Category Archives: Fiscal Policy

Great Idea from the Left: Have Candidates Sign Pledges to Increase Taxes and Spending

Blog Discussions, Democrats, Elections, Fiscal Policy, Politics, Republicans, Taxation

pledgeWhile trashing a positive review of a Republican candidate I just wrote over at The Next Right, the good folks over at The American Prospect inadvertently came up with a good idea.  I was describing a recent conversation with Tim James, who is running for governor in Alabama:

When I had the opportunity, I asked James if I could ask him a quick question.  “Sure,” he replied.  The question I lobbed at him was whether or not he would absolutely commit to not increasing taxes if elected governor.

“No problem,” he responded.  “Got a tougher one?”

I pitched the second question a bit harder, but his response came as quickly as the first one.  I asked if he’d commit to not increasing state spending.  “That’s easy,” he said. “You got a tough one for me, now?”

“Okay,” I responded, and threw him a bit of a curveball.  “Would you mind signing a pledge to this effect?”

“I’d love to…,” he stated. Later on, we set up a telephone call to deal with speaking arrangements for an upcoming event and the pledge issue.

Tim Fernholz’s response:

It all seems so flippant. Even given the conservative predilection for smaller governments and the ubiquity of Grover Norquist'[s] conservative loyalty oaths, is it wise for any potential chief executive to completely tie their hands, especially in a time of recession? It speaks to a rigid ideological prism rather than the attitude of addressing problems on their own merits.

Now here’s where the awesome idea comes from (emphasis added):

Most of America’s successful conservative executives would have violated both of those pledges; it’s as foolish a set of strictures as if Democrats demanded that their candidates sign pledges to raise taxes and increase spending.

The idea isn’t as foolish as Fernholz suggests.  According to the Americans for Tax Reform website, “The idea of the Pledge is simple enough: Make them put their no-new-taxes rhetoric in writing.”  For the sake of simple honesty, I’d love to see candidates running on tax-and-spending-increase rhetoric.

If today’s Democrats (along with Republicans such as Senators Snowe, Collins and Specter) wish to outspend even the Republicans on corporate bailouts and stimulate the economy with trillions of dollars we don’t have, why not at least be honest about it?  Here’s an applicable rewrite of Grover Norquist’s gubernatorial pledge for candidates running on a big-government platform:

I, ____, pledge to the taxpayers of the State of ________, that I will support and sign any and all efforts to increase taxes.

I also like the Republican Liberty Caucus pledge.  Here’s the new Slavery Compact:

Decrease liberty, not promote it; expand government, not shrink it; increase taxes, don’t cut them; create programs, not abolish them; despoil the freedom and independence of citizens, increasing the interference of government in their lives; and absolutely disregard the limited, enumerated powers of our Constitution, not promote them.

If politicians are going to legislate and govern expansive and ever expanding government programs, it sure would be nice to see some honesty in advertising as they run for public office.

Stephen Gordon
http://stephengordon.com

Is Dollar Hegemony About To End?

Credit Crisis, Economics, Fiscal Policy, Foreign Affairs, Free Trade, Monetary Issues

Just over two years ago, I offered a worst-case prediction of where this economic crisis could lead.

Wait, though, it gets worse. America isn’t an empire in the conventional sense of the word, but we are an economic empire. The dollar is the currency of the world, from middle eastern oil to the reserve currencies of countless nations. During the Great Depression, or during the stagflation of the 1970’s, other nations were stuck with the dollar, because nothing else was suitable. But if the dollar starts dropping in a major inflation, they now have options. And if they drop the dollar, it’s all over. All of a sudden, America won’t draw on the world for our own stability. Considering the actions of our politicians, that’s a bad, bad thing.

We may be witnessing the end of America as the world’s superpower. It may be the end of our status as the economic empire of the world. Some across the globe, of course, will cheer. After all, they feel like America is the premier force of evil in the world. For all the bad that we’ve done, though, we’ve been a pretty stable force, and worked to prevent the spread of fascism and communism, across the globe. America’s economic system has been the safe-haven for the world. When a position of power is vacated, what typically fills it is rarely positive. The end of the American empire will likely result in more instability worldwide.

