Economics



The Debt Ceiling and Washington’s Political Pornography

Published July 12th, 2011 by tcarpenter

Watching the negotiations in Washington about whether to raise the ceiling on the national debt is like watching a vile form of pornography–if pornography were boring as well as disgusting. Both Republicans and Democrats are engaged in their usual political posturing. The GOP members of Congress dig-in their heels about raising the debt limit, although the overwhelming majority of them had no problem taking that step during the Bush years–or for that matter during the administration of the sainted Ronald Reagan. They are equally adamant about no new taxes. That is an admirable position in principle, but only if serious spending cuts are made to keep the budget from continuing to bleed vast quantities of red ink. Borrowing to cover the shortfall is simply a form of deferred, covert taxation–with the goal of shifting much of the burden onto future generations.

 

Amazingly, the Obama administration and the congressional Democrats manage to be even a little worse than their Republican colleagues. They habitually portray proposals merely to slow the jaw-dropping growth in federal spending as brutal “cuts” that would devastate essential programs and put Grandma and Grandpa out on the street without their Social Security checks. Whenever the Dems propose so-called spending cuts, they are little more than paper promises to slow the rate of increase in spending in the out years–i.e., 5 to 10 years in the future. Experience has shown that promises of spending restraint in the mists of the distant future almost never become reality.

 

Both parties play their cynical games while the country careens toward national bankruptcy. If the massive budget deficit is not reduced through real (and substantial) cuts–which means cutting military spending, Social Security and Medicare–the United States could be Greece in another decade or two. Our children and grandchildren will not think kindly of us if that happens. But not to worry. The Republicans and Democrats in the 2020s will be busy blaming each other for the debacle.

 

 

 

The China Challenge

Published January 30th, 2011 by tcarpenter

Dealing with an increasingly assertive China is likely to be the biggest challenge the United States will face in the coming decades.  It will be difficult to contain and manage the growing differences between the two countries, but it’s essential to get the relationship right.  If disagreements get out of hand, the consequences could be extremely bad, not just for the two countries, but for the global economy and world peace.

My latest thoughts on this difficult and complex relationship can be found in this article.

Bipartisan Economic Mess

Published August 7th, 2010 by tcarpenter

The campaigns are well underway for the midterm congressional elections, and the vast quantities of hot air being vented could explain the extraordinarily high temperatures most the country has been experiencing this summer.  One of the most irritating features of this campaign season is the apparent GOP assumption that Americans have been afflicted by collective amnesia.  Republican officials and propagandists repeatedly savage the Obama administration for the ongoing Great Recession.

Some of their criticisms are valid.  The 2009 prediction by the head of Obama’s Council of Economic Advisors that the unemployment rate would be kept below 8 percent was spectacularly off the mark.  The $700 billion “stimulus package” was a combination of the usual pork-barrel spending and utterly goofy spending schemes.  And the apparent intentions of the administration and the Democrats in Congress to let most of the Bush tax cuts (one of the few good things that dreadful administration did) expire could well  make an already very bad recession even worse.

But Republican partisans apparently want everyone to forget about when this recession began and who was running economic policy when it did.  Obama’s policies have been unwise, at best, but he did inherit a colossal economic mess when he took office.  Republicans act as though the recession began on January 20, 2009.  But the plunge was underway well before then.  The residential housing market started to collapse in 2006 and 2007, and the economy officially went into recession in December 2007.  The financial system began to melt down in mid-2008, intensifying the downturn. 

All of this happened with a Republican White House and GOP appointees in charge of the Federal Reserve, the Department of the Treasury, and the Securities and Exchange Commission.  One would like to see at least a little acknowledgment of responsibility for the debacle instead of the current cynical, partisan effort to put all the blame on the Democrats and the Obama administration.

The Great Recession is a bipartisan economic tragedy.  Republicans were primarily responsible for its onset, and the Democrats have managed to make a bad situation even worse.

Obama’s First Week: The Good, The Bad, And The Ugly

Published January 25th, 2009 by tcarpenter

President Obama is certainly off to a fast start.  The record during his first week, though, is mixed. 

One good early action was his decision to close the prison at Guantanamo Bay, shut down the secret CIA prisons in various overseas locations, and tighten the standards for interrogating terrorist suspects.  Gitmo and everything associated with it will likely go down as one of the more shameful episodes in American history.  Even though Bush administration officials repeatedly denied that the U.S. engaged in torture, the reality was otherwise.  Cynical euphemisms like “enhanced interrogation techniques” sounded like dialogue from characters in a George Orwell novel.  Of course, we all want to minimize the danger of new terrorist attacks, but there are certain lines that a society must not cross if it wishes to remain a moral society.  Torture is one of those bright red lines.

