Damn Lies

My progressive friends, for the most part, are happy to point to graphs and tables which reveal that the reason for the huge deficits created in the last three years lies at the feet of the much hated George W. Bush, and before him, the Dark Lord, Ronald Reagan.

My conservative friends have, at their fingertips, equally compelling charts, trendlines, and datasets that lay the blame squarely on Barack Obama and his compliant side-kick, Congressional democrats, who wish to take more money out of the pockets of the earners and give it, in larger chunks, to the non-earners.

While the two sides fiddle, Rome burns.

It really doesn’t matter now who spent the money that our country doesn’t have anymore. We can blame the recession, which has reduced GDP to the point that the economy cannot pay for our future expenditures, or we can blame the tax cuts that reduced federal revenues during these perilous times. From this sofa, the situation is two sides of the same coin. That is, no matter how it is sliced, we tried to have it both ways. We wanted to drive that Cadillac without making the payments, and our buddies in Congress gave us the keys.

The only statistics that matter now are the ones that tell us that we cannot sustain this level of spending. The only question remaining is the point in time when the people we elected to give us anything we wanted finally realize that they cannot fulfill their promises. After that, the only question is whether our nation will have enough time, and the national will, to solve the problem.

Promises are going to have to be broken, either voluntarily, and in a controlled fashion, or involuntarily, with the subtlety of a dull knife. We cannot remain on this path.


The Sky Over Washington

The politicians in Washington are getting nervous. The level of discourse, never high to begin with, is dropping to new lows. Senatorial courtesy, a treasured myth of the chamber’s residents, appears to be nothing more than a lie. The President can’t seem to keep his famous cool, instead resorting to the personal attacks that are increasingly common in his public uttterances. The Secretary of the Treasury tells us that the Congress has to increase the debt limit by an amount sufficient to cover additional deficit spending through November, 2012, apparently so our elected officials can pretend the problem does not exist. The big banks are still to big to fail, home sales continue to decline, and the unemployment rolls continue to grow. Just last week saw Cisco announce the layoff of 13,000 employees, and NASA is dropping the hammer on upwards of 30,000 of its employees with the cessation of the Space Shuttle. Things are very tense in Washington….



On Bonuses and Deductibles


Nobody has asked me what suggestions I might have for two of the most vexing problems of the time, but in a moment of clarity at 3:00 AM this morning I received these messages and am now compelled to report them to you, dear reader.


Obama may regard them as "fat cat bankers", but you won’t hear those words pass my lips. Having said that, there is something slightly obscene about the enormity of the bonuses being doled out by our country’s investment banks. $20 Billion for the top guys at Goldman Sachs? A federal pay czar establishing salary levels? One look at the salary discrepancy between the average federal employee and Joe the plumber in Alabama should be enough to tell us that this model can’t be good in the long term. Fox guarding the hen house, etc.

Military leadership in combat, and Infantry officers in particular, should provide the guiding principle on the bonus conundrum. Their operating principle is that they don’t eat until all the troops have been fed. Ergo, the "fat cat bankers" don’t get their bonuses until all of their employees get a bonus. And the bonus should be the same percentage for all pay levels. At most places I visited during my working life, the typical bonus on the warehouse floor was 1 week’s pay, and in really good years might have been a bump in their profit sharing plan percentage. If it’s good enough for the shop floor, shouldn’t it suffice for the executive suite? If they want to spread the $20 Billion around, spread it evenly. It’s called leadership.


Ahh, health insurance. What a goat rope. No legislative solution will ever be better than common sense, and that unfortunately is why our political leaders in Washington cannot craft any legislation that will improve our predicament. But the same principles suggested in the bonus solution inform.

For example: Assume that Goldman Sachs, or any Fortune 500 company, or a state agency, or the insurance agency on the corner all have a health plan for all of their employees. Rates for employees are based on marital status; single, married, family. Doesn’t matter how old you are, how many children you have, or how much your employer pays you…the rates are standardized based on family size. Typically, your employer pays a percentage of the actual premium, and you pay the balance.

The problem lies in the amount that different employees pay out of pocket. Most plans that I’m familiar with have an individual deductible, a family deductible, an 80/20 split of medical expenses up to some value, and co-pays for ancillary coverages like prescription drugs, office visits, etc. The receiving manager in the warehouse and the CEO have the same plan. But the receiving manager makes $24,000 annually, while the CEO makes $240,000, has a car allowance, a company credit card for entertainment, and other related perqs.

