It is the nature of man to rise to greatness if greatness is expected of him.
John Steinbeck
What Would George Santayana Say about Barack Obama?
"Those who cannot remember the past are condemned to relive it." Remember when Rick Santelli's rant last year on the moral hazard of progressive Democrat "mortgage assistance" spawned the Tea Party movement? Remember the virtually "no-cost" mortgage? The gimmick loans that helped push house prices to an unsustainable level after everyone who traditionally qualified for motgage loans already had one, prolonged the housing bubble in a dangerous way, because those loans were more likely to fail and dump houses on a soft market.
The New York Times recently published a sympathetic piece on Affordable Advantage, a state housing program which has started operations in Wisconsin, Minnesota, and Washington; in short, the program attempts to control some of the risk factors, other than a modest down payment of just $1000 (roughly about 1% versus a traditional 20% down payment), by requiring more documentation and credit counseling and putting people into fixed-rate mortgages with only a modest rate premium. Ultimately, the notes are held by the GSE Fannie Mae (which, of course, is 80% owned now by the American taxpayer). The piece, of course, includes favorable coverage of two Milwaukee area households, and with government grants cutting down on insurance and closing costs, one of the families was literally able to close with less than a dollar.
What's particularly notable is how all these "experts" have been to gush about how this time, for sure, they've wrung risk out of low down payment home purchases. Yeah, right... This reminds me of the Internet stock market bubble when we were solemnly told that profits don't matter, there was a new investment paradigm, etc.
In essence, the taxpayers are on the hook if these mortgages go wrong. The buyers get 100% of the capital gains if they sell in the future, but if they default on their loans, the down payment barely covers one month's mortgage payment.
I have nothing against the new homeowners featured in the article, and I don't blame them for taking advantage of what the government and Fannie Mae is making possible. But anyone who thinks that the government has suddenly discovered a new business model to make sound housing loans at a fraction of the collateral versus the tried-and-true 20% down payment model will buy the Bridge to Nowhere--and how fair is it to the people whom have sometimes saved for years to earn their way into their first home to find the government using their tax money to subsidize the home ownership of other people? Talk about moral hazard!
I'll finish this commentary by quoting Trader Mark's tongue-in-cheek discussion on this topic:
Buying a $115K house for 67 cents is something our foreign readers must only cry in agony they have no opportunity to do. Those darn French and Germans still have to pay 20% down (snicker). Can you see the 3 AM informercial now? "For less than the price of a candy bar, you too can be a home 'owner'. Only in America!" Next step as we wind our way through the Ponzi Matrix? When the government pays YOU to buy the home.Obama's News Conference: Because I'm Tired of the Misleading Talking Points
I ran for president because I believed the policies of the previous decade had left our economy weaker and our middle class struggling. There were policies that cut taxes, especially for millionaires and billionaires, and cut regulations for corporations and for special interests, and left everyone else pretty much fending for themselves. There were policies that ultimately culminated in a financial crisis and a terrible recession that we’re still digging out of today.Materially false and misleading: Bush cut tax RATES among higher-income taxpayers--from Clinton's 39.6% (about 1160 basis points higher than Reagan's 28% top rate). But tax RATES have an influence on economic activity, particularly within progressive tax structures like ours; keep in mind a FLAT tax rate means that someone who earns twice as much pays twice the taxes. Obama is saying that when Bush and the Congress cut the top rate by 460 basis points, that the federal government was out of the difference in tax rates. But in fact the income of the well-to-do involves a specific cost/benefit calculation. When you cut the tax bite, say, of selling a large position in stock with unrealized capital gains, there is much more of an incentive to realize those gains--and increase the amount of taxes paid by that individual.
The Heritage Foundation published a report on the Laffer Curve that does a good job making the core point. In 1913, the income tax was roughly 7%. During WWI the bite increased to as much as 77% for higher incomes. But revenue dropped nearly 10% per year in the four years PRIOR to the Harding/Coolidge tax cuts to a top rate of 25%. Not only did federal revenue remain stable AFTER the cut--which was far more dramatic than the 2001 Bush tax cut--but the percentage of federal revenues PAID BY HIGHER-INCOME taxpayers DOUBLED and unemployment PLUNGED.
There is a quote in the same report from Keynes, Obama's patron saint of economics, that makes the point succinctly:
Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more--and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.Don't you just love how the beloved John Maynard Keynes flips the "gambling" analogy that progressive Democrats often love to use on its head? What Keynes is clearly implying is that a progressive government can tax its way into bankruptcy. The real gambler is the progressive politician, whom is playing with our economic future.
