Quote of the Day

"[The stimulus package was] the most major, sweeping, comprehensive legislation as relates to economic activity ever." -- Rahm Emanuel, White House Chief of Staff

And that legislation was passed in a scant three weeks without hearings, much debate or members of Congress even getting a chance to read what they were voting on. That's really scary.

The quote comes from this Washington Post article that contains all sorts of interesting information, including this statement from President Obama:

"This notion that somehow I came in here just ginned up to spend $800 billion, that wasn't -- that wasn't how I envisioned my presidency beginning," [Obama] said.

I still don't know what to make of this. Obama's hand wasn't exactly forced here, in fact he was the chief cheerleader for the stimulus. If he didn't want to spend the money he didn't have to. Does he not have control over the agenda? Has the presidency been effectively outsourced to Pelosi and Reid?

I suppose another interpretation is that he is spending the money only reluctantly, but talk of gargantuan stimulus bill began shortly after the election which would seem to indicate that this had probably been on his mind for a while. I also really have a hard time believing that it really broke his heart to spend a big pile of money to accomodate various liberal special interests.

The really scary part, however, is that the stimulus may only be a taste of what's to come:

Some Democrats hope that it will prove easier to build public support for future legislation that will have a clearer focus than a stimulus package that was, by definition, a rushed grab bag. Hacker predicted that more Republicans could be persuaded to support Obama's health-care proposal, given that some Republican senators are already on the record supporting a different universal health-care plan. To lay the groundwork, he said, the president needs to include new health-care funding in his first budget, and grass-roots supporters need to pressure Republicans.

"You have to keep the movement alive," he said. "You have to keep the pressure on. Whether it's [Arlen] Specter or Snowe or Collins, they have to feel that their constituents are hurting."

Translation: The purpose of the stimulus bill was just to shovel a bunch of money out the door. Now we're actually going to plot out how to expand government control to areas such as health care, and we are going to continue employing scare tactics to do it.

Really, to think anything else at this point is just naive.

A look back

Almost four weeks ago President Obama spoke the following words:

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And those of us who manage the public's dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.

Can this in any way be reconciled with what has actually occurred since then? Obama implied a government guided not by ideology but pragmatism -- but has clearly governed as a traditional liberal. He has expanded programs but ended none. He spoke of managing money wisely, but has spent with abandon. He spoke of doing business in the light of day but is set to sign legislation that even members of Congress were not given an opportunity to fully digest before voting on.

He then followed with this bit:

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched.

If Obama truly believes this then why did his stimulus package do nothing to promote the market? If it is unmatched in its ability to expand wealth -- which we surely need more of -- then why is the stimulus package based on the expansion of government rather than the market? If he truly believes in the awesome power of the market to spread prosperity then he should let slip the surly bonds that hinder it.

So far it's all sizzle and no steak.

Update: An excellent analysis of the state of Obama's presidency here.

Gregg withdraws

Sen. Judd Gregg has withdrawn his name from consideration as Commerce Secretary. This is good because I have generally liked Gregg's presence in the Senate and wondered what the hell he was thinking taking a position with an administration he would be ideologically at odds with. As for Obama, this is the fourth nominee by my tally that has been forced to withdraw their name from consideration, with the others being Daschle, Killefer and Richardson.

It's almost as though this guy has never been in charge of anything before...

Obama Administration progress report

President Barack Obama was sworn in three weeks ago today. Since then:

• He has advocated for a stimulus package in excess of $800 billion built on the theory that government spending will promote economic growth. How deficit spending marks "change" from the previous eight years has not been explained. Obama has also promoted the idea that only the federal government has the resources to pull the economy out of its recession, apparently oblivious to the fact that the government is broke with a multi-trillion (aka 1,000,000,000,000, aka one million million) debt.

• Has advocated for greater federal involvement in education, health care and energy among other issues. Again, how this deviates from previous policy is not explained.

• Gave an interview with Al Arabiya in which he called for a restoration "of the same respect and partnership that America had with the Muslim world as recently as 20 or 30 years ago." Obama apparently forgot the numerous hijackings, bombings and other attacks on Americans during this era.

