McConnell’s Cave-In and Boehner’s Opportunity
Senate Minority Leader Mitch McConnell has offered the president a way to raise the debt ceiling by $2.5 trillion without having to cut spending. The WaPo reports that “McConnell’s strategy makes no provision for spending cuts to be enacted.”
This appears to be an epic cave-in and completely at odds with McConnell’s own pronouncements in recent months that major budget reforms must be tied to any debt-limit increase.
House Republicans should obviously reject McConnell’s surrender, and they should do what they should have done months ago. They should put together a package of $2 trillion in real spending cuts taken straight from the Obama fiscal commission report and pass it through the House tied to a debt-limit increase of $2 trillion. Then they shouldn’t budge unless the White House and/or the Senate produce their own $2 trillion packages of real spending cuts, which could be the basis of negotiating a final spending-cut deal.
For those who say that House tea party members won’t vote for a debt increase, I’d say that $2 trillion in spending cuts looks a lot better than the alternative of having Democrats and liberal Republicans doing an end-run around them with McConnell’s no-cut plan.
For those who say that House members are scared of voting for specific spending cuts, I’d say that they’ve already done it by passing the Paul Ryan budget plan. I’d also say that you can’t claim to be the party of spending cuts without voting for spending cuts.
Obama’s Fiscal Commission handed Republicans ready-made spending cuts on a silver platter—Republicans will never get better political cover for insisting on spending cuts than now.
All-Consuming Politics
Today POLITICO Arena asks:
Is Mississippi Gov. Haley Barbour’s announcement today that he will not seek the Republican presidential nomination in 2012, and the reason he gave for his decision, the right call?
My response:
Gov. Barbour’s explanation for why he will not seek the 2012 Republican presidential nomination — because a candidate today “is embracing a ten-year commitment to an all-consuming effort, to the virtual exclusion of all else,” and he cannot make such a commitment — is not only refreshingly candid but points to a much deeper problem.
We are moving inexorably not simply to news but to politics 24/7/365. And what better example than our current part-time president who, with no primary challenger in sight, is already on the campaign trail (did he ever leave it?), when the election is 19 months away. Some of us are old enough to remember when elected officials served — and ran for office or reelection only around election time.
Part of the reason for the change is the need today for vast amounts of campaign cash. But the deeper reason, I submit, is because politics has taken over so much of life. When government was more limited, and we didn’t look to it to provide our every need and want, those who “governed” didn’t feel such a need to cater to us — and we had better things to do anyway than obsess over politics. Calvin Coolidge took naps in the White House — in his pajamas! Imagine that today.
Return to Debt Mountain
Last year I noted that the White House Office of Management and Budget homepage featured a call from the president to “invest in our people without leaving them a mountain of debt.” Yet, the Congressional Budget Office’s analysis of his then-current budget proposal showed that publicly held debt as a share of GDP would rise like the steep slope of a mountain under his policies.
The president’s latest budget proposal was released in February, and according to the CBO’s preliminary analysis, Obama would once again leave “our people” with a mountain of debt:
Given that the quote is clearly embarrassing, one would think that the White House would have taken it down by now. But it’s still there.
Are Mortgages Cheaper in the U.S.?
As Congress and the White House continue to debate the future of Fannie Mae and Freddie Mac, one of the oft heard concerns is that if we eliminate all the various mortgage subsidies in our system, then the cost of a mortgage will increase. There certainly is a basic logic to that concern. After all, why have subsidies if they don’t lower the price of the subsidized good. Of course some, if not all, of said subsidy could be eaten up by the providers/producers of that good.
All this begs the question, with all the subsidies we have for mortgage finance, are mortgages actually cheaper in the U.S.? While not perfect, one way of answering that question is to look at mortgage rates in other countries. Although every developed country has some sort of government intervention in their mortgage market, almost all have considerably less support then that provided by the U.S. (For a useful comparison of international differences see Michael Lea’s paper).
The European Mortgage Federation regularly collects information on mortgage pricing by EU countries. The latest complete annual data from the EMF’s Hypostat database is for 2009, with at least a decade of historical data.
A quick glance reveals that mortgage rates in most European countries are not all that different than rates in the U.S. For instance in 2009, the U.S. 30 year mortgage rate was, on average, 5.04; whereas mortgages in France averaged 4.6 and those in Germany averaged 4.29. In the UK, the average was 4.34.
