Osler's Razor

OK - I will be bold and try to start this off. I have started my morning by pulling and scanning over the House version of the stimulus bill (www.speaker.gov). I think all of us probably wish that it wasn't coming to this, but the hole is deep and we need a tall ladder to help us climb out of it.

1.) First the Keynsian issue the Prof brings up. If you believe in this theory as opposed to Smith and Milton Friedman then Reagan and Obama are moving in the right direction. The problem is that once you turn the corner you have to stay the course with consistent economic policy at the Federal, State and Local levels and this is were the nation fails.

It is most easily seen at the local level (at least for me). During the past years as real estate values rose so did the local tax revenues and the associated spending of those revenues. There was little or no concept of 'reserves' or better stated, 'saving money for a rainy day'. Some of the spending had merit (schools, fire rescue services, libraries) but there were a lot of 'nice to haves and pet projects as opposed to 'need to haves'. It is not hard to see that our schools should be teaching some basic 'how to manage your finances' courses. I won't go down that road any further.

2.) As to the speed this stimulus bill is being passed.
It is not as fast as the hastily and unquestioned bank bail out plan. Bush left this for Obama to address. This also means that members of Congress have been contemplating what to do for 3 or 4 months knowing that educated / informed constituents are a little ticked off about the bank bailout and how it is being managed. No initial rules and now an attempt to attach strings to the money and how it should be used.

3.) Bad Bank
This concept is not new. In the late 1980's it was called the Resolution Trust Corporation (RTC). The RTC took over failing Savings & Loans (S&L). The RTC sold the good assets and deposits to existing healthy institutions and took possession of the 'bad assets' and loans, including Mortgage Backed Securities (MBS) whose values were deeply discounted and an 'unrealized' loss on many balance sheets across the country. Most of the problems loans at this time were commercial development loans and not residential. The RTC held these assets and worked out the loans or sold the MBS after indepth evaluation at a discount and in many cases at par. I worked for and S&L that was taken over in 1990 by the RTC and have a little knowledge of what happened since I was working as an accountant. The bad banks 'technically' did die (with the help of the gov't) and there were a lot of new regulations placed on banks and S&Ls regarding minimum levels of capitalization.

It is nice to think that people will do the right thing, but I think history indicates there is a need for rules. Without rules our society runs a foul.

One last comment... I think it is easy for many of us (especially on this blog site) to get very critical of certain provisions of this legislation. This is an educated group of either students or professionals who have some security of their livelihood, medical, etc... I know many people who are wearing the 'other shoe' by no fault of their own and there is a lot on this stimulus package that can help their situations.

Have a great day all. My shovel is ready and I have to return to my digging. You do it yourself when you don't have a job!
 

Talk about Trickle Down economics! The out-of-work blue collar steelworker, contruction worker, factory worker, etc. will not see this money for months, if not years.

I stuck a post about "shovel ready" projects at the end of an earlier topic that had turned to the issue of school construction.

The trouble with a lot of government projects is that it takes for EVER for them to ramp up!

I don't do practice government contracts law, but this firm and my last firm were both full of lawyers that do. And early in my career I got dragged into a couple government contracts cases. It's a Crazy system! Nothing happens right away. There are arguments over the Requests for Proposals (RFPs) and the bidding process, fights over who should be qualified to bid, who gets the contract and on and on. That's just the bid process. Often there's litigation on top of that.

You might have read about the difficulties the Pentagon has had awarding a contract to an aircraft company to make new refueling tankers for fighters. This has been dragging on for years, but no planes have yet been built. No one is getting put to work on building the darn airplanes.

The same thing happens with roads, bridges, schools, and other government facilities. It happens at every level of government federal, state and local.

And with the Democrats in charge, there's the whole issue of Union rules that will slow these projects up.

So if the money was all going to truly "shovel ready" projects, ones where all the approvals are DONE, finished, complete and the only thing keeping the job from starting was a lack of cash, GREAT.

But that's not what's happening. A lot of it goes to concepts and notions and goals.

The ideas pushed by Obama and Pelosi (The Pres. needs to assert some control over her, I think) are worthy ideas. But they are ideas that should be debated. Openly. Not affirmed and rammed through Congress without debate or discussion.

Most of this money will go to planners, contract specialists and adminstrators who will plan projects. And lawyers, lots of lawyers. Good for us with College and advanced degrees, but as tough as it might be for some ot us, its a LOT worse for blue collar workers!
 

