Friday, February 27, 2009
California unemployment rate hits 10.1%
"As California goes, so does the nation," is the saying around here. Decades of liberal economics have crippled the Golden State. Now we have a progressive President and a very liberal Congress. Notice how many powerful Californians--all Democrats--there are in Congress: Nancy Pelosi, Henry Waxman, George Miller, Jane Harman. If the Californian economy is a litmus test, you can bet that it will not end well for the country in several years.
A Small Lesson on Government Regulation and Beer
When the federal government stepped out of the way of DIY home brewers, the micro-brew industry quickly grew with all of its innovations and large array of tasty choices. Another example of how less government means more freedom and prosperity.
Cato Scholars Address Obama's First Address to Congress
This is a far better critique of Obama's address to congress than CNN, NBC, or any other mainstream media outlet I watched on Tuesday; I am appalled at how CNN rarely is critical of Obama and his economic policy.
Thursday, February 26, 2009
Here Come Some Taxes
Here it comes---higher taxes and a cap and trade carbon scheme! It is just what our economy needs. I'm starting to seriously believe that Obama doesn't know what he is doing. When Obama calls for raising taxes on "the wealthy," you should know that this really means small businesses. The cap and trade scheme is a massive tax increase.
Wednesday, February 25, 2009
TARP Is Ripe For Fraud
Now don't you all worry your pretty little heads about government bailouts or "stimulus" packages because you should feel that your tax dollars are going to be spent efficiently and wisely. Afterall, if you can't trust the government who will you trust? (Snicker, snicker.)
The U.S. government's rescue of the financial system is vulnerable to fraud that could potentially cost taxpayers tens of billions of dollars, government watchdogs warned lawmakers Tuesday.
Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government's experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud.
He also said fewer than 5% of banks receiving government aid have responded to a request about what they have done with their bailout money.
The comments come as the Obama administration prepares to pour more money into the financial sector. Federal banking regulators begin a series of "stress tests" at the largest U.S. banks this week to determine whether they need greater infusions of government funds to survive a worse economic downturn.
The U.S. government's rescue of the financial system is vulnerable to fraud that could potentially cost taxpayers tens of billions of dollars, government watchdogs warned lawmakers Tuesday.
Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government's experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud.
He also said fewer than 5% of banks receiving government aid have responded to a request about what they have done with their bailout money.
The comments come as the Obama administration prepares to pour more money into the financial sector. Federal banking regulators begin a series of "stress tests" at the largest U.S. banks this week to determine whether they need greater infusions of government funds to survive a worse economic downturn.
Stimulus Today, Disaster Tomorrow
At best, the stimulus package may be able to stave off 1-2 percentage points off the unemployment rate. But I certainly don't expect it to generate 3-4% GDP growth which is the kind of growth needed to sustain our standard of living with population growth. I expect a very meager and weak recovery at best. Obama plans on letting the Bush tax cuts lapse which during a soft economy is a recipe for trouble. One thing is certain--the massive debt will create rising inflation. And it will eat into the value of dollar and it will make a strong recovery elusive. We are headed for some tough times.
HT: Liberty Pen
Tuesday, February 24, 2009
Democrats and Deficits
Remember all the flack and hate that Democrats and liberals generated when Dick Cheney uttered these words: "Deficits Don't Matter." Well, now that they have one of their own in the White House and Democrats control both houses, it seems that they have forgotten their bitter arguments against growing national deficits. Now it's "spending is stimulus!" If government spending is good for the economy, why wasn't it good when the Bush administration was doing it? Now that Democrats have abandoned the charade of fiscal responsibility and "pay as you go" (remember that bull crap) they have unveiled a new and bigger fiscal budget for 2009 and it's an 8.7% increase from the 2008 budget. Despite Obama's jawing about "fiscal responsibility" and cutting the deficit in half by his first term, taxpayers should brace to get socked with higher taxes in the very near future. Sadly, this is exactly the sort of change that I expected from Barack Obama.
Friday, February 20, 2009
Thursday, February 19, 2009
The Insanity of it all...
If you haven't heard the news, Obama plans on a $275 Billion dollar housing bailout.
Jeff Perren at Shaving Leviathan writes:
The insanity continues unabated.
Fresh from signing the largest legislative suicide pact in American history, Obama plans to intrude the Federal government still more into the housing market, amplifying the bad effects of the intrusions that led to the crisis by engaging in still more Federal welfare...
