Category Archives: President Obama

Video and Transcript of Bachmann rebuttal to Obama speech

September 9, 2011 – 7:49 am

Outstanding rebuttal by Michele Bachmann to President Obama’s speech of September 8, 2011:

Unfortunately, it seems, every time the President speaks, his policies have cost the American people jobs and future prosperity.

Tonight the President under the veil of one of the most sacred deliberative forums, a joint session of Congress, delivered another political speech where he doubled down on more of the same policies that are killing the economy.

Mr. President, what among your proposals was new? What here hasn’t already been tried and failed before?

While the President’s speech comes on the heels of a trillion dollars of failed stimulus, bailouts, and temporary gimmicks aimed at creating jobs, the President continued to cling to the idea that government is the solution to creating jobs.

My conservative colleagues and I have been fighting over the last two and half years for pro growth policies.

I stand here tonight to say to the President, not only should Congress not pass your plan, I say, “stop; your last plan hasn’t worked, it’s hurting the American economy.” Instead of temporary fixes, do what has proved to work in the past, permanent pro growth policies that are driven by the free market.”

Today, unemployment is 9.1 percent. Job creation has literally been zeroed out with the worst jobs report in 66 years this last month. Since the President’s failed trillion dollar stimulus we have lost over 2.5 million jobs while adding 416,000 government jobs. One in six Americans is now on food stamps, and the average time unemployed Americans are out of work is greater than 40 weeks. Housing values have fallen 19% from 2008 to the first quarter of this year. GDP growth was an anemic .4% in the first quarter and at 1% in the last and the dollar has lost 12 percent of its value.

These are not good times for the American people. Our patience for speeches, gimmicks and excuses has run out.

The only remedies the President knows are temporary, government directed fixes. And even if the President’s plan passes, we already know it will fail. In practice, we haven’t paid for his last trillion dollar jobs program and now his latest plan would have us embrace potentially over $400 billion in new government spending!

Spending taxpayer dollars on extending unemployment benefits has proved to add only 25 cents to GDP for every dollar we spend. Even the President’s new economic advisor agrees that extending unemployment benefits discourages future employment. Spending taxpayer dollars on extending the payroll tax holiday will reduce over 111 billion dollars to the Social Security trust fund this year and continuation of this policy will put social security checks to seniors at even greater risk. Spending taxpayer dollars on more infrastructure projects failed to create lasting jobs in the last stimulus.

And, looming on the horizon is the full scale implementation of Obamacare that, according the Congressional Budget Office, will kill 800,000 jobs and steal over 500 billion from Medicare.

Candidate Obama promised to wipe out deficits and the debt. Instead the President has increased the debt by over 6 trillion dollars, and what do we have to show for it? Permanent increases in the size of government, spending and debt, with a greater dependency on government.

Four years ago President Bush’s deficit was around 160 billion dollars; today, President Obama’s is nearly ten times that amount.

The President and Vice-President’s plan to spend us to prosperity has failed. And worse, they have stolen from a generation of Americans yet unborn, the consequences of which mean a near certainty of reduced choices and a dramatically downsized lifestyle for future generations from what we enjoy today.

Generational theft is a moral and ethical issue, and I care deeply about both the present generation and generations to come.

The President is politically paralyzed and philosophically incapable of doing what needs to be done.

I do agree, the President should take immediate action. But it is the nine following steps that will put us on a path to economic growth and put Americans back to work;

1) Repatriate American business dollars earned from overseas,

2) Massively cut spending and the size of government,

3) Repeal Obamacare, which is the government takeover of America’s healthcare system,

4) Cut taxes, including corporate taxes,

5) Repeal Dodd-Frank,

6) Repeal job killing regulations,

7) Increase exports by finalizing free trade agreements,

8) Spur new investment in America, inspire innovation,

9) Provide job creating energy solutions, including decreased regulations on developing new energy supplies from our abundant domestic energy resources.

The way forward needs to be based on permanent solutions grounded in the private sector. That is how we will once again restore economic prosperity to our country.

God Bless the United States of America.

