More Damning Evidence from the Secret Memo - Part 2

In the last post, we found out that the Stimulus was egged on by Union interests, and despite a "bipartisan" veneer, was really only looking for confirmation bias along Keynesian lines.

This next section, covering pages 12-33, there are a few passages that hint that this Stimulus scam wasn't the best of ideas.

So far, in my reading, only one bit of forecasting in this memo seems to have held true:

"An excessive recovery package could spook markets or the public and be counterproductive."

If you see the graphs I put up the last post, that seems to have been the case, and we would have been better off not having passed the Stimulus bill.

Further on down, it seems that a political agenda was a chief consideration for this stimulus bill.  It wasn't necessarily doled out by need.  The "Core" package included "key campaign priorities."  And the "short-run economic imperative" was to address as many campaign promises as possible.

But here is another critical factor--so critical, in fact, that it was in bold, underlined, and italicized in the memo itself: 

"But it is important to recognize that we can only generate about $225 billion of actual spending on priority investments over next two years. and this is after making what some might argue are optimistic assumptions about the scale of investments in areas like Health IT that are feasible over this period."

In short, you have only so much money you can spend.  This was a point the memo felt a need to spell out twice.  Unfortunately, there seems to be nothing in this memo that takes seriously the notion that spending cuts might be something to consider for the country's economic health.



And speaking of spending, the memo's preparers had a thing or two to say about Obama's campaign promises:  they were unsustainable.

"Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding new offsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run."

What's more, the memo says if Obama were able to implement his campaign promises in 2007, before the crash,

"...the deficit would rise by another $100 billion annually. The consequence would be the largest run-up in the debt since World War II and the highest debt as a share of the economy since the 1950s. Figure 4 shows the projected increases."

Let's have a look at that figure, shall we?

Holy crap!  And this was supposed to help our economy how again?

But take a look at that slump in the graph (and here, a slump is a good thing).  That happened after the GOP took control of the House & Senate after Clinton had pissed off the public enough (and after just a year in office, to boot).  Compare this with the 2006 Dem takeover of House & Senate (which occurs about where the red leaves off after 2005):

I really do not see how, especially after looking at this chart, Obama and the Dems could possibly see this massive spending bill as a good thing.

And this was the reason the people revolted in the form of the Tea Party in February of 2009.

People tend to want to blame the President for bad economic policy.  He may have some hand in it, but according to the Constitution, the purse strings belong to the House.  Which brings up another interesting point, the memo encouraged Obama to take on a familiar line that Obama has used pretty much throughout his presidency:

"With a short-term economic recovery package, the deficit in fiscal year 2009 is likely to
be about $1.3 trillion, which at 9 percent of GOP will be by far the largest deficit in American history excluding the two world wars and the Civil War. Most economists are not concerned about the near-term deficit deterioration, but the public may be more concerned. As noted above, it is therefore crucial in early January that we make it clear to the American public that you inherited this large deficit rather than created it." (Emphasis mine) 

But, in comparison to the debt projections post-Stimulus, the Bush years, even at their worst, were far better than what the Stimulus slapped onto us.

You would think Obama & Company would see this clearly, but unfortunately, even the memo points out Obama's economic cluelessness as a senator, citing the failed "Hope for Homeowners Act" that he co-sponsored:

"You were an original co-sponsor of the Hope for Homeowners Act- a foreclosure mitigation policy which sought to encourage principal write-downs among investors by splitting the cost with the government. Unfortunately, largely due to the unwillingness of lenders to write down principal, the program completely failed: 400,000 mortgages were eligible for writedowns but only 111 applied."

And why did it fail?  Borrowers and lenders were more familiar with economic realities than pie-in-the sky idealism:

"Our conversations with industry and community groups have led us to believe that
lenders will continue to resist the idea in most cases (and hence our core proposal is the
affordability program outlined in Part 1). However, there were some flaws in H4H that remain:  fees that push interest rates up for borrowers, fees that deter lenders, and requirements that lenders eat too much of the mortgage losses for them to be willing to participate."

Nonetheless, the memo proposes a mortgage restructuring program that could modify 2.5 million loans, "profitably," with the caveat that 1 million of those would probably redefault.

Did you get that?  1 million of those would probably redefault!  This is the sort of thinking that got us into the whole subprime cluster-schtupp in the first place!  A plan that expects about a 40% rate of failure is a plan that should not be considered!

But, you know, the Proglodytes of the Left have this habit of letting their ideologies trump reality.

As a final note of disgust, the precursor to Obamacare's "Death Panel" is mentioned in this section of the memo.  I've highlighted the bothersome part.

"The health board idea, proposed by Sen. Daschle in his book, allows for timely and oftentimes difficult policy changes to be made to Medicare and Medicaid and possibly other parts of the health system with a degree of independence from the Congressional process and special interests. This idea is included in Sen. Baucus's white paper on health reform. The Health and Economic Teams consider a Board an essential ingredient to improving the value of health care in the long run."

Congressional circumvention.  It's been a hallmark of these past three years.

Damning Evidence from the Secret Memo - Part 1

Yesterday, I read at Doug Ross' site how a "Sensitive/Confidential" Memo to President-Elect Øbama from 2008 that the White House knew the Stimulus was a scam.  Make sure you follow the link to the original article from AEI.

The 57-page document is available for download.  I'm running through it right now to see if it's so.

And I'm finding a lot of other stuff that further convinces me why Øbama SHOULD NOT BE RE-ELECTED IN 2012.

