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Era of Big Government, Cont’d.

John McCain sums it up nicely:

“Congress is now spending money like a drunken sailor,” said McCain, a former Navy officer, “and I’ve never known a sailor, drunk or sober, with the imagination that this Congress has.”

[snip] “The administration originally supported an energy bill that would cost about $8 billion. This one is up to $24 billion, and the administration is still saying it’s one of its highest priorities,” McCain said. “I don’t know how you rationalize that.”

“Any economist will tell you cannot have this level of debt of increasing deficits without eventually it affecting interest rates and inflation,” he said. “Those are the greatest enemies of middle-income Americans and retired Americans.”


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Free Trade and Retaliation

Up to now, most of my arguments — and Kash’s — in favor of free trade have been premised on the idea that access to inexpensive imports is good for U.S. consumers and also good for the countries selling the goods. A second line of argument is that when the imports being limited or having tariffs attached are inputs (like steel), the harm to industries that use those inputs outweighs the benefits to the protected domestic industry.

There is also another element to the argument for free trade: avoiding the imposition of retaliatory tariffs on U.S. exports. If the rest of the world responds to U.S. protectionism with more protectionism, then we really hit the trifecta of higher prices for consumer goods, lost jobs in import-consuming domestic industries, and lost jobs in export industries. And it looks like that’s where we are heading:

The United States’ growing trade dispute with Europe, Japan, and China over steel and textiles is sparking threats of retaliation that may slow global investment and hurt the sales of companies such as Boeing Co., Ford Motor Co. and AMF Bowling Worldwide Inc.

Japan and Norway has joined the European Union in saying they’ll impose sanctions on US goods to strike back at the Bush administration for steel-import tariffs imposed last year.

… in March, the EU will begin phasing in $4 billion in duties on US products, from leather goods to nuclear reactors, to pressure American lawmakers to scrap a tax break that the WTO says violates export-subsidy rules.

… Products of AMF Bowling Products Inc., a unit of AMF Bowling Worldwide, are on the EU’s retaliation list. The company estimates that as much as 30 percent of its $125 million in annual revenue comes from sales of bowling alley equipment in the EU. “I would view that business as being significantly at risk if these tariffs get passed,” said company president John Walker. AMF may lose sales to Brunswick Corp., which has a factory in Hungary, and to Asian competitors, he said.

Tariffs are bad. Trade wars are really bad.


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Are Faculty in the Humanities Liberal?

Yes, almost surely so. But Stanley Fish, Dean of the College of Liberal Arts and Sciences at the University of Illinois at Chicago, has what I think is the right response:

David Brooks is only the most recent sage to point out that, especially in the humanities and social sciences, a huge percentage of the faculty is self-identified as left of center. The result, says Brooks, a columnist for the Times, is a small brave band of conservative professors and students who are the victims of discrimination and can cope only if they “keep their views in the closet.”

This is a mixture of nonsense and paranoia. In any institution I have ever taught at, conservative students are more vocal than their counterparts, especially when they are complaining loudly that their voices aren’t being heard. And as for the assertion that “faculties skew overwhelmingly to the left,” I would say first, that it is a supply-side problem — if conservatives really want to spend their lives teaching modern poetry and Byzantine art, they should stop whining and do the dissertations and write the books, and they’ll get the jobs — and second, that it’s not a problem.

It really would be that simple, but incessant whining is much easier than the hard work required to complete a dissertation in the humanities, endure years of meager pay as a post-doc, and then perhaps finally land a tenure-track position.


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Even the Pro-Free Trade Paul Krugman

Via Matt Yglesias, Paul Krugman offers some thoughts that I think a fair number of Angry Bear readers will agree with:

First and foremost, the promise of export-led growth has failed in too many places. In particular, Latin America has signally failed to replicate Asia’s success: Latin nations have liberalized, privatized and deregulated, with results ranging from disappointing (Mexico) to catastrophic (Argentina). Open world markets, it seems, offer the possibility of economic development — but not an easy, universal recipe.

Meanwhile, competition from newly industrializing economies does hurt some workers in advanced countries. I could tell you how sensible government policies could minimize this cost, but since we don’t have those policies and aren’t about to get them, free trade is, in reality, a morally ambiguous issue. And someone in my situation has to acknowledge being in a particularly weak moral position, since they aren’t yet having newspaper columns written in Bangalore.