...explicit discussion of moral issues plays little part in public debates these days, even though it animates most of them. Instead, they focus almost exclusively on which route will maximize social utility and an abstraction called "the economy." They too frequently ignore that individuals have their own private economy and that should be the heart of their concerns.
Whenever moral issues do play a part in online debates, they tend to center around the personal motives of Congress and Obama himself. But it doesn't matter whether they are the accumulation of more power, as is likely, or simply a sincere belief that 'the strong' should help 'the weak'. It's irrelevant whether or not he and they are simply soft-hearted, to go along with their soft heads, or are just a bunch of calculating opportunists.
The effects will be the same regardless of their intentions and the first effect is to violate the right of dozens of millions who didn't default on their mortgage payments to choose whether or not to help the others.
The entire post is spot on. In the long run, Obama's plan to shore up struggling homeowners is close to removing risk from the housing market. Hey, don't worry if you can't pay your mortgage because Uncle Sam will always have your back. Eventually, it won't matter what your reason is to not pay your mortgage because you have a "right" to have a home. Right? I can see some angles here, Fannie Mae and Freddie Mac get some validation by being injected with 200 billion dollars; they both can rest assured that they will never have to compete with others or fear poor performance since their stockholders are the American taxpayer. Yes, even responsible taxpayers that avoided personal debt and "too good to be true" mortgage payments get to pitch in for this transfer of wealth.
Alas, another market distortion gets to be created. Home prices will once again be adversely "stimulated" by the lumbering forces of government trying to "do something." All of this will not end well. I can almost feel unintended consequences creeping up behind us.
Jeff Perren at Shaving Leviathan writes:
The insanity continues unabated.
Fresh from signing the largest legislative suicide pact in American history, Obama plans to intrude the Federal government still more into the housing market, amplifying the bad effects of the intrusions that led to the crisis by engaging in still more Federal welfare...
...explicit discussion of moral issues plays little part in public debates these days, even though it animates most of them. Instead, they focus almost exclusively on which route will maximize social utility and an abstraction called "the economy." They too frequently ignore that individuals have their own private economy and that should be the heart of their concerns.
Whenever moral issues do play a part in online debates, they tend to center around the personal motives of Congress and Obama himself. But it doesn't matter whether they are the accumulation of more power, as is likely, or simply a sincere belief that 'the strong' should help 'the weak'. It's irrelevant whether or not he and they are simply soft-hearted, to go along with their soft heads, or are just a bunch of calculating opportunists.
The effects will be the same regardless of their intentions and the first effect is to violate the right of dozens of millions who didn't default on their mortgage payments to choose whether or not to help the others.
The entire post is spot on. In the long run, Obama's plan to shore up struggling homeowners is close to removing risk from the housing market. Hey, don't worry if you can't pay your mortgage because Uncle Sam will always have your back. Eventually, it won't matter what your reason is to not pay your mortgage because you have a "right" to have a home. Right? I can see some angles here, Fannie Mae and Freddie Mac get some validation by being injected with 200 billion dollars; they both can rest assured that they will never have to compete with others or fear poor performance since their stockholders are the American taxpayer. Yes, even responsible taxpayers that avoided personal debt and "too good to be true" mortgage payments get to pitch in for this transfer of wealth.
Alas, another market distortion gets to be created. Home prices will once again be adversely "stimulated" by the lumbering forces of government trying to "do something." All of this will not end well. I can almost feel unintended consequences creeping up behind us.
Wednesday, February 18, 2009
Friday, February 13, 2009
Where your money will end up
The WSJ has a neat and simple graph. Look carefully at the tax cuts and what the biggest portion is aimed at. Do you remember the Economic Stimulus Act of 2008 and how it flopped?
Thursday, February 12, 2009
We could all use less Keynes and more Hayek
Dick Armey writes in the WSJ:
It's clear why Keynes's popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it's harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations...
Of course, despite Mr. Obama's campaign promises to adhere to "Pay As You Go" budgeting, no one seems terribly worried about paying for what will likely be a trillion-dollar stimulus package. What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing...
If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency...
Taking money out of the private economy -- either through taxes or inflation -- and spending it in a way that doesn't offset the loss of money with real economic gains is worse than doing nothing...
There is no way around it; this stimulus bomb is going to create inflation like nobody's business and it will do little to move the economy forward.
It's clear why Keynes's popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it's harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations...
Of course, despite Mr. Obama's campaign promises to adhere to "Pay As You Go" budgeting, no one seems terribly worried about paying for what will likely be a trillion-dollar stimulus package. What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing...
