Congressional Changes

While I normally don’t always care for the New York Times‘ Nicholas Kristoff’s position on a variety of subjects, I have to say that today he definitely put together a very amusing satirical opinion piece.  “Bonuses for Billionaires” does a fantastic job of doing a tongue-in-cheek discussion of the position of the Republicans and the Tea Party stalwarts in Congress on the U.S. debt and how to get it under control.  But even more interesting than his satire in the piece is one of the comments left by a reader of the piece.  The reader, MNW, from Connecticut suggests the following (and yes, it has been making its way around the Internet in one form or another for a few months now so this is certainly not original – but I think the way this individual wrote it is the best):

What we need is a total reform of the Congress and here is a good place to start. Bring them up to speed with the population as a whole – what is good enough for us is good enough for them.

Congressional Reform Measures for the out-of-touch in the Congress.

1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote itself a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12.

The American people did not make any contract with Congressmen. Congressmen made contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

The greatest welfare system in the country is that enjoyed by the Congress itself. The time has come to raise their taxes and to impose term limits upon their jobs – especially in view of the fact that they spend the greater part of their time working for nothing more than their own re-election.
Welcome to a new world order, congressional persons. Do join us all.

It would be lovely if this actually happened as I (and I’m sure many other Americans) feel that Congress is so out of touch with the American public – especially the middle class – and they have become a new breed of individuals – Homo Politicus – that some measure of reset is necessary.  I’m not some radical left-wing activist, nor am I a right-wing Tea Party supporter, I tend to be more middle-of-the-road…but I certainly feel that Congress no longer works for the American people…Congress works for the those who can enrich their lives…and that is not good for the rest of us.  Just my .02.

A Bad Idea Whose Time Hasn’t Come

I recently came across an MSN article that was published recently on how a bill is currently winding its way through the halls of Congress that is essentially a “cash for clunkers” concept to encourage Americans to trade in their old vehicles and buy new ones. The general concept, on the whole, is not bad — American car buyers will get rid of their old, gas-guzzling vehicles and buy more fuel efficient (and hopefully less polluting) cars to replace them. The upshot is that theoretically America’s car fleet will, on the whole, go up in fuel efficiency which means that our gas consumption should, theoretically, go down and therefore our reliance on oil will, theoretically, go down.

On pure face value this is absolutely a “good thing”. However, the way the government is approaching this (and how the interests in Congress are shaping this bill) worries me. The government will offer consumers a $4500 voucher if the vehicle that they purchase gets 10 miles per gallon (mpg) more than the vehicle they are scrapping. If the new vehicle only gets 4 to 9 mpg more then the old one then the voucher is only worth $3500. And that’s just for cars. For light trucks the mileage gain would only have to be 5 mpg and 2 mpg for the respective vouchers.

Ok, yes, it’s an incentive (just like the incentive that sales tax on new vehicles purchased this year between February 17, 2009 and the end of the year will be deductible on your income taxes next year). The idea is to spur the American consumer to go out and “shop” (sound familiar?) and spend money they may not even have on a big ticket item (i.e. durable goods). In theory, Americans buy vehicles, old gas guzzlers are scrapped, car sales — which are about as anemic as they come — are boosted, and the automakers get a bit of a reprieve from the recession.

The problem is that this is money that the American government doesn’t have. Yes, we could just print more money and, voila!, we’ll have the money for this program. But to do so we must tread carefully. We are already seeing the effects of printing more money as the value of the U.S. dollar is declining with respect to other currencies. Other governments are becoming increasingly concerned about their investments (i.e. U.S. Treasury Notes) in the United States and may slow down or stop buying them altogether. With increased dollar circulation we are diluting the value of the dollar and driving inflation. This is what happened in the mid- to late-late 70s and early 80s and it took the Fed quite a bit of time to take enough dollars out of circulation to help stem the tide.

Now, don’t get me wrong, I understand the concept of deficit spending in order to help pull us out of this economic deep dive but I tend to be a fiscal conservative in my overall outlook. Yes, in my opinion, we need to spend on health care and on infrastructure but I see this bill as another congressional way of throwing a lifeline to the auto industry when already two out of the “Big 3” (i.e. G.M. and Chrysler) have already received a huge amount of bailout money and have both declared bankruptcy. The difference here is that this is something that Washington doesn’t have to do. Already the auto makers are doing an enormous amount to try and spur sagging sales. I recently traded in my 1997 Nissan Maxima for a 2009 Toyota Prius because Toyota was offering 0% financing on 2009 Toyota Prius models (the car that just 8 months ago dealers couldn’t even keep on the lots because they were such a hot item). I did it without a government voucher and got a great deal.

There were many other great offers from Toyota as well…I just happened to be in the market for a Prius. And that’s where this bill won’t do much. In the article “Cash in on your gas guzzler” on MSN Catherine Holahan notes

Even if it passes as now written, the bill might not affect sales much. In a recent Kelley Blue Book survey, nearly 40% of car buyers said that the bill wouldn’t spur them to purchase a new vehicle. Only 13% of survey respondents said that they would be “highly motivated” to buy a new car, if the bill passed.

