Link: http://www.forbes.com/2009/03/30/stimulus-budget-deficit-opinions-columnists-bailout-employment.html

Good article by these regular Forbes contributors. It covers a wide range of current issues, but I was struck by their insight on two areas.

First, regarding the flub over taxing (not allowing the deduction of) charitable contributions, this was a good perspective:

Americans are the most generous people on the face of the earth, when measured in dollars donated to charities. At the same time, private charity does a great deal of good and often does it more effectively than government. But now the government wants to limit deductions for charitable contributions.

Some conservatives have argued that this might be a good trade-off if marginal tax rates were lowered. They argue that the benefits of higher GDP (resulting from lower tax rates) would outweigh the losses from slimmer donations (as a share of income). That is an economic argument that reasonable people can disagree about.

But this time around, the government wants to limit the charitable deductions and raise tax rates to make way for more spending. What government is really saying is that it doesn’t like the competition from private charities. It wants more people to depend on government.

As a proponent of a strict consumption tax (or a flat tax) over our behavior-influencing income tax code, I do not ideally favor deductions for charitable contributions. But if we do have this deduction, it is malicious to make it only for middle income taxpayers. If you want the rich to pay more taxes, raise their marginal rates, but don’t treat them differently from others just out of spite. What happened to equality before the law? And the authors are right, Democrats want to feel like they saved the world (with your money), rather than the philanthropists and the social workers on the front lines. So they make government bigger and find ways to squeeze out charitable giving.

The other passage I like is this one:

With bailouts, jobs will be saved in certain sectors, like autos, and politicians will be able to easily count the number of jobs they have saved. Meanwhile, many other sectors will face higher taxes and a higher cost of capital, resulting in slower job gains and some outright job losses in industries across the country. The problem is that no one will be able to identify with any certainty those who are worse off because the government bailed out someone else.

Not only this, but it is getting to be painfully obvious that these auto companies are going to go out of business eventually, and that the taxpayer funds plowed into them in the meantime is just money down a rathole. I bet the government will claim victory on both sides: that they saved these jobs, and then created the private sector ones that these people eventually migrate to, when in fact they’re doing neither.

In his address to a joint session of Congress on February 24, 2009, President Barack Obama said the following:

But let me perfectly clear, because I know you’ll hear the same old claims that rolling back these tax breaks means a massive tax increase on the American people: if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.

This echoed what he repeated many times on the campaign trail, including this on July 7th:

Now, no matter what Senator McCain may claim, here are the facts. If you make under $250,000, you will not see your taxes increase by a single dime, not your income tax, not your payroll tax, not your capital gains tax, no tax. The last thing we should do is – in this economy is raise taxes on the middle class.

Of course, this is very sloppy. Notice how in the address he uses the words “your family"? That’s because he’s talking about joint income tax filing status. But if your are single (not in a family?), these numbers don’t apply, even though he neglects to mention that on the campaign trail.

Regardless, President Obama has already discarded this pledge, even before his address to Congress in February. On February 4 he signed the State Children’s Health Insurance Program (SCHIP) Reauthorization Act (H.R. 2). In this legislation, excise taxes on cigarettes are raised by 62 cents per pack, in addition to other increases on cigars and other tobacco products. What happened to “not … s single dime … no tax"? The tax increase goes into effect on Wednesday.

Link: http://www.washingtontimes.com/news/2009/mar/20/prevailing-politics-of-envy/

I’m glad some other people aren’t just piling on.

By the way, isn’t it interesting that the Rush caller said his target was $250,000? That’s the level at which Obama starts raising taxes (or so he claims).

Link: http://www.dallasnews.com/sharedcontent/dws/dn/opinion/editorials/stories/DN-obamaleno_19edi.State.Edition1.23c9517.html

After graduating from college, I worked as a stockbroker for a year. After working for a penny-stock firm for a few months, I moved up to Merrill Lynch, which at that time was the number one retail brokerage in the country. At Merrill, no one used the denigrating term “stockbroker", we were all styled “Financial Consultants". But just like at the penny-stock firm, our job was to find clients and sell investments to them. Counter to what I thought a stockbroker’s job would be, we didn’t do much financial planning, let alone exercise our own judgment on individual investments.