The fastest way to get money out there would be to give it to companies and make sure it is used only to hire new workers.
 

"You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."

Rahm Emanuel said those words when speaking about the current economic recession. I find this quote illuminating for two reasons.

First, purely from a bitter party politics angle, we heard all the time about how Bush used 9/11, terrorit warnings, etc. to stir up fear and for political gain. Hell, Naomi Klein (noted moron) has made a career off of going on talk shows and repeating this nonsense and calling it "The Shock Doctrine." Yet, here is Emanuel on record and in print saying that the Obama administration is going to attempt use the recession for political gain and I haven't seend Klein on TV lecturing us over what a horrible man Obama is. I don't hear Olbermann talking about "the only thing to fear is fear itself" and leaning into the camera and staring at me like a crazy person. No, no - apparently when a liberal uses fear to avoid debate and ram through legislation for political gain it is totally acceptable.

Second, I think the quote is illuminating because it tells us what the stimulus bill really is. Look, I think this whole thing is screwed up. I wouldn't vote for a penny of it. But, irrespective of what you think of stimulus as a concept, this bill isn't really about that. This bill includes the first steps towards socialized medicine by creating the National Coordinator of Health Information Technology, which will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. This bill will reverse key parts of welfare reform passed in the early 90s, which will lead to bigger welfare rolls and even bigger government.

There is money for anti-smoking campaigns. There is money for tribal alcohol abuse reduction programs. There is almost a billion dollars for Amtrak, which should be shutdown instead of saved. There is money for reducing lead based paint hazards.

The list goes on.

The stimulus package will stimulate growth in one area. It will stimulate the growth of the federal government. We will recover from the recession because we always do, and this isn't even the worst one we've had in the last 30 years. But, when we do recover we will be left with a bloated federal government, which sadly is exactly what Emanuel and Obama want.
 

And it is what Reagan ended up with, too-- a bloated, corrupt, inefficient, and wasteful military procurement network that cost a lot and delivered little.

What Reagan created with the military (and there is nothing "conservative" about a bloated, inefficient, pork-barrel military), Obama may end up doing in other sectors.

I do think that the cautionary tale for Obama is the Reagan precedent.
 

I guess we should let the bad companies and banks die, but sometimes they DO NOT DIE!!!

Look at STARBUCKS!!! Their coffee SUCKS. And they are EVERYWHERE.

I am not sure what point I was trying to make here.

I was inches from Majoring in Sculpture, so.....
 

http://www.youtube.com/watch?v=h8qT3SDVhMI

Perfect song for today's topic
 

It is a great concept to let the bad banks and business die, but what happens to the unemployed. Therefore the need for some of the items in the stimulus package dealing with COBRA insurance and extended unemployment benefits.

For those so anti-stimulus, and yes there is plenty of garbage in this bill and every other one that deals with spending in Washington, contact your local Congress member and find out how they want to spend the money in your district. You and your neighbors (may have) elected them and they need to answer to you.

What is needed in your district is different than what is needed my mine. Here in Research Triangle the tech firms, including IBM, are laying people off and these people all need unemployment benefits.
 

I thought the interesting point was made the other day that said that 90% of ALL mortgages could be paid off with the money in this bill.
I'd definitely be in favor of that! Plus, you can rest assured I would buy a new car this year, and take out a new mortgage this year to build the second story on my house this year. Since the banks would be without interest on the paid-off mortgages, they would be falling over themselves to lend me the money at a fair rate without prodding.
Don't think that everyone else wouldn't be spending the money they save each month on vacations, big ticket items, etc etc.
Seems to me like this bailout does nothing to get the money into the market quickly. And after all isn't that the point? Once the money flows, the jobs come back!
 

I'm not so worried about the growth of the federal government as some. Again, I think that the only legitimate aim of a civil government ought to be to serve its people and to serve them well, through the provision of quality, efficient, cost-effective (if not free-of-charge) services. I think that government is better philosophically equipped to deliver these than the private sector because the profit motive should not be the driving function behind the provision of non-luxury services.

In practice, however, this doesn't always work out well, because of the problems of inefficiency and ineptitude pointed out.

Economic theories sound good on paper because they deal in abstracta. In reality, none of them come out on a "level playing field" but structured against the backdrop of an existing society. Wiping the slate clean and starting over is never an option.

