Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
. . .
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
The State of California's General Services Division has issued a Request for Proposals for the sale of the 150-acre Orange County Fairgrounds site in Costa Mesa.
See Reason Foundation's recent commentary on California asset sales here, here and here.
Surface Transportation Innovations #100 Preserving the Highway Trust Fund, cooking the books on high-speed rail, progress on bus rapid transit, much ado about road pricing equity, MTC's response on benefit-cost analysis Robert Poole(2/9)
“Moving Minds: Conservatives and Public Transportation”
Date: Monday, December 7, 2009
Time: 3:00PM
Duration: 1 hour and 30 minutes
Moving Minds: Conservatives and Public Transportation is the subject of Transportation for America’s next webinar on Monday, December 7, 2009. The book is a collection of writings by pro-public transit conservatives Paul Weyrich and William S. Lind and was published jointly by the Free Congress Foundation and Reconnecting America.
Weyrich and Lind embrace public transit as a catalyst for economic revitalization, mobility and lower dependence on foreign oil. They also reject the charge that subsidies distort demand for public transit, pointing out that roads and highways also receive substantial federal funding.
Sam Staley, a critic of mass transit who serves as director of urban and land use policy at the libertarian Reason Foundation, will provide an alternative perspective to Lind, who now directs the Free Congress Foundation’s Center for Public Transportation.
Other participants include John Robert Smith, president and CEO of Reconnecting America and former mayor of Meridian, Mississippi; and Bill Millar, president of the American Public Transportation Association (APTA). Ilana Preuss, outreach director at Transportation for America, will serve as moderator.
You can sign-up to participate in the webinar by clicking on this link, https://cc.readytalk.com/cc/schedule/display.do?udc=qv3mbil6rr3d
Reason Foundation is known as a critic of public transit, but our arguments have relied largely on cost-effectiveness and efficiency grounds, not ideological ones. We have published innovative research on public transit, particularly rubber-tire options (e.g., bus rapid transit, or BRT) as an alternative to rail and using HOT Lanes as "virtual exclusive busways" to improve the efficiency and effectiveness of BRT. Notably, we have also highlighted continously the importance of using competitive and managed competition to improve efficiencies in transit operations, most recently spotlighting the successes of Cal Marsella at the Denver Regional Transportation District.
The webinar should be both provocative and interesting, so sign up!
The "recovery" in the third quarter this year was downgraded today, from 3.5 to 2.8 percent GDP growth:
The government’s new reading on gross domestic product was not as energetic as the 3.5 percent growth rate for the July-September period estimated just a month ago.
The main factors behind the downgrade: consumers did not spend as much, commercial construction was weaker and the nation’s trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.
But even the 2.8 percent number is largely a sham. Nearly 50 percent of that number is autosales—many of which would not have happened with the Cash for Clunkers program; roughly 15 percent of that are homesales—many of which would not have happened without the tax credit; and at least a quarter of it is normal government spending. So the recovery in the real economy is pretty small.
The main problem is that the government programs increasing sales have to pull demand from the future to be successful. So Q3 2009 didn't have 2.8 percent growth, it had marginal growth combined with fourth quarter spending and spending from 2010 and 2011.
A report commissioned by the Wall Street Journal and conducted by First American Core Logic estimates that 10.7 million residential mortgages, or about 23 percent are "upside down"--what is owed on the home in terms of debte is more than the market value of the home. The report is free, but requies a "subscription" to First American Core Logic's news releases.
The results are not that surprising. In essence, if you bought at the height of the housing bubble (in 2005, 2006, or 2007) and you didn't put much equity into the purchase, you're probably upside down. Also not surprisingly, the distribution of negative equity (upside down mortgages) is concentrated in those states most effected by the bubble: Nevada has the highest percentage of negative equity mortgages (65 percent) followed by Arizona (48 percent), Florida (45 percent), Michigan (37 percent), and California (35 percent).
Michigan is particularly interesting because this wasn't so much of a bubble state as an economic bust state. Analysts expect Michigan to lose nearly 1 million jobs by the end of the decade. But the dynamics are the same--incomes can't support the value of the housing.
In addition, the report notes that most of the upside down mortgages were taken on new homes, not financing for existing homes. Condominiums also have higher shares of negative equity than single family homes as do investor-owned versus owner-occupied properties.
Many analysts are worried that this will encourge property owners to "walk away" from their mortgages because they don't foresee the value of their homes ever recovering. Importantly, this is only a real problem if: 1) homeowners lose their source of income (unemployment) or 2) homeowners decide they have to sell in the short term. This is much more likely on investor-owned homes than owner-occupied homes.
