UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington under nine presidents and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

January 14, 2009

CRASH TALK

Dean Baker, Truth Out - President Obama could not find any economists who were able to see the housing bubble for his economic team. Fortunately, he indicated that he would be willing to listen to those of us who did in designing his stimulus package. In response to his request for ideas on how to make his economic recovery package more effective, I have put together the following list of seven proposals. This is a mix or match list, intended to be added to the list of items already suggested, although given the severity of the downturn, all of them could probably be included without causing concern about excessive deficits.

1. Extend Health Insurance: Offer a $2,000 tax credit for any firm that gives health insurance to employees not currently covered. Match at a 70 percent rate any improvements in health care coverage (e.g. lower employee premiums) up to $1,000. If 20 million workers get coverage, this will cost $40 billion a year. If another 50 million workers get added benefits that average $800 per year, this will cost the government another $28 billion for a total cost of $68 billion a year. This would be a great first step towards universal coverage. If President Obama also allowed employers and individuals to buy into a Medicare-type public plan, then he will have gone a long way towards reforming the health care system.

2. Publicly Funded Clinical Trials: Start a system of publicly funded clinical trials. The point would be to take the conduct of trials out of the control of the drug industry so that doctors and researchers would have immediate and full access to all research findings. As a quid pro quo for paying for the trials, the government would get control of the licensing of the patent. The drugs developed through this system would all be sold as generics costing somewhere near $4 apiece at Wal-Mart. The payback from this would be enormous, instead of spending $330 billion a year on prescription drugs in 2012, we might spend closer to $30 billion. We'll be paying $30 billion a year or so for clinical trials, and maybe close to that much in licensing fees, and getting much better medicine.

3. Cash for Clunkers: Princeton economist Alan Blinder recently argued in the NYT for a program of buying back older, more-polluting cars at a premium over their book value. This would get the most-polluting cars off the road (raising average full efficiency) and put some money into the pockets of the people who own them. Most of these car owners will have low and moderate income, so we will be putting cash into the hands of people who need it and will spend it. Blinder calculated that we get 5 million older cars a year off the road for a cost of less than $20 billion a year.

4. Subsidies for Public Transportation: People in the United States take more than 10 billion trips on public transportation each year. This has enormous environmental benefits. Not only are these people consuming much less energy by using public transit, by not driving themselves, they are reducing congestion, and therefore reducing the amount of energy wasted in traffic jams. The government can encourage public transit and get money into the pockets of the people who use it (disproportionately low- and moderate-income people), by giving a $1 subsidy for each trip that gets directly passed on in lower fares. For someone taking a subway or bus twice a day, this will amount to savings of $500 a year. The government can include some additional funding to buy more buses and train cars. The cost would be approximately $13 billion a year.

5: Funding for Writers, Artists, Creative Workers: In the New Deal there was both a federal arts project and a federal writers project. These programs employed thousands of young artists and writers. A creative stimulus package can extend this idea for the Internet Age. Suppose that President Obama made $10 billion a year available for state and local governments to support various types of creative and artistic work. This could include music, movies, writing books, even journalism. The one condition for support is that all material be made freely available in the public domain. (Better yet, it could have copyleft protection.) . . .

6. Funding for the Development of Open Software: In the same vein, the government can spend $2 billion a year to develop open source software. This money can be used to further develop and simplify open source operating systems such as Linux, as well other forms of free software. The payoffs from this spending would be enormous. Imagine that every computer buyer in the world would be able to get a computer for which the operating system was free, as was almost all the software that they would ever use. This would surely save consumers an average of at least $200 per computer. . . .

7 Pay for Shorter Workweeks and More Vacations: The United States lags the rest of world in that its workers are not guaranteed any vacation time, sick leave or family and parental leave. In Europe, five or six weeks a year of paid vacation is standard. Also, all West European countries guarantee their workers some amount of paid sick leave and paid parental leave. The stimulus gives us a great chance to catch up with the rest of the world. The government could give make up the pay for two years for any paid cutback in hours, up to 10 percent of total hours worked in a year and $3,000 per worker. This means that if a firm offered workers who previously had no paid vacation, five weeks of vacation a year, the government would provide a tax credit to pick up the tab, up to $3,000 per worker. Similarly, if they extended 10 days of paid sick leave, the government would provide a tax credit for the amount actually used. If employers of 70 million workers (half of the labor force) received an average tax break of $2,500, the cost would be $170 billion a year.


Open Left -
Representative Brad Miller and, in the Senate, Dick Durbin [are proposing] legislation [that will] allow bankruptcy judges to re-write mortgages according to current home values rather than inflated "bubble" values, thus allowing hundreds of thousands, possibly millions, of people to keep their homes over the next two years. It is good legislation that will help lots of real people, and start putting the country back on track toward a post-bubble economy. . .

