Consulting by RPM || Free Advice Blog

Orszag Looking Out For Numero Uno

James Fallows wants Orszag to say it ain’t so:

Peter Orszag, until recently the director of the Office of Management and Budget under Barack Obama, to join Citibank in a senior position. Exactly how much it will pay is not clear, but informed guesses are several million dollars per year. Citibank, of course, was one of the institutions most notably dependent on federal help to survive in these past two years.

Objectively this is both damaging and shocking.
– Damaging, in that it epitomizes and personalizes a criticism both left and right have had of the Obama Administration’s “bailout” policy: that it’s been too protective of the financial system’s high-flying leaders, and too reluctant to hold any person or institution accountable. . .

– Shocking, in the structural rather than personal corruption that it illustrates. . . The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution — and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it’s trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service — this says something bad about what is taken for granted in American public life.

Karl Smith–a kinder, gentler Keynesian whom I am now reading because I’m so sick of Krugman–had this to say in reaction to Fallows:

What it says most about is public sector pay. One thing that I find disheartening about the debate over public sector pay is how much it seems to mirror the notion of a “Just Price” for public workers. Is this how we think in economics?

Or do we believe that when prices are out of whack then black markets emerge, corruption of various forms ensues and people engage in strategic behavior?

One thing the low pay of senior public officials allows for is a pump-and-jump. Even in the most noble of circumstances smart folks will notice that they can get to the front of the line pretty fast in the low competition public sector, build an impressive resume and then jump ship to the private sector to make a load of cash.

Less noble would involve actively selling the benefits of one’s position to the highest bidder. What would stop people from doing this? The fear that they would be fired and thus loose out on a lucrative salary. However, with no lucrative salary there is little incentive not to do this.

I do hope that economically oriented folks aren’t suggesting that we use moral suasion to control government corruption. People respond to incentives. If you don’t want them to sell you out then you have to pay them more.

Well yes, Dr. Smith, that’s one possible solution. Of course, it’s an odd solution, since it means we save taxpayers from being fleeced by corrupt corporations…by giving the prize directly to the government employees in the first place.

I’m trying to think if there are any other ways of cracking this nut. How could we change things in DC, so that corporations didn’t find it worthwhile to pay multimillion-dollar salaries to people who had ties to current government officials? Anyone? Bueller?

Two Quick Notes On Krugman

* A while ago I thought I had found Krugman playing fast-and-loose with his readers, when he tried to make it look as if he had been the one advocating bankruptcy for overleveraged banks, as opposed to government bailouts. Specifically, Krugman was noting how Iceland was recovering much better than Ireland, and was insinuating that Krugman had been radical in advocating sitting back and letting the chips fall where they may, whereas the orthodox fuddy-duddies couldn’t bear to let the banks fail. I pointed out that of course Krugman had been in favor of TARP, while it was the Austrians and other “extreme” anti-government types who said the banks should fail.

Well, in the comments some readers thought I was nuts, and that there wasn’t even an apparent contradiction between Krugman’s views vis-a-vis Ireland, Iceland, and the U.S. If so, you need to explain that to Krugman, because here is how he handled the accusation:

Some commenters ask how I reconcile my disdain for Ireland’s bank bailout and praise for Iceland’s refusal to put taxpayers on the hook with my support for the US move to bail out banks back in 2008, via the TARP.

The answer is, numbers matter.

A good piece in the Irish Times makes the point: Ireland’s bank bailout had a face commitment around 15 percent as large as the TARP — in an economy 1/100th the size of the United States. The TARP was only 5 percent of GDP; even if a large part of the money (mainly used to purchase bank equity) had been lost — which it wasn’t — it would not have been a big factor in federal debt.

There have been other losses, largely at Fannie and Freddie; but in the end the cost of financial bailouts is not an important factor in US debt and deficits. In Ireland, by contrast, it is what has made a potentially manageable debt situation catastrophic.

I’d add that the big risk in October 2008 — that the whole world financial system would freeze up — was never a concern in the Irish case.