What special interests is Obama talking about? The unions who won a concession during the health care debate to defer any limits of the tax-free deductions for gold-plated medical plans? The green energy companies that are only profitable because of massive federal subsidies? We pro-business conservatives WANT a fair tax system without "pick-and-choose" progressives thinking they know better than capitalists how to grow the economy; after all, the fair share of government costs that should be picked up by union members and green energy companies didn't go away--they shifted onto other taxpayers (including future taxpayers). And who pays most of the government's operating expenses? "Millionaires and billionaires...corporations...special interests"... Any faithful reader of this blog KNOWS I've been advocating FAIR, SIMPLER, BROADER tax mechanisms. That's the BEST way to eliminate the influence of various lobbyists, all reaching for their "fair share" of the federal teat. If companies, including companies, favor Republicans, it's not necessarily because the GOP does their bidding; from the perspective of business, the best situation is not getting special deals, etc.--it's a MORE PREDICTABLE, STABLE public policy. Now you have companies being assaulted in many different directions: uncertainty in next year's tax policy, regulations, health care insurance meddling, etc.
Instead of tax breaks that encourage corporations to create jobs overseas, we believe in tax breaks for companies that create jobs right here in the United States of America.This is ideological, self-defeating nonsense. Obama is knowingly and deliberately misstating the context. Businesses were given more of an incentive to invest abroad, where foreign countries often taxed companies at HIGHER rates. Now, in fact, the US has among the HIGHEST corporate tax rates in the developed (or developing) world. When you want market share, say, in a country like China, you need to invest. If China charges lower taxes than the US does, Chinese investment projects become marginally more competitive than American projects. Obama has policy EXACTLY backwards: by creating business winners and losers due to idiosyncratic policies, he shifts the tax burden unfairly to other parties--the kind of thing that actually raises the incentive to engage in lobbyist behavior, so your company or industry won't be left out in the cold. The BEST thing he could do is root out ALL special interests (including unions, teachers, green energy, etc.), simplify tax policy, and lower tax rates to a more globally competitive level.
But one thing we can do next week is end a month-long standoff on a small-business jobs bill that’s been held up in the Senate by a partisan minority. I realize there are plenty of issues in Washington where people of good faith simply disagree on principle. This should not and is not one of those issues.You know, I consider people whom deliberately omit salient facts to be liars, and so, Mr. Obama: "Liar, liar, pants on fire." He KNOWS the Republicans support the benefits he's listed. He's trying to portray this as some sort of Hillary Clintonian "vast right-wing conspiracy." What they don't support is a $30B bailout of community banks that are being bribed to make business loans, not based on intrinsic risk taking; most Republicans had problems with the INITIAL TARP legislation during the economic tsunami, because of the unconscionable federal intervention. What's left? $12B in various tax breaks and the like, which the GOP supports. Now Obama would have you believe that the GOP is voting against the $12B--not the $30B bailout of banks. The evidence is compelling: Obama is deliberately misleading the American people.
As I just indicated, middle-class families had been struggling for a decade — before I came into office. Their wages and incomes had flatlined; they were seeing the costs of everything from health care to sending their kids to college going up; job growth was the weakest of any economic expansion between 2001 and 2008 since World War II — the pace was slower than it’s been over the last year. So these policies of cutting taxes for the wealthiest Americans, of stripping away regulations that protect consumers, running up a record surplus to a record deficit — those policies finally culminated in the worst financial crisis we’ve had since the Great Depression.If Obama really believes what he just said here, he's delusional and dangerous.
First of all, let's dismiss the absurdity that the middle class has taken a disproportionate share of the burden. The Organization for Economic Cooperation and Development (OECD) in Paris noted that the US system is already the most progressive in terms of household taxes (income and payroll taxes) and in terms of tax burden on the top 10% (only Ireland rivals the US in terms of a progressive tax system). It also found that using the tax system (a distinctive characteristic of the American system) versus a cash redistribution program (e.g., welfare), is more inefficient and ineffective at reducing inequality. In 2007, the top 1% earners paid 40% of the tax burden (and with the rest of the top 10% accounted for 71%), while the bottom 50% only paid 3% of the burden.
But even more damning to Obama's credibility is the fact that after the 2001 and 2003 tax cuts, not only did revenues increase by over 3/4 of a trillion dollars by 2007, but the wealth of the MEDIAN household (not just the top 10%) increased by $20K, and some 8M new jobs were added to the economy.
