is "an emblem of the American spirit" and "a once and future symbol of America's success" that "helped build the middle class and sustained it throughout the 20th century."
But I piece than one element of Obama's automobile history -- something he's brought up more than once before -- has been dropped: The slightly wacky claim that we need to defend the industry because America "invented" the automobile.
But I piece than one element of Obama's automobile history -- something he's brought up more than once before -- has been dropped: The slightly wacky claim that we need to defend the industry because America "invented" the automobile.
Mar 30 2009, 11:49AM
Was Dodd in Cahoots With AIG?
The Washington Times says it has damning new information about the relationship between AIG and Senator Chris Dodd:
I understand why this provocative, but I'm not sure why it's important. Sure, you can be angry about the influence corporations wield in American elections (Ralph Nader has made a second career out of it). But that anger shouldn't apply uniquely to Chris Dodd. There is nothing illegal about soliciting individual campaign donations. And, more importantly, there is no evidence that Dodd did anything in exchange for these campaign donations.
As Democrats prepared to take control of Congress after the 2006 elections, a top boss at the insurance giant American International Group Inc. told colleagues that Sen. Christopher J. Dodd was seeking re-election donations and he implored company executives and their spouses to give.
I understand why this provocative, but I'm not sure why it's important. Sure, you can be angry about the influence corporations wield in American elections (Ralph Nader has made a second career out of it). But that anger shouldn't apply uniquely to Chris Dodd. There is nothing illegal about soliciting individual campaign donations. And, more importantly, there is no evidence that Dodd did anything in exchange for these campaign donations.
Mar 30 2009, 9:43AM
Chrysler is Doomed
This is the damning-with-faint-praise conclusion of Chrysler's "Determination of Viability Summary" (a phrase sure to make Antonin Scalia wince):
All of the new auto industry documents are after the jump.
While the Company has made meaningful changes to its cost structure in the last few years, the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging. As a result, the President's Designee has found that Chrysler's plan is not viable as currently structured. However, to the extent Chrysler can develop a partner who would improve Chrysler's scale, bolster its product development, and allow it to enter the small car market with a robust set of products, Chrysler has some prospects for long term viability.The administration is cheerleading for a partnership with Fiat, but the fact that Chrysler has "some prospects" for long-term viability if it achieves four unrealized goals doesn't fill me with confidence that Chrysler will be around for long. Indeed, the company has just 30 days and $6 billion to sort this out.
All of the new auto industry documents are after the jump.
Mar 29 2009, 3:49PM
Ask the Editors: Four Problems With Bank Nationalization
Mar 27 2009, 4:08PM
The Soft Paternalism of Tim Geithner
Why can't you get a slice of the new bank plan's pie? Matt Yglesias asked the question last week, and Daniel Gross asks it in his Slate column today. The basic point is that Geithner's new bank plan is unfair because it restricts access to non-recourse loans to big investors. Gross writes:
And sure, there is something intuitively unfair about this. But I wonder: Would Gross extend his principle to all sorts of other investment restrictions?
If we taxpayers are going to be financing something close to guaranteed returns for hedge funds and private-equity firms, why can't we get in on the sweet deal that's being offered to Wall Street? Why can't we buy the distressed assets the same way hedge funds will?
And sure, there is something intuitively unfair about this. But I wonder: Would Gross extend his principle to all sorts of other investment restrictions?
Mar 27 2009, 11:23AM
Charitable giving will fall. So?
I didnt' have a chance to write about it yesterday, but I thought this Washington Post article on Obama's plan to cap charitable deductions was pretty misleading. (But of course I'm biased.) Here's the first paragraph:
President Obama defends his proposal to cut the tax deductions that wealthy Americans can claim for their charitable donations by arguing that the shift would not have an adverse effect on giving, but two independent analyses concluded that the proposal could result in a drop of as much as $3.87 billion for the already reeling nonprofit sector.The first part of this sentence is not quite right. Obama said that "there's very little evidence that [his proposed change would have] a significant impact on charitable giving." That's not the same as saying there will be no adverse effect on giving. Reducing the available deduction raises the cost of giving, so of course it will reduce charitable giving. (Unless the demand for charitable giving is perfectly inelastic, which it isn't.) The questions are: By how much? And what do we get in return? And is that tradeoff worth it?
Mar 26 2009, 6:08PM
Geithner's all-star public relations lineup
This might explain why it's hard to get answers about the bank plan.
Mar 26 2009, 5:18PM
What will get cut at the New York Times?
One more note about the cuts at the New York Times: most of the big staff cuts are on the business side, which supports the theory that the Times is holding out on meat and potatoes reporting cuts in the hopes of being the "last newspaper standing." (If it's the last one standing, presumably it won't need to struggle much for advertising revenue to support its large reporting staff.)
Where the cuts fall in the newsroom also support this theory. A friend texts:
Where the cuts fall in the newsroom also support this theory. A friend texts:
The newsroom cuts will focus on Escapes, regionals and the New York Times Magazine. Those sections are the ones that are most based on freelancers. Escapes is depends on travel freelance or staffers writing for freelance money. The magazine is filled with contract workers -- photo editors, stylists, writers, editors -- and regionals is is chock full of freelance writers.
Mar 26 2009, 4:23PM
The NYT proves its econ columnist wrong
The New York Times reports on bad news at the New York Times:
This is an usual way of cutting costs. Sticky-wage theory says that across-the-board salary cuts are rare because they have across-the-board effects on company morale. Layoffs, on the other hand, "get the misery out the door." I know this because New York Times economics columnist David Leonhardt wrote a piece about it a few months ago, in which he argued that the price of labor does not fall in a recession:
Facing a steep drop in revenue, The New York Times Company plans to cut the pay of most employees by 5 percent for nine months, in return for 10 days' leave, and will lay off 100 people and make other budget cuts, executives said on Thursday.
This is an usual way of cutting costs. Sticky-wage theory says that across-the-board salary cuts are rare because they have across-the-board effects on company morale. Layoffs, on the other hand, "get the misery out the door." I know this because New York Times economics columnist David Leonhardt wrote a piece about it a few months ago, in which he argued that the price of labor does not fall in a recession:
Mar 26 2009, 3:12PM
Dollar to be replaced by new global currency
At least that's what Congresswoman Michele Bachmann seems to think (via Matt Yglesias). She is proposing new legislation to "ensure that the U.S. dollar remains the currency of the United States." This is a weird development for many of reasons, but the three that come to mind most quickly are:
Mar 26 2009, 2:17PM
What Soros doesn't like about Obama
I spent some of the morning at The New America Foundation's conference on the London G-20, where George Soros delivered a talk about the financial crisis and took questions. One of the first questions was: Are you pleased with where the Obama administration is going? To which Soros -- a longtime Obama supporters -- replied:
Soros's preferred recapitalization method was one that I first saw proposed by Paul Romer: Starting new banks. But he also had a more general criticism: Obama should have focused more immediately -- "out of the gate," in Soros's words -- on bank recapitalization.
I give them very high remarks in every area except one. That is the recapitalization of the banks.
Soros's preferred recapitalization method was one that I first saw proposed by Paul Romer: Starting new banks. But he also had a more general criticism: Obama should have focused more immediately -- "out of the gate," in Soros's words -- on bank recapitalization.
Mar 26 2009, 10:15AM
Can't a website be a newspaper?
I spent some of yesterday afternoon reading about Senator Benjamin Cardin's proposal to make it easier for newspapers to achieve tax-exempt nonprofit status. The law has the mixed blessings of novelty, and I think that on balance it's a good idea.
But here's one question that I started to wonder about: How does the law actually define a newspaper? (Or "qualified newspaper corporation," in the legal parlance.) The law -- I've stuck the pdf at the bottom of this post -- lays out three standards, the first of which is:
It didn't seem obvious that this would include websites. And, indeed, it probably doesn't. Here's what a senior Cardin staffer told me when I asked whether the law would cover a website:
But here's one question that I started to wonder about: How does the law actually define a newspaper? (Or "qualified newspaper corporation," in the legal parlance.) The law -- I've stuck the pdf at the bottom of this post -- lays out three standards, the first of which is:
the trade or business of such corporation or organization consists of publishing on a regular basis a newspaper for general circulation
It didn't seem obvious that this would include websites. And, indeed, it probably doesn't. Here's what a senior Cardin staffer told me when I asked whether the law would cover a website:
Mar 25 2009, 4:23PM
The war on charity and prosperity, part III
Marty Feldstein attacks on the president's proposal to reduce the rate at which high-income taxpayers can deduct charitable donations:
Let me try to awaken his imagination.
In effect, the change would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way.
Let me try to awaken his imagination.
Mar 25 2009, 1:31PM
The decline and fall of the internship
I'm a little surprised to see the number of internships drop dramatically. I know wages are sticky and all, but why are internship wages sticky? The main compensation of an internship isn't supposed to be the wage; it's supposed to be the experience, right?
Mar 25 2009, 10:16AM
Here come the nonprofit newspapers?
Senator Benjamin Cardin takes David Swensen's suggestion and introduces a bill to make it easy for newspapers to become nonprofits:
Cardin's Newspaper Revitalization Act would allow newspapers to operate as nonprofits for educational purposes under the U.S. tax code, giving them a similar status to public broadcasting companies.The tradeoff is that newspapers would be unable to endorse candidates and legislation, but when you think about the quality of the average newspaper editorial page this doesn't really seem like such a bad deal. Opinion is cheap and plentiful on the web.
Mar 25 2009, 8:40AM
The end of the AIG tax bill
For the many reasons I've detailed elsewhere, it's gratifying to see the effort to slap a punitive and retroactive tax on AIG sputter and (probably) die. Perhaps Obama's admonition about using the tax code "to punish people" was taken seriously. And then I see something like this at the end of the WSJ article:
I suppose it's possible that there would be some advantages to the "enhanced authority" system. Maybe it would make it easier to recoup bonuses from specific employees at a firm -- like those at AIGFP -- without pilfering from the entire institution. But if congress is proposing to give the attorney general or Treasury new powers to retroactively take back bonuses as a inoffensive alternative to the punitive tax, then I think they've missed the point of the criticisms of the punitive tax.
One potential alternative to the AIG tax bill could be House legislation giving the Treasury and the U.S. attorney general enhanced authority to recoup excessive bonuses.
I suppose it's possible that there would be some advantages to the "enhanced authority" system. Maybe it would make it easier to recoup bonuses from specific employees at a firm -- like those at AIGFP -- without pilfering from the entire institution. But if congress is proposing to give the attorney general or Treasury new powers to retroactively take back bonuses as a inoffensive alternative to the punitive tax, then I think they've missed the point of the criticisms of the punitive tax.
Mar 24 2009, 4:45PM
Can you cheat Geithner's bank plan?
I indicated earlier that there's been some debate about this question. Karl Denninger wrote up a proposal for how gaming the system might work, and Tyler Cowen seconded it. How would this work? Denninger's plan has three steps:
But this probably won't work. The problem lies in step one: You can't bid on your own assets in the manner Denninger describes. The Treasury guidlines (pdf) aren't totally clear on this point, in part because the sentence restricting bidding on one's own assets looks like it as written by William Faulkner. But here is the restriction:
--I become a "bidder" and "bid" on my own assets at [an inflated price]
--I am providing 5 or 10% of the money. The rest is covered by Treasury, The Fed and the FDIC via guaranteed bond issuance.
--The loan, ex my contribution, is non-recourse. That is, I can lose 5 or 10% of the total portfolio purchased, but nothing more.
But this probably won't work. The problem lies in step one: You can't bid on your own assets in the manner Denninger describes. The Treasury guidlines (pdf) aren't totally clear on this point, in part because the sentence restricting bidding on one's own assets looks like it as written by William Faulkner. But here is the restriction:
Mar 24 2009, 3:10PM
Why Geithner's bank plan is old news
Geithner's bank plan offers non-recourse loans to institutions that participate in the public-private partnership for purchasing toxic assets. This gives institutions an incentive to offer higher prices than they otherwise might. Many critics of the bank plan have suggested this is crazy -- that it makes the prices "artificial -- but James Surowiecki has a good response:
Yet for all the criticism of this subsidy, the truth is that the plan's reliance on non-recourse loans is not an especially radical idea. In fact, it's essentially the same kind of subsidy that the entire U.S. banking system has depended on for the last seventy-five years. What are FDIC-insured bank deposits, after allàThey're non-recourse loans to banks. You deposit money with a bank--that is, you lend it your money. The bank can then take that money, and leverage it up nine-to-one to make loans or acquire assets. If the loans are good, they keep all the profits. If the loans go bad, the most the bank can lose is the capital it's invested. All the rest of the bank's losses are paid for by the FDIC. This is precisely the same arrangement -- down to the loans being guaranteed by the FDIC--that the Geithner plan sets up.I don't think the takeaway point here is that the bank plan is necessarily a good idea because a portion of it resembles the standard operating procedure at the FDIC. (For one, the analogy doesn't insulate the bank plan from the larger criticism that the assets in question are worthless and the banks in question are insolvent.) But it does mean critics of the non-recourse loans have to come up with an argument or a distinction for why the Geithner bank plan is different from what the FDIC already does. Why should we feel comfortable subsidizing investment risk in one case (the FDIC) but not another (the Geithner plan)?
Mar 24 2009, 12:40PM
Obama discovers love for Wall Street
I linked to this Wall Street Journal story below, but it has some great details that are worth singling out. Part of the story's appeal is the details of what went on over the weekend--the argument Treasury officials presented to bank executives and the pushback the bank executives gave them:
Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say.And part of what makes the story interesting is that it documents what appears to be a divide in the White House between administration officials who are quite comfortable criticizing Wall Street (David Axelrod) and those who aren't (Obama himself):
Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.
Mar 24 2009, 10:55AM
Gaming Geithner's bank plan?
Tyler Cowen thinks it can be done. I'm not sure institutions will be allowed to bid on assets they own, but the administration's white paper doesn't really make it clear.
Mar 24 2009, 10:25AM
Why does Geithner need vast new powers?
The Treasury is expected to ask for new powers to seize troubled financial institutions that aren't banks. And when the White House Press Secretary says that this request "isn't anything crazy," it makes me fear that something crazy is about to happen. We'll see. For now, here's the important part from the Washington Post write up:
A lot of how this works will depend on details that haven't really been made clear. For instance, the Post says that the Treasury will be able to act only after consulting with the president and "getting a recommendation from two-thirds of the Federal Reserve Board." But the membership of the Federal Reserve Board isn't a multiple of three, so this makes it sound like the administration is pursuing either an imaginary number or a kangaroo court. I'm sure this will be fleshed out.
Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.
A lot of how this works will depend on details that haven't really been made clear. For instance, the Post says that the Treasury will be able to act only after consulting with the president and "getting a recommendation from two-thirds of the Federal Reserve Board." But the membership of the Federal Reserve Board isn't a multiple of three, so this makes it sound like the administration is pursuing either an imaginary number or a kangaroo court. I'm sure this will be fleshed out.
Mar 24 2009, 9:14AM
Timing is everything
I see that gonzo journalist Matt Taibbi has a new piece about the "gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations." Taibbi's case study is the now-famous AIG. Of course, the piece was released during a week in which the House passed a retroactive 90% tax on bonuses, which might not be the best evidence that the company has the government completely cowed.
Mar 24 2009, 8:39AM
AIG returns some of its bonuses
I see that AIG executives have returned $50 million of the $165 million in bonus money awarded last week. A "handful" of executives at the company have resigned. But New York Attorney General Andrew Cuomo, who has managed to rise higher than most of the populist tide, suggests that this is enough company participation for his office not to release the executives' names. And the Senate, which was about to consider its version of a punitive tax on bonuses, has now postponed action until April. It will instead consider a national service bill. The switch seems like a charming metaphor for something.
But the Washington Post write-up of this round of the AIG saga has a detail I haven't seen elsewhere:
But the Washington Post write-up of this round of the AIG saga has a detail I haven't seen elsewhere:
Several AIG executives said that Cuomo was aware of the retention payments last fall.
Mar 23 2009, 5:29PM
Tim Geithner's "Buy America"?
