Archives for March, 2008
Mortgage Bailout Policies Drive Out Investment in U.S. Economy
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The Fed has cut interest rates to ridiculously low levels to try to bail out mortgage borrowers and prop up the U.S. economy. But that has led to a “vicious cycle.” The Fed’s cutting rates has led to a severe “credit crunch” and ”flight from the dollar” in foreign currency exchanges, notes Stanford Professor Ronald McKinnon in the Wall Street Journal. In reaction, “Fed responds to the credit crunch by cutting interest rates” further, and as a result, “capital flies out of the country” even faster. Mortgage bailouts in general are not only a bad idea, but unpopular in public opinion polls, as we previously noted.
Supreme Court Rebuffs Anti-Corruption Appeal, Takes First Amendment Cases
The Supreme Court turned away the Justice Department’s appeal of a ruling that will make it harder to prosecute New Orleans Congressman William Jefferson, who was caught red-handed with $90,000 in bribe money in his freezer. (While I found Jefferson’s arguments challenging his prosecution on a technicality wholly unpersuasive, an appeals court was partly persuaded by them, restricting the use of certain evidence against him).
It also agreed to review two strange First Amendment rulings by appeals courts. The first appeals court ruling struck down an Idaho law challenged by unions that barred public-employee payroll deductions for union political activities. (In 2007, the Supreme Court upheld a Washington law limiting payroll deductions for the benefit of unions). The other appeals court ruling ordered a city to place on public property a monument to the “Seven Aphorisms of Summum,” a religious sect that celebrates mummification and masturbation. The appeals court reasoned that because other monuments on city property included the Ten Commandments, the practitioners of the Summum religion were also entitled to place a monument to their own, supposedly-competing religion on public property. It ignored the fact that Summum is a recently-invented religion that did not influence any secular legal codes or legal history, the way the Ten Commandments did, and that advertising it on public property lacks any conceivable justification. Summum is free to celebrate its idiosyncratic beliefs, but it should not receive public assistance in doing so.
Virginia Lawmakers Should Reject Grantor’s Tax, and Focus on Metro
Recently, the Virginia Supreme Court struck down regional taxes to pay for transportation improvements, such as the perverse grantor’s tax on homeowners, based on the principle of no taxation without representation. Virginia lawmakers are now considering imposing new taxes to replace the invalidated taxes. They should keep two principles in mind. First, they should not revive the regional grantor’s tax, which was widely criticized as economically irrational and unreliable, unfair, and unduly burdensome. Second, if they levy any replacement taxes, they should use the revenue first to preserve the Metro subway system.
As Virginia Congressman Tom Davis noted in the Washington Post, while “Metro keeps hundreds of thousands of commuters from having to clog our already overburdened road system each day,” “Metro is teetering on the brink. It’s 32 years old, and many of the original components are beginning to break down.” Moreover, legislation is pending in Congress that would provide federal matching funds for Metro, provided that Virginia, Maryland, and D.C. enact laws earmarking at least a small fraction of their transportation revenue for Metro.
Cool new business model for plant biotechnology in India
Business incubators have long been a place where small companies can get help that makes them grow to the next level. A non-profit in Hyderabad is now applying that method to the most precarious phase of growth for a plant biotechnology start up: the field trials.
International Crops Research Institute for the Semi Arid Tropics are starting up is starting up research facility that will enable smaller firms to outsource field trials. It is a novel approach to business incubating, and it will be interesting to see the results of this project. It might be a smart business model that we can apply to speed up the second green revolution.
Mortgage Bailouts Rob Thrifty Ants to Appease Irresponsible Grasshoppers
Yahoo Finance discusses how mortgage bailout measures turn Aesop’s fable about the ant and the grasshopper on its head, rewarding irresponsibility and punishing thrift and prudence. Mortgage bailout proposals are proliferating, even though bailing out irresponsible borrowers and banks is a stupid idea, and is unpopular with the silent majority of Americans, as public opinion polls make clear. A revised, politically-correct version of Aesop’s fable is available here.
FDA using consumer safety to blackmail Capitol Hill for more funds
FDA commissioner Andrew von Eschenbach put on his best “Mom, Dad, I don’t get enough allowance! whine” at a conference in DC last week.
“FDA might fail,” he said. “Peril exists!”
He was of course fishing for more funds for his agency. Last time the agency got a huge increase in 1993, they almost doubled the staffing from 1,400 to 2,100, which temporarily led to a more efficient permit approval process before it dropped back down below pre expansion levels.
In order to protect US citizens from FDA’s tendency to be overcautious in approving drugs, we should remove their veto power. We should be very clear that nothing, and no body could make US citizens safe. The responsibility to evaluate the risk and benefits of a medication belongs to the patient and the doctor who is treating the patient.
FDA should continue with their evaluation as they do today, but the bureaucratic overcaution the agency is displaying to avoid bad press and political examination is delaying important medications. People are dying while waiting for the bloated bureaucracy to approve medications.
Eschenback does not need more funds; he needs a more efficient agency. More funds will bloat it further.
“Benito came to me in a dream last night.”
