The Irony, It Burns

Shorter Lawrence Summers: everything that the administration whose policies I helped to create is doing is wrong

First, as the president has recognized, the budget cuts implicit in the sequester scheduled to begin in March should not be reduced but spread over time. The economy is already taking a significant hit from increases in payroll taxes. Sudden across-the-board slashing of military and civilian spending will hurt the economy and seriously damage military readiness.

Second, the president and Congress should fix a firm year-end deadline to address the international aspects of corporate tax reform. We are in the worst of all worlds: U.S. companies have nearly $2 trillion in cash sitting abroad because of tax burdens on bringing it home and the perception that relief may be on the way. Ideally, the international tax system should be reformed in a way that is revenue-neutral but increases the attractiveness of bringing foreign profits home. This would be accomplished by replacing the current high rate of tax levied only on repatriated profits with a much lower tax levied on all global profits. If such reform is not going to happen, this should be clarified so business does not keep planning for an amnesty that will not come.

Third, no American, regardless of his or her ideology, should be satisfied with the way the nation’s housing finance system is working. After a period when cheap mortgages were too available, the pendulum has swung too far; a lack of finance is holding the economy back. The clearest evidence is the growing number of lower- and middle-income families paying rents to the private-equity firms that own their homes at rates far above what a mortgage would cost.

Fannie Mae and Freddie Mac, the government-sponsored housing enterprises, have historically provided support to the mortgage market in difficult times. It is high time they be forced to step up and support would-be lenders. Ultimately, government support for owner-occupied housing should be curtailed, but now is not the time.

Fourth, the transformation of the North American energy sector needs to be accelerated. This will have economic and environmental benefits. Those who will decide whether to approve the Keystone XL pipeline, which would run between the tar sands of western Canada and Nebraska, need to recognize that Canadian oil not flowing to the United States will probably flow to Asia, where it will be burned with fewer environmental protections.

I find these prescriptions have an eerie, otherworldly quality to them, as though the last four years had never taken place. Why is there a sequester? The President proposed it. Who wants to increase corporate income taxes? House Democrats. What did the Obama Administration do, during the two years in which Democrats not only held the White House but controlled both houses of Congress or the two years since then, about how the housing finance system works? What did Dr. Summers urge on him in that regard? Not much. What is the main barrier to expansion of the energy sector? The White House.

Don’t get me wrong. You can support the measures that Dr. Summers is urging or oppose them. However, as an old business partner of mine once said “I agree with what you say but I will deny to the death your right to say it.”

26 comments… add one

  • jan

    Those were clear-minded questions asked in the second to last paragraph of Dave’s thread . What I find so frustrating is that the Obama administration doesn’t even acknowledge choices or decisions made, in the past 4 years, as being less than fiscally helpful. Instead, words are couched into babbling rationalizations, or blame is thrown onto others. As someone recently said, “Obama has become “The Anti-The-Buck-Stops-Here” POTUS. Rumor has it that the SOTU address will be more of the same — no real solutions, just railing against the opposition party, which will do nothing but throw more tack strips on any highway leading to cooperation between the two opposing parties.

    In the meantime, the CBO just keeps churning out more bad news: Social Security shockers from the CBO’s latest report.

  • I continue to believe that the Social Security Trust Fund will be exhausted much, much earlier than present projections. Possibly during the present presidential term but in all likelihood shortly thereafter.

  • TastyBits

    Requiring Prime credit qualifications limits the borrowers able to qualify. The recent housing bubble was the result of increasing the number of borrowers. Once the Prime and Sub-Prime borrowers had mortgages, Alt-A, no doc, interest only, etc. were used to increase the supply. The Bureau of Consumer Financial Protection has outlawed these types of loans, and the supply of borrowers has been limited.

  • Or, said another way, what’s happened has been counter-productive.

    You really can’t have your cake and eat it, too. What gets my goat is Dr. Summers’s Monday morning quarterbacking now when he was the actual quarterback on Sunday. Where was this Dr. Summers then?