While President Obama’s decisions on that issue removed a stain on America’s honor, his proposed remedy for the ongoing economic recession embodies many of the worst ideas liberal Democrats have been peddling for decades.  Advocating another $825 billion in spending when the federal government is already running a deficit that is likely to exceed $1 trillion this year constitutes fiscal folly.  Even the underlying goal to jump start more consumer spending is flawed.  Jim Rogers, one of world’s most successful investors over the past three decades put the matter very well: “The idea that you can solve a period of excessive borrowing and consumption with more borrowing and more consumption” is “ludicrous on its face.”

The ugly portion of the Obama administration’s first week was the confirmation of Hillary Clinton as secretary of state.   In her earlier confirmation hearing before the Senate Foreign Relations Committee, she pledged that the administration’s foreign policy would be one of “smart power”–filching a term that I and other scholars have used for years.  That wouldn’t be so bad if what she advocated was even remotely smart.  But virtually everything she said was merely warmed over conventional wisdom–and usually the worst aspects of the conventional wisdom.  Clinton emphasized the supposed need to strengthen NATO–that Cold War-era dinosaur of an alliance–and add new members, such as tiny Balkan states, Georgia, and Ukraine.  The former are militarily useless (as is Georgia) and membership for Georgia and Ukraine would further damage the already tense relations between the U.S. and Russia.  The rest of her testimony was equally bad.  America must keep other useless, costly military commitments, such as the one to South Korea, somehow solve the Israeli-Palestinian conflict (like we haven’t been trying to do that for the past four decades), take a hard line with Iran (like we haven’t been doing that for the past three decades) and engage in more humanitarian interventions and nation-building missions.  Those, apparently, we can accomplish with all of our spare money and troops.  If there were such a requirement as truth in advertising for presidential appointees, Hillary’s foreign policy would have to be labeled “dumb power” not smart power.  For an approach that is actually smart power, check here.

Time for Serious Spending Cuts

Published October 11th, 2008 by tcarpenter

The price tag for the government’s attempted rescue of the nation’s financial system, which has been a spectacular flop so far, is likely to run into trillions of dollars.  Yet very few participants in the policy debate (with the exception of Libertarian Party presidential candidate Bob Barr) have talked about making even modest cuts in federal spending to offset this vast new expenditure.  That is nothing short of irresponsible–and both major political parties are guilty.

It is imperative to jettison nonessential expenditures.  There are certainly plenty of candidates among domestic programs, starting with agricultural subsidies–a great reverse wealth-transfer mechanism in which taxpayers of even modest means are forced to fatten the bank accounts of even wealthy farmers.  I’m not an expert on wasteful and unnecessary domestic programs, so I will leave it to others to suggest additional cuts in what is clearly a target-rich environment.

If many of Washington’s domestic spending programs are luxuries we can no longer afford, that is doubly true of our military and foreign policy expenditures.  Foreign aid programs are obvious candidates for elimination.  America has spent nearly a trillion dollars (measured in 2008 dollars) over the past 60 years, and all too much of that money has simply gone into the coffers of corrupt politicians and their cronies in Asia, Africa, and Latin America. 

But the wasteful spending goes far beyond foreign aid.  The United States spends roughly as much on the military as the rest of the world combined.  Promptly terminating the ill-advised crusade in Iraq would save $120 billion a year, but that is just the tip of the proverbial iceberg.  Our current annual military budget is nearly $700 billion.  Advocates of such a vast sum should explain why we need to have not one but two expensive new jet fighter programs when the U.S. already has overwhelming superiority in air power and there is no serious military competitor on the horizon for the next two decades–and perhaps longer.  At least one of those programs should be terminated.  The same is true of the program to build the Virginia class submarine, a weapon system that was designed to counter a Soviet system that was never built.

And someone ought to explain why the United States needs to keep nearly 100,000 troops in Europe to guard wealthy allies more than 6 decades after the end of World War II and nearly two decades after the collapse of the Soviet Union.  Our trusty NATO allies, who have used the U.S. defense guarantee as an excuse to underinvest in their own defenses for decades, are now citing the global financial crisis as a reason to cut their already paltry military expenditures even further.  But at the same time, they don’t want us to cut our military budget.

A similar situation exists on the other side of the world.  The United States continues to subsidize the defense of South Korea, even though that country now has a population twice the size of its only adversary, communist North Korea, and an economy some 40 times larger.