• After running a campaign based on "hope" has proceeded to inject a sense of doom and foreboding into discussions about the economy, warning of impending disaster and "catastrophe" on several occassions.

• Has deliberately mischaracterized the positions of his opponents, inaccurately stating that they believe in doing nothing with the possible exception of tax cuts, that will cure everything. This is intellectually dishonest and unbecoming of him.

• Has put in place new rules that enable federal agencies to require that union labor be used on government contracts, meaning that more money will be required to accomplish the same amount of work.

• Is strangely attempting to transfer the power for conducting the census from the Commerce Department to the White House. More on that here.

• Meanwhile, Obama's allies on the Hill are using the stimulus bill to engage in stealth moves to promote socialization of health care and roll back welfare reform. Most disturbing here is not the moves themselves, but the willingness to do this without a real debate.

It's almost enough to make you miss Chimpy Bushitler.

Update: Oh yeah, and the Democrats are trying to get us to kick off a trade war.

Abandoning hope

The man who became synonymous with hope is now a prophet of doom. Discarding the sunny optimism that characterized his presidential campaign, President Barack Obama has apparently decided to embrace a presidency whose chief hallmarks are fear and demagoguery. Jake Tapper of ABC News describes today's radio address:

President Obama then warned, "if we don't move swiftly to put this plan in motion, our economic crisis could become a national catastrophe. Millions of Americans will lose their jobs, their homes, and their health care. Millions more will have to put their dreams on hold."

Mr. Obama described his opponents as offering "tired old theories that, in eight short years, doubled the national debt, threw our economy into a tailspin, and led us into this mess in the first place" and "a losing formula that offers only tax cuts as the answer to all our problems while ignoring our fundamental economic challenges..."

This is quickly becoming rather tiresome. Obama talks about breaking from the past but then goes for more of the same, slams deficit spending but then increases it and employs strawman arguments against his opponents. He speaks of looming catastrophe and then offers himself as the country's only possible salvation.

It's going to be a long four years.

Update: Sen. Jon Kyl (R-AZ):

“In discussing with the American people his approach to the stimulus of our economy, he has first really used some dangerous words. It seems to me that the president is rather casually throwing out some careless language.”

Fear

"If we do not move swiftly to sign the American Recovery and Reinvestment Act into law, an economy that is already in crisis will be faced with catastrophe." -- President Barack Obama, Feb. 4

"If nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse." -- President Barack Obama, Feb. 5

Responding to Obama

"The only thing we have to fear is fear itself."

That, of course, is the most memorable line from Franklin Delano Roosevelt's 1933 inauguration. Indeed, a key element in FDR's approach to the economy was re-instilling confidence and assuring people that things were going to be OK.

It's a remarkable contrast to President Obama's op-ed in today's Washington Post in which he seemingly reaches back to the 1986 movie The Fly, warning people to "Be afraid, be very afraid."

By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression. Millions of jobs that Americans relied on just a year ago are gone; millions more of the nest eggs families worked so hard to build have vanished. People everywhere are worried about what tomorrow will bring.

...Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.

This is overwrought and just plain inaccurate. So far this recession isn't even as bad as the one in 1982, where unemployment peaked at 10.8% in December of that year. Rather than reassuring Americans, he then goes on to unequivocally state that the economy will lose 5 million jobs and sink into a potentially irreversible crisis "if nothing is done."

Given such hyperventilation I feel it is my duty to calm and reassure the president.

President Obama, I can assure you that something is being done. Even today thousands of businesses and millions of Americans, acting in their own self-interest, are responding to the crisis. They are cutting unneeded workers and reducing expenses, positioning themselves for renewed growth. Investments in unneeded sectors such as housing are slowing and money is being re-allocated to more productive sectors. Already new companies stand ready to expand and grow -- here is a list of 20 companies that are hiring with at least 350 vacanies.