It reminds me of a line from the movie Wall Street: “Come on, forget the charts, will ya? We’re not fund managers here. Churn ‘em and burn ‘em!”

President Obama’s decision to make an appearance on the Tonight Show this evening typifies what is wrong with our politics and shows that not only is he stuck in the old style of politicking but is the prime exemplar of it. For Obama, it’s all about finding new ways to sell his product, whatever it is. Getting the policy or judgments right is something he leaves to others, as when he left it to Democrats on Capitol Hill to draft the stimulus bill.

There was a time when presidential candidates did not actively campaign for themselves, but let others campaign on their behalf. Much of that got lost with the imposition of television in our living rooms and telegenics in our politics. But the silliness of boxers-or-briefs campaigning never made the leap from candidate whozit to President Gravitas. Now, with the person responsible for decisions of the most consequential judgment playing the entertainer 43 months before election day, the transmutation is complete. Now the President of the United States is just a salesman-in-chief.

In David Mamet’s play “Glengarry Glen Ross", sketchy salesman Shelly Levene manages to pry the life savings out of an apparently senile couple, Bruce and Harriet Nyborg, in exchange for eight plots of worthless land. Shelly is a ruthless toad with no qualms about selling: “convert the motherf*cker … sell him … sell him … make him sign the check". But in the end, the joke’s on him, as their check can’t clear the bank. Sound familiar? As the office manager says to Levene later, “The people are insane. They just like talking to salesmen.”

Link: http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp

A voice of reason amongst all the hysteria about the AIG bonuses. As far as I’m concerned, the federal government deserves egg on its face for stepping in this dog turd. While I agree with this article for the most part, doesn’t the fact that AIG would have gone into bankruptcy give them wiggle room? Would the bonuses have survived the dissolution of AIG? Of course, the whole point is that AIG wasn’t allowed to fail, and may yet remain a viable business as a financial dinosaur.

Either the government plays hands-off and there is no accountability to the stockholder (i.e., the taxpayer) and there is moral hazard all over the place, bonuses being the least of problems. Or the government plays hands-on and 200 million taxpayers represented by 535 lawmakers are responsible for running a highly complex financial services giant, and run it with all the populist nonsense we hear from politicians these days with no eye for (taxpayer) profitability. Either way you look at it, the federal government’s involvement is recipe for disaster. So I think it’s time for the have-to bailout clan to cough up an apology to the taxpayers and naysayers.

Link: http://www.washingtontimes.com/news/2009/mar/17/shotgun-marriage-over-tarp/

Kudlow makes some good points here. Most free-market economists now view TARP as a misguided policy, and more taxpayer funds in that direction is recipe for trouble (look what happened with the AIG money). Kudlow’s absolutely right that the changes on mark-to-market accounting rules being looked at by the FASB and SEC are a big step in the right direction that costs us next to nothing.

However, I would like to see less cheering from the likes of Kudlow for the below-market interest rate policy the Fed continues to pursue. Kudlow has always been a solid pro-growth proponent, but his bias for easy money needs the wet blanket treatment. I do not think as Kudlow does that the Fed had “extremely tight credit policies” in 2006 and 2007, but rather had extremely loose ones in 2003 and 2004. This quixotic charge for a steep yield curve will end with inflation and more inflation.

As a side note, I’d like to give a cheer to Kudlow for considering a U.S. Senate run against Chris Dodd in Connecticut. The rumors of a possible 2010 campaign run have been around since late February. Dodd is one of the most bombastic politicians on the national scene, has been a friend of Fannie and Freddie (and CRA) over the years, and his departure would remove a bogeyman from the financial services nightmare we’ve been living in.