Treasury Secretary Tim Geithner at last month's G7 meeting:
From the fund manager application (pdf) for Treasury's new public-private investment fund:
All countries need to sustain a commitment to open trade and investment policies which are essential to economic growth and prosperity.
From the fund manager application (pdf) for Treasury's new public-private investment fund:
Fund Managers will be pre-qualified based upon criteria that are anticipated to include [...] Headquarters in the United States.
Mar 23 2009, 4:20PM
Can you get a sweet non-recourse loan?
Regarding Geithner's bank plan, Jane Hamsher writes:
Well, sort of. Half of the plan -- "The Legacy Securities Program" -- is open only to fund managers with a "demonstrated capacity to raise at least $500 million of private capital." If you think you qualify then here's the application form (pdf).
But the other half of the plan -- "The Legacy Loans Program" -- will, according to the Treasury white paper (pdf), "particularly encourage the participation of individuals, mutual funds, pension plans, insurance companies, and other long-term investors." The white paper says that the "exact requirements and structure" of this program "will be subject to notice and comment rulemaking," so its not clear that John Q. Public can just wander into an FDIC auction if he has some time to kill. But the benefits of the government subsidy will probably be open to a wide range of investment vehicles to which the general public has access.
Do you get a chance to make money in this "off-the-charts good" investing opportunity? Noooo, these loans that nobody has to pay back aren't being offered to the public.
Well, sort of. Half of the plan -- "The Legacy Securities Program" -- is open only to fund managers with a "demonstrated capacity to raise at least $500 million of private capital." If you think you qualify then here's the application form (pdf).
But the other half of the plan -- "The Legacy Loans Program" -- will, according to the Treasury white paper (pdf), "particularly encourage the participation of individuals, mutual funds, pension plans, insurance companies, and other long-term investors." The white paper says that the "exact requirements and structure" of this program "will be subject to notice and comment rulemaking," so its not clear that John Q. Public can just wander into an FDIC auction if he has some time to kill. But the benefits of the government subsidy will probably be open to a wide range of investment vehicles to which the general public has access.
Mar 23 2009, 2:07PM
Having your price (and eating it too)
Consider two parts of Tim Geithner's new banking proposal. The first is an argument Treasury makes in support of the plan: private-sector price discovery. The Treasury fact sheet says that "to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program." The second is the explanation for how the private sector investors will come up with the money to buy the assets: "non-recourse loans will be made available to investors to fund purchases of legacy securitization assets."
Since non-recourse loans are loans in which the borrower does not bear the risk of loss, the government is subsidizing the program's purchases. But if the government is subsidizing the purchases, why should we reassured that the private sector will accurately price the loans and securities in question? Aren't those prices, by definition, subsidized?
Since non-recourse loans are loans in which the borrower does not bear the risk of loss, the government is subsidizing the program's purchases. But if the government is subsidizing the purchases, why should we reassured that the private sector will accurately price the loans and securities in question? Aren't those prices, by definition, subsidized?
Mar 23 2009, 12:28PM
AIG casts a shadow on Geithner's plan
The Times reports on the administration's efforts to sign up private investors for the public-private investment partnership:
[S]ome executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.
Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress, these people said.
Mar 23 2009, 9:58AM
The bank plan is out
The Treasury Department release is here. More documents related to the plan are at financialstability.gov.
Mar 23 2009, 8:35AM
Old criticisms of Geithner's new bank plan
Tim Geithner's toxic-waste disposal plan doesn't come out till later today, but that hasn't stopped the criticism. Details of the plan for a public/private partnership for purchasing assets leaked out on Friday and Saturday -- see the Journal and Brad DeLong's FAQ -- and the carping started soon afher. (The Treasury Secretary is now tagged constantly with that hard-won adjective: "embattled.") Three points, in particular, have been made against Geithner's plan.
Mar 22 2009, 12:07PM
Biden's economic adviser warns on AIG tax
There was some question this week about whether Obama would support the House's bill to tax back AIG's bonuses. A White House statement suggested Maybe, and the President's appearance on Leno suggested Probably Not.
I think the administration is almost certainly leaning no, if Jared Bernstein, not exactly a notorious defender of corporate greed, can say this on This Week with George Stephanopoulos:
I think the administration is almost certainly leaning no, if Jared Bernstein, not exactly a notorious defender of corporate greed, can say this on This Week with George Stephanopoulos:
"I think the president would be concerned that this bill may have some problems in going too far - the House bill may go too far in terms of some - some legal issues, constitutional validity, using the tax code to surgically punish a small group," Bernstein said in a television interview. "That may be a dangerous way to go."
Mar 20 2009, 4:57PM
Productive?
MoveOn.org has a game where you can throw digital tomatoes at a picture of the AIG building.
Mar 20 2009, 3:50PM
The CBO on Obama's budget
The CBO says that growth will be slower and deficits will be larger than the administration predicts. Marc has a post on this here, but I'd like to add a few things. Namely, graphs. They're after the jump.
Marc also says that Chuck Grassley is describing the CBO's word as the "gospel." Well, maybe. But the CBO always bends over backwards to make clear that its assumptions about growth rates and deficits are tricky things that are not necessarily widely shared. In addition to preaching a gospel of facts and figures, it preaches a gospel of uncertainty and restraint.
That said, here's what the deficit looks like, according to the CBO:
Marc also says that Chuck Grassley is describing the CBO's word as the "gospel." Well, maybe. But the CBO always bends over backwards to make clear that its assumptions about growth rates and deficits are tricky things that are not necessarily widely shared. In addition to preaching a gospel of facts and figures, it preaches a gospel of uncertainty and restraint.
That said, here's what the deficit looks like, according to the CBO:
Mar 20 2009, 11:40AM
Does AIG need to retain certain employees?
There are two sets of arguments about the AIG bonuses. One set of arguments concerns the abstract question of whether enacting a retrospective tax on a small number of companies is a wise, appropriate, or legal thing for Congress to do. The other set of arguments concerns the very concrete question of whether the bonuses actually serve some valuable social purpose. In this case, the supposedly valuable purpose is retention. At least, that's a "valuable purpose" if you buy the theory that particular AIG employees have a unique knowledge of the company's contracts, and are needed to unwind those positions.
Simon Johnson and James Kwak do not buy that theory. They don't even window shop that theory. And, while they've expressed their frustration with the theory before, I see they've now channeled that frustration onto the New York Times editorial page:
Simon Johnson and James Kwak do not buy that theory. They don't even window shop that theory. And, while they've expressed their frustration with the theory before, I see they've now channeled that frustration onto the New York Times editorial page:
Mar 20 2009, 10:11AM
Does Obama support taxing AIG?
Via Noam Scheiber, I see there's some question about this. Here's the president's statement from yesterday:
And here's what he said on Leno last night:
I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.
And here's what he said on Leno last night:
Well, look, I understand Congress' frustrations, and they're responding to, I think, everybody's anger. But I think that the best way to handle this is to make sure that you've closed the door before the horse gets out of the barn. And what happened here was the money has already gone out and people are scrambling to try to find ways to get back at them.
Mar 20 2009, 9:17AM
What's in the AIG bill?
Mar 20 2009, 7:29AM
Just weird
This story about AIG quietly suing the federal government, its owner, for $306 million in taxes.
Mar 19 2009, 6:32PM
Menendez: It is not OK to spend money
Citigroup might spend $10 million to remodel its suite of executive offices. The bank says that it is reducing office space and head count, and that remodeling -- moving its executives from two floors to one -- will save money in the long run. Maybe what the bank says is wrong. I don't know. But in the post-AIG world, it seems you really don't need to advance any kind of argument to publicly embarrass a company:
"Maybe there's some rational argument" for the remodeling, said Senator Robert Menendez, a New Jersey Democrat and a member of the Senate Banking Committee. "But I think our friends in the banking and financial universe have to understand that they have to stop living in an alternate parallel reality." Given the nation's economic challenges, "people simply don't understand those types of expenditures," he said.This makes me embarrassed that Robert Menendez is a US Senator. If there is a "rational argument" in favor of doing something that "people simply don't understand," what should the role of an elected offical be? One theory is that the elected official should support the "rational" policy in question, and attempt to offer the public "reasons" for why this is the right thing to do. Menendez's theory seems to be that an elected offical should act like a ignorant demogogue and indulge public ignorance. But maybe I'm stuck in the alternate parallel reality and just don't get what's going on here.
Mar 19 2009, 4:27PM
PDF of the AIG tax bill
Mar 19 2009, 3:55PM
House passes AIG tax bill. What now?
It passed 328-93, with mostly Republic opposition. And the Republic opposition seems to have been motivated less by any principled objection to the bill than by a vaguely jealous sense that the Democrats shouldn't get credit for spanking AIG: The AP says: "Minority Leader John Boehner,
R-Ohio, said the bill was 'a political circus' diverting attention from
why the administration hadn't done more to block the bonuses before
they were paid." But the circus certainly preceded this bill, and I'm sure it will tumble on for some time.
So where does it go from here? A few theories:
So where does it go from here? A few theories:
Mar 19 2009, 2:35PM
Taxing AIG, again (for the fourth time)
I am powerless to resist this topic. Over at TaxVox, Howard Gleckman has a great post that criticizes the idea of taxing away AIG's bonuses.
A couple of thoughts on this. One is explanatory: I'm not sure taxing AIG is a partisan issue in quite the same way as a law barring deductions for donations to planned parenthood. (There is plenty of partisanship, but most of it seems focused on a different question: Who let AIG get away with this in the first place?) But I still agree with Gleckman's point: fast, easy politics are what's motivating this tax law, and that set's a bad precedent.
If Congress wants to limit bonuses for employees of bailed-out companies, it should just do it. But using the Internal Revenue Code is a truly terrible idea. And dipping into the Code to win political points is worse. Long ago, people were rightly outraged when Richard Nixon tried to turn the IRS into a weapon to punish his enemies. This gotcha tax is another variation on the theme, and nearly as inexcusable. Imagine, for instance, if a GOP Congress retroactively barred people from deducting charitable gifts to Planned Parenthood. Or Democrats imposed a 50 percent surtax on companies that that do security work in Iraq.
A couple of thoughts on this. One is explanatory: I'm not sure taxing AIG is a partisan issue in quite the same way as a law barring deductions for donations to planned parenthood. (There is plenty of partisanship, but most of it seems focused on a different question: Who let AIG get away with this in the first place?) But I still agree with Gleckman's point: fast, easy politics are what's motivating this tax law, and that set's a bad precedent.
Mar 19 2009, 11:49AM
Taxing AIG, again (for the third time)
All the overlapping suggestions for how to get bonuses back from AIG are starting to get confusing. But I see that the tax bill I've written about before is getting a vote today:
If Laurence Tribe's standard was right, this bill certainly seems like it passes a constitutional smell test. But it does seem to me that when the the tax become more broadly applicable, the question of who gets swept up by the law becomes much harder to answer. A law that taxes specific individuals at a single company might be unconstitutional, but would at least have very narrow and predictable consequences. The consequences of this bill seem less certain. And since the proposal for this bill existed for all of about 15 minutes before this vote, I doubt Congress has thought about it.
A more general point is that legal cleverness cuts in both directions. Congress has demonstrated an amazing ability to cease dithering over every other matter of public importance, climb its way to the top of a high horse, and come up many truly inspired schemes for recouping something on the order of 1/10,000 of the money it's spent on the financial crisis thus far. But the ability to manipulate the law is not a skill unique to Barney Frank, and if any of these companies are intent on dodging the congressional dragnet then they will find the lawyers with which to do so.
The House is scheduled to vote today on a bill that would levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money.
If Laurence Tribe's standard was right, this bill certainly seems like it passes a constitutional smell test. But it does seem to me that when the the tax become more broadly applicable, the question of who gets swept up by the law becomes much harder to answer. A law that taxes specific individuals at a single company might be unconstitutional, but would at least have very narrow and predictable consequences. The consequences of this bill seem less certain. And since the proposal for this bill existed for all of about 15 minutes before this vote, I doubt Congress has thought about it.
A more general point is that legal cleverness cuts in both directions. Congress has demonstrated an amazing ability to cease dithering over every other matter of public importance, climb its way to the top of a high horse, and come up many truly inspired schemes for recouping something on the order of 1/10,000 of the money it's spent on the financial crisis thus far. But the ability to manipulate the law is not a skill unique to Barney Frank, and if any of these companies are intent on dodging the congressional dragnet then they will find the lawyers with which to do so.
Mar 19 2009, 10:41AM
Treasury's non-AIG problem
Back before everyone's job was to spend each waking minute stewing over how on earth the Treasury let AIG keep its bonuses, Treasury had a different problem: it couldn't seem to find any qualified staff. Over the weekend I wrote a piece about this for the Guardian -- right before the AIG news broke -- that they've now published.
In many ways I think the staffing problem is worse, since it directly affects the administration's ability to come up with a financial rescue plan, whereas the AIG problem is arguably a matter of negligence and the wider policy implications are quite limited. I also think the staffing problem is directly related to decisions the administration made about how to run its confirmation process, whereas AIG suffers from some anxiety of influence. In particular, I think the current staffing problem is related to how the administration treated Geithner's own confirmation tangles:
In many ways I think the staffing problem is worse, since it directly affects the administration's ability to come up with a financial rescue plan, whereas the AIG problem is arguably a matter of negligence and the wider policy implications are quite limited. I also think the staffing problem is directly related to decisions the administration made about how to run its confirmation process, whereas AIG suffers from some anxiety of influence. In particular, I think the current staffing problem is related to how the administration treated Geithner's own confirmation tangles:
Geithner's confirmation was a fork in the road. One road would have been to argue that the past is the past: people are fallible and mistakes are made, but we want a system in which previous error doesn't preclude future service. The Obama administration did not pick this road. Instead, they argued that the non-payment was a non-issue, and to linger over it would be irresponsible: worrying about a few million jobs was more important than worrying about a few thousand dollars in tax liability. Or, as Obama put it the night of Geithner's confirmation: "We can't waste a day."
Mar 19 2009, 8:19AM
Back to worrying about monetary policy
The Fed is injecting $1.2 trillion into the market by buying securities and government bonds. The Board of governor's press release is here. And an old op-ed from Robert Lucas on the subject is here:
When the Fed wants to stimulate spending in normal times, it uses reserves to buy Treasury bills in the federal-funds market, reducing the funds' rate. But as the rate nears zero, Treasury bills become equivalent to cash, and such open-market operations have no more effect than trading a $20 bill for two $10s. There is no effect on the total supply of "quality" assets.
A dead end? Not at all. The Fed can satisfy the demand for quality by using reserves -- or "printing money" -- to buy securities other than Treasury bills.
Mar 18 2009, 2:21PM
The AIG compromise: a glass half full?
CEO Edward Liddy at the congressional hearing on AIG:
Questions:
1. How will this be enforced? (What if an employee says, um, "No"?)
2. Isn't there anything meaningful or rational about "at least half"? Is it picked to maximize psychological impact? Or picked out of a hat?
3. Why would Congress find this to be adequate, when they are proposing to tax back 100% of the bonuses?
I have asked the employees of AIG Financial Products to step up and do the right thing. Specifically, I have asked those who received retention payments of $100,000 or more to return at least half of those payments.
Questions:
1. How will this be enforced? (What if an employee says, um, "No"?)
2. Isn't there anything meaningful or rational about "at least half"? Is it picked to maximize psychological impact? Or picked out of a hat?
3. Why would Congress find this to be adequate, when they are proposing to tax back 100% of the bonuses?
Mar 18 2009, 1:13PM
AIG felt it deserved the bonuses
This story from the Hill has a detail about AIG's bonuses that I haven't seen elsewhere:
AIG's new management team last year proposed that its employees give up their "retention" bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010?If that's true, I think it answers my question about how the AIG salary negotiations would have worked. They wouldn't have worked at all. And it answers Senator Grassley's question about why we haven't hearing more remorse from the company. Why offer contrition when they deserved the money? Duh.
Take a hike.
"We suggested that early on, but there are people who feel this money was due them," a source close to the company told The Hill.
