By James Kwak
So apparently a JPMorgan Chase analyst thinks that senators showed “an unnerving ignorance of fundamental principles of market economics.” Senator Charles Grassley went one better and showed an unnerving ignorance of how the government’s own budget works.
In a hearing on the administration’s proposal to recover the net costs of TARP through a tax on large banks, Grassley said,
“If a TARP tax is imposed and the money is simply spent, that doesn’t repay taxpayers one cent for TARP losses. It’s just more tax-and-spend big government, while taxpayers foot the bill for Washington’s out-of-control spending.”
Grassley apparently thinks that when the government “spends” money, it doesn’t benefit taxpayers. What does he think the government does? Burn it? Give it to Martians?
Apparently according to Grassley, if the government uses the bank tax to cut other taxes or to pay down the national debt, that would “repay taxpayers.” But if the government does any of the following, that is just taxpayers footing the bill for “out-of-control spending”:
- Pay for Medicare benefits.
- Pay for extended unemployment benefits.
- Subsidize student loans.
- Pay for veterans’ health care.
- Pay for soldiers fighting in Iraq and Afghanistan.
- Pay for Head Start teachers.
In 1, 2, 3, and 4, taxpayers get very concrete benefits by virtue of being old, unemployed, students, or veterans. In 5, the benefits are hard to quantify, but few people would say we should spend nothing on national security. I threw in 6 to be “balanced” — it’s something that most Republicans think the government should not be doing.
It is perfectly fine to have debates about the relative value of different forms of government spending. Some government spending counts as productive investments with a positive net present value (think of the interstate highway system, for example), some is pure transfer payments, and some is no doubt wasteful. But saying that when the government collects taxes and then spends tax revenues the people who paid those taxes get nothing in return is pure nonsense.
On the more important issue, I’m glad the administration is pressing for a large bank tax to recover the costs of TARP, because this will have the small effect of creating a disincentive to be large. But politically, it points out the problem with post-funding a bailout, which the administration favors. (The administration was against the Dodd plan to pre-fund future resolutions of large financial institutions.) The banks and their supporters are arguing that now is the wrong time to raise money from large banks, because that would crimp the economic recovery. This is precisely the reason why the funds should be raised before the crisis, during the boom.
The Baseline Scenario 
With the exception of Ron Paul, I consider the term “ignorant senator” redundant.
Nasiripour is freaking awesome. I really like Nasiripour. I think we can call him a journalist and not “just” a blogger eh?? ( although I think bloggers also perform a crucial and necessary function). What I want to know is how Konczal can put him on his blogroll, but when I try to cut and paste the address it links back to the stupid HuffPo main page???
Ron Paul is a congressman.
Anon, you’re correct. [At this hour] I feel I’m becoming senator material.
James:
Why don’t we send JPM a bill for Bear’s liabilities stuck on the FRBNY’s balance sheet. I don’t recall Congress authorizing that particular deal nor do I believe the assets were statutorily investment grade.
I also recall some CLO’s taken onto our balance sheet, one for JPM and Lehman at least.
This was outside of TARP, prior to authorization and not investment grade.
They are ALL congressmen are they not?? Maybe the technically correct term is “Representative”. It doesn’t much matter.
So following your logic, the government should take all the money from everyone and spend it on “good stuff” because we citizens will get some “return”
When companies-industries obtain their wealth off of public assets, they should pay more into the system. Australia has raised taxation on mining, viewing their natural resources as a national asset. What is an American oil company without the U.S. Military? Imagine if they had to carry that expense on their books proportionately. The same is true for corporations benefiting from the war in Iraq while the U.S. Treasury carried the expense for them? The Marines (and Blackwater), provide security without expense. That’s a U.S. expense. So is the bailout. I know where we raise taxes, for Americans, but I’m not sure where their benefits go because shareholders are international.
This cost/benefit must be balanced.
This is totally off topic, so I hope Mr. Kwak can forgive me. I found this over on Felix Salmon’s twitter feed. Warren Buffett very rarely gets called out on his inconsistencies and hypocrisies, so I thought this was worthy of breaking off topic and making sure the good readership of “Baselinescenario” had noticed it. From Robert Teitelman and “Sense of the Markets” and “The Deal” magazine.