At this point, I'm only at page 11, but there are a few things I've already found in the memo that are well worth reporting.

Starting off, the second and third bullet points on Page 2 admonish the President-Elect to "establish serious reform and fiscal discipline credentials" and "committing to a responsible budget."

Continuing on to page 3, the team that put together this memo also said, "Your campaign proposals add about $100B per year to the deficit largely because rescoring indicates some of your revenue raisers do not raise as much as the campaign assumed and some of your proposals cost more than the campaign assumed."

Chairman Zero.  The faux Constitutional scholar who would wind up circumventing Constitutional principles showed even worse economic sense.  And that was before he took office.

Well, how well has he done with that advice so far?  It kind of reminds me of the sort of advice Rehoboam took when he was crowned King of Israel (1. Kings 12).  Instead of listening to the wisdom of the older generations, Rehoboam took with the inexperience of his own.  And it spelled the beginning of the end for Israel.

Well, there's that Stimulus that was rammed through Congress, and set off the Tea Party Movement.  The official line fed to us from the Hill was controlling unemployment.  Then-Speaker Nancy Pelosi even went so far with her "500 million jobs lost per month" gaffe. 

In the memo, the team put together projected rates of unemployment without the Stimulus, as shown by the graph below (taken from the memo itself):

How well did the memo-preparing eggheads do with their predictions?  Miserably.  Here are the unemployment numbers reported from January 2009 to January 2012 (Source:  tradingeconomics.com)

Now to give you a rough idea as to the difference between projected non-stimulus unemployment and actual numbers after the stimulus had been passed:

In short, it seems we would have been better off NOT passing the Stimulus.

To bolster the case for the Stimulus, on pages 10 and 11, a handful of economists are briefly quoted.  Now, economists from the Left and Right are presented, apparently to show a sort of bipartisan consensus for the Stimulus, but there is some fudging of the truth here.

From the Memo: 

     "This is standard macroeconomic analysis and it has led most leading economists to callfor substantial stimulus packages. Based on our consultations and published accounts:

Progressive Economists:
• Robert Reich believes it should be $1.2 trillion over two years, but also indicated it could be larger.

• Joe Stiglitz believes it should be $1 trillion over two years.

• Paul Krugman: at least $600 billion in one year

• Jamie Galbraith: $900 billion in one year

• Institute for America's future (signed by Dean Baker, Andy Stern, Leo Gerard, John
Sweeney, and others): at least $900 billion

First of all, why use the label "Progressive?"  They don't use the label "Conservative" when listing "Republican" economists.

Secondly, any report involving Robert Reich and Paul Krugman should not be taken seriously.  Robert Reich has a tendency to emphasize the facts only convenient to his ideology.  Krugman, despite his Nobel Prize (whose worth has been cheapened over the years) has striked out consistently on his economic predictions.

The majority of the IAF signatories mentioned here is very troubling:  Andy Stern, Leo Gerard, and John Sweeney are all major figures in the Union scene.  Of course they would advocate anything that would pour money into their interests!

But all of the economists listed here--Krugman, Reich, Baker, and Galbraith--have one thing in common:  They're all Keynesians.  That is to say, they believe in the notion that you can spend yourself into prosperity, as opposed to exercising fiscal discipline.

And this is what is problematic about their choice of "Republican Economists":

Republican Economists:
• Marty Feldstein was an early proponent of a spending-only package and currently
believes it should be $400 billion in the first year.

• Larry Lindsey, a former Federal Reserve Governor and NEC Director, estimates that
$800 billion to $1 trillion is desirable.

• Ken Rogoff (widely respected macroeconomist, former chief economist of the IMF,former McCain adviser): $1 trillion over two years

• Mark Zandi (widely quoted economist, fom1er McCain adviser): at least $600 billion in one year

• Greg Mankiw is the only economist we have consulted with who refused to name a
number and was generally skeptical about stimulus.

Ken Rogoff is a Keynesian.

Feldman and Lindsey are not, but their names are attached to a memo supporting a Keynesian approach without telling the whole story.  Both expressed concern about where exactly the money was going to go.    As it turned out, the money went more towards political interests, so this confirms at least one point of Doug Ross' and AEI's findings about the Stimulus being a scam.

Mark Zandi's inclusion in this list is outright deception.  He was an "informal advisor" to the McCain campaign, but he himself is a registered Democrat.

Then there are all the "Others:"

Others:
• Senior Federal Reserve officials appear to be of the view that a plan that well exceeds
$600 billion would be desirable.

• Adam Posen (Deputy Director of the Peterson Institute): $500 to $700 billion in one year
• Goldman Sachs: $600 billion in one year

• Open Letter signed by 387 economists including Nobel Laureates Robert Solow, George Akerlof, and Joe Stiglitz on November 19th [note that most economists, including Stiglitz, support higher stimulus numbers today than they did a month ago]: $300 to $400 billion per year

Funny how they felt the need to quite Joe Stiglitz a second time.

Peter Klein of The (non-Keynesian) Mises Institute had this much to say on the whole lot of them: 

"So, we’ve got left-wing Keynesians, right-wing Keynesians, moderate Keynesians, Robert Reich who wouldn’t know a Keynesian from a Kenyan, and Goldman Sachs. How’s that for diversity of opinion?"

The only really honest alternative opinion to all this Keynesianism and special Union interest was Greg Mankiw.