POTUS, the chef of soulful chicken soup

After reading GWB's interview in the National Review Online , I've become convinced he missed his true call in life: author of self-help books (ok: of audiobooks in his case).

From the Mouth of POTUS:

This [compassionate conservatism] is a philosophy that most people adhere to... It wasn’t very well defended, but most people adhere to it. Compassionate conservatism basically says that if you implement this philosophy, your life would become better. That’s what it says. And that’s what it’s all about. It’s saying to the average person, this philosophy will help you make your life better. It’s the proper use of government to enable a hopeful society to develop based upon your talents and your success.

I can see a franchise in the making.

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Busy econ day

1. We're waiting for the Fed to say something about interest rates.
2. Commodity traders "realized profits" yesterday (read: "commodity prices fell a little yesterday"), perhaps to do something while they wait for the Fed's decision. Will the "low US interest rates have lead to speculation on commodities" crowd have more or less ammo if prices bounce back up/ the Fed does something different than cutting 25 basis points? (Full disclosure: for whatever it's worth, I'm part of the bubble-crowd. For a brief, but comprehensive discussion of the different explanations for the rise in commodity prices, see here. The bubble crowd tries to distinguish the continuous, fundamentals-led growth of the last few years from the vertiginous phenomenon of the last few months.)
   
3. Growing business inventories kept the US's GDP from contracting (it grew by 0.6% in the first quarter). While this is obviously better than a falling GDP, could there a less encouraging reason (looking forward) to have avoided the fall?
4. Thanks to Hillary Clinton, the mainstream media is awakening to the idea (ripped from McCain in a deepening of her mind-bogglingly bizarro attempt to contrast herself from Obama in the primaries by looking more and more... Republican?) of the gas-tax holiday. Can there a more idiotic, nonsensical policy proposal this campaign? Even Robert Reich's against it! The founder of the Pigou Club (and no Obama fan himself) says "Score one for Obama."
5. We're still waiting for Ben...
   

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Gas prices rise, McCain sinks deeper.

It's such an ad-hoc corollary to my last post that I couldn't resist the temptation to blog about it even a day late. As you must know by now if you bother to keep up with the US's presidential campaign, John McCain has asked for a "gas tax holiday:"

[McCain] said he would push Congress to suspend the 18.4 cents a gallon tax on gasoline and 24.4 cents a gallon tax on diesel between May and September – a move his advisers said would cost $8bn-10bn in revenues.

He also reiterated his call for the government to stop adding to the US Strategic Petroleum Reserve so as to ease pressure on supplies. US crude oil prices rose to a fresh record high of $113.93 on Tuesday.

Mr McCain has become increasingly populist in tone over recent weeks as he competes with Barack Obama and Hillary Clinton, the Democratic presidential hopefuls, to appear most responsive to economic concerns.

Source

At least Senator McCain is true when boasting (?) about not understanding much economics and incentives. Either that or we have to question his campaign's claim that global warming is one of his main concerns, up there with education, health, and national security.

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Industrial policy by any other name

In ancient times (a week ago), I went to a presentation at the Urban Institute by Douglas J. Holtz-Eakin, ex-Director of the CBO and currently John McCain's senior policy adviser. The purpose of the talk: to find out what that campaign had to say about tax policy.

Unfortunately, what I found out (and in quite the dramatic fashion as it came at the very, very end of the talk, which was otherwise going nicely given what can be expected from such an exercise) was a textbook example of a policy disaster waiting to happen: an instrument labeled as a global-warming-busting environmental policy whose implementation is unfortunately designed in such a way that it begs to be hijacked by special-interests and converted into the Mother of All Industrial Policies (and Granny to One Huge Redistribution). Very sad.

DHE is undoubtedly a smart economist, but above all he now is a political operator; as such, he handled the couple-of-hours worth of questions with outstanding professionalism, seamlessly mixing sound economics with political obfuscation... which made it oh-so-very-frustrating as it meant that each time we began to scratch the surface enough to know there was something interesting there, we veered into some politically-safe generic statement.

(Having said that, one could sort of tell, by the shifts in his tone and body language, when he was talking as DHE, the economist, and as DHE, the Candidate's Senior Policy Adviser.)

But what really gave me the evil goosebumps was when I asked him about the environmental policy. As you might know, McCain has declared that doing something to stop global warming is among his top priorities; as you might also know, he has chosen tradeable carbon permits over Pigouvian taxes. Oh well, nevermind: at least an argument can be made for their equivalence if the former are auctioned off. At least in principle (god knows how car-drivers would be equivalently-taxed, for example, but nevermind).

Now, what I wanted to know was this: since most of the discussion had been about balancing the budget, but the tax and expenditure measures discussed had not included any revenues from internalizing pollution externalities, was this revealing the campaign's true expectations about passing this reform?

The answer that I got came as a disappointment: it started well, presenting tradeable permits as the constrained-efficient option given all sorts of real-world implementation problems, including much more working knowledge on permit markets... and a greater ease to achieve political support (suspicion alarms warming up)... through transitional issues (alarms starting to fire as this is the time where special interests lay waste to the best laid plans)... which would all have still been fair and square within the realm of "they're still serious about it, they're just trying to also be realistic," until we find out that this will mean that not all permits will be auctioned off, but rather that what sounds like a sizable amount (most of them? it hasn't been decided) will be allocated based on... OMG: on issues such as trade competitiveness, strategic interests, etc!