There are two reasons that I’m very, very concerned about this.

First, American dollar hegemony has actually been, for all the stupidity we’ve encountered upon over the last few decades, a pretty stabilizing force. To bastardize an old quote, America’s economic system is the worst, except for all the others. There’s no reasonable guarantee that anything that follows dollar hegemony will actually increase stability. Rather I think it will be worse.

Second, I don’t want to pay for our government. While we’ve been pretty well looting the other nations of the world, printing money and sending it to them in exchange for durable goods, only to have them lend it back to our own government to pay for programs we’re unwilling to tax ourselves for. Essentially we’ve been taxing other nations to pay for our own government, with the unspoken understanding that we’d probably slowly print our way out of debt rather than actually pay our debt. I can understand why they don’t want to continue that, especially since we’re dramatically increasing the size of the government that we’ll be expecting them to pay for.

But that doesn’t mean it won’t happen.

Russia, as reported by QandO, made noises last week about putting an end to the dollar as the reserve currency of the world:

The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system.

The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a “superreserve currency accepted by the whole of the international community,” the Kremlin said in a statement issued on its web site.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries.

Now, QandO again (along with Doug @ BTB) reports that one of our far bigger creditors, China, is making the same suggestion:

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC

I’d like to believe that this is merely a warning to the Obama administration that destroying our currency won’t be accepted by the international community. It would be a very clear warning that if we proceed down this path, those who are currently tied into our dollar will try to quickly cut our losses and leave us out to dry.

But I really don’t think the Obama administration, the Bernanke Fed, and the Geithner Treasury will heed those warnings. You want a reason to fear Great Depression II? This is it.

In fact, it may already be starting. China is worried about the $1 Trillion they’ve already lent us, but the real key to ending dollar hegemony is to stop lending us more. If other countries stop buying US Treasury Bonds, we must find a way to fund our own deficits internally… And there’s some evidence that’s already happening:

Thanks to Brad Setser for the graph

Thanks to Brad Setser for the graph

Yep, foreigners are getting close to their limit. Will it hold? I don’t know, but in the meantime, the Fed is starting the printing press to make up the shortfall (h/t Calculated Risk):

The first outright Treasury coupon purchase will be conducted on Wednesday, March 25, 2009, and will settle Thursday, March 26, 2009. Results will be posted on the New York Fed’s website following the operation.

Starting on Wednesday, April 1, 2009, and continuing every two weeks, the New York Fed will issue a tentative operation schedule for its purchases of longer-dated Treasury securities, including the maturity sector or sectors to be targeted.

The signs are pointing to a major change in world structure.

  • The world is slowing down their purchases of American debt, fearing it won’t be repaid.
  • The world is threatening to liquidate the US Dollar as the de facto reserve currency, because they fear an impending devaluation.
  • The Obama administration, the Fed, and the Treasury appear to be willing to spend historic sums in the face of these developments in the hopes the world is bluffing.

I don’t want to be a doomsayer, but the outlook sure as hell ain’t rosy. America has been gorging at the buffet for the last 40 years, ever since the collapse of Bretton Woods system. The bill is about to come due, and we’re sure to be surprised when we realize it’s pay-per-item, and not all-you-can-eat.

Brad Warbiany
https://thelibertypapers.org/

I WILL NOT OBEY

Democracy, Democrats, Doublespeak, Dumbasses and Authoritarians, Economics, Equal Protection, Fascism in America, Fiscal Policy, Free Trade, Freedom, Government Ethics, Government Incompetence, Government Regulation, Government Waste, Human Rights, Individual Rights, Legal, Liberty, Politics, Property Rights, Socialism, Taxation, The Bill Of Rights, The Welfare State, Theory and Ideas

As I have said here before, I am a senior technical executive at a large bank.

As it happens, a bank that was forced at gunpoint, by the secretary of the treasury and chairman of the federal reserve, to accept TARP funds (as all the top surviving banks in the U.S were).