By Everette Hatcher III | Tagged , , , , | Comments (0)

Will Congress ever learn about spending?

September 7, 2011 – 7:31 am

Washington Could Learn a Lot from a Drug Addict

Congress will anything to keep its addiction habit going!! John Brummett was asked to say something nice ab out Ronald Reagan and he noted that he could work together with the Democrats more than the Republicans of today. Let’s see what happened in 1982 when he did just that.

Lessons for Today from Reagan’s 1982 Deficit Reduction Compromise

Mike Brownfield

July 25, 2011 at 2:04 pm

Want some perspective on the debt ceiling negotiations and calls for tax increases in exchange for spending cuts? You might want to consider a cautionary tale dating back to 1982 when President Ronald Reagan agreed to a deficit-reduction compromise—and a result he didn’t bargain for.

Former Attorney General Edwin Meese III, who served under President Reagan, and Heritage Action for America’s Michael Needham write in today’s USA Today of the agreement Reagan struck in 1982 in hopes of tackling high deficits. He agreed to a modest increase in business taxes (which he didn’t like) in exchange for spending cuts (which he wanted). The higher taxes were enacted, but the spending cuts never arrived. Meese and Needham explain:

The president had no interest in increasing taxes, but he agreed to consider some kind of compromise with Congress. His representatives began meeting with members of House Speaker Tip O’Neill’s team to find some way to hammer out a deficit-reduction pact. So began what, in our opinion, became the “Debacle of 1982.”

From the outset, the basic idea of the GOP participants was to trade some kind of concessions on the tax front for a Democratic agreement on spending cutbacks. The negotiators knew that Ronald Reagan would be hard to sell on any tax hikes. So they included a ploy they felt might overcome his resistance: a large reduction in federal spending in return for a modest rise in business (but not individual) taxes.

The ratio in the final deal — the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) — was $3 in spending cuts for every $1 in tax increases. It sounded persuasive at the time. Believing it to be the only way to get spending under control, most of the president’s colleagues signed on. He disliked the tax hikes, of course, but he agreed to it as well.

You don’t have to be a Washington veteran to predict what happened next. The tax increases were promptly enacted — Congress had no problem accepting that part of the deal — but the promised budget cuts never materialized. After the tax bill passed, some legislators of both parties even claimed that there had been no real commitment to the 3-to-1 ratio.

Did the higher taxes help bring down the deficit? Nope. Meese and Needham write that “spending for fiscal year 1983 was some $48 billion higher than the budget targets, and no progress was made in lowering the deficit. Even tax receipts for that year went down — a lingering effect of the recession, which the additional business taxes did nothing to redress.”

As Congress considers which road to take on the debt ceiling, they ought to take a look at their history books and realize that in Washington, what you bargain for isn’t always what you get.

By Everette Hatcher III | Also posted in Ronald Reagan, spending out of control | Comments (0)

Obama has not learned that government stimulus will not work

September 6, 2011 – 6:17 pm

President Obama just does not learn from the past.

The Stimulus: The Government Job Creation Myth

by Tad DeHaven

 

Tad DeHaven is a budget analyst at the Cato Institute and co-editor of Downsizing the Federal Government.

Added to cato.org on August 2, 2010

This article appeared in the Richmond Times-Dispatch on August 1, 2010

At the beginning of 2009, the president’s economists told the public that passing an $862 billion “stimulus” package was the medicine the sick economy needed. We were told that its pas sage would keep unemployment from going above 8 percent. Instead, unemployment has remained close to 10 percent ever since.

The overall unemployment rate in Virginia has also increased but remains below the national average. However, counties that don’t border the D.C. spending epicenter have unemployment rates that often match or exceed the national average. Virginia has been awarded some $4.5 billion in stimulus funds, yet private sector employment remains flat.

Never mind all that, says the administration. The stimulus package prevented a second great depression, it says. Last month, the White House’s Council of Economic Advisors released an analysis claiming that the stimulus created or saved between 2.5 million and 3.6 million jobs.

Policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck.

Sounds good, but how did the CEA arrive at this conclusion?

Fuzzy math.