That's not to say that Americans do not face obstacles. They struggle with an income tax code that has already claimed a number of your nominees as victims. They pay seemingly ever rising taxes that Congress wastes on ill-advised pieces of legislation such as your stimulus package that only serves to drive us further into debt. Money is taken out of our paychecks to fund programs like Medicare and Social Security that will probably go bankrupt before many of us even reach retirement. Those that choose to start businesses have to face an expanding number of regulations that make an already difficult endeavor even more so.

Obama continues:

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail.

He begins with a strawman. No one ever said that tax cuts will "solve all our problems." Rather, tax cuts have been offered up as a preferable means of stimulating the economy than wasteful government spending. The president's unwillingness to engage in intellectually honest debate does not reflect well on him.

Obama is correct, however, that Americans voted for change. Why, however, he thinks that increased federal involvement in education (No Child Left Behind), energy policy (2005 energy bill) or health care (Medicare drug bill) is a break from the past is inexplicable. Been there, done that, doesn't work.

He concludes:

So we have a choice to make. We can once again let Washington's bad habits stand in the way of progress. Or we can pull together and say that in America, our destiny isn't written for us but by us. We can place good ideas ahead of old ideological battles, and a sense of purpose above the same narrow partisanship. We can act boldly to turn crisis into opportunity and, together, write the next great chapter in our history and meet the test of our time.

President Obama, I couldn't agree more. We need a break from bad habits like rampant overspending, pork barrel politics and government control over the economy. And you are absolutely correct that some tough choices, particularly from you, are in order. Which constituencies are you willing to offend to overhaul the tax code and make it simpler and more fair? Which entitlement programs will you reform to make viable? Are you willing to cut benefits? Which government agencies and programs will you abolish to bring our deficit under control?

The future of our country depends on your answers.

Hard choices and responsibility

Jacob Sullum of Reason magazine:

Last October, while campaigning in Toledo, Barack Obama called for "a new ethic of responsibility." The nation's economic troubles, he said, occurred partly because "everyone was living beyond their means," including politicians who "spent money they didn't have." In his inaugural address last month, Obama regretted "our collective failure to make hard choices" and heralded "a new era of responsibility."

It's becoming rapidly apparent that Obama is all sizzle and no steak. He talks a great game about change, personal responsibility, and hard choices but has offered up nothing of the kind. He has filled his White House with insiders, gone back on his word on the appointment of lobbyists, been unfazed by tax dodging among his appointees and has responded to the economic downturn with a pork-laden piece of legislation that seemingly reveals new levels of wastefulness each day that it is subject to public scrutiny.

At a time when more and more Americans are facing tough financial choices Congress is trying to figure out whether it prefers the gold plated $825 billion House version of the so-called stimulus package or the platinum plated $900 billion Senate version.

While I am genuinely sorry that it has come to this -- I would be all for a truly changed Washington where the politicians actually make tough choices and sacrifies -- I am also in some ways glad. It was disturbing to see millions of people fall into a swoon at the sight of Barack Obama and inspired into rapture by his empty rhetoric and platitudes. Perhaps we will learn not to treat politicians as rock stars and worship them as the false idols they are.

Dems in action

"I'll be back. You can't keep the Democrats out of the White House forever, and when they get in, I'm back on the streets with all my criminal buddies!" -- Sideshow Bob

With the Democrats back in the White House it isn't criminals out on the streets that I worry about, but rather the lack of a road block to keep a lid on the mad house that is Congress. Indeed, the bad news out of Washington continues to come thick and fast. The lunatics really are running the asylum and the Democrats just keep shooting the messenger.

Meanwhile, David Brooks takes aim at the stimulus package, whose flaws become more apparent with every passing day:

In a fateful decision, Democratic leaders merged the temporary stimulus measure with their permanent domestic agenda — including big increases for Pell Grants, alternative energy subsidies and health and entitlement spending. The resulting package is part temporary and part permanent, part timely and part untimely, part targeted and part untargeted.

It’s easy to see why Democrats decided to do this. They could rush through permanent policies they believe in. Plus, they could pay for them with borrowed money. By putting a little of everything in the stimulus package, they avoid the pay-as-you-go rules that might otherwise apply to recurring costs.

