Are Republicans the Economic Pessimists?

“[R]espected economists like Donald Marron, Keith Hennessey, Bruce Bartlett and Kevin Hassett have all carefully chronicled the fact that the Obama stimulus package does not feature any real fiscal multipliers. They say the bulk of the package consists of transfer payments to individuals and states, along with tax credits that will produce no real incentive effects to spur economic growth. But the fact remains that numerous signs are now pointing to economic recovery. And the GOP needs to craft a smart political response to this. Obama and Biden will surely take credit for the better economic news, just as any White House would. It’s the way the political game is played. But Republicans have to play the game, too. A tremendous summer rally is going on in stocks, and it’s being driven by better corporate profits and improved leading indicators — including a possible upturn in housing starts and sales, and a major downward spike in weekly initial jobless claims. So you have to believe the stock market is calling the tune for recovery. And while politics is not everything, I do believe that the shrinking prospects for Obamacare have been a big contributor to the stock market’s recent surge. This sweeping new government insurance plan would lead to high-tax-and-spend-and-borrow-and-regulate nationalized health care, a big economic negative. Ditto for nationalizing energy through cap-and-trade-and-tax. If these initiatives fail, it is very bullish for stocks and the economy. … But the White House is going to take credit for economic recovery anyway, and that’s the newest political challenge for the GOP.” –economist Lawrence Kudlow

Upright Views and Comments . . .

“I say let’s have Election Day on tax day. Let’s get what we’re paying for. Sign the check — for the full amount — and write in your preferred candidates on the back of the same check. Abracadabra … smaller government, here we come.” –columnist Jonah Goldberg

“Rampant redistribution of wealth by government is now the norm. So is this: It inflames government’s natural rapaciousness and subverts the rule of law.” –columnist George Will

“Inflation also means that all the talk about how higher taxes will be confined to ‘the rich’ is nonsense. Inflation is a hidden tax that takes away the value of money held by everyone at every income level.” –economist Thomas Sowell

“[W]e need to return to a taxation system similar to the one established by our Founding Fathers. They did not penalize productivity through taxes the way we do today. They had no Internal Revenue Service. They believed in minimal taxation.” –columnist Chuck Norris

“Today American taxpayers in more than 300 locations in all 50 states will hold rallies — dubbed ‘tea parties’ — to protest higher taxes and out-of-control government spending. There is no political party behind these rallies, no grand right-wing conspiracy, not even a 501(c) group like MoveOn.org. So who’s behind the Tax Day tea parties? Ordinary folks who are using the power of the Internet to organize.” –author Glenn Harlan Reynolds

“[I]s there any limit to this administration’s intentions to interfere and perhaps control large swaths of our economy? … That’s the real message of the homegrown Tea Party revolt against bailout nation and the higher taxes, deficits, and debt being used to finance it. Folks are trying to tell Washington on Tax Day, April 15, that enough is enough. They can’t take it anymore.” –economist Larry Kudlow

“The cry at these tea parties should be ‘not a penny more’ until governments get their houses in order, just as we must do. Most people have been forced to reduce spending during the recession, but not the federal government, and likely not the government in your home state.” –columnist Cal Thomas

“President Obama’s own budget numbers show that Social Security this year will take in $654 billion in payroll taxes and dole out $662 billion in benefits and expenses — a negative cash flow of $8 billion. Uh oh.” –columnist Stephen Moore

Subsidize Bad Behavior?

President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage-holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action.

Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

Reporting from the Chicago commodity pits, my CNBC colleague Rick Santelli unleashed a torrent of criticism over this scheme. Santelli said: “Government is promoting bad behavior. … Do we really want to subsidize the losers’ mortgages? This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama, are you listening? How about we all stop paying our mortgages! It’s a moral hazard.”

All this took place on the air to the cheers of traders. Santelli called for a new tea party in support of capitalism. He’s right.

Obama’s so-called mortgage-rescue plan amounts to $275 billion in new debt that will have little if any lasting impact on deeply corrected housing prices or the mortgage-default problem that stemmed from the insistence of government to throw home loans at lower-income people. A modest reduction in mortgage rates will have little impact on home prices, as Harvard professor Ed Glaser has shown. And by the way, re-default rates on modified mortgages have been running 50 percent to 60 percent. This is not going to change. So why should we throw more good money after bad?

Meanwhile, Wall Street is awakening to the disappointment that the securitized mortgages behind the toxic assets that have done so much damage to banks and the credit system are not being treated in the Obama program. The oversight is incredible. There are no safe-harbor provisions to protect mortgage servicers against lawsuits if agreements are broken. The ownership of these securitized mortgage pools is wide and far, spanning the globe. Breaking contracts is exceedingly difficult, especially without any legislated legal protection.

Of course, banks that have whole loans can choose to modify them if they want.

And in some cases it’s much better to modify than foreclose. But 70 percent of this bank-owned paper is performing. It’s the securitizations that have clogged up the world credit system.

Then there’s the bankruptcy-judge cram-down, which would allow the courts to renegotiate interest rates and loan principal. This would abrogate private contracts and throw out the rule of law. Do we think future investors will put up mortgage capital if they fear judges will overturn the terms of contracts? Home-loan supplies will fall and mortgage rates will rise.

Then there’s Fannie and Freddie, the big winners here. Only their products are eligible for mortgage relief. Jumbo mortgages are not. Neither are private-label mortgages created by various non-bank lenders. Fan and Fred already run 48 percent of the mortgage market. Obama’s proposal would greatly enlarge that and move the mortgage system toward government nationalization.