Part of this difference is driven by product type. For instance, in France, most mortgages tend to be 15 year, which one would expect to be cheaper than a 30 year. But the French 15 year rate of 4.6 isn’t all that different from the current U.S. 15 year rate of 4.1. As lending rates are usually bench-marked off the rate on government debt, part of the slightly higher rate in some European countries is due to their higher government borrowing rate. If we instead measure mortgage costs as a spread over government funding costs (as reported by the OECD), then many European countries look more affordable than the U.S. For instance, German mortgages price about 100 basis points over long-term German govt debt; whereas U.S. mortgages price about 140 basis points over long-term U.S. government debt.
I don’t expect these numbers to settle the debate. A variety of other costs, such as points paid or required downpayments, differ dramatically across countries. Unfortunately that data does not seem to be readily available. What the preceding comparison does suggest, however, is that even without Fannie and Freddie, U.S. mortgage rates aren’t necessarily going to be a lot higher.
On Egypt’s Transition
Today POLITICO Arena asks:
At his press conference this afternoon, White House Press Secretary Robert Gibbs distanced the Obama administration from former Egypt envoy Frank Wisner’s suggestion over the weekend that Hosni Mubarak should stay in power as Egypt transitions to a new government. Was Wisner, a former U.S. ambassador to Egypt, right about that and about the potential for a power vacuum?
My response:
Wisner was half right, but on the Mubarak half he was almost certainly wrong. Transitions are messy — at best. Ask the French about theirs two centuries and more ago. Occasionally they’re done pursuant to existing constitutions. Ours from the Articles of Confederation to the Constitution wasn’t, despite which it wasn’t all that messy. We were lucky. We had a relatively healthy culture and strong leaders, even if the early years were often touch and go, as we sometimes forget.
It appears, from press accounts, that the current Egyptian constitution does not provide for the kind of transition that many would like to see. If so, then extra-constitutional measures will need to be taken, including perhaps the drafting and ratification of a new or at least an interim constitution, or more likely some less formal arrangement through which interim authority can be brought into being with a semblance of legitimacy about it – whether a new government or a new constitution and ratification process. A simple call for elections is too simple: by whom, under what procedures, to fill what offices, in what institutions?
All of this is where politics in its most elemental form comes to the fore, for better or worse, as the French saw to their horror. It’s the ultimate test of a culture. So Wisner was right about “the potential for a power vacuum” — although in Egypt the army is likely to fill that vacuum — and in recognizing that a vacuum should be avoided, if possible. But he was likely wrong to suggest that Mubarak should fill that vacuum or serve as a transitional figure since it appears that he no longer has the credibility to do so. Ideally, leaders with credibility need to emerge, and soon.
Protests in Egypt Continue
The new Egyptian cabinet was sworn in today amidst a seventh day of protests across the country. For the White House, the continual tweaking of their response to the crisis, and declining to call for Mubarak to step-down, has left many in Egypt and the region wondering if the United States does in fact want to see the arrival of democracy to Cairo, or if it is simply content with allowing the status-quo to remain, with minor reforms. Or perhaps they are just waiting for the chips to fall where they may.
This illustrates the conundrum facing the Obama administration. Over at The Skeptics, I examine this a bit further:
The Obama administration is stuck with a policy not entirely of its own making – decades of U.S. taxpayer support for the Mubarak regime – but it also seems trapped by the dominant worldview in Washington that is preoccupied with finding a solution to every problem in the world. This global view flows from deeply flawed assumptions about the likelihood of a worst-case scenario transpiring in every case, and then exaggerating the impact of that worst-case on U.S. security. In many instances, the impact is presumed to be nearly catastrophic. In actuality, they almost never are.
Might Egypt be an exception? It is an important country in its own right, traditionally a center of the Arab world. Its population of 80 million people is larger than that of Saudi Arabia, Syria, Jordan and Lebanon combined. Egypt is the second leading recipient of U.S. foreign aid, behind only Israel, and it straddles one of the most important choke points in the world, the Suez Canal. Given its size, influence and location, there is the possibility that this spreads elsewhere. Protests have also broken out in Yemen, Algeria, and Sudan. The Saudis and Jordanians are nervous.
So how should the U.S. respond? In the short-term, the U.S. government needs to strike a balance, and not be seen as pushing too hard for Mubarak’s ouster; but Washington should not anoint a would-be successor, either. The message should be: this is for the Egyptian people to decide.
Click here to read the entire post.
Overwrought On START
It is unclear whether New Strategic Arms Reduction Treaty (START) will make it to the Senate floor this year or if there are 67 votes for it if it does. According to the White House and arms control boosters, that uncertainty endangers us all by leaving Russia’s nuclear arsenal unmonitored and undermining our non-proliferation agenda. According to pundits, New START’s failure to pass in the lame-duck would be a grievous political wound for Obama adminstration, which is struggling to buy enough Republican votes for ratification.