Mar 18 2009, 11:24AM
Why Buffett pays less than his secretary
The payroll tax -- a.k.a. the Social Security tax, the Social Security and Medicare tax, or the Federal Insurance Contributions Act (FICA) tax -- skims around fifteen per cent from the payroll of every business and the paycheck of every worker, from minimum-wage burger-flippers on up, with no deductions. No exemptions, either -- except that everything above a hundred grand or so a year is untouched, which means that as salaries climb into the stratosphere the tax, as a percentage, shrinks to a speck far below. This is one reason that Warren Buffett's secretary (as her boss has unproudly noted) pays Uncle Sam a higher share of her income than he does.
One reason, yes, but by no stretch of the imagination is it the main one. The main reason Warren Buffett pays less than his secretary is that his dividends and capital gains are taxed at a lower rate than his secretary's salary income. (Warren says he pays 17.7% of his total income in taxes.) You can watch Warren explaining this here.
Mar 18 2009, 10:16AM
Liddy: it's too risky not to pay AIG bonuses
Here's the important part of AIG CEO Edward Liddy's op-ed in this morning's Washington Post:
But doesn't it seem like there's a clause missing from that last sentence? You know, like: The risks .... of what? The clear implication is that Liddy is referring to risks that would attend to not making the payments. He made that argument in AIG's white paper on retention payments. And I guess Liddy no longer feels comfortable making the argument outright, and needs to do a little linguistic dance around it. But I don't see what other meaning you can apply to that last sentence: Liddy still thinks it would be too risky for AIG not to pay bonuses to its financial services unit.
Again, here's how it's put in the white paper:
AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.
But doesn't it seem like there's a clause missing from that last sentence? You know, like: The risks .... of what? The clear implication is that Liddy is referring to risks that would attend to not making the payments. He made that argument in AIG's white paper on retention payments. And I guess Liddy no longer feels comfortable making the argument outright, and needs to do a little linguistic dance around it. But I don't see what other meaning you can apply to that last sentence: Liddy still thinks it would be too risky for AIG not to pay bonuses to its financial services unit.
Again, here's how it's put in the white paper:
Mar 18 2009, 9:07AM
Can Cuomo post a copy of an AIG contract?
I thought Charles Fried had a great suggestion in the Room for Debate discussion of the AIG contracts:
Why not? Presumably posting some generic copy of an AIG contract would not entail revealing the recipients of these contracts. And, according to New York Attorney General Andrew Cuomo, we have the contracts. Says his letter to Barney Frank: "We have also now obtained the contracts under which AIG decided to make these payments." Why not release one?
[Questions about the AIG contracts] cannot be answered without seeing the actual contracts that are being invoked. And even then, there are questions about whether the performance of these individuals matched the performance set out in the contracts. As we all own 80 percent of the company, we ought to be able to see the text of these contracts. They should be posted on our company's -- that is, A.I.G.'s -- Web site. Then we can discuss whether the recipients of that money really earned it.
Why not? Presumably posting some generic copy of an AIG contract would not entail revealing the recipients of these contracts. And, according to New York Attorney General Andrew Cuomo, we have the contracts. Says his letter to Barney Frank: "We have also now obtained the contracts under which AIG decided to make these payments." Why not release one?
Mar 18 2009, 8:22AM
Laurence Tribe: is taxing AIG punitive?
Yesterday, Laurence Tribe told me that if we were to enact a narrow tax law targeting AIG, it could pass constitutional muster if (among other things) "the aim of such a tax would be manifestly regulatory and fiscal rather than punitive and condemnatory." I thought this was curious -- it certainly seems like some lawmakers are saying punitive and condemnatory things about AIG -- and asked him to clarify. He responds:
I don't know how to judge the likelihood of the Tribe's hypothetical in the last sentence, but the first point Tribe makes here seems like a good one: the intention of an individual lawmaker that support a bill is not synonymous with the bill's "legislative intent." Assuming Tribe is right on the attainder doctrine (and I have every reason to believe he is) , I think I was wrong in my original post.
Some perception of political retribution might be unavoidable, but that's not enough to render such a measure unconstitutional. It's well established that the impassioned remarks and subjective intentions of scattered members of Congress don't suffice to condemn as a purely punitive enactment an otherwise valid regulatory or tax measure. If the law were otherwise, it would be much too easy for lawmakers to doom laws with poison-pill remarks.
I don't know how to judge the likelihood of the Tribe's hypothetical in the last sentence, but the first point Tribe makes here seems like a good one: the intention of an individual lawmaker that support a bill is not synonymous with the bill's "legislative intent." Assuming Tribe is right on the attainder doctrine (and I have every reason to believe he is) , I think I was wrong in my original post.
Mar 17 2009, 5:33PM
The difference between the UAW and AIG
Why did the government require that automobile companies adjust their compensation contracts downward, but not AIG? The question has come up a lot. Ezra Klein says:
I think that's true, but here's another question: Even if the government had all the time in the world, how on earth would it have negotiated labor costs with AIG? (Assuming that the contracts had already in place, as I believe they were when the first AIG bailout was announced.) AIG's financial products unit isn't unionized, so who would have done the collective bargaining?
The reason for this is haste rather than malice: The AIG bailout was a rapid effort to avert economic collapse. It was meant to address insolvency, not labor costs.
I think that's true, but here's another question: Even if the government had all the time in the world, how on earth would it have negotiated labor costs with AIG? (Assuming that the contracts had already in place, as I believe they were when the first AIG bailout was announced.) AIG's financial products unit isn't unionized, so who would have done the collective bargaining?
Mar 17 2009, 4:22PM
Laurence Tribe: is taxing AIG legal?
I suggested last night that Carolyn Maloney's idea to introduce an "AIG Taxpayer Protection Act" -- a bill that would tax AIG bonuses at 100% -- would be unconstitutional, and Steve Waldman knocked me around a bit. (You can decide for yourself whether a bill called the "AIG Taxpayer Protection Act" would be sufficiently general to pass constitutional muster, and whether senators who suggest that AIG's employees commit hara-kari have punitive intentions in mind.) But the general question is much more complex than I originally thought. And because Chris Dodd has now embraced the idea of a narrowly targeted tax, I think it's worth asking the more general question: Is it possible to design a retrospective and narrowly focused tax that is constitutional?
I'm not a lawyer, so I asked Laurence Tribe of Harvard -- who, in addition to being one of President Obama's law professors, also argued one of the most important Bill of Attainder cases at the Appellate level: SBC Commnications v. FCC. (As far as I know the Supreme Court has not considered the attainder issue in reference to economic regulation.) I will have more to say about this issue later, but for now I've posted Professor Tribe's great response to my inquiry, which is after the jump. I've also posted a short and helpful Harvard Law Note from Professor Thomas Lee of Fordham, which helped me clarify some of the attainder issues.
I'm not a lawyer, so I asked Laurence Tribe of Harvard -- who, in addition to being one of President Obama's law professors, also argued one of the most important Bill of Attainder cases at the Appellate level: SBC Commnications v. FCC. (As far as I know the Supreme Court has not considered the attainder issue in reference to economic regulation.) I will have more to say about this issue later, but for now I've posted Professor Tribe's great response to my inquiry, which is after the jump. I've also posted a short and helpful Harvard Law Note from Professor Thomas Lee of Fordham, which helped me clarify some of the attainder issues.
Mar 17 2009, 3:37PM
Does Seattle need two newspapers?
Starting tomorrow, the Seattle Times will be the only daily paper left in the city:
But most of these either have no resources, or they're structured such that the web and print portions compete for increasingly scarce resources (like most newspapers). I'm eager to see what develops out of a newsroom that has as its mission creating the best web product, rather than the best web product that can be structured around a bundle of dead trees.
The Seattle Post-Intelligencer will roll off the presses for the last time Tuesday. The Hearst Corp. announced Monday that it would stop publishing the 146-year old newspaper, Seattle's oldest business, and cease delivery to more than 117,600 weekday readers.This is obviously bad news, but I'm a little surprised to see it interpreted as a complete catastrophe and not a partial opportunity. I lived in Seattle prior to starting at the Atlantic and I can't remember picking up the P.I. more than a couple of times. (I hope this says more about the Seattle than it does about me.) I don't mean to take a dig at the P.I.; what I mean is that the city is filled with great media options: There are two alternative weeklies (The Seattle Weekly and The Stranger), the crowd-sourced news website Crosscut, and a bunch of great neighborhood-specific blogs.
But most of these either have no resources, or they're structured such that the web and print portions compete for increasingly scarce resources (like most newspapers). I'm eager to see what develops out of a newsroom that has as its mission creating the best web product, rather than the best web product that can be structured around a bundle of dead trees.
Mar 17 2009, 2:47PM
The young Larry Summers
Noam Scheiber's profile of Larry Summers has been linked around elsewhere and I don't have much to add, except that I thought the MIT yearbook picture of Summers is pretty frightening, and that this anecdote was pretty funny:
For some reason I found this endearing.
Even as a young professor, Summers would attempt to restrain his own worst impulses, sometimes in poignantly ham-handed ways. Alan Krueger, an economics professor at Princeton, once earned a rare A-plus on Summers's public-finance exam. [...] When Krueger got the test back, he noticed that Summers had written him a note. "You've clearly mastered the material," it said. "I'd be interested in having you work for me." But the words "having you work for me" had been crossed out. In their place, Summers had written "working with you on a paper this summer."
For some reason I found this endearing.
Mar 17 2009, 11:45AM
Wealth vs. shame
Only one can win. Two theories from the Washington Post:
Or:
If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.
Or:
Jonathan Macey, a professor at Yale Law School, said it was unlikely that any AIG employees would end up suing the company for changing compensation contracts, mainly because their names would be revealed publicly in a lawsuit and they would then be excoriated.On the other hand, it seems entirely possible that the names of the relevant AIG employees will come out anyway.
Mar 17 2009, 9:15AM
Money is really still fungible
It looks like the administration is giving up on getting back the bonuses that AIG has awarded, since the "Treasury has determined there is no way the
government can actually extract the money from the individuals who
already received the bonus payments," and "would face lawsuits
with the potential of significant damage payouts and lawyer fees that
could easily exceed the cost of the bonuses." But I don't understand the new plan:
[T]he administration said it will use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear on AIG. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG's contract to ensure no government money goes toward paying financial-products division bonuses.
Mar 17 2009, 8:13AM
We already restricted AIG's compensation
Elise had an interesting observation in the comments yesterday: Congress has restricted the compensation of AIG once already, since compensation limits for any recipient of TARP funds were inserted into the stimulus bill, and AIG has received TARP funds.
As far as I know, AIG has followed the letter of the compensation requirements. But will the administration follow them? The compensation restrictions preclude TARP recipients from "paying or accruing any bonus, retention award, or incentive compensation during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding." But the restrictions also say that this clause
As far as I know, AIG has followed the letter of the compensation requirements. But will the administration follow them? The compensation restrictions preclude TARP recipients from "paying or accruing any bonus, retention award, or incentive compensation during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding." But the restrictions also say that this clause
shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.My understanding is that AIG contracts in question were all executed before February 11. No one in the administration is claiming they aren't valid (even if the administration is claiming the contracts are an outrage). I suppose that doesn't prevent Geithner or a Geithner-designee from suddenly claiming they aren't valid in the future, but that would be pretty mendacious. At the very least this is evidence that Congress intended to avoid retrospective tinkering with compensation.
Mar 16 2009, 5:49PM
"No Bill of Attainder...shall be passed"
Representative Carolyn Maloney is considering introducing a bill that taxes back 100% of the AIG bonuses. Representative Maloney might also want to introduce herself to the US Constitution.
Mar 16 2009, 4:58PM
What's the point of a "nation of laws"?
As Marc and Megan note, Obama has ordered the Treasury to try to block AIG's bonuses. I have no doubt they'll come up with something, since plenty of clever theories for stopping the bonuses are already bouncing around the blogosphere. One writer at the Huffington Post suggests Geithner order the IRS commissioner to challenge AIG's bonuses as "unreasonable compensation." Glenn Greenwald suggests that we look back to the UAW's contractual concessions -- ignoring the fact that one case is ex ante while the other is ex post -- and then tips his hat to a second suggestion: Why not offer AIG immunity from lawsuits? That way the insurer can stop paying its employees without worrying about being taken to court.
Indeed, Greenwald asks: "If Congress (with Obama's support) was willing to immunize lawbreaking telecoms from lawsuits brought by their illegally-spied-upon customers, shouldn't Congress be willing to immunize AIG from bonus-seeking lawsuits brought by their executives who helped spawn the financial crisis?"
Well, okay. I confess that I'm a little surprised at Greenwald's newfound enthusiasm for legal Machiavellianism. After all, Greenwald opposed granting immunity to the telecom industry. He wrote a post castigating supporters of the bill for advocating an egregious violation of the rule of law. And he spent the last eight years arguing that the Bush administration had a rather undernourished appreciation for that very concept. Does all cease to matter now that the shoe is on the other foot?
Indeed, Greenwald asks: "If Congress (with Obama's support) was willing to immunize lawbreaking telecoms from lawsuits brought by their illegally-spied-upon customers, shouldn't Congress be willing to immunize AIG from bonus-seeking lawsuits brought by their executives who helped spawn the financial crisis?"
Well, okay. I confess that I'm a little surprised at Greenwald's newfound enthusiasm for legal Machiavellianism. After all, Greenwald opposed granting immunity to the telecom industry. He wrote a post castigating supporters of the bill for advocating an egregious violation of the rule of law. And he spent the last eight years arguing that the Bush administration had a rather undernourished appreciation for that very concept. Does all cease to matter now that the shoe is on the other foot?
Mar 16 2009, 11:35AM
Too big to fail, too bad to be fired
Barney Frank has a solution to AIG's apparent contractual obligation to pay bonuses:
It's worth noting that AIG basically responds to this argument in CEO Edward Liddy's letter (pdf) to Geithner and in the firm's white paper (pdf) on compensation practices. And it's worth noting because AIG's argument for why it can't lose certain employs takes an interesting and perverse form:
"Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs. ... In high school, they wouldn't have gotten retention (bonuses), they would have gotten detention."
It's worth noting that AIG basically responds to this argument in CEO Edward Liddy's letter (pdf) to Geithner and in the firm's white paper (pdf) on compensation practices. And it's worth noting because AIG's argument for why it can't lose certain employs takes an interesting and perverse form:
Mar 16 2009, 10:18AM
No place like New York (except Cleveland)
An editorial over the weekend in the Wall Street Journal pointed me towards a topic I hadn't noticed before: state-by-state tax credits for the film industry. New York is considering scrapping its 35% tax credit for films shot in the city to help close the state's budget gap. To which 30 Rock's Alec Baldwin, ever a paragon of verbal restraint, responded: "if these tax breaks are not reinstated into the budget, film production in this town is going to collapse."
My first thought was that New York shouldn't worry about Baldwin's threat, because cities aren't substitutable. If you've got a romantic comedy that revolves around Times Square and Central Park, you can't very well film in Cleveland, can you? But then I went and checked where 30 Rock was filmed, and the one episode that takes place in Cleveland was actually filmed in New York. Egad. If New York can be an appropriate substitute for Cleveland, why can't Cleveland play understudy to New York? Perhaps Baldwin was right.
My first thought was that New York shouldn't worry about Baldwin's threat, because cities aren't substitutable. If you've got a romantic comedy that revolves around Times Square and Central Park, you can't very well film in Cleveland, can you? But then I went and checked where 30 Rock was filmed, and the one episode that takes place in Cleveland was actually filmed in New York. Egad. If New York can be an appropriate substitute for Cleveland, why can't Cleveland play understudy to New York? Perhaps Baldwin was right.
Mar 15 2009, 12:30PM
More on AIG, with Larry Summers
After some enjoyable arguments in the comments section, I have been trying to bone up on AIG's bonus situation. First, I clicked over to an ABC story entitled "Summers: AIG Bonus Bombshell 'Outrageous,'" expecting to find a story in which -- well, in which Larry Summers denounces the AIG bonuses as an outrage. Instead, I find Summers saying:
That's not quite the same thing, is it? Summers goes on:
What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous.
That's not quite the same thing, is it? Summers goes on:
Mar 15 2009, 1:37AM
Are AIG's bonuses really so bad?