One of the most ignorant and gratingly common complaints about American politics is that of their being bland, uninteresting, and failing to engage large segments of the population.
To anybody who would say such a thing, it’s worth asking, “What do you actually want from politics?” Naturally, people who see political engagement as a sign of civic virtue and who believe that more choices in a democracy (regardless of what those choices are) are always a good thing are likely to respond with stale bromides about…political engagement being a sign of civic virtue and more choices in a democracy being a good thing.
Thus, real-world examples of very interesting politics can act as a better defense of America’s gloriously dull — by world standards — politics. Take your pick: Kenya, Sudan, Lebanon, Iraq. Say what you will about any of these countries, you can’t call their politics dull!
However, politics being “interesting” isn’t always bad. There is a bad kind of dullness to American politics that comes from the excessive reverence often accorded to American politicians. (I wonder how many American reporters who must endure covering the stuffy U.S. Senate envy their British counterparts who cover the boisterous House of Commons.)
For that reason, it’s refreshing to see interesting politics of the good kind — that of politics playing out as a spectacle in which the politicians act like buffoons, with the end result that any person with common sense would be embarrassed to show reverence to them. Which brings me to Italy.
Britain’s Observer reports today on a feud between Italian rightist candidate Daniela Santanchè and Alessandra Mussolini, the granddaughter of Il Duce, who has entered politics herself.
Santanchè, 46, a former ally of Berlusconi, is now heading a small party called The Right. In a week in which she descended on a Gypsy camp near Milan, wearing high heels and an elegant trouser suit to argue with residents and slam illegal immigration, Santanchè also found time to warn women not to vote for Berlusconi, ’since he only sees us in the horizontal’. The media mogul had done little to suggest otherwise, claiming the previous week that he would not be sending TV showgirls into parliament this year, ‘because with them we do other things’.
Quick to defend Berlusconi from charges of sexism was Mussolini, 45, whose career path has taken her from an actress who posed topless to pop singer to a European MP who casts herself as the tough-talking housewife of Italian politics, once claiming ‘better a fascist than a faggot’. Calling Berlusconi ‘gallant’, Mussolini spat back that Santanchè was ‘horizontal, politically’, after clawing her way into politics thanks to the backing of Gianfranco Fini, who has renounced his neo-Fascist roots and joined the Berlusconi ticket.
The response was minutes away. ‘I believe Alessandra’s grandfather Benito is turning in his grave at the sight of her working as an assistant to (Fini), who said Fascism was the absolute evil,’ said Santanchè. ‘Berlusconi on the other hand would probably like to wear Mussolini’s boots; after all, he wears lifts in his shoes already,’ she added caustically.
‘Benito came to me in a dream last night,’ replied Alessandra, as the row dominated the news, ‘and he told me exactly what he thinks of Santanchè.’
Of course, I’m glad these people have no chance of ever having political power in the United States, but at least their fight is being waged with words and not violence. Still, even with the deserved ridicule such behavior would earn politicians here, I’ll take the kind of politics which most people can easily ignore any day. When political contests are dull, your property, freedom, or even very life don’t depend on the outcome.
May those who complain about America’s dull politics live in interesting times. (Thanks to Margaret Griffis for the Observer link.)
Carney on Pepsi going green
In his latest column, former CEI Warren Brookes Fellow Tim Carney looks at how rent-seeking opportunities based on feel-good environmental campaigns, which are currently in vogue among some large corporations, can backfire, hurting shareholders, in this case those of Pepsi.
Last spring, PepsiCo bought “renewable energy certificates” covering all the energy consumed in its manufacturing, distribution and corporate facilities. In effect, Pepsi is indirectly paying someone, anywhere, to generate electricity from windmills or solar panels.
But Pepsi is not just changing it’s behavior — it’s trying to use government to change everyone else’s too. Last May, PepsiCo joined the United States Climate Action Partnership, a coalition of environmental pressure groups and corporations united to lobby the federal government to impose regulations that curb greenhouse gas emissions in the form of a “cap-and-trade” scheme….
PepsiCo may think it can make a profit from these restrictions: The firm can seek CO2 credits for the renewable energy certificates it has bought; also the company outsources its bottling, including some to other countries that have no greenhouse restrictions. At the same time, new CEO Indra Nooyi is hoping the public image of Pepsi as an environmentally friendly company will generate good will and thus business.
But Pepsi is learning that the environmental game — both on its PR front and its lobbying front — is full of pitfalls. Pepsi has firmly come down in support of the notion that industrial activity contributes to harmful climate change — the very argument that lies behind the current crusade against bottled water products.
Pressure groups have started anti-bottled-water campaigns, and the mayor of San Francisco has prohibited city employees from buying bottled water. The top-selling brand of water in the United States — and thus the chief target — is Pepsi’s Aquafina.
The regulatory front is more treacherous. Any cap-and-trade legislation will be complex and nuanced, with the details determining who gets rich and who suffers, meaning he who has the best lobbying team usually wins.
Pepsi may have plenty of resources to hire good lobbyists, but so do other large corporate players in the Washington rent-seeking game, so even getting into this game can be said to create unnecessary risks for shareholders.
