The Edmund L. Andrews Archives
Here is an article I just published in The Fiscal Times, prompted in part by Leonard Burman's work, on the staggering size and automatic growth of "tax expenditures" -- tax breaks, for us non-budget mavens.
Everybody knows that tax breaks -- on everthing from mortgage interest to green-energy projects -- permeate American life and often amount to backdoor government spending. Republicans love to promote tax cuts, because they seem to strike a blow against Big Government. Democrats love them because many tax breaks are a way to fund favored social programs.
I was on the road and essentially off-line all day yesterday, so forgive me for being late to comment on Senator Chris Dodd’s newest and most bizarre proposal for some kind of consumer financial protection agency.
In his third bid in as many days to win over a few token Republicans, the Senate Banking chairman is now proposing to create an enfeebled new consumer regulator inside the Federal Reserve.
Say what???? This is the same Chris Dodd who, four months ago, accused the Fed of being “an abysmal failure” as a regulator and unveiled a bill that would have stripped it of virtually all its supervisory powers.
"Over the last number of years when [the Fed] took on consumer-protection responsibility and regulation of bank holding companies, it was an abysmal failure," Dodd declared at a press conference in November 9.
Senate Banking chairman Chris Dodd is circulating his new compromise plan for a consumer financial regulator. The New York Times and Wall Street Journal both summarized the proposal last night, but here is a copy of Dodd's still-rough outline.
As compromises go, it could be worse. It drops the idea of a stand-alone agency that would be devoted entirely to consumer financial regulation, a cornerstone of the White House financial overhaul and of the House-passed bill. Instead, it would create a "Bureau of Financial Protection" within the Treasury. Its director would be selected by the President, rather than the Treasury secretary, and it would have its own budget.
It's always odd to get into a simultaneous fight with someone on the left and someone apparently on the right, but I have to respond to two commenters to my post on Greg Mankiw's proposal for what Republicans could bargain for if they actually wanted to engage on the issue of deficit reduction.
JakeCollins thinks it's appalling that I would support a value-added tax or VAT, one of Mankiw's proposed trades, because it "cuts taxes on the rich and raises them on the middle-class and the poor." Why, he asks, would liberals favor that?
I'm not saying liberals necessarily do favor a VAT. I just said I am a comparatively liberal person, and I think it's a good idea. Note, by the way, that the most rabid opponent of a VAT is the Wall Street Journal editorial page, which is righteously right-wing.
But the real point is this: don't be dogmatic.
Greg Mankiw at Harvard has a really smart post, pointed out by Brooks, on what Republicans could be bargaining for if they really wanted to engage in the deficit commission.
Mankiw, who was chairman of President Bush's Council of Economic Advisers, acknowledges that tax increases would have to be part of the deal -- a view shared by almost every budget analyst in the world but denied by Republican leaders with flat-earth fervor.
But Mankiw then outlines what conservatives should demand in exchange if they were willing to compromise on taxes. And it's a solid list of ideas:
I dropped by a forum of the Peterson-Pew Commission on Budget Reform yesterday, the earnest group of budget mavens that's been pushing for a bipartisan deficit commission and is itself a dress rehearsal for such a commision.
Unfortunately, as polite as the discussion was, the gridlock was obvious. It didn't bode well for President Obama's plans to name a bipartisan commission on Thursday.
Douglas Holtz-Eakin, the former CBO director who was John McCain's top economic adviser during the presidential campaign, sounded dispassionate until you listened to the nuances. Without flatly rejecting the idea of tax increases to help close the deficit, Holtz-Eakin pointedly insisted that spending was the main problem and that "we cannot tax our way" out of this.
I hate to join the pile-on against Goldman Sachs, the Wall Street firm that everybody loves to hate. But items like this make me want to pull out my hair in frustration.
The Financial Times reports tonight that Goldman has apparently won part of the mandate to manage the initial public offering of AIG's Asian life insurance unit -- AIA -- in Hong Kong. The offering is expected to be for $10 billion or more, and Goldman will be one of seven investment banks to sell it.
As far as I know, Goldman didn't do anything improper to get this deal. It's a big IPO, Goldman is a top player in the league tables and this is one of its core competencies.
But still. Goldman Sachs, more than any other firm on Wall Street, has managed to profit on almost every angle of the biggest single trainwreck (AIG) in the biggest financial crisis this country has ever seen.
I heartily agree with Bruce Bartlett's scathing description of Minnesota Gov. Tim Pawlenty's proposal for a balanced-budget amendment to the Constitution: it's phony, simplistic, ill-informed and cynical.
But my wife stopped me cold this morning with this question: "Ed, what if you were a Republican politician right now, running against a Democrat? What else would you come up with?"
My short answer: I got nothing.
Obviously, there are plausible conservative ideas about how to reduce the budget deficit, deal with entitlements, reform health care or regulate financial services.
You might have thought the era of big no-document liar's loans ended two years ago, when soaring defaults on trippy mortgages nearly destroyed the financial system.
And you might have assumed that no-doc loans had become all but illegal anyway, ever since the Federal Reserve essentially prohibited them in July 2008, when it adopted new restrictions under the Truth in Lending Act.
But you would be wrong. On Friday, I got the following bulletin from Karen Shaw Petrou, the delightful and acerbic co-founder of Federal Financial Analytics, a Washington consulting firm that specializes in financial regulation.