In late 2007, Miller's bill was defeated by an alliance of Blue Dogs and the banking and realtor lobbies. At the behest of the National Association of Realtors, which gives more money to congressional candidates than any other PAC in the country, and which has 28 people working on the Hill full time as either lobbyists or researchers, sixteen Blue Dogs sent a letter to the House leadership asking them to spike the bill. The end result was that the bill was delayed, severely watered down, and ultimately deemed insufficient by the bill's sponsor. There is every reason to expect a similar effort will be attempted to spike the bill this time around

Wall Street Journal
Rep. Rangel wants to drop an Obama-backed proposal to give businesses tax relief by allowing them to claim new refunds from the government by carrying losses back to prior tax years. The Senate so far has insisted the provision remain in the measure. Instead, Rep. Rangel wants to add in a $70 billion provision that would hold middle-class families harmless from the alternative minimum tax. The so-called AMT was designed to ensure that wealthy individuals pay their fair share of taxes but now threatens to raise the tax bills of millions of working Americans, too. Rep. Rangel and other top congressional Democrats appear united in their concern with another Obama priority: a proposal to create a special tax credit for businesses that create jobs. That proposal now appears likely to be killed or sharply curtailed. . .

The core of plan, in both the House and Senate versions, will be the "Make Work Pay" credit, which effectively provides working Americans with a payroll tax holiday. That proposal soaks up half of the $300 billion that is being set aside for tax cuts.

Seniors and individuals receiving Social Security disability payments would also receive a one-time tax benefit, and action would also be taken to broaden eligibility of the child tax credit.

On the business side, the package would extend special write-offs in the tax code designed to encourage business to make capital investments. About $25 billion would be spent on energy tax incentives, including provisions promoting conservation and development of wind, solar and other renewable sources of power.

Also under discussion is a proposal to provide incentives for low-income housing, with the goal of addressing concerns that the low-income housing credit has fallen out of favor with investors amid the downturn in the economy, threatening to slow the pace of construction. The program under development by House tax-writers as part of the stimulus package would send money directly to local housing authorities in hopes of ensuring there are no gaps in construction, individuals familiar with negotiations said.

Pro Publica & Politico - As president of the New York Federal Reserve Bank, Timothy Geithner often preached that gargantuan financial firms like Citigroup should be held to the highest regulatory standards to make sure they couldn't take on too much risk.

But when it came to supervising Citigroup in recent years, the record shows that the New York Fed eased the reins as the company blew billions on subprime mortgages and other risky deals that ultimately forced the biggest bank rescue in U.S. history.

Now, the 47-year-old Geithner heads to the Senate in coming days as President-elect Barack Obama's nominee for Treasury secretary. . .

The New York Fed's supervisory unit reports directly to the bank president, Geithner. The unit's job is to ensure that firms manage risk and have enough capital to cushion against losses. Large companies tend to be held to more stringent capital standards.

Yet poor risk management and weak capital levels were central to Citigroup's undoing. One enforcement agreement in place before Geithner took office in 2003 – an order requiring quarterly risk reports – was lifted during his watch. A ban on major acquisitions also was eliminated a year after it had been imposed in 2005. Afterward, in 2006 and 2007, Citigroup aggressively expanded into the subprime mortgage business and bought a hedge fund and Japanese brokerage, among other assets.

A year later, as the global financial crisis took hold, Citigroup took losses and writedowns of more than $50 billion. The New York Fed brought no public enforcement case, although examiners privately sent a critical letter to the company in the first half of 2008.

James Pethokoukis, US News & World Report - Economic analyst Robert Kuttner voices the liberal dream of using the recession to justify spending trillions of dollars on loads of liberal policy wishes, all to the tune of $2 trillion over the next two years . . . Here are some excerpts:

1) Aid to state and local governments [so they can avoid layoffs or cuts in services]. Cost: $200 billion.

2) Emergency revenue sharing to states and cities by picking up half of the state share of Medicaid. Cost: $100 billion.

3) Have government temporarily pay most of the cost of COBRA coverage for laid off people who lose their health insurance, and allow people over age 55 to buy into Medicare. Cost: $100 billion.

4) Expand Unemployment Insurance to cover part time workers, extend eligibility period, and increase benefit levels. Cost: $50 billion.

5) Roll back tuitions at state universities and community colleges, and increase Pell Grants--contingent on universities not increasing costs to students. Cost: $100 billion.

6) Declare a temporary holiday on the worker share of the Social Security tax, and have government make up the loss to the trust fund, contingent on employers not cutting wages. Cost: $450 billion.

7) Continue many of the relief programs into a second year, as economic conditions warrant. Cost: $500 billion.

8) Use direct federal lending to refinance distressed mortgages, and as necessary reduce the outstanding principal amount. This can begin by mid-2009. Cost: $200 billion of subsidy; most additional debt is eventually repaid.

9) Begin planning immediately for a broad range of infrastructure programs, from traditional outlay on roads, bridges and mass transit to spending on 21st century infrastructure such as retrofitting homes, green energy, universal broadband, and smart-grid electricity systems. Spend money on worker training as necessary. Cost: $300 billion.

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