Archive for Economy

On Partisanship

The President’s stimulus package was passed by Congress last week with both houses voting along largely partisan lines. Every Republican in the House voted no, while only seven Democrats voted against the package. In the Senate, every Democrat voted in favor, while all the Republicans, except for three, voted against the package.

This has led some to criticize Republicans for “being partisan.”

What nonsense.

When a Senator like John McCain, who has spent his entire career opposing wasteful spending and speaking out against large deficits, votes against a massive spending plan that will lead by all accounts to an increased deficit, he is not being partisan. He is being true to his beliefs, hewing to the same ideology he has always espoused. He also his doing right by the constituents who elected him based on those long-held beliefs.

And for the record, the same applies to those Democrats who voted in favor of the plan- if a Democrat who always believed that the government should spend-spend-spend in order to deal with economic slowdowns voted for the package, he or she is not being partisan but also sticking to their guns.

I just wonder if all the Obama supporters who demand that Republicans “set aside partisanship and support the President” ever felt a similar obligation when we had a conservative Republican president. I don’t recall many of my fellow New Yorkers urging Democrats to support Ronald Reagan’s agenda, notwithstanding that Reagan twice was elected in a landslide, with far bigger margins than Obama.

Barack Obama was elected President. He won fair and square. And he ran on a specific agenda. But – news flash – every member of congress also won an election. And many of them won (especially those representing conservative districts) by promising to be fiscally conservative and promising to oppose a massive government expansion. They are not being partisan when they vote exactly the way they promised to vote.

I don’t know of any Republican member of Congress who got elected last fall by promising to support a massive government “stimulus” spending package, and promised to support legislation that would lead to a massive increase in the deficit.

Bottom line: if you didn’t demand that Democrats “set aside partisanship” and support Dubya (or Bush I, or Reagan), you have no right to demand that Republicans do the same and support Obama.


Bush Caves

I haven’t read the fine print, but it sure looks to me like the President caved in on the auto bailout. Earlier, Senator Bob Corker (R-TN) said that the unions were not engaged in sincere negotiations with Congress about the package because they knew all along the White House would give them a better deal. But at least one website (here) is claiming that the new agreement is similar to the terms that Corker had proposed. More to come.


WSJ: Bigger S.E.C. Isn’t The Answer

Even SEC Chairman Christopher Cox is admitting that the SEC dropped the ball on the Madoff Ponzi scheme. But before we conclude that the answer to the Madoff scandal is bulkng up the regulators, the Wall Street Journal points out in an editorial that the SEC’s budget has significantly grown over the last nine years. The Journal argues that the Commission’s failure to catch Madoff should not come as a surprise.

Mr. Cox and Congress will undoubtedly look for other conflicts of interest, but the larger truth is that the SEC’s failure is business as usual. The real news would be a case when the SEC did prevent a fraud.

The Journal points out that Madoff’s shenanigans, however, did not escape everyone’s notice:

The fact is that the only people who seem to have taken concrete action to protect investors from Mr. Madoff are private research shops like Aksia LLC. Its analysts did the real work of figuring out that Mr. Madoff’s claimed investment strategy couldn’t be happening at the volumes he claimed to be trading. Likewise, it was the short sellers who first blew the whistle on Enron, while the SEC was clueless and the firm’s auditors were asleep.

For an alternative viewpoint, you can check out the Washington Post’s editorial here. They reach a different conclusion:

Nevertheless, if this scandal demonstrates anything, it is how easily even the most sophisticated investors can be gulled — and that the general public needs alert and aggressive government regulation.


Against The Bailout

Let’s be clear: there is not a widespread problem in the automobile industry- Toyota, for example, will earn a profit this year of $5.9 billion.

Nor is there a widespread problem with the automobile industry in the United States- Volkswagen, for example, is opening a massive new plant in Tennessee.

The only folks in the auto industry in deep, deep trouble are the Big Three- Ford, Chrysler, and GM.