Link: http://www.nytimes.com/2009/03/16/us/politics/16assess.html?_r=1&ref=todayspaper

I can understand the prevailing sentiment that executives at AIG should be stripped of their bonuses since the corporation took public bailout funds through TARP. I think such anger is misguided. AIG has many divisions, some of them quite profitable, and it is foolish to limit the pay of good performers; they may leave the company in search of better pay (and a better name) elsewhere. You’ll end up with a company with LCD managers who will run the business even further into the ground.

Generally, the corporation should know best how to attract and maintain good executives while keeping their compensation costs down. However, with government bailout money on the table, many of these natural incentives go out the window as people scramble for parachutes. This is not the fault of “greedy” people at AIG. It is the fault of federal government policy to infuse bailout capital into a private company. Now that the taxpayers’ money is at stake, the taxpayer advocates (do we have any?) on Capitol Hill have an obligation to make sure that the company is run well–that these bonuses are worthwhile costs necessary to retain good human capital. Unfortunately, given that policymakers and bureaucrats are driven by political considerations rather than by taxpayer interests in AIG profits means that such management will cater to the populism described in this article.

The moral of the story: don’t put taxpayer money on the line in the first place.

Link: http://online.wsj.com/article/SB123690358175013837.html

If you oppose Obama’s domestic agenda and want some company, this polling data is good news … of course, saying so may get you branded as someone who “wants Obama to fail” … but if you want our country to succeed, you must want him to fail … our fortunes are not tied to his … quite the opposite.

Link: http://www.washingtontimes.com/news/2009/mar/13/sparking-fond-thoughts-of-bill/

I was thinking along these lines two days ago. I mostly disliked Bill Clinton because he was insincere and dishonest, especially about policy and his political opponents. But on policy itself, while I disagreed with him in contrast to the alternative (Republican positions on domestic economic policy especially), he was closer to the middle than the Democratic Party as a whole (I would NOT say he was centrist). On free trade especially, he moved the goalposts in favor of less government intervention and more freedom.

This is far different than what we have today. I think President Obama is less crafty and dishonest on policy, mostly because he doesn’t need to be. But on policy he is within the left-most 20% of his party, which means the left-most 5-10% of the country. And this is even more pronounced in his economic policy.

Every conservative thought that Bill Clinton was so much of a threat because, unlike Jimmy Carter, he was seen as being politically effective. Obama is an even greater threat than Clinton because of his agenda. I think it remains to be seen whether he will be effective at implementing it, but for now I certainly wish Bill Clinton were in office over this guy.

Link: http://www.washingtontimes.com/news/2009/mar/12/will-fall-in-stocks-resume/

Actually, this article is not really about the stock market but rather who is to blame for the housing bubble and the resulting economic meltdown.

So, let’s play the blame game. Away with the righteous cowards who say, “Let’s not bicker over the past but work together to solve the problems of the future.” These are usually the guilty trying to escape blame so that we will give their implicated policies another chance. I say no! Let us expose the bubble-blowers! Let us roast the meltdown-makers! Behold the next great moral hazard: letting the rotten policies and policymakers of the past sneak away …

Link: http://online.wsj.com/article/SB123672965066989281.html

In the Wall Street Journal today, former Federal Reserve Board Chairman Alan Greenspan authors an editorial titled, “The Fed Didn’t Cause the Housing Bubble“. The thesis of the article is that the rise in housing prices from 2002-2006 were caused by huge capital inflows from emerging markets and by low mortgage interest rates, not by the low Federal funds rate the Fed piloted during the period arising from the last recession (2002-2005). As such, the explanation that “the easy money policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today’s financial mess,” is the wrong one.

Mr. Greenspan’s asserts that he “agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages.” While this may be technically correct, it’s like saying that it’s the calories in the ice cream that make me fat, not my desire to eat it. All interest rates in the economy, to one degree or another, are influenced heavily by the short-term interest rates that the Fed controls. Blaming the consequences of one’s actions on some intermediate linkages is rather silly.