But mainly, putting taxpayers on the hook for 5 percent of GDP is one thing; putting them on the hook for 60 or 70 percent of GDP, something quite different.

If you want to argue that the “numbers matter,” and that Krugman is right in both of his judgments, OK. But I had some of you telling me in the comments that Krugman’s strategy was the same in both countries.

* In this post, Krugman uses the familiar leech analogy to mock his opponents. Yet I know at some point last spring or summer, I read a Keynesian who was making fun of an ignorant right-winger who had himself used the leech analogy to mock Keynesians. The Keynesian in question pointed out that actually, modern doctors do sometimes use leeches for certain conditions.

I was 95% confident that the Keynesian in question was Krugman, but now I can’t dig up the post. Does this wrong ring a bell with anybody?

Compilation of TSA Horror Stories

Holy cow, I hadn’t heard about all of these. (HT2 David Kramer) If you get bored, skip ahead to the Dr. Phil segment (starting at 4:45).

O’Driscoll Blames Greenspan

The awestruck von Pepe sends this podcast with Gerald O’Driscoll. His point about interest rates in the 19th century in Great Britain is very interesting, but I imagine a Scott Sumner would say that’s as irrelevant as looking at the rental rate of labor back then to assess whether today’s rates are too high or low.

Potpourri

* Lew Rockwell’s podcast with Naomi Wolf. It’s almost cute how she has finally admitted to herself that Obama is going along with all this stuff, but her explanation is that he has no power to stop it. I suppose this is analogous to my feelings for Ronald Reagan. I loved his speeches so much, I just can’t accept that was OK with the growth in spending on his watch.

* Brad Birzer, history professor at Hillsdale College, comes out strongly in support of Ron Paul. (Birzer also was very public in his criticism of the TSA a month or so ago, but I don’t have the link.) If you realized how neo-conservative Hillsdale has become in recent years, you would realize how refreshing it is to see Birzer take this stand. BTW, it was Birzer who invited me in 2005 to give a talk on anarchy to his class on American Order & Disorder. (I’m wondering if he told the students, “And remember, this Wednesday we will have that nutjob Murphy from the econ department give us an example of disorder.”)

* And check out Bob Beckel’s strategy for dealing with Assange, from 1:00 – 1:15. (Kids, count how many things are wrong with his statement!)

However, I will say that I haven’t seen Glenn Greenwald talk about this issue of WikiLeaks saying, “If anything happens to Assange we will release things harmful to the U.S….” Is that true? It’s intriguing if so, I’m just saying I had no idea about that from reading Greenwald.

Last thing: Just let the above play in the background, as you update your Facebook or whatever. All of the tough guys are calling for Assange to be killed; there’s not even a crumb thrown to the issue of law or that maybe the government shouldn’t be killing people they don’t like. Then, at one point, Bob Beckel casually refers to his previous Peace Corps work.

The Reality of the Tax Deal

You won’t believe it, but today at Mises.org I have unqualified praise for two GMU economists, and I illustrate my arguments with a series of curves. (Thanks to Kathy White for creating them.) I may be subject to a boycott in the near future; we’ll see.

Here’s the conclusion:

Most of the pundits — let alone the politicians — debating the tax cut deal have no idea of the impact a payroll tax cut on employees could have on labor supply. Consequently, if the deal goes through, many people may be surprised to see the headline unemployment rate “stubbornly” refuse to fall — or even increase — despite all the “stimulus.”

“What?” you ask in disbelief. “Paul Krugman assures me that cutting payroll taxes on employees will boost spending. How could unemployment possibly go up?”

Read the article.

Maybe It’s Maybelline

OK kids, what do you think? Is this Jon Stewart interview with Ricky Gervais really as spontaneous as they lead us to believe? I hope so, but my momma didn’t raise no fool.

A Blast From the Past

For some reason this episode popped into my head, and I had to look it up on YouTube. It was even funnier than I remembered.