I really hope this thing fails. Not as a petty whack against Obama, but because this is a truly atrocious piece of legislation.

The new new deal

After much speculation Obama has released the outline of his economic recovery plan that, according to Politico, is based on:

ENERGY: “[W]e will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.”

ROADS AND BRIDGES: “[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

SCHOOLS: “[M]y economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.”

BROADBAND: “As we renew our schools and highways, we’ll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they’ll get that chance when I’m president – because that’s how we’ll strengthen America’s competitiveness in the world.”

I'm a bit underwhelmed. While making public buildings more energy efficient seems admirable enough, it strikes me as rather desperate when Obama brags about how many people will be employed screwing in lightbulbs. With regard to schools I think our main problem there are far more deep rooted than inefficient heating systems or a lack of cutting edge computers. Is this really the reason that children in less developed countries regularly kick our butts on international standardized tests?

Expanded broadband access is fine -- depending on how this is done. If Obama promotes a revamp of government policy that encourages more competition that's one thing, but if taxpayer dollars are being spent so that little Jimmy can play Medal of Honor online I fail to see how that will boost the economy. Ditto for medical records.

These are all rather marginal measures, with the real meat of the proposal found in the proposed infrastructure spending, er, "investment." The thing about spending on roads and bridges, etc. to boost one's economy is that this has already been tried by Japan without much success as Amity Schlaes points out:

The spending yielded painfully little for the rest of the economy. The Nikkei stayed down. The country's standard of living failed to keep pace with the rest of the world's. The average Japanese's purchasing power had been moving closer to that of the average American, Ronald Utt of the Heritage Foundation has noted. But in the 1990s the Japanese saw few advances. The gap between America and Japan widened again.

Worst, though, was the failure on jobs. Unemployment fell in many nations in the 1990s. In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier.

Even today, Japan is having trouble climbing out of its cement pit. At its high, in the mid-1990s, infrastructure spending accounted for 6 percent of its gross domestic product, double what the United States allocated for infrastructure in the '90s and still higher than what politicians are considering spending today. In estimates of national debt, the world's second-largest national economy is near the top of the list, perched between Lebanon and Jamaica. Last year, Japan's public debt was far greater than the size of its economy, a burden that makes its demographic challenges more difficult to address.

For a more in-depth look at this topic I would recommend the excellent book Dogs and Demons. The lack of job generation is only the most obvious defect in Japan's enormous infrastructure spending, with other results including increased corruption in government (typically kickbacks on contracts), "white elephant" projects that are not only unused by now must also be maintained and environmental degradation.

Indeed, the book discusses how national parks were paved over with roads that went unused, and in one example how concrete barriers placed on beaches to halt erosion were actually later found to speed up the process.

They say the definition of insanity is doing the same thing over again while expecting a different outcome. From the looks of things our sanity is about to be tested.

Infrastructure spending has its uses and there are plainly areas of the country where growth is being held back because of it. But such projects should take place after much deliberation and planning -- simply pouring concrete for its own sake is the answer to nothing. And it's not as if Washington hasn't already dispensed plenty of money for roads and bridges, with $500 billion spent over the past five years.

Really bold action here would be taking a look at the earmark process, in which political concerns rather than actual infrastructure needs determine where money is spent. So far I haven't heard much from Obama here.

To truly improve the competitive position of the U.S. we should be willing to look at areas such as tax reform, systemic changes on education policy and market-based health care reform that de-links coverage and employment. But that's a lot more difficult than changing the lightbulbs in our public buildings.

This doesn't strike me as the bold change people had hoped for.

Obama and the economy

I have to hand it to President-elect Obama, he has appointed what most observers are hailing as a very good economic team, full of people more interested in serious analysis than left-wing ideology. Indeed, it's interesting to note that some of the left are slamming Obama for his picks while Larry Kudlow says that the new chief of the Council of Economic Advisers Christine Romer "easily could serve as CEA head in a Republican administration" and that incoming Treasury Secretary Tim Geithner "could have been McCain's Treasury man." Meanwhile, there are increasing signs that Obama is shelving plans to undo the Bush tax cuts in 2009.