What’s even more incredible is Team Obama’s stubborn refusal to have any faith in the free market. In some of the hardest hit areas of the country, markets are already solving the housing problem. Writing on his Carpe Diem blog, University of Michigan professor Mark Perry notes that while California home prices dropped 41 percent in 2008, home sales in the state jumped 85 percent. It now looks like 2008 sales for single-family houses will exceed levels reached in 2007.

What’s more, the unsold-inventory index for existing single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the year-ago period. And the median number of days it took to sell a single-family home dropped to 46.1 in December 2008, compared with 66.7 in December 2007. So inventories are dropping, the number of days to sell a home is falling, and sales are rising in the wake of lower prices.

If the government really wants to help, instead of bailing out irresponsible mortgage-holders, it should support new and younger families who want to buy starter homes and begin to climb the ladder of prosperity.

All this is free-market economics 101. And I say, let free-markets work. Let’s remember that most folks — even those with underwater mortgages, where the loan value is more than the home value — do not walk away from their obligations. They don’t want to wreck their credit — and their homes are their castles. That’s the American way.

But if we penalize the good guys and subsidize the bad ones, we are undermining the moral and economic fabric of this country.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2009 CREATORS SYNDICATE INC.

What Did Reagan’s Inaugural Say?

On the eve of Barack Obama’s inaugural speech, with a tough economic downturn and the ongoing threat from global terrorism, perhaps it is useful to recall Ronald Reagan’s first inaugural address, delivered on January 20, 1981.

Reagan faced a terrible economy, too, and the growing Soviet threat loomed large. Spirits at home were low then, just as they are today. Problems seemed insurmountable then, just as many believe they are today.

Early in his speech Reagan set it all out: “These United States are confronted with an economic affliction of great proportions.” He then defined the central problem: “We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike. It threatens to shatter the lives of millions of our people.”

Media commentators regularly compare the current downturn with the Great Depression, which seems like a big stretch. And there’s a good chance Reagan was dealt a much tougher hand than the one Obama is holding today Continue reading . . .

Time for a Choice — Not an Echo

Republican Senate leader Mitch McConnell is absolutely right to warn against Obama’s gigantic stimulus-spending package. McConnell says it “will be the largest spending bill in the history of our country at a time when our national debt is already the largest in history.” As a result, he says the bill “will require tough scrutiny and oversight.”

According to McConnell, scrutiny should include this simple test: “Will the yet unwritten, reportedly trillion-dollar spending bill really create jobs and grow the economy — or will it simply create more government spending, more bureaucrats, and deeper deficits?”

The Republican leader is drawing a clear line in the sand. Okay, good. But the GOP has got to do more. It must start talking about tax cuts to grow the economy. And it must get back to the supply-side by talking about lower marginal tax rates on individuals, businesses, and investors.

We don’t need bailout nation. Nor do we need the government picking winners and losers in a massive, Keynesian, new-New Deal spending extravaganza. And it’s not Obama’s middle-class tax cut that’s going to get us out of this economic jam. At best his vision is incomplete. But at worst his aversion to successful earners and investors is a real obstacle to full economic recovery  Continue reading . . .

Kudlow: We Need More Capitalists, Fewer Bailouts

Larry Kudlow has had enough of the bailouts and enough the bashing of higher-income Americans. Here is a chunk but read the whole thing:

Irving Kristol taught us three decades ago that the top earners are the “economic activists”. They are the ones with the highest propensity to consume and invest. They’re the ones who purchase the yachts, which are subsequently constructed by blue-collar workers. And they’re the ones who run the small businesses and provide the capital for new entrepreneurial startups that are the lifeblood of this economy.

If we had an economy without rich people, we wouldn’t have much of an economy. That is why lower tax rates to reward the economic activists—that is, the most prominent capitalists—would be ever so helpful. Or slashing business tax rates that would create investment inflows to promote high wage earning new jobs. And, it would give consumers a break since they’re the ones that bear the brunt of high corporate taxes.

Where to Draw the Bailout Line?

The bailout-nation saga continued this week as the little-three carmakers from Detroit drove to Washington to plead for a $34 billion federal package to save themselves from bankruptcy and insolvency. Hot on their heels was a devastating report of 533,000 lost jobs in November. Actually, it’s a loss of 732,000 jobs, including downward revisions from the prior two months. Unemployment moved up to 6.7 percent from 6.5 percent, a number that’s going to get worse as the volume of discouraged workers continues to rise.

So here’s the painful choice for both Republicans and Democrats in Congress: Will the political class risk a Detroit-carmaker bankruptcy that might lead to catastrophic liquidation — including, realistically, a couple million car-related jobs — all while the recession deepens and job losses mount (1.2 million in just the past three months)?

It’s a tough choice — especially for Republicans, most of whom want to vote against bailout nation and stop big-government encroachment on our free-market economy. That’s the right theory. But are the economic risks simply too great to employ it? Continue reading . .

Tarp the TARP

Treasury Secretary Henry Paulson has called for a pause in the financing request for the Troubled Assets Relief Program (TARP), halting it at $350 billion. (The original request was for $700 billion.) I think that’s an excellent idea. But in a recent hearing of Barney Frank’s Financial Services Committee, Democrats went ballistic at the thought of no more TARP money. They want to keep spending. They want to throw money at GM, the other Detroit car makers, plumbers, auto-parts suppliers, homeowners, mortgage problems, and foreclosures. Candy stores all over America now want TARP money.

Meanwhile, senior Obama advisors are talking about another $600 billion to pull us out of recession. Continue reading . . . (dated link)