Recent Government Initiatives Given Negative Assessments

From Edmunds:

Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.

Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as CARS, but Edmunds.com analysts calculated that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway, regardless of the existence of the program.

Now, that’s not much bang for the taxpayer buck.  What about the homebuyer tax credit?  From the Brookings Institution:

So let’s assume that 15 percent of homebuyers will not receive the new tax credit, so there is no change in baseline sales for these people. Of the remaining 85 percent, let’s assume the median house sale price is $180,000 (compared to the $200,000 median price including the high earning buyers). Assuming a price elasticity of -0.65, this implies an increase of about 253,000 (= $15,000 / $180,000 * 0.65 * 0.85 * 5.5 million) additional sales at an estimated tax expenditure of $73.9 billion (= $15,000 * 4.928 million), implying a cost-per-additional-sale of about $292,000. Using NAHB’s implied price elasticity of -1.7, we get about 662,000 additional sales at an estimated tax expenditure of $80.0 billion, implying a cost-per-additional-sale of about $121,000.

If the goal of extending and expanding the homebuyer tax credit is to spur housing sales, an optimistic assessment is that we will spend $121,000 in tax revenue per additional housing sale. Again, this is a very poorly targeted subsidy.

I should note that neither Brookings nor Edmund’s are known as right-wing outfits.  Certainly, Brookings could be described as “left of center.”  Government programs like these only invite and exacerbate inefficiencies in the economy by utilizing artificial incentives to promote growth.  There will certainly be negative consequences to these actions in the future whether they’re eventually abandoned or not.  As the excerpts above effectively argue, these expansive government policies do more to waste tax dollars than promote growth.

Missing the Point With “Too Big to Fail”

If you’ve been paying much attention to financial and quasi-financial news, you’ve probably been bombarded on numerous occasions with the phrase “too big too fail.”  Matter of fact, I just started reading Andrew Ross Sorkin’s book by the same name which is really pretty damn interesting and worth checking out if you’re at all interested in the mortgage crisis.  Sorkin’s book is beside the point, however.  At some point in time, it was decided by the politicians, regulators, and the media that the size of the financial institutions are to blame for the melting down of the economy.  Supposedly, banks like Citigroup, JP Morgan, Wells Fargo, Bank of America, and related financial firms like Goldman Sachs and AIG are so large that their very existences put the rest of the financial system at risk.  We can’t let them fail due to the cascading turmoil which would likely infect the other, smaller institutions and eventually the entire economy.  It’s like the banking version of H1N1.

Without a doubt, these massive companies play an integral role in the American financial landscape.  I would hate to see one of them fail.  Banks provide much of the infrastructure for the business transactions which occurr every second of everyday.  Because they’re so important, the federal government stands behind them with the FDIC and the extremely powerful Federal Reserve.  If, perhaps, the bulk of depositors of any commercial bank were to decide one day to withdraw their funds for whatever reason, the bank in question could not cover them without the help of the Federal Reserve.  As everyone knows, a bank’s not just an elaborate-looking safe.  It must take the funds deposited there and loan them to others (businesses, individuals, municipalities, etc.) in order to be profitable.  That’s sort of banking at it’s most basic level.  Banking, however, has evolved – some might prefer the term devolved – over the years.

Obama’s Strong-Arm Tactics

Kim Strassel adeptly encapsulated the White House’s treatment of those who dare to disagree with their policies – talk radio, Fox News, politicians of both parties, and the Chamber of Commerce to name a few.  To wit:

What makes these efforts notable is that they are not the lashing out of a frustrated political operation. They are calculated campaigns, designed to create bogeymen, to divide the opposition, to frighten players into compliance. The White House sees a once-in-a-generation opportunity on health care and climate. It is obsessed with winning these near-term battles, and will take no prisoners. It knows that CEOs are easily intimidated and (Fox News ratings aside) it is getting some of its way. Besides, roughing up conservatives gives the liberal blogosphere something to write about besides Guantanamo.

The Oval Office might be more concerned with the long term. It is 10 months in; more than three long years to go. The strategy to play dirty now and triangulate later is risky. One day, say when immigration reform comes due, the Chamber might come in handy. That is if the Chamber isn’t too far gone.

White House targets also aren’t dopes. The corporate community is realizing that playing nice doesn’t guarantee safety. The health executives signed up for reform, only to remain the president’s political piñatas. It surely grates that the unions—now running their own ads against ObamaCare—haven’t been targeted. If the choice is cooperate and get nailed, or oppose and possibly win, some might take that bet.