It occurs that the CEO, and maybe the CFO, the CIO, and other top executives could afford to bear a slightly heavier burden than the receiving manager. Why can’t health plans have a means test wherein employee expenses are scaled according to annual compensation? Why should an employee making 10 times more than another employee have the same out of pocket medical expenses? Sounds like a another leadership issue.

There….that didn’t take 2,000 pages plus amendments plus millions of dollars spent by lobbyists. And it sure does make sense, at least to me.




Valor Versus Venality


The "architect", writing in today’s Wall Street Journal, tells the story of his encounters with the Krissoff family. Very briefly, and you should read the story whatever your opinion of Karl Rove, the Krissoffs lost their oldest son, a marine officer, in Iraq in December, 2006. The younger brother is now also a marine officer serving his second tour in Iraq. When President Bush met with the Krissoffs in December, 2008, the only request they made was for a waiver so that the elder Krissoff, a 61 year old orthopaedic surgeon, could receive a commission and join the navy as a surgeon. Rove concludes with these words:

Christine Krissoff’s husband and sons, wrapped in prayers and armed with swords and scalpels, have served our nation with valor. So has she. So long as our nation produces families like the Krissoffs, America will remain not only the greatest nation on earth, but also the most noble in history.

As so many others have asked, so will I.  How does this country produce, as it has so many times in our history, so many willing so risk so much for so few? How can we possibly repay those citizens for their sacrifice?

Looking through this prism of honor and commitment to larger principles, it is evermore apparent that our political leadership seems small and insufficient in comparison. Whether discussed generally or specifically, the acts of our elected leaders reveal their lack of honor and character.

Generally, there is this analysis:

Mancur Olson, in his book The Logic Of Collective Action, highlighted the central problem of politics in a democracy. The benefits of political market-rigging can be concentrated to benefit particular special interest groups, while the costs (in higher taxes, slower economic growth, and many other second-order effects) are diffused through the entire population.

The result is a scramble in which individual interest groups perpetually seek to corner more and more rent from the system, while the incremental costs of this behavior rise slowly enough that it is difficult to sustain broad political opposition to the overall system of political privilege and rent-seeking.


When you add to Olson’s model the fact that the professional political class is itself a special interest group which collects concentrated benefits from encouraging rent-seeking behavior in others, it becomes clear why, as Olson pointed out, “good government” is a public good subject to exactly the same underproduction problems as other public goods. Furthermore, as democracies evolve, government activity that might produce “good government” tends to be crowded out by coalitions of rent-seekers and their tribunes.

This general model has consequences. Here are some of them:

There is no form of market failure, however egregious, which is not eventually made worse by the political interventions intended to fix it.

Political demand for income transfers, entitlements and subsidies always rises faster than the economy can generate increased wealth to supply them from.

Although some taxes genuinely begin by being levied for the benefit of the taxed, all taxes end up being levied for the benefit of the political class.

The equilibrium state of a regulatory agency is to have been captured by the entities it is supposed to regulate.

The probability that the actual effects of a political agency or program will bear any relationship to the intentions under which it was designed falls exponentially with the amount of time since it was founded.

The only important class distinction in any advanced democracy is between those who are net producers of tax revenues and those who are net consumers of them.

Corruption is not the exceptional condition of politics, it is the normal one.

Specifically and recently, the above quotes point to the flaws in the kinds of legislation currently wending through the Halls of Congress via K Street and the ubiquitous fund-raisers. Or in the conduct of our foreign policy.

Where is the honor of our politicians?



Using the Constitution When It Suits

It’s safe to say that Jim Clyburn is not very happy with Governor Sanford and those that support the governor’s position on the stimulus funds. In fact, sometimes, it sounds like Mr. Clyburn is pretty damn mad that he cannot reach down into his carefully drawn district and make things happen the way he would like for them to happen. In that respect, to be fair, he’s not really much different from most of the elected-for-life politicians that inhabit Washington. Sometimes, it seems that personal relationships are more important that principal principle. And sometimes, politicians get a bit confused on which principles they stand on.

