Saturday, January 31, 2009

Is Deregulation to Blame?
...Gramm explained his role in crafting two pieces of legislation frequently blamed for the financial crisis: the Gramm-Leach-Bliley Act of 1999 (GLBA) and the Commodity Futures Modernization Act of 2000 (CFMA). According to Gramm, GLBA “doesn’t deregulate anything.” In fact, the bill “does not have a deregulatory section in it.” Instead, it repealed provisions of the Glass-Steagall Act of 1933 that prevented affiliation between commercial and investment banks. Considering the prominent failures and rescues of banks, insurance companies, and securities firms in 2008, GLBA offered a convenient target. Unfortunately for that theory, Gramm said, the regulations in Glass-Steagall were already more like “Swiss cheese” by 1999, and even without GLBA, not one of the investment banks that failed or had to be rescued by the federal government in 2008 would have been in violation of Glass-Steagall anyway. ...

...Rather than blame deregulation for the present crisis, Gramm, who retired from public office in 2002 and is a vice chairman of UBS Investment Bank, argued that a major factor was the “politicization of the housing market,” for which he himself admitted some responsibility. Gramm said the laws were not faulty, but rather it was the regulators themselves, who “lacked the will to act” to rein in risky lending practices “because they thought the process was safe.”

Several of Gramm’s claims were supported by members of the panel. Adam S. Posen, deputy director of the Peterson Institute for International Economics, argued that, contrary to popular belief, “there hasn’t been that much deregulation in the last few decades.” Posen believed the crisis has exposed the flaws of ratings agencies, and he suggested doing away with them altogether (in place of relying on credit rating agencies, he advocates a policy of buyer beware). Posen went on to criticize Fannie Mae and Freddie Mac, saying the collapse of the government-sponsored entities should have been no surprise. “If something is half public and half private, it will cheat and it will fail.”

Eswar S. Prasad of Cornell University and the Brookings Institution agreed that much of the current crisis could have been avoided if regulators had simply applied “the rules that are on the books.” The rest of the world, according to Prasad, believed in the American financial system and its regulations, and consequently gave the United States “enough [financial] rope to hang itself” when those regulations were flouted for the sake of political and financial expediency....

...Wallison was even more pointed in his criticism of the current reactionary sentiment manifested in public calls for increased regulation. He said it would be a mistake to extend to other sectors of the economy “regulation that has so clearly failed when it has been applied to the banking industry.” Specifically, Wallison pointed to the “pernicious idea” introduced in a recent report issued by the Group of 30 (an international economic and monetary policy consulting group), that the federal government should increase regulation and federal protection for “systemically significant” companies. “Once you identify a company as systemically significant,” Wallison warned, “you are essentially saying it’s too big to fail. And what do you get when a company is too big to fail? We already have two; they’re called Fannie Mae and Freddie Mac.”

Giving Most-Productive Their Due In One-Sided Tax-Burden Debate
...As the accompanying table shows, the U.S. is not much less dependent on top earners for funding its social insurance programs than it is for its general revenues.

The bottom 51% of earners have a negative income-tax burden — due to refundable credits such as the earned income credit — but they still only shoulder 13% of total payroll tax revenues. In contrast, the top 49% of earners pay 102.4% of income-tax revenues (making up for refundable credits' cost) but still pay 87% of payroll taxes too.

Judged as a ratio of their population percentage vs. their contribution percentage, the difference grows dramatically up the income scale.

The top 3% of earners pay almost 20 times their population rate in income-tax revenues and over five times their rate in payroll tax revenues. The bottom 51% of earners contribute just one-tenth their population level in combined federal tax revenues.

While social insurance programs are regressive in their taxation, they are progressive in their distribution — low-income contributors receiving a greater relative payout than higher-income contributors do. This is possible only because of the top earners' disproportionate contribution.

Illuminating in its own right, this distributional examination also underscores how one-sided the tax debate has become. Top earners are immediately transformed into "the wealthy" — despite the fact that there is substantial lifetime movement up and down the income scale. ...

The World Won't Buy Unlimited U.S. Debt
Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?
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What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on....

Government Spending Is No Free Lunch
Back in the 1980s, many commentators ridiculed as voodoo economics the extreme supply-side view that across-the-board cuts in income-tax rates might raise overall tax revenues. Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5....

...What do the data show about multipliers? Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that the World War II fiscal expansion provided the stimulus that finally got us out of the Great Depression. Thus, I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists.

I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.

We can consider similarly three other U.S. wartime experiences -- World War I, the Korean War, and the Vietnam War -- although the magnitudes of the added defense expenditures were much smaller in comparison to GDP. Combining the evidence with that of World War II (which gets a lot of the weight because the added government spending is so large in that case) yields an overall estimate of the multiplier of 0.8 -- the same value as before. (These estimates were published last year in my book, "Macroeconomics, a Modern Approach.")

