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When Will It Be OK to Worry Out Loud About the Costs?

November 30th, 2008 . by economistmom

With the excitement of the incoming Obama Administration and their bold plans to both change how Washington does its business and “rescue” the economy, it’s been really uncool to raise the question “how are you going to pay for it?” or “where is this money coming from?”  But we seem reluctant to ask this question even of the out-going (and not-so-cool) Bush Administration, even as they’ve already committed hundreds of billions of dollars to help the economy, in far less-than-transparent ways.

A few days ago a Washington Post editorial was willing to rain a bit on the Obama economic team “parade” and ask the question, how exactly will President Obama (once he’s president) eventually pay for all the bold things he’ll want to do to address the economic crisis?:

…Mr. Obama is talking about adding hundreds of billions of dollars in federal debt. That is reasonable under the dire economic circumstances, but it is scarcely adequate to couple that with platitudes about eliminating wasteful spending. As Mr. Obama well knows, and as his first-rate new budget director, Peter R. Orszag, understands as keenly as anyone, it will take far more than that to get the nation’s fiscal house in order…

Mr. Obama was on firmer ground when he talked about focusing on “one of the biggest long-run challenges that our budget faces, namely the rising cost of health care in both the public and private sectors.”… Yet here, too, Mr. Obama engaged in a bit of happy talk, skating lightly over the difficult choices that controlling health-care costs will entail… slowing the growth of health-care costs alone won’t be enough to deal with the fiscal ramifications of the baby boomers’ retirement. Yesterday may not have been the moment for Mr. Obama to lay all this out, but at some point he is going to have to stop talking vaguely about the need for “sacrifice” and be more candid about what that will entail.

And I did an interview with Kathleen Pender of the San Francisco Chronicle last week where I did worry out loud quite a bit about the economic rescue tab that seems to be running up rapidly:

The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News.

That sum represents almost 60 percent of the nation’s estimated gross domestic product.

Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it’s impossible to predict how much they will cost taxpayers. The final cost won’t be known for many years…

It’s hard to say how much the overall rescue attempt will add to the annual deficit or the national debt because the government accounts for each program differently.

If the Treasury borrows money to finance a program, that money adds to the federal debt and must eventually be paid off, with interest, says Diane Lim Rogers, chief economist with the Concord Coalition, a nonpartisan group that aims to eliminate federal deficits.

The federal debt held by the public has risen to $6.4 trillion from $5.5 trillion at the end of August. (Total debt, including that owed to Social Security and other government agencies, stands at more than $10 trillion.)

However, a $1 billion increase in the federal debt does not necessarily increase the annual budget deficit by $1 billion because it is expected to be repaid over time, Rogers said.

Annual deficit

A deficit arises when the government’s expenditures exceed its revenues in a particular year. Some estimate that the federal deficit will exceed $1 trillion this fiscal year as a result of the economic slowdown and efforts to revive it.

The Fed’s activities to shore up the financial system do not show up directly on the federal budget, although they can have an impact. The Fed lends money from its own balance sheet or by essentially creating new money. It has been doing both this year.

The problem is, “if you print money all the time, the money becomes worth less,” Rogers says. This usually leads to higher inflation and higher interest rates. The value of the dollar also falls because foreign investors become less willing to invest in the United States.

Today, interest rates are relatively low and the dollar has been mostly strengthening this year because U.S. Treasury securities “are still for the moment a very safe thing to be investing in because the financial market is so unstable,” Rogers said. “Once we stabilize the stock market, people will not be so enamored of clutching onto Treasurys.”

At that point, interest rates and inflation will rise. Increased borrowing by the Treasury will also put upward pressure on interest rates.

Deflation a big concern

Today, however, the Fed is more worried about deflation than inflation and is willing to flood the market with money if necessary to prevent an economic collapse.

Federal Reserve Chairman Ben Bernanke “has ordered the helicopters to get ready,” said Axel Merk, president of Merk Investments. “The helicopters are hovering and the first cash is making it through the seams. Soon, a door may be opened.”

