David Boaz

The Obama administration’s pay czar is busily making plans for America’s financial companies:

Kenneth R. Feinberg has the unprecedented task of deciding executive compensation at seven companies that received large government bailouts. His meetings with American International Group, Citigroup, Bank of America, General Motors, Chrysler, Chrysler Financial and GMAC have been conducted in secret, with neither Feinberg nor the companies willing to say much in public….

Feinberg, who has sole discretion to set compensation for the top 25 employees of each of those companies, has 60 days to make a determination after the proposals are complete. Under the administration’s initiative to curb excessive pay practices, each of the seven companies must also receive his approval for how it pays the rest of its 100 most highly compensated executives and employees. The companies must submit pay plans for these employees by Oct. 12….

During the videoconference with AIG employees, Feinberg mostly avoided giving them detailed answers to their questions. Many of the employees left frustrated because he gave them no sense of whether he would seek to modify contracts that promise them upcoming bonuses, said people familiar with the session….

Senior Treasury Department officials say they do not want Feinberg to set precise prescriptions for how companies compensate employees. Instead, his task is to evaluate pay according to several principles. For instance, does an employee’s compensation reward short-term, risky business behavior? Or, on the contrary, is the compensation tied to longer-term performance goals? Does it allow the company to remain competitive and recruit top talent?

Note also: “Mr. Feinberg’s decisions won’t be subject to appeal.”

Classical liberals often talk about “the rule of law, not the rule of men.” This isn’t even “the rule of men,” it’s the rule of one man. Let us hope that Kenneth Feinberg is a wise, merciful, and incorruptible ruler.

NOTE: I recognize that Feinberg’s authority extends only to companies that have received large government bailouts, and there’s a certainly a case to be made that if companies take taxpayers’ money, they can darn well live with government salaries. But it’s just that kind of political intrusiveness — along with demanding that auto firms keep all their dealerships, or make “green” cars, or build their cars in this country, or whatever — that makes government-run or -dominated companies inefficient. So as Gary Becker says, it’s a “fatal conceit” to assume that Kenneth Feinberg knows better than the market how much top talent should be paid. And some of the people who support the idea of a “pay czar” want his authority to extend beyond the government-supported companies.

Following up on Chris Edwards’ comments, Alan Blinder of Princeton writes in the Washington Post that the stimulus is working and “we need to stay the course.”

But Casey Mulligan of the University of Chicago writes in the New York Post that 90 percent of the stimulus money hasn’t been spent yet, so we could still stop it before it does too much harm:

The best case scenario for the stimulus law gives us results that are miniscule compared with the costs. In the worst case scenario, we actually pay money to further harm an already struggling economy….

It would have been designed better if money had stayed with the taxpayers instead of funneling through dozens of federal agencies — an option that is still available. Otherwise, we are looking at heavy taxes — and further economic damage — down the road to pay for all the borrowing.

Mulligan wrote earlier in the New York Times that “The economy has gotten worse than the Obama administration had predicted it would be even if Congress had spent nothing on ‘fiscal stimulus.'” Mulligan provides more details at his blog stopthefiscalstimulus.com.

Meanwhile, Mario Rizzo of New York University asks

what is the mechanism by which about $70 billion in extra spending (this is the amount of the total stimulus package now spent) reduces the rate of increase in unemployment and reduces the rate of decrease in output in a $14 trillion economy? If my advanced arithmetic is correct this is ½ of 1 percent of the GDP. What kind of Super Multiplier is that?

He goes on to point out that unemployment is now higher than the administration predicted just a few months ago it would be if we didn’t pass the stimulus. So how can we believe today’s econometric claims about the good effects of the so-called stimulus?

A banner headline at the top of the Washington Post Sunday Metro section reads

It’s Time for Deeds to Step Up to the Plate on a Tax Increase

Columnist Robert McCartney, for years the top editor of the Metro section, says that Virginia’s Democratic gubernatorial nominee should “Propose to raise taxes to fix the roads. Yes, you read that correctly. Raise taxes.”

No doubt a lot of Republicans are hoping that Deeds will take the Post’s advice.

McCartney goes on to say that taxes must go up because (in bold) “The public sector needs to expand.” Because, you see, the infrastructure is failing in Virginia and also in D.C., and “Virginia’s roads clearly require extra revenue.”

Well, let’s see. Virginia’s state budget doubled between 1996 and 2006, from $17 billion to $34 billion. And the governor’s office estimated last December that the state would spend $37 billion in 2009 and $37.6 billion in 2010. Thanks to the recession, and to the state’s habit of spending during good years as if the party would never end, those numbers may drop slightly. But even with the current shortfalls, the budget’s gone up by $20 billion in the past 14 years, and they can’t find enough to fix the roads? What have they spent that extra $20 billion on?