There are reasons to believe that the war-based multiplier of 0.8 substantially overstates the multiplier that applies to peacetime government purchases. ...

Has free-market capitalism died?
...Markets are the combined activities of millions of individuals. They are not composed merely of some guys on Wall Street; they are made up by us. Like anything else run by humans, markets can fail. If we become overly speculative and convinced that prices can go nowhere but up -- as happened in the Tulip Bubble in 1637, the bubble in 2000 and the recent housing bubble -- sooner or later reality will set in....

...Many contributing causes of this crisis were an overly invasive government. Federal regulators required banks to provide mortgages to customers who could not pay back the loans; the Federal Reserve manipulated the money supply, exacerbating the housing boom; and politicians promised bailouts that created incentives for irresponsible behavior....

Where is Free Market Economics When We Need It Most?
...One hates to pile onto President Bush, who did many things right and has received more undeserved calumny than anyone in recent memory, yet it must be said (and has been said before in this column) that President Bush, along with a sloppy and incontinent Republican majority in Congress, managed the feat of discrediting free market economics without ever practicing it. It was the Republicans who passed the Medicare prescription drug bill, and the bloated farm bill, and the transportation pork. This disqualifies most Republicans from challenging the gigantic new trough feeding that is about to begin under the Democrats...

Stimulus or Carpe Diem? The New Deal Wasn't a Stimulus Package Either
...That all said, I think there's something else at work here. This isn't just your run-of-the-mill pork. What we are seeing happen right now is that Congress sees this crisis as an opportunity to enact a whole variety of programs that they've wanted to pass for years, especially (but not only) the Democrats who no longer fear a veto, and now finally have the chance. Just as the Patriot Act was a bunch of laws waiting for a political "crisis," so is much of the stimulus package a bunch of programs waiting for an economic "crisis." The current crisis is just a convenient excuse.

But that's not all. Lest we get overwhelmed with nostalgia, we should remember that the exact same thing was true of much of the New Deal. Numerous commentators, from Hughes and Cain's American economic history textbook to authors like Amity Shlaes, have pointed out that a great deal of what FDR did in his first two terms were ideas that had been bouncing around the American left for years, and the Great Depression became the chance to put them into practice. New Deal spending wasn't primarily about economic recovery, it was about transforming the American economy. Tom Friedman's NYT column from last week captures this spirit with respect to the current situation.

What is on the table in Washington today simply has nothing to do with any serious economic thinking, as Pete's post below suggests. This is why people like Krugman and DeLong have to accuse their opponents of acting in bad faith: there is precious little economic evidence for the benefits of large fiscal policy initiatives. What these are really about is enacting programs and policies that people like them have wanted for years on their own supposed merits, independent of any "stimulus." The crisis is just the reason to carpe diem. So rather than a debate over the merits of particular programs, we get the language of crisis and fear thrown at us so that we'll swallow them all, whole hog, with little debate. Accusing your opponents of being "ethics-free Republican hacks" and refusing to examine the actual evidence of the Hoover and FDR years means you don't have to argue for the merits of the individual pieces, just scare the public and demonize the opposition. Of course, that's exactly what these same folks complained about after 9/11. Meet the new boss, same as the old boss indeed. (And the evidence against The Shock Doctrine is now approaching that of The Population Bomb.)..

With all due respect Mr. President, that is not true.
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

The case for doing nothing
Most of Washington has reached quick consensus: Government must do something big to shock the economy, and it should cost between $800 billion and $900 billion.

But dissident economists and investment professionals offer a much different take: Most of Washington is dead wrong.

Instead of fighting over what should go in the economic stimulus bill, pitting infrastructure spending against tax cuts and contractors against contraceptives, they say lawmakers should be fighting against the very idea of any economic stimulus at all. Call them the Do-Nothing Crowd.

“The economy was too big. It was all phantom wealth borrowed from abroad,” says Andrew Schiff, an investment consultant at Euro Pacific Capital and a card-carrying member of the stand-tall-against-the-stimulus lobby. “All this stimulus money is geared toward getting consumers spending and borrowing again. But spending and borrowing were the problem in the first place.”

Washington has a habit of passing legislation in a crisis and suffering from morning-after regrets — the Iraq war, the Patriot Act and last year’s original bank bailout plan come to mind. So we thought it would be wise to air the views of the naysayers toward Washington’s latest consensus approach....

...This time around, the Do-Nothing Crowd argues that the new spending — which dwarfs last year’s effort — is probably insufficient and definitely unwise. It is largely an economic argument. But there is also a cultural dimension. Many of the Do-Nothings argue that a painful recession is the best way to destroy America’s runaway culture of irresponsibility and debt. Economic turmoil, after all, has a way of grounding Americans.