Rogers says her biggest fear is not hyperinflation and the social unrest it could unleash. “I’m more worried about a lot of federal dollars being committed and not having much to show for it. My worst fear is we are leaving our children with a huge debt burden and not much left to pay it back.”…

 And today’s New York Times editorial seems to worry a little:

This page has consistently held that the government must intervene in markets when failure to do so would cause even greater economic harm. The impending collapse of Citi or an unrelenting credit freeze demand intervention. But good crisis management also requires that the calamity of the moment not be allowed to overwhelm good governing. Unfortunately, that is not the case now.

Even, as the rescue tab rises, taxpayers are not being adequately informed or protected. There is as yet no effort to deal effectively with the underlying causes of the problem, especially mass mortgage defaults that feed bank losses. And officials seem to think urgency to act absolves them from considering the longer-term implications of the actions they take…

Another danger is that in fighting today’s crises, the government is teeing up the next one. To finance the bailouts, the Treasury is borrowing money and the Fed is printing it. That bodes ill for a heavily indebted nation, presaging higher interest rates and higher prices — perhaps sharply higher. That is not an argument for inaction. But frank acknowledgment of the dangers would put a premium on getting the rescues right today. As it is, the reckoning is postponed…

Ruth Marcus on Michelle Obama as Typical Working Mom (Like Us)

November 29th, 2008 . by economistmom

I’m catching up on some material I’ve wanted to post for a few days now…  Last Wednesday, Ruth Marcus’ column in the Washington Post was called “Michelle Obama’s ‘Mommy’ Stamp”–where Ruth reacts to Michelle’s declaration that her primary role in the White House will be as a mom, albeit an important one:

“My first job in all honesty is going to continue to be mom in chief,” Obama told Ebony magazine, “making sure that in this transition, which will be even more of a transition for the girls . . . that they are settled and that they know they will continue to be the center of our universe.”…

[Michelle] Obama seems comfortable, now, in the back seat, but that seeming serenity did not come easy. In “The Audacity of Hope,” Barack Obama offers a glimpse of an earlier, more conflicted Michelle, whose “anger toward me seemed barely contained” as she struggled with the pull between work and family while her husband launched a run for Congress.

“No matter how liberated I liked to see myself as . . . the fact was that when children showed up, it was Michelle and not I who was expected to make the necessary adjustments,” Barack Obama writes. “Sure, I helped, but it was always on my terms, on my schedule. Meanwhile, she was the one who had to put her career on hold.”

Expected to — by whom? Had to — says who? I remember reading this passage two years ago, when the book came out, and thinking: Hey, buddy, she has to scale back only because you’re not willing to…

I remember hearing that passage earlier this year when I listened to the audiobook version, and thinking something quite different–that gee, I guess there are lots of other working moms like me who are their harshest critics and are always trying to be both “super mom” and “super working woman”–and hence always feeling a little inadequate.  I heard “expected to” and I knew just which Obama was doing the “expecting”…It was likely Michelle much more than Barack.

And I think Ruth realizes this, too, for she goes on to say:

And yet, Barack Obama could have been describing so many women today when he explained that, for Michelle, “two visions of herself were at war with each other — the desire to be the woman her mother had been, solid, dependable, making a home and always there for her kids; and the desire to excel in her profession, to make her mark on the world and realize all those plans she’d had on the very first day that we met.”

This is where the identification comes in. The brutal reality is that, like our president-elect, most men do not wrestle quite so strenuously with these competing desires. So when the needs of our families collide with the demands of our jobs, it is usually the woman’s career that yields…

And Ruth goes on to mention her own struggles with these competing desires–which sound just like mine, and those of many of her working-mom friends she describes.  If there’s one thing that working moms are SO much better at than working dads, it’s feeling pulled in so many different directions and feeling guilty.  I think men process thoughts and actions too linearly to even notice when there competing demands on their time… Those competing demands typically never even translate into their own competing desires, you see. (They don’t even notice them most of the time.)  Women, especially working women who are also moms, are natural multitaskers.  It’s been my observation that men, even working men who are dads, have a harder time taking in a panoramic view of the world.  They spend much less time worrying about the things on the periphery that they fail to get done, and more time focusing on the things straight ahead that they are able to check off their list.  That’s probably why men generally have much more self confidence; they set much lower standards for themselves.