Want to know why? Well, this little graphic, from Investor’s Business Daily should help you figure it out:
Auto Bailout gap

As the accompanying editorial points out:

As the chart shows, gold-plated union contracts are a big reason for U.S. automakers’ woes (though managerial incompetence at the Big Three also played a role). The average Big Three worker made $73.26 an hour in 2006; the average worker at a foreign transplant, $44.20. Bailout foes wanted the gap to be shrunk by the end of next year.

A chart making the rounds on the Internet tells it all: Last year, Toyota made 9.37 million vehicles. GM, virtually the same number. Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the U.S.

Even so, the UAW vowed to make no big changes unto 2011, when their current deal expires. That basically would lock in the Big Three’s lack of competitiveness for at least three more years, requiring billions and billions more in bailouts or bankruptcy.

Columnist David R. Stokes notes the difference between union and non-union shops in cost:

Workers at a Toyota plant in Kentucky, a non-union shop, receive about $47.00 per hour in wages and benefits. That translates to about $98,000.00 per year (not counting overtime). Those doing essentially the same job at GM, Ford, or Chrysler – whose assembly line workers are members of the United Auto Workers union – receive roughly $71.00 per hour – or about $150,000.00 annually (again, minus any overtime).

And yet despite the obvious need for reform, I am doubtful the powerful United Auto Workers union will be forced to make the sacrifices needed to be competitive. Echoing a point I made before the election, Stokes explains why the UAW probably knows it will soon get whatever it wants:

The United Auto Workers is a formidable foe with a new best friend moving into the White House.

We will soon find out if President Bush or our new president intend to “reward failure.”

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Mitt On The Auto Bailout

I’ve blogged before about Mitt Romney’s authoritative voice on the economy. Today he has an outstanding op-ed in the New York Times about the proposed bailout of the American auto industry. Key quote:

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

As an aside, but relating to a debate we’ve been having here at Stillright, I will observe that it’s hard to imagine Sarah Palin or any other leading Republican addressing this issue with the same authority.


Romney on the Economy

None of the candidates in either party this year could match up to Mitt Romney in terms of executive experience. His campaign didn’t get far- he was attacked (fairly) for his flip-flops on social issues, and deemed unelectable because of his Mormon faith. I still think he would make a terrific president, and it’s clear he is planning to run again.

Here is an interesting interview with Romney concerning the state of the economy, an issue about which he speaks with authority. Key quotes:

On Obama and organized labor:

The unions have helped Barack Obama. They will hope to be paid back. I’m particularly concerned that organized labor would call on Barack Obama to pass the card check program. This removes from American workers the right to the secret ballot in deciding whether or not to accept a union. This legislation would do more to harm America’s long-term competitiveness than almost anything I can imagine. It would be a partisan payback for organized labor but it would come with devastating consequences for the nation.

On a potential bailout of the auto industry:

Before the government issues loans to the auto industry, as has been authorized by Congress, it should insist on seeing credible and independent strategies that will return the companies to long-term sustainability. Government should not finance ongoing losses and declining market shares.


How Bad (or Good) Will It Be?

A friend asked me what I really think will happen to the country as a result of this election and just how bad (from my perspective- but, judging from my emails, good from the perspective of many of you) it will be?

Let’s ignore the overheated campaign rhetoric, whereby everyone makes the worst possible assumptions about the consequences of electing the person they oppose, and try to get a grip on the reality of the situation.

I voted for McCain. So here are the specific things which I fear about an Obama presidency, rhetoric aside, and minus any discussion of why I think these are bad ideas. That (rhetoric and opinion) will come in future posts. This is just a laundry list of things I anticipate happening.

1. He will raise taxes on some companies. He has said so. Just a fact. (Again, this post is not about why I think this is a bad thing, it’s just a list of what I anticipate happening.)

2. He will raise taxes on some individuals. Just a fact. Not a massive socialist-type level of taxation, but a hike nonetheless.