There is a lot of fuss over the fact that AIG is paying millions in bonuses while receiving billions in bailout, but I'm not sure I understand the commotion. Or at least I still want much more information. Here are the big facts thus far (drawn loosely from the Times, Post and Journal):
Mar 13 2009, 5:07PM
Accountability for state use of stimulus funds, ctd
I worried about it this morning. Now one White House official tells the Atlantic:
This is obviously possible for a huge amount of grant money (though I'd like some more details), but I'm not sure it's the same as what Obama and Biden were talking about yesterday. POTUS and VPOTUS implied that there would be retroactive consequences for the misuse of funds -- that is, once the money had been handed out, the administration would hold state and local governments up to a high bar on its use. But this answer implies that a bar will only apply to how the money is handed out.
The rules are on how federal money is spent by the states. Put another way, the rules concern what sort of state and local projects we will fund under the Recovery Act. The enforcement is that we won't fund projects that don't meet the standard.
This is obviously possible for a huge amount of grant money (though I'd like some more details), but I'm not sure it's the same as what Obama and Biden were talking about yesterday. POTUS and VPOTUS implied that there would be retroactive consequences for the misuse of funds -- that is, once the money had been handed out, the administration would hold state and local governments up to a high bar on its use. But this answer implies that a bar will only apply to how the money is handed out.
Mar 13 2009, 2:46PM
Summers defends Geithner, warns against "illusion of specificity" and "rush to action"
I've posted a link to the audio under What We're Reading -- I'm hoping "reading" can be loosely and temporarily interpreted to mean "listening" -- but now that I've got the full text of Larry Summers' speech at Brookings, I'll put it at the end of this post.
A couple of quick points about the speech. First, Summers seemed pretty upbeat about the economy. Most of the administration's previous public statements about the economy emphasize that recovery isn't a gravy train but a long, hard slog. But Summers wanted to mention some good news. Second, Summers defended (the embattled?) Timothy Geithner in very strong terms. Some passages after the jump. On good news:
A couple of quick points about the speech. First, Summers seemed pretty upbeat about the economy. Most of the administration's previous public statements about the economy emphasize that recovery isn't a gravy train but a long, hard slog. But Summers wanted to mention some good news. Second, Summers defended (the embattled?) Timothy Geithner in very strong terms. Some passages after the jump. On good news:
Mar 13 2009, 10:49AM
Jim Cramer vs. Jon Stewart, ctd.
The war between CNBC and Comedy Central, which began with Rick Sanelli's rant and spiraled into an exchange of on-air aspersions between Jon Stewart and Jim Cramer, ended last night when Cramer appeared on The Daily Show. You can watch the clips here.
It starts off looking like the proceedings of a truth and reconciliation commission. ("How did we come to this?" Stewart asks. "They're not losers, they're fighters," Cramer says of the mortgage-burdened homeowners.) But then Stewart edges away from compliments ("I can't reconcile the knowledge you have of the intricacies of the market with the crazy bullshit I see you do every night") and goes in for the kill: "I know you want to make finance entertaining, but it's not a fucking game." It's not going to enhance anyone's understanding of derivatives or credit default swaps, but it's pretty entertaining.
And anyway, Stewart's criticism of CNBC seems like it has less to do with the purpose of derivatives than the purpose of a news network. There are substantive issues at stake here -- should hedge funds be regulated and so forth -- but the main ones seem to about whether a news network like CNBC needs to treat these questions with consistency and sobriety.
It starts off looking like the proceedings of a truth and reconciliation commission. ("How did we come to this?" Stewart asks. "They're not losers, they're fighters," Cramer says of the mortgage-burdened homeowners.) But then Stewart edges away from compliments ("I can't reconcile the knowledge you have of the intricacies of the market with the crazy bullshit I see you do every night") and goes in for the kill: "I know you want to make finance entertaining, but it's not a fucking game." It's not going to enhance anyone's understanding of derivatives or credit default swaps, but it's pretty entertaining.
And anyway, Stewart's criticism of CNBC seems like it has less to do with the purpose of derivatives than the purpose of a news network. There are substantive issues at stake here -- should hedge funds be regulated and so forth -- but the main ones seem to about whether a news network like CNBC needs to treat these questions with consistency and sobriety.
Mar 13 2009, 7:17AM
Obama and Biden will shame you
Obama and Biden both gave stern warnings yesterday about misuse of stimulus funds. "If we see money being misspent, we're going to put a stop to it," Obama told a gathering of state officials at the White House. How? Obama says "we will call it out and we will publicize it." Biden, meanwhile, scolded: "If we don't get this right, folks, this is the end of the opportunity to convince Congress that anything should go to the states."
If this counts as accountability, color me unimpressed. "Accountability" surely implies the likelihood or possibility of real consequences. The governor of Arkansas is accountable to the people of Arkansas. The managers of a company are accountable to the shareholders and the board. (Or at least to Carl Icahn.) But the managers of Pfizer aren't accountable to the shareholders of Microsoft, and Bobby Jindal isn't accountable to the moral indignation of Barack Obama. So when Obama and Biden start talking about holding states accountable for their stimulus spending, I'm left a little confused about what they mean.
If this counts as accountability, color me unimpressed. "Accountability" surely implies the likelihood or possibility of real consequences. The governor of Arkansas is accountable to the people of Arkansas. The managers of a company are accountable to the shareholders and the board. (Or at least to Carl Icahn.) But the managers of Pfizer aren't accountable to the shareholders of Microsoft, and Bobby Jindal isn't accountable to the moral indignation of Barack Obama. So when Obama and Biden start talking about holding states accountable for their stimulus spending, I'm left a little confused about what they mean.
Mar 12 2009, 7:28PM
Bernie Madoff's court statement
It struck me as a gripping read, so I've posted the whole testimony after the jump. The only thing I'll note is that, if Madoff's story is true, it makes the SEC look pretty foolish. But that's hardly news.
Mar 12 2009, 4:20PM
How can you apply for a stimulus grant?
Um, you can't. (Unless you happen to be a nonprofit or a local government, in which case you can find information here.) If someone is telling you that the government is handing out giant sacks of stimulus money, they're probably also eager to tell you about a great new diamond mine in Nigeria that you should be investing in. The Federal Trade Commission has issued a notice about stimulus scams, so consider yourself warned.
I'm actually a little disappointed not to have received any of the scam emails, but thirty seconds on Google digs up websites here, here and here, all of which claim to offer easy access to government grants -- in exchange for a little personal information or a nominal fee. To be sure, the websites look like dusted off relics from the Internet's stone age, with poorer grammar. (One claims to "have help ten of thousands Americans like you," which inspires little confidence.) And yet there must be some confusion about how the stimulus works, or these websites wouldn't exist.
I'm actually a little disappointed not to have received any of the scam emails, but thirty seconds on Google digs up websites here, here and here, all of which claim to offer easy access to government grants -- in exchange for a little personal information or a nominal fee. To be sure, the websites look like dusted off relics from the Internet's stone age, with poorer grammar. (One claims to "have help ten of thousands Americans like you," which inspires little confidence.) And yet there must be some confusion about how the stimulus works, or these websites wouldn't exist.
Mar 12 2009, 11:15AM
The dire state of the lobbying industry
If you are capable of summoning an ounce of sympathy for K Street lobbyists, this is the moment to do so. According to the Wall Street Journal, the number of active lobbyists declined by 2% in 2008, to 15,900.
Some portion of this decline should not come as a surprise. With charming understatement, the Journal notes that "Two financial-services lobbying titans, Fannie Mae and Freddie Mac, saw their lobbying offices disbanded by the federal government." (It does seem slightly redundant to lobby the federal government when you are the federal government, doesn't it?) But the Journal nonetheless assures readers that lobbyists "in every major sector" have seen cutbacks.
Still, there is good reason to fight back the tears over the state of lobbying, if you can.
Some portion of this decline should not come as a surprise. With charming understatement, the Journal notes that "Two financial-services lobbying titans, Fannie Mae and Freddie Mac, saw their lobbying offices disbanded by the federal government." (It does seem slightly redundant to lobby the federal government when you are the federal government, doesn't it?) But the Journal nonetheless assures readers that lobbyists "in every major sector" have seen cutbacks.
Still, there is good reason to fight back the tears over the state of lobbying, if you can.
Mar 12 2009, 9:45AM
Should Bernie Madoff remain free?
Bernie Madoff appears in court this morning, where, according to the judge's brief, two questions will be answered. The first is how he pleads. (And unless his lawyers are trying a surprising and highly counterintuitive strategy, everyone knows the answer to that one: he will plead guilty.) But the second question seems like it's still up in the air: will Madoff remain free until his sentencing?
Mar 11 2009, 10:20AM
The evolution of Alan Greenspan
It's interesting to compare the tone of Alan Greenspan's op-ed in today's Wall Street Journal ("The Fed Didn't Cause the Housing Bubble") with his testimony on the financial crisis from a few months ago. Here's Greenspan in October ("Greenspan Concedes Error on Regulation"):
"You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others," said Representative Henry A. Waxman of California, chairman of the committee. "Do you feel that your ideology pushed you to make decisions that you wish you had not made?"
Mr. Greenspan conceded: "Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact."
Mar 10 2009, 3:52PM
Who's at risk of default?
Moody's has a list of 283 speculative-grade companies with weak liquidity and a high risk of default. There were 157 such companies a year ago. (23% of all spec-grade companies make the new list, compared with 9% two years ago.) The report on the Moody's site is here (registration required) and the Huffington Post has the pages here. I'll also stick the file at the end of this post.
So, who makes the list?
So, who makes the list?
Mar 10 2009, 12:54PM
Politico owner on Moody's default risk list
I'll have more on this report later today, but I notice that one of the companies that has been added to Moody's big default risk list (subscription required) is the owner of the Politico: Allbritton Communications Company.
Mar 10 2009, 9:52AM
So what doesn't count as a "class issue"?
I'm confused by the The Wall Street Journal's editorial on the Obama administration's plan to cap charitable deductions:
I think it would be difficult to come up with an interpretation that is more wrong. Isn't the administration is trying to make charitable deductions less of a class issue by reducing the disparity in deduction rate? Put differently: Would having a flat deduction rate be a class issue? Or is having system in which you receive bigger subsidies as you get wealthier a "class issue"?
In defense, White House budget chief Peter Orszag wrote on his blog: "If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction -- more than twice the break as the teacher." This Administration wants to turn even philanthropy into a class issue.
I think it would be difficult to come up with an interpretation that is more wrong. Isn't the administration is trying to make charitable deductions less of a class issue by reducing the disparity in deduction rate? Put differently: Would having a flat deduction rate be a class issue? Or is having system in which you receive bigger subsidies as you get wealthier a "class issue"?
Mar 10 2009, 6:43AM
Buffett vs. Obama
Via Mickey Kaus, I see that yesterday Warren Buffett had some less than loving words about Obama and his budget (I've edited this slightly for readability and the rest is after the jump):
[J]ob one is to win the war, the economic war, job two is to win the economic war, and job three. And you can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat. So I would absolutely say, for the interim, till we get this one solved, I would not be pushing a lot of things that you know are contentious, and I also would do no finger-pointing whatsoever. I would not say, you know, `George'--`the previous administration got us into this.' Forget it.
Mar 9 2009, 7:35AM
Is Greg Mankiw right that the tax code is "already highly progressive"?
Some thoughtful comments yesterday make me think that I should say more about Greg Mankiw's claim that the tax code is "already highly progressive." Greg writes:
The second sentence is true, but the first sentence is not. (That is, if you interpret "historically" in the above sentence as "with respect to the history of the income tax"). Here's a graph of the top income tax rate since the 16th amendment was ratified (courtesy of Professors Joel Slemrod and Jon Bakija):
The tax rate that top income earners face is not historically anomalous. It was higher during the Clinton years but lower during the Reagan years.
The second sentence is true, but the first sentence is not. (That is, if you interpret "historically" in the above sentence as "with respect to the history of the income tax"). Here's a graph of the top income tax rate since the 16th amendment was ratified (courtesy of Professors Joel Slemrod and Jon Bakija):
Mar 8 2009, 1:43PM
Chuck Grassley doesn't understand progressive taxation
Senator Grassley, who embraces bad tax arguments with an impressive zen-like calm, makes his case against Obama's tax plans:
It's true! A more progressive tax plan means that the most successful Americans with the highest incomes will pay more in taxes. I am somewhat surprised that this comes as a shock to the ranking member of the Senate Finance Committee.
Democrats [say] that most small-business owners, whose profits flow through to their personal income taxes, do not fall in the top tax brackets. Overall, fewer than 2 percent do, according to the nonpartisan Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.
But Sen. Charles E. Grassley (R-Iowa), the senior Republican on the Senate Finance Committee, argues that more than half of the most successful small businesses -- those that employ between 20 and 500 workers -- would be targeted by Obama's rate increases.
It's true! A more progressive tax plan means that the most successful Americans with the highest incomes will pay more in taxes. I am somewhat surprised that this comes as a shock to the ranking member of the Senate Finance Committee.
Mar 8 2009, 7:47AM
Greg Mankiw is not making a lot of sense
I used Greg Mankiw's textbooks in college and read his blog every day. But in this Washington Post forum Mankiw makes two arguments against Obama's progressive tax plans that I find pretty puzzling. They are:
and
Let's see what's wrong here:
CBO data show that the tax code, including all federal taxes, is already highly progressive.
and
President Obama's proposal to raise taxes at the top to further cut taxes at the bottom has one rationale: using the coercive power of the state to "spread the wealth around." [This] raises deep philosophical questions. If one citizen of a nation can lay claim to the wealth of his more productive neighbor, shouldn't poor nations have the right to lay claim to the resources of richer nations such as the United States?
Let's see what's wrong here:
Mar 8 2009, 6:03AM
Ask the editors: Who's lending to the government?
Denko asks:
Governments have been borrowing heavily for centuries, so to some extent there's nothing new here. (See here for the CIA's ranking of nations by government debt as a percentage of GDP.) It also isn't necessarily true that every government is borrowing heavily to spend on stimulus: a lot of governments are spending only a tiny fraction of their GDPs on such packages, and many governments aren't spending anything at all. Still, there would seem to be something intuitively weird about a situation in which lots of governments are increasing their borrowing at once. How does that make sense?
Virtually every government in the world is borrowing heavily in order to stimulate the economy. Who's lending?
Governments have been borrowing heavily for centuries, so to some extent there's nothing new here. (See here for the CIA's ranking of nations by government debt as a percentage of GDP.) It also isn't necessarily true that every government is borrowing heavily to spend on stimulus: a lot of governments are spending only a tiny fraction of their GDPs on such packages, and many governments aren't spending anything at all. Still, there would seem to be something intuitively weird about a situation in which lots of governments are increasing their borrowing at once. How does that make sense?
Mar 6 2009, 9:22AM
Treasury takes its time
The fact that there are still 17 unfilled spots at Treasury -- including the top deputy position -- is not great. But the fact that Robert Gibbs chalks this up to a "very rigorous process" of vetting is also a bit odd. Or at least it assumes we have the memory span of a chipmunk. When Timothy Geithner's confirmation hit the rocks, the argument you heard over and over again was that we couldn't waste time on nettlesome tax questions because the nation's economy was in urgent peril. At Geithner's confirmation, for instance, Obama said:
Can we waste days now?
Tim's work will begin at once. We can't waste a day.
Can we waste days now?
Mar 6 2009, 6:03AM
But the demand for irony remains strong
I have a feeling that the Journal reporter who wrote this piece came up with a funny idea for the headline and lede and then sat down and did the reporting. I think I mean that as a compliment. Anyway:
Mattresses Aren't a Safe Cash StashIt is a piece about how the mattress industry is taking a big hit in the recession. (I'm sure they'll spring back eventually, or find someone to cushion the landing. Etc.)
Mar 5 2009, 3:03PM
Depends what you mean by "efficient"
A piece in the new Economist says we shouldn't abandon every aspect of the efficient-markets hypothesis:
The piece is good and worth reading. But the central question -- hold onto EMH or let it go the way of the dinosaurs -- sorta seems like it depends on how you define the theorem. My sense, based mostly on listening to Robert Shiller lecture about it, is that EMH comes, like oatmeal in Goldilocks, in three versions:
[I]t is important not to throw out all the insights of efficient-market enthusiasts. Although it is theoretically possible to make money by outperforming the markets, it is extremely difficult in practice.