Do Mr. McCartney, Mr. Deeds, and other tax-hikers ever think about prioritizing state spending? The Virginians who call themselves the Tertium Quids do. They urge the legislators to review the recommendations of the Wilder Commission and the Virginia Piglet Book to find some opportunities for savings.

Read more…

Some people on the left can’t see any excuse for opposition to collectivism except racism. (Which is, of course, as Ayn Rand said, “the lowest, most crudely primitive form of collectivism.”) Today it’s Paul Krugman:

But they’re probably reacting less to what Mr. Obama is doing, or even to what they’ve heard about what he’s doing, than to who he is.

That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that’s behind the “birther” movement, which denies Mr. Obama’s citizenship.

That is, Paul Krugman can’t understand why people would oppose government control of health care — or skyrocketing deficits, or a federal takeover of education, energy, and finance along with health care — unless they’re driven by racism. But he’s not the only one who sees racists under every bed. Take Washington Post cultural writer Philip Kennicott yesterday, in an essay titled “Obama as the Joker: Racial Fear’s Ugly Face”:

[T]he poster is ultimately a racially charged image. By using the “urban” makeup of the Heath Ledger Joker, instead of the urbane makeup of the Jack Nicholson character, the poster connects Obama to something many of his detractors fear but can’t openly discuss. He is black and he is identified with the inner city, a source of political instability in the 1960s and ’70s, and a lingering bogeyman in political consciousness despite falling crime rates…

Superimpose that idea, through the Joker’s makeup, onto Obama’s face, and you have subtly coded, highly effective racial and political argument. Forget socialism, this poster is another attempt to accomplish an association between Obama and the unpredictable, seeming danger of urban life.

He’s talking about a poster that depicts Obama as the Joker from last year’s Batman movie over the word SOCIALISM. It’s not a very effective poster; what does the Joker have to do with socialism? But it’s ridiculous to see racism in it.

Read more…

The Cato Institute has published thousands of books, studies, articles, and op-eds, and most of them are on our website. But there’s lots of good reading material published elsewhere, and now our analysts are offering handy guides to the best reading in such fields as Principles of Liberty, Constitutional Studies, Health Care, Foreign Policy, and more.

I know that reading lists can sometimes be intimidating — where to start? — and too much of just a list. So these lists are annotated; each recommendation is briefly described. And at my insistence, (almost) all the analysts have started their lists with “Read This First” to suggest a foundational or introductory book or essay. Check them out here.

Lobbying expenditures are up in the second quarter of the Obama administration, reports the Center for Responsive Politics. Well-connected Democratic lobbyists like former House majority leader Richard Gephardt and Tony Podesta, the brother of Obama transition director John Podesta, did especially well. Given the administration’s focus on nationalizing health care and energy, it’s no surprise that health care and energy companies were the biggest spenders. Businesses don’t have unified interests, of course; some health care companies and industry sectors lobby against a government-run insurance plan while they support a federal mandate that every American purchase health insurance. Other firms may just work to get their own members onto the gravy train.

As Craig Holman of the Nader-founded Public Citizen told Marketplace Radio the last time such a report was issued, “the amount spent on lobbying . . . is related entirely to how much the federal government intervenes in the private economy.”

Marketplace’s Ronni Radbill noted then, “In other words, the more active the government, the more the private sector will spend to have its say…. With the White House injecting billions of dollars into the economy, lobbyists say interest groups are paying a lot more attention to Washington than they have in a very long time.”

Of course, this is not a new story. I pointed out in the Wall Street Journal in 1983 that Hayek had told us what to expect back in 1944:

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there.

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

In a graphic on page A6 of the February 13 edition, not available online, the Washington Post reported that “A Washington Post analysis found that more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” The graphic showed that the number of newly registered lobbying clients had peaked on the day after Obama’s inauguration and continued to grow as the bill worked its way through both houses of Congress. More on the frenzied efforts to get a piece of the taxpayers’ money in the spending bill here and here.

And the beat goes on: The congressional newspaper The Hill reports, “Lobbyists lining up for shot at climate bill.”

And that of course is why Patrick Appel reports at the Andrew Sullivan blog that Washington is the hottest city for job-seekers these days.

If you want money flowing to the companies with good lobbyists and powerful congressmen, then all these spending and regulatory bills may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers.

Just as important, businesses will devote their time, money, and brainpower to influencing decisions made in Washington rather than to developing better products and delivering them to consumers. The tragedy is that the most important factor in America’s economic future — in raising everyone’s standard of living — is not land, or money, or computers; it’s human talent. And an increasing part of the human talent at America’s companies is being diverted from productive activity to protecting the company from political predation. With every spending program and every new regulation, the parasite economy sucks in another productive enterprise. Do we really want the best brains at companies from General Motors and General Electric (this quarter’s biggest lobbyist) to Google and Goldman Sachs focused on working Washington rather than serving consumers?