Schiff and the other Do-Nothings argue that the government should simply allow the economic chips to fall where they may. Dramatic belt-tightening across the board is the only way, they say, to stop the endless cycle of borrowing.

“Our standard of living needs to come down to the point where it can be supported by organic output,” says Schiff. “It’s brutal, but it’s called capitalism, and it works. The alternative is called socialism, and it doesn’t work.”

To help push that argument on Capitol Hill, the libertarian Cato Institute plans to take out a full-page ad in The New York Times and The Washington Post on Thursday and Roll Call on Wednesday, making the case against stimulus. The ad will include the names of 250 economists across the country who oppose the massive spending and tax cut program that’s backed by President Barack Obama and many congressional leaders. Many of those are Do-Nothings, while others have more nuanced views about how the proposal as packaged won’t work....

Same Old New Deal?
...The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.

"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

In "The Forgotten Man: A New History of the Great Depression," Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits -- prerequisites for job-creating investments -- were excessively drained into labor expenses that left many workers priced out of the market. ...

Forecasting Guru Announces: “no scientific basis for forecasting climate”
It has been an interesting couple of days. Today yet another scientist has come forward with a press release saying that not only did their audit of IPCC forecasting procedures and found that they “violated 72 scientific principles of forecasting”, but that “The models were not intended as forecasting models and they have not been validated for that purpose.” This organization should know, they certify forecasters for many disciplines and in conjunction with John Hopkins University if Washington, DC, offer a Certificate of Forecasting Practice. The story below originally appeared in the blog of Australian Dr. Jennifer Marohasy. ...

...Currently, the only forecasts are those based on the opinions of some scientists. Computer modeling was used to create scenarios (i.e., stories) to represent the scientists’ opinions about what might happen. The models were not intended as forecasting models (Trenberth 2007) and they have not been validated for that purpose. Since the publication of our paper, no one has provided evidence to refute our claim that there are no scientific forecasts to support global warming.

We conducted an audit of the procedures described in the IPCC report and found that they clearly violated 72 scientific principles of forecasting (Green and Armstrong 2008). (No justification was provided for any of these violations.) For important forecasts, we can see no reason why any principle should be violated. We draw analogies to flying an aircraft or building a bridge or performing heart surgery—given the potential cost of errors, it is not permissible to violate principles....

Former Church Member: Haggard Performed Sex Act
DENVER — A young man who once attended New Life Church in the United States says that former pastor Ted Haggard performed a sex act in front of him in a hotel room in 2006 and sent him explicit text messages.

The man said his hidden relationship with Haggard was followed by a period of isolation, struggles with drinking, drugs and suicide attempts.

Those latest allegations against Haggard, once an influential national evangelical leader, were reported Monday night by KRDO-TV in Colorado Springs, which interviewed the man, now 25.

In a statement earlier Monday, Haggard apologized for his "inappropriate relationship" with the former church volunteer, but said it did not involve physical contact....

Saturday, January 24, 2009

Did Bush Lie Us into War?
President George W. Bush has got a very serious problem. Before asking Congress for a Joint Resolution authorizing the use of American military forces in Iraq, he made a number of unequivocal statements about the reason the United States needed to pursue the most radical actions any nation can undertake -- acts of war against another nation.

Now it is clear that many of his statements appear to be false. In the past, Bush's White House has been very good at sweeping ugly issues like this under the carpet and out of sight. But it is not clear that they will be able to make the question of what happened to Saddam Hussein's weapons of mass destruction (WMD) go away -- unless, perhaps, they start another war. ...

Bush Was a Big-Government Disaster
...The most basic Bush numbers are damning. If increases in government spending matter, then Mr. Bush is worse than any president in recent history. During his first four years in office -- a period during which his party controlled Congress -- he added a whopping $345 billion (in constant dollars) to the federal budget. The only other presidential term that comes close? Mr. Bush's second term. As of November 2008, he had added at least an additional $287 billion on top of that (and the months since then will add significantly to the bill). To put that in perspective, consider that the spendthrift LBJ added a mere $223 billion in total additional outlays in his one full term.

If spending under Mr. Bush was a disaster, regulation was even worse. The number of pages in the Federal Registry is a rough proxy for the swollen expanse of the regulatory state. In 2001, some 64,438 pages of regulations were added to it. In 2007, more than 78,000 new pages were added. Worse still, argues the Mercatus Center economist Veronique de Rugy, Mr. Bush is the unparalleled master of "economically significant regulations" that cost the economy more than $100 million a year. Since 2001, he jacked that number by more than 70%. Since June 2008 alone, he introduced more than 100 economically significant regulations.