So you end up with what I've taken to calling a successive series of bandages on economic problems until you reach a crisis state, thereby requiring drastic, transformative and often destructive measures.

The good news is that I don't think we're in crisis state. This stimulus package, whatever its merits and flaws (and it has both), is a stop-the-bleeding now measure.

I think that certain things have to happen no matter what, or else we slip closer to a crisis state. The first is that yes, bad banks and companies have to die. But I'm less confident in the ability of a market weakened by their passing, with all of those assets lost, and the attendant shockwaves that leave people unemployed, can fill the void as the Prof. suggests. Wealth isn't like matter and energy: it can change states, be destroyed, but it can't just be created. The credit "industry" was basically an industry that thrived on the abstraction of market value, interest rates and a hope of repayment. This was fine as long as currency which stood for something, however indirectly (the labor-hours of the creditees) was flowing in. But take away the ability of people to repay, and the ability of collateral (which has real value) to be sold off at equivalent rates to that which is owed, thanks to interest, and all of a sudden you've got "wealth" that was never really there disappearing.

And you can't just invent more of it, or else we're in the wheelbarrows of worthless dollars stage. You've got to have something tangible -- property, labor, something with use-value, and I'm not certain that any of that exists to fill the void that will be left by dying banks and companies.

Or if it does, it could take decades to work back to the mid-90s economic level, and that's for developed, industrialized nations. Where will that leave other parts of the world unable to bounce back? Poverty-stricken, violent, and looking for someone or something to blame. The conditions that breed the sorts of things we call "terrorism."

I think that if you're going to stop-gap here instead of filling the void by nationalization of failed industries, you've got to let the bad ones go, but be able to shift some of the burden over to projects the government can directly fund, such as infrastructure renewal. Anything that creates jobs helps.

But IPLG is right: I've dealt with government contracts, and they're messy and bad because of the red tape of bureaucracy. Too much emphasis is placed on doing things in a standard fashion where the standards are administrated non-locally by managerial-level types, and the process for workers to request changes is abysmally slow.

I'd advocate letting unions or other workers' groups manage these projects within a set of well-defined guidelines, but give them room to vary if need be, as long as variances are noted and in line with custom in the industry. That'd clear up bureaucracy and restore some of the worker's confidence in the work.

Which, ultimately, is what we need. We need to get people working again, in industries that are well-managed.
 

IPLG and Lane, yes, I agree with you that the slow pace of federal government projects is maddening.

But I also wonder at the notion of awarding money only to "shovel-ready" projects, at least huge shovel-ready projects. Do they really exist? I mean, is it realistic to think that a school district, for example, would've gone through its own RFP and bidding process (which state and local governments also have to do when spending tax dollars, right?) if it didn't have some assurance up front that it had the money to pay for it? Why go through all that if you have no idea how you're going to pay for it?

I'm not an expert in these things, at all. I agree with Osler in that I mistrust any huge spending that gets pushed through so quickly. Even more, though, what I fear and what I abhor is waste. With both Bush's bailout and this plan, they seemed and seem like complete unknowns and huge risks: are they really going to help?

On the other hand, Christine's right to emphasize that much of this money will go into people's hands right now, people who need it desperately, and that's important.

I also am wary of Osler's faith in allowing capitalism to work. I know intellectually it's usually the most effective system, but it contains incredible economic brutality for individual who work at those banks and companies that fail through natural selection.

If we're going to be strict capitalists and let bad banks and bad companies fail, okay. But, in my mind, we need an equally strong adherence to some aid for the individuals affected by the failure of those banks and companies, to the thousands of people who lose their jobs when companies fail.

So absent the stimulus package or whatever you want to call it, how do we help those people who've lost their jobs and run out of unemployment benefits?
 

DallasADA
Don't you think that a huge part of the problem is that people lived beyond their means? Doesn't this start the cycle all over again? Did people learn any lessons in the process? of being relieved of their original obligations and probable mistakes in taking on more than they could handle? I wish I had a little more faith in people and their ability to learn from past mistakes.

On a different note, as I listened to the Eleven pm news last night in Raleigh/Durham the lead story was about the NC DOT and the 'shovel ready' projects they have lined up. I got the impression that many of these projects had already gone off for bid and were just awaiting funding.

Now to something lighter - I'll try to focus on haiku