Warren Buffett is now praising credit raters (such as Moody’s). The question is, if Buffett is now praising credit raters, can we believe ANYTHING the man says from here on out???
http://www.thedeal.com/sense/2010/05/sense_of_the_markets:_buffett_on_moody's_and_moats.php
Just type the rest of that address out inside your browser. A little annoying, but I think it will work then. It’s worth it, especially if you are one of those who follows Buffett blindly.
Wait, a Republican speaking nonsense about government spending… never!
You and Simon Johnson are doing an admirable job to parse and
refute the constant barrage of lies that are coming from the direction of all the players captured by the banks in the Senate, and the Government. As you are the ones to point to these false arguments on a daily basis, are read by members of Congress who will decide on the new regulations, it’s very probable that
Wall Street lobbyists are behind the disruptions at Facebook.
By the way, many so-called ‘conspiracy theories’ have later been proved to be spot-on!
I wonder why in James’ telling Head Start is considered “thrown in for balance”, while the purely worthless and destructive war is bizarrely equated with “national security” as such, and opposition to it including on fiscal grounds is implicitly straw-manned as wanting to “spend nothing on national security”.
That is of course absolute nonsense. All rational, independent commentators agree that the corporate Global War on Terror not only does not help with national security but badly harms it, while only the chickenhawk equivalent of Larry Summers’ “observers” thinks it helps.
We would improve our national security position and spend far less on it in the process by ending the war and unwinding the useless, unsustainable empire. Pentagon budgets are just another version of the Bailout, just more looting of public money to prop up corporations whose phony “profits” aren’t viable according to any real market.
So it’s truly bizarre to see the GWOT listed among allegedly worthwhile government spending in contradistinction to the Bailout.
Generally those who rail about govt. spending are sucking the ‘t’ the most.
Senator Grassley’s statement makes absolutley not sense. All funds received through taxes either pay for government expenses or reduce the deficit and debt. Since a TARP tax, in and of itself, would not incur any additional expenses, the funds could only reduce the deficit and debt. This is a good example to Repub nonsense-speak. With thinking like this I don’t understand how he ever got elected.
Apparently according to Grassley, if the government uses the bank tax to cut other taxes or to pay down the national debt, that would “repay taxpayers.”
Sen. Grassley is “largely” (or “statistically”) correct, although he should have said “repay right taxpayers”. Given the high concentration of income in the US, most of the Federal taxes are paid by a small number of high-income earners. Wiki estimates that the top 20% pay 2/3 of Federal Income Tax + Soc Security. http://en.wikipedia.org/wiki/Federal_taxation_in_the_United_States
While this number does not include Medicare and some other payroll taxes, it paints the overall picture. And high wage earners do not directly benefit from most of James’ examples.
This is not to say that the government should not actively engage in the distribution of social wealth and income – it should, as otherwise the society will unravel.
But one should make sure to give the full picture, not just bits and pieces of it.
From the ever popular Barry Ritholtz. I wonder if their constituents know about this???
http://www.ritholtz.com/blog/2010/05/why-does-congress-hate-america/
Are we talking the $4-$7 billion annual corn subsidy Grassley here?
It appears some taxpayer dollars are well spent, eh?
Now we have crappy, cheap food and deadzones in the Caribbean Grassley? The trade my pro coal vote to W. Virginia Rockefeller for his pro corn subsidy vote Grassley?
Lord we are in deep trouble.
2 things I should have said above.
Isn’t it interesting how incredibly fast Miss Gillibrand has learned the ways of Congress???
Can you say “conflict of interest” boys and girls??? Oh yes, I knew you could!!!
That’s not “followimg your logic”, that’s going to ridiculous extremes.
This Senators need to look into this ink. Tell me this doesn’t freak you out !
http://americaspeaksink.com/2010/05/islamic-messages-encoded-in-google-maps/
US military has provided ‘protection’ to corporations mining resources all over the world. US foreign policy is based on maintaining and securing more of our military bases abroad. Several South America countries are still trying to get damages done by companies like Texaco and Chiquita. Remember ‘School of the Americas?’ The thanks of these grateful corporations? These ‘Inc-grates’ incorporate offshore to avoid paying US taxes, patronize tax havens to hide money, and conspire with shadow banks to defraud shareholders and the US taxpayers, who are footing the bill for their security. We get a bankrupt Treasury, a broken military, a generation of severely damaged young men and women requiring lifetime care and treatment, and a deserved reputation for Empire building in the name of corporate/military/industrial complex.
