Wednesday, January 09, 2008

 

An Economic Kumbaya with Steve Pearlstein

Today, Steve Pearlstein rails against partisanship with a bit of partisan sniping of his own:

“The president started it off with a speech in Chicago in which, after acknowledging that there is too much partisanship in the capital, he argued that the best way to keep the economy humming was to extend his tax cuts. Not only is this a non-starter with the Democratic Congress, but there isn't a credible economist who would argue that extending tax cuts set to expire in 2010 will do much to help the economy in 2008.”

Mr. Pearlstein refers to all of this as “Bush's partisan nonsense”. Here is the President’s talk; you decide. He opens with kind words for Chicago’s Democratic mayor(the younger Daley) and Democratic Congressman Rahm Emmanuel and then gives an outline of some preferred economic policies…including extending the tax cuts. If outlining policy recommendations is now the equivalent of partisan bantering then the intellectual heft behind non-partisan musings can be little more than “Happy Holiday” greetings. That the Democratic Congress does not wish to consider such an extension merely plays to the essence of politics – this and future Congress’s can go on record as opposing extended tax cuts…and garner all the political goodwill such a move will no doubt engender.

Extending the tax cuts will not, in and of itself, salvage 2008. The President’s talk addressed other economic policy priorities, including housing and health care costs, but he also did explain why extending the cuts was important:

In times of uncertainty it's very important to make sure that the people on the front lines of job growth -- that would be the entrepreneur -- knows taxes are going to remain low. And so one of the first basic principles that I'll be talking to Congress about is this administration will use its authorities to keep taxes low.”

Calling such policy recommendations “partisan nonsense” may play well in Mr. Pearlstein’s social circle but they do not inform the reader as to why the policy is a bad one. I’m guessing he thinks it is simply because the President supports it.

Side Notes I: Mr. Pearlstein opines that no “credible economist who would argue that extending tax cuts set to expire in 2010 will do much to help the economy in 2008.” Well, okay, I don’t think anyone – including the President – would make that proposal the centerpiece of a 2008 stimulus package but some economists would certainly argue lower taxes as important overall – notably Martin Feldstein.

“With all the talk, though, from the Democratic side about raising taxes, do you think your plan can fly?

“They are talking about letting the Bush tax cuts lapse, and that would be a tax increase. And I think that would have an adverse effect, not only when it happened, but even in anticipation as people realize that their aftertax incomes would be coming down.” Martin Feldstein: The Danger Ahead

Side Notes II: But who can tell who Mr. Pearlstein thinks is a credible economist. Here he is on one particular danger to our economy:

“And it could take some of the pressure off the Federal Reserve to lower interest rates, which could stoke inflation, prompt a run on the dollar and reinflate the credit bubble that got us into this mess.”

So I’m guessing he doesn’t agree with economist Andrew Caplin who would seem to argue that pussyfooting around with modest rate cuts is ineffectual:

“Contrarily, there can be a case for the Fed taking very aggressive action. …that gradual interest rate moves can fail because they do indeed validate private sector expectations. Policy, say Andrew Caplin and John Leahy "needs to be more aggressive than the reaction it seeks to elicit." June 14, 2006 #4

But Mr. Pearlstein is very effusive for the ideas of an NYU economist who has been long working on the idea of a “shared-equity mortgage”:

“In simple terms, these "shared-equity mortgages" would offer homeowners the opportunity to lower their monthly interest and principal payments in exchange for sharing any long-term appreciation in the value of the house.”

That economist? Andrew Caplin.

Side Notes III: I’ve noted previously that no matter the economic problem, Mr. Pearlstein will consistently see such troubles as another excuse to give more and more responsibility to Fannie Mae and Freddie Mac. Today, he doesn’t disappoint:

“Fannie Mae and Freddie Mac would probably have to step in and jump-start the market for the new "shared equity" instruments, at least until there is enough experience with them to attract private underwriters into the market. To do that, the housing finance giants would need special legislative authorization.”

Can't we at least let them show they can handle the accounting for their present business before thrusting even more work their way?

Comments:
The substance of your post merits additional review, but let me put in a word in FAVOR of partisanship.

Partisanship means that voters make choices, elected officials make choices and all get held accountable for choices. George Bush's problem is not "partisanship"; either he and his party are making good decisions or bad ones. While I think that both his White House and his party's Congresses have done a lot of damage to traditional constitutional limitations on government power, particularly executive power, the problem isn't partisanship (and if I am wrong, there's no problem at all, of course.)

Partisanship means accountability, responsibility - a moral and political virtue. The failure or refusal to co-opt an opposition party into decision-making can neither poison nor salvage a policy or decision. Only Beltway insiders who deliver aid, comfort, martinis and non-cash kickbacks to both parties care about partisanship; the rest of the country either cares about competent, prudent, effective governance - or, horrors, are themselves proud to be partisan.
 
Bruce - I agree as to the value of partisanship - if we do everything on a bi-partisan basis, why bother having two parties? I expect civility in political discourse but not squishiness.
 
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