At this late date, it may be pointless to argue about the grounds for the invasion of Iraq, which even Mr. Bush has (finally) acknowledged were built on sand rather than bedrock. The Iraq war has lasted longer than any American conflict except for Vietnam and has cost more than any shooting match except for World War II. Leave aside for a moment the more than 4,200 U.S. deaths and 30,000 casualties, and ask a very basic question: Did President Bush's prosecution of the war -- he declared an end to major hostilities in May 2003 -- and his direction of the ongoing occupation make you feel better about the government's ability to execute core functions?..

Disgraced pastor faces more gay sex accusations
DENVER (AP) -- Disgraced evangelical leader Ted Haggard's former church disclosed Friday that the gay sex scandal that caused his downfall extends to a young male church volunteer who reported having a sexual relationship with Haggard - a revelation that comes as Haggard tries to repair his public image.

Brady Boyd, who succeeded Haggard as senior pastor of the 10,000-member New Life Church in Colorado Springs, told The Associated Press that the man came forward to church officials in late 2006 shortly after a Denver male prostitute claimed to have had a three-year cash-for-sex relationship with Haggard.

Boyd said an "overwhelming pool of evidence" pointed to an "inappropriate, consensual sexual relationship" that "went on for a long period of time ... it wasn't a one-time act." Boyd said the man was in his early 20s at the time. He said he was certain the man was of legal age when it began.

The Lost Shepherd
Ted Haggard's sex scandal cost him his church, and some of his faith.

...And yet, while he strives to turn the other cheek, full Christian forgiveness eludes him. He believes that New Life cast him away when he needed it the most. As he says in the movie: "The Church has said go to hell." Haggard now thinks that he lashed himself too hard. "I understand why when a criminal is caught they will sometimes admit to things they didn't do," he says. "I wanted to overrepent, and I think I did overrepent. In my [resignation] letter to the church I said I was a deceiver and a liar, but I hadn't lied about anything except to keep quiet about what was going on inside me."...

Wednesday, January 21, 2009

The Idea of Order on the Hudson
...[T]he only seen presence of government at the site of the U.S. Airways emergency landing involved police helicopters interfering with rescue efforts by keeping the water around the plane churned up. These helicopters were of value to the state, of course, as a visual symbol of its superintending presence above a scene in which its practical role was nonexistent. Like a president or state governor flying over an area hit by a tornado or flooding, such an aerial presence reinforces the vertically-structured mindset upon which political authority depends. After rescue efforts were substantially completed -- with no loss of life -- New York and New Jersey police officials arrived (those whom the New Jersey governor incorrectly described as the "first responders").

The real work of rescuing passengers and crew members was left to the sources from which the only genuine social order arises: the spontaneous responses of individuals who began their day with no expectation of participating in the events that will henceforth be high-water marks in their lives. After the airliner came to a stop, one private ferry-boat operator, sensing the danger of the plane's tail submerging, began pushing up on the tail in an effort to keep it elevated. Other private ferry-boat operators -- whose ordinary work involved transporting people between New York and New Jersey -- came to the scene in what became a spontaneously organized rescue under the direction of no one in particular. Photos of the area show the plane surrounded by ferryboats on all sides.

On board the plane, passengers were making their own responses. CNN's Wolf Blitzer -- a man who has probably seen one-too-many Irwin Allen films -- interviewed a passenger, asking whether those aboard the plane were yelling and screaming at their plight. "No," the man replied, going on to describe how calm and rational was the behavior of his fellow passengers; removing exit doors; putting on life vests; and helping one another get out onto the wing of the plane....

Tuesday, January 20, 2009

Bush is Indeed Like Herbert Hoover - But Not in the Way You Think
...Speaking before the 1932 Republican Convention, Hoover boasted that he had rejected the "disastrous" option of doing "nothing" and instead had "met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic." In that same 1932 campaign, FDR even denounced Hoover for overspending and promised to enact a balanced budget. ...

...After Hoover left office, New Dealers used the myth of his supposed adherence to laissez-faire as a justification for discrediting free market policies. Today, we are seeing the creation of a similar myth about Bush. The truth, however, is almost the exact opposite of the myth....