While these smear campaigns and freeze outs may yield fruit in terms of rallying the liberal base, I can’t see it doing any long-term good with the bulk of voters.  Ms. Strassel is completely correct in her speculation that the president will likely want, or need, the help of some of the very people he’s chosen to vilify.  It may be easy for Obama and company to say one thing one day and then completely change course the next, but the memories of most are at least a bit longer.  He’s won the presidency.  It’s time to do a little more presiding and a little less campaigning.  Of course, the fray between the Obama team and Fox might also serve as a smoke screen of sorts to divert the public’s attention from the proposed health care bill.

I will give a tip of the hat to the major network’s and CNN for standing up to the White House and thwarting their plan to keep Fox from interviewing the “pay czar”  while allowing the others in the media pool time with Mr. Feinberg.  Go here to read more on that.  Whether you like Fox or not, the actions of the White House in limiting them access are way out of line.  It’s a far cry from the openness espoused by President Obama during his presidential campaign.  At least, the other major media outlets seem to be recognizing this now.

If Fox can be frozen out, the same tactics can easily be applied to other networks and journalists.  Either they stand up now or risk being pawns of the Obama team for the duration of the next four years.  Cowhering from a bully generally doesn’t result in a viable outcome for the one being bullied.  I wish “progressives” felt more of a call to bully those who want to destroy the United States (Iran comes to mind) instead of focusing their scorched earth techniques on domestic opposition (and perceived opposition) to their ideology.  What’s so “progressive” about wanting to squash civil debate, anyway?

Fun Political Quotation

From James Taranto of WSJ.com:

President Obama’s promise to empty the detention facility at Guantanamo Bay has run into a little obstacle: It turns out the place is full of terrorists! Like everything else, this is not Obama’s fault. The terrorists are there because George W. Bush put them there, leaving poor Obama once again stuck cleaning up someone else’s mess.

I love sarcasm when done correctly.  This is sarcasm mixed with a lot of truth.  Beautiful.

Using Carbon Taxes as Economic Stimulus

There are so many things wrong with New York U.S. senator Kirsten Gillibrand’s piece from the Wall Street Journal.  Let’s start at the beginning:

In this turmoil, it may seem hard to imagine a financial market poised to deliver significant growth. However, a rising number of investors and financiers see one in the trading and reduction of carbon. According to financial experts, carbon permits could quickly become the world’s largest commodities market, growing to as much as $3 trillion by 2020 from just over $100 billion today. With thousands of firms and energy producers buying and selling permits to emit carbon, transaction fees for exchanges and clearing alone could top nearly half a billion dollars.

If Congress establishes proper oversight of a carbon market, New York’s financial talent, expertise and institutions are uniquely suited to provide the tools and innovation for a new commodities market of this size. Firms wishing to invest over the long term will need to turn to our financial sector to create the emerging products and provide the capital that would allow them to make green energy investments.

An infrastructure is already beginning to form, as entities like the New York Stock Exchange, J.P. Morgan Chase, Goldman Sachs, and the new Green Exchange are developing carbon trading platforms or expanding their environmental trading desks. There are nearly 100 funds already focused on green investments.

So, we’ll create a market to enrich one area of the country by making another area pay up.  Obviously, the senator has a responsibility to her constituents, but robbing Peter to pay Paul isn’t my idea of a constructive, long-term solution to the economic woes of New York.  Not to mention the fact it’s unfairness of the highest order.  She’s advocating the utilization government to redistribute wealth in the name of “global warming.”  As I’ve stated before, the “climate change” push has become more of religious movement than a scientific one.  You’ve got to look at the total sum of the fallout the created by enacting policies of this nature, and weigh it against what we know about climate change and man’s contribution.

Ms. Gillibrand continues on:

We must allow the market to provide the ability to customize products. These customized contracts are essential for firms to adapt to the new regulations, hedge risk, and raise capital. New York’s financial industry is already the global leader for existing customized commodity products and would be exceptionally well positioned to provide the legal and financial expertise necessary for these new products.

Some have suggested that we mandate exchange trading of carbon-related derivatives, effectively requiring standardization of all derivatives. In order to trade on an exchange, a derivative contract must be highly standardized. As a result, such a requirement would effectively ban customized derivatives.

This sounds a lot like credit default swaps for “mortgage backed securities” to me.  The notion that further government regulation of securities will ensure we don’t embark on a similar situation as the mortgage crisis is laughable.  Especially considering that government, through Fannie and Freddie, helped establish a market for the troubled bundled mortgages. I’m comfortable in theorizing that if trading had been done with standardized credit default swap contracts backed by a clearing house like the Chicago Mercantile Exchange, our financial system wouldn’t have experienced the tumultuous times it’s experienced over the last couple of years.  The CME’s track record speaks for itself.

One serious error – “cap and trade” – compounded by another – government encouragement of non-standardized financial products.  One can only hope that Senator Gillibrand fails in enacting the entirety of this terrible policy.

