Tag Archives: Bush Administration

Corporate Bailouts: the REAL Trickle-down Economics

Advocates of corporate welfare often claim that when governments privilege a handful of firms, the rest of the economy somehow benefits. This is how the Bush Administration sold the bank bailouts. It’s how the current Administration sold the auto bailouts. And it’s how the U.S. Chamber of Commerce is trying to sell the Export-Import Bank.

Mounting evidence, however, suggests the opposite is true: economies whose firms sink or swim based on political patronage grow slower and are less stable than those in which firm success depends on an ability to meet the market test.

That’s me, writing at Real Clear Markets. I’ve always thought that if there were any justice in the English language, “trickle-down economics” would not refer to general tax cuts, but would instead refer to any scheme to privilege particular firms or industries in hopes that their greater prosperity will somehow trickle down to the rest of the economy. I was glad that the editor took my suggestion for the title. Click here to read more.

“The last thing we can do is go back to the same failed policies that got us into this mess in the first place.”

I’ve heard this a great deal lately. I suspect I’ll hear it even more over the next three months. Whatever could it mean? Presumably, the speaker is worried about the sorts of micro and macro policies that were pursued in the years prior to the Great Recession:

  • Perhaps he thinks it was bad policy for federal spending as a share of GDP to leap from 18.2 percent in 2001 to 25.2 percent in 2009 (this was the largest such increase in ANY 8 year period since WWII).
  • Or perhaps he thinks it was bad that net federal debt went from 32.5 percent of GDP in 2001 to 54.1 percent of GDP in 2009 (a post WWII high).
  • Or maybe the speaker thinks it was ill advised for the Bush Administration to be far more aggressive than its predecessors in pursuing discretionary, Keynesian-style countercycle fiscal policy. There were no fewer than four such measures during the Bush years: cash rebates in 2001, investment incentives known as “bonus depreciation” in early 2002, tax rebates in 2003, and of course, the 2008 stimulus bill which included more rebates.
  • Perhaps the speaker thinks it was a bad idea for the Bush Administration to impose 30 percent tariffs on imported steel.
  • Or maybe he thinks it was bad for the Bush Administration to introduce (an unfunded) Medicare prescription drug benefit, the first major entitlement program since the Great Society.
  • Perhaps he thinks it was bad for the Bush Administration to reintroduce industrial policy by signing the Energy Policy Act of 2005, creating the Department of Energy loan program that ramped-up the government’s adventures in venture capitalism.
  • Perhaps the speaker thinks that in the years leading up to the crisis, monetary policy became unhinged from a restrained, rules-based approach?
  • Or perhaps the speaker thinks that the government sponsored enterprises, Fannie Mae and Freddie Mac, systematically encouraged over-leveraging in the housing industry?
  • Or maybe that capital requirements encouraged investors to load up on mortgage-backed securities.
  • Or maybe he thinks that, once the crisis hit, the Bush Administration shouldn’t have undertaken the most comprehensive and far-reaching bailout of private industry in U.S. history, one that resulted in the federal government buying stake in or bailing out hundreds of financial firms.
  • It must be that the speaker was worried that in aggregate these policies had seriously undermined the economic freedom of the U.S., as evidenced by the precipitous fall in measured economic freedom from 2001 to 2009:

If this is what the speaker was getting at, then I couldn’t agree more! Hopefully, he’s proposing ideas to reverse course: spending reductions to bring spending in line with taxation, entitlement reform to put the nation’s budget on a sustainable course, tax reform to close loopholes and reduce rates such as the corporate tax rate, financial reforms to finally end too big to fail, regulatory reforms to reduce distortions in the marketplace, health care reforms so that market forces can actually operate in that industry, and other economic reforms to restore a level playing field in American business.

….Or, maybe the speaker is just focusing on one policy that marginally moved the nation in a market direction, the temporary reduction of all personal income tax rates, including the top marginal rate from 39.6 percent to (gasp!) 35 percent. And maybe the speaker is hoping that no one will notice that on just about every other policy dimension, the previous administration was anything but laissez faire.

Signs, Signs, Everywhere Signs

If you are a local official, you better start reading the new 800-plus page Manual of Uniform Traffic Control Devices (the MUTCD for those who are short on time). This new tangle of federal regulations—written under the Bush Administration—is about to have a major impact on state and local budgets.

Among the new requirements:

  • Writing on street signs in 25 mph + zones must be 6 inches tall by January 2012.
  • New reflective letters need to be in use by January 2016.
  • All new signs can no longer be in ALL CAPS (even when the sign has a very emphatic message). 

ABC’s Jonathan Karl reports:

In Milwaukee this will cost the cash-strapped city nearly $2 million—double the city’s entire annual for traffic control.

The public comment period has now passed, but the Federal Highway Administration is expcted to announce today that a new period of public comment will open soon. 

Who is in favor of these rules? Why the American Traffic Safety Services Association, of course. No; they aren’t an association of concerned drivers. They represent the companies who make the signs.

New Hampshire Buckles Up

New Hampshire is the freest state in America, according to a Mercatus study by Jason Sorens and William P. Ruger.  This study ranked the 50 states by degree of economic and personal freedom:

New Hampshire comes out on top as the freest state in the United States. It achieved this ranking due to its excellent fiscal policies and moderate levels of regulation and paternalism. However, as with all of the states, even New Hampshire has room for improvement, and post-2006 political changes in that state may mean that its ranking in this study will fall the next time we update the data and rankings.

It seems, however, that New Hampshire is in danger of losing its number one spot.  The Wall Street Journal reports that the “Live Free or Die” state is considering passing a seat belt law:

The Granite State has long been known for its plucky Yankee self-sufficiency — it was the first colony to declare independence from Great Britain in 1776. Today it is the only state in the nation that doesn’t have a law requiring adults to wear seat belts. It has resisted efforts to pass one for 30 years, and has been the proud lone outlier since 1995, when neighboring Maine became the 49th state to buckle.

But now, legislators are close to passing a seat-belt law under a push by Democrats who gained control of the state Senate, House and governorship in 2006 for the first time in a hundred years. The Democrats have been boosted in the polls by a wave of migration from other states, including famously liberal Massachusetts, over the past decade.

A growing budget deficit in New Hampshire may be the reason why legislators are contemplating the law:

One key factor in the buckle-up bill is that the state, like others, is strapped for cash. The law would qualify New Hampshire for $3.7 million in federal money offered to states that pass or update seat-belt ordinances by July 30.

The money would come from a law passed by the Bush Administration in 2004 to incentivize the passage of seat-belt laws.  In addition to the federal money,  fines would also raise revenue for New Hampshire.  The bill calls for a $25 fine for first time offenders and $50 fines for second offences.