Crandall and Mitchell, both of whom I know and generally respect, got it wrong in this piece, both in their statement of the problem and their proposed solution. They claim that airline deregulation has been a disaster, producing nothing good except lower airfares. I guess they aren’t impressed by the dramatic reduction in accidents and fatalities over that three-decade period or the variety of new airline business models that have emerged. They also lament the loss of “well-paid jobs and a secure career” for airline employees, ignoring the fact that under the cartel conditions maintained by the CAB prior to deregulation, airlines and their employees were locked into Detroit-like wage and work-rule agreements that were no more sustainable long-term for airlines than they were for auto makers.
But what really concerns me is their discussion of “the industry,” as if all companies were knee-deep in red ink and none had viable business models. Quite a few carriers, primarily low-cost carriers, are making profits, which means they have figured out business models better suited to an environment of competition than most of the legacy carriers, still encrusted with business models that have not adequately adjusted despite three decades of competition. On the basis of this glossing over of critically important differences, they call for development of a “national air transportation policy” that would “reshape [the industry’s] future” around some kind of consensus about air transportation public policy objectives.
I respectfully disagree, and hope that Secretary LaHood’s new Federal Advisory Committee on the Future of Aviation does not adopt that grandiose central-planning approach. Instead, the members of this body would be wise to dust off two previous national commission reports, both produced during the Clinton administration. The more far-reaching was the 1993 Baliles Commission, which called for commercializing the ATC system so as to facilitate real modernization, keeping deregulation intact, relaxing restrictions on overseas investment in airlines, and promoting Open Skies initiatives. Most of that sound agenda remains to be accomplished. The other report was produced by the Mineta Commission in 1997. Narrower in focus, it called for more aggressive FAA safety programs, increasing investment in airport capacity, and a watered-down version of ATC commercialization. That report did inspire creation of the Air Traffic Organization, but its even more critical ATC funding reform recommendations remain unaddressed.
The Baliles and Mineta Commission reports should be the starting point for the new Commission. Besides highlighting the portions of their recommendations that remain to be implemented, the new body could also call for serious rethinking of the burden that poorly justified TSA regulation puts on commercial aviation. My main point is that all this ground (except security) has been well-trod twice before. There’s no need to re-invent the wheel. Let’s take advantage of the considerable research and hard thinking that’s already been done.
Posted on November 24, 2009, 7:00am | Robert Poole
Poorly informed members of Congress respond to aviation problems by proposing hare-brained interventions. And surely one of the most hare-brained is to ban portable electronic devices such as laptops from airliner cockpits.
To be sure, it was outrageous that two Northwest/Delta pilots flew 150 miles past their Minneapolis destination last month while engrossed in a heated discussion over things they were going over via laptops. (Also outrageous, though getting much less attention, was the failure of air traffic control to do anything about this flight being incommunicado for more than an hour.) In response, Sens. Jay Rockefeller (D, WV) and Byron Dorgan (D, ND) have introduced the Distracted Flying Act that would ban laptops and other portable electronic devices from the cockpit.
What is unappreciated by these lawmakers is the rapid spread of Electronic Flight Bags (EFBs) on aircraft. The idea is to replace a plethora of maps, charts, and logbooks with compact, quickly-accessible electronic information. The most common form of EFB is called Class 1 and is, in fact, a laptop computer, specific to the aircraft type, including charts, weight-and-balance information, company policies and procedures, etc. More advanced Class 2 and Class 3 EFBs are starting to appear, with the Class 3 units far more specialized and provided as original equipment on new planes such as the Airbus A-380. Meanwhile, for the thousands of planes in service already, Class 1 laptop-type EFBs are the only game in town, adopted thus far by at least five major U.S. airlines, in some cases with federal assistance.
Yes, the small print in the senators’ bill provides for exemptions for electronic devices that are used to operate the plane or to enhance its safety (whatever that means). But that still inserts congressional micromanagement into what should be either an FAA safety regulatory decision or an airline flight operating policy decision. One of the reasons Congress created safety regulatory agencies like the FAA is to ensure that specialized knowledge and expertise would be used to shape safety regulation, where difficult trade-offs are nearly always involved. Micromanagement by Congress conflicts directly with this sensible division of responsibility.
Footnote: Last week, the Wall Street Journal wrote about a bill by Sen. Jim DeMint (R, SC) that allow the use of cockpit voice recording information to monitor and discipline airline pilots. While I’m sure Sen. DeMint (like Rockefeller and Dorgan) means well, this kind of thing runs directly counter to the “just culture” idea under which pilots and air traffic controllers are encouraged to voluntarily report safety problems because they are protected from disciplinary action. If this measure should become law, it would set back the cause of increased air safety thanks to non-punitive reporting of problems.