Correction: Instead of trading mortgage backed securities at an exchange, I should have said that credit default swaps, which are basically insurance on the MBS’s, should be traded in a standardized manner on an exchange like the CME as opposed to having the government try and further regulate a vast array of differently structured contracts.  The correction has been made in the body of the post.  I apologize.

Examining Income Inequality

Dr. Mark J. Perry of Carpe Diem fame did an interesting examination of income inequality among NFL players and teams.  The article appears at The Enterprise Blog.  To wit:

Rising income inequality in the NFL has not come at the expense of either the lowest-paid or the median-paid player. The minimum NFL salary increased by more than 22 percent between 2000 and 2008, from $241,300 to $295,000 in inflation-adjusted dollars. Further, the median inflation-adjusted NFL salary increased by more than 52 percent between 2000 and 2008, from $601,775 to $930,600.

In other words, despite the increasing income inequality in the NFL, all players (lowest-paid players, players earning the median salary, and those earning the highest salaries) were better off in 2008 than in any previous year. Likewise, even poor and middle-class Americans are better off today than ever before, despite the fact that income has become more concentrated, and the share of income going to the highest-paid 20 percent of American households has increased from 43.6 percent in 1967 to 50 percent in 2008.

Dr. Perry’s analysis shoots some holes in the assertion that rising income inequality signals that more and more people are being denied an opportunity at the “American dream.”  In fact, it would seem that the rising tide does lift all ships in this case.

Deficits and Dollar Strength

Senator Judd Gregg recently stated that the United States is on the fast track to a “banana-republic type of financial situation” due to the monumental borrowing of late.  Rightly, many are concerned about growing deficit spending and the devaluing of the dollar.  Yesterday Bob McTeer wrote a very good piece on how the dollar, deficits, and China’s holding of U.S. debt are all interconnected.  Here’s a bit of that article:

China has absorbed fewer dollars lately because our trade deficit has shrunk as reduced domestic demand has reduced our demand for imports more than reduced foreign demand has reduced the demand for our exports. China’s dollar holdings are influenced by everything that affects our trade deficit and capital inflow, including our budget deficit, along with personal and business saving.  Those holdings aren’t independent of these complex relationships.

If any category of our national saving increased, other things equal, our current account deficit would tend to shrink. An appreciating dollar would likely be part of that adjustment process. So, more personal saving, more business saving, or more government saving (a smaller deficit) would all tend to strengthen the dollar. Conversely, a reduction in those categories by our trading partners would have a similar effect.

One caution: if the government increases its deficit to increase transfer payments, which get saved by the recipients, there is no increase in national saving. The greater government dissaving offsets the greater personal saving.

Personally, I like to use the term stable when referring to the dollar.  Unfortunately, it’s been anything but stable over the last few months as the euro and most other major currencies have been rising in value versus the dollar.  Trying to artificially support or devalue the dollar is only a quick fix for one ailment or the other.  Yes, a weaker dollar makes our exports relatively cheaper for our trading partners.  However, much of what we buy as Americans – whether it’s business, personal, or government spending – costs more due to the weak dollar.  Obviously, if the dollar is extremely strong, it’s more difficult for U.S. businesses to sell goods overseas.

Don’t Blame Obama

When asked, President Bush wouldn’t admit to making any specific mistakes while in office, and this raised the media’s ire.  There are some things that I wish Bush would have done differently while he was in office although his inability to name something when put on the spot didn’t cause me to lose sleep.

On the flip side, President Obama continually refuses to take responsibility for any of the important issues facing him.  He generally utters something like:  “Bush and the Republicans did it, and I’ve got to clean it up.”  Certainly, you should never scrutinize anything he does, because that’s just wrong.  I like James Taranto’s take on the issue.  To wit:

This has been a recurring theme in President Obama’s rhetoric. As we noted last week, he frequently refers to the “mess” that he “inherited.” But the presidency is not an inheritance, it is a responsibility that Obama sought. To the extent that the country is a “mess,” it is not “somebody else’s mess”; it is all of our mess. If Obama’s policies make matters worse rather than better, it won’t be his mess either; all of us will have to live with the consequences.

It’s fine for an opposition candidate to decry the “mess” created by the party in power, as Obama did last year and Republicans are doing now. But this style of rhetoric is unpresidential. It’s reminiscent of the petulant teenager who tries to evade responsibility by asserting, “I didn’t ask to be born!”

Except that the teen’s statement is literally accurate. No one asks to be born. Barack Obama did ask to be president.

Obama’s logic (or lack thereof) is quite flawed.  When you campaign for president and win, you don’t just win the post.  You also receive the baggage that goes along with it.  After eight years, most Americans should have a decent grasp of what transpired during that period of time referred to as Bush’s term in office.  Blaming Bush is irresponsible, trite, and does nothing to improve the situation in question.  Obama campaigned on the notions of “hope and change.”  So far, we’ve only seen excuses and machine politics.

