Monday, November 15, 2010

A new direction for fiscal policy

This is impressive, and augurs well for real change in Congress.

(Today) Senate minority leader Mitch McConnell endorsed the proposed earmark moratorium that the GOP Senate caucus will vote on tomorrow:

Nearly every day that the Senate’s been in session for the past two years, I have come down to this spot and said that Democrats are ignoring the wishes of the American people. When it comes to earmarks, I won’t be guilty of the same thing. 
Make no mistake. I know the good that has come from the projects I have helped support throughout my state. I don’t apologize for them. But there is simply no doubt that the abuse of this practice has caused Americans to view it as a symbol of the waste and the out-of-control spending that every Republican in Washington is determined to fight. And unless people like me show the American people that we’re willing to follow through on small or even symbolic things, we risk losing them on our broader efforts to cut spending and rein in government. 
That’s why today I am announcing that I will join the Republican Leadership in the House in support of a moratorium on earmarks in the 112th Congress.
UPDATE: Even the Democrats are getting the message: Democrat Senator Mark Udall (OH) today called "for an end to the wasteful and influence-laden process of earmarking."

HT: Glenn Reynolds

27 comments:

50plusfinance said...

It's a refreshing change from the last 2 years. Maybe someone in Washington is getting the message.

b said...

The red state of Alaska just proved this will not last long.

John said...

B,

Ya know, that's the conventional viewpoint. But this time just might be different.

Benjamin said...

Nice grandstanding. I saw what happened in 2000-2006, when the R-Party controlled the Senate, the House, the White House and the Supreme Court.

We were awash in federal red ink, in a growing economy. The R-Party era ended with a financial collapse, two unfinished wars (including one we were losing, Afghanistan), and an economy that some thought would enter a Great Depression. The Dow was lower than when Bush jr. took office, and real estate values were en route to 50 percent haircuts. You want these guys back?

Not that I like the Dems either.

I keep thinking there has to be another party in the USA somewhere I can vote for...

Benjamin said...

Oh, and I forgot: The R-Party added the War on Terror to the War on Poverty and the War on Drugs to unwinnable but fantastically expensive and eternal federal agency ventures, that will suck hundreds of billions, then tens of trillions of dollars out of the private jobs- and wealth-creating sector.

Does anyone really think in 10 years we will hear a federal agency say, "Oh, we wiped out poverty except for lazy people"?

Or, "We have eliminated global terrorism as a threat"?

Or, "We can stop worrying about drug use now."?

brodero said...

If McConnell is true to his word this would be a serious change.
I have always felt that for someone
to make a sacrifice it was important to see the individual demanding it making a sacrifice. This is why the red state senators
who recieve a large excess of federal money to what their states
pay in must cut back. Otherwise all
of this hollow. We now need to hear
from the 2 senators from Oklahoma.

John said...

Benj,

I'm giving the repubs one more chance...they either get it right this time or I'm with you looking for an alternative. It CANNOT BE the usual partisan food fight. They better deliver.

Frozen in the North said...

50plus finance:

Last two years are you joking. You really believe that the Dems are the worse offenders? Lets not forget the "Bridge to Nowhere". In fact, this represents a small percentage of the overall federal budget, but the question is what is left to "convince" recalcitrant Congressmen from voting on legislation?

Of course if your objective is gridlock, then yes this is a good thing.

I cannot wait to see the up and down vote on the tax cuts... that should be the first test. BTW I agree that the earmarks were an amazing sign of the corruption of Congress.

Public Library said...

Lets wait and see how the votes come in on real policy. THe REpublicans are notorious for big announcements and playbooks with little follow through.

Ask Nute...

Public Library said...

More importantly lets hope there is a real push to end the Fed's dual mandate. This is a potentially HUGE positive for the US economy.

Scott Grannis said...

Ending the Fed's dual mandate would indeed be highly positive.

Benjamin said...

John-

Another chance for the R-Party?

The last time an R-Party president even proposed a balanced budget was...when Eisenhower was in office. It has been a long wait.

Frozen in the North said...

Scott:

For what its worth, monetary policy is not very good at all to stimulate the economy to create jobs. That is driven by fiscal policy.

At any rate with the current level of unemployment we can take it as a given that the Feds are unable to do anything about job creation.

Scott Grannis said...

Since monetary policy is terribly ineffective as a tool for micro-managing growth, the Fed should not even attempt it. But their dual mandate forces them to attempt to fine-tune growth. This is what has led the Fed to commit a series of errors in the past decade or two. We should simplify their mandate, making it clear that the only thing the Fed should do is target a stable value for the dollar. This would make their job easier and reduce or eliminate the temptation to try to do too much.

Benjamin said...

Scott:

What is a stable value of the dollar?

Against other currencies? Against a market basket of goods and services (that becomes out of date rapidly)?

Against a basket of rare metals? Against one shiny yellow metal?

If the goal is solid economic growth (and that is my goal), then should not all federal policies be devoted to that?

Would you support a monetary policy that resulted in no inflation but chocked off real grwoth?

Frozen in the North said...