The first analysis used economic modeling to estimate the number of jobs created or saved. The model the CEA used assumed that government spending will have a positive multiplier effect on the economy. Voilà — the stimulus created jobs!

In the second analysis, the CEA estimated the stimulus bill’s effects by comparing real changes in gross domestic product and employment against a baseline forecast. However, even the CEA admits that this approach is subject to “considerable margins of error,” and that “the comparison will reflect not just the impact of fiscal policy, but all other unusual influences on the economy following passage of the Act.”

Translation: “We don’t know.”

That the stimulus did create jobs isn’t in question. The real question is whether it created any net jobs after all the negative effects of the spending and debt are taken into account. How many private-sector jobs were lost or not created in the first place because of the resources diverted to the government for its job creation?

Don’t expect the administration’s economists to attempt an answer to that question any time soon.

Here’s another question that the administration would prefer to ignore: How many jobs are being lost or not created because of increased uncertainty in the business community over future tax increases and other detrimental government policies?

The economist Robert Higgs coined the phrase “regime uncertainty” to describe Franklin Roosevelt’s anti-business climate, which prolonged the Great Depression. Unfortunately, this president is repeating the same mistake.

Health care mandates, cap-and-trade legislation, new financial regulations, union protections, and the probability of higher taxes to pay for the administration’s debt spree have caused innumerable businesses to remain on the sidelines.

As one small business owner recently told me, “I want to hire but I’m afraid the administration’s policies are going to force me to turn around and let them go.”

The president is countering these objections by traversing the country handing out government checks to pet industries. Apparently in the president’s economic Field of Dreams, “if we subsidize it, they will come.” Too bad past administrations have already poured billions of taxpayer dollars down the drain on similar failed top-down planning schemes.

Tad DeHaven is a budget analyst at the Cato Institute and co-editor of Downsizing the Federal Government.

 

More by Tad DeHaven

So what should the administration do?

Put simply, the opposite of what it has been doing. It has become gospel in some quarters that massive deficit spending is necessary to get the economy back on its feet.

History offers no support for this contention.

Most recently, the Japanese tried to spend their way out of their economic doldrums in the 1990s. The result was Japan’s “lost decade.”

Our own history offers evidence that reducing the government’s footprint on the private sector is the better way to get the economy going. Take for example, the “Not-So-Great Depression” of 1920-21. Cato Institute scholar Jim Powell notes that President Warren G. Harding inherited from his predecessor Woodrow Wilson “a post-World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit.”

Instead of resorting to deficit spending to “stimulate” the economy, taxes and government spending were cut. Hello Roaring Twenties.

Similarly, fears at the end of World War II that demobilization would result in double-digit unemployment when the troops returned home were unrealized. Instead, spending was dramatically reduced, economic controls were lifted, and the returning troops were successfully reintegrated into the economy.

Policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck. Stimulus proponents generally recognize that our fiscal path is unsustainable, but they argue that the current debt binge is nonetheless critical to an economic recovery. Nonsense.

Not only has Washington’s profligacy left us worse off, our children now face the prospect of reduced living standards and crushing debt.

By Everette Hatcher III | Comments (0)

Brummett: Obama would defeat Rick Perry (Part 1)

September 6, 2011 – 8:17 am

Cato Institute Scholars Analyze the 2010 State of the Union Address

Uploaded by on Jan 28, 2010

Cato Institute scholars address several items in President Obama’s first official State of the Union Address. Scholars include Daniel J. Mitchell, Mark A. Calabria, Neal McCluskey, Michael D. Tanner, John Samples, Jim Harper and Malou Innocent. http://www.cato.org

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John Brummett suggests that Rick Perry could not beat President Obama in his re-election attempt in 2012. In Brummett’s article “Laboring over holiday arrows,” September 6, 2011, Arkansas News Bureau, he asserted:

President Obama— You cannot get re-elected in an economy like this unless the Republicans nominate someone more unsettling even than the economy, a possibility.

arrowdownsmallRick Perry, Mitt Romney, Michele Bachmann — The possibilities mentioned above

I will respond in 6 parts. These 6 parts all deal with fundemental economic disagreements that President Obama and Rick Perry disagree on, and I will you determine if the public agrees with Perry or Obama.