Corporations Fund Al Sharpton’s Campaign Against Rush Limbaugh

Well, this is nice.  It turns out that some giants of corporate America have come together to sponsor Al Sharpton’s National Action Network (NAN).  This is the vehicle Sharpton utilized to thwart Rush Limbaugh’s NFL ownership bid.  Here are the details from the National Legal and Policy Center (NLPC):

The following companies were identified this year by NAN as “sponsors”: American Honda, Anheuser Busch, Colgate-Palmolive, Comcast, Entergy, Ford Motor Company, Home Depot, Johnson & Johnson, Macy’s, PepsiCo, Pfizer and Wal-Mart. Sponsorship reportedly cost $50,000.

The above linked post from the NLPC gives information for contacting each of the listed companies.  It irks me when businesses get this deep into politics.  Let’s face it; everything Al Sharpton is publicly involved in screams political activism.  One thing is certain, however.  Sharpton wouldn’t be so quick to attack a like-minded individual, like Keith Olbermann, no matter what that person said, and this is a major problem for the companies in question.  Maybe, this particular situation won’t aggravate enough people for Walmart to notice.  Eventually though, supporting a galvanizing organization such as NAN is going to end up driving patrons away.

I think that Limbaugh has unfairly been labeled as a racist, because too few people are willing to speak out against the powerful media forces that don’t like him.  That’s one issue.  The second issue is the unsettling, significant overlap between private business and politics.  It’s something that’s been going on a long time, and it’s getting worse.  The U.S. automakers are proof of what happens when government creeps too far into private business.  The federal government empowered monopolistic unions and forced untenable standards upon the car makers for years making them unable to compete with foreign competitors utilizing much more streamlined cost structures.  Health care reform and “cap and trade” are two current instances where certain firms are attempting to gain an improved competitive standing by partnering with politicians.  It’s a dangerous game where private industry almost always gets burned in the end.

Acquiescing to government intervention is not a viable option.  The more these companies get involved in political issues, the more likely it is that they get rolled over by government’s heavy hand.  They’ll end up being “bailed out” by grandstanding politicians and abandoned by consumers.

Hat Tip:  Mark Levin

Cowardly Action: The NFL’s Repudiation of Rush Limbaugh

The Wall Street Journal hits the proverbial nail on the head:

What happened here, and is happening elsewhere in American life, is that Mr. Limbaugh’s outspoken political conservatism is being deemed sufficient reason to ostracize him from polite society. By contrast, MSNBC’s Keith Olbermann, who fires off his own brand of high-velocity, left-wing political commentary but lacks Mr. Limbaugh’s sense of humor, appears weekly as co-host of NBC’s “Football Night in America.” We haven’t heard anyone on the right say Mr. Olbermann’s nightly ad-hominem rants should disqualify him from hanging around the NFL. Al Franken made it all the way to the U.S. Senate on a river of political vitriol.

But Rush Limbaugh gets hung out to dry by someone of Roger Goodell’s establishment prominence, and barely a soul from that same fastidious establishment has the courage to step forward to criticize it.

Personally, I find Olbermann absolutely contemptible.  He and MSNBC are obliterated night after night by Fox News and that network’s lineup of conservative commentators.  Yet, we’re force-fed this third-rate talking head every Sunday night of the NFL season as part of the NBC sports team.  The NFL is fine with Olbermann slandering a former President of the United States and the second woman to be nominated for Vice President by a major party, among others.  There’s no doubt that Limbaugh is a controversial figure.  But holding a small ownership stake in one NFL franchise is not equivalent to being the face of the league.  Olbermann’s presence would worry me more if I were NFL commissioner.

This entire matter is about posturing.  The players association is using Limbaugh as leverage in the negotiations for a new collective bargaining agreement.  I don’t think that’s the whole story, however.  The NFL, as the above excerpt alludes to, doesn’t want to fight the mainstream media.  These people foam at the mouth when they hear the name “Rush.”  Not only have Limbaugh and others in conservative talk radio survived without the help of the media elite, but they’ve flourished.  Old media detests what right-wing talkers like Limbaugh, Hannity, and Levin stand for.  It’s as if the mainstream media is more about controlling the message than freedom of speech.  The problem for them is that they’re fighting a losing battle.  Technology has rendered relics like the New York Times and the major networks incapable of monopolizing the news.  Regrettably, the NFL lacks the intestinal fortitude to stand-up to the leftist blowhards inappropriately described as “mainstream.”  Although in the broad scheme of things, the NFL’s convenient application of its high standards doesn’t matter, because there’s real, significant demand for the products Rush Limbaugh and others are selling.