In addition to dissecting policy pronoucenments from bank regulators and the debates on Capitol Hill, Karen reads her incoming junk mail to keep up on the real world.
"Hey -- this is way cool,'' she wrote on Friday, describing a post-card mortgage pitch she had received that seemed like a blast from the good old days of 2006. The offer:
Paul Volcker lays out his argument in the New York Times today for "Volcker rule'' -- President Obama's new proposal to rein in "too big to fail'' institutions by limiting the size of banks and keeping them out of riskier businesses like proprietary trading, hedge funds and private equity.
But those who suspect that the proposal is window-dressing for the more tepid approach favored by Treasury Secretary Tim Geithner won't get much comfort.
Volcker starts off well, identifying the core problem of protecting institutions considered too big to fail. "Public outrage over seemingly unfair treatment is palpable," he says. It creates "moral hazard'' and it gives the biggest institutions "competitive advantage in their financing, in their size and in their ability to take and absorb risks." He even invokes Adam Smith, the father of free market theory, as a supporter for keeping banks small.
But then there is this jolt:
I agree that Eugene Steuerle's "Fiscal Democracy Index offers a chilling new perspective on the declining state of federal finances. Like Andrew Samwick, I too hadn't realized that 2009 was the first year in which all Federal revenues were consumed by promises made in the past -- entitlement programs and interest on the debt. All discretionary programs, the ones that Congress has to vote to fund each year, were paid with borrowed money.
Here are some other factoids that I only recently learned, courtesy of Fitch Ratings (see attachment at bottom of this post), which warned earlier this month that the United States' AAA rating could be at risk if don't make some sort of fiscal headway in the next three to five years.
Point One: We often hear that the US government debt load is lower as a share of GDP than those of many other large, wealthy nations, including Japan, Germany, the UK and France. But a more apples-to-apples comparison, which combines federal, state and local government borrowing, suggests that the US is in worse shape than most other AAA-rated countries.
Could the Democratic debacle in Massachusetts derail Ben Bernanke’s Senate confirmation to a second four-year term as Fed chairman?
I wouldn’t bet on it, but I didn't think the Dems would lose Teddy Kennedy's senate seat either. And there is strong smell of panic among Democrats and a growing push to assuage popular fury on the right and the left.
With the Huffpost cheering them on, two more Democrats announced that they would vote against Bernanke. Barbara Boxer of California and Russell Feingold of Wisconsin added their names to the official NO column. Senator Bernie Sanders, independent of Vermont, announced more than a month ago he would not only oppose Bernanke but put a hold on the vote. By the end of the day on Friday, a spokesman for Harry Reid, the Senate majority leader, was saying Reid didn’t know if he could round up 60 votes to clear a filibuster and hadn’t himself decided whether to support him.
The New York Times reports this morning that President Obama will announce a new push today for new limits on the size of banks and new prohibitions on their ability to conduct proprietary trading.
The politics of this are obvious enough: after the Massachusetts disaster, which has dealt a major blow to the prospects for passing even a weak health care reform, Obama is reaching for something -- anything! -- to change the subject. With the big bailed-out banks reporting hefty profits and ginormous bonuses this week, at the same time that they fight off regulation and a modest new tax, what better time than this to bash the banks.
At this writing, we don't know any details about what Obama will propose. They appear to echo ideas that Paul Volcker, the former Fed chairman, has been pushing in vain at least a year now.
Brad DeLong has a howling rant against the Fiscal Times this morning, apparently because he's outraged that the Washington Post's ombudsman opined on Sunday that it was ok for the Post to run occasional stories on fiscal policy from the FT.
Full disclosure: I have a vested interest here, because I have signed on as a paid contributor to the Fiscal Times and will writing on a semi-regular basis for it in the months ahead.
Let's stipulate right up front: it's silly to infer much from one month of job-creation numbers. The numbers bounce erratically, they are often revised dramatically one month later and they routinely defy the consenus forecasts by a wide margin.
Last month, forecasters were surprised and the media were elated when the Labor Department reported that job losses dwindled to just 11,000 in November -- much lower than expected (and revised today to a net gain of 4,000). The newly exhuberant forecasters were surprised again on Friday, when the estimated job losses in December jumped back up to 85,000.
"U.S. Job Losses Dim Hopes for Quick Upswing," declared a headline in The New York Times. I'm not sure how much hope there was for a quick upswing, but I'm even less convinced that the new job numbers change the picture all that much.
But here's what's interesting: the Fed's policy under Ben Bernanke seems intentionally geared to high unemployment for the next several years.
When I was in journalism school many years ago, a professor remarked that business reporters often go through three phases of maturation. At the start, the callous young reporter assumes that all business executives are rich crooks who need to be exposed. As the reporter enters the second phase, he gains access to top executives and discovers that they are much more open, hard-working and smart than they had seemed. In the final phase, the fully-seasoned journalist breaks through to the highest level of awareness: it turns out, there really are a lot of crooks out there.
That’s the feeling I have now. In more than 20 years as a business and economics reporter for The New York Times, I liked nothing more than a good business scandal. But I also considered myself a fan of free markets, opencompetitionand minimal government regulation. I like the dynamism of the marketplace -- the constant turbulence, the risk-taking and the periodic drama of little-known start-ups toppling Goliaths. Microsoft over IBM in personal computers. Google over Microsoft in web-based services. Those things happen, and the public has generally benefitted.