The piece is good and worth reading. But the central question -- hold onto EMH or let it go the way of the dinosaurs -- sorta seems like it depends on how you define the theorem. My sense, based mostly on listening to Robert Shiller lecture about it, is that EMH comes, like oatmeal in Goldilocks, in three versions:
Mar 5 2009, 10:40AM
The war on charity and prosperity, part II
Gaah. In the face of criticism, the Obama administration is considering scrapping its plan
to cap itemized deductions for charitable contributions from wealthy
taxpayers. Since I have already declared my hatred for both wealthy
taxpayers and charity, most of this will be self plagiarism. But let's try
again:
Mar 4 2009, 12:21PM
Are there taxes that make you poorer as you get richer?
There has been some good back and forth in the comments over the ABC News article and the follow-up. It's made me think a lot more about taxes and, in particular, something Chait wrote in his original criticism of the ABC piece:
Obama is not proposing a tax system whereby somebody who goes from $249,999 to $250,000 suddenly becomes poorer. Nobody has ever enacted a tax hike like that in the history of the United States.Are there really no examples of tax hikes like this? After all, the tax code is pretty complicated, and the history of American taxation is pretty weird (it took a civil war and a constitutional amendment just to get an income tax!). And it's certainly possible to imagine taxes that made you poorer as your income went up, though it isn't possible to imagine your income going up for very long if that's the case. My first thought was that it might be possible to become poorer with a larger income under the Alternative Minimum Tax, but when I started reading the relevant tax documents I was overwhelmed by a desire to tear out my eyes and needed to stop.
Mar 4 2009, 6:13AM
ABC News is still embarrassing itself
Yesterday ABC News published a story suggesting that some taxpayers are intentionally reducing their incomes to avoid a higher tax bracket and thus save money. And sure, perhaps some taxpayers are in fact pursuing this plan. But the plan is based on a premise that is obviously and embarrassingly incorrect. Because tax rates are marginal, falling into a lower bracket can't save you money. The most it can save you is time. Jon Chait pointed this out and many others piled on.
I see ABC has now issued a new version of the piece, with a clarification:
I see ABC has now issued a new version of the piece, with a clarification:
Yesterday ABC News published a version of this story which some readers felt did not provide a comprehensive enough analysis of Obama's tax code for those families making $250k or more. ABCNews.com has heard those concerns and after review has decided to post an updated version of the story below.No. Look, the problem with the original piece was not the lack of comprehensiveness: the problem with the piece was that it was about a behavioral trend -- making money by falling into a lower bracket -- that was idiotic. This really isn't complicated. The view of the people described in the piece was incorrect. ABC published a piece suggesting that it was correct. ABC should now issue a correction.
Mar 3 2009, 4:29PM
Team players
Justin Fox and Kevin Gallagher have both done breakdowns of the global stimulus effort by nation. The most striking thing, as Justin notes, is the wide variation: the plans vary from about 7% of GDP (China) to .3% (Italy). There is clearly a coordination problem here; Justin says that most of the developed world is not doing its part.
Indeed, some of the developed world is actively undermining any kind of coordinated global stimulus. Ireland, for example, is slashing their public spending by an amount larger than some other countries' stimulus plans. This isn't malicious (Ireland has truly crappy public finances, after all), but those cuts in public spending are part of the global stimulus calculations.
Indeed, some of the developed world is actively undermining any kind of coordinated global stimulus. Ireland, for example, is slashing their public spending by an amount larger than some other countries' stimulus plans. This isn't malicious (Ireland has truly crappy public finances, after all), but those cuts in public spending are part of the global stimulus calculations.
Mar 3 2009, 1:17PM
The worst article of the week
Jon Chait and Kevin Drum have already piled on, but this report from ABC News seems worthy of special opprobrium. The article documents actual, breathing, real-life rich individuals who plan on reducing their income to less than $250,000 in an attempt to avoid Obama's proposed tax increases on those making more than $250,000. A representative quote from one of these conniving rascals:
This would be really brilliant, if only we didn't have a tax system with marginal rates. But we do, so these people are just really stupid.
"We are going to try to figure out how to make our income $249,999.00." [...] "Why kill yourself working if you're going to give it all away to people who aren't working as hard?"
This would be really brilliant, if only we didn't have a tax system with marginal rates. But we do, so these people are just really stupid.
Mar 3 2009, 12:05AM
Today in history
According to recovery.gov stimulus timeline, March 3 is the day federal agencies are supposed to begin reporting on their use of the stimulus funds. It will be interesting to see what (or if) new material appears on the website.
Mar 2 2009, 8:47PM
CBO on stimulus multipliers
Earlier today I wrote a post about the long-run macroeconomic implications of the stimulus, and now the CBO has gone and issued a new macroeconomic analysis (pdf). Fortunately, the results -- a nice bump up in GDP in the short run followed by a small bump down in the long run -- remain the same. (Barring any newly discovered failures in logic, I hope my point does, too.)
But the new CBO analysis has something the old one didn't: a ranking of the multipliers on each kind of government spending in the stimulus bill. Government expenditures and transfers to the states and do the best, with multipliers between 2.5 and 1. The AMT patch and tax relief for businesses do the worst, with multipliers between .5 and 0. Good 'ol AMT patch. Charts after the jump.
But the new CBO analysis has something the old one didn't: a ranking of the multipliers on each kind of government spending in the stimulus bill. Government expenditures and transfers to the states and do the best, with multipliers between 2.5 and 1. The AMT patch and tax relief for businesses do the worst, with multipliers between .5 and 0. Good 'ol AMT patch. Charts after the jump.
Mar 2 2009, 7:03PM
Nice work, if you can get it
The publishing industry has suffered a lot in this recession, but it has enough life to extend a six-figure book contract Rod Blagojevich. The deal is with an independent publisher called Phoenix, which seems like a nice metaphor for what Blago probably wants to be.
"The governor chose to go with a large independent company because he wanted to tell his story without any restrictions over content that might've come with a major publishing house," says the former governor's publicist.
"The governor chose to go with a large independent company because he wanted to tell his story without any restrictions over content that might've come with a major publishing house," says the former governor's publicist.
Mar 2 2009, 2:49PM
Are rich people better than the government?
The non-profit groups criticizing the administration's plan to cap
charitable tax deductions seem to think so. Under the current law you can obtain an income-tax deduction for a charitable donation. Obama
wants to limit that deduction to those at or below the 28% income tax
rate. In other words, if you are in the 33 or 35% tax bracket, you will
only be able to deduct 28% of a gift. Non-profits say this is a bad
idea because it "will be a blow to organizations already struggling
with a steep drop-off in donations."
Well, maybe. But I don't have much sympathy for complaints about the proposal, since the non-profits are lucky to have any subsidy at all. Itemized deductions on charitable gifts are one of the strangest and most regressive elements of the tax code. (Which makes it a bit sour to hear the heads of charities and NGOs defend them.) Ah, let us count the ways:
Well, maybe. But I don't have much sympathy for complaints about the proposal, since the non-profits are lucky to have any subsidy at all. Itemized deductions on charitable gifts are one of the strangest and most regressive elements of the tax code. (Which makes it a bit sour to hear the heads of charities and NGOs defend them.) Ah, let us count the ways:
Mar 2 2009, 12:37PM
Fiscal stimulus as "spreading the wealth"
E.J. Dionne has a column that gives me a chance to sound off on something I've been wondering about:
I've been thinking a bit about how this questions applies to the fiscal stimulus debate. My fairly unsophisticated reading is that the original debate focused more on questions about "averting disaster" and "unlocking prosperity" -- we wanted to halt a slide in growth and then reassume its march -- than it did on questions about fairness and equality. But answering questions about fairness and equality is essential to justifying the stimulus.
The central issue in American politics now is whether the country should reverse a three-decade-long trend of rising inequality in incomes and wealth.
[...] Do we want to be a moderately more equal country or not? This is the question Obama has put before the nation. Let's debate it without the distracting rhetorical sideshows designed to obscure the stakes in the coming battle.
I've been thinking a bit about how this questions applies to the fiscal stimulus debate. My fairly unsophisticated reading is that the original debate focused more on questions about "averting disaster" and "unlocking prosperity" -- we wanted to halt a slide in growth and then reassume its march -- than it did on questions about fairness and equality. But answering questions about fairness and equality is essential to justifying the stimulus.
Feb 27 2009, 7:37AM
So is it the end of agricultural subsidies?
Not really. But at least Obama wants to start. Here's the relevant portion from his budget summary:
As part of an effort to transition large farms from direct payments provided to owners of base acres to increased income from revenue derived from emerging markets for environmental services, the President's Budget phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually. Presently, direct payments are made to even large producers regardless of crop prices, losses, or whether the land is still under production. The program was introduced in the 1996 Farm Bill as a temporary payment scheduled to expire, but was included in the 2002 and 2008 Farm Bills. The President wants to maintain a strong safety net for farm families and beginning farmers while encouraging fiscal responsibility.A couple points about this:
Feb 27 2009, 6:57AM
Did the 2008 tax rebate work?
I thought it did, based on the evidence here. Now Matthew Shapiro and Joel Slemrod have a new paper that says it didn't. From the NBER digest abstract:
[...]Only one-fifth of the survey respondents said that the 2008 tax rebates would lead them to mostly increase spending. Most respondents said they would either mostly save the rebate or mostly use it to pay off debt. The most common plan for the rebate was debt repayment.
[...]Because of the low spending propensity, the rebates in 2008 provided low "bang for the buck" as economic stimulus, Shapiro and Slemrod conclude. Low- income individuals were particularly likely to use the rebate to pay off debt. Shapiro and Slemrod speculate that adverse shocks to housing and other wealth may have focused consumers on rebuilding their balance sheets. The authors note that, given the further decline of wealth since the 2008 rebates were implemented, the impetus to save a windfall might have become even stronger since their survey was conducted.
Feb 26 2009, 5:27PM
The OMB starts a blog
Feb 26 2009, 12:58PM
Paying for financial stability is like paying for a war
Here (or after the jump) is the part of the administration's budget summary relevant to financial stabilization, which fleshes out the AP story that Marc noted earlier:
Feb 26 2009, 12:12PM
Budget ironies for Tim Geithner
From the administration's summary (pdf):
The scope, complexity, and sheer magnitude of the international financial system pose significant enforcement challenges for the IRS in carrying out its tax administration responsibilities. The 2010 Budget includes funding for a robust portfolio of IRS international tax compliance initiatives...Significant enforcement challenges indeed!
Feb 25 2009, 12:08PM
A stimulus question
Barack Obama has repeatedly promised to hold accountable the local officials in charge of spending stimulus dollars. And I see that Joe Biden has now promised "to embarrass them into doing what they are supposed to do." And sure, shame seems like a reasonably strong motivation. But is that all the administration has? (And how does it work? Are the offenders names and faces posted on recovery.gov?) Or is there some other mechanism by which the administration can hold local spenders accountable?
Feb 25 2009, 1:22AM
Annoying Bobby Jindal claim
On the stimulus package:
The price tag is most certainly not "more than $1 trillion." The price tag is (if you believe the CBO) $787.242 billion. Since each of these dollars adds as much to the deficit as any other dollar you could pick at random from the federal budget, calculating the price tag "with interest" makes only as much sense as calculating the price tag of any government expenditure "with interest." Much as it was last week, money is fungible.
Instead of trusting us to make wise decisions with our own money, [the Democrats] passed the largest government spending bill in history -- with a price tag of more than $1 trillion with interest.
The price tag is most certainly not "more than $1 trillion." The price tag is (if you believe the CBO) $787.242 billion. Since each of these dollars adds as much to the deficit as any other dollar you could pick at random from the federal budget, calculating the price tag "with interest" makes only as much sense as calculating the price tag of any government expenditure "with interest." Much as it was last week, money is fungible.
Feb 25 2009, 1:13AM
America invented everything
Two of Obama's claims from the SOTU:
and
After a period of prolonged study and meditation (ie, I consulted Wikipedia for 45 minutes after the speech), I have concluded that these claims are questionable at best and false at worst. Not quite sixteen words, we-invaded-Iraq-on-the-strength-of-this-information false. But probably false. Here is my evidence:
We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it.
and
I believe the nation that invented the automobile cannot walk away from it.
After a period of prolonged study and meditation (ie, I consulted Wikipedia for 45 minutes after the speech), I have concluded that these claims are questionable at best and false at worst. Not quite sixteen words, we-invaded-Iraq-on-the-strength-of-this-information false. But probably false. Here is my evidence:
Feb 24 2009, 9:54PM
The end of agriculture subsidies?
Obama:
In this budget, we will [...] end direct payments to large agribusinesses that don't need them.I don't know what he means by "direct" and "large" (and "need") -- there is certainly ample room for interpretive fudging -- but I hope this is referring to the tens of billions of dollars that the US doles out each year in agricultural subsidies, much of which goes to farmers who don't actually farm. (For some of the many, many reasons why these subsidies are a terrible idea, see here.) This seems like one of those things about which there is economic consensus.
Feb 24 2009, 9:35PM
Obama on finance and banking
Here's the relevant bit from the quasi SOTU:
[W]e will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.
Feb 24 2009, 8:07AM
Robert Samuelson is deeply disappointing
He takes on the stimulus in the Washington Post:
This might be deeply disappointing to Robert Samuelson, but it is not deeply disappointing when judged by Obama's own standards. His own standard, as presented in the administration's metrics report on the stimulus, was that 75% of the bill be spent in the first 18 months. According to the CBO, 74.2251% of the bill Obama signed will be spent in that period. Perhaps Samuelson is worried about the errant 0.7749%, but I wouldn't characterize that as particularly disappointing or deep.
Judged by his own standards, President Obama's $787 billion economic stimulus program is deeply disappointing. [...]
His politics compromise the program's economics. Look at the numbers. The Congressional Budget Office (CBO) estimates that about $200 billion will be spent in 2011 or later -- after it would do the most good.
This might be deeply disappointing to Robert Samuelson, but it is not deeply disappointing when judged by Obama's own standards. His own standard, as presented in the administration's metrics report on the stimulus, was that 75% of the bill be spent in the first 18 months. According to the CBO, 74.2251% of the bill Obama signed will be spent in that period. Perhaps Samuelson is worried about the errant 0.7749%, but I wouldn't characterize that as particularly disappointing or deep.
Feb 23 2009, 6:37AM
CNBC renames itself The Rick Santelli Rant Temple
The New York Times notices the unsurprising fact that CNBC has been happy to replay Rick Santelli's outburst. But a quick trip to the CNBC website indicates that the fever was substantially more contagious. Links to the clip cover the site like chickenpox, where it is variously referred to as Rick's Revolution, Rick's Rant, Rick's Tea Party and Rick Santelli's Shout Heard 'Round the World, as if George III had been reincarnated as an adjustable-rate mortgage. Then there is a second video clip of Rick explaining his position to the shiny Larry Kudlow ("we need to be American about this"), referring to himself in the third person ("Rick is going to be On. His. Way.") and starting sentences with things like, "If you listen to my rant, Larry..." And: "Why is this rant...such a big deal? And: "You know, I've ranted for years..."
And so forth.
But wait, then there is a follow-up posting of something called "Santelli's Manifesto." There's an article that asks "Would You Join Santelli's 'Chicago Tea Party?" and an article that instructs, "Join Rick Santelli's Chicago Tea Party!" Then there's another article on "Rick Santelli and Million Dollar Homes," and yet another another article informing readers that "Europe Loves Santelli." (Potential problem: Europe is not America.) This might be great for CNBC, but it makes me think that Marc had the right theory on Friday..
And so forth.
But wait, then there is a follow-up posting of something called "Santelli's Manifesto." There's an article that asks "Would You Join Santelli's 'Chicago Tea Party?" and an article that instructs, "Join Rick Santelli's Chicago Tea Party!" Then there's another article on "Rick Santelli and Million Dollar Homes," and yet another another article informing readers that "Europe Loves Santelli." (Potential problem: Europe is not America.) This might be great for CNBC, but it makes me think that Marc had the right theory on Friday..