If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency...
Taking money out of the private economy -- either through taxes or inflation -- and spending it in a way that doesn't offset the loss of money with real economic gains is worse than doing nothing...
There is no way around it; this stimulus bomb is going to create inflation like nobody's business and it will do little to move the economy forward.
Best post I've read today on Geitner and government intervention in the economy.
Do yourself a favor and read this great post. From Jeff Perren over at Shaving Leviathan:
When that disaster comes, and capitalism is blamed once again, there will be increasing pressure for out and out nationalization of the banks, something to which this Administration is already far too philosophically inclined. (Some reports have them mulling it over already and, of course, to a degree, the implementation of TARP has produced that as a fait accompli.)
...But allowing individuals the freedom to succeed or fail is contrary to the entire mindset in Washington, as it is to much of the country on most points of the political compass. Many, far far too many, delude themselves — despite enormous evidence to the contrary — that government control of such matters is practical. This represents the (let us hope, temporary) triumph of large swaths of the Progressive philosophy, made possible in large part by unhealthy acceptance of Pragmatism over the past 100 years.
When that disaster comes, and capitalism is blamed once again, there will be increasing pressure for out and out nationalization of the banks, something to which this Administration is already far too philosophically inclined. (Some reports have them mulling it over already and, of course, to a degree, the implementation of TARP has produced that as a fait accompli.)
...But allowing individuals the freedom to succeed or fail is contrary to the entire mindset in Washington, as it is to much of the country on most points of the political compass. Many, far far too many, delude themselves — despite enormous evidence to the contrary — that government control of such matters is practical. This represents the (let us hope, temporary) triumph of large swaths of the Progressive philosophy, made possible in large part by unhealthy acceptance of Pragmatism over the past 100 years.
Wednesday, February 11, 2009
Unions call for "Buy Canadian" policy
Canadian unions are taking their cue from their American counterparts by calling for a "Buy Canadian" policy. Can you smell protectionism and a trade war? Thank you, Democrats.
Their calls to for a "Buy Canadian" policy come after the federal government lobbied hard against efforts in Washington to attach a "Buy American" policy to a multibillion-dollar bailout program...Last Tuesday, Layton urged that Canada should adopt a "Buy Canadian" strategy in response to the "Buy American" clause included in the proposed U.S. stimulus package.
Their calls to for a "Buy Canadian" policy come after the federal government lobbied hard against efforts in Washington to attach a "Buy American" policy to a multibillion-dollar bailout program...Last Tuesday, Layton urged that Canada should adopt a "Buy Canadian" strategy in response to the "Buy American" clause included in the proposed U.S. stimulus package.
The Importance of Failure
Tyler A. Watts over at Mises.org writes on the added danger of bailouts that our politicians can not grasp:
I don't buy the probailout folks' predictions of impending economic chaos. But what if they're right? What if the short-run pain in store is just too terrible to endure if we don't start bailing out key industries? After all, we're talking massive unemployment, a new wave of foreclosures, a shrinking economy — in a word, recession. If the dire forecasts of the bailouters are correct, we'd be stupid not to do it; we'd be like a beaver caught in a trap: slowly dying, yet too timid to chew off his own foot to escape.
Capitalism depends on three highly complementary, yet distinct, institutions: prices, property, and "profit and loss." Classical-liberal economists have demonstrated the essential role of these pillars of prosperity for centuries. These fundamental institutions of the market economy are like legs of a stool. If we gradually weaken one leg, we will eventually bring the stool toppling down — economic collapse.
In this light, the implications of bailout are clear. Bailouts are designed to insulate people from the effects of bad decisions. When market prices change dramatically, exposing yesterday's poor investment choices, bailouts come "to the rescue," promising those left holding the bag that they won't have to endure the full cost of their errors...
...Bailouts, then, attempt to erase the effects of losses, or economic failure. But such efforts inevitably undermine the loss aspect of "profit and loss." Profit and loss go together — like up and down, left and right, good and bad. If we try to do away with losses, we'll wind up diluting the meaning of profits. After all, why strive for profits if Uncle Sam will cover your losses with a bailout? Why bust your butt to compete and succeed if you can just clamor for a handout instead? Bailouts destroy the profit motive — and all the benefits of a competitive economy.
By removing the risk of failure, government inevitably creates an environment where crony-capitalism flourishes. And we end up with the same essential distortions in our economy that has lead to the financial crisis.