These observations come from an article I read by Bradley Gitz on Sept 4, 2011 in the Arkansas Democrat-Gazette:

Much is being made of Texas Gov. (and now GOP frontrunner) Rick Perry’s “Texas Miracle.” Conservatives favorably compare Texas’ economic performance with the rest of the nation under Barack Obama. Liberals claim the “miracle” really isn’t much of a miracle at all and that Perry shouldn’t get the credit even if it is.
   Both sides have a point. By any objective standard, Texas has done pretty well in recent years, although upon closer inspection it still has problems (like any state) and it remains unclear how much of the good stuff can be attributed to Perry’s policies.
   In clarifying all this, it might help to remember that government is necessary for economic development but, past a certain point, is a potential obstacle to it. The logical corollary is that the marketplace is generally self-correcting, unless presidents (and governors) do dumb things that prevent such corrections. Sound economic policy more often than not means government laying the right foundation for economic growth and then getting out of the way.
   So what would such a “right” foundation under present circumstances consist of?
   First, limiting the size of the welfare state and government spending in general. Much easier than figuring out the right policies is identifying the wrong ones, foremost among which is government spending more each year than it takes in. At this point we have no choice but to overhaul entitlements, drastically cut discretionary spending and hope we have learned to never go down this road again…
   
   That the Obama administration doesn’t like most of these ideas explains certain things, and also suggests a rather obvious ninth step the voters can take in November of 2012.
   —–––––
•–––––—
   Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.

By Everette Hatcher III | Tagged , , , , | Comments (0)

In 82 and 90 tax increases happened immediately but spending cuts never came

September 6, 2011 – 6:32 am

Washington Could Learn a Lot from a Drug Addict

In 82 and 90 tax increases happened immediately but spending cuts never came. If you have ever dealt with a drug dealer then you would know that they will lie to you in order to get money out of you for drugs. Congress has lied in the past to keep their addiction to overspending going!!!

 

Tax Hikes a Foregone Conclusion Under Obama’s Tax-and-Spend Commission

Today, President Barack Obama signed an executive order announcing the creation of his “debt commission,” modeled after the infamous “Conrad-Gregg commission” plan the Senate voted down in January. The Administration has already announced that the panel will be headed up by former White House chief of staff under Bill Clinton Erskine Bowles and former Republican Senate Whip Alan Simpson.

While a United States Senator, Simpson voted for two “bipartisan deals” which had real tax increases and phony spending cuts. The first was the 1982 “TEFRA” bill which promised $3 in spending cuts for every $1 in tax hikes. The second was the 1990 “Read My Lips” deal struck at Andrews Air Force Base, which promised $2 in spending cuts for every $1 in tax hikes. In both cases, every penny of the tax hikes went through. Also in each case, the spending restraint never materialized.

Says ATR President Grover Norquist:

Taxpayers have every reason to be concerned. Alan Simpson has a history of walking into a room with the stated goal of reform – and in both cases he voted for higher taxes and higher spending, leaving taxpayers to foot the bill. There is no reason to believe that things would be different this time around – when you put everything on the table, including damaging tax hikes, taxpayers will more than likely be sold out.

Reform commission proposals that would not run the risk of being hijacked by tax increase proponents have been put forth in both the U.S. House and Senate. Senator Sam Brownback (R-KS) has sponsored the CARFA Act, which is modeled after the successful BRAC base closure commission, just like a similar bill, the FAPRAC Act sponsored by Rep. John Sullivan (R-OK) in the House. Both of these bills focus only on Federal spending and leave no room for tax increases. Rep. Patrick McHenry’s (R-NC) CORE Spending Act, while setting up a differently focused commission, protects taxpayers by incorporating a clear prohibition of tax increases or new taxes.