3. He will move the Supreme Court to the left. He surely will get to make three appointments (Stevens, Ginsburg, and Souter are likely to leave). For me, this is more of a concern as relates to the GWOT than to social issues.

4. A big issue for me: I fear his idealism will lead him to follow the Bill Clinton model and place too much trust in unrepentant terrorists like Yasser Arafat. People like Arafat and Ahmedinajad can never be trusted, but idealists don’t seem to get that.

5. He will strengthen unions which I fear will raise costs and make us less competitive as we face increased competition from emerging economies.

6. He will again yield to unions and oppose free trade agreements, as indicated by his record as a senator.

7. His election will allow Harry Reid and Nancy Pelosi to have total free reign. A friend recently argued that now that he is President, Obama will have the stature and power to stand up to them. Sure, he will have the stature, but where is the evidence that he has any interest in standing up to them? He never has done so in his short legislative career. Why should I expect him to stand up to them now? What evidence is there to suggest he does not share their priorities on… well, everything?

8. I expect that there will be no serious tort reform, and in fact trial lawyers will be repaid for their generous financial support of the Democratic party with new legislation, which I believe will only serve to further raise the cost of doing business in the US.

9. I fear that when it comes time to make the difficult decisions in the War on Terror, President Obama will be too eager to curry favor with so-called “allies” like France and far too eager to rely on the UN. This is just my instinct, based on all of the campaign rhetoric about “re-building alliances.”

These are the changes I expect. I know from my emails that many of you support things like higher taxes on the top income brackets. And let me perfectly clear, the people have spoken, Obama won a clear and decisive victory, and has every right to implement all of the above changes. But, of course, the loyal opposition has every right to fight him as well.


Deregulation Is to Blame?

One of my biggest fears about the likely Democratic sweep next week is the resulting re-regulation of our nation’s economy. Without a Republican president to stand in their way, I truly fear the damage that will be caused by giving people like Barney Frank and Chris Dodd total free reign. Frank’s record speaks for itself. He is the one who famously said in 2003:

“These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, [and] the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Barack Obama has already rationalized this likely torrent of regulation by claiming over and over again that the current mess is a direct result of President Bush “letting the market run wild,” though he never says what specific Bush action he is referring to.

Here is a terrific article from the Wall Street Journal which proves that contrary to Senator Obama’s claim, the last eight years were hardly a period of deregulation. Has Senator Obama never heard of Sarbannes Oxley?

And along similar lines, here is a terrific editorial from the San Diego Union-Tribune which directly traces the Fannie/Freddie mess to Congressional meddling, wherein our Congress pressured lenders to “approve ever more loans to buyers of modest means” thereby “eroding the criteria banks traditionally used to gauge the risk of default.”


Sen. Stevens Convicted

I will shed no tears over the conviction of Alaska Senator Ted Stevens. An unapologetic lifelong champion of pork-barrel projects like the infamous Bridge to Nowhere, the facts of this case illustrate the extent to which pork and corruption go hand in hand. Ted Stevens was no friend of the taxpayer. And senators of his ilk completely undercut the efforts of other Senators (like Tom Coburn and John McCain) to restore the Republican party’s image as the party of fiscal discipline.


Obama and the Unions

No, Obama isn’t a socialist.

But organized labor is going all out for Obama, and if you think they are not expecting anything in return, you’re a fool.

And this brings me back to a theme. For all of the rhetoric about McCain’s “old ideas”, the reality is that it’s Obama’s ideas (restricting free trade, raising taxes, and empowering unions) that are completely outdated, and would be terrible for the nation’s economy. It all sounds a lot like Jimmy Carter’s economic agenda, and some of us are old enough to remember how that worked out.

To see the destrutive impact which powerful labor unions can have, just look at Europe; the crippling strikes, and the high unemployment.

This is the Obama plan to make us more competitive? Higher taxes (which of course makes the US less attractive to growing companies who can set up shop anywhere on the globe), opposing free trade agreements (obviously limiting our exports) and more powerful unions (and all the inefficiencies the unions ALWAYS bring)?