I don't buy the probailout folks' predictions of impending economic chaos. But what if they're right? What if the short-run pain in store is just too terrible to endure if we don't start bailing out key industries? After all, we're talking massive unemployment, a new wave of foreclosures, a shrinking economy — in a word, recession. If the dire forecasts of the bailouters are correct, we'd be stupid not to do it; we'd be like a beaver caught in a trap: slowly dying, yet too timid to chew off his own foot to escape.
Capitalism depends on three highly complementary, yet distinct, institutions: prices, property, and "profit and loss." Classical-liberal economists have demonstrated the essential role of these pillars of prosperity for centuries. These fundamental institutions of the market economy are like legs of a stool. If we gradually weaken one leg, we will eventually bring the stool toppling down — economic collapse.
In this light, the implications of bailout are clear. Bailouts are designed to insulate people from the effects of bad decisions. When market prices change dramatically, exposing yesterday's poor investment choices, bailouts come "to the rescue," promising those left holding the bag that they won't have to endure the full cost of their errors...
...Bailouts, then, attempt to erase the effects of losses, or economic failure. But such efforts inevitably undermine the loss aspect of "profit and loss." Profit and loss go together — like up and down, left and right, good and bad. If we try to do away with losses, we'll wind up diluting the meaning of profits. After all, why strive for profits if Uncle Sam will cover your losses with a bailout? Why bust your butt to compete and succeed if you can just clamor for a handout instead? Bailouts destroy the profit motive — and all the benefits of a competitive economy.
By removing the risk of failure, government inevitably creates an environment where crony-capitalism flourishes. And we end up with the same essential distortions in our economy that has lead to the financial crisis.
Best comment on the Stimulus Package
From a commenter on SF gate.com:
"Yay, now we don't have to hear anymore complaining. Everyone is going to get theirs. I am going to get $500.00, wow, and my grandaughter gets to pay for it all. I'm not worried, she'll get a really good job holding a flag for the road workers. Oh thank you Messiah, you're just too good for us little people."
"Yay, now we don't have to hear anymore complaining. Everyone is going to get theirs. I am going to get $500.00, wow, and my grandaughter gets to pay for it all. I'm not worried, she'll get a really good job holding a flag for the road workers. Oh thank you Messiah, you're just too good for us little people."
Tuesday, February 10, 2009
Let's have a Health Care system just like Canada does!
Every Canadian gets "free" health care we are told and therefore health care in Canada is more "fair" and "just." But as uncle Milton used to say, "there's no such thing as a free lunch."
From the WSJ:
...Canadians often wait months or even years for necessary care. For some, the status quo has become so dire that they have turned to the courts for recourse. Several cases currently before provincial courts provide studies in what Americans could expect from government-run health insurance.
In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor.
Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's challenging Ontario's government-run monopoly health-insurance system, claiming it violates the right to life and security of the person guaranteed by the Canadian Charter of Rights and Freedoms.
Shona Holmes, another Ontario court challenger, endured a similarly harrowing struggle. In March of 2005, Ms. Holmes began losing her vision and experienced headaches, anxiety attacks, extreme fatigue and weight gain. Despite an MRI scan showing a brain tumor, Ms. Holmes was told she would have to wait months to see a specialist. In June, her vision deteriorating rapidly, Ms. Holmes went to the Mayo Clinic in Arizona, where she found that immediate surgery was required to prevent permanent vision loss and potentially death. Again, the government system in Ontario required more appointments and more tests along with more wait times. Ms. Holmes returned to the Mayo Clinic and paid for her surgery.
Read the full Wall Street Journal piece.
From the WSJ:
...Canadians often wait months or even years for necessary care. For some, the status quo has become so dire that they have turned to the courts for recourse. Several cases currently before provincial courts provide studies in what Americans could expect from government-run health insurance.
In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor.
Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's challenging Ontario's government-run monopoly health-insurance system, claiming it violates the right to life and security of the person guaranteed by the Canadian Charter of Rights and Freedoms.
Shona Holmes, another Ontario court challenger, endured a similarly harrowing struggle. In March of 2005, Ms. Holmes began losing her vision and experienced headaches, anxiety attacks, extreme fatigue and weight gain. Despite an MRI scan showing a brain tumor, Ms. Holmes was told she would have to wait months to see a specialist. In June, her vision deteriorating rapidly, Ms. Holmes went to the Mayo Clinic in Arizona, where she found that immediate surgery was required to prevent permanent vision loss and potentially death. Again, the government system in Ontario required more appointments and more tests along with more wait times. Ms. Holmes returned to the Mayo Clinic and paid for her surgery.