The Fed’s main policy intrument, targeting the Federal funds interest rate, is linked to home mortgage rates in the following way: they influence long-term risk-free interest rates (such as those on Treasury bonds) in conjunction with an interest-rate risk premium; and these influence long-term mortgage interest rates in conjunction with a varying default risk premium. While short-term rates are much more elastic than long-term rates, it is undeniable that the fulcrum Fed funds interest rate is much more deterministic of mortgage interest rates than either changes in the yield curve or variations in default risk premiums. The only interest rates that are not set by markets (or by reactions to other rates) are set by the Fed. They are the prime mover.

Another curious thing about Greenspan’s defense is his insistence that the fed-funds rate became decoupled from mortgage interest rates:

U.S. mortgage rates’ linkage to short-term U.S. rates had been close for decades. Between 1971 and 2002, the fed-funds rate and the mortgage rate moved in lockstep. The correlation between them was a tight 0.85. Between 2002 and 2005, however, the correlation diminished to insignificance.

This is overstating the case. The mortgage rates did not correlate well at this time because the fed-funds rate was so low: long-term rates on mortgages or other securities had hit rock bottom around 5.75% and did not move above 6% until the fed-funds rate approached 4%. Besides, if the correlation prior to this period was so strong, was Greenspan not even more reckless with his easy money policy? The average spread between mortgage rates and fed-funds rates between 1971 and 2001 was 2.85%. If that had applied during 2003 and 2004, we would have seen hideously low rates on 30-year mortgages below 4%.

The great improvement in monetary policy made by the Fed in the last thirty years was the narrowing of its policy focus to price stability and away from macroeconomic stabilization (this looks all but discarded by the Bernanke Fed). For this I give Greenspan much credit. During the years in question, from 2002-2005, inflation was well under control, and I suppose that gave Greenspan comfort. But as in other policy areas, chasing effects rather than employing sound process is where the source of the problem lies. As we now know, CPI inflation is not the only bad effect that may result from an easy money policy. Asset price inflation and over-investment are other effects that must be considered.

It is better yet to craft monetary policy that attempts to emulate the process that market participants would employ in a free banking system, absent a monetary authority. In other words, the Fed should have targeted a Federal funds rate that was their estimate of what would clear the market of savings and investment without interference. This may not be easy since market actors respond to the Fed and not vice versa. But it could certainly be said that it is in no way conceivable that such an interest rate was 1.00% between the summers of 2003 and 2004, as the Fed funds rate was.

Link: http://www.washingtontimes.com/news/2009/mar/11/subsidizing-bad-decisions/

There is all kinds of juicy stuff in this article.

As a renter, I personally have had this feeling a lot in the past six months:

Why should taxpayers who live in apartments, perhaps because they did not feel they could afford to buy a house, be forced to subsidize other people who could not afford to buy a house, but who went ahead and bought one anyway?

Or, since the push for “affordable housing” was what created the subprime mortgage fiasco, how about this:

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.

Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

Here is my compiled list of the presidential elections of the last 60 years and the reaction of the stock market (as measured by the S&P 500 index) in the following four months:

(1) NOTE: In yesterday’s post, I wrote that the return of the market since Obama was elected was -32.1%. That reflected yesterday’s close on March 5. However, that is four months and one day (election day was November 4 and is the day of comparison, since it is still not known at the market close that day who will be elected). Here that extra day is removed to round it to four months exactly.

How about the first six weeks after inauguration?

There is nothing scientific about this. There are many factors that may arise that affect stock prices which are beyond the control of the presidency. But this does give some indication that absent these factors our newly elected president’s policies are not viewed favorably by people or institutions who would invest in the American economy.

After five continuous days of losses in the American stock market, President Obama had this to say in the Oval Office on Tuesday:

The stock market is sort of like a tracking poll in politics. You know, it bobs up and down day to day. And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.

Up and down? How about just down. As of it’s close today, since the stimulus bill passed the Congress, the market (S&P 500) is down 17.5%. Since inauguration, it is down 17.8%. Since Obama was elected, it is down 32.1%. Remember that all this is after its drop following the financial meltdown. Between September 14, 2008, when Lehman filed for bankruptcy and Merrill Lynch was sold to BofA, to election day, the market had already lost 19.6%. Obama has been an even bigger burden to investors than the financial meltdown.