Feb 23 2009, 2:47AM
Movies about business that will not win any Oscars
One question of Oscar night was how some films would look next to events in the real world. Should Slumdog Millionaire be viewed against the backdrop of the Mumbai shootings? How would Milk do in the wake of California's Prop 8? Or would Mickey Rourke's down-on-his-luck Wrestler do well with the unemployment rate nudging up to 7.6 percent?
I have been wondering how the recession affects two films released this month, both of which concern business and finance (broadly construed), and both of which seem to have comically poor timing. (I hasten to add that I haven't seen either film -- I promise to build up the willpower to do so this week -- but that profound lack of real information should only partially weaken the points.)
The first is Confessions of a Shopaholic, an adaptation of the series of novels of the same name. Based on what I've read, the film's plot seems to be (1) a recent college graduate gets deep into debt buying a lot of clothing; (2) she gets a job at a finance magazine by lying repeatedly about her qualifications; (3) she learns a lesson, finds true love and pays off the debt, all while avoiding real consequences and living happily ever after in a fabulous New York apartment. The producers of this film should have spent their money building a time machine back to 2006.
I have been wondering how the recession affects two films released this month, both of which concern business and finance (broadly construed), and both of which seem to have comically poor timing. (I hasten to add that I haven't seen either film -- I promise to build up the willpower to do so this week -- but that profound lack of real information should only partially weaken the points.)
The first is Confessions of a Shopaholic, an adaptation of the series of novels of the same name. Based on what I've read, the film's plot seems to be (1) a recent college graduate gets deep into debt buying a lot of clothing; (2) she gets a job at a finance magazine by lying repeatedly about her qualifications; (3) she learns a lesson, finds true love and pays off the debt, all while avoiding real consequences and living happily ever after in a fabulous New York apartment. The producers of this film should have spent their money building a time machine back to 2006.
Feb 20 2009, 5:08PM
Department of unexpected recession consequences
The AP reports: "Shark attacks drop; expert cites ailing economy." Experts are great, aren't they?
Feb 20 2009, 3:23PM
Affirmative action for corporate CEOs
The Politico has a piece pointing out that the underrepresented minority in the Obama administration is the corporate CEO:
In President Barack Obama's Cabinet, there is a Nobel Prize winner, a former mayor and a veteran CIA agent. Surrounding him in the White House West Wing are a former four-star general, one of the nation's most eminent economists and a handful of this generation's most talented political operatives.
This constellation of talent, however, has something of a black hole. There is virtually no one on Obama's team with outsized achievements or a high-profile reputation earned in the world of business.
Feb 20 2009, 10:57AM
An Interview with Robert Shiller
Here is my interview with Yale's Robert Shiller about his new book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.
The book, which Shiller wrote with George Akerlof of Berkeley, concerns
departures from the full-employment economy: How do we explain the
fluctuations of the business cycle, or the existence of involuntary
unemployment? In answering these questions, Shiller and Akerlof turn to John Maynard Keynes's notion of the animal spirits: "the
restless and inconsistent element in the economy" that is not easily
explained by reference to rational actors with simple economic
motivations.
Shiller talked about the legacy of Keynes, what Milton Friedman got wrong, and getting the stimulus package right. I posted my interview with Professor Akerlof yesterday.
Shiller talked about the legacy of Keynes, what Milton Friedman got wrong, and getting the stimulus package right. I posted my interview with Professor Akerlof yesterday.
Feb 19 2009, 4:33PM
The cost of the Reagan centennial
Eager for stimulus news, I have tried to obsessively follow the release of Congressional Budget Office cost estimates. And I see that the CBO released a bunch of new estimates last night, though they had nothing to do with the stimulus package. There was, for instance, a cost estimate of House concurrent resolution 37 (pdf) -- a resolution "authorizing the use of the Capitol grounds for the Greater Washington Soap Box Derby." The CBO estimates that this would "result in no significant cost to the federal government." Who knew?
One cost estimate that I thought was interesting, however, was for H.R. 131 (pdf) -- which would would "establish a commission to plan, develop, and coordinate the commemoration of the 100th anniversary of the birth of former President Ronald Reagan on February 6, 2011." Setting up this commission will apparently cost the federal government $1 million. How would Ronald Reagan feel about that?
One cost estimate that I thought was interesting, however, was for H.R. 131 (pdf) -- which would would "establish a commission to plan, develop, and coordinate the commemoration of the 100th anniversary of the birth of former President Ronald Reagan on February 6, 2011." Setting up this commission will apparently cost the federal government $1 million. How would Ronald Reagan feel about that?
Feb 19 2009, 1:03PM
...But is the British economy saving Starbucks?
Earlier this week, British Business Secretary Peter Mandelson delivered an expletive-laden tirade about Starbucks CEO and Chairman Howard Schultz, who had given a dour assessment of the British economy. It was a bit strange.
But now I wonder if Schultz is regretting his comments for a reason that has nothing to do with Mandelson's ire. Starbucks has been rolling out a variety of new products recently, the most, um, original of which is a new brand of instant coffee called Via. For a company that once promised a caffeinated jihad of "hiring people who were fanatically passionate about coffee and celebrated their interaction with customers," the instant move seemed odd. Was Starbucks slumming it? But this article from the Economist shed some light on Schulz's plan:
But now I wonder if Schultz is regretting his comments for a reason that has nothing to do with Mandelson's ire. Starbucks has been rolling out a variety of new products recently, the most, um, original of which is a new brand of instant coffee called Via. For a company that once promised a caffeinated jihad of "hiring people who were fanatically passionate about coffee and celebrated their interaction with customers," the instant move seemed odd. Was Starbucks slumming it? But this article from the Economist shed some light on Schulz's plan:
Starbucks says it has patents that should prevent competitors from quickly replicating Via, which will go on sale in some American stores next month. The opportunity may, however, be biggest in other countries: in Britain over 80% of coffee sold is instant, compared with just 10% in America.
Feb 19 2009, 9:47AM
An interview with George Akerlof
Earlier this week I spoke with George Akerlof, a professor of economics at Berkeley and a winner of the 2001 Nobel Prize in economics, about his new book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. The book, which Akerlof wrote with Robert Shiller of Yale, concerns departures from the full-employment economy: How do we explain the fluctuations of the business cycle, or the existence of involuntary unemployment?
According to Akerlof and Shiller, the traditional economic answers to these questions are tortured and unsatisfying. In search of a better answer, they turn to John Maynard Keynes's notion of the animal spirits: "the restless and inconsistent element in the economy" that is not easily explained by reference to rational actors with simple economic motivations.
I spoke with Akerlof about the book, Keynes, the place of psychology in economics, and the implications of all this for the current crisis. I recorded a similar conversation with Professor Shiller, which I will post tomorrow.
According to Akerlof and Shiller, the traditional economic answers to these questions are tortured and unsatisfying. In search of a better answer, they turn to John Maynard Keynes's notion of the animal spirits: "the restless and inconsistent element in the economy" that is not easily explained by reference to rational actors with simple economic motivations.
I spoke with Akerlof about the book, Keynes, the place of psychology in economics, and the implications of all this for the current crisis. I recorded a similar conversation with Professor Shiller, which I will post tomorrow.
Feb 18 2009, 12:08PM
Starbucks is destroying the British economy
Via an old colleague at the Guardian, I see that Business Secretary Peter Mandelson is unhappy with Starbucks Chairman and CEO Howard Schultz. The not-PG bits of Mandelson's tirade are after the jump:
The business secretary, Peter Mandelson, has launched an extraordinary tirade against the head of the Starbucks coffee empire, accusing him of spreading gloom and overly denigrating the state of the British economy.
Angered at remarks by the company's chairman, Howard Schultz - who said the UK was in an economic "spiral" with "very, very poor" consumer confidence - Mandelson accused him of spreading unnecessary misery and speaking out of turn.
Feb 18 2009, 11:33AM
Money is still fungible, and banks are not nonprofits
James Deitrick and Michael Granof have a modest proposal: they want to make banks account for the use of their TARP and TARP II funds in the same way that nonprofits must account for their funds -- that is, by grouping funds according to how they are used. But this proposal is either much less interesting or much more radical than its authors suggest. They write:
Executives of banks that have received TARP cash have said that it is too hard to account separately for how they spend their federal dollars. Money is fungible, they argue, and therefore they cannot readily distinguish between outlays of their own resources and those provided by the government. But that's the type of doublespeak that would get the head of a town's homeless shelter thrown in jail. If bankers are unable to segregate cash by source and specifically account for expenditures, why are they in charge of banks in the first place?
Feb 17 2009, 1:05PM
It's alive (recovery.gov)
I see that recovery.gov -- the administration's website for tracking stimulus dollars -- has gone live. From the site's welcome note:
Recovery.gov is a website that lets you, the taxpayer, figure out where the money from the American Recovery and Reinvestment Act is going. There are going to be a few different ways to search for information. The money is being distributed by Federal agencies, and soon you'll be able to see where it's going -- to which states, to which congressional districts, even to which Federal contractors. As soon as we are able to, we'll display that information visually in maps, charts, and graphics.There is an interactive map with state-by-state estimated job effects and a chart on the areas to which funds are allocated.
Feb 16 2009, 2:04PM
Bernie Madoff dolls
I suppose it was going to happen eventually, although the $99.95 price seems like financial fraud in its own right. The AP reports:
Mad at disgraced investor Bernard Madoff? There's a toy just for you. One of the vendors at this week's Toy Fair is offering the "Smash-Me Bernie," a $99.95 Madoff lookalike doll that wears a devil-red suit and carries a pitchfork. It comes with its own hammer -- so you can pulverize it.
Feb 16 2009, 6:53AM
Time magazine is to blame for the financial crisis
A couple of weeks ago Time magazine published a "far-from-exhaustive list" of twelve people you could blame for the financial crisis. I see that Time has now published a list of 25 people you can blame for the crisis, so perhaps this can be considered exhaustive (not to mention exhausting).
These projects are easy to explain, since they combine two of journalism's favorite tropes: (1) indignation, and (2) lists. But they are harder to justify. A healthy portion of the Time list is a mishmash of bit players (Home & Garden Television's Burton Jablin?) and non sequiturs. Sure, Bernie Madoff seems like a terrible guy and we'd all like to get in our kicks. But blaming the financial crisis on him gets the causality exactly backwards: he was discovered because of the crisis, not the cause of it. And anyway, offering a big mushy list (there is no sense of scale) where readers can vote on the worst offenders seems to miss the basic point of journalism -- to provide information, not an outlet for revenge fantasies.
But the ever-widening circle of blame (Justin Fox says the magazine's original goal was 75 people, and seems grateful to have avoided that chore) got me thinking about others Time might blame for the crisis. Like ... Time magazine. It took about 30 seconds of googling to dig up a Time cover story called "Home $weet Home." The S is actually dollar sign on the cover. Reading the piece is like finding an old crate of wine that's turned to vinegar. After noting that some economists "warn of a bubble in home prices," the author asks: "But who wants to listen to buzz-kill talk?" Who indeed? Especially when, as Time says, "Your house is now your piggy bank, ATM and 401(k)."
These projects are easy to explain, since they combine two of journalism's favorite tropes: (1) indignation, and (2) lists. But they are harder to justify. A healthy portion of the Time list is a mishmash of bit players (Home & Garden Television's Burton Jablin?) and non sequiturs. Sure, Bernie Madoff seems like a terrible guy and we'd all like to get in our kicks. But blaming the financial crisis on him gets the causality exactly backwards: he was discovered because of the crisis, not the cause of it. And anyway, offering a big mushy list (there is no sense of scale) where readers can vote on the worst offenders seems to miss the basic point of journalism -- to provide information, not an outlet for revenge fantasies.
But the ever-widening circle of blame (Justin Fox says the magazine's original goal was 75 people, and seems grateful to have avoided that chore) got me thinking about others Time might blame for the crisis. Like ... Time magazine. It took about 30 seconds of googling to dig up a Time cover story called "Home $weet Home." The S is actually dollar sign on the cover. Reading the piece is like finding an old crate of wine that's turned to vinegar. After noting that some economists "warn of a bubble in home prices," the author asks: "But who wants to listen to buzz-kill talk?" Who indeed? Especially when, as Time says, "Your house is now your piggy bank, ATM and 401(k)."
Feb 15 2009, 12:19PM
Greg Mankiw buries the lede
Greg Mankiw worries that disagreement over fiscal stimulus will obscure the fact that economists agree about lots of things. There is economic consensus about public policy, and Mankiw reprints a nice table from his own textbook to prove it. But item # 4 on that table suggests that there isn't actually much disagreement over fiscal stimulus:
Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90% [of economists agree])Greg notes that this item doesn't distinguish between taxes and spending, which is fair enough. But many of the stimulus critics to which Mankiw has linked (e.g., Eugene Fama) don't distinguish between taxes and spending either. Mankiw's textbook says these economists are well outside the mainstream.
Feb 13 2009, 1:33PM
The stimulus meets Obama's standard
A few weeks ago the Obama administration released a stimulus metrics report (pdf) promising that 75 percent of the stimulus would pay out in the first 18 months. Fiscal stimulus, said team Obama, should to be timely. And they received a bit of a drubbing for saying so: early reports suggested that the House version of the bill would pay out at a tardier rate than promised.
Well, earlier today the CBO released its cost estimate (sorry, another pdf) of the conference version of the bill. According to the CBO, the deficit will increase by $584.3 billion in the first 18 months, out of a total $787.2 billion deficit increase. By my math that's a 74.2251 percent payout rate. So unless someone wants to be awfully punctilious about the missing .7749 percent, I think it's safe to say that the stimulus bill meets the standard of timeliness that Obama set for himself.
On the other hand, if you substract the silly $70 billion for the AMT patch -- and I do want to be annoyingly punctilious about that -- the payout rate drops a couple of percentage points. Still, it's not bad.
Well, earlier today the CBO released its cost estimate (sorry, another pdf) of the conference version of the bill. According to the CBO, the deficit will increase by $584.3 billion in the first 18 months, out of a total $787.2 billion deficit increase. By my math that's a 74.2251 percent payout rate. So unless someone wants to be awfully punctilious about the missing .7749 percent, I think it's safe to say that the stimulus bill meets the standard of timeliness that Obama set for himself.
On the other hand, if you substract the silly $70 billion for the AMT patch -- and I do want to be annoyingly punctilious about that -- the payout rate drops a couple of percentage points. Still, it's not bad.
Feb 12 2009, 3:54PM
Is there economic consensus about the stimulus?
The Wall Street Journal released its latest forecasting survey today. There seems to be strong consensus among economists that a recovery is not likely to start in the second half of this year. There seems to be an equally strong consensus that the stimulus package (and the flaws thereof) has something to do with this. But there does not seem to be a strong consensus on why that's the case:
It would seem that "big," "small," "colossal" and "trivial" are mutually exclusive.
A boost to the economy from the government stimulus package has been a key feature of most forecasts for a rosy finish to 2009, but economists in the February survey largely expressed disappointment with how the package is shaping up. Comments on the package's influence this year say it is "too late," "provides little boost," "trivial," "too big," "too small" and a "colossal waste of money."
It would seem that "big," "small," "colossal" and "trivial" are mutually exclusive.
Feb 12 2009, 10:58AM
Money: still fungible
I don't have a huge amount of sympathy for complaints about how much bankers get paid. It is nonetheless annoying to see bankers make extremely silly arguments in defense of how much they are getting paid. And this article in the New York Times contains much silliness. The story about how "a senior Morgan Stanley executive admonished his employees to call the payments 'retention awards'" and not bonuses is distasteful, but only in the sense that Bill Clinton's testimony about Monica Lewinsky was distasteful. This second argument in defense of bonuses is, however, crazy:
Some of the CEOs testifying before Congress yesterday tried this one too: "Sure, we took the bailout and we awarded bonuses, but the two pots of money are distinct." And the problem with this argument is that money is fungible: A dollar of bailout funding is a perfect substitute for a dollar of operating revenue. The two pots of money are in no sense distinct.
James Wiggins, a Morgan Stanley spokesman, said that such payments were necessary and would come out of operating revenue, not government bailout funds.