Norquist continues:

Rather than falling into the old “everything’s on the table” trap where tax increases are a foregone conclusion, Congress and the Administration should look to enact a BRAC-style spending reform-only commission or the CORE Spending Act all of which would take increases off the table. The BRAC process would not have worked if it had been tasked with either closing unnecessary bases or raising taxes to pay for unnecessary bases. It worked precisely because it had one job: to save taxpayer money by closing unnecessary bases, and along these lines, we should focus only on the real culprit of our fiscal problems – out-of-control spending.

Click here for a pdf of the press release.

 
By Everette Hatcher III | Also posted in Ronald Reagan, spending out of control | Comments (0)

Stimulus plans do not work but liberals like Brummett and Obama do not get it

September 5, 2011 – 11:44 pm


John Brummett in his article, “Will we stimulate with schools, not roads?,” Arkansas News Bureau, September 5, 2011, suggested that the Republicans have several reasons for opposing President Obama’s latest idea to stimulate the economy. However, the real reason is that none of these stimulus programs has ever worked in the past.  Many years ago Frederic Bastiat explained the “broken window fallacy,” but people still go believing they can ignore this fallacy

Hurricane Irene as Economic Stimulus

Posted by David Boaz

Oh, dear. Oh, dear. No matter how many times economists debunk the broken window fallacy, not a natural disaster goes by that journalists don’t try to cheer us up by saying “at least it will stimulate economic growth.” This time it’s Josh Boak (no relation!), the economics reporter (!) at Politico, who was “educated at Princeton and Columbia.” And Sunday afternoon he posted this story:

Irene: An economic blow or boost?

The power outages and shuttered airports may stop the engines of commerce for several days, but Hurricane Irene might have provided some short-term economic stimulus asbillions of dollars will likely be spent to repair the damage to the East Coast over the weekend.

Cumberland Advisors Chairman David Kotok saw the storm as likely jolting employment in construction, an industry paralyzed by the bursting of the real estate bubble in 2008.

“We are now upping our estimate of fourth-quarter GDP in the U.S. economy,” he said in an email Sunday. “Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

Kotok expects GDP growth — which limped along at less than a percentage point for the first half of the year — to exceed 2 percent in the last three months of the year and potentially reach 3 percent.

Mark Merritt, president of crisis-management consulting firm Witt Associates, said the hurricane should provide a bump in economic activity over the next few months.

“After a disaster, there’s always a definite short-term increase,” Merritt said. “There will be furniture bought, homes repaired, new carpet, new flooring, all the things affected by flooding.”

The story quotes no economist, who might have pointed out that the destruction of homes, businesses, and other property cannot actually be good for the economy. As economist Sandy Ikeda summed it up last year, the argument is that “paying $100 to replace a broken window somehow creates more prosperity than having an intact window and spending that $100 on something else.” He goes on to ask, as many economists have: If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities?

As Frederic Bastiat explained the “broken window fallacy,” a boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

In the comic strip “Pearls Before Swine,” the nefarious Rat used the destruction-as-stimulus argument to defend his client’s blowing up downtown:

But that’s a comic strip. Journalists should do better. Please, call one of these economists. They can tell you that destruction is destructive. When property is destroyed, people have less wealth. The money they had been saving for a new business or a new computer or a college education, now they have to spend it on rebuilding what they had. That is not “a bump in economic activity.”

By Everette Hatcher III | Also posted in Cato Institute | Tagged , , , , | Comments (0)

Fool me once, shame on you. But fool me thrice? Congress addicted to overspending!

September 4, 2011 – 8:25 am

Washington Could Learn a Lot from a Drug Addict

Have you ever been lied to by a drug addict? “I will stop taking drugs. I am clean now!!” That is the same straight and narrow path that Congress promised to take in 1982 and then again in 1990 when they promised future spending cuts to President Reagan and then to President Bush.

Tuesday, July 19, 2011

Fool me once, shame on you. But fool me thrice?

 
Fool me once, shame on you.  Fool me twice shame on me.  Fool me thrice? Say it isn’t so!The current promises from President Obama to give future spending cuts in return for raising revenue now [read that as taxes] and the debt ceiling have been twice heard before.  So my skepticism is based on the fact that the Democrats have historically not been particularly good at dealing in good faith when it comes to following through on their promises of spending cuts.