Yes, I generalize and stereotype and do not have any degree in psychology, so I’m sure this will generate some angry comments from working dads out there.  Here’s the link to the lively online discussion Ruth had with readers on WashingtonPost.com on the day of her column.

And yesterday, this fun post by Ruth on what kind of dog will become the Obamas’ family dog… although having a couple golden retrievers myself (and a beagle that although smaller is far from what I’d call “girly”), I’m a little more sympathetic to the President-elect’s disdain for those “girly dogs.” 

Are You Shopping Today?

November 28th, 2008 . by economistmom

It’s “Black Friday” but I wonder if the “black” signals “gloom” more than “profit” today.  I haven’t ventured to the mall today, but I did visit one cell phone store this afternoon in a very busy shopping area in northern VA and was shocked that we had absolutely NO wait for service.  I know there are really good sales out there, but sometimes I wonder if that works like reverse psychology on American consumers.  If the stores are THAT desperate to sell you the stuff, how desirable can it be?  And how much of a hurry does one have to be in to be sure one gets a good deal this holiday season?

My four kids each seem to know what they want this Christmas, and each seems to want just one or two fairly expensive but very useful gifts–things I would probably buy for them during the course of the year anyway, but the timing is such that it will be good to make them their Christmas gifts.  I love that as they get older (the youngest is now 10), their gift requests get more compact, much more “utilitarian,” and require much less Christmas morning assembly.  And once you get past the “Santa years” the whole acquisition and execution of the gifts becomes much less complicated and stressful anyway.

If any of you out there are really not in the mood to follow your usual habits of holiday consumerism and yet are still looking for ways to express your love and gratitude to friends and family, I’d like to recommend the Global Giving Foundation.  There you can make charitable contributions to specific projects and fund them as gifts to your loved ones.  I know there are many other organizations that make charitable gift giving both easy and special; if any of you have your own recommendations, please share.

Giving Thanks

November 27th, 2008 . by economistmom

(That’s a photo from earlier in the year, but I only recently added it to my “about” page… EconomistMom with her four kids, taken from the laptop.)

Happy Thanksgiving to my readers, especially to those reading tonight, who must be the loyalest readers of all…Don’t you have much better things to do?!!  (Probably only a few of my family members anyway…)

I am so grateful for the joy this blog has brought me since I started it on Mother’s Day.  It’s given me the chance to both look inside myself and speak from my heart (yes, even economists have hearts and souls–remember what Peter Orszag said in his last blog as CBO director!), while expanding my reach and my connections to the world in ways I have never before accomplished.  I’ve both learned a lot more about myself and now better understand the perspectives of those who may disagree with some of the things I write.  Through this blog I’ve reconnected with many old friends who rediscovered me here, and I’ve made so many new friends.

I am thankful for having a great bunch of colleagues at the Concord Coalition, especially my very supportive boss, Bob Bixby, who is one of those very faithful readers (perhaps second only to my mom!) and who is always cheering me along (often in the middle of the night when he’s online and reading).  I’m happy that my blogging on EconomistMom.com is still encouraged and supported by Concord even now that Concord has started its own blog, the TABulation.  I’m grateful for having such a fun job where I can talk about the merits of fiscal responsibility to very diverse groups of people–ranging from politicians to tax policy analysts, college students to blue-collar workers.

Thank you so much to all of you friends and family who inspire me to keep writing and often inspire what I write about here.  I am blessed to have you here in my little/big world!  I hope you are finding much in your own lives to be grateful for today.  Happy Thanksgiving!

Are We Too Hard on the Auto Industry?

November 26th, 2008 . by economistmom

Last weekend’s Saturday Night Live opened with what I thought was a pretty funny spoof of the House Financial Services hearing with the CEOs of Detroit’s “Big Three.”  (Here is the only video link I’ve found, posted on Crooks and Liars.)  I have to admit I felt a little guilty for laughing at it though, because it struck me as a little unfairly harsh–even understanding that it’s comedy and a video caricature, after all.