More Foolish Mortgage Bailout Proposals
Bailing out mortgage borrowers is a bad idea that most Americans oppose. Yet the “Bush administration is finalizing details of a plan,” “backed by public funds,” that would bail out “borrowers who owe their banks more than their homes are worth because of plummeting prices,” by encouraging “lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.”
“The plan is similar to elements in legislation proposed two weeks ago by Barney Frank (D-Mass.),” legislation that is dangerous, costly, and fundamentally unfair, and would both reward irresponsibility and discourage investment and prudent lending.
Lawsuits, Sarbanes-Oxley Law Ravage U.S. Capital Markets
“U.S. capital markets again lost ground against global competitors last year, highlighting the need to streamline regulation and crack down on excessive securities litigation, industry experts said on Wednesday. The United States received only 6.9 percent of the funds raised in global initial public offerings in 2007 and did not participate in any of the top 20 global IPOs.”
Lawsuits aren’t the only reason capital is fleeing America for better investment opportunities elsewhere. Another reason is the devastatingly costly Sarbanes-Oxley law Congress passed in 2002 in the wake of the Enron bankruptcy. That law’s burdensome bureaucratic requirements and regulations have cost the stock market $1.4 trillion in value, and imposed an additional $35 billion in annual compliance costs on American business, while doing nothing to prevent another Enron, as recent mortgage losses at Countrywide Financial show.
CEI is assisting a court challenge to provisions of that law that violate the Appointments Clause of the Constitution and separation-of-powers safeguards. A challenge to those provisions will be heard by the D.C. Circuit Court of Appeals on April 15 in the case of Free Enterprise Fund v. Public Company Accounting Oversight Board (FEF v. PCAOB).
Most Americans Oppose Mortgage Bailout for Borrowers
Most Americans oppose a mortgage bailout, both for borrowers and for lenders. They oppose bailouts for homeowners by a roughly 2-to-1 margin (53 percent to 29 percent). They oppose bailouts for lenders even more strongly, “by a 4-to-1 margin,” according to pollster Rasmussen Reports.
CEI earlier explained why mortgage bailouts are a terrible idea here, here, here, here, here, here, and here.
Can We Trust the Polar Bear?
The National Center for Public Policy Research has a new study, and Internet ad, on the proposal to list the polar bear under the Endangered Species Act. They point out that, among other things, the population of polar bears in the wild has actually doubled in the last forty years. Aren’t endangered species supposed to be, well, in decline?
Now imagine that animals that are candidates for the endangered species list were treated like candidates for office, and you’ll be ready for the video.
Eliot Spitzer’s Hypocrisy
Mark Tapscott writes about disgraced New York politician Eliot Spitzer’s hypocrisy in the Examiner. Spitzer flouted the rules while loudly berating others for real or imaginary transgressions, and supported bestowing fabulous riches on wealthy trial lawyers while attacking successful businessmen as being fatcats.
CEI earlier wrote about Spitzer’s overreaching and hypocrisy in The Nation’s Top Ten Worst State Attorneys General, and also in a letter published in the Wall Street Journal, an editorial in the Examiner, an issue analysis, and this blog.
Playing God, 1973-style
In today’s New York Times, a feature story profiles a project to create a national economic planning supercomputer by the socialist government of Salvador Allende in Chile in the early 1970s. “Cybersyn,” as the project was known, consisted largely of “a clunky mainframe computer and a network of telex machines.”
A new exhibit in Chile’s presidential palace features a replica of a control chair (pictured right) that was part of the abortive project. The device may seem quaint today, but its being technologically dated makes it no less creepy. Its look is fittingly reminiscent of the furnishings in petty-tyrant Number 2’s control room in “The Prisoner.” And it would look equally at home in Woody Allen’s totalitarian dystopian film Sleeper (its pornographic-sounding name is even reminiscent of the “Orgasmatron” device featured in the film), which was released in 1973, the year Allende was deposed in a military coup.
Now 1973 may seem like ancient history today, but by then, Ludwig von Mises had already clearly shown why economic calculation is impossible without prices operating in a market system, and Friedrich Hayek had made the compelling case of why no single entity could ever gather sufficient knowledge to plan a national economy. Yet the self-appointed planners keep on trying, no matter how many times they fail — and they will always fail. Would that all such schemes end up as museum pieces! (Thanks to John LaBeaume for the Times link.)
Bill Kovacic Named FTC Chairman
Courtesy of Todd Zywicki at the Volokh Conspiracy, I’ve just learned that President Bush will be appointing William Kovacic to chair the Federal Trade Commission when current chairwoman Deborah Majoras leaves the agency in June. Kovacic has served as one of five members of the Commission since January 2006, and was confirmed by the Senate to that post. So, despite the Democratic controlled Senate’s on-going reluctance to confirm Bush Administration appointees, Kovacic will not need to be confirmed again in order to rise to the chairman’s position.
Despite naming often disappointing people to head various other federal agencies, Kovacic’s appointment extends President Bush’s streak of appointing genuinely superb FTC chairmen to three in a row. This is also the second time Bush has named a former George Mason School of Law professor to chair the agency (Tim Muris, one of my antitrust professors at Mason, being the first).
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