In an op-ed out today on the National Interest‘s website, Owen Cote and I say this talk is mostly hot air. New START just isn’t that big a deal. We write:
[New START] would provide minor increases in intelligence and Russian goodwill. But passing it means handing taxpayers a substantial new tab on top of what we already pay for our bloated nuclear weapons complex. And rather than reducing the arsenal’s size and cost, the treaty props it up…. The real impact of New START is distraction. By faking a drawdown, the treaty keeps Americans from noticing that deterring our enemies requires nothing like the force structure we plan to retain.
White House Right to Oppose Moratorium
With the recent discovery of “robo-signers” and other paperwork problems in the mortgage foreclosure process, several prominent congressional Democrats have called for a national moratorium on mortgage foreclosures. At least one large lender has already started to implement one. A moratorium, however, would be irresponsible and harmful. And the White House is correct to oppose it.
Whatever mistakes might have been made by lenders do not change the basic fact: most foreclosures are happening because the borrower is not paying the mortgage. I recently talked to one large lender who said of their delinquent mortgages that over a fourth have not made a payment in over two years. How exactly is someone who has been getting two years of free rent a victim?
Of course, in the small number of cases where a real mistake has been made and a foreclosure is moving forward against a borrower who is current on their mortgage, the courts have the ability to stop that from proceeding. In judicial foreclosure states the easiest solution to this problem is for the judge to ask the borrower, “When was the last payment you made?” If it has been awhile, say over six months, then the foreclosure should proceed, and proceed quickly.
Its been four years since the housing market peaked. Government policy has continued to delay the needed correction in our housing market. A moratorium on foreclosures only puts off a turnaround in the housing market. And if we ever expect or hope to see private capital come back into the mortgage market, then government needs to stop threatening to steal away that capital once it’s invested. The current efforts by states to use technical mistakes by lenders to allow borrowers to remain in homes without paying could ultimately undermine the very concept of a mortgage: that it is a loan secured by property. Instead, we risk seeing mortgages turned into another form of unsecured lending, which would raise interest rates for everyone.
Obama’s Attack on the Chamber of Commerce: Perfectly Consistent
Today POLITICO Arena asks:
Will President Obama’s campaign finance attacks on the U.S. Chamber of Commerce and others resonate with voters over the next three weeks?
My response:
With so many senior advisors leaving the White House so early in the term, you have to wonder who’s left to advise the president except, well — the president. And judging from his attacks on corporate campaign spending generally and the U.S. Chamber of Commerce in particular, you’re inclined to believe that that’s the case. After all, the attacks are perfectly consistent with the president’s larger agenda.
As others here at the Arena have noted, not since the New Deal have we seen so sustained an anti-business political agenda as has come from this president. Under such an assault, is it any wonder that businesses have created so few jobs, or that they’re fighting back? Yet for that, the president is criticizing them — with campaign finance claims that not even the New York Times finds credible.
This campaign finance angle has an especially unseemly air about it, however – see the Wall Street Journal’s editorial this morning about Democrats unleashing the IRS and Justice on donors to their political opponents. The effort to restrict the speech that campaign finance represents — promoted by the political establishment, especially Democrats — has always been at bottom about incumbency protection, not “good government.” We didn’t hear complaints when Obama abandoned the public financing system in 2008, for example, as “unconscionable” amounts of private money poured into his campaign. Obama may be barking now that the shoe’s on the other foot, but his bark rings as hollow as his agenda, which is why it’s not resonating with the voters, and is not likely to in the three weeks ahead.
Enough Community College PDA
Yesterday, President Obama hosted the White House Summit on Community Colleges, and in-your-face love was in the air. President Obama and Second Lady Jill Biden, a community college professor, couldn’t keep their hands off their signficant other, lavishing all sorts of praise on their favorite little schools.
Swooned Dr. Biden about the dreamy things community colleges do for their students:
They are students like the mother who shared her experience with us on the White House website of working towards a degree while raising three children and straddling financial challenges. Now employed and the holder of a Bachelor’s and a Master’s degree, she wrote, “Community colleges didn’t just change my life, they gave me my life.”
Community colleges do that every day.
Ick!
The President, too, couldn’t hide his affection:
So I think it’s clear why I asked Jill to travel the country visiting community colleges -– because, as she knows personally, these colleges are the unsung heroes of America’s education system. They may not get the credit they deserve. They may not get the same resources as other schools. But they provide a gateway to millions of Americans to good jobs and a better life.
Like the guy with the locker next to Mr. and Mrs. Lovebird, all I can say is “oh, come on!”
Community colleges might be a good option for some people, but they are hardly paragons of educational success. Quite the opposite: According to the U.S. Department of Education, they have the worst graduation rates of any two-year sector of higher education. Only around 22 percent of public, two-year college students graduate within three years, versus roughly 49 percent of private, not-for-profit attendees and about 59 percent of private, for-profit students.