Posted on November 24, 2009, 6:45am | Robert Poole
The new AOL News site Sphere published my commentary on the ongoing failures and recent computer glitches that are bogging down air travel in this country.
The government is trying to fix the housing market. They're giving you money to buy houses. They are rewriting contracts to save you from the consequences of bad mortgage judgement. They are even giving banks cash to be more flexible with lending. What's the result?
Uncle Sam’s effort to goose sales raises a basic question: Do tax incentives strengthen the long-term outlook for the housing market or simply create a short burst of activity that masks continuing weakness?
The US Bureau of Labor Statistics says the nation’s unemployment rate last month rose to 10.2%, the highest in 26 years. Some analysts say the unemployment rate may remain above 10% for the first half of 2010. A weak economy and uncertain employment prospects almost certainly will cool the housing market when the incentives expire.
The Mortgage Bankers Association says delinquencies continue climb and a record 14% of homeowners were behind on mortgage payments or in foreclosure in September. The hardest hit states are Arizona, California, Florida, and Nevada which together accounted for 43% of new foreclosures.
A research report by Wells Fargo Bank says the record-high $1.4 trillion federal deficit now totals about 10% of Gross Domestic Product and could slow future economic growth.
Read the rest from Scott Reeves at Minyanville.com here.
Undoubtedly, one of the biggest casualties of ObamaCare will be medical innovations. A recent Cato Institute study found that America leads the world in innovations in basic sciences, diagnostics, and therapeutics. In fact, the US has contributed more than any other country, and in some cases, more than all countries combined, in these areas.
Why? Because, as this reason.tv video notes, America is the only country in the West that has resisted (more or less) the urge to tamper with the profit motive by imposing price controls on drug and device makers. Secure in the knowledge that they will have a market for their billions of dollars in investments, these companies have developed all kinds of life-saving technologies from cholesterol-busting drugs to MRIs from which the entire world benefits.
But here is the issue for policy wonks: Are these innovations "efficient," meaning reflective of the true choices of consumers? Our tax code gives employers a huge tax break when they offer generous health coverage to their workers. This arguably causes Americans to over-consume all kinds of medical services because they have little incentive to ask if the marginal benefit that, say, a particular drug or diagnostic procedure will deliver is worth its marginal cost.
This over-consumption to some extent has made America the font of new medical innovations. But the problem is that this comes with an opportunity cost. The needs in an economy always exceed the resources available to satisfy them. Hence, when government policies force people to over-consume in one area, they inevitably draw resources from some other area where, in fact, consumers, left to their own devices, might prefer to spend their money. So, who knows, if not prompted by bad government policies to divert their wages to health care, Americans might prefer to spend them on dining out, traveling or reading. Who knows to what extent the innovatiness of the American health care sector has been purchased by depressing innovations in the food, travel and publishng sectors?
The only way to fix this problem is by removing the tax subsidies from health care and leveling the playing field across industries. Instead, ObamaCare will raise the health care subsidies and then try and prevent over-consumption of medical services by rationing care.
The result will be total economic uncertainty that drives out both medical innovations and delivers inferior care without producing any gains in any other sector of the economy.
This is how developing countries turned into economic basket-cases. Welcome to Obama Land.
Posted on November 23, 2009, 11:39am | Shikha Dalmia
With the Senate voting Saturday to allow debate on its version of ObamaCare to proceed, the only hope for defeating this monster now is a public outcry that is so huge that even the MedicoCracy in Washington can't ignore it. Hence, it is significant that the latest Rasmussen poll shows support for health care reform dropping rapidly.
The poll shows that now just 38% of voters favor the health care plan proposed by President Obama and congressional Democrats and 56% oppose it. That's the lowest level of support measured for the plan in nearly two dozen tracking polls conducted since June.
Rasmussen notes that half of the survey was conducted before the Senate voted late Saturday to begin debate. Support for the plan was slightly lower in the half of the survey conducted after the Senate vote.
Prior to this, support for the plan had never fallen below 41%. Last week, it was at 47%, and two weeks ago, it was 45% of voters.
What's more, the poll shows that the more details Americans get, the more they dislike this devil. They aren't buying any of claims of the advocates. "Only 16% now believe passage of the plan will lead to lower health care costs. Nearly four times as many (60%) believe the plan will increase health care costs. Most (54%) also believe passage of the plan will hurt the quality of care," Rasmussen notes.
But what is the tipping point when Democratic legislators might rethink their designs of shoving ObamaCare down the throat of an unwilling public? The creepy but shrewd political strategist of the Clinton yore, Dick Morris, prognosticates:
Democrats will march in lockstep to approve a bill that lags in the public opinion polls by something like the current margin of fifteen points. With roughly 40% approving of the plan and 55% against it, Democrats will likely heed the pleas of their leaders and lend their assent.