OECD Study Acknowledges Laffer Curve, Admits Progressivity Bad for Growth
...additional government revenue should be balanced against the risk that high corporate tax rates will reduce economic activity and Japan’s potential growth rate, in the context of growing international tax competition. Given the serious fiscal situation, the government has thus far resisted pressure from domestic business groups, such as Nippon Keidanren (2006), to reduce statutory corporate tax rates. However, the impact of lower tax rates on government revenues is likely to be limited by positive supply-side effects. Indeed, in some OECD countries, revenue was boosted by lower tax rates, thanks to higher profitability and the increased size of the corporate sector (2007 OECD Economic Survey of the United Kingdom). Indeed, the amount of taxable income in the corporate sector tends to be higher in countries with low corporate tax rates (Figure 12). Consequently, corporate income tax receipts show less variation across countries as the impact of higher tax rates is negated by the lower level of taxable income. As a result, there is almost no correlation between the statutory corporate tax rate and corporate tax receipts as a share of GDP (Panel B). …The weak degree of progressivity in the personal income tax system thus has a positive impact on both labour inputs and on human capital and labour productivity. Maintaining the relatively low degree of progressivity, or even reducing it further subject to the fiscal constraints, would be beneficial for Japan’s growth potential....

OECD Admits High Personal and Corporate Tax Rates Hurt Prosperity
...Taxes can have an effect on countries’ material living standards by affecting the determinants of GDP per capita – labour, capital and productivity. For instance, by distorting factor prices and returns to market activities, they can alter households’ labour supply decisions and incentives to enrol in higher education, as well as firms’ incentives to invest and to hire employees, and thus, lead to an inefficient allocation of factor inputs and lower productivity. …The findings of this paper suggest that taxes have an adverse effect on industry-level investment. In particular, corporate taxes reduce investment by increasing the user cost of capital. …The paper finds new evidence that both personal and corporate income taxes have a negative effect on productivity. …High top marginal personal income tax rates are found to impede long-run productivity working through the channel of entrepreneurial activity and this effect is estimated to be stronger the higher the entrepreneurial activity is in an industry. …The results also support the assumption that social security contributions have a negative influence on TFP and that this effect is more pronounced in industries that are characterised by high labour intensity....

Saturday, January 17, 2009

Follow Jesus Like Nazis Followed Hitler, Rick Warren Tells Stadium Crowd
...Warren moved on, from his celebration of Nazi dedication to purpose, and held up Lenin, and Chinese Red Guard efforts during the Cultural Revolution, as behavioral examples for his Saddleback flock, whom Warren called on to carry out a "revolution".

Concluding his motivational speech, the Saddleback Church founder instructed his ranks in the stadium to hold up signs, from their official programs, with the preprinted message "whatever it takes". Warren then introduced, as leader of the first nation on Earth in which the P.E.A.C.E. Plan would be implemented, Rwandan President Paul Kagame.

In 1998 under Kagame's leadership Rwanda, along with the now officially "Purpose Driven" nation of Uganda, invaded the Democratic Republic of The Congo, touching off a conflict that has claimed more civilian lives than any since World War Two. On December 12, 2008, the United Nations accused Rwanda of aiding Congolese warlord Laurent Nkunda, accused of massacres and human rights violations and whose recent offensive has created several hundred thousand Congolese refugees.

In March 2008, Rick Warren's Saddleback launched an official national "Purpose Driven Living" program in Uganda, a country which was indicted in 2005 by the International Criminal Court for perpetrating "massive" human rights violations by invading and looting the natural riches of the Congo. Uganda is know for brutalizing its own population too. In the late 1990s under president Yowerie Museveni, whose wife Janet Museveni has spoken at Saddleback Church conferences, the Ugandan military drove upwards of two million Acholi tribe members in Northern Uganda, through a terror campaign of massacres and bombing, into crowded concentration camps on the Congo-Uganda border where many languish to this day, in what one Former Undersecretary for the UN has described as an ongoing, slow genocide.

Mega-pastor Warren, who will give the opening prayer at the inauguration of president-elect Barack Obama on January 20, 2009, aspires to great moral and spiritual leadership. Rick Warren has called for a second Christian Reformation, and he has stated his intent of inspiring 'one billion' Christians, half of all Christians globally, to become personally and 'radically' committed to changing the world. ...

Beware of the Big-Government Tipping Point
...This shift is exemplified by the desire of President-elect Barack Obama and the Democratic Congress to push us toward government-run health care.

For all his talk of allowing consumers to select their own health-care coverage, Mr. Obama's proposal, as he laid it out in his campaign, will provide strong financial incentives for employers and individuals to sign up with a new, Medicare-style government plan for working-age people and their families. This plan will almost certainly use a price-control system similar to the one in place for Medicare, allowing it to charge artificially low premiums by paying fees well below private rates. These low premiums will serve as a magnet for enrollment and will devastate the private companies trying to compete in the health-insurance market. The result will be the nationalization of the health-care sector, which today accounts for 16% of U.S. gross domestic product.

Nationalizing health care will be profoundly detrimental to the quality of American medicine. In the name of cost control, the government would make private investment in medical innovation far riskier, and thus delay the development of potentially lifesaving treatments.

