Getting the Economy Moving...

One of may favorite journalists, Fareed Zakaria, reports that the British are proposing to tackle the deficit as a means of convincing investors that England is a good place to do business:

the new chancellor, 39-year-old Tory George Osborne, [has] presented a budget that promised to get Britain’s fiscal house in order with sharp cuts in spending, coupled with tax increases. It landed in the midst of a heated debate across the industrialized world about how to best get the economy back on track. Osborne and his boss, Prime Minister David Cameron, have come down firmly on one side of this debate, hoping that a major effort to reduce the deficit will reassure bond markets and investors that Britain is a safe and compelling place to put their money.

Meanwhile, the Washington Post's policy blogger Ezra Klein, characterizes the debate within the Obama White House as between those who wish to spend their way to prosperity vs those who argue, ala Osborne, that restraint is a quicker way to prosperity:

we're starting to hear rumblings of a fight within the White House. The political side, we're told, wants to focus on the swelling deficit, which it believes is contributing mightily to the public's sense that the economy isn't being effectively managed. Karl Rove, who's been on the political side of a White House himself, agrees with them: "People's concern about the spending and the deficits and the debt and the out-of-control government have been growing and growing and growing," he said on Fox News. "And it's one of the key drivers in the 2010 election."

The economists disagree: They see a weak economy that still needs government support.

You got that?  Those who believe in restraining borrowing are Karl Rove type political hacks, while the economists all support increased government spending.  Economics is that black and white in Klein's world.  All we need to do is keep spending and things will get better.


In fact, of course, there are economists on both sides of this vital question (and probably those who take different viewpoints all together).  One thing IS for certain however: anyone who is telling you there's a painless way out, such as Klein, isn't being realistic.

Beating A Dead Horse

The notion that we ought to take our time to study and understand a problem before reacting to it, especially when it comes to something as complicated as legislating, is one I've discussed several times, most recently with regard to financial services reform.  Still, Congress is on the precipice of enacting a massive financial services reform law despite the fact that the Commission that Congress itself created to better understand the causes and nuances of the crisis has not yet completed its work.

Why?

One proponent of reform, federal judge and author of A Failure of Capitalism on the financial crisis, Richard Posner, explains this phenomenon:

But just as politics requires that President Obama be seen to be doing something about the oil leak in the Gulf of Mexico, though there is nothing he can do, so politics requires that Congress be seen to be doing something to prevent another economic disaster, though there is nothing it needs to do.

Posner doesn't say that the government doesn't need to change its policies, but that the changes necessary aren't changes in the law.  In short, they can be made largely without Congressional action.  Now, that's a problem, because if Congress doesn't solve the problem by passing a bill (the only thing Congress does is change the law by enacting bills) then Members won't be able to claim credit by the November election.

And THAT's why its rushing to pass legislation despite the ongoing work of the Financial Crisis Inquiry Commission - a government body created BY CONGRESS to report on the crisis's cause.  The Commission's work is ongoing (today, in fact, it is holding a hearing on the part played by derivatives, the regulation of which was one of the most contentious issues that delayed the financial services bill) yet their work will not be factored into the legal reform.

The Tea Party Explained

This analysis is one of the best explanations I've read about the Tea Party, which is a loose collection of people who share one thing in common: frustration with the status quo.  It comes in the wake of the South Carolina primaries that saw two Tea Party favored candidates prevail.  In both cases, they were minorities beating middle aged white guys.

A pattern seems to be emerging that runs through the views of those who identify with Tea Party, and it doesn't appear to be a strictly "throw the bums out" mentality.  It doesn't make sense to punish people for nothing other than incumbency, and many incumbents are surviving.

The question is why some incumbents survive if the Tea Party nothing more than a "throw the bums out" style movement:

This question that can be easily answered by those who have argued all along that the Tea Partiers are just a collection of crackpots and dodos, incapable of seeing where their true self-interest lies. What else would you expect from such idiots? But there is another way of interpreting the South Carolina primaries. The real target of Tea Party wrath is not the establishment or incumbency, but cronyism.