    Actually, I already know the answer to that question. He is not a professional but a courtier, obedient to the commands of his prince.

  • TastyBits

    @Dave Schuler

    … courtier …

    Larry Summers and Timothy Geithner seem like toadies to me, but you are nicer. I think a toadie is also incompetent.

  • jan

    What gets my goat is Dr. Summers’s Monday morning quarterbacking now when he was the actual quarterback on Sunday. Where was this Dr. Summers then?

    Reminds me of Brennen’s actions under two presidents — first Bush and now Obama — obedient and supportive of policies only when he is serving under that president.

    Currently he is all in for Obama’s drone maneuvers, and against interrogations he once condoned under Bush. It makes you wonder where the man really stands!

  • jan

    Here’s more speculation about the tone and content of Obama’s SOTU speech tomorrow night.

    He won’t lose popularity, or at least not because of this. One of Obama’s few real rhetorical gifts is his knack for dumping on opponents stridently while not sounding strident. He’s always cultivated a cool-headed, above-the-fray, “adult in the room” image — it was key to his post-partisan shtick circa 2008 — and he does a solid job of maintaining it for the benefit of low-information voters who don’t follow politics closely day to day. There’ll be plenty of “we are one America” in this speech to cushion the “Republicans are destroying America” verbiage, and that’ll work just fine for casual watchers. Plus, if he throws some red meat to the left, he can count on some flattering post-speech coverage no matter how dull the proceedings get.

    His game-playing agenda is shown in the bold-lettered phrasing above. It has to do with division and polarization, rather than finding common ground and unification. In other words, he is playing it the same way the next four years as he has in the previous four.

  • Drew

    Speaking of irony, what philosophy do I espouse here? But I digress.

    I travel in a fairly high altitude set. A coinvestor knows Summers well. Smart? Yes. Toadie? Absolutely.

    I find this “but not right now” line amusing but also disheartening. For politicians, they speak with forked tongue…….its never the right time.

    Obama is a fabulous politician (aided and abbetted by a fawning media), clearly a highly partisan ideologue (Dr Taylor’s exculpatory musings notwithstanding), but a clueless policymaker/leader/executive. That, my friends, is a poisonous mix.

    The focus must be growth……….not campaign rhetoric about taxing the rich and corporations, not immigration handouts for votes, not gay marriage, not mindless gun laws, not wildly underetimated cost programs like ObamaCare, not mindnumbingly stupid things like solar power and electric cars for all. This will come not from yet more taxation, denial of spending issues, government control of healthcare and god knows what else. It will not come from government, only from a reduction in government relative to GDP. It would take probably 5 years for markets to clear and all the adjustments to be made.

    Don’t hold your breath. So another lost administration, and 5+ years to get back to a decent glidepath. I pity the fools who voted this man back in thinking he would be their answer. The mother of all self inflicted wounds.

  • Icepick

    Schuler: He is not a professional but a courtier, obedient to the commands of his prince.

    Are we getting away from apparatchik so quickly?

    Drew: The focus must be growth…

    Good news, Drew: The President has finally decided you’re right! The bad news is he’s going to propose a bunch of counter-productive ideas, then he’s going to ignore his own proposals (as will Congress) and let Harry Reid do whatever it is that Harry Reid wants to do.

    Summers: The economy is already taking a significant hit from increases in payroll taxes.

    I thought raising taxes would just make everyone go out and earn more. I am SURE someone told me that. And others told me jacking all the rates up to Clinton-era levels wouldn’t have any negative impact at all, so how is this relatively dinky change hitting so hard?

  • Since he’s not a career party functionary, Dr. Summers is not an apparatchik. I see him more as a courtier, selling his academic credentials for power and influence with the White House.

  • Icepick

    There’s a difference between the academy and the Democratic Party? Who knew?!

  • Academics are disproportionately Democrats but they’re rank and file, not part of the party apparatus.