Scott:

Totally agree, that's what Ben said last year. Maybe he takes the view that all other tools are off the table anyway.

These are going to be two very difficult years for the U.S. Assuming that the Bush Tax cuts are renewed (not a done deal but probably 70%), it is more than likely that the states will have to dramatically increase their taxes to meet their expected shortfalls (and its unlikely that the Federal gov't will be able to bail them out). Which means that American fiscal policy will be tightening. More job losses, less revenues, an economic spiral.

Not sure there is anything that can be done, the system needs to flush out the excessive debt burden.

Paul said...

Benji,

"The last time an R-Party president even proposed a balanced budget was...when Eisenhower was in office. It has been a long wait."

And once again you repeat the same tired falsehood. Bush proposed a balanced budget in 2001. This was obviously before the effects of the Clinton recession and 9/11 changed the revenue outlook.

Paul said...

"I saw what happened in 2000-2006, when the R-Party controlled the Senate, the House, the White House and the Supreme Court.....You want these guys back?"

Sure, I'll take the deficits and overall economy of 2000-2006 over the Pelosi/Obama era anyday.

Steve Fulton said...

Wow--you guys scare me a little. What exactly is a "monetary policy that results in no inflation but chokes off real growth"? I understand peoples lack of understanding of a how a "shiny yellow metal" serves as a medium of exchange--but the reality is the non convertible fiat money has only been around for a little while. While Ben and crew may have been asleep during this particular history class--the reason that China is communist is directly attributable to the inflation that racked China post US depression which was a result of the US pushing up silver prices. (At the time the US and most of the rest of the world were on the gold standard while china's currency was backed by silver). We are (of course) oblivious to all this since we can't recall the world before Baywatch--but the Chinese are not. They know darn good and well that the inflation exported from the US to China resulted in a regime change 70+ years ago and I doubt they are interested in that happening again.

Frozen in the North said...

First off for all the "Gold-bugs", Gold is not and has never been considred a currency. Silver is the winner there.

Funny enough until 1950, Canadian quarters were mostly made of pure silver. Go back to the romans, and the story is the same.

Gold is not and has never been a currency, it has been a store of wealth, but mostly it has been decorative.

Silver is the winner. BTW do a chart of the price of gold in silver, its instructive (NB -- its a downward trendline)

Benjamin said...

Steve Fulton-

We are right now facing deflation, and, as Milton Friedman would say, all deflations are monetary.

Core CPI at 0.6 percent y-o-y, and heading lower. The real inflation rate is probably sub-zero, if you check out Boskin on Stanford.

The Sarah Palinization of the the right-wing, including formerly "serious" thinkers, continues.

Now we have the spectacle of R-Party Seantors and Congressman, drenched in red-ink, telling Bernanke how to run the Fed.

Hoo-boy.

Nippon is on the phone.

Steve Fulton said...

I can agree that gold is a probably a sale at current levels and that at 50/1 the gold/siver ratio (which has been between 10/1 and 20/1 for about 2000yrs) is also probably a sale. I also agree that the debt unwinding that has been ongoing in the US is deflationary, and for that matter I thought the first trillion or so in balance sheet expansion was about right. But when Japan was attempting to ease back in the 90's the yen kept strengthening. In other words the Japanese central bank thought it was easing but the global mkt needed and wanted more Yen. It's very difficult to make the same case about the dollar today. I can't agree that the dollar is in short supply, which if you believe that deflation is monetary, is necessary for deflation. So with a trillion in excess reserves in the banking system with 600B more on the way, and with cash balances at US corporations at all time highs I just can't get into the deflation boat. But if you think we are headed for a Japanese style deflation then there's an all world security for you to own. 30yr US governments at 4.25%. A 300bps rally on a duration of 20yrs will be a home run investment of epic proportions. Although I'm long a few WNZ for a trade I agree with Buffet--"US treasuries are no longer risk free return--they are now return free risk".

Scott Grannis said...

Steve: very good points, and thanks for the Buffet line (return free risk), which I hadn't heard before.

Steve Fulton said...

Glad to contribute--I hope the Fed can put he genie back in the bottle once it's out (and my guess is that it can). I'm a little surprised by the somewhat zany behavior that is sweeping through the Fed these days. The blame China idea seems like a potentially destabilizing game to be playing. It's like a multi-period prisoners dilemma.

Scott Grannis said...

The Chinese are looking like fools to have entrusted so much money to Bernanke & Co.

Peter said...

The debate over earmarks is sound and fury without substance. Eliminating them, unfortunately, won't reduce government spending by one dollar. Instead of Congress earmarking spending for specific programs, the Executive branch bureaucrats will direct all spending. In my opinion, the kerfuffle over earmarking shows that R's are unserious about reducing spending and, even worse, trying to mislead the masses.

Scott Grannis said...

Earmarks are indeed a very small part of total spending. But they subvert the political process and are a breeding ground for corruption (i.e., buying votes with earmarks). They also simplify the voting process: without earmarks, congresspeople will be free to vote on legislation based on the merits, not the spoils.