Getty ImagesTime for a “Holiday” from Accounting Gimmicks
For many years, there has been a robust debate about whether the Social Security and Medicare Trust Fund balances actually mean anything if the payroll taxes collected for them were spent rather than saved (as seems intuitive in a trust fund). Today, unfortunately, there appears to be a bipartisan embrace of an even more problematic concept: persistently crediting the Trust Funds with tax revenue that has never even been collected. The latest example of this is the so-called “jobs bill” that just passed both chambers in Congress. A centerpiece of that legislation is the Schumer-Hatch “Hire Now Tax Cut,” known colloquially as a “payroll tax holiday.” Read more...
Getty ImagesFDIC Report and Banks
The Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile (QBP) for year-end 2009. Things have never been worse for the banking system: bad loans (loans that are 90 days or more past due) account for 5.37% of all loans and leases, an all-time record; net charge-offs (NCOs) – losses taken on bad loans – totaled $53.0 billion, or 2.89% (annualized), in the fourth quarter which is also the highest rate ever recorded in the QBP’s 26 year history. Read more...
Getty ImagesReconciliation and the Misuse of Senate Procedures
On Wednesday, President Obama gave a heavily anticipated speech about his vision for the future of health care reform, both in terms of substance and procedure. One of the primary takeaways (that has those inside the beltway chattering) is that the President’s suggested using reconciliation procedures to pass the health care legislation – a move that would require only a simple majority vote rather than the seemingly insurmountable 60-vote hurdle faced by “regular” legislation. Read more...
Getty ImagesNeeded: Tax Rhetoric Reform
Comprehensive tax reform is, along with meaningful health care reform and Social Security reform, one of the federal economic policy Holy Grails; ideals long-sought by crusaders of both parties, but seemingly fated never to be secured. Occasionally there is a significant policy breakthrough, as with the 1983 Social Security Amendments and the 1986 Tax Reform Act. But after these strenuous bipartisan exertions, the political process resumes its inexorable erosion of the ideals that had been advanced with such difficulty. Read more...
Getty ImagesMonopsony and Social Innovation – Predictably Bad Outcomes from Bad Processes
As I write this column I am listening to my iPod and typing on my new Dell computer. Both of these products impressed me from a range of competing choices, so I utilized my resources and purchased them. As a consumer, I benefited from the forces of competition that pressed these technology companies to create better, faster, cheaper products and introduce them quickly into the marketplace. Read more...
Getty ImagesShareholder Activism: Background and Policy Lessons
A recent article in Barron’s highlighted the outsized returns generated by “activist investors” in 2009. The “shareholder activist” is an investor or investment manager who buys shares in a corporation with the intent of directly influencing management. While the “causes” pursued by activists differ widely, the dominant form of activism in 2009 related to corporate governance – existential questions about how to run a business. The share prices of large firms with these “shareholder activists” increased by 84.3% in 2009 relative to 16.1% overall increase for the S&P 500. Read more...
Getty ImagesLegacy of the Stimulus
Last week, President Obama celebrated the one-year anniversary of the signing of the stimulus bill with a ceremony in the Executive Office Building. He acknowledged that implementation of the stimulus had not been “perfect” but took particular pride in the efficiency of the stimulus spending given “the scope, the magnitude of this thing.” But its scope and magnitude is precisely what led more responsible analysts to counsel against its enactment. Read more...
Getty ImagesHealth Care, Chaos, and the Challenge of Chickens in Manhattan
The debate surrounding the massive health care system overhaul that has been raging in Washington leaves one thing clear: Redesigning roughly one-seventh of the economy is no simple task. The massive 2,000 page health care reform bills recently passed by both houses of Congress—currently languishing in Scott Brown limbo—represent an ambitious effort to reorder the “rules of the game” in health care in order to achieve dramatically different results. Read more...
Getty ImagesRethinking the Wisdom of Resolution Authority
Financial regulatory reform has not been handicapped by a lack of Republican support in the Senate, but rather a lack of good ideas. Instead of improving the resilience of the financial system, reformers have aimed to expand government’s authority over it. If reform dies, so be it. It is not at all clear that passing the measures proposed to date would do anything more than institutionalize bailouts and protect incumbent businesses and managers. Read more...
Getty ImagesBurdening the Future: It’s Not Just the Feds
The recently released federal budget has shed a harsh spotlight on government’s tendency to spend today while leaving the bill for our children to pay. The budget projects $8.3 trillion in deficit spending between 2011 and 2020 on top of an already massive debt. But last week’s strong action by New Jersey Governor Chris Christie to pull debt-ridden New Jersey out of its economic free fall reminds us how many state and local governments have also been burdening the future by making unsustainable commitments. Read more...
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