Then one of my personal connections to the Detroit auto industry sent me this column by the Detroit Free Press’ Mitch Albom (most famous for his brilliant books, Tuesdays with Morrie and The Five People You Meet in Heaven).  Mitch provides some insight into the “Detroit perspective” on the automakers’ request for federal aid, with a bit of wit and anger.  An excerpt:

And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You’ve already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They’re paying workers too much and selling cars for too little.

AIG lost hundred of billions in credit default swaps — which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.

And you don’t demand a paragraph from it?

Well, it seems to me that at least some members of Congress do understand the Detroit perspective on this, including Barney Frank, if you go to this video of the (real) hearing (courtesy YouTube).

And many of us inside-the-Beltway types also sympathize with Mitch’s closing point:

Besides, let’s be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who’s better than Congress?

So who are you to lecture anyone on how to run a business?

Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don’t kick our tires to make yourselves look better.

Living Within Our Means: Obama Budget Team Edition

November 25th, 2008 . by economistmom

Ahhh…  After a noticeable lack of any mention of fiscal responsibility over the past few days (I was trying not to “look”), a return to it with today’s announcement of Peter Orszag as the Obama Administration’s budget director.  From President-elect Obama’s remarks:

As I said yesterday, the economic crisis we face demands that we invest immediately in a series of measures that will help save or create two and a half million jobs and put tax cuts in the pockets of the hard-pressed middle class. Many of those new jobs will come in areas such as energy independence, technology, and health care modernization that will strengthen our economy for the future.

But if we’re going to make the investments we need, we must also be willing to shed the spending we don’t. In these challenging times, when we are facing both rising deficits and a sinking economy, budget reform is not an option. It is an imperative. We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politician, lobbyist, or interest group. We simply cannot afford it.

This isn’t about big government or small government. It’s about building a smarter government that focuses on what works. That is why I will ask my team to think anew and act anew to meet our new challenges. We will go through our federal budget — page by page, line by line — eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way.

More later when I can find a transcript from the Q&A.

UPDATE (8 pm):  Can’t find a transcript of the Q&A part of the press conference, but I did want to share with you Peter’s last blog post on the CBO Director’s Blog.   Having worked at CBO for five years in the mid-to-late 1990s, and with many friends still there, I can vouch for this (favorite) part of Peter’s “last post”:

Perhaps most fundamentally, CBO is a reflection of the smart and hard-working but also warm and wonderful people who work here.  (If you find it hard to believe that budget analysts and economists can be warm and wonderful, please just take my word for it.)

I wonder if the blog will go on without Peter–if part of the required skill set for the new CBO director is the ability to blog about budget issues, or if CBO might carve out that duty from the director’s job and create a new ”CBO Blogger” position.  I might apply then.  Not for the director’s job; I mean for the blogger’s job.  ;)

(A Different) $700 Billion

November 24th, 2008 . by economistmom

Seems to be the magic number these days, especially if you’re not quite sure what is needed.  Oh, a round $700 billion might do…

The front page of today’s Washington Post (story by Lori Montgomery) read:  “Democrats’ Stimulus Plan May Reach $700 Billion.”

And after today’s press conference unveiling the top of the Obama Administration’s economic team, this story on WashingtonPost.com (probably for tomorrow’s print edition):

The announcements came as Obama and his advisers made plans for a massive fiscal stimulus package that some Democrats estimated could cost between $500 billion and $700 billion. The program would be aimed at creating or preserving 2.5 million jobs over the next two years, primarily by spending billions of dollars to rebuild roads and bridges, modernize public schools and tap alternative sources of energy.

Now 2.5 million jobs is indeed a lot of jobs to create, even as a “gross” increase.  (Obama’s advisors have explained that there will still likely be a net loss of jobs in 2009, as without the stimulus we’d lose more than jobs created/saved by the stimulus.)  $500 billion to $700 billion to get there implies $200,000 to $280,000 spent per job created/saved.  If we could also get some new infrastructure out if it, I suppose that is not a bad deal, even if we have to deficit-finance it.  But if it instead fails to generate new, sustainable jobs, physical capital, technologies, and industries for our economy, and meanwhile racks up a considerable amount of new debt that will remain on the federal books for a long time (to be paid off by our children and grandchildren later), then it won’t look like such a great deal.