The first promised deal was a $3 for $1
Following the Carter era of massive recession and taxation, President Regan sought and signed the largest tax reduction in history.  Thus beginning the turn around in the economy.  Then came the Tax Equity and Fiscal Responsibility Act of 1982, which agreed to tax hikes on the promise from Congress of a $3 reduction in spending for every $1 increase in taxes.  TEFRA was created in order to reduce the budget gap, from a short term fall in tax revenue, by generating revenue through closure of tax loopholes and introduction of tougher enforcement of tax rules, rather than changing marginal income tax rates. Does that sound familiar to our current discussion?  The tax increases were real and immediate. The “future” spending cuts never really materialized, especially since the house came under full Democrat control a couple of months later. 

The second promised deal was a $2 for $1
Then as a reprise of the “grand deal”, an offer was made to George H. W. Bush in 1990 by House speaker Tom Foley (D., Wash.) and Senate majority leader George Mitchell (D., Me.) promising to cut spending by $274 billion in exchange for a $137 billion tax increase.  As before the tax increases were real, the spending cuts? Not so much.

The CBO analysis produced an analysis shown here.

“Not only did the $274 billion in promised baseline spending cuts never materialize–baseline spending was actually $22 billion higher than what CBO projected it would be before the deal.“

So with a track record like this, a “bird in the bush” spending deal lacks a lot of appeal.

By Everette Hatcher III | Also posted in Ronald Reagan, spending out of control | Comments (0)

Unemployment benefits help the economy?

August 30, 2011 – 6:29 pm

Over and over we hear that unemployment benefits help stimulate the economy, but that is far from the truth.

August 29, 2011 at 3:03 pm

President Obama’s pick as chairman of the White House Council on Economic Advisors co-authored a paper that showed that extending unemployment benefits will likely exacerbate joblessness. The paper’s findings run counter to the president’s economic argument for an unemployment benefit extension, which is expected to be a major part of the jobs plan he will unveil early next month.

Princeton University economist Alan Krueger, who will replace Austan Goolsbee as the White House’s chief economic advisor, “is likely to provide a voice inside the administration for more-aggressive government action to bring down unemployment and, particularly, to address long-term joblessness,” according to a report in the Wall Street Journal.

But will Krueger’s recommendations jive with the president’s apparent economic and political agenda? Kruegerco-authored a paper for the Handbook of Public Economics in 2002 that seems to undercut the economic argument for extending unemployment benefits. The paper found that those benefits tend to increase the length of unemployment by discouraging the search for a new job, and may actually encourage layoffs. Conversely, the paper also found that unemployed persons who are ineligible for benefits search harder for a job and are therefore unemployed for less time.

The president and his political allies have called for an unemployment benefit extension as a form of economic stimulus. Obama recently claimed that such an extension will “put money in people’s pockets and more customers in stores.” White House Press Secretary Jay Carney claimed that an extension of unemployment benefits could create up to a million jobs.

Liberal economic theory holds that additional government handouts will stimulate consumer demand, create economic activity, and therefore lead to greater employment as businesses take in more revenue. While Krueger did not examine the direct effect of unemployment benefits on economic growth, the 2002 NBER paper did conclude that such benefits do not alleviate, and may very well exacerbate unemployment.

“The empirical work on unemployment insurance (UI) and workers’ compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work,” the abstract of Krueger’s paper states. The paper’s examination of others’ work on unemployment benefits finds that “the main labor supply effect of UI is to lengthen unemployment spells.”

The paper also finds that increasing the length of unemployment benefits directly contributes to unemployment. “[I]ncreases in either the level or potential duration of benefits raise the value of being unemployed,” the paper states, “reducing search intensity and increasing the reservation wage.” More generous unemployment benefits, in other words, reduce the incentive to find employment. “Higher and longer duration UI benefits,” the paper adds,” will cause unemployed workers who receive UI to take longer to find a new job.”

On the other hand, workers who are not eligible for unemployment benefits or who have approached or reached the maximum duration of benefits, are more likely to search for, and hence to find work. The study saw an increase in the “escape rate from unemployment for workers who currently do not qualify for benefits and for qualified workers close to when benefits are exhausted.” The study calls this the “entitlement effect.”