Bottom Line from your humble sensible right-wing blogger: Obama offers lofty (and in my view empty) rhetoric, but I sure would love to know why opposing free trade agreements, raising taxes on the most successful companies, and empowering labor unions are (a) new ideas or (b) good ideas?


Yes, It’s Called Capitalism

Barney Frank, the man who staunchly opposed reigning in Fannie Mae and Freddie Mac for years, and claimed ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” has now proposed that no one on Wall Street should receive a bonus this year. No one. His rationale:

“There should be a moratorium on bonuses,” Frank, a
Massachusetts Democrat, told reporters yesterday in Washington.
“They have a negative incentive effect because they are the ones
that say if you take a risk and it pays off you get a big
bonus,” and if it causes losses “you don’t lose anything.”

As to the first part, well, he has a point- in this crazy capitalist system we have, if you take a chance and it pays off, then you get rewarded. It’s pretty much the case in any industry. And that is a bad thing because…???

But it’s the second part that is really absurd. Someone should tell all the people who have lost their jobs in the last few months (or seen their portfolios demolished) that Barney Frank thinks they really haven’t lost anything.


On Free Trade, It’s a No-brainer

This editorial in Investor’s Business Daily does an excellent job of spelling out the vast difference between John McCain and Barack Obama on free trade.

First, let’s remember that John McCain showed not only political courage, but also enormous personal character, by standing by President Bill Clinton’s side in 1994 when Clinton sought to normalize relations with Vietnam. McCain did this despite his own harrowing experiences in Vietnam, despite opposition from other veterans, and despite opposition from many others on the right and the left. He also did it a time when Bill Clinton was pretty unpopular.

Has Barack Obama ever shown such character? Has Barack Obama ever so publicly and powerfully crossed party lines? Never.

McCain, simply put, supports free trade. His voting record proves it. The support has been unwavering.

And Obama? The editorial sums up his “position” this way:

The Democratic candidate says he’s pro-free trade, but funny things happen to him whenever it’s time to vote in the Senate. Other than a pact for Oman, he has opposed every trade treaty put in front of him, telling Honduras, Guatemala, Dominican Republic, Costa Rica and Nicaragua they weren’t good enough… He even opposes past treaties such as NAFTA, which he claims benefits only “corporate interests.”

The irony here is that it flies in the face of the Obama rhetoric- Obama supporters love to say in substance that the problem with McCain is not his age but his “old ideas.” But McCain is the one who recognizes the benefits of modern free trade rules, while Obama’s suspicion of free trade is right out of the 1930’s.

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McCain’s Math May Be Off Here

At the last debate, John McCain said:

“Fifty percent of small business income taxes are paid by small business.”

As columnist Michael Kinsley insightfully points out:

“Although I really should run this past Paul Krugman before going public, the evidence seems to suggest that as much as 100 percent of small business income taxes are paid by small business.”


Check Out the “TED Spread”

Perhaps the best way to measure the magnitude of the credit crisis is to look at the TED Spread. What is the TED Spread?

The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the bigger the aversion to risk. The spread was 1.04% just a little more than a month earlier and reached a record high of 4.65% on Friday.

So when everything is fine, investors only demand a little more return (usually less than 1% more) when they lend to banks than they demand from the risk-free Treasury Bills and Notes. But now they are demanding way, way, way more return (4.65% on Friday), because lending to a bank now seems so, so risky.

Here’s a nice chart which shows the movement over the last 18 months. Pretty ugly, isn’t it?


Whither the Economy?

I don’t trust any political candidate to be candid about the economy. It’s their job to pander. For example, you’ll never hear a candidate denounce all the people who lied to obtain mortgages they could never afford. To get some great non-partisan economic analysis, I love to read John Mauldin’s outstanding newsletter “Outside the Box.” Here is his analysis of the current situation (you have to register to read the whole thing, but it’s free) and a recent guest column which does a great job of explaining how we got to this point. Enjoy!