It will also put America on a glide path toward European-style socialism. We need only look to Great Britain and elsewhere to see the effects of socialized health care on the broader economy. Once a large number of citizens get their health care from the state, it dramatically alters their attachment to government. Every time a tax cut is proposed, the guardians of the new medical-welfare state will argue that tax cuts would come at the expense of health care -- an argument that would resonate with middle-class families entirely dependent on the government for access to doctors and hospitals....

Fannie, Freddie And Now, Hannie
Democrats and their advocacy groups also prodded Fannie Mae and Freddie Mac to buy the high-risk NINJA (no income, no job, no assets) loans they'd pressured banks to make to Hispanic immigrants. Now immigrants are defaulting on subprime mortgages in droves, adding to the toxic debt that is poisoning the financial industry.

Yes, Bush was "eager," as the Washington Post described it, to put more Hispanic families into their own homes, even setting a goal of higher minority homeownership soon after taking office.

But Bush didn't pressure lenders to adopt sloppy underwriting standards. Nor did he encourage Fannie and Freddie to underwrite subprime loans to meet quotas for minority lending.

That was done under the previous administration. The groundwork for disaster was laid by Clinton and his social engineers — in this case, former HUD chief Henry Cisneros, now a major lobbyist for Latino homeownership....

Washington's Wealth Boom
...If we look at household income, the picture grows starker. After the 2000 Census, the richest county in America was Douglas County, Colorado. By 2007, Douglas County had fallen to sixth. The new top three are now Loudon County, Virginia; Fairfax County, Virginia; and Howard County, Maryland. All three are suburbs or exurbs of Washington, D.C. In 2000, 14 of the 100 richest counties were in the Washington, D.C., area. In 2007, it was nine of the richest 20.

All of this is fine if you happen to live in the D.C. area. It's not so great for the country as a whole.

While the D.C. metro area hasn't completely escaped the recession, it's doing much better than most everywhere else. Real estate advisers Grub & Ellis Company recently ranked the D.C. metro area the top market in the country for commercial real estate investment. Investment advisers are high on D.C. area real estate even in down times, because they know the federal government's only going to get bigger. That means more federal employees, more grantees and contractors, and more wealthy lawyers and lobbyists setting up shop inside the Beltway — both to get a piece of the federal budget (or, more recently, the $7 trillion-and-growing pot of federal bailout honey), and, as the federal regulatory state expands, to lobby for regulations most favorable (or, least unfavorable) for their clients....

...As for federal employees, according to the Bureau of Labors Statistics, as of January 2007, there were 284,000 federal employees living in the Washington, D.C. area, up from 268,000 in 2000. The Cato Institute's Chris Edwards estimates that in 2005, the average federal employee made $106,579 per year including benefits, about twice as much as the average person makes in the private sector. Federal wage are also rising at about twice the rate they are in the private sector....

Unemployment During the Great Depression
...In 1938 the unemployment rate was 19.1%, i.e. almost one out of five workers was unemployed, this is from the official Bureau of Census/Bureau of Labor Statistics data series for the 1930s. You can find the series in Historical Statistics of the United States here (big PDF) or a graph from Rauchway here. Rauchway knows this but wants to measure unemployment using an alternative series which shows a lower unemployment rate in 1938 (12.5%). Nothing wrong with that but there's no reason to call people who use the official series liars.

So why are there multiple series on unemployment for the 1930s? The reason is that the current sampling method of estimation was not developed until 1940, thus unemployment rates prior to this time have to be estimated and this leads to some judgment calls. The primary judgment call is what do about people on work relief. The official series counts these people as unemployed.

Rauchway thinks that counting people on work-relief as unemployed is a right-wing plot. If so, it is a right-wing plot that exists to this day because people who are on workfare, the modern version of work relief, are also counted as unemployed. Now if Rauchway wants to lower all estimates of unemployment, including those under say George W. Bush, then at least that would be even-handed but lowering unemployment rates just under the Presidents you like hardly seems like fair play....

Tuesday, January 13, 2009

Wall Street Journal Corroborates Independent Institute Study of Causes of Sub-Prime Meltdown

Housing Push for Hispanics Spawns Wave of Foreclosures
...An examination of that borrowing spree by The Wall Street Journal reveals that it wasn't simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.

The network included Mr. Baca, chairman of the Congressional Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among all congressional districts in percentage of home loans not tailored for prime borrowers. The caucus launched a housing initiative called Hogar -- Spanish for home -- to work with industry and community groups to increase mortgage lending to Latinos. Mortgage companies provided funding to that group, and to the National Association of Hispanic Real Estate Professionals, which fielded an army to make the loans.