So, given the fact that federal revenues INCREASED more than the war costs, which Democrats typically point to, how do we account for the deficits (over and beyond the fact that Bush took over during a recession, a consequence of the stock market crash, not to mention the subsequent shocks of 9/11 and the corporate scandals), where did all this deficit come from? I'm glad you asked: let's hear from CATO from back in 2003:
According to the new numbers, defense spending will have risen by about 34 percent since Bush came into office. But, at the same time, non-defense discretionary spending will have skyrocketed by almost 28 percent. Government agencies that Republicans were calling to be abolished less than 10 years ago, such as education and labor, have enjoyed jaw-dropping spending increases under Bush of 70 percent and 65 percent respectively.What's that you say? You didn't hear the Democrats argue for budget cuts (other than defense in the middle of a shooting war)? Neither did I. For good reason: the Democrats were arguing THE GOP DIDN'T SPEND ENOUGH ON NON-DEFENSE DISCRETIONARY SPENDING. Is it any wonder why the Democrats have been creating $1.4T deficits while running both Congress and the White House, with $1T deficits as far as the eye can see?
But we’re not there yet. I mean, we — we lost 4 million jobs in the six months before I was sworn in, and we lost 8 million jobs total during the course of this recession. That is a huge hole to dig ourselves out of.But, Mr. Obama, you've made it clear you will NOT extend all the Bush tax cuts, in particular, to the top 2 to 3%. Even though some economists argue that it may suppress small business hiring by up to 20%. What's that, you say? Mr. Obama wants to be the small business President, but he assesses new health insurance penalties and hikes taxes on many small business owners?
And what I’ve got is the Republicans holding middle-class tax relief hostage because they’re insisting we’ve got to give tax relief to millionaires and billionaires to the tune of about $100,000 per millionaire — which would cost, over the course of 10 years, $700 billion, and that economists say is probably the worst way to stimulate the economy.Excuse me, but when today the top 1% today pay more than the bottom 95%, in what since is getting about 25% of the benefit of extended Bush tax cuts to the wealthy a budget issue, but not the other 75%? And why should Obama care how much the rich get back in tax cuts if the end result is increased tax revenue, mostly from the rich, and more employment? What is being held hostage is Obama's irrational, non-negotiable, ideological refusal to allow the top 2 or 3% to keep the same tax system over most of the last decade; this is a TAX HIKE, not a tax cut.
Obama fails to note that the Bush tax cuts added 8 million jobs through 2007, and after the tsunami (including well into the Obama Administration), we lost 8 million jobs. The situation would almost certain have been worse without the Bush tax cuts. As the Laffer notes, the majority of the high tax bracket group reports small business income and/or investment income; since when, in a tough economy, is it a good idea to discourage small business income or investment income? That's not sound economic policy: that's high-stakes gambling with our nation's future. President Obama needs to seriously understand WHY Harding/Coolidge cut taxes, Kennedy cut taxes, and Reagan cut taxes. Federal revenues did not fall off the cliff; the tax cuts stimulated economic growth, and economic growth lifts all boats (including the boats of the lower classes).
ECONOMIC BEHAVIOR IS AFFECTED BY WHAT HAPPENS AT THE MARGINS.
Obama's main error is focusing on the arithmetic effect, versus the economic effect, of tax cuts. The arithmetic effect looks at the 460 basis point cut in the upper tax bracket rate, and we lose in federal revenue that extra 4.6% of higher-income tax payments. What Obama is ignoring is the economic effect. For instance, the wealthier are more likely to engage in income-generating events if the costs (including taxes) are more favorable. We see this in several examples even among the middle class. For instance, the state excise taxes on cigarettes or gasoline go up, and state residents near a border go across the border to stretch their dollars. It's harder for people to understand the potential income lost because a weathier individual decides to cut down on billable hours, not put the time and effort into opening a second store, take a year or two off (remember when basketball player Michael Jordan first retired, to briefly pursue a career in minor league baseball?), or retire early. One way we see it is when many older workers at 62 or older since the beginning of the recession decided to simply file for early social security; we no longer can depend on their remaining years of contributing towards entitlement trust funds and federal operations.
In fact, what would Obama's beloved Keynes say about the class warfare argument? We get this hint:
When, on the contrary, I show, a little elaborately, as in the ensuing chapter, that to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied...Obama indignantly argues that the brunt of the bad economy has been born by lower and middle classes; actually, the economic shocks affected all segments of the economy. (I'm not going to argue about top company executives raking in millions while employees bite the bullet during the recession, but I have an inherent distrust of misguided populism. The solution is more transparency in company officer compensation and independent performance audits. But why Obama attacks those paying 35 cents on excess compensation dollars to the government versus passing it down to employees whom compensation is federal income tax-free makes no fiscal sense.)