Here’s Rep. Clyburn, discussing the governor’s position, as quoted in a post from the Palmetto Scoop:

Whether or not you agree with Gov. Mark Sanford’s staunch opposition to accepting $700 million in federal stimulus money, this one thing is for certain: It has a lot of people on both sides of the issue angry.

Congressman James Clyburn — who has a propensity to “Hulk out” — was chief among those who has recently expressed outrage. Clyburn’s anger stemmed from the belief that Sanford’s rejecting the stimulus funds would result in up to 4,000 public school teachers losing their jobs.

Only, Clyburn’s directed the bulk of his rage at Attorney General Henry McMaster and Sen. Lindsey Graham.

Over the last several weeks and without even going to court—the proper venue to determine constitutionality of federal laws—[McMaster, Sanford and Graham] have gone out of their way to ensure that South Carolina continues its long history of providing a minimally adequate education,” Clyburn said, referring to measures by McMaster and Graham to clarify who, exactly, controls the discretionary money.

Got that? The federal courts are the proper place to determine the constitutionality of federal laws. Very reasonable position, in my humble opinion.

But then there is the issue of the legislation proposing statehood for the District of Columbia.  Rep. Clyburn has long been a supporter of statehood for the District despite the fact that the constituionality (there’s that word again) of the legislation is extremely doubtful. The Justice Department, over the past 40 years and several presidents, has cautioned that the proposed legislation will not pass muster in the courts. No matter. Observe in this report from PowerLine the willful disregard of the Constituion:

The Washington Post reported this morning that Attorney General Holder has rejected the legal opinion of the Department’s Office of Legal Counsel (OLC) that the D.C. voting rights bill pending in Congress is unconstitutional. As Ed Whelan explains, the new OLC–led by deputies selected and appointed by the Obama Administration–reached the same conclusion that the OLC has since the early 1960s (according to Ed), namely that the bill is unconstitutional.

Unhappy with that answer, Holder turned to the Solicitor General’s office to ask whether it "could defend the legislation if it were challenged after its enactment." Holder wasn’t asking the SG’s office whether the bill was constitutional, but rather whether a non-frivolous argument could be made in defense of its constitutionality. The SG’s office said one could be made.

But Holder is sworn to uphold the Constitution. One might have hoped that he would interpret this duty to mean taking positions consistent with office charged with making that determination for the Department (the OLC), an office that he testified "has probably the best lawyers in the Department." Alternatively, one might have hoped that, if Holder rejected the view of that office, he would do so based on sound advice that the bill in question is constitutional. Instead, as noted, he reversed the OLC based only on advice that a contrary view of the Constitution is not frivolous.

A lawyer representing an ordinary client is free, and may in some cases be obligated, to take weak but non-frivolous legal positions to promote a client’s interests. But the United States is not an ordinary client. And the Department of Justice should be what its name says, not the Department of Promoting the Political Goals of the President. As Andy McCarthy puts it, " the Justice Department is supposed to take the most legally sound position, not any position preferred by the president that may pass the laugh-test."

One does not expect to hear Rep. Clyburn demand, in the context of DC statehood, and with the words he used so powerfully when attacking Gov. Sanford and the state Attorney General, to wit: "… without even going to court—the proper venue to determine constitutionality of federal laws…" that the Congress of the United States follow the law of the land when acting in pursuit of their political goals.

Sadly, the pursuit of power trumps principle every time……


Who's In Charge Here?


Rich Galen, author of the wonderful Mullings, points out some finger-pointing rhetorical misdirection on the part of The One in tonight’s press conference:

The predicate to Henry’s answer was a question by CBS’ Chip Reid about the $2.3 trillion difference in the size of the debt between the Administration’s estimates and the Congressional Budget Office. "Some Republicans," he said, "called your budget … the most irresponsible budget in American history."

Obama may be sitting in the Oval Office and he might have promised to open the post-partisan era, but his answer was:

First of all, I suspect that some of those Republican critics have a short memory, because as I recall, I’m inheriting a $1.3 trillion deficit, annual deficit, from them.

Return with me now to January 3, 2007 when John Boehner, Republican of Ohio was elected Speaker of the House following the 2006 mid-term elections.

Whoa! What? Nancy Pelosi became Speaker? And the Democrats controlled the House? And the Senate? And they have controlled the budget committees for the past two years? So the "$1.3 trillion deficit, annual deficit" was adopted by the Democrat-controlled Congress?