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More Reading For Your Thanksgiving Enjoyment

This one is suitable for children, but should be digusting to everyone. Bob Novack, in the Sun-Times:

On the House floor, Nick Smith was told business interests would give his son $100,000 in return for his father’s vote. When he still declined, fellow Republican House members told him they would make sure Brad Smith never came to Congress. After Nick Smith voted no and the bill passed, Duke Cunningham of California and other Republicans taunted him that his son was dead meat.

Perhaps if they had hinted that, should Smith fail to vote for the package, the $100,000 would instead be used to take out a contract on his family, Smith would have caved.

Via Suburban Guerrilla.


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The Era of Big Government, Continued

In the NYT today: Broad Bills Stuffed With Lawmakers’ Pet Items. Some highlights:

  • “A provision benefiting a specific hospital in Tennessee was added to the Medicare bill at the last minute in an effort to get the vote of Representative Harold E. Ford Jr., Democrat of Tennessee … Mr. Ford’s father, a former congressman, is a lobbyist for the hospital.” [Ford still voted against the bill; we’ll see if they take out the provision in conference.]
  • “The energy bill includes $1 billion for a new nuclear reactor in Idaho, $800 million in federal loan guarantees for a coal gasification plant in Minnesota and tens of millions of dollars in subsidies for timber companies to log national forests for energy production.”
  • “The Medicare bill establishes a “special payment for brachytherapy,” a procedure that uses radioactive “seeds” to treat a wide array of cancers. The bill stipulates that Medicare will pay for the seeds, in addition to the procedure required to implant them.

    Two Georgia Republicans, Senator Saxby Chambliss and Representative Nathan Deal, proposed the new method of payment. Theragenics, which produces and sells seeds for use in brachytherapy, is based in Buford, Ga.” [Won’t the free market direct more resources to Theragenics if their seeds are truly useful?]

  • “Congress also agreed to a proposal to help a Missouri company, Briggs & Stratton, one of the world’s largest producers of gasoline engines for lawn mowers and other outdoor equipment.”
  • “The energy bill includes a section that would make it easier for a consortium of European and American companies, Louisiana Energy Services, to build a $1.2 billion uranium processing plant for nuclear energy near Hobbs, N.M.”

Seriously, conservatives. This is big government at its worst, Sixties-Style but without the redeeming benefit of at least being targeted at the downtrodden.


UPDATE: I just realized that I should have titled this “Have some pork with your turkey.” Happy Thanksgiving!

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In Case You Haven’t Seen It Yet …

… I offer you this exchange for your Thanksgiving amusement (warning: not suitable for children):

[Neil Bush’s] ex-wife’s attorney sounded skeptical. “Mr. [Neil] Bush, you have to admit it’s a pretty remarkable thing for a man just to go to a hotel room door and open it and have a woman standing there and have sex with her,” said Brown.

“It was very unusual,” the errant husband replied.


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Medicare Drug Benefit

The Washington Post has an impressively informative piece on the new Medicare drug benefit–they numbers are detailed and useful. In fact, I hereby nominate the authors, Edward Walsh and Bill Brubaker, for the Bush Budget Beat through at least the 2004 elections. Had work like this been common throughout 1999 and 2000, the election could well have turned out differently. It was known, but not covered, at the time that Bush’s budget proposals didn’t add up. But I digress. Based on the numbers in the Walsh and Brubaker piece, I came up with a chart comparing total drug costs (on the X-axis) to total out of pocket costs (Y-axis). Note that where the line is flatter the portion covered by the government is higher; where the line is steeper, the portion covered is lower.

First, a few comments. The chart below shows the benefit starting in 2006; the interim plan consists of, well, coupons basically. Second, click on the graph below to open up a larger graph with more details and explanation. I may have more to say about this soon, but at first sight, it seems like a decent plan for the somewhat sick (drug costs between $800 and $2500) and the extremely sick (drug costs well over $5000), but for the elderly who fall in between those extremes, the plan will only cover 36% of drug costs (for an enrollee with $3000 in drug costs) to 21% (for an enrollee with $5100 in drug costs).

Also, the plan in the chart is for the 27.5 million seniors making more than 150% of the poverty line. The 6 million seniors below the poverty line who previously had drug coverage under Medicaid will continue to have coverage ($1 generic and $3 branded). The 4.5 million seniors not eligible for Medicaid but earning less than 135% of the poverty line will receive generous coverage ($2 for generics and $5 for branded). The 2 million seniors earning between 135% and 150% of the poverty line will have a $50 deductible and pay 15% of their drug costs thereafter. Again, all of this is for 2006 and after. In the meantime, the plan is to give billions in subsidies to insurance companies in exchange for discount cards (the aforementioned “coupons”).