The cruelest tax is inflation, and Obama should be thankful he did not inherit Carter's 21% interest rates. We have suffered several economic burdens (asset bubbles: stocks, housing, oil; 9/11; corporate scandals) over the past 10 years that Obama glosses over or simply unjustifiably dismisses as some vaguely-stated consequence of Bush's policies. One of the progressives' favorite points of discussion, swaps/derivatives, were transacted for years before Bush ever took office. What evidence is there that the lawful work of the SEC or the Fed (or state regulators, credit raters and accountants) on banks impeded by the Bush Administration? Perhaps one can argue that the Bush Administration was not proactive in anticipating the economic tsunami just as one could argue that the Clinton Administration was not proactive in anticipating 9/11.
We have a tax system where investment is taxed twice--at the company level and at the stockholder level, where interest is taxed on a gross, not real basis, where half of employed Americans pay no federal tax beyond payroll contributions to trust funds and have no problem with Obama sticking it to the other guy. There is absolutely zero incentive for these people to better themselves so they can share in the tax burden, as Keynes notes above.
Obama is in a state of denial; usually after a sharp recession, we see a sharper rebound in growth and jobs. IN MY VIEW, OBAMA'S POLICIES ARE DIRECTLY RESPONSIBLE. It's the uncertainty about the expiring Bush tax cuts, the implications of the new heath care insurance reform, the failure of fiscal discipline which will likely result in growth-crippling tax increases, more costly government meddling in the private sector economy, etc.
Yes, the American people did vote for change--but not THAT kind of change. What Obama and his supporters consistently overlook is the fact that McCain had surged to a lead after the GOP convention in early September 2008, despite an overwhelming financial advantage by the Obama campaign. Then the economic tsunami hit, Obama flipped the lead and simply ran out the clock on McCain. What this really meant was that there was never a mandate for Obama's progressive agenda. I have no doubt that the 20% of the American public which is progressive disagree with me; they had waited for 8 years to regain the White House. But the election was at the margin. There is no doubt that Bush's abysmal approval numbers affected the outcome, with McCain serving as the implicit incumbent (which the Obama campaign constantly referenced as "Bush's third term), and McCain never overcame his unforced error a few years earlier of admitting he had to be educated on economics after spending 20 years in office, not to mention his disastrous running mate selection of an unvetted, obscure, inexperienced state governor in the middle of a scandal. I have no doubt that Ms. Palin helped energize the GOP base--but it absolutely did not help McCain with the moderates and independents in purple states, whom questioned McCain's judgment on the pick.
After the economic tsunami hit, people were looking for security--things like assurance of the social welfare net, unemployment and social security benefits, etc. Democrats have traditionally "owned" the economic security issue--although I think a solid case can be made that the Democrats' failure to cut a deal on social security in 2005 was fiscally irresponsible, and we are now 5 years closer to this Ponzi scheme's day of reckoning.
An independent agency [has been set up] whose sole job is to protect families in their financial transactions. So, you know, if you are getting a credit card, we are going to have an agency that makes sure that that credit card company can’t jack up your rates without any reason, including on old balances. And that could save American consumers tens of billions of dollars, just in the first couple of years. If you are out there looking for a mortgage — and we all know that part of the problem with the financial crisis was that folks were peddling mortgages that were unstable, that had these huge balloon payments, that people didn’t fully understand well — now there’s going to be some oversight in terms of how mortgages are shaped, and people are going to actually have to know what they’re getting, what they’re buying into. That’s going to protect the economy as well as individual consumers.What hubris! Obama, like all Kool-Aid drinking progressives, perpetuates the myth that people whom use credit cards or buy houses through smoke-and-mirrors are ultimately not responsible for their own actions in using the credit card or buying a house they couldn't afford. This is moral hazard on steroids. No one is putting a gun to someone's head and demanding they purchase an item they currently don't have the money to buy outright. Obama is really saying, the American people can't be trusted to make up their own minds and take responsibility for their own financial transactions.
Don't get me wrong--I think it was wrong for mortgage lenders to make loans to risky individuals without regard to creditworthiness. In essence, the agents making the loans were transferring risk from the the buyer to the lender. Any lender agreeing to write a questionable loan is penny-wise, pound-foolish and put their own business survival at risk, risking far more than the modest profit they would ever realize through the transaction. If the government guaranteed deposits, that meant that the government was also at risk in the event of bank failure.