That’s not what he said. Next time, try “following the logic” with your eyes open.
Oh, no doubt in Grassley’s mind, “subsidies” are not at all related to ‘taxes’.
Meanwhile, today the FCIC is taking a look at the Shadow Banking System, which was an inevitable result of the kind of economic beliefs that Grassley espouses.
For Grassley: subsidies = good; taxes = bad.
Much of this, it seems to be, is rooted in bad accounting, dark markets, and mystical economics (i.e., ‘derivatives trades’). Consequently, assets can’t be accurately valued, debt is made invisible by creating SIV’s to put it off-books, and tax havens are used to avoid those dreadful ‘taxes’ that Grassley thinks are so deplorable.
This from a man whose livlihood has been underwritten by the public purse, which is paid by (*gasp, shudder!*) taxes!
Aggravating, to say the least.
Absolutely spot on, Mr.James Kwak! Funny how,”nows not the right time” recycles itself in good times, as in bad times? There’s something,”Called Stupid” swimming in the drinking water down in DC’s,lala land.
“Grassley apparently thinks that when the government “spends” money, it doesn’t benefit taxpayers. What does he think the government does? Burn it? Give it to Martians?”
Compare:
Resources freely given by economic actors with no interest other than their own well being.
Resources “spread around” (to coin a phrase…) according to the political connections of those doing the “spreading”.
Government spending corrupts freedom and wastes resources in the name of the politically connected. It’s not about the “what”; its about the “who”.
I think I know what you really meant to say and that is: we are all, in some way, “on the dole”. In many ways I unhappily agree. However, by way of your examples numbered 1-6, and by your admission that we taxpayers receive “concrete benefits by virtue of being old, unemployed, students, or veterans,” (and I would add ‘poor and children of the poor.’) I would have to say that gov’t largesse is passing over a whole big bunch of us taxpayers who do not fall into your categories. Perhaps, the inarticulate and bioag-subsidy-loving, contibution-grabbing Sen. Grassley is thinking of the rest of us poor schmucks. No luck: these—I was going to say doofuses, but that implies ‘stupid’—these conniving progeny of pigs and foxes think only of themselves.
Re: @ Ted K____Nice ,Thanks. Oh,by the way? Who owns the “Rating Agencies”? (I’m not interested about, Fitch) Follow the Money @ Muckety .com
Re: @ Russ___ $2.3tn total (if that ain’t enough) for 2010,and 2011 already earmarked.
All of the things you listed are considered “just tax and spend government” because they aren’t compatible with what his wing of the Republican party considers to be the only legitimate purpose of government: punishing people. Anything that isn’t punishing people for being bad is an inappropriate use of governmental authority, in his opinion. Seriously: you can almost 100% reliably predict which side of any issue a Republican will be on by asking which of the two sides will result in more people being punished.
So James,
Senator Grassley has served 5 terms in the Senate from Iowa. Since all power is derived from the people and elected representatives are their substitutes and agents in government and at all times accountable to the people they serve, what you really mean but stop short of saying is Iowans are ignorant. Interesting.
How are your book sales faring in the good state of Iowa?
Grassley’s not speaking to you, but to those who vote for him and his ilk, a truly ignorant, willfully, I think, bunch. I don’t get it. I live amongst those rural heartland folk. Their inability to parse out nonesense such as Grassley’s comments defies me. I have to go into people’s homes as part of my job. I go into a doctor’s house -8 years of advanced education!- and they’re watching Beck! I tell his wife, “I wouldn’t object to China if we could somehow get whoever runs factories there to pay wages that might allow them to purchase some of our goods (ie, increase demand. (I have no idea how to accomplish that)).
Her reply, “Well they’re communist, you know. Those people work in those factories because their government forces them to.” A doctor’s wife! And he’s no better. I DO NOT GET IT.