UPDATE (9 pm):  This Wall Street Journal article by Jonathan Weisman clarifies the NEC and CEA appointments that caught the WSJ by surprise; they incorrectly speculated yesterday that Jack Lew would be named NEC head and Austan Goolsbee CEA head.  The relevant paragraphs in today’s report:

The appointment of Mr. Summers as NEC director scrambled other posts on the Obama economic team. Jacob Lew, a former White House budget director in the Clinton administration, had been expected to take that post, but he was nudged aside.

Austan Goolsbee, a young University of Chicago economist and longtime adviser to Mr. Obama, was widely expected to be the chairman of the Council of Economic Advisers. Now, according to aides, he is likely to serve on the council but not chair it.

When Does Shopping Become a Sin?

November 24th, 2008 . by economistmom

Today’s (Sunday’s) Washington Post Outlook section featured a very personal story by Judith Levine called “Don’t Buy It.”  (Judith is the author of the book “Not Buying It: My Year Without Shopping.”)  Judith observes that with the poor state of the economy, when it comes to consumer spending, households everywhere are behaving as if they’re poor, even if they’re not.  You see, whether you are personally already living beyond your means or not, all the problems in the economy that we’re hearing about day after day serve as a constant reminder that America as a whole has been living beyond our means.  It’s a wake-up call for everyone, and even if you’re one of the lucky ones that isn’t being forced to live with less, let’s face it–overindulgence just isn’t a “hip” thing to do right now.  So most economists are (I think correctly) anticipating a very bleak holiday shopping season–even on (this coming) “Black Friday”, the day after Thanksgiving which is traditionally the biggest retail day of the year.

So, is consumption an uncool thing to do now?  Is it even a bit sinful?  Economist Robert Frank, mentioned in Judith’s article, suggests so.  In a “small world” moment, I happened to meet Bob Frank just yesterday morning in Philly at the National Tax Association conference, where I was the discussant on his paper on “The Progressive Consumption Tax as a Positional Arms Control Agreement” (aka, in my mind at least, “What To Do About Sinful Shopping”).  Bob has suggested that the consumption of Americans, particularly rich Americans, has a “keep up with the Joneses” quality to it:  that people engage in competitive, conspicuous consumption that leads to excessive spending beyond what is justified in terms of the true even-private benefits received from such consumption.  And such excessive, extravagant consumption leads to too many of society’s resources being spent on things like headliner rock bands playing at daughters’ sweet sixteen parties, and too little of our resources being devoted to public goods and services (such as education, roads and bridges, and a clean environment). 

Bob’s solution?  A “steeply progressive” consumption tax.  It’s actually both just plain “steep” as well as “steeply progressive.”  I discovered that Bob would tax my family’s consumption at something like a 50% rate.  Multi-millionnaire households would face a consumption tax rate of 200% or more though.  My reaction to Bob’s suggestion that my household income made me “rich” and therefore deserving of such a high consumption tax rate?  That “rich” is a relative concept, and that $250,000+ might be “rich” for average-sized families, but for my family with four kids living in the DC area, it didn’t feel “rich” at all, but just “middle class” (despite President-elect Obama’s categorization of us).  I also noted that just because we consume most of our high income doesn’t mean that our consumption is frivolous or overindulgent.  I guess I was effectively arguing to Bob:  don’t you label me a sinner with that crudely-defined “sin tax” of yours!  Bob sensed my defensiveness and offered that the rate structure could be adjusted.  I was also thinking that the tax could be adjusted for geographic cost of living and family size.  Of course, these are all things that make the tax much more complicated–a simple illustration of the common tradeoffs between fairness and simplicity or efficiency when it comes to tax reform.