In years past, minority borrowers seeking loans were often stopped cold by a practice called red-lining, in which lenders were reluctant to lend within particular geographical areas, often, it appeared, on the basis of race. But combined efforts to open the mortgage pipeline to Latinos proved successful.

"We saw what we refer to in the advocacy community as reverse red-lining," says Aracely Panameno, director of Latino affairs for the Center for Responsible Lending, an advocacy group. "Lenders were seeking out those borrowers and charging them through the roof," she says.

Ms. Panameno says that during the height of the housing boom she sought to present the Hispanic Caucus with data showing how many Latinos were being steered into risky and expensive subprime loans. Hogar declined her requests, she says....

...An examination of that borrowing spree by The Wall Street Journal reveals that it wasn't simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.

The network included Mr. Baca, chairman of the Congressional Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among all congressional districts in percentage of home loans not tailored for prime borrowers. The caucus launched a housing initiative called Hogar -- Spanish for home -- to work with industry and community groups to increase mortgage lending to Latinos. Mortgage companies provided funding to that group, and to the National Association of Hispanic Real Estate Professionals, which fielded an army to make the loans.

In years past, minority borrowers seeking loans were often stopped cold by a practice called red-lining, in which lenders were reluctant to lend within particular geographical areas, often, it appeared, on the basis of race. But combined efforts to open the mortgage pipeline to Latinos proved successful.

"We saw what we refer to in the advocacy community as reverse red-lining," says Aracely Panameno, director of Latino affairs for the Center for Responsible Lending, an advocacy group. "Lenders were seeking out those borrowers and charging them through the roof," she says.

Ms. Panameno says that during the height of the housing boom she sought to present the Hispanic Caucus with data showing how many Latinos were being steered into risky and expensive subprime loans. Hogar declined her requests, she says....

...Regions of the country where the housing bubble grew biggest, such as California, Nevada and Florida, are heavily populated by Latinos, many of whom worked in the construction industry during the housing boom. When these markets began to weaken, bad loans depressed the value of neighboring properties, creating a downward spiral. Neighborhoods are now dotted with vacant homes.

By late 2008, one in every nine households in San Joaquin County, Calif., was in default or foreclosure -- 24,049 of them, according to Federal Reserve data. Banks have already taken back 55 of every 1,000 homes. In Riverside, Calif., 66,838 houses are owned by banks or were headed in that direction as of October. In Prince William County, Va., a Washington suburb, 11,685 homes, or one in 11, was in default or foreclosure.

Gerardo Cadima, a Bolivian immigrant who works as an electrician, bought a home in suburban Virginia for $330,000, with no money down. "I said this is too good to be true," he recalls. "I'm 23 years old, with a family, buying my own house."...

Monday, January 12, 2009

Default Daddyhood
...A court entered a default judgment against Sharpe, and for the next six years, Dauphin County, Pennsylvania hounded the former trash collector to collect child support for the girl. He lost his job, paid more than $12,000 in support and fines, became estranged from his family (he has four kids of his own), and was jailed four times for failing to make payments. The county denied his repeated requests for a DNA paternity test (and were backed up by the courts), arguing that its domestic relations officials had sufficiently confirmed paternity "after reasonable investigation."

Walter Sharpe's attorney alleges that when he appeared in person with personal information proving he couldn't be the father, county officials merely changed the biographical information on the custody forms to match Walter Sharpe's.

After looking into Sharpe's story, the Patriot-News newspaper was able to determine the child's real father, Andrew Sharpe, in less than an hour. That's because the girl has been living with him for the last four years. The girl's grandmother (who had custody for a time) says the real father has supported the girl the entire time. The article isn't clear on where Walter Sharpe's support payments have gone. ...

Sunday, January 11, 2009

The Latest Reported Bankruptcy: Mainstream Economics
...The assembled economists did agree, however, on one important point: “many said that once the recession ended, the nation should not go back to the system that held sway from Ronald Reagan’s election in 1980 to the present crisis. It was one in which taxes, regulation and public spending were minimized.” Is it possible that the statement I have emphasized in the preceding quotation actually represents the beliefs of most economists? If so, then we can only conclude that they have somehow removed themselves from this planet and taken up residence in another world.

The idea that since 1980 “taxes, regulation and public spending were minimized” cannot honestly be held by any sentient being who has paid the slightest attention to the events of the past thirty years—a period during which federal receipts rose from $1,137 billion in 1980 to $2,588 billion in 2007 (in constant 2007 dollars), federal outlays rose from $1,312 billion to $2,730 billion (in constant 2007 dollars), real state and local taxes and expenditures increased by more than 150 percent, and regulations spewed out of Washington and the fifty state capitals as if the bureaucrats saw no need for taking heed of the morrow. Notwithstanding all of these events and a great many others pointing in the same direction, the recent converts to active fiscal interventionism would have us believe that this ongoing blizzard of bigger and bigger government represented taxes, spending, and government regulation being minimized? The mind boggles at such flagrant nonsense...