Some of the CEOs testifying before Congress yesterday tried this one too: "Sure, we took the bailout and we awarded bonuses, but the two pots of money are distinct." And the problem with this argument is that money is fungible: A dollar of bailout funding is a perfect substitute for a dollar of operating revenue. The two pots of money are in no sense distinct.
Feb 11 2009, 3:49PM
Stimulus agreement reached
The House and Senate negotiators have reached an agreement on a $789 billion bill. That's smaller than the House bill ($819) and the Senate bill ($838). Harry Reid says it "creates more jobs than the original Senate bill and spends less than the original House bill." More details to come.
Feb 11 2009, 10:45AM
Reputation for frugality
The House Committee on Financial Services is now holding its hearing on Tarp Accountability. Eight CEOs of the biggest banks that received TARP money have been called to testify, including Llyod Blankfein of Goldman, Jamie Dimon of JPMorgan and Ken Lewis of Bank of America. For the CEOs it is a chance to go an an "image offensive" and make the case that their institutions have been lending far more in recent months than they would have in absence of TARP funds. For Committee Chair Barney Frank it is an opportunity to call the bankers to the carpet for doing tacky things with taxpayer dollars. Seems like there is a high likelihood of conflict. For instance, in his opening remarks Ken Lewis claims that:
And sure, the long arc of BofA history might curve toward frugality. But last week we learned that the bank spent millions sponsoring a "Super Bowl Fun Fest," which was described as "a five day carnival-like affair just outside the Super Bowl stadium":
Bank of America has for years been the most financially efficient bank with our
business mix in the country. We have a hard-earned reputation for frugality, not
extravagance.
And sure, the long arc of BofA history might curve toward frugality. But last week we learned that the bank spent millions sponsoring a "Super Bowl Fun Fest," which was described as "a five day carnival-like affair just outside the Super Bowl stadium":
Feb 10 2009, 5:06PM
Hoyer says AMT patch stays in the stimulus
Earlier today the Senate passed its version of the stimulus
package. Now the bill goes to conference, where appointed members from
both legislative bodies will iron out the differences. (The Senate
finance committee has a side-by-side comparison of the two bills here [pdf], and Pro-Publica has a version of the same thing here.)
The biggest and silliest difference, as I've written elsewhere, is that the Senate version of the bill has a $70 billion one-year extension of the Alternative Minimum Tax patch. Everyone more or less acknowledges that the AMT patch is not stimulus, and everyone outright acknowledges that the patch would pass anyway were it not stapled frantically to this particular piece of legislation. So why is it being included in the stimulus package? The answer seems to be (1) So that Democrats can trick Republicans into thinking the stimulus is chock full of tax cuts; (2) So that Republicans can trick their constituents into thinking the stimulus is chock full of tax cuts; and (3) So that everyone can trick themselves into thinking the stimulus pays out in a timely fashion, since a one-year extension of the AMT patch is by definition something that takes place next year.
None of these reasons is any good, and I had high hopes that the conference process would scrap the AMT patch and add $70 billion of something plausbily worthwhile. But I now see that House Majority Leader Steny Hoyer says the AMT patch will probably stay:
The biggest and silliest difference, as I've written elsewhere, is that the Senate version of the bill has a $70 billion one-year extension of the Alternative Minimum Tax patch. Everyone more or less acknowledges that the AMT patch is not stimulus, and everyone outright acknowledges that the patch would pass anyway were it not stapled frantically to this particular piece of legislation. So why is it being included in the stimulus package? The answer seems to be (1) So that Democrats can trick Republicans into thinking the stimulus is chock full of tax cuts; (2) So that Republicans can trick their constituents into thinking the stimulus is chock full of tax cuts; and (3) So that everyone can trick themselves into thinking the stimulus pays out in a timely fashion, since a one-year extension of the AMT patch is by definition something that takes place next year.
None of these reasons is any good, and I had high hopes that the conference process would scrap the AMT patch and add $70 billion of something plausbily worthwhile. But I now see that House Majority Leader Steny Hoyer says the AMT patch will probably stay:
Feb 9 2009, 3:25PM
"The overlap is 90-plus percent"
That was Larry Summers' argument
for why we shouldn't worry too much about the differences between the
House and Senate stimulus bills. But it's worth noting that the
psychological threshold of 90 percent doesn't apply in lots of other
situations. Observing that "92.4 percent of the of the labor force was
employed in January" will reassure no one. And the fact that there is 90
percent overlap between the House and Senate bills shouldn't be
reassuring either.
The ten percent difference between the House and Senate reflects a difference in how tens of billions of dollars will be allocated. Some of those allocations will do about as much to stimulate the economy as a pair of jumper cables. It is a difference worth bickering over -- not ad infinitum, but at least for a bit.
The ten percent difference between the House and Senate reflects a difference in how tens of billions of dollars will be allocated. Some of those allocations will do about as much to stimulate the economy as a pair of jumper cables. It is a difference worth bickering over -- not ad infinitum, but at least for a bit.
Feb 9 2009, 12:20PM
A questionable stimulus strategy
The Washington Post reports:
But Gallup says:
Three months after their Election Day drubbing, Republican leaders see glimmers of rebirth in the party's [...] stand against a stimulus package that they are increasingly confident will provide little economic jolt but will pay off politically for those who oppose it.
But Gallup says:
The American public gives President Barack Obama a strong 67% approval rating for the way in which he is handling the government's efforts to pass an economic stimulus bill, while [...] the Republicans in Congress receive much lower approval ratings of [...] 31%.Details after the jump:
Feb 7 2009, 7:00PM
Was the recession the fault of Texas hold 'em?
I have been reading George Akerlof and Robert Shiller's Animal Spirits, which has a chapter on how "corruption and bad faith" can influence the business cycle. They describe the 1920s as "a period of remarkable financial predation, which led years later to public disgust with such dealings and, after 1929 and some further delay, to landmark changes in U.S. laws." They continue:
The post-1920s cultural change manifested itself in other ways, for instance in leisure activities. In the Depression years of the 1930s, the card game contract bridge, first played in the United States in the late 1920s, blossomed. By 1941, the end of the Great Depression, a survey by the Association of American Playing Card Manufacturers revealed that contract bridge had become the most popular card game in the country, and that 44% of U.S. households played it. Contract Bridge is a game played by partners, who must cooperate [...and] has only rarely been played for money.
Yet in the first decade of the twenty-first century contract bridge is in serious decline, viewed as a game for the elderly, with few younger enthusiasts. In contrast, in recent years poker -- and especially its twenty-first century variation, Texas hold 'em -- has surged forward. These games are played by individuals for themselves alone, emphasize a type of deception variously called bluffing and "keeping a poker face," and are generally played for money.
Feb 6 2009, 2:45PM
The best and the brightest
Harvard is firing a quarter of its fabled investment management staff. The endowment shrank by 22 percent in the first four months of the fiscal year.
Feb 6 2009, 11:56AM
The return of William Donaldson
A short while ago Barack Obama signed an executive order creating an
Economic Recovery Advisory Board, staffed by outside experts and headed
by former Fed Chairman Paul Volcker. According
to the White House, "The board will bring a diverse set of perspectives
and voices from different parts of the country and different sectors of
the economy to bear in the formulation and evaluation of economic
policy":
Of that group, Donaldson seems like the most surprising. Donaldson was the person who chaired the SEC's 2004 meeting that abolished the net capital rule, which limited the amount of debt that investment firms' brokerage units were allowed to take on. The change let the big investment banks vastly increase their leverage ratios -- from about 12:1 to 33:1 in the case of Bear Stearns -- which turned out to be not such a great idea. I would have thought that, at least for the Democrats, appointing to William Donaldson to an advisory board on economic recovery would be a bit like appointing Donald Rumsfeld to an advisory board on closing Guantanamo Bay.
The members will include former Securities and Exchange Commission Chairman William Donaldson, former Fed Vice Chairman Roger Ferguson, UBS Americas Chairman and Chief Executive Officer Robert Wolf, General Electric Co. Chief Executive Officer Jeffrey Immelt and Service Employees International Union Secretary-Treasurer Anna Burger, according to an administration official.
Of that group, Donaldson seems like the most surprising. Donaldson was the person who chaired the SEC's 2004 meeting that abolished the net capital rule, which limited the amount of debt that investment firms' brokerage units were allowed to take on. The change let the big investment banks vastly increase their leverage ratios -- from about 12:1 to 33:1 in the case of Bear Stearns -- which turned out to be not such a great idea. I would have thought that, at least for the Democrats, appointing to William Donaldson to an advisory board on economic recovery would be a bit like appointing Donald Rumsfeld to an advisory board on closing Guantanamo Bay.
Feb 6 2009, 10:25AM
Stimulus cuts and confidence games
One of the arguments that has popped up in favor of making and keeping the stimulus large -- especially as the Senate considers cutting it -- is the impact a big bill would have on public confidence. Here (picking one of many examples) is Robert Shiller in the Wall Street Journal:
I agree that one of the things a stimulus bill needs to do is boost confidence. Not controversial. But one thing that seems confusing about this argument is that public support for the bill is not high. The numbers vary a bit: Rasmussen puts it at 37 percent in favor, with 50 percent saying it will make things worse, and Gallup has a slight majority in favor of the bill and a larger majority in favor of changing it substantially. But the current stimulus bill is not something the public is clamoring for. So why believe that a bill the public does not support will boost public confidence?
The danger at this point is that if the actions we take are not aggressive enough to have a substantial, visible impact on the economy, then confidence will continue to plummet.
I agree that one of the things a stimulus bill needs to do is boost confidence. Not controversial. But one thing that seems confusing about this argument is that public support for the bill is not high. The numbers vary a bit: Rasmussen puts it at 37 percent in favor, with 50 percent saying it will make things worse, and Gallup has a slight majority in favor of the bill and a larger majority in favor of changing it substantially. But the current stimulus bill is not something the public is clamoring for. So why believe that a bill the public does not support will boost public confidence?
Feb 5 2009, 10:45AM
An interview with Robert Barro
I spoke with Robert Barro of Harvard yesterday about the stimulus bill, fiscal policy, and related issues in macroeconomics.
I wanted to speak with Professor Barro after reading his piece in the Wall Street Journal about the multiplier on government spending. The piece, which argued that the multiplier has historically been much lower than the Obama administration hopes, produced a tremendous amount of response -- from Paul Krugman, Brad DeLong, Greg Mankiw, Matt Yglesias, and Tyler Cowen (some of them several times). And that response was notable, in part, because it turned into a reflection on the "standards" of the stimulus debate itself. I was interested to hear what Barro thought about his critics this debate.
I wanted to speak with Professor Barro after reading his piece in the Wall Street Journal about the multiplier on government spending. The piece, which argued that the multiplier has historically been much lower than the Obama administration hopes, produced a tremendous amount of response -- from Paul Krugman, Brad DeLong, Greg Mankiw, Matt Yglesias, and Tyler Cowen (some of them several times). And that response was notable, in part, because it turned into a reflection on the "standards" of the stimulus debate itself. I was interested to hear what Barro thought about his critics this debate.
Feb 3 2009, 11:49PM
Six reasons to doubt executive compensation caps
The New York Times is reporting that the Obama administration is going to impose a $500,000 cap on executive compensation for companies that receive "large amounts" of federal bailout funds. According to the Times, the details of the plan will be announced at 11am Wednesday morning.
Large bonuses following large bailouts create an understandable (and large) amount of anger. But there is good reason to doubt that capping executive compensation is the right answer. I count six reasons why this might not work as planned:
Large bonuses following large bailouts create an understandable (and large) amount of anger. But there is good reason to doubt that capping executive compensation is the right answer. I count six reasons why this might not work as planned:
Feb 3 2009, 5:29PM
Wald departs, others boycott
The head of CNBC is leaving the business channel:
The senior news executive at CNBC said Tuesday that he would leave the job next month, in the midst of what is arguably the biggest story in the business channel's history.
Jonathan Wald, the senior vice president for business news, said he could not reach agreement on a new contract and would leave at the end of March.
Incidentally, I see via the FT that today is the Boycott CNBC Day. I'm not sure if that means Wald has really good or bad timing.
Feb 3 2009, 1:45PM
Why I feel sorry for Tom Daschle (and Nancy Killefer)
So Daschle's nomination is no more: he joins Nancy Killefer as the
day's second casualty. And it's hard not to to think that Timothy
Geithner has just been named the lucky winner of the confirmation lottery. Is
there anyone claiming that if Geithner were judged by the standard
applied to Daschle and Killefer, he would have made it through the
gauntlet?
For that reason, it seems like this is going to hang a cloud over Geithner's tenure at Treasury. I hope it hangs a cloud over the administration, too. If all three nominations had gone through then at least the administration could plausibly claim that it was treating past tax errors consistently. If none had gone through it could claim the same thing. Or if there were clear differences between the cases of Geithner, Daschle and Killefer -- differences that indicated an obvious intention to avoid payment in one case but not another -- then it could at least claim that justice had been served. Any of those options would have been fine. Really.
But now it just seems like the administration has a large appetite for the perception of virtue and small appetite for the virtues of consistency. It doesn't seem to care if there's any merit to the claims that these tax problems we unintentional. Maybe they were and maybe they weren't. But the administration just wants the problems to go away.
For that reason, it seems like this is going to hang a cloud over Geithner's tenure at Treasury. I hope it hangs a cloud over the administration, too. If all three nominations had gone through then at least the administration could plausibly claim that it was treating past tax errors consistently. If none had gone through it could claim the same thing. Or if there were clear differences between the cases of Geithner, Daschle and Killefer -- differences that indicated an obvious intention to avoid payment in one case but not another -- then it could at least claim that justice had been served. Any of those options would have been fine. Really.
But now it just seems like the administration has a large appetite for the perception of virtue and small appetite for the virtues of consistency. It doesn't seem to care if there's any merit to the claims that these tax problems we unintentional. Maybe they were and maybe they weren't. But the administration just wants the problems to go away.
Feb 2 2009, 9:45PM
The Senate's stimulus and the CBO
The Senate's version of the stimulus bill is out and posted here. The finance committee's summary is here. And the CBO's scoring of the bill, via their director's blog, is here.
And here's a mystery about the bill: There has been some controversy in the past couple of weeks over how quickly the money in the stimulus bill will actually hit the economy. The administration has said it wants to ensure that 75 percent of the final bill's spending and tax-cut provisions are paid out in the rest of fiscal year 2009 and in fiscal year 2010. But the CBO's scoring of the House version found that it would only pay out 65 percent during that time period. That might not be terrible, but it wasn't up to the administration's own standard. And it lead to a round of complaining -- Robert Samuelson in this morning's Washington Post; David Brooks in last week's NYT -- that the stimulus wasn't going to be fast enough.
But the Senate version of the bill, as Noam Scheiber points out on the Plank, is much faster: 78 percent of the bill will pay out over the next two fiscal years. (Although I'm not sure what Noam means when he calls this the CBO's "official scoring of the overall stimulus package" -- it's just the CBO's scoring of the Senate version.) The question is: Why does the Senate's version of the bill pay out so much faster than the House's?
And here's a mystery about the bill: There has been some controversy in the past couple of weeks over how quickly the money in the stimulus bill will actually hit the economy. The administration has said it wants to ensure that 75 percent of the final bill's spending and tax-cut provisions are paid out in the rest of fiscal year 2009 and in fiscal year 2010. But the CBO's scoring of the House version found that it would only pay out 65 percent during that time period. That might not be terrible, but it wasn't up to the administration's own standard. And it lead to a round of complaining -- Robert Samuelson in this morning's Washington Post; David Brooks in last week's NYT -- that the stimulus wasn't going to be fast enough.
But the Senate version of the bill, as Noam Scheiber points out on the Plank, is much faster: 78 percent of the bill will pay out over the next two fiscal years. (Although I'm not sure what Noam means when he calls this the CBO's "official scoring of the overall stimulus package" -- it's just the CBO's scoring of the Senate version.) The question is: Why does the Senate's version of the bill pay out so much faster than the House's?
Feb 2 2009, 9:47AM
Treating Daschle and Geithner consistently
The NYT reports on Tom Daschle's tax hiccups:
I don't understand why the logic can't cut in the opposite direction -- i.e., After Geithner faced similar issues and was confirmed, it's only fair that the same standard of guilt be applied to Daschle. Which theory makes more sense: "We forgave Geithner, but it turns out we had only a very small quantity of forgiveness to hand out"; or "We acknowledge that as a general rule people make mistakes, and we're going to apply this rule to both Geithner and Daschle"?