Read the full Wall Street Journal piece.
General Motors to Invest $1 Billion in Brazil Operations
My dear fellow taxpayer, here is another example of how our tax dollars (via corporate welfare) is going to be burned up by a large corporation. When it’s not your money it is soooo easy to spend:
General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.
According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."
General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.
According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."
Monday, February 9, 2009
Friday, February 6, 2009
Thursday, February 5, 2009
Mr. President, there is no Santa Claus
Walter E. Williams on the stimulus package:
Suppose the value of all that we will produce in 2009, our gross domestic product (GDP), totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left over for us to spend privately. In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.
You might say, "Congress doesn't have to tax us $4 trillion. They could tax us $3 trillion and run a $1 trillion budget deficit." You have that wrong. There is no way for Congress to spend $4 trillion out of our 2009 $14 trillion GDP by getting us to spend only $3 trillion less privately. It has to be $4 trillion less. Another method to force us to spend less privately is to print money and inflate the currency. Rising prices reduce our ability to spend privately since each dollar we hold will not buy as much. Another way is for Congress to borrow, thereby reducing our ability to spend privately. By the way, all of this means that in any real economic sense the federal budget is always balanced. That is, if Congress spends $4 trillion we must privately spend $4 trillion less whether it is accomplished through taxation, inflation or borrowing.
The stimulus package, otherwise known as the soaking of the American taxpayer part two, is essentially a massive transfer of wealth that will not do enough to create jobs in the private sector. Oh, I will admit that it will create some jobs, mostly in the public sector. But the private sector of the economy will see little to no real benefit. Senate Republicans need to vote against this wasteful package; they need to resist the President's attempt to guile them into backing a bill that will eventually fail. Let the Democrats own it. And when it flies like a lead zeppelin, they won't be able to hide behind the excuse that Republicans thought that it would work too.
Suppose the value of all that we will produce in 2009, our gross domestic product (GDP), totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left over for us to spend privately. In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.
You might say, "Congress doesn't have to tax us $4 trillion. They could tax us $3 trillion and run a $1 trillion budget deficit." You have that wrong. There is no way for Congress to spend $4 trillion out of our 2009 $14 trillion GDP by getting us to spend only $3 trillion less privately. It has to be $4 trillion less. Another method to force us to spend less privately is to print money and inflate the currency. Rising prices reduce our ability to spend privately since each dollar we hold will not buy as much. Another way is for Congress to borrow, thereby reducing our ability to spend privately. By the way, all of this means that in any real economic sense the federal budget is always balanced. That is, if Congress spends $4 trillion we must privately spend $4 trillion less whether it is accomplished through taxation, inflation or borrowing.
The stimulus package, otherwise known as the soaking of the American taxpayer part two, is essentially a massive transfer of wealth that will not do enough to create jobs in the private sector. Oh, I will admit that it will create some jobs, mostly in the public sector. But the private sector of the economy will see little to no real benefit. Senate Republicans need to vote against this wasteful package; they need to resist the President's attempt to guile them into backing a bill that will eventually fail. Let the Democrats own it. And when it flies like a lead zeppelin, they won't be able to hide behind the excuse that Republicans thought that it would work too.
Wednesday, February 4, 2009
Tuesday, February 3, 2009
Tom Daschle Ad
I couldn't help myself. Here is an old Daschle political ad where we see the tax scofflaw driving himself around in an old beater.
Obama's appointments don't worry about raising taxes, they just don't pay them!
Obama's vetting process is obviously faulty: Daschle falls on his sword and withdraws as Obama's Health and Human Services secretary. And Nancy Killefer withdraws from consideration to be the federal government's chief performance officer--a new position created by the Obama administration. Well, ladies and gentlemen, here is change we can believe in!
HT: Carpe Diem for cartoon.
How to piss off our friends
Europeans are not very happy about the "Buy American" clause in the current stimulus bill:
The EU and Canadian ambassadors to Washington have already warned that the clause could promote protectionism and trigger retaliatory moves.
UPDATE: The Chef over at The Economist's Cookbook deftly expands on this post. Please take some time to take a look.
The EU and Canadian ambassadors to Washington have already warned that the clause could promote protectionism and trigger retaliatory moves.
UPDATE: The Chef over at The Economist's Cookbook deftly expands on this post. Please take some time to take a look.