  • jan

    But, but, Drew…Obama says that the job of debt reduction is nearly done! So, let’s hear none of this ‘growth’ baloney, as our master economist President has the fate of our nation covered!

    I don’t know why I’m gagging…..

  • sam

    What does this make you do, Jan?

    The [the bipartisan Committee for a Responsible Federal Budget ] concludes that policymakers need to find another $2.2 trillion in savings. Meanwhile, congressional Republicans have set their sights on roughly $4 trillion in savings on top of the sequester, the figure the CBO says would be required to wipe out deficits entirely by 2023.

    That’s an astronomical figure, and House Republicans have pledged to do it without raising taxes, cutting military spending or reducing current benefits for the elderly. [my emphasis]

  • Drew

    Readers will note that both sam and Micheal always take the same position: Oh, yeah! Oh, yeah!!! Just what would you cut?…….and politically the Republicans should do it first.

    This is just tripe. First of all, the notion that actions cannot be taken to bend cost curves down and ignite economic growth are just silly. It might take ten years to get those two trajectories in decent shape, but you have to start.

    But after the sam and Micheal straw men comes: more spending and more taxes (only on the rich, of course). That’s the answer!! They are in lock step with Obama, Reid and Pelosi.

    The spending argument of the left reminds me of an alcoholic. For years they are told they will end up with cirrhosis but they just ignore it. Then they have it. And there are demands to DO SOMETHING!!! But stop spending or drinking? We can’t stop drinking, not now. No, not now. Later, when all is well. But the liver, like the budget, does not lie.

    The costs of ObamaCare and taxation on growth and unemployment are taking hold. The budget remains a mess. Bizarre peripheral liberal issues fill the airwaves. Feeble attempts and fiscal and monetary stimulus prop up financial markets, hose savers, but do nothing for employment.

    And Obama grins. What, me worry?

  • sam

    “Readers will note that both sam and Micheal always take the same position: Oh, yeah! Oh, yeah!!! Just what would you cut?”

    Ah, bullshit. I only pointed out that the Republican plan envisages deficit reduction without touching the main drivers of the deficit.

    I hope your business acumen is inversely proportional to your reading skills. Nitwit.

  • Drew

    sorry, sam, no sale.

    You always post on one side, Obama and Dems gooooooood, Republicans baaaaaaaaaad. Droooool.

    In perspective, the only thing the Obama/Reid/Pelosi triumvirate has put up are empty slogans like “balanced approach” or “Republicans want to starve the elderly” or “there is no spending problem” …….the usual pabulum………….and then they tax and spend and regulate.

    Meanwhile, back in the real world, unemployment and growth are nowhere with these guys. Deficits are mounting. Taxes are up. A budget hasn’t been passed in how many years? ObamaCare is proving to be the fraudulent cost saver many of us envisioned….it may break the bank. But at least Obama is getting in his golf rounds, “evolving” on gay marriage, and funding soon to be bankrupt solar companies for his campaign contributors. Gotta give him that.

    PS – I’ll put up my business, financial and economic acumen up against your sorry ass anyday – 24/7/365.

  • sam

    I tell you what, why don’t you draw on the deep well of economic expertise you claim to have and explain how we can reduce the deficit without cutting entitlements and defense, the main drivers of the deficit. And see if you can do it without recourse to the Classics Comics version of libertarianism.

  • I tell you what, why don’t you draw on the deep well of economic expertise you claim to have and explain how we can reduce the deficit without cutting entitlements and defense, the main drivers of the deficit.

    We can’t. If you exempt that much of the federal budget then it just isn’t possible.

    Of course I have no issue with reducing spending on those two (including Medicare and Social Security). Of course, those kinds of cuts simply wont happen until we get enough politicians that don’t care about being re-elected. Since that is almost surely never going to happen, I’m confident in asserting we will never reduce our deficits appreciably in the next 10-15 years (possibly longer).