Well, then, which Congressional Republicans could President Obama have been talking about? Must have been those Republican Chairmen of the House and Senate Budget Committees, U.S. Rep. John Spratt (D-SC) and Sen. Kent Conrad (D-ND).

How much longer will President Bush and the Republicans be in control before Obama gets the ship of state under his control?

Congress is a Lynch Mob

From The Big Picture and worth repeating in its entirety:

A Lynch Mob!
March 21, 2009

“Let’s go hang ‘em.”

American history is replete with examples of lynch mobs taking control of a situation and inflicting injustice. In the end most lynch mobs have dealt harmful blows to society. Congressional action to punish AIG employees over the bonus issue is already seeding that outcome.

Members of the US House of Representatives who voted for this bill said they were reacting to the anger of their constituents. In failing to show leadership they have just undermined the entire structure designed to repair the financial system.

Specifically the House did the following:

1. They licensed the abrogation of contracts. Their message is simply that it makes no difference what rules we put into effect now; we can and will change them so you cannot depend on them. Global businesses take heed: Your previous judgment about the sanctity of US law has been rendered faulty by our political leadership.

2. They passed retroactive taxation. Their message is that, whatever you plan with regard to the federal tax code, do not assume consistency and do not build any reliability about your government into your decision making. We, in Congress, can reverse our laws and confiscate your results.

3. They made the tax punitive. A 90% tax on something is like taking all of it. The chairman (Rangel) of the House taxation committee actually admitted that by taxing the 90% he was leaving the remainder for the states. In other words, states are now encouraged to engage in the same form of behavior.

Sure citizens are outraged over the $165 million in bonus payments to AIG staff. But they should direct their outrage at the Congress and not threaten the employees or their families with personal injury. The Congress authorized these payments; Dodd, Geithner, and Obama Administration personnel admitted that. Remember, the law passed without giving anyone the chance to testify in public hearings and without allowing comment on the draft legislation. When the law originally went through the Congress, the House leadership suppressed amendments. This Barney Frank and Nancy Pelosi-led House is especially guilty of ignoring the rule of law. They are now guilty of encouraging the rule of lynch mob.

The result of this House action is already damaging. The federal regulator of Fannie Mae and Freddie Mac has shown the courage to ask that this law not be advanced in the Senate. We expect to hear more from those federal personalities who have the strength to speak up and oppose this House-approved proposal.

But depending on the Senate to soften the law or depending on the US Supreme Court to overturn it is a dangerous strategy. Some Congressmen admitted privately that they voted in favor because of constituent pressure, even though they were really opposed to the concept. They voted “yes” because they were relying on the Senate or the courts to say “no.”

Some damage is already done. Firms that were gearing up to participate in the federal program to be announced this coming week are considering withdrawal. They fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation. The House has undermined the so-called public-private partnership designed to help restore financing of consumer items like automobiles and credit cards. We expect that the participation in the program to be announced this coming week will be tepid at best.

At Cumberland, we are advising institutional clients to take great care when engaging in any form of activity with the federal government. Simply put: a lynch mob can turn on you in a second and cannot be trusted. The risk is now very high.

Other firms that are already acting with TARP monies, or other federal monies for that matter, are seeking ways to deleverage and exit. In the entrepreneurial and risk-taking business and financial community the universal response to this act by Congress is outrage and distrust and disgust.

So far President Obama is silent on this lynch-mob approach. He has yet to declare himself against it.

Obama needs to be reminded of a parallel in history. A century ago a man named Leo Frank was lynched in Georgia for a murder he did not commit. Local politicians supported the lynch mob; those courageous politicians that opposed it were voted down. Frank was an innocent victim. His subsequent posthumous pardon did not undo the harm.

A century later a man named Barney Frank brags about the earmarks he obtained for his Congressional district (see his website). This modern Frank foments the modern-day version of a lynch mob. The House of Representatives and the Financial Services Committee under the leadership of Barney Frank have made the first day of spring, 2009 a sad day for America. They suppressed the rule of law; they chose the rule of the lynch mob; they are now going to have to live with that result.

When the citizens of America realize what the House has done, they may redirect the lynch mob against the Congress. That is coming next. As Yogi Berra said: “This ain’t over till it’s over.”