Let me be clear: We did not want TARP funds, or need them; but we, and all the other major banks, were told in no uncertain terms that we WOULD take them.

As obscene as that is, it is irrelevant to what follows; excepting that we did take TARP funds.

The United States House of Representatives recently passed a blatantly unconstitutional bill, placing confiscatory tax burdens on anyone making more than $250,000 and working for an institution that received more than 5 billion of TARP funds.

The bill was in theory specifically addressed at the false outrage over retention bonuses paid to AIG executives; and is targeted only to their bonuses.

In theory.

Of course, this would be an unconstitutional bill of attainder, which wouldn’t pass even the most cursory constitutional challenge; so it was re-written to be broader.

Broader of course means more people would be affected, and congress would be given more power to steal more money.

In fact, if you read into the implications of the bill; it could be used to levy a 90% tax on any income over $250,000, earned by any family making more than $250,000 per year, where either spouse is employed by an institution that received federal “bailout” funds.

It appears that the Senate, and the Obama administration are cold on the bill and that it will not pass, or be signed into law if it did.

I do not earn that much money; nor do my wife and I earn that much together (though in the next few years it is entirely possible that we will).

However, I have something important to say.

If congress should pass any such bill, and the president sign any such law, I WILL NOT OBEY IT.

I will not allow congress to tell me how much I can earn. I will not allow them to take my income because of the actions of others. If they attempt to make me do so by force, I will resist with force.

I will most likely die in the process, which I regret; but at some point a line must be drawn. The constitution must be respected, or it is meaningless.

Congress can make no law that is unconstitutional on it’s face. If such a law be passed, it is the duty of the president to repudiate it; and it must not be signed. If such a law is signed, it is the duty of the agents of the government to refuse to enforce it. If the agents of the state attempt to enforce it, then they must be resisted with force, at all costs.

Anything less is submission to tyranny, and the diminution of citizens, to subjects; or worse.

I have made clear in the past that I would resist police abuse of the constitution. I will resist congresses abuses no less. I will resist the presidents abuses no less.

Agents of the state cannot exceed the legitimate authority of the state. When they do so, they are criminals, and they must be resisted as criminals.

Normally I do not advertise where my lines are; but congress is now in the midst of a tantrum of self indulgence, overconfidence, and hubris not seen since reconstruction.

Nancy Pelosi, Harry Reid, and Barack Obama, are pushing our nation headlong into tyranny and ruin; and decrying those who resist as racists, or reactionaries; simply for not wanting to be serfs.

I would suggest that we petition for the impeachment and prosecution (for conspiracy to deprive every resident of the United States of their civil rights) of any congressman who voted for such a bill; but I know it would do no good.

Government must be made to understand, WE WILL NOT TOLERATE SUCH ABUSE.

We will resist.

We will revolt.

We will not be made subjects, serfs, or slaves.

Chris Byrne
I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

http://anarchangel.blogspot.com

The Dastardly Bonuses: AIG, Fannie, and Freddie

Corruption, Credit Crisis, Economics, Fiscal Policy, Government Ethics, Government Incompetence, Government Waste, Hubris, Politics

Those eeevvviiilll capitalists at AIG have been taking quite a beating. Now it’s time to spread the “wealth”:

Fannie Mae plans to pay retention bonuses of at least $1 million to four key executives as part of a plan to keep hundreds of employees from leaving the government-controlled company.

Rival mortgage finance company Freddie Mac is planning similar awards, but has not yet reported on which executives will benefit.

The two companies, which together own or back more than half of the home mortgages in the country, have been hobbled by skyrocketing loan defaults. Fannie recently requested $15 billion in federal aid, while Freddie has sought a total of almost $45 billion.

Fannie Mae disclosed its “broad-based” retention program in a recent regulatory filing with the Securities and Exchange Commission. The company was only required to disclose the amounts for the top-paid executives, who will pocket at least $470,000 on top of their base salaries.

The bonuses are more than double last year’s, which ranged from $200,000 to $260,000. Another round of bonuses ranging from $330,000 to $429,000 are planned for next February.