And since giving out permits = subsidizing, this is, pure and simple, an undercover industrial policy waiting to happen.

Now, I'm not remotely trying to suggest that McCain (or DHE) are themselves planning to create a system they can then game for personal gain, but just think of the opportunity for all policy-makers involved to add a clause here and a special consideration there to end up with a Mutant Morphing Monster that achieves little-to-non of the intended environmental purposes, but instead acts as yet another channel to redistribute fiscal resources back to pet sectors while increasing economic distortions to a whole new level.

Another reason, methinks, to prefer a uniform, across-the-board, carbon-emissions tax. When will the Pigou club become a party?

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The Evil That Men Do: Housing Secretary Alphonso Jackson

The guy in charge of the Department of Housing and Urban Development (HUD), the "Housing Czar," if you wish, has quit. And if even a fraction of what the Washigton Post reports is correct... let's just say a lot is explained on the political econ side.

In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term "correction."

...

Jackson, who declined to be interviewed, will be remembered as a Cabinet secretary so committed to carrying out President Bush's goal of increasing homeownership that he encouraged policies that threatened to exacerbate the mortgage crisis, according to interviews with more than 30 current and former HUD officials and housing experts, and a review of numerous HUD documents and audits.

In speeches, he urged loosening some rules to spur more home buying and borrowing. "I'm convinced this spring we will see the market again begin to soar," Jackson said in a June 2007 speech at the National Press Club to kick off what HUD dubbed "National Homeownership Month." He also told the audience that he had no specific laws to recommend to prevent a repeat of the lending abuses that caused the mortgage crisis.

...

Jackson had insisted he would stay in office until the end of Bush's term. But last month, several Democratic senators who hold HUD's purse strings called for his resignation. He had refused to answer their questions about allegations that he was engaged in political favoritism and cronyism. A federal grand jury is investigating whether Jackson lied to Congress about his involvement in contracts and whether he steered millions of dollars in government work at the Virgin Islands and New Orleans housing authorities to his friends.

Read the whole thing here; the quotes above are just the tip of the indignation iceberg.

(HT to Tanta at Calculated Risk.)

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The opportunity cost of listening to Eliot

Spitzer's hypocrisy aside, isn't anyone hrmphing that our limited law-enforcement resources, oh-so strained trying to stop terrorists from blowing us to smithereens (so we are told), are instead being diverted to monitoring high-end prostitution rings? Are there no better targets for their bugging interests? Or, perhaps, we should see this as redistributional justice in action: by monitoring the affluent and their games, they leave the rest of us bloody well alone?

Update... and apologies? From The Economist: "(r)eports indicate that the FBI initially suspected that Mr Spitzer was involved in a case of public corruption because of movement of money in and out of accounts controlled by him. This led federal agents to investigate the prostitution ring and begin electronic surveillance of his phone calls, texts and e-mails." OK, corruption: if that's what triggered the investigation, then the FBI's choice of where to assign its resources is much more reasonable, at least in my book, than if this all but a moral crusade which happened to catch Spitzer with... nah, too easy.

Update (March 12th): The NYT clears up the story and leaves me high and dry. The investigation was triggered by Spitzer's suspicious transactions as reported by his bank. Alas, my peeve got deactivated.

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Goolsbee-gate and Obama's heel

"I think Austan innocently went over there, half as a professor, half as a campaign adviser," said Obama campaign manager David Axelrod. "He's basically a volunteer. He's one of the economists Barack talks to. He's not in close and constant contact with the candidate." (source)

It is undeniable that Goolsbee has been a decisive influence in pre NAFTA-repudiation Obanomics, from health to the environment. It's something akin to a born-again miracle to see the former most-liberal Senator speak econ sense (relative to the other candidates, at least). In fact, as much as one shouldn't vote for advisers, whose job security is not exactly awe-inspiring, I would bet most pro-Obama economists really are pro-Goolsbee-behind-Obama groupies.

That this distancing is worrisome to such a crowd denotes one distinguishing characteristic of Obama's campaign: his main personal asset is his charisma and the credibility this gives to his promise to do things "differently," in particular to listen to other voices, rather than the content that comes directly from him. The complement, running in parallel to the touching speeches, are the interesting proposals in econ and foreign policy which can be traced to his advisers. More than the other candidates, Obama is a moderator of and a conduit for good ideas.

And that, I think, is the crux: if Goolsbee is set aside, who will walk in to provide the econ context behind the charisma? Specially when this distancing is the result of and part of playing politics the "old fashioned way."

In terms of the information content we can derive from Obama's campaign, we've suffered a double loss: a shift of expectations towards damaging populism plus increased uncertainty around this new position.

Let's hope that this is all temporary, a "keep your head low while it dies away," that Goolsbee comes back or is quickly replaced by an economist of similar caliber. Fingers, be crossed.

p.s. I once went to an Obama-event, a small-scale affair way back then, way before the primaries. I was not impressed: his speech was given with his usual skill and passion, sure, but perhaps because I've lived most of my life in a developing country, I'm turned off, not on, by pretty speeches lacking content. I know, I know: this country now needs a unifier; but this country also needs a leader who can process facts and act based on sound analysis (whether his/her own or wisely picked from others). So the kind of things that sparked my interest in this campaign are articles like this one (what turns it off are articles like this one). I guess this makes me particularly sensitive to events that reduce the content behind this particular campaign.

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