Like other entitlements, it is meant as a “social safety net,” not an economic recovery policy. There may be humanitarian reasons to extend unemployment benefits (with corresponding budget offsets), but as a jobs program, by Krueger’s account, the policy will probably fall flat.

Krueger’s paper focuses on economic incentives, and finds –perhaps unsurprisingly – that paying people for being out of work encourages employment in layoff-prone industries, and discourages the search for a new job once a worker is unemployed. It also tends to encourage employees to “work less hard on the current job,” the paper states, due to their knowledge that they will be eligible for unemployment benefits in the event of a layoff.

The moral hazard and skewed incentives of unemployment benefits do not create a healthier economic climate – from the perspective of employment, at least – Krueger’s paper finds. But the president has already signaled both his intention to extend unemployment benefits and his belief that they will, in fact, stimulate the struggling economy.

Will the president heed the findings of his newest chief economic advisor – who, for what it’s worth, supports the liberal political position on other high-profile issues – or stick to a dogmatically liberal approach in the face of Krueger’s own academic work?

By Everette Hatcher III | Tagged , , , , | Comments (0)

Obama and Fannie and Freddie

August 30, 2011 – 6:51 am

President Obama doesn’t get it. He still wants to force the government to get poor people into the housing market even though they can not make the payments.

The New Fannie and Freddie: Flim and Flam

by Jagadeesh Gokhale

 

This article appeared in Forbes on August 29, 2011.

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As the economy remains stalled, and the election draws closer, the Obama administration seems increasingly willing to consider proposals that will further distort the housing market and seem to have the ultimate goal of preserving a major role for Fannie Mae and Freddie Mac — the two giant government sponsored enterprises at the core of the housing finance debacle that caused the Great Recession.

This is not really surprising considering we’re at the start of another election season when politicians are scrambling for goodies to sell for votes. Under the slogan of preserving the American Dream, the Obama election campaign is promising to resurrect the old policy of extending implicit government backing to Fannie and Freddie — if the President is re-elected.

The Obama Administration has outlined major policy initiatives to preserve a role for the same mortgage-lending giants that have had to be bailed out repeatedly since 2008 at taxpayer cost of $130 billion to date. The latest proposal would allow homeowners with underwater mortgages backed by Fannie and Freddie to refinance. This would be expected to transfer money from taxpayers to homeowners and, by increasing expected taxpayer burdens, is likely to delay economic recovery in consumer spending.

Jagadeesh Gokhaleis a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author ofSocial Security: A Fresh Look at Reform Alternatives, University of Chicago Press.

More by Jagadeesh Gokhale

 

It is worth noting that the Administration’s recent report on housing policy begins by blaming the private sector for initiating riskier lending practices: To wit:

Initially, Fannie Mae and Freddie Mac were largely on the sidelines while private markets generated increasingly risky mortgages. Between 2001 and 2005, private-label securitizations of Alt-A and subprime mortgages grew fivefold, yet Fannie Mae and Freddie Mac continued to primarily guarantee fully documented, high-quality mortgages.

This reveals a fundamental misunderstanding of how private markets work — one that needs to be exorcised before we can move to better policies. The Administration’s statement assumes that private lenders’ business decisions and risk-taking activities occur in a vacuum. On the contrary, the very existence of Fannie and Freddie to subsidize and support home lending probably triggered private risk taking at the margin in that sector.

The long-standing and profitable operation of housing GSEs — their purchases of home-loans financed out of bond sales to the public at cheap rates because of the implicit government backing they enjoyed — generated a long-sustained upward spiral in home prices, reduced aggregate risk perceptions in home finance among private lenders, and attracted capital including foreign savings. That made Fannie and Freddie a part of the constellation of government policies that promoted a steep home price bubble — that eventually burst to deliver the Great Recession.