No. “Congressman” is synonymous with “representative”
(i.e. Member of the House). If you want to refer to senators and congressmen (both houses) together, you have to say “members of Congress.”
http://www.govtrack.us/congress/findyourreps.xpd
joedee, this is going to freak you out even more: the ENTIRE GOOGLE EARTH is available in Urdu! And 33 other languages !!!!! And occasionally glitches occur in extremely complex computer programs !!!!!!!!!
Very significant numbers of Iowans did not vote for Mr Grassley.
“The Government” doesn’t have any money. “The Government” doesn’t make ANY money, it only spends OUR money.
And the way “The Government” is SPENDING OUR money, pretty soon it will be worthless enough that they may just end up burning it…
I paid $15,000 in taxes last year to my government. How much did you pay?
Since I have shown no sucking on my part, here’s my deserved rant.
My money should pay to build the roads, enforce the laws, and keep me safe from our enemy. Period.
Our government has completely lost what “the land of the FREE” means and they need to be replaced with those that remember.
I don’t care if they are left right or upside down people.
I guess when Republican Senator Grassley shows disdain for Iowans that don’t have health care (and have the unmitigated gall to ask Grassley why he thinks Government health care is not expensive when it pays for Grassley’s health care) and Iowans keep voting for him, Mr. Kwak probably feels his book sales are pretty safe.
What about the audit of the Fed. Reserve amendment offered up by the Senate.(6 senators)?
Ted, I did some research and it turns out you are very astute and correct. A proven corollary to the Peter Principal is, “You can’t fall off the ground.” Book sales are safe in Iowa.
I agree with the sentiment, however, when you say “What does he think the government does? Burn it? Give it to Martians?”–I think it will be spent on large corporations to do contracts that the government used to do for less money and more value, our plutocrats and oligopolies. For example, paying Halliburton (KBR) to feed the army. So although you point out the illogic, the gist is that people would make better decisions with their own money–yes a conservative talking point. But there is some truth in now the government has been thoroughly captured, or so it seems, by corporate interests, maybe we should seek to limit its growth (although this would simply be collecting revenue to pay the current costs).
People don’t understand that government doesn’t do anything anymore. It’s just a big contractor. And even there, what it mostly does is give omnibus contracts to big business that in turn “trickle” it down to smaller firms who in turn get smaller and smaller pieces of the pie. At the bottom of the totem pole, the smaller businesses have very slim margins and, now of course, now access to credit at the banks.
so? some of us paid more than that in just income taxes. never mind sales and fees.
Not so: a congressman is any member of Congress, though the term is more commonly applied to representatives. The out-of-print Dictionary of American Politics referred to that restricted use as colloquial.
Regarding “out-of-control spending:”
Prior to WW II, our practice was to increase military spending for each war in which we participated, and immediately after each conflict, the U.S. would demobilize, and convert wartime manufacturing/spending to peacetime endeavors.
The U.S. would increase military spending for these wars in one or more of several ways:
1) pass legislation to fund war by increasing tariffs;
2) selling U.S. savings bonds;
3) raising the personal income tax rate; or
4) any combination of these 3 methods.
At the end of each war, these funding increases would be reversed or reduced.
Until WWII, that is. After that war, it was felt that we had to stay in a state of “military readiness” because many feared that Russia would seek “to impose its absolute authority over the rest of the world.” After 15 years of continual military spending, Pres. Eisenhower warned in 1961 about the rise of the military-industrial complex.
Thus began our state of ever-increasing military spending. How can taxes be reduced if we don’t reduce military spending? Even after the fall of the Iron Curtain (1989), we still didn’t reduce our military spending. In fact we increased it in order to upgrade some of our older military equipment or build new equipment (i.e. the “Strategic Defense Initiative,” or SDI for short).
Such huge spending on the military can be curtailed by maintaining our military as needed for protecting our country at home and toward uses that engage us in more peaceful strategies around the world. It would be much cheaper.
There’s a new book out I’d like to read, “The War Lovers: Roosevelt, Lodge, Hearts, And The Rush To Empire, 1898” by Evan Thomas. It describes how the Spanish-American War transformed American foreign policy in a way that continues today.
Sources:
1. American Cold War Strategy: Interpreting NSC 68 (Bedford Books in American History) by Prof. Ernest R. May
2. The Price of Liberty: Paying for America’s Wars from the Revolution to the War on Terror by Robert D. Hormats