(Holahan, Catherine, “Cash for your gas guzzler“, MSN, May 19, 2009)

And as for environmental impact — in the current form of this bill (it was originally calling for vouchers for new vehicles that “got at least 28 mpg and new SUVs that saw 23 mpg or more.” (Holahan, Catherine, “Cash for your gas guzzler“, MSN, May 19, 2009)) this bill will do little since it has been watered down.

“This will not benefit the environment, but it will help sell a new pickup truck,” said Ann Mesnikoff, the director of green transportation with the Sierra Club, the nation’s largest environmental protection group. “They are trying to make it possible to sell anything under this bill.”

(Holahan, Catherine, “Cash for your gas guzzler“, MSN, May 19, 2009)

The clear winners in this bill are the auto dealers and the auto manufacturers (which is not a bad thing for the auto dealers given the way that G.M. and Chrysler will be cutting thousands of them off in their bankruptcy proceedings). Even the aftermarket parts industry will lose (and so will many Americans who cannot or choose not to buy a new car at this time) as the parts from older vehicles that typically get refurbished and reconditioned for replacement parts are destined for the scrap heap under this bill. Repairing older cars will become more expensive as parts become scarce. The clear losers in this bill are the American taxpayers — both present and future who will have to pay back this additional debt.

Cut Them Loose

I’ve thought about it quite a bit and I’m about to do an about face…but I think it’s time for Congress and the Obama administration to cut GM and Chrysler off from the government dole. It’s not an easy decision as I know that it will affect thousands of people but I think it’s time for the government to say “enough.” Both GM and Chrysler received about $17 billion back in December and now come back to the government and are asking for another $20 billion. Where does it stop? When will they do what is really needed of them — massive restructuring, renegotiation of union contracts, eliminating top management — when?

If the Obama administration gives them this new round of money what does the American taxpayer get in return? While I haven’t finished looking over GM’s restructuring plan (also available here) it’s already being criticized by GM’s bond holders. According to the Wall Street Journal

A group representing General Motors Corp. bondholders fears that the auto maker’s latest restructuring plan fails to address all the challenges facing the company and doesn’t cut costs enough in light of the deteriorating economy, a person familiar with the bond negotiations said Wednesday.

(“Bondholders Say GM’s Plan Fails to Tackle Issues”, The Wall Street Journal, February 19, 2009)

If General Motors and Chrysler can’t come up with plans that will bring them back to profitability within a reasonable time frame then they will simply become another welfare recipient like the banks currently are. As John Stoll of The Wall Street Journal noted, Senator Richard Shelby of Alabama argued, after receiving the plans from GM and Chrysler, “The focus of the restructuring process should be to make these companies self-sufficient, not to increase their dependence on taxpayer money.” (Stoll, John, D. “Sen. Shelby Says GM, Chrysler Viability Plans ‘Fall Far Short’”, The Wall Street Journal, February 19, 2009). The best course for these companies may well be bankruptcy protection under Chapter 11…and this may well apply to some of the banks as well.

It’s time that the government do what it needs to do to truly head off this continuing downward spiral. If that means nationalizing the banks in order to sort out the healthy from the weak — mirroring the Swedish model of the past — then that’s what needs to be done. If that means cutting GM and Chrysler off and letting them sort their problems themselves then that’s what needs to be done. We cannot continue to subsidize these failing entities, propping them up. If we do so then we will not have the money available to invest in other startups to take their place or in other industries like green energy.

Personally I like Tom Friedman‘s approach in his opinion piece this morning “Start Up the Risk-Takers”.

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

(Friedman, Tom, “Start Up the Risk-Takers”, The New York Times, February 21, 2009)

This is exactly the approach we need. We need to stop keeping dead corporations on a lifeline simply because they claim that their demise will “would cost more than keeping them on life support” (Friedman, Tom, “Start Up the Risk-Takers”, The New York Times, February 21, 2009). The same approach can be applied to the banks…sift through the wreckage, find the ones that are viable, and cut the rest of them loose (either by forcing them to merge with the healthier ones or by simply dissolving them shutting them down). As it is we are headed down our own “lost decade” as Japan did in the ’90s.

As for stemming the tide of foreclosures…it galls me to no end that I am being asked to pay to help people keep homes that they had no business buying in the first place. To that end I would recommend that the Obama administration look at the cases on an individual basis. As with the banks, those homeowners who have a chance to actually survive and pay their mortgages, the government should offer the mortgage holder an incentive to restructure the mortgage so that the homeowner can succeed. For those who haven’t got a chance…they’ll have to lose the house. As cruel as it sounds, the fact is we cannot reward bad behavior by people who had no business buying a house that they had no chance of honestly affording.