As I've mentioned in past posts, I knew we were in serious trouble when I saw get-rich-quick infomercials in 2005 on flipping condos in Florida without ever intending to live in the condos. Where were the regulators, the accountants, the credit raters, etc.?
But making laws on credit card interest rates, etc.? The last thing we need is yet another layer of regulatory authority; the cost of money changes continuously, and credit card companies have to make decisions based on current and future business costs. I think clearly credit card companies have an implicit vested interest in minimizing their risk, and we have the same types of issues of ongoing business viability we saw with mortgage lenders by letting less creditworthy customers run up balances they'll never repay. But I don't have any more of an issue with a credit card company going out of business because of bad credit loans than a mortgage lender which flirted with risky homeowner applicants.
And it’s very hard when you’ve got a determined minority in the Senate that insists on a 60-vote filibuster on every single person that we’re trying to confirm — even if after we break the filibuster it turns out that they get 90 votes. They’re just playing games.I'm generally sympathetic to letting a President pick his own team, but when you put people like Van Green and John Morton into your administration, you are reaping just deserts. Maybe instead of talking the talk of non-partisan politics, Mr. Obama, you should have walked the walk. After all, you yourself wanted to filibuster Justice Sam Alito's nomination. So you have no moral authority to speak on this issue.
If you’re asking why haven’t I been able to create a greater spirit of cooperation in Washington, yeah, I think that’s fair. I’m as frustrated as anybody by it. I think part of it has to do with the fact that when we came into office, we came in under very tough economic circumstances, and I think that some of the Republican leaders made a decision — you know, we’re going to sit on the sidelines and let the Democrats try to solve it — and so we got a lot of resistance very early.This is demonstrably false. The $787B stimulus plan was approved just weeks after the President's inauguration, and Obama self-righteously argued that there was no time to debate, that the state of the economy demanded quick action, etc. The only "bipartisan" action was peeling off 3 liberal GOP senators to get past the filibuster hurdle; there was no authentic consensus on the stimulus, the budget, the health care bill or financial reform. In many cases, all Obama would have had to do was allow the GOP bring up more amendments to the floor.
With respect to health care, what I said during the debate is the same thing I’m saying now, and it’s the same thing I will say three or four years from now. Bending the cost curve on health care is hard to do. We’ve got hundreds of thousands of providers and doctors and systems and insurers, and what we did was we took every idea out there about how to reduce or at least slow the costs of health care over time. But I said at the time it wasn’t going to happen tomorrow, it wasn’t going to happen next year. It took us decades to get into a position where our health-care costs were going up 6, 7, 10 percent a year. And so our goal is to slowly bring down those costs.Here we go again: this massive delusion that the Democrats can control the law of supply and demand. Let me give you a couple of clues, Mr. President: first, part of the high cost has to do with things like Viagra being subsidized by health insurance; ordinary consumables, checkups, etc., has nothing to do with the concept of insurance per se. When we pay for auto insurance, it doesn't come with coverage for gas, oil changes, changing wiper blades, etc. We need to focus on the big expenses which should be spread across a broad risk pool. Once you focus on the critical costs which are probably beyond the budgets of most Americans, e.g., cancer treatment, and let people come to their own arrangements on ordinary expenses, the better.
The second clue is that the American population is aging, and health care costs correlate with age. Those are beyond the control of US policy, except perhaps we could aggressively seek large numbers of young immigrants. We also have a supply issue with doctors and nurses and skyrocketing costs for malpractice insurance.
How do we make insurance more affordable for small businesses? Allow business co-ops across states; build on state risk pools. But I've made these arguments before. The bottom line is that conservative ideas were ignored during the health care policy debate.
Political Humor
More originals:
- It may only seem that Obama believes in giving credit to everybody, including college students whom will never graduate and new home buyers with no down payment and little savings. In fact, he doesn't give any credit to George W. Bush, the Congressional GOP, businessmen, or the top 3% of high-income workers.
- It's not true that Barack Obama and Minority Leader John Boehner (R-OH) have nothing in common. They both love golf. One of the things that attracts Obama to golf is the idea of gimmies, where your opponent concedes you the putt to finish the hole. But Boehner doesn't want to play golf with the President anymore. Obama negotiates play in his foursome like he negotiates with the GOP in Congress: he demanded that Boehner concede a 45-foot putt. Obama then went on to criticize the rest of foursome as the golf party of 'no'.
Bob Hope & Shirley Ross, "Thanks For the Memory"