All of this is undeniably good and encouraging. Still, I keep waiting for the other shoe to drop.

The first bad omen is talk of a stimulus package being quickly passed to the tune of $700 billion amidst promises by Obama to "jolt" the economy. This is absolutely the last thing that is needed, that will do little to stimulate the economy in the long-run while driving us deeper into debt.

Many people I imagine think of the economy kind of like a bicycle. If you are at a dead stop the first few pedals are the most difficult and but after sufficient momentum has been built up the pedaling becomes steadily easier until you are moving along without too much effort at all. Federal money, the thinking goes, can provide those first few pedals that will push the economy until it can move along with its own momentum.

This is false. Right now the economy isn't moving not because it needs a few revolutions of the pedals, but because it has sticks stuck through its spokes, the tire is flat and the chain is loose. You can still expend some energy peddle a bit and get some forward progress but as soon as you let off you're right back to a dead stop. Like the bicycle, the economy needs to resolve its issues and fix a few things, then it will take off on its own. Unlike a bicycle, however, the economy is infinitely more complicated and the solutions aren't obvious. Only harnessing the collective knowledge of millions of people through the marketplace will resolve the current slowdown.

This isn't just theory. Stimulus packages have an extremely poor record. They were tried twice by the Bush Administration to little avail and Japan had a similarly bad experience with them during the 1990s. They inevitably stall, leaving behind new piles of debt along with unneeded infrastructure projects and other monuments to government waste. You simply don't spend yourself into prosperity.

That said, the stimulus package is not my deepest concern. What really scares me is the notion that this is just the warm-up act to a complete reorganization of the U.S. economy. As Obamaphile EJ Dionne writes in his latest column:

President-elect Barack Obama has now made three things clear about his plans to bring the economy back: He wants his actions to be big and bold. He sees economic recovery as intimately linked with economic and social reform. And he is bringing in a gifted brain trust to get the job done.

Just three weeks after Election Day, Obama has already expanded his authority by seizing on "an economic crisis of historic proportions," as he described it on Monday, to call for a stimulus package that will dwarf in size anything ever attempted by the federal government.

But Obama is also using the crisis to make the case for larger structural reforms in health care, energy and education -- "to lay the groundwork for long-term, sustained economic growth," as he put it. Obama clearly views the economic downturn not as an impediment to the broadly progressive program he outlined during the campaign but as an opportunity for a round of unprecedented social legislation.

"He feels very strongly that this is not just a short-term fix but a long-term retooling of the American economy," said one of Obama's closest advisers. "Obama has a holistic view of the economy. Health care is going to be part of it," the lieutenant told me, and so will green energy investments, education reform and a new approach to regulating financial markets.

I've already addressed the folly of green energy spending before so I will dispense with that issue. More worrisome are moves to reform health care, which are likely to take the form of increased government involvement. Once we get government health care, brought to you by the same people that have done such a bang-up job with education, welfare and public housing, it's never going away. Believe that. As for financial markets, I still have yet to read a convincing case that either deregulation is to blame for the current mess or a list of regulations that could have prevented it.

Equally scary are invocations of the New Deal by elected officials such as Sen. Chuck Schumer, which would seem to imply that they believe we are facing a depression. As Thomas Sowell notes, however, the New Deal didn't do a particularly good job of addressing that particular economic calamity:

Many of those who have, over the years, praised the fact that this was the first time that the federal government took responsibility for trying to get the country out of a depression do not ask what seems like the logical follow-up question: Did this depression therefore end faster than other depressions where the government stood by and did nothing?

The Great Depression of the 1930s was in fact the longest-lasting of all our depressions.

I think what is happening here is that officials badly want to be seen as doing something, anything, to address the current difficulties. That is unfortunate, with all of this intervention likely to only make things worse, not better.

Draft?

Greg Mankiw notices that things may seem a bit drafty in the White House after Obama moves in.