So Obama has lost us 32.1% in the four months since election day. When was the last time that the stock market lost this much in four months? That big crash back in 1987? No. The bear market of 1973-74? Uh-uh. The last time was in the last four months of 1937. Think about that.

How about this, Mr. Obama: if you look at the stock market and it loses a third of its value in the four months since you were elected our chief economic strategist, then you’re probably getting the long-term strategy wrong.

And your insensitive comments about the “investor class", after all your giveaways to the debtor class or mortgage delinquents, really pisses us off.

He also said this:

Profit-and-earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.

The fact that they’re not a good enough deal for people to buy them means you are doing something terribly, terribly wrong.

According to the Washington Times, Allan Meltzer, an economist teaching at Carnegie Mellon University, refuted Mr. Obama’s characterization of the market as fluctuating:

The stock market has not been ‘up and down’ since January 20. It is mostly down substantially. And it falls especially on days when the administration announces its plans and proposals. A wise president would not dismiss this vote of no confidence … The administration and the Congress propose to redistribute a large share of income from upper to middle- and lower-income groups. They have set off a race between the tax rate, the inflation rate, and controls. I believe all three will win the race.

You better right this ship fast, Mr. President. My life savings are going down the drain, through “no fault of my own", as you would put it. And I blame you.

President Obama’s fiscal year 2010 budget released last Thursday is a reckless attempt to plot a new course of government dependency for America. The title of his budget is “A New Era of Responsibility". This is an attempt to obscure the budget’s weakness rather than to highlight its strength. Liberal policies are not known to cultivate personal responsibility but rather attempt to reassure their constituents with financial security. Their message is roughly, if you fail you will not suffer. It is the message of conservatives that one should be responsible for one’s actions through and through. So with a budget that is the greatest expansion of government in over seventy years, it seems out of place that it would brand itself one of responsibility instead of security. The title is thus not one of truth in labeling; it is playing defense against an expected response. This is not only a budget that feeds an irresponsible government. It is a budget that cultivates an irresponsible nation.

While there is much to disagree with on the budget specifics, let’s look at what the President says in his opening message:

This crisis is neither the result of a normal turn of the business cycle nor an accident of history. We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies’ executive suites to the seats of power in Washington, D.C. For decades, too many on Wall Street threw caution to the wind, chased profits with blind optimism and little regard for serious risks—and with even less regard for the public good. Lenders made loans without concern for whether borrowers could repay them. Inadequately informed of the risks and overwhelmed by fine print, many borrowers took on debt they could not really afford. And those in authority turned a blind eye to this risk-taking; they forgot that markets work best when there is transparency and accountability and when the rules of the road are both fair and vigorously enforced. For years, a lack of transparency created a situation in which serious economic dangers were visible to all too few.

First, let us make a distinction between being foolish and being irresponsible. Being foolish is making decisions that turn out badly because the fool chose unwisely or did not adequately assess the risks. Being irresponsible is not being accountable and fully absorbing the outcome of one’s decisions, or making foolish decisions because one is not accountable. The foolish hurts himself. The irresponsible hurts others. In a world where we take personal responsibiilty for our actions, no one is irresponsible, only foolish.

In Obama’s account of what happened, he blames the crisis on “private and public institutions", including “some of our largest companies’ executive suites” and “the seats of power in Washington, D.C."; “Wall Street"; lenders “without concern"; and “inadequately informed” and “overwhelmed” borrowers. Let’s examine. Wall Street acted foolishly, no doubt, by buying subprime debt from mortgage issuers. But it was not, at first, irresponsible: when the bad loans surfaced, Wall Street banks and their investors lost hundreds of billions of dollars. Only when the federal government stepped in with TARP and promised to buy the debt from them did Wall Street become not responsible. But as there was no precedent for TARP, that is not a willful irresponsibility, only a de facto lack of responsibility for the loans.