It is time to expel the international military welfare queens in Europe and East Asia from the U.S. dole.  We should have done that years ago, but the current financial squeeze makes that move not just desirable, but essential.

Media Bias on the Bailout

Published October 4th, 2008 by tcarpenter

Yesterday, Congress passed the $700 billion bailout for Wall Street, and the president signed the bill in record time.  The effort to save America’s financial system included such crucial items as a new tax incentive for plug-in electric cars and–my personal favorite–a tax break for wooden practice arrows.  Ah yes, your government (and your tax dollars) at work.

The most depressing aspect to me of this entire depressing episode was the incredibly one-sided coverage of the bailout issue in the media–especially television.  Polls showed consistently that the public was divided down the middle about whether the legislation should be passed.  But one would never have guessed that situation from the endless parade of guest experts on Fox News, CNBC, CNN or the major network news shows.  There, pro-bailout types outnumbered critics by about a 20 to 1 margin.  Even worse, the reporters and anchors didn’t even make a pretense of objectivity.   The programs amounted to an endless series of propaganda pieces that the world would come to an end if the bailout (which they increasingly referred to as the “financial rescue” bill) did not become law.  The overwhelming majority of the “experts” interviewed were Wall Street investment bankers, mutual fund managers, and stock traders.  Virtually all of them stressed how essential it was to pass the bailout–and do so with little debate or reflection.  One wonders if it ever occurred to the producers and reporters at the news outlets that, just perhaps, those guest experts might have a conflict of interest regarding this issue.

Unfortunately, this is hardly the only topic in recent years in which the media coverage presented only one side of the issue.   The same herd mentality and biased reporting was all too evident during the Balkan wars in the 1990s and in the run up to the Iraq war in 2003.   As in the case of the bailout, reporters too often on those occasions served as lap dogs of the government rather than the watchdogs they are supposed to be.

Conservatives for Socialism

Published September 24th, 2008 by tcarpenter

Like most of you, I’ve watched the chaos in the U.S. financial system the past two weeks with a mixture of fascination and horror.   I do not claim to be an economist, but as a former real estate broker, I assumed that something along the lines of this debacle would happen given the absurd mortgage loans being given to utterly unqualified buyers during the 2004-2006 period.  Now, the federal government proposes to use U.S. taxpayer dollars to bail out the supposedly sophisticated banks and Wall Street investment houses that bought up packets of that garbage.  The Bush administration asserts that the cost will be $700 billion.  I would treat that estimate not merely with a grain of salt, but with the entire salt shaker at hand.  The next government program that doesn’t greatly exceed the initial cost estimates will be the first.  Think trillions, not billions.

The most disgusting feature of this episode is the sight of alleged capitalists and their conservative media defenders vociferously advocating a federal bailout.  They seem to believe that socialism is bad in general but perfectly okay for Wall Street.  The editorials in the Wall Street Journal and Investor’s Business Daily, in particular, are especially prone to induce nausea.  Some Republican political figures have adopted the same hypocritical stance, although to their credit, other conservative Republicans are now in open revolt against the Bush administration’s proposal.

I am a staunch advocate of capitalism.  But capitalism means (or at least should mean) the risk of incurring losses as well as making profits.  I have no patience for a crony capitalism that allows private individuals to make tens of millions of dollars in profits if their decisions prove sound, but stick the taxpayers with  losses if their decisions are faulty.  Privatizing profits and socializing losses is a great deal, if one can get it, but an ethical society should not tolerate such an unfair scheme.

Of course, we are told that if we do not bail out the poor waifs on Wall Street, the financial system will completely melt down and we will have an economic disaster of Biblical proportions.  Maybe.  But hyping the threat is a time-honored method politicians use to stampede people into supporting unwise (and sometimes sleazy) policies.   Anyone remember the grave threat to America posed by Iraqi unmanned aerial vehicles loaded with weapons of mass destruction?  I have little doubt that the financial mess will likely produce a painful recession, but do you notice that Ben Bernanke and Henry Paulson never say HOW MUCH interest rates and unemployment are likely to rise if the bailout is rejected?  They speak in ominous, but always vague, terms.

We’re likely headed for a recession regardless of what Congress does with the administration’s proposed rescue package.  It would be preferable to let the markets work their way through this problem, as painful as that process might be, than to set a precedent that rewards utterly irresponsible behavior by multi-millionaires.  Proponents of a bailout risk discrediting true capitalism in the minds of the American people for decades, if not generations.