UPDATE: I plan to comment on this a bit more (it’s boring but important), but in the meantime, Mark Kleiman has a good preliminary list here.

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Why are Bond Yields Still so Low?

One of the fundamental conclusions of basic macroeconomics is that when the economy booms, interest rates should rise. That’s because when the economy is doing well, people and businesses borrow more money to finance their spending and investment. When the demand for borrowed money rises, we know that the cost of borrowing money will rise – i.e. interest rates will go up. And lately we’ve had a raft of data showing that the economy is recovering very nicely, thank you. GDP growth was revised up to 8.2% in the July-September quarter. Employment grew in September and October. Home construction is at record levels.

If the economy is improving so strongly, then why in the world have long-term interest rates fallen over the past two months?

The Economist’s Buttonwood column has this to say about it:

The simple explanation for this… is that investors sense a chill beneath the warm glow of the numbers. One cold wind blowing across this particular recovery is that Americans are up to their necks in debt. With short-term interest rates at a 45-year low, households are spending some 13% of their disposable income on servicing their debts—a higher number even than in the sharp recession of the early 1980s, when the Federal funds rate topped 13%. How much longer can they carry on spending at this rate, let alone increase it? If they don’t, then someone else will have to spend on their behalf.

The government, perhaps? The Bush administration has turned a budget surplus of 2.4% of GDP into a deficit that official numbers say will amount to 4.3% of GDP next year. Not much room, in other words, to raise spending. Nor do American companies have oodles of money to play with. For all the talk of restructuring, they continue to increase their borrowing, though at least a slowdown in the rate at which they borrow and better profitability mean that their dreadful financial ratios are starting to look better than they were. Whether they will continue to do so is another matter.

This echoes the concerns that I raised in this earlier post. But The Economist goes on to add that there’s a more fundamental problem that the US economy will be facing over the next several years: the economic leadership of George Bush. As Buttonwood puts it, “George Bush is a man who wants to get re-elected and seems prepared to sacrifice the long-term economic good—assuming (a big assumption) he knows how it is best served—to get back into the Oval Office.”

Good point.


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Reflections on Medicare and the Democratic Party

Take a look at this bit of fascinating analysis of the Medicare fight by the Washington Post:

For Democrats, A Wake-Up Call

Democrats have owned the Medicare issue for nearly 40 years. But this week, the Republicans climbed into the driver’s seat and mashed the gas pedal. In closed-door sessions that excluded nearly all Democrats, through rule-bending roll calls, dishing out goodies to friends and twisting arms of the recalcitrant, the Republicans passed $400 billion worth of changes. Democrats spent the day picking carpet fibers out of their hairdos and sorting out their reactions.

Should they be outraged or envious in the face of GOP audacity and discipline? Disheartened or energized by President Bush’s latest victory? This inability to choose a voice, to stick to one path, was a worrisome sign for many Democrats — especially after such a disorienting year for the party.

Longtime party strategist Harold Ickes was at a loss to see any upside to a Republican victory in an area Democrats have always owned. He said he was flabbergasted that key Democratic senators, led by John Breaux (La.) and Max Baucus (Mont.), went along with it… “We just don’t have the discipline on our side that’s needed.”

Robert Borosage of the Campaign for America’s Future blamed Senate Minority Leader Thomas A. Daschle (D-S.D.) for the collapse. In the House, he said, Minority Leader Nancy Pelosi (D-Calif.) held the line so effectively that Republicans had to hold open their middle-of-the-night vote for nearly three hours on Saturday — the longest flouting of the 15-minute rule in House history — just to eke out a win. After which the Democratic filibuster in the Senate swiftly collapsed.

“There’s clearly an absence of forceful leadership at the top of the Senate,” Borosage said. “In the Senate we saw the difference between the other side’s discipline and our lack of it, and I think Democrats are disappointed in the extreme.”

The piece suggests that people in Washington are getting used to the idea of Republican dominance for the foreseeable future. I have to say, after this week, I’m starting to see why. This story reminds me of the Tory party in Great Britain – a party that, as the years have gone by since Tony Blair first defeated it, has gone from moderate losses to huge losses, from disorganization to utter disarray, and from being the party of the loyal opposition to being virtually irrelevant. Could the same fate be store for the Democratic party?


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