Mortgage lenders and borrowers, on the other hand, were both foolish and irresponsible. They were foolish to enter into loan agreements with loan amounts or terms that were risky given the unsustainability of low interest rates and the rise of home prices. The borrowers were irresponsible to the extent that they falsified income, asset, and liability statements and incurred unknown risks to the lenders. The lenders were irresponsible to the extent that they were complicit in this activity and passed these loans to Wall Street bankers (who repackaged them).

Now that we see who were the irresponsible agents of the current crisis, let us ask: Are the policies of this administration, as embodied in this budget, conducive to more or less responsibility than the previous “era"? Reviewing the active ingredients in the Obama medicine, we see that they will, in fact, induce less:

• Bank bailouts. The $700 billion TARP program passed by the Bush administration and continued under the Obama administration, along with further planned buyouts of bad loans and failing banks, give Wall Street a pass when they could have been held accountable for their foolish behavior.
• Mortgage renegotiation. Obama’s $275 billion program that assists lenders and borrowers by rewriting loans favorable to both (at the expense of the taxpayer) are a moral hazard that takes away disincentives for future borrowers and lenders to embark on risky loans.
• Home buyers tax credit. Expanding the one-time home buyers tax credit, from $7,500 to $8,000, means more people buying homes that they can not afford.
• Mortgage guarantees. The Bush administration made the mortgage loan guarantees of Fannie Mae (FNMA) and Freddie Mac (FHLMC) explicit. The Obama administration shows no sign of reversing this. For such mortgage loans, all players involved can act irresponsibly since the government is the guarantor. This is the mother of all moral hazards.
• Low interest rates. Though not part of the budget or directly controlled by the administration, the White House speaks very favorably of the easy money monetary policy currently followed by the Federal Reserve. Low interest rates encourage risky borrowing and discourage even risk-free lending. As a major, if not primary, cause of the current crisis, they are an irresponsible policy.

If the government is advancing or maintaining policies that encourage irresponsible behavior in banks, lenders, and borrowers, who becomes responsible? The taxpayer. In one sense this means that this really is a new era of responsibility: instead of each individual being responsible for their actions, taxpayers hold responsibility for everyone else. We stil have responsibility, it is just shifted.

A truly new era of responsibility would be characterized by homeowners who paid what they promised, consumers who lived within their means, businesses which paid their own way, and governments that did not try to obstruct all of these. A new era of irresponsibiity would be characterized by what President Obama has set forth in his policies and his budget.

Left and Wrong author: E.J. Dionne, Jr.
Left and Wrong article: The Re-Redistributor

Dionne asks this question of politicians: “Do they believe that a fairer distribution of capitalism’s bounty is essential to repairing a sick economy? Everything else is a subsidiary issue.” I like critiquing Dionne because I find him to be about as squarely opposite me as any journalist I’ll find on the left. He believes fervently economic redistribution.

So when he says “everything else is a subsidiary issue,” I completely agree with him. Despite all the talk of bank nationalizations and a new regulatory state, I think that the danger for conservatives and for America is welfare-state socialism, not state-run socialism. Most of Obama’s initiatives, from health care to mortgage bailouts, are about “spreading the wealth around,” not about managing the production process.

Further, to his question about “a fairer distribution of capitalism’s bounty” being “essential to repairing a sick economy", I would hope that most conservatives would answer, “yes it is". If producers are left to keep more of what they earn, they will produce more. The moral hazards of bailout nation are precisely what is making people not hire, not work, not invest, and not produce. Of course, I know that Dionne’s warped view of fairness is different from mine, and that a fairer distibution to him means taking the bounty from those who produced it and handing it out as refundable tax credits (i.e., welfare) to those who didn’t. What I don’t quite get is how his notion of fairness “is essential to repairing a sick economy". Increases in unemployment compensation may make it easier to cope with not having a job, but all economists would agree that it is counterproductive to try to create jobs by paying people more not to work.

Like many people of my generation, my first understanding of fairness came from playing games like Monopoly with my siblings and friends. Fairness meant everyone playing by the same rules, not everyone ending up winners with the same amount of cash. And what we have in the American economy with the Democrats in charge is everyone playing by different rules. Lose a house on Marvin Gardens? No worries, the government will help you keep it. Someone doing exceptionally well? No worries, everyone else will get an extra $800 when they pass Go.