The correct policy prescription under a buoyant housing market would have been to withdraw the GSEs from the market, and transition to a self sustaining home finance sector. Such a policy, had it commenced during the early 2000s, could have injected caution and countered the growing perception of a risk-free bonanza in home lending that fed the housing price bubble. Instead, Fannie and Freddie’s appetite to preserve market share and profits was only whetted — as the historical record of their massive portfolio expansion by purchasing subprime loans clearly shows.

The Administration is now proposing to “wind down Fannie and Freddie on a responsible timeline,” (that is, remove the old names), to “address fundamental flaws in the mortgage market to protect borrowers, help ensure transparency for investors, and increase the role of private capital,” (that is, increase lending regulations that stifle the private market), and “target the government’s vital support for affordable housing in a more effective and transparent manner” (that is, create new government sponsored home-lending institutions and increase its role in home-finance).

Instead of admitting that the lesson of the housing debacle is that some segments of the population do not deserve and cannot sustain home purchases financed through government subsidized mortgages, the Obama administration’s proposals, including this latest one, seek to “serve the needs of families, lenders, and investors” (but not taxpayers, of course) to “makes us all better off” (again, taxpayers excluded).

Sometimes, when a company fails for reasons unconnected to its business model, its operators attempt to preserve it via cosmetic changes — a new name, new location, or different front-office personnel. Accenture, the business consulting firm — formerly a part of Arthur Andersen that was tainted in the Enron scandal — is now thriving. So is “Sunshine Financial,” the formerly failed “People’s First” home lending business in Florida. Look for something similar to happen to Fannie and Freddie — even though that “business model” has clearly failed.

By Everette Hatcher III | Also posted in Cato Institute | Comments (0)

Obama’s double taxation policy

August 21, 2011 – 4:13 pm

Dan Mitchell wrote an excellent article yesterday on President Obama’s policy of double taxation on US firms who have operations in other countries. They are taxed by their host countries and then taxed again by the US.

When an American Company Redomiciles to the Cayman Islands, What Lesson Should We Learn?

Posted by Daniel J. Mitchell

Another American company has decided to expatriate for tax reasons. This process has been going on for decades, with companies giving up their U.S. charters (a form of business citizenship) and redomiciling in low-tax jurisdictions such as Bermuda, Ireland, Switzerland, Panama, Hong Kong, and the Cayman Islands.

The companies that choose to expatriate usually fit a certain profile (this applies to individuals as well). They earn a substantial share of their income in other countries and they are put at a competitive disadvantage because of America’s “worldwide” tax system.

More specifically, worldwide taxation requires firms to not only pay tax to foreign governments on their foreign-source income, but they are also supposed to pay additional tax on this income to the IRS — even though the money was not earned in America and even though their foreign-based competitors rarely are subject to this type of double taxation.

In this most recent example, an energy company with substantial operations in Asia moved its charter to the Cayman Islands, as reported by digitaljournal.com:

Greenfields Petroleum Corporation…, an independent exploration and production company with assets in Azerbaijan, is pleased to announce that the previously announced corporate redomestication … from Delaware to the Cayman Islands has been successfully completed.

Because it is a small firm, the move by GPC probably won’t attract much attention from the politicians. But “corporate expatriation” has generated considerable controversy in recent years when involving big companies such as Ingersoll-Rand, Transocean, and Stanley Works (now Stanley Black & Decker).

Statists argue that it is unpatriotic for companies to redomicile, and they changed the law last decade to make it more difficult for companies to escape the clutches of the IRS. In addition to blaming “Benedict Arnold” corporations, leftists also attack low-tax jurisdictions for “poaching” companies.

Libertarians and conservatives, by contrast, explain that expatriation is the result of an onerous tax system that imposes high tax rates and requires the double taxation of foreign-source income. Expatriation is the only logical approach if companies want a level playing field when competing in global markets.

I cover this issue (and also explain that the Obama administration is trying to make a bad system even worse) in the video below.

My recommendation, not surprisingly, is that politicians fix the tax code. Unfortunately, politicians prefer the blame-the-victim game, so they attack the companies instead of solving the underlying problem (and then they wonder why job creation is anemic).

By Everette Hatcher III | Also posted in Taxes | Comments (0)