December 22, 2008

Bush and the (housing) bubble

Posted by johnmcquaid under George W. Bush, government | Tags: , , , , |
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Once again, the New York Times promises a bit more than it delivers with Sunday’s White House Philosophy Stoked Mortgage Bonfire. It is true that, as part of Karl Rove’s grand design to bring minority voters into the Republican fold, Bush promoted various questionable schemes to facilitate low-income homeownership. It’s also true, as the story spells out, that Bush did the finance industry plenty of favors, treated whistle-blowers capriciously, appointed incompetents to key positions, and (as many others did) ignored the potential dangers lurking in the mortgage markets.

But the headline implies some kind of grand unifying idea behind it all, and there just isn’t any. Making it easier for low-income earners to get mortgages isn’t a philosophy, it’s (in the absence of other meaningful economic policies aimed at this group) using government resources to buy political support. Doing favors for the big players in the financial system isn’t a philosophy either, it’s just patronage. Reading the article, you’re struck by just how incoherent the whole White House economic policy was; there was little guidance from the top (other than: do this group or that business a favor), and none from the Treasury Department (until Paulson arrived and demanded some authority as a condition for taking the job – and then he was slow to grasp how bad things had gotten). As a result, a lot of bad actors were free to do what they wanted; people with more responsible views were ignored.

The one time that ideology did determine decision-making it foreclosed the outcome that Bush wanted – the president opposed a viable House version of a Fannie Mae/Freddie Mac reform bill in favor of a tougher, less viable Senate version. It failed.

Again contra the headline, the article also makes clear that Bush’s “philosophy” didn’t cause our current predicament. The White House, like many other institutions, did contribute to the bubble mentality; but mainly, it sought to tap the housing market bubble for its own purposes.

 

November 26, 2008

Change, baby, change

Posted by johnmcquaid under Barack Obama, government | Tags: , , , |
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It’s almost impossible to write intelligibly about what’s happening now in government because, well, it’s all so big that the consequences cannot be predicted. It’s scary, exciting, and a bit frustrating. But that’s what happens when the nation blunders its way to a historical pivot point.

One example: the debate about whether Obama will govern from the “left” or the “center.” His appointments thus far – almost all Washington insiders from Hillary Clinton on down – seem to point to “center” as the answer, and that’s what we hear with approval from the MSM, with complaints from some liberal blogs.

But in both foreign and domestic policy, “left” and “center” as we’ve understood them for the past eight years – and really, for the past generation – are now meaningless terms.

Obama’s foreign policy could go in several different ideological directions. We don’t know yet. But compared with Bush’s foreign policy (at least, before it drifted toward semi-realism over the past couple of years) there will obviously be a world of difference: the difference between having/using what remains of America’s considerable influence and … sitting still, insisting the world come to us. The United States will engage with other governments and with international organizations. It will move forward on climate change, on nuclear non-proliferation, on an Iraq withdrawal, on (perhaps) a Middle East peace plan. Will we succeed at these things? I don’t know. But this is what happens when paralyzed limbs suddenly become mobile again. What the thumb and index fingers are doing is, for the moment, secondary to the amazing fact of those big muscles being flexed at all.

Obama’s domestic appointments are all smart, mainstream types. But they will be responding to a dire national/global emergency, trying things that have never been tried before on such a grand scale. Remember the “kitchen sink strategy”? That’s what we’ve got for the economy now, and it’s hard to believe that it will generate much serious opposition given the speed of the unfolding crisis and the consequences of failure. Obama clearly intends to use the huge political leverage he has right now to reshape the basic relationships between government and the economy, particularly in energy and health care, along more progressive lines.

From the perspective of the past generation, this sounds – is – radical. But sitting where we are today, it’s obvious a radical course is needed to guide us out of the humongous mess we’re in. Obama’s choice of smart, mainstream appointees to carry it out – and of realists to implement his foreign policy – will redefine the center of American politics and change the way we all think of government. Republicans probably won’t like it. But they will have to find a way to engage with it if they want to be in on the debate.

 

November 24, 2008

Who gets that $500 billion?

Posted by johnmcquaid under government | Tags: , , , |
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It appears we’re going to spend upwards of $500 billion on a stimulus package focused heavily on rebuilding the crumbling U.S. infrastructure. That’s all to the good. The broader economy desperately needs a large cash infusion, and our infrastructure is in notoriously bad shape for a developed nation. But both the writing of the stimulus bill itself and the actual disbursement will, and must, happen very, very fast. So you have to wonder, do we know how to spend that money effectively? Or will a not-trivial percentage of it be wasted?

One legacy of the past generation, accelerated greatly under the Bush administration, is a breakdown of accountability in both government spending and contracting. More government work of all stripes is done by private firms. This has in turn weakened the structural clout and morale of the civil service. Obama, to his credit, has pledged to address these problems. But that’s a long-term project. It won’t happen in the next eight weeks. It’s a perverse joke I suspect we’ll be seeing more of as the transition moves forward: if “you go to war with the army you have,” Obama will be doing battle on the faltering economy with an “army” whose ranks were assembled by the Bush administration.

So, how will this massive pile of cash be spent? How will we determine who gets say, the money spent rebuilding bridges and highways, or building wifi or broadband networks? And then, how will we keep track to see if it’s well-spent? I’m sure we’ll be hearing more about this – it will be of course be Obama’s first big test. And sadly, the stakes are so high that if if “works” or fails, these operational questions may not matter anyway.

 

November 13, 2008

Can we tackle a global recession and climate change?

Posted by johnmcquaid under energy, environment, government | Tags: , , , , , , |
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We’re facing two enormous problems, one short-term, one long-term – and both demanding quick, ambitious, expensive responses. I refer of course to the precarious state of the U.S. and global economies, and to climate change. The biggest question that Barack Obama will face over the next few years is how to responsibly balance these priorities – and it’s not immediately clear they can be balanced.

The working consensus right now among the developed world’s governments is to battle global warming by raising the cost of carbon emissions. Obama has proposed a cap-and-trade system with a permit auction that will oblige power companies and other industries to pay for the privilege of pumping CO2 into the air. This will raise costs for the affected industries (though they can lower them by finding ways to cut emissions). A good portion of those costs will be passed on to the consumer.

If raising energy costs in fair economic weather is considered political suicide, what happens if you raise them – even prospectively – in the middle of a global downturn?

That will certainly be the argument marshaled by opponents, who certainly know how to lobby. It has some validity as a matter of both substance and politics. However, I’m wondering if we haven’t reached the point where those normal rules don’t – and shouldn’t – apply anymore. Cap-and-trade would raise energy costs, but not immediately; and when the program gets fully underway, the revenue it generates could be quite useful plugging holes in a federal budget running massive post-bailout deficits:

If a cap-and-trade plan were passed in 2009, it would probably take effect in 2012 or so, and the revenue stream would start small the next year and then grow every year after that. That’s perfect timing. We don’t want to raise taxes right now, but a program that guaranteed a growing revenue stream starting a few years from now would help convince investors that the current budget deficit won’t last forever.

I’m also not convinced that boosting energy costs is political poison always and everywhere. Climate is a serious global crisis and it’s time to take it seriously. Real, consequential leadership (the kind Obama aspires to) does sometimes involve calling for sacrifices, and when leaders call for it people have been known to respond.

 

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