But if the current slide in ratings continues and health care's support slips into the mid or low thirties, all bets are off. Even this Congress will not pass a program that meets with a 2:1 disapproval among the voters. They will try to buy off the opposition with compromises, but, failing that, they will just vote no.
So if Morris is right, should the polls drop another four to six points, ObamaCare might go into cardiac arrest.
Perhaps. I'm crossing my fingers but not holding my breath.
Posted on November 22, 2009, 10:57am | Shikha Dalmia
Last night's Senate vote to move forward with the debate on the universal health "don't-care" bill left me deeply pessimistic that this monstrosity could be stopped now. The margin of resistance - mere four senators -- appears too thin for a filibuster. All Comrade Harry Reid has to do, it seemed to me, is continue to smother them in taxpayer-funded goods till they succumb. After all, Sen. Mary L. Landrieu of Louisiana's resistance has already earned her $100 million in extra Medicaid reimbursement for her state. And though she continued to pledge resistance if this or that wasn't changed in the final bill, she was singing a decidedly more conciliatory tune on the Senate floor last night. She recounted the many things she liked about the bill and others that "needed improvement." Nothing was a deal-breaker for her anymore.
Everybody has a price, and if there are only three or four Senators who need to be bought, what does Harry Reid care how much he has to raid taxpayers' pocket to buy them off - especially since defeat will leave the president politically castrated for the rest of his term?
But the Politico this morning has an analysis that has caused me to think that maybe -- just maybe -- it's not over yet.
There are plenty of credible pockets of resistance inside and outside of Capitol Hill that might well derail the bill, Politico's analysis shows.
One: Public option politics.
Politico notes: "Right now, there is no public option plan that could garner 60 votes. A public plan "trigger" if private insurers fall short could come close - saying, losing Sanders but picking up Olympia Snowe (R-Maine) - but there's no guarantee it would fly in the House."
Two: Pro-life and pro-choice activists.
Politico notes: "Anti-abortion activists insisting that health reform cannot expand federal funding for abortions...Reid can't afford a single defection - and already, Sen. Ben Nelson (D-Neb.), who opposes abortion rights, says weak language could be enough to oppose final passage.....
House Speaker Nancy Pelosi could lose at least 10 Democrats if the Senate tried to water down the tough anti-abortion language in her bill."
Three: Various constituencies that will bear the brunt of higher taxes.
Politico notes: "The House and Senate have starkly different visions of how to pay for reform. And the House hates the Senate tax, and the Senate hates the House tax.
Not surprisingly, politics are at play. The House went with a populist soak-the-rich tax on "millionaires" to pay for almost half the near-trillion dollar price-tag in its bill. And bowing to pressure from powerful union backers, Democrats steered clear of any tax on the so-called "Cadillac" plans - high-cost policies that many unions have negotiated for their workers over the years........Reid relies heavily on taxing the Cadillac plans - but won't touch a millionaires tax, which was never debated in the Senate."
Taxing Cadillac plans will lose unions and taxing millionaires will alienate all the rich, limousine liberals who voted for Obama.
Four: A senior revolt.
The Senate bill would cut close to half a trillion in Medicare. "So here we are telling the American people that we're going to fix health care in America and the way we're going to pay for the massive government takeover of health care is through cuts in Medicare?" says Sen. John McCain (R-Ariz.). Republicans are going to pound this and this will put Democrats between a rock and hard place. To keep AARP support - without which this bill will be in deep trouble - Democrats will have to roll back these cuts. And when they do, the bill will no longer be deficit-neutral putting President Obama in a bind because he would be breaking a promise not to sign any bill that raises the deficit by a "single dime" and jeopardizing even more the re-election chances of at least four or five Blue Dogs.
Five: Big Pharma.
Politico notes: "But there's another danger to Democrats lurking in the bill - dissent toward the White House deal with the drug-makers. Many Democrats feel PhRMA got off easy by only having to kick in $80 billion in cuts toward health reform. Some liberal Democrats want to change the deal's terms and force the industry to sell drugs to the federal government at a discount.
PhRMA insists that would bump up the seniors' Medicare prescription drug premiums by 20 percent. If the Senate includes the rebates, industry officials privately say that they'll consider running ads slamming senators for voting to increase seniors' drug costs.
'PhRMA would have to let people know the truth,' said a senior pharmaceutical lobbyist. 'I don't know why they would want to increase premiums.'"
My best guess? I think Democrats will ultimately get something through. All the internal contradictions will certainly make the bill creak mightily as it moves forward, but they won't cause it to collapse. The only hope is very massive outside resistance that even the MedicoCracy-- otherwise called Democratic leadership -- in Washington can't ignore.