Such cronyism exists in many aspects of life, not the least of which is Wall Street and its relationship with Washington, DC.  There is, perhaps, nothing more American than the notion people should advance on their own merits rather than their status or birth.

It will be interesting to see how this theme continues to play out through the rest of the year.

Campaign Finance I

I'm not sold on the concept of publicly financing campaigns.  It should not be easy for any crackpot to get hold off taxpayers' money to launch a loony, joy ride of a political campaign.

Still, articles like this from the excellent Ruth Marcus make me willing to re-consider:

Washington operates on the tacit understanding that campaign contributions grease the way for access and influence. Both sides in this transaction, lawmaker and donor, perceive, or at least present, themselves as the victim: elected officials as captives of a system that demands incessant fundraising; donors as the target of a none-too-subtle shakedown scheme.

As the legislative director for Teledyne Controls, a California defense contractor, told OCE investigators, "It does go through your mind whether you are buying influence." Yah think? 

Having spent 10 years on the Hill, I wouldn't say money buys results (except in a few highly publicized cases where people went to jail), but it can get you a hearing, without which you have little or no chance of getting what you're looking for.  Even the late Paul Simon (D-IL) acknowledged that his time was limited, and when handed his list of phone calls gave preference to big donors.

Most so-called campaign finance reforms have, in my view, made the system even worse.  Limit how much individuals can give?  OK - you simply empower "bundlers" who can bring many individuals together.  Even worse, because only small amounts can come from any one source, it takes MUCH more time for Members to fund raise.  Every lunch hour and free evening becomes a fund raising session whereby a Members Chief of Staff will her take over to the Republican or Democratic Committee to start placing phone calls to lobbyists and constituents.

This is time not working on the nation's problems or even time socializing and getting to know one another personally.  Don't underestimate the importance of this latter activity - its one of the reasons Washington has become so nasty.

Some proposals from Brookings

This came across my desk this morning.

Titled "Econonic Growth and Institutional Innvotation: Outlines of a Reform Agenda," the policy monograph by William Galston discusses how our institutional design can affect our economy.

Galston starts from the premise that our economy is hampered by three deficits: fiscal (also known as the US budget deficit), savings (the lack thereof by US citizens) and investments.  He proposes that these be attacked by such things as Commissions that are insulated from the political process, yet still answerable to Congress.  Mandatory individual accounts added to Social Security.  And the creation of a "National Infrastructure Bank" funded with US tax dollars.  Such reforms would be impossible in our current climate, so institutional reforms that will empower centrists must be enacted.

To me, these are the more interesting suggestions: (1) replace the current system of having state legislatures draw political districts for themselves and the US House and (2) mandate voting.  I'll take a closer look at these ideas in some of my next posts.

Even more insane than I imagined...

As you'll recall, the agency that overseas safety at offshore drilling facilities, the Minerals Management Service (MMS) (an agency within the US Department of Interior) was structured in such a way as to create a conflict of interests.  In short, its funding came from the operations of the entities it was supposed to oversee from a safety perspective.  If your budget comes from an entity's operations, what are the odds you'll shut it down, even if you're concerned about safety?

This flaw was addressed rapidly as Secretary of the Interior Ken Salazar announced that MMS's collection and safety functions would be separated.

Today's Post contains the strongest evidence to date that the agency's conflict of interests created a situation where this situation was possible.  Amazingly, MMS officials' bonuses were tied to how meeting federal deadlines for leasing offshore oil and gas exploration, according to the Washington Post  Reports of environmental risks triggered reviews that delayed leases according to the story.

In short, the incentives for the individuals with oversight of the safety of offshore drilling facilities were paid based on how fast they could get drilling approvals done.

If this story is ever told in a productive manner it will be one of failed government design as much as anything else.

Yesterday's Elections

I'm not a political analyst, so I'll leave the analysis to others.  I'd just warn you that 90% of those who claim to be political analysts aren't very good at it, or have agendas other than providing the unvarnished truth.

Here are a few links for your consideration:

http://www.realclearpolitics.com/horseraceblog/

http://www.centerforpolitics.org/crystalball/

http://rothenbergpoliticalreport.blogspot.com/

http://www.cookpolitical.com/