Steve Chapman points out in the Chicago Tribune:

The crisis in state budgets is not an accident, and it wasn’t unforeseeable. For years, most states have spent like there’s no tomorrow, and now tomorrow is here. They bring to mind the lament of Mickey Mantle, who said, “If I knew I was going to live this long, I’d have taken better care of myself.”

If they had known the revenue flood wasn’t a permanent fact of life, governors and legislators might have prepared for drought. Instead, like overstretched homeowners, they took on obligations they could meet only in the best-case scenario — which is not what has come to pass.

Over the last decade, state budgets have expanded rapidly. We have had good times and bad times, including a recession in 2001, but according to the National Association of State Budget Officers, this will be the first year since 1983 that total state outlays have not increased.

The days of wine and roses have been affordable due to a cascade of tax revenue. In state after state, the government’s take has ballooned. Overall, the average person’s state tax burden has risen by 42 percent since 1999 — nearly 50 percent beyond what the state would have needed just to keep spending constant, with allowances for inflation.

Would that other journalists would show such good sense when governors and legislators moan about the draconian budget cuts they’re being forced to make, taking their state budgets back to the dark Dickensian days of 2003 or 2005.

We’ve written more than once about the Democratic “Blue Dogs” and the lack of any actual evidence for their supposed fiscal conservatism.

Now Merrill Mathews in The Wall Street Journal tells the sad story of the Blue Dogs in the Obama era. They call in the journalists, and they moan and complain about their concerns over the deficit and rising federal spending. And when the rubber meets the road, what happens?

•?The State Children’s Health Insurance Program (SCHIP). One of the first things the Democratic leadership wanted the newly inaugurated President Obama to sign was a huge expansion of SCHIP. Democrats have been trying to pass the expansion for over a year, with some bipartisan support. President George W. Bush vetoed the legislation twice, and Congress sustained his veto both times by a hair.

SCHIP was created for low-income uninsured children not eligible for Medicaid. Under the old bill, children whose family incomes were 200% of the federal poverty level were covered. With the new bill, Democrats increased funding to cover children whose family incomes are up to 300% of the federal poverty level—or $66,000 a year for a family of four. The Bush administration and most conservatives thought it should remain at 200%. Did the Blue Dogs agree? Only two voted against the expansion.

•?The $787 billion stimulus. The next major spending package was Mr. Obama’s stimulus bill. Not one House Republican voted for the bill. The Blue Dogs? Only 10 of 52 voted against it.

•?President Obama’s 2010 federal budget. In April, Congress took a vote on the president’s $3.5 trillion budget for 2010—by far the biggest spending package in history. Again, not one House Republican voted for the bill, but only 14 Blue Dogs joined them in opposition.

Matthews says the health care bill is the Blue Dogs’ last chance to show that they actually do care whether the federal government spends us into bankruptcy.

I wrote recently about the anti-Obama T-shirts on display at Washington’s Dulles Airport. This week I can report that at the Baltimore/Washington International Thurgood Marshall Airport, there are big cut-outs of Barack and Michelle Obama. But they’re standing by a display of shirts reading “Don’t Blame Me, I Voted for McCain and Palin” and another reading “NOPE (with the Obama campaign logo) — keep the change.” The times they are a-changin’.

In the interest of full disclosure, I should note that out in the real America, the airports of Albuquerque and San Diego, there are no T-shirts on display for or against any politician. It’s like they don’t think Americans care about politicians.

The Wall Street Journal reports [$]:

President Barack Obama’s health-care plan is in jeopardy because of serious concerns that costs will spin out of control. As much as anyone, it’s White House budget director Peter Orszag’s job to save it…

After his TV appearances, he went straight to the Senate Finance Committee, where he spent three hours with committee aides brainstorming about how to pay for the trillion-dollar legislation. At one point, they flipped through the tax code, looking for ideas.

Note, of course, that finding new sources of tax revenue doesn’t do anything about cost concerns. But for those “fiscal conservatives” who worry more about the deficit than about the government ending up with all our money, new revenue to match new spending may alleviate their concerns. (By the way, this WSJ article also has interesting vignettes about Orszag’s encounters with libertarian writer Virginia Postrel and my former colleague Andrew Biggs.)

For a review of some of the ideas Orszag and his friends have found as they flipped through the tax code — such a charming metaphor for the reality of the ruling class looking for opportunities to extract more of the money we earn — click here.