I would love to be in the position to live through the same experiment Judith did, who spent the whole year “not shopping”–meaning buying nothing but “necessities.”  But Judith doesn’t have kids.  Kids are expensive, and I find that having kids, the lines between “necessities” and “luxuries” are often very blurred.  I mentioned in my comments on Bob Frank’s paper that more than the structure of the tax system, it’s the current crisis and the reminder that our economic security is being threatened as a result of our past “living beyond our means” that is getting all of us to think more frugally.  But I also offered the rather lame kind of belt-tightening I’m doing, such as no longer buying organic milk.  The truth is that almost everything I buy for the family seems “necessary” to me, even when I splurge on something like organic milk (which is a lot more expensive than non-organic milk).  So even with that lame bit of belt-tightening, I still feel guilty for trying to avoid such “sinful” consumption.  Of course!  Where would a working mom be without all that guilt we carry around, constantly?!!

(Fiscally-Responsible) Friends in High Places

November 22nd, 2008 . by economistmom

I already wrote this on my Facebook wall, but I’m so proud to hear the close-to-official word that my friends Jason Furman, Austan Goolsbee, and Peter Orszag will be at the top of President Obama’s economic team.  From today’s Wall Street Journal story on the pick of Tim Geithner for Treasury Secretary: 

Already, the backbone of an Obama economic team has emerged. Congressional Budget Office director Peter Orszag will be Mr. Obama’s budget director. Jacob Lew, a former Clinton budget director, will head the White House’s National Economic Council. Jason Furman, the economic policy director of the Obama campaign, is likely to be Mr. Lew’s deputy. And Austan Goolsbee, a University of Chicago economist and long-time policy confidante, is expected to chair the Council of Economic Advisers.

The team represents a re-emergence of more academic economists and technocrats after a Bush administration that elevated aluminum-company and railroad executives to be Treasury secretary.

I’ve already pointed out during the campaign that Jason and Austan understand the importance of fiscal responsibility, at this post.  Jason was a member of the Concord Coalition’s Fiscal Wake-Up Tour for awhile, after all.  And Peter has written about why deficits matter many times including with none other than Bob Rubin, and of course, Peter’s had to care about this full time in his job as director of the Congressional Budget Office over the past two years.

The Fiscal Hawk Dance

November 21st, 2008 . by economistmom

Stan Collender (in his weekly column for Roll Call, posted on Capital Gains and Games) explains it’s not just a crass “chicken dance” he’s talking about…

The reason that careful choreography will be needed is that, instead of the one-act performance with a single highlighted dance that has been typical of the budget decisions of the past, the coming debate will need to look far beyond fiscal 2010, which will start Oct. 1, 2009. Those running the company need to stage a far more difficult multi-act, multi-dance number, where the decisions made this year are part of a longer-term plan with a larger troupe of dancers and a big finale.

The reason for this is actually quite simple: “The budget” won’t be much of a consideration in this year’s debate, but what’s done this year will have a huge impact on the budget debates ahead…

[W]hile deficit reduction may not be immediately appropriate, an ongoing discussion starting this year so that the dance can begin when it again becomes economically viable should not be delayed until everyone agrees we’re at that point. This provides some outstanding opportunities for the Obama administration and the House and Senate Budget committees, all of which will be able to demonstrate their ability to see the big picture and choreograph the steps needed even if they won’t actually be performed on a big stage soon.

When presenting the Obama administration’s first budget early next year, the new director of the Office of Management and Budget [i.e., current CBO director Peter Orszag] should spend almost as much time and effort talking about the years after 2010 than what is recommended for fiscal 2010 itself…

The Budget committees will have a similar opportunity. Instead of just focusing on the next fiscal year, which will be mostly determined by decisions made before the hearings and markups on the 2010 budget are held, the committees should begin to deal with the longer-term challenge by making recommendations about what will need to be done…

That should mean that, while others are trying to do a budget jive or two-step, the OMB director and Budget committees will be choreographing the far more dramatic and difficult deficit and debt pasodoble.

Yep, that’s no “chicken dance”– but a “pasodoble”… What’s that?  Read this, and watch this.  (I always learn so much from Stan!)  I hope that we fiscal hawks can be both that bold and that well-coordinated.

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