Monday, February 2, 2009
Memo to Democrats
The massive stimulus package put forth by Democrats may knock off a few percentage points off of unemployment numbers but it most likely will not lead the economy out of recession:
President Obama’s mammoth stimulus plan may be the largest single bill Congress has ever considered. But that doesn’t mean it will solve all the economic problems facing the US.
The nation is mired in one of its worst recessions, and is likely to shed so many jobs and so much business production that even an unprecedented jolt of government spending wouldn’t by itself be able to replace the losses.
In a best-case scenario, by the end of 2010 the recovery package would plug about half the gap between actual Gross Domestic Product and what the GDP would be if the economy were healthy, according to the Congressional Budget Office. The corresponding unemployment rate might be 6.8 percent, in CBO’s judgement – two percentage points lower than it otherwise would have been.
“So even with a [stimulus] package of that size, there’s still a substantial shortfall in economic activity relative to what we could be doing,” said CBO director Douglas Elmendorf in Jan. 27 testimony before Congress.
Senate Republicans need to land on this with both feet and insist on less liberal Christmas tree ornaments and more tax cuts that encourage business investment. Ask yourselves this question: At what point does an increasing national deficit adversely effect the value of the dollar and our ability to sell treasury bills (to foreign governments) to cover our massive debt?
President Obama’s mammoth stimulus plan may be the largest single bill Congress has ever considered. But that doesn’t mean it will solve all the economic problems facing the US.
The nation is mired in one of its worst recessions, and is likely to shed so many jobs and so much business production that even an unprecedented jolt of government spending wouldn’t by itself be able to replace the losses.
In a best-case scenario, by the end of 2010 the recovery package would plug about half the gap between actual Gross Domestic Product and what the GDP would be if the economy were healthy, according to the Congressional Budget Office. The corresponding unemployment rate might be 6.8 percent, in CBO’s judgement – two percentage points lower than it otherwise would have been.
“So even with a [stimulus] package of that size, there’s still a substantial shortfall in economic activity relative to what we could be doing,” said CBO director Douglas Elmendorf in Jan. 27 testimony before Congress.
Senate Republicans need to land on this with both feet and insist on less liberal Christmas tree ornaments and more tax cuts that encourage business investment. Ask yourselves this question: At what point does an increasing national deficit adversely effect the value of the dollar and our ability to sell treasury bills (to foreign governments) to cover our massive debt?
"Buy American" is a bad idea
Douglas A. Irwin at the New York Times reminds us that lest we resolve to repeat mistakes from the past, the current provision in the stimulus bill that requires "preference be given to domestic steel producers in building contracts and other spending," smacks of protectionism just when it is least desired:
...History has shown that Buy American provisions can raise the cost and diminish the effect of a spending package. In rebuilding the San Francisco-Oakland Bay Bridge in the 1990s, the California transit authority complied with state rules mandating the use of domestic steel unless it was at least 25 percent more expensive than imported steel. A domestic bid came in at 23 percent above the foreign bid, and so the more expensive American steel had to be used. Because of the large amount of steel used in the project, California taxpayers had to pay a whopping $400 million more for the bridge. While this is a windfall for a lucky steel company, steel production is capital intensive, and the rule makes less money available for other construction projects that can employ many more workers.
American manufacturers have ample capacity to fill the new orders that will come as a result of the fiscal stimulus. In addition, other countries are watching closely to see if the crisis becomes a general excuse for the United States to block imports and favor domestic firms. General Electric and Caterpillar have opposed the Buy American provision because they fear it will hurt their ability to win contracts abroad.
HT: Don Boudreaux at Cafe Hayek
...History has shown that Buy American provisions can raise the cost and diminish the effect of a spending package. In rebuilding the San Francisco-Oakland Bay Bridge in the 1990s, the California transit authority complied with state rules mandating the use of domestic steel unless it was at least 25 percent more expensive than imported steel. A domestic bid came in at 23 percent above the foreign bid, and so the more expensive American steel had to be used. Because of the large amount of steel used in the project, California taxpayers had to pay a whopping $400 million more for the bridge. While this is a windfall for a lucky steel company, steel production is capital intensive, and the rule makes less money available for other construction projects that can employ many more workers.
American manufacturers have ample capacity to fill the new orders that will come as a result of the fiscal stimulus. In addition, other countries are watching closely to see if the crisis becomes a general excuse for the United States to block imports and favor domestic firms. General Electric and Caterpillar have opposed the Buy American provision because they fear it will hurt their ability to win contracts abroad.
HT: Don Boudreaux at Cafe Hayek
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