Saturday, January 10, 2009

“The New Deal Worked”: Why Do So Many People Accept that as Fact?
...“only about half of the economists and three quarters of the historians disagreed fully with the statement that the New Deal lengthened and deepened the Great Depression. Not a hint of that shows up in the textbooks, which cite as criticisms only statements from sources like President Hoover, the Liberty League, or business interests, that to modern ears sound highly ideological, naive, or self-serving. Obviously, such statements were made, and their tone probably represents accurately the majority of the contemporaneous criticisms. All the same, one might wish that the texts would also discuss some of the more sophisticated criticisms, or else avoid evaluation altogether because of the complexity of the issue.” (Thomas F. Cargill and Thomas Mayer, “The Great Depression and History Textbooks,” The History Teacher (August 1998).

Contemporary critics of the New Deal included John Maynard Keynes (yes, that Keynes). Keynes repeatedly criticized FDR for discouraging private business investment with his taxes, regulations and overheated rhetoric (the White House charged that opponents were “Big Business Fascists”). Radical historian Howard Zinn (yes, that Howard Zinn) published Keynes’s criticisms in his New Deal Thought reader (1966)....

The Progressivity of the Tax System
...Here are the total effective federal tax rates for 2005, the most recent year available:

Lowest quintile: 4.3 percent
Second quintile: 9.9 percent
Middle quintile: 14.2 percent
Fourth quintile: 17.4 percent
Percentiles 81-90: 20.3 percent
Percentiles 91-95: 22.4 percent
Percentiles 96-99: 25.7 percent
Percentiles 99.0-99.5: 29.7 percent
Percentiles 99.5-99.9: 31.2 percent
Percentiles 99.9-99.99: 32.1 percent
Top 0.01 Percentile: 31.5 percent

Sunday, January 04, 2009

Gov't Solutions Only Deepened '30s Downturn
...Let's start at square one, with the stock crash in October 1929. Was this what led to massive unemployment? Official government statistics suggest otherwise. So do new statistics on unemployment by two current scholars, Richard Vedder and Lowell Gallaway, in their book "Out of Work."

The Vedder and Gallaway statistics allow us to follow unemployment month by month. They put the unemployment rate at 5% in November 1929, a month after the stock market crash. It hit 9% in December — but then began a generally downward trend, subsiding to 6.3% in June 1930.

That was when the Smoot-Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences. Five months after the Smoot-Hawley tariffs, the jobless rate hit double digits for the first time in the 1930s....

...The stock market crash, which has been blamed for the widespread suffering during the Great Depression of the 1930s, created no unemployment rate that was even half of what was created in the wake of the government interventions of Hoover and FDR....

Thursday, January 01, 2009

The Community Reinvestment Act’s Harmful Legacy (PDF)
...While both CRA- and non-CRA lenders have increased the
number of loans to low-income borrowers, the financial soundness of CRAcovered
institutions decreases the better they conform to the CRA. Gunther
compares certain institutions’ CRA ratings to their CAMELS rating—a formula
used by bank regulators to assign safety and soundness ratings that takes into
account capital adequacy, asset quality, management, earnings, liquidity, and
sensitivity to market risks. He found that the better a lender was rated by CRA
standards, the worse was its CAMELS rating....

...The negative effect of CRA on small banks compounds in light of the observation by
George Benston of Emory University that larger banks often operate in LMI as a strategic loss, in order to get a satisfactory CRA rating for regulatory approval for mergers and acquisitions....

CRA Defenses Sound More Like CYA
...A careful reading of the 99-page report finds evidence that seems to undercut his conclusion that CRA loans are just as safe. For example, the study found that "nearly 90% of large banking institutions report higher 30-89 day delinquency rates for CRA-related home lending than for overall home lending."

That little gem was left out of Kroszner's argument, along with this one: "CRA-related home loans do not appear to perform as well as other home loans when the analysis is conducted on a per CRA-dollar basis."...

...The cause and effect is clear. As ex-Fed chief Alan Greenspan recently testified: "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA."

It strains credulity for top regulators to now say the CRA had "absolutely nothing" to do with the subprime crisis. It smacks of political spin and bureaucratic CYA.

Another Victim of "Single-Payer Health Care"
The British National Health Service has claimed another victim. Despite a phone call and note from a doctor stipulating that a critically ill patient, Stewart Fleming, be given immediate care, the staff of Medway Maritime Hospital in Gillingham, Kent kept him waiting for six hours. By the time they finally got around to treating him, it was too late....