Hubris.

What’s the over/under on how soon Barney Frank calls for the heads of the top folks at Fannie and Freddie?

Hat Tip: Cafe Hayek

Brad Warbiany
https://thelibertypapers.org/

Spot The Flaw In Ezra Klein & Kevin Drum’s Reasoning

Credit Crisis, Economics, Fiscal Policy, Government Incompetence, Politics, Theory and Ideas

Here we go — unfortunately I have to quote this nearly in its entirety, or the error will not be quickly apparent.

Noam Scheiber says “our political system isn’t ideally suited to dealing with financial and economic crises.” Ezra Klein begs to differ:

Indeed, I think our political system is actually fairly well-designed for short-term crises. The problem is long-term crises like global warming or health costs. As Peter Orszag wrote back on his CBO blog, “our political system doesn’t deal well with gradual, long-term problems” that require “trading off up-front costs in exchange for long-term benefits.” Few Congressmen want to raise taxes tomorrow to reduce carbon a decade from now. Lots of Congressmen don’t want the economy to collapse if they have to run for reelection next year. For that reason, I’m much more confident in the system’s ability to react agilely and seriously to the economic crisis than global warming. The economic crisis, after all, threatens their reelection. Incumbents often don’t survive depressions. Conversely, I think conventional wisdom is that it’s fixing global warming, rather than global warming itself, that poses the largest political threat to incumbent legislators.

I think that’s right. In fact, I’d go further: not only can we respond fairly well to short-term crises, we actually have responded fairly well to the current economic meltdown. There have been plenty of miscues and half measures along the way, but in the space of 18 months the Fed has created an alphabet soup of term lending facilities; Fannie Mae, Freddie Mac, and AIG have been nationalized; interest rates have been reduced to near zero; TARP was passed and hundreds of billions of dollars pumped into the banking system; the Fed has launched plans to rescue the commercial paper market, the money market, and the consumer loan market; FDIC insurance has been raised to $250,000; Detroit has been bailed out; and an $800 billion stimulus measure has been passed. Some of these actions might have been late or misguided — it could hardly be otherwise considering the depth and freakishness of the financial implosion — but all things considered, the willingness of our political system to deal with this crisis hasn’t been all that bad. If we could muster half this much energy, mistakes and all, on behalf of global warming I’d be ecstatic.

A hole like this is big enough to drive a truck through.

Consider the premise that both of them seem to take for granted — Klein explicitly and Drum implicitly. Legislators, due to electoral incentives, are unwilling to take politically risky positions even if they’re in our long-term best interest. They fail to do so, even if it means letting festering problems* go unsolved, because the benefits are far off in the future but the cost and political risks are immediate.

So what’s the converse of this belief? Legislators will take short-term positions that are politically rewarding today even if it means that they will be creating or exacerbating problems for people down the road. That’s the flaw. You can’t accept the former paragraph without accepting this statement. Legislators and public officials are notoriously short-term thinkers. They’ve shown time and time again that they’re willing to spend today what need not be repaid until the next election cycle.

Drum quotes approving about the new alphabet soup of bailout and stimulus packages, and throwing billions after billions at shoring up AIG, Fannie and Freddie. In fact, his only criticism is that some of it might have occurred later than he would have liked. What’s noticeably missing from the analysis are questions of moral hazard and long-term debt. He seems to accept the rationale that it’s more important to start acting boldly and immediately, and only question whether we’re acting intelligently as a secondary matter. This is the exact sort of political incentive that our legislators and public officials are responding to. Spend today, and deal with it tomorrow.

When they suggest that our legislators ignore long-term problems for short-term politics, I completely agree. In fact, for that reason I suggest that their short-term actions are suspect as well, because they make those short-term decisions with a blind eye to long-term consequences.

Is government good at dealing with short-term or long-term crises? No. As with anything else, government is going to take the easiest and least painful way out, even if it’s not the best way.
» Read more

Brad Warbiany
https://thelibertypapers.org/
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