Wait! What’s that? Private, for-profit institutions outperform super-cute community colleges…by a lot? But they’re the ugliest, meanest, least popular kids in school! Nobody likes them!
Oh, I know what’s going on here! For-profit schools cost a lot more than community colleges, right? That’s why they’re so disliked.
That’s true if you look at tuition prices. But community colleges get big subsidies from government, especially state and local taxpayers. So they might actually cost a lot, it’s just that they sneak the money out of your back pocket and then congratulate themselves for charging students so little.
When you look at government expenditures per-pupil, including aid to schools and students, it becomes clear that community colleges are, in fact, just as mean and greedy as for-profits. Indeed, former Clinton administration economist Robert Shapiro has calculated that they are actually more costly to taxpayers than for-profit schools (see table 24). According to his calculations, two-year public schools cost taxpayers $6,919 per student, while private, for-profits cost just $3,628.
No wonder the summit turned my stomach! At the same time the administration and its allies in Congress are bashing for-profit schools, the President has a love fest with community colleges that are generally much worse. Unfortunately, it leaves you concluding that for-profits could walk on water and it wouldn’t matter: As long as they’re honest about trying to make a buck, they’ll be beaten up in the parking lot and never invited to any of the cool summits.
Biden’s Fatal Conceit
The White House’s misbegotten “Summer of Recovery” continued today with the release of another administration “analysis” that purportedly demonstrates the stimulus’s success in “transforming” the economy.
Vice President Joe Biden unveiled the report alongside Energy secretary Steven Chu and numerous businesses officials willing to serve as political props in return for Uncle Sam’s free candy. Biden bemoaned the nefarious “special interests” that were coddled by the previous administration. What does the vice president think those subsidized business officials attending his speech are called?
The money the White House has lavished on these privileged businesses isn’t free. The money comes from taxpayers—including businesses that do not enjoy the favor of the White House—who consequently have $100 billion (plus interest) less to spend or invest. Therefore, the fundamental question is: Are Joe Biden — an individual who has spent his entire career in government— and the Washington political class better at directing economic activity than the private sector?
Biden repeatedly stated that the “government plants the seed and the private sector makes it grow.” Because the government possesses no “seeds” that it didn’t first confiscate from the private sector, what the vice president is advocating is the redistribution of capital according to the dictates of the Beltway. This mindset exemplifies the arrogance of the political class, which at its core believes that free individuals are incapable of making the “right” decision without the guiding hand of the state.
Unfortunately for Joe Biden, the state’s hand guided the private sector into the economic downturn that the administration and its apologists would have us believe was a consequence of imaginary laissez faire policies. From the housing market planners at HUD to the money planners at the Federal Reserve, government interventions led to the economic turmoil that the perpetrating political class now claims it can fix.
Enough already.
The following are Cato resources that challenge the vice president’s breezy rhetoric on the ability of the federal government to direct economic growth:
- Energy Subsidies: The government has spent billions of dollars over the decades on dead-end schemes and dubious projects that have often had large cost overruns.
- Energy Regulations: Most federal intrusions into energy markets have been serious mistakes. They have destabilized markets, reduced domestic output, and decreased consumer welfare.
- Energy Interventions: The current arguments for energy intervention and energy subsidies fall short.
- High-Speed Rail: Policymakers are dumping billions of dollars into high-speed rail, even though foreign systems are money losers and carry only a small share of intercity passengers.
- Special-Interest Spending: Many federal programs deliver subsidies to particular groups of individuals and businesses while harming taxpayers and damaging the overall economy.
Obama Backpedals on Ground Zero Mosque
Politico Arena asks today for continued comment on Obama’s Ground Zero mosque “correction.”
My response
Well, well: What a difference a day makes. Yesterday [Saturday] most POLITICO Arena contributors – including law professors, shockingly – were falling over themselves to defend President Obama’s Friday night Ground Zero mosque remarks — on constitutional principle, no less — while a very few of us were cutting through that nonsense.
Meanwhile, the president and the White House were struggling to get the word out that constitutional principle wasn’t really the point at issue here. It was, rather, the “wisdom” of building a mosque so close to Ground Zero. Now that we’re clear about that, perhaps Arena contributors can focus on that issue, not the straw man they erected to skewer the constitutionally benighted they imagined afoot.
But there’s another issue here, too. On Friday night we saw, once again, the real Barack Obama, the Obama who disparages Americans who “cling to guns or religion,” the Obama who rushes to condemn Cambridge policemen who act “stupidly.” No White House spinmeister can take any of that back
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