Life is not a game, but the fairness principle still applies: it means treating people as equals, not changing the rules in the middle for those who didn’t manage well, or for those who did. This is the fundamental difference between liberals and conservatives. Conservatives believe that equality is about everyone playing by the same rules, and letting the results be what they may. Liberals believe that equality is about everyone getting the same results, and trying to rig the rules to make that happen. I don’t know of any red-blooded American who would not consider the conservative’s view as the epitome of a fair game and the liberal’s view as quite obviously unfair. Do you?

Obama’s fiscal year 2010 budget released on Thursday has a title: “A New Era of Responsibility". To anyone who has been witness to the stimulus package debate or the bank bailouts or the mortgage bailouts, this title is about as far from the truth as any that could be imagined. But that is the stuff of a clever politician: think of the loudest objection your opponent will heave against you and pre-empt his strike by claiming you are the opposite. Sensing a public distaste for the term “redistribution", E.J. Dionne tries the same trick by saying that it is not Obama but “the right” who are the redistributors:

[Obama’s] overall approach to taxes is frankly redistributionist: Even as much of the middle class gets a tax cut or no increase, the well-off will pay more. And before the howling on the right gets too loud, consider that we have just gone through a long era involving a far less frank form of redistribution – upward.

I have seen this tactic used by other liberal journalists. It is grossly dishonest and offensive. The warped logic it insinuates is this: since Bush cut taxes on those with higher incomes, they are getting a windfall that they otherwise wouldn’t, and so the Bush tax cuts “redistributed” from the rest of us to the rich. Since the tax rates are relatively less redistributionist than they were before, we are in effect redistributing to the rich by redistributing less to the poor. Ah. Never mind that this windfall they get is their own earnings, or that the money which is being redistributed to the rich is wealth that they created and has not been redistributed to the poor or middle class. No, E.J. Dionne apparently believes that the future income of all earners belongs to the government before it is even earned, and that the original distribution, before any is left in the hands of the taxpayer, is what liberals say it is.

One more thing. Like Obama calling for bipartisanship but showing none himself, Dionne calls for honesty while being clearly dishonest. This comes out in his words about the size of government:

… Obama does not predict that he will eliminate the deficit anytime soon, and he also admits that the federal government will grow, modestly, as a share of the total economy even beyond the current emergency. After this moment’s big spike – necessary to get the economy moving – federal spending will account for 22.8 percent of U.S. gross domestic product between 2010 and 2014, up from 21 percent in 2008.

It will be important for both sides in the debate to be honest about those numbers. Supporters of where Obama is heading need to acknowledge that action on health care makes government’s growth inevitable. Obama’s opponents need to admit that increasing government’s share of the economy by less than two percentage points is hardly a form of wild-eyed state socialism.

So let’s be honest, E.J., if it is important to be honest. First, let’s not throw out the worst apple with the phrase “this moment’s big spike". You don’t get a free year any more than Obama gets one free omnibus spending bill to indulge earmarks. The figure for 2009 is 27.7%. Second, don’t cherry-pick out 2008 as a standard to measure against. The figures for the last eight years are:

Third, much of government’s intervention in the economy is masked as tax expenditures, and these grow astronomically under Obama. Fourth, while Obama’s spending figures are, most likely, lowballs, his GDP estimates are wildly optimistic. In table S-8 of the Appendix of his budget, his estimates for nominal GDP exceed both the Congressional Budget Office and the Blue Chip Consensus in all years but one: 2008. That means that the outlays as a percent of GDP for his budgets all appear lower than what others think, while the percent for the single year you hold as a standard, 2008, appears higher. Finally, you yourself admit that the Obama budget does not yet account for the spending on our health care system, since the plan is not yet fully developed. So the now revealed big increases in government outlays that the right will be outraged about when calling it wild-eyed state socialism is apart from the wild-eyed state socialism coming in health care. But that’s only if you want to be honest, E.J.