It might be true that Daschle's situation is somehow worse -- that Daschle's intention to avoid taxes is more obvious -- but this isn't clear to me from the evidence on the table. Sure, there's more money involved ($150,000 versus $50,000) but not so much more that we're talking about a different class of criminality. What I see is a defense strategy that is more or less the same: (1) acknowledge that humans are imperfect and that mistakes were made; (2) apologize for wasting the precious time of the finance committee; and (3) blame the accountant.
After Timothy F. Geithner, Mr. Obama's Treasury secretary, faced similar issues, some senators may have little appetite for confirming another nominee with tax problems.
I don't understand why the logic can't cut in the opposite direction -- i.e., After Geithner faced similar issues and was confirmed, it's only fair that the same standard of guilt be applied to Daschle. Which theory makes more sense: "We forgave Geithner, but it turns out we had only a very small quantity of forgiveness to hand out"; or "We acknowledge that as a general rule people make mistakes, and we're going to apply this rule to both Geithner and Daschle"?
It might be true that Daschle's situation is somehow worse -- that Daschle's intention to avoid taxes is more obvious -- but this isn't clear to me from the evidence on the table. Sure, there's more money involved ($150,000 versus $50,000) but not so much more that we're talking about a different class of criminality. What I see is a defense strategy that is more or less the same: (1) acknowledge that humans are imperfect and that mistakes were made; (2) apologize for wasting the precious time of the finance committee; and (3) blame the accountant.
Jan 30 2009, 4:55PM
The worst stimulus proposal thus far
The Tax Policy Center on including an extension of the Alternative Minimum Tax patch in the stimulus bill:
The Senate Finance Committee decided to include the AMT patch earlier this week. The proposal receives a grade of D-minus. The average grade looks to be about a C-plus. The whole report card is here.
Neither timely nor targeted; makes no sense as economic stimulus.
The Senate Finance Committee decided to include the AMT patch earlier this week. The proposal receives a grade of D-minus. The average grade looks to be about a C-plus. The whole report card is here.
Jan 30 2009, 3:30PM
The paradox of philanthropy
I have a short piece in the Guardian today about Bill Gates, who released his first annual letter on philanthropy earlier this week. One of the things I found admirable about the letter is that Gates has promised to increase his foundation's 2009 spending, despite the financial crisis:
In 2008, the foundation spent about $3.3bn, or 5% of its assets - the minimum requirement of the US tax authorities. But in 2009, the foundation plans to increase spending to 7% of its assets, or $3.8bn.
Jan 30 2009, 10:45AM
Brooks on the stimulus
David Brooks offers five reasons not to like the stimulus. The first is:
I agree with Brooks's larger argument that the stimulus bill is trying to do too many things at once, but the above point seems mistaken. The advantage of pumping money into pre-established arrangements is that it's easier to spend quickly. I have the feeling that if the bill were trying to "truly reform" technology and infrastructure you would hear complaints about long it would take to get those grand, delusional plans off the ground. Could the administration win either way?
The money spent on long-term domestic programs means there may not be enough to jolt the economy now (about $290 billion in spending is pushed off into 2011 and later). The money spent on stimulus, meanwhile, means there's not enough to truly reform domestic programs like health technology, schools and infrastructure. The measure mostly pumps more money into old arrangements.
I agree with Brooks's larger argument that the stimulus bill is trying to do too many things at once, but the above point seems mistaken. The advantage of pumping money into pre-established arrangements is that it's easier to spend quickly. I have the feeling that if the bill were trying to "truly reform" technology and infrastructure you would hear complaints about long it would take to get those grand, delusional plans off the ground. Could the administration win either way?
Jan 30 2009, 9:30AM
Not-for-profit newspapers
The money managers at Yale propose the idea, modeled after a financially successful university with a large endowment. (Perhaps they have Yale in mind.) Steve Coll seconds it, and Matt Yglesias offers his thoughts. One potential consequence is that this might kill off the newspaper editorial as we know is, since a 501(c)(3) can't endorse candidates or legislation. On balance that doesn't seem like such a bad thing. There isn't any shortage of free opinion on the internet.
But how would the newspapers generate their endowments? Williams College, which Steve Coll picks on, has what I presume are a lot of nostalgic alums. Does the New York Times have equally nostalgic readers? (Or maybe a harder case: Does the Cleveland Plain Dealer?)
But how would the newspapers generate their endowments? Williams College, which Steve Coll picks on, has what I presume are a lot of nostalgic alums. Does the New York Times have equally nostalgic readers? (Or maybe a harder case: Does the Cleveland Plain Dealer?)
Jan 29 2009, 11:34AM
"Shaping the Post-Crisis World"
The World Economic Forum at Davos opened last night. The theme is "Shaping the Post-Crisis World," which certainly seems like a thing worth shaping.
But what I hadn't realized was that renowned capitalist Vladimir Putin was the honored opening speaker, and that his talk was preceded by a special session with the famed professor of economics Wen Jibao. I think we can agree that the post-crisis world will be shaped by careful hands.
But what I hadn't realized was that renowned capitalist Vladimir Putin was the honored opening speaker, and that his talk was preceded by a special session with the famed professor of economics Wen Jibao. I think we can agree that the post-crisis world will be shaped by careful hands.
Jan 29 2009, 8:01AM
The subtle bipartisanship of Rush Limbaugh
Rush Limbaugh takes to the pages of this morning's Wall Street Journal in praise of what might some dittoheads might consider an unfamiliar notion: Bipartisanship. According to Rush, the stimulus bill didn't have enough of it:
Yes, elections have consequences. But where's the bipartisanship, Mr. Obama? This does not have to be a divisive issue. My proposal is a genuine compromise.
Rush then goes on to detail his amazingly wacky proposal -- namely, dividing the spending in the congressional bill based on the percentage of the presidential vote that each party won. Under Rush's plan, 54 percent of the stimulus money would go to "infrastructure and pork as defined by Mr. Obama and the Democrats." (Sounds fair.) And the rest of the money would go to a series of extreme tax cuts determined by ... Rush Limbaugh. Democracy lives to fight another day.
Jan 28 2009, 9:00PM
So will that infrastructure spending work?
As Marc notes below, the stimulus bill passed the House with zero Republican support. I see the token corporate tax breaks really paid off.
Much of the pre-vote skepticism centered on the spending and, in particular, the infrastructure bits of the bill. Lots of Republicans opposed the infrastructure portions on the theory that building projects take a long time to start a long time to complete, and thus aren't effective short-term stimulus. And lots of Democrats asked that infrastructure portions of the bill be made larger, on the theory that many building projects are actually "shovel ready" and can thus kill two birds (short-term stimulus and long-term growth) with the same bridge.
So was it worth fighting over? Should we have slashed it or stuffed more of it in? I dunno. But one paper that I find helpful on the subject is this Brookings/Hamilton report on infrastructure, co-authored by Manasi Deshpande and Douglas Elmendorf (now of the CBO, and yesterday's report on the stimulus). I like the paper for a couple of reasons: First, it was written in July 2008 -- after a general debate over fiscal policy started, but before this specific debate over Obama's stimulus bill. And, second, it's a paper that comes from the erstwhile think tank of not just Elmendorf but Peter Orszag (of the OMB) and Larry Summers. And it comes with a roundtable discussion on infrastructure between Elmendorf, Summers and others.
I found it helpful in thinking through some of the infrastructure/stimulus skepticism, so I've posted some thoughts from the paper and roundtable after the jump:
Much of the pre-vote skepticism centered on the spending and, in particular, the infrastructure bits of the bill. Lots of Republicans opposed the infrastructure portions on the theory that building projects take a long time to start a long time to complete, and thus aren't effective short-term stimulus. And lots of Democrats asked that infrastructure portions of the bill be made larger, on the theory that many building projects are actually "shovel ready" and can thus kill two birds (short-term stimulus and long-term growth) with the same bridge.
So was it worth fighting over? Should we have slashed it or stuffed more of it in? I dunno. But one paper that I find helpful on the subject is this Brookings/Hamilton report on infrastructure, co-authored by Manasi Deshpande and Douglas Elmendorf (now of the CBO, and yesterday's report on the stimulus). I like the paper for a couple of reasons: First, it was written in July 2008 -- after a general debate over fiscal policy started, but before this specific debate over Obama's stimulus bill. And, second, it's a paper that comes from the erstwhile think tank of not just Elmendorf but Peter Orszag (of the OMB) and Larry Summers. And it comes with a roundtable discussion on infrastructure between Elmendorf, Summers and others.
I found it helpful in thinking through some of the infrastructure/stimulus skepticism, so I've posted some thoughts from the paper and roundtable after the jump:
Jan 27 2009, 12:20PM
Is it "pretty good work from the economics team"?
As Marc notes below, conservatives and liberals are reading the new CBO report on the stimulus and coming to a divergent, crazy-quilt series of conclusions about it. Like the Bible or the Constitution, a CBO report can apparently mean lots of things to lots of people. Greg Mankiw says the spending in the stimulus is too slow. Kevin Drum thinks it's pretty good:
Given the realities of the appropriations process, I'm not sure the White House could have done much better than this. Looks like pretty good work from the economics team.
Jan 26 2009, 7:19PM
Nonexistent CBO report turns out to be partially true
There was a lukewarm and somewhat nerdy scandal towards the end of last week about a report on the stimulus bill, supposedly issued by the Congressional Budget Office, that turned out not to exist. The phantom report, which found that much of the bill would not be spent until after fiscal year 2010, was cited by David Brooks, the Wall Street Journal editorial page and other conservative outlets as evidence that stimulus package wasn't going to be particularly timely. But then it became clear that the report was based only on a partial analysis of the spending bill and may have been leaked to the press to undermine the complete bill. Or something. But it definitely wasn't from the CBO.
But now, via the CBO director's blog, the complete report has been issued. And it finds that ... much of the bill will not be spent until after fiscal year 2010:
But now, via the CBO director's blog, the complete report has been issued. And it finds that ... much of the bill will not be spent until after fiscal year 2010:
Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period.
Jan 26 2009, 11:39AM
More on Larry Summers, stimulus and infrastructure
Over the weekend Matt Yglesias linked to my post about heeding the pre-administration stimulus advice of Larry Summers, and to a clip of Rep. Peter DeFazio telling Rachel Maddow that Summers' advice is actually the problem.
DeFazio's comments strike me as more-or-less incoherent. This is what he had to say:
DeFazio's comments strike me as more-or-less incoherent. This is what he had to say:
We proposed more [infrastructure spending] and I think there's a pretty good consensus among members in the House that it should be more. But the dictate from on high, and the negotiations with Obama's advisers ... I don't think the president is there. I think he's ill-advised by Larry Summers. Larry Summers hates infrastructure, and some of these other economists -- they were very much involved in creating the problem, and now they're going to solve the problem? And they don't like infrastructure.
Jan 26 2009, 8:54AM
Twitter: back to the VC well
Twitter is seeking new venture capital. According to TechCrunch:
It's likely they'll raise more than the $20 million in capital they've taken in over two previous rounds. Their last round, raised in June 2008, was a $15 million raise from new investors Spark Capital and Bezos Expeditions. Union Square Ventures and Digital Garage increased their previous investment.TechCrunch thinks this is good news (it gives Twitter that "even more leisurely pace"), but I'm not so sure. Here's what the NYT reported last month:
Rumor is Twitter hit up more than a few venture firms to pitch the $250 million valuation, and got more than one "no." But someone's bit, perhaps encouraged by Twitter's breakneck growth and the interest from Facebook. That means Twitter gets a new cash injection and time to figure out its business model at an even more leisurely pace.
Jan 26 2009, 7:33AM
Bad news for BofA
Remember how Bank of America's Ken Lewis axed John Thain after the FT broke news of Merrill's outsize bonuses? This morning's FT has another nice scoop:
Bank of America played a role in Merrill Lynch's controversial decision to pay $4bn in bonuses in December just as mounting losses were threatening to derail BofA's takeover of the Wall Street firm, according to people close to the situation.
Jan 25 2009, 10:59PM
We are all Keynesians now (including Ronald Reagan)
The New York Times has a surprisingly fun interactive feature on the American government's responses to various recessions, narrated by various economists. The highlight is Jeff Frankel of Harvard's argument that the '81-'82 recession was eased by Ronald Reagan's expansionary fiscal policies, which Frankel calls "Keynesian in consequence, if not in design":
Even though it wasn't done under a Keynesian banner or with Keynesian intention, it did have Keynesian effects, and it did help pull us out of the recession of 1981-82.
Jan 24 2009, 5:59PM
More stimulus details
Three updates on the stimulus package today:
1. Obama releases his first weekly video address, discussing "how the American Recovery and Reinvestment Plan will jump-start the economy."
2. The White House announces the creation of a new website to track ARRP stimulus spending, available at the (one hopes aptly named) recovery.gov.
3. The address and website are paired with a "Recovery Plan Metrics Report" (pdf), which lays out the goals of the ARRP.
1. Obama releases his first weekly video address, discussing "how the American Recovery and Reinvestment Plan will jump-start the economy."
2. The White House announces the creation of a new website to track ARRP stimulus spending, available at the (one hopes aptly named) recovery.gov.
3. The address and website are paired with a "Recovery Plan Metrics Report" (pdf), which lays out the goals of the ARRP.
Jan 24 2009, 2:47PM
A bailout for journalism
Except it's in France:
The French state will help provide free newspaper subscriptions to teenagers for their 18th birthdays, President Nicolas Sarkozy announced Friday. But the bigger gift is for France's ailing print media.
Sarkozy also announced a ninefold rise in the state's support for newspaper deliveries and a doubling of its annual print advertising outlay amid a swelling industry crisis.
Jan 23 2009, 2:17PM
At least a two-legged stool
From the Washington Post write-up of Obama's meeting with congressional leaders earlier today:
Obama told the group: "The recovery package that we're passing is only going to be one leg in at least a three-legged stool." He said it has to be "part and parcel of a reform package" aimed at ensuring transparency and accountability in the way taxpayer dollars are managed as part of the stimulus effort.
Jan 23 2009, 9:40AM
What would Larry Summers do?
There's been a worthwhile argument between Tyler Cowen, Matt Yglesias, Paul Krugman and Greg Mankiw over the standards we should apply to the debate over the stimulus package. It's a debate I'm going to do my best to avoid.
But a related question is whether or not the stimulus package meets the standards of its own architects. And it just so happens that prior to being tapped for the NEC Larry Summers was writing a monthly column for the Financial Times. A year ago, he wrote a column advocating the use of fiscal stimulus only under certain conditions:
But a related question is whether or not the stimulus package meets the standards of its own architects. And it just so happens that prior to being tapped for the NEC Larry Summers was writing a monthly column for the Financial Times. A year ago, he wrote a column advocating the use of fiscal stimulus only under certain conditions:
Jan 22 2009, 6:53PM
Does the New York Times have to be productive?
James Surowiecki and Felix Salmon (and to some extent Megan) bop Henry Blodget on the head for suggesting that the New York Times make itself more productive by, among other things, getting rid of writers who don't haul in enough traffic. Writes Blodget:
Productive writers can be retained and unproductive ones can be released (thanks to the web stats, this can be determined scientifically: look at a several years of click data and it will be crystal clear)
Jan 22 2009, 12:25PM
Why do 41% oppose Geithner?
From a Rasmussen poll:
Forty-one percent (41%) of U.S. voters say Geithner's failure to pay Social Security and Medicare taxes in 2001, 2002 and 2003 should prevent him from being Treasury secretary, while the identical number (41%) disagree. Eighteen percent (18%) are not sure in a new Rasmussen Reports national telephone survey.
Jan 15 2009, 2:37PM
An Interview With Michael Lewis
It didn't have the most auspicious start. When I emailed a couple of weeks to set up an interview, the author of Liar's Poker, Moneyball and The Blind Side said Sure, call me on Tuesday at noon. And so I called at noon -- only to find him still in bed. I was thinking EST. He meant PST. I apologized. We rescheduled.
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