Tuesday, February 10, 2009

Accountability Farce

I just drew some logical connections about what the fallout is going to be when the American Recovery and Reinvestment Act doesn't work and it turns out the money was spent wastefully... And it's not good.

Here's the problem.

The Federal government is leaving up to the states and local governments how most of the money is to be spent.

The claim is that there will be transparency into how the money is spent. Which is good.

The claim is also that this transparency will lead to accountability.

But here's why it won't. Those to whom the state and local governments are accountable to will not have a problem with it (speaking marjority-wise).

What everyone will be upset about is the wastefulness "of those other guys". The recipients of largesse at the local level will be happy about it. Those in NYC will be flabbergasted at the waste in LA - but their own? Probably not so much.

In fact, that's what I believe too many people have come to think of their local representatives as - their lobbyists to the Federal government to make sure they get "their share" of any spending (or more than their share if they can get it). Those are the representatives that get re-elected.

Congress will of course gasp at what happened, just like any other time they abrogate their responsibilities and rush into something. Voting that Bush could invade Iraq and then he does it? *Gasp* Who could have guessed that? Voting that Treasury Secretary could spend TARP how he sees fit, and then he does just that? *Gasp* Who could have known?

Throwing money at state and local governments, more than they know what to do with? *Gasp* And they spend it wastefully? Well, who could have seen that coming?

So here's the way it seems destined to me to shake out:

* Congress ends up shocked (shocked we say!) at what the states have done (but they, Congress, are not to blame of course)

* Citizens will be shocked at what *other* places have done, but the local spending won't be seen as very wasteful.

Not to mention (ok, actually I'm mentioning it) we'll be further in debt, have weakened the dollar, and added high inflation to the recipe of high unemployment and low (or negative) growth.

What then? A *bigger* "stimulus" I suppose?


Monday, February 9, 2009


"A lot of truth is said in jest"
      - Eminem

Saturday, February 7, 2009

Rationality on the House floor

There may have been some rational economics in Congress this week after all.


Statement of Congressman Ron Paul
United States House of Representatives
Statement on Federal Reserve Board Abolition Act
February 3, 2009

Madame Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve. Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true freemarket economy.

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Thursday, February 5, 2009

Connecting Dots

Somtimes it's interesting to back up with a wider view and connect some dots.

Here's an interesting couple dots to connect in reverse chronological order:

* February, 2009 - Wells Fargo cancels trip due to congressional (and resulting media and public) outrage on its cost and the fact that they took $25B in TARP money.

* October, 2008 - Wells Fargo forced to take $25B in TARP money

Interesting dynamic if you read that back in chronological order.

The first article, about their cancelled Vegas junket, also points this out:

Wells Fargo has bolstered lending as its top competitors scaled back. The company added $9.7 billion in loans in the fourth quarter, compared with a combined $86.4 billion decline at JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. Wells Fargo said last week that it doesn’t need additional government capital after Citigroup and Bank of America required a second round of bailout funds.

It was interesting, back in October 2008 - if Wells Fargo was forced by Paulson to take the money when they didn't really want to, was it cover for the government not wanting to appear to be picking out specific companies as problems?

Apparently when they did the auto company bailout in December 2008 they felt they didn't need such political cover anymore to hide favoritism to specific companies (even though a job saved in Detroit is probably a job lost in Appalachia working for Toyota).

In my opinion the rational economic analysis of what to do about the "big 3" car companies seemed to be to do a structured bankruptcy - whereby the survivable parts of the businesses go on.

I've wondered why such a structured bankruptcy shouldn't apply to the big banks that got themselves into trouble with loose lending.

Just like Toyota (who run their business better than GM) shouldn't have to take a hit because GM is propped up by the US government - the regional banks, who ran their businesses better than the big guys during the bubble, shouldn't have to take a hit because the big banks are propped up by the US government.

Wouldn't it make sense for the well-run regional banks to be allowed to grow and take over parts of the poorly-run big guys as part of a structured bankruptcy? This should make even more sense now that there is talk of the Fed creating a "bad bank" anyway.

Sunday, February 1, 2009

Forclosures good or bad?

This issue has been in the back of mind with all of this economic stuff lately. I came across a good article in the Wall Street Journal that I think sets up the case well for forclosure not necessarily being something that should be fought at all costs.


I think this is really important to think about. The politicians mostly argue that "the homeowner must be helped" and that forclosures must be stopped. There are good arguments for this having to do with the knock-on effects of foreclosures (such as neighborhood crime rates), though I don't know if they are substantiated. But that doesn't mean there aren't good arguments for letting them happen. At least in what I've read the mainstream media mostly parrots the politicians line about stopping forclosures - but I hope alternate perspectives are voiced and given serious consideration as well.

Sloppiness, statistics, and lies

I was watching this week's weekly Presidential address on YouTube and came across this quote, which I feel compelled to comment on. President Obama has talked about accountability, and accountability in how he frames the current situation and his reaction to it is therefore extremely important. From the address (heard and copied directly from official transcript:

"Yesterday we learned that our economy shrank by nearly 4 percent from October through December."
- President Obama, Jan 31, 2009

At best this is sloppy wording. Unlikely in prepared remarks. I could maybe believe it if it was off-the-cuff in an interview. I think it falls best under the heading of "lies and statistics". That is, trying to make statistics say what you want them to.

Given that Obama is pushing for the stimulus package, it is in his interest to paint the situation as darkly as possible. Just as it was in his interest to call it the "worst economic crisis since Great Depression" when he was on the campaign trail.

This number was discussed in an earlier post on this blog, and the number is a manufactured number that desribes an "annualized rate" for economic growth (contraction in this case as it's negative).

Saying "our economy shrank by nearly 4 percent" is simply not true. It's as if I lost 5 lbs between October and December, which would be 20 lbs at an annualized rate. I can't then say "I lost 20 lbs from October to December." It's as simple as that.

To quote the true economic statistic you either have to say:
1. "our economy shrank by less than 1% from October through December"
2. "our economy shrank at a yearly rate of nearly 4% from October through December"

It is still the largest since 1982 if quoted that way, but it does make a difference. Imagine being told your bank account went down "less than 1%" versus being told "almost 4%". It definitely frames perception about the size of the problem differently.

Now - how to hold President Obama accountable for this mis-statement? I suppose the best way is to write an email to the office of the president. I'm off to do that now - URL: http://www.whitehouse.gov/contact/.

[Update - I sent the following to the President's office through the link above. You're allowed 500 characters - I was economic and spared 11]

I hope that President Obama's commitment to accountability starts with his own words. I was disappointed to hear it said in the Jan 31 weekly address that "our economy shrank by nearly 4 percent from October through December". The fact that 4% (really 3.8%) was an "annualized" number makes that statement false. The truth would be "our economy shrank by less than 1%...". Whether or not it is, this smells like exaggeration to further an agenda. I would hope for a public correction.