  • steve

    It remains, for now, a binary choice. We could have put back in power the party that increases Medicare spending, wont cut defense spending and when in power increased our debt by cutting taxes. Growth? Since 1980 the GOP has given us growth only when they have ben able to expand public and private debt. OTOH, we have the Dems who insist on tax and spend, which at least doesnt increase our debt. A party that was willing to take on health care reform, even if you dont like the results. A party that really doesnt know how to promote growth right now, just like the GOP.

    Now add in putting the neocons back in power. They still think Iraq was a great idea and want to repeat it. In a choice between bad and arose, you take bad.

    @Drew- All the Bush tax cuts are still in effect. What did the job creators do with all of that money? If we cut taxes further, ignoring the debt issue, what will they do this time? Why will it be different?

    Steve

  • It remains, for now, a binary choice.

    Not exactly. Even with no change at all in the Republican Party it remains possible for Democratic presidents to receive better counsel from their advisors and for Democratic legislators to make more prudent decisions.

    Saying that “A is a better choice than B” need not mean “everything A does is right” or “A is incapable of improvement”.

  • Icepick

    OTOH, we have the Dems who insist on tax and spend, which at least doesnt increase our debt.

    Given that the deficits under Obama have dwarfed anything done under Bush II, how can you possibly justify that statement? Obama has institutionalized annual trillion dollar deficits.

    Talk of the fiscal prudence of the Democratic party, even comparatively, just tells me you are completely full of shit.

  • steve

    “Given that the deficits under Obama have dwarfed anything done under Bush II, how can you possibly justify that statement? ”

    1) I have looked at the composition of that debt. You claim to have some facility with numbers, so you could do the same.

    2) Economic conditions matter. With a strong economy, a Dem president reduced debt. With strong economies, GOP presidents have increased debt. I think we should be working down our debt, not increasing it when times are good. (Which begs the question, can the GOP provide that strong economy absent deficit spending?) In a weak economy, deficit spending has increased, but I think it a legitimate function of govt to aid people when there are no jobs or in times of crisis.

    Steve

  • jan

    With a strong economy, a Dem president reduced debt. With strong economies, GOP presidents have increased debt.

    I’m trying to fathom these comments, and wring out the logic in them.

    If the strong economy referenced was Clinton’s, then you have to point out a strong republican Congress who offered fiscal restraint and direction to Clinton’s reign.

    The strong economies under a GOP president might be Reagan, whose efforts to cut the deficit were somewhat compromised by a democratic Congress failing to follow thru on an agreement to do so.

    As for GWB, his term was introduced by the faint refrain of a recession (starting under Clinton), the chaotic election recount debacle, followed 8 months later by 911. So, he had some inherent fiscal obstacles clouding his term other than his own spending habits. He also had a democratic Congress the last two years, an ideological body whose policies seemed to be more of a catalyst leading to the crash of ’08, rather then ones slowing or stemming it.

    In a weak economy, deficit spending has increased, but I think it a legitimate function of govt to aid people when there are no jobs or in times of crisis.

    IMO, especially in a weak economy, growth and jobs should be promoted in order to provide employment and ease the personal crisis of the populace. Instead, Obama has been engaged in socially engineering the country, highlighting special interest groups, non-stop campaigning between elections (he is now hell-bent on smashing the R’s in the 2014 midterms), and subjecting businesses to more rules and regulations making it more difficult to exist, let alone offer more jobs to financially strapped people. Basically, Obama’s policies have done nothing to get people back on their feet — only make them more beholding to him and his party.

  • 2) Economic conditions matter. With a strong economy…

    Bwahahahahahahahahaha….

    Oooohhh, sorry. Now seriously…Bwahahahahahahahahahaha

    steve maybe you should consider a career change. You seem perfect as a comedian.

  • We live in an alternative universe.

    Obama’s solutions are to spend more and pretend we don’t have a spending problem. We simply need to allocate money differently.

    No matter how one looks at it, we spend a trillion more than we take in every year and no one is going to stop the runaway train.

Leave a Comment