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Christopher Swann reports in the Financial Times on just how difficult it is to keep a straight face when talking about "policy" in Washington today.
The Bush administration came under fire in Congress on Thursday for proposing deep cuts in energy-efficiency programmes while increasing funding sharply for longer-term programmes whose payoff are far more uncertain.In his State of the Union address last week President George W. Bush vowed to use advances in technology to reduce dependence on Middle Eastern oil by 75 per cent over the next 20 years.
On Thursday Sam Bodman, the energy secretary, faced senators who believe that the administration is neglecting projects with a proven record of saving energy. Senator Ron Wyden, a Democrat from Oregon, said he could not see anything in the budget that would reduce energy dependence. “Things that would make a difference any time soon are not there,” he said, pointing to the cut in research on vehicle technology.Senators were critical of a 32 per cent cut in proposed funds for weatherisation assistance grants, which help low-income families fit home insulation. . . .
The programme has helped to improve fuel efficiency in 5m American homes, saving the average household receiving assistance an average of $235 (€196, £134.7) per year. The energy saved, Mr Menendez said, was equivalent to 15m barrels of oil a year. . . .
There are also heavy cuts in energy efficiency research. Aside from the $91m cut to weatherisation assistance to $225m, the administration has suggested an $11m cut in spending on energy efficiency in industry to $46m.
Research on vehicle efficiency would also be cut by $6m to $166m, despite the president’s enthusiasm for advanced batteries that could improve vehicle efficiency. A $25m programme to promote energy efficiency technology would be cut altogether.
Posted by dan at 03:58 PM
Labor costs may be under control, but there's one very small class of workers who have seen their wages increase dramatically in recent weeks: ex-Fed Chairmen.
Alan Greenspan, dipping his toe into the lucrative world of buckraking, gave a speech to a group of Lehman Brothers's hedge fund clients. The honorarium, according to the Financial Times, was $125,000.
Facteon says Greenspan earned $174,000 for a whole year's work while at the Fed.
Posted by dan at 03:54 PM
Jackie Calmes writes in the Wall Street Journal about the kabuki budget games, wherein President Bush pretends to present budget cuts and the Republican Congress pretends to consider them.
President Bush sent Congress his list of 141 programs to be killed or reduced to achieve almost $15 billion in savings, and almost half are three-time losers -- cuts he proposed for fiscal years 2004, 2005 and 2006, only to be ignored by Congress each time. The total savings are less than 4% of the current year's projected deficit.If the third time wasn't a charm, the fourth probably won't be either, congressional staffers say. "We look at it," is all one Republican aide would say of the hit list disclosed by the Office of Management and Budget.
Of 91 programs targeted for elimination, 40 are making their fourth annual appearance on the list. Of 50 to be reduced, 20 are perennials. Among those that would get a death sentence -- but for Congress's equally persistent protection -- are the $79 million Advanced Technology Program, $49 million Emergency Steel Guarantee Loan Program and $64 million Oil and Gas Research and Development Program. Each benefits industries that are flourishing right now, administration officials argue.
Also recycled are a raft of education programs -- among them the $99 million Even Start for helping parents and students with literacy, and others for school counseling, alcohol-abuse and drop-out prevention, arts and migrant-education. A $22 million National Writing Project -- to teach teachers how to teach writing -- keeps making the list because it is redundant, OMB said, and because the money goes to a single nonprofit firm that is friendly with an appropriations committee member in Congress. . . . .
The single biggest item on Mr. Bush's list, nearly $1.2 billion for grants to states for vocational education, is on it for just the second time. Among the smallest is $1 million for Close Up Fellowships, which long have brought low-income students not long in the country to observe the federal government at work. This is Close Up's fourth straight mention.
Separately yesterday, the liberal Center on Budget and Policy Priorities called into question some of the budget increases Mr. Bush boasts of in the budget he proposed this week for the fiscal year 2007 that starts Oct. 1. Using unreleased data from OMB, the center's analysts found that in the years 2008 to 2011, the Bush administration would make deep cuts in such areas as veterans' health care, health research and student loans.
In a break from past practice, the administration didn't include a five-year breakdown of proposed spending beyond 2007. OMB spokesman Scott Milburn said such out-year projections are speculative at best.
Posted by dan at 03:39 PM
And I'll give you one Jim Nantz for a character to be named later.
Joe Flint and Merissa Marr report on the strange Al Michaels/Oswalrd the Lucky Rabbit trade in the Wall Street Journal:
Legendary sportscaster Al Michaels wanted to break his contract with Walt Disney Co.'s ABC and ESPN to go to NBC. He didn't know he would be traded for Oswald the Lucky Rabbit.Disney executives had released Mr. Michaels from his contract, but they also extracted a series of business concessions from their rival, General Electric Co. One was the return of Oswald the Lucky Rabbit, a cartoon character created by Walt Disney in 1927 that was a precursor to Mickey Mouse. The rights to Oswald belonged to Universal Studios and Disney had always coveted this piece of its history. NBC acquired Universal two years ago.
Posted by dan at 03:31 PM
The Treasury Monthly Statement for January is out.
The good news: revenues for the first four months of this fiscal year are $760 billion, up 10.3 percent from the first four months of the prior fiscal year.
The bad news: spending for the first four months of this fiscal year is $858 billion, up 7.5 percent from the first four months of the prior fiscal year.
And of course, the spending figures don't include the emergency supplementals like to come later this year.
Posted by dan at 02:14 PM
Yesterday, I took the Wall Street Journal editorial page to task for inaccurately citing the work of University of Rochester professor Ivy Xiying Zhang. The Journal quoted her as saying that Sarbanes-Oxley cost investors $1.4 trillion, when she had written in a May 2005 paper that it explicitly did not cost investors $1.4 trillion.
The Journal’s defense: (1) other people have cited the number; and (2) the editorial writer read a prior, rough draft of the paper, seen here, in which Zhang states unequivocally that it costs investors $1.4 trillion.
Sorry. Not good enough. My best guess: the unnamed scribe who penned the editorial didn’t bother to read carefully either the amateurish rough draft or its final product. (In the final paper, Zhang discusses the phantom recession of 2002, refers to NASDAQ as NADAQ, and generally ignores the fact that the biggest thing affecting the markets in the summer of 2002 was the massive meltdown of Worldcom
Could it be that the Journal editorial writer simply cribbed the figure, and much of the editorial from the Free Enterprise Fund’s press release?
And my guess is that the page still won’t bother to publish a correction. Hmmm. Intellectual laziness, playing fast and loose with facts and figures, a refusal to admit mistakes. Where have we seen this before?
Posted by dan at 08:24 AM
An editorial in today’s Wall Street Journal applauds a lawsuit filed by the Free Enterprise Fund to overturn the Sarbanes-Oxley bill.
“Filed with the help of Ken Starr and Michael Carvin, the suit argues that the Public Company Accounting Oversight Board, the quasi-private agency that Sarbanes-Oxley established to oversee the auditing of public companies, violates the Appointments Clause of the U.S. Constitution. It's a compelling argument and one that, with any luck, may finally spur Congress to revisit a law that has arguably done more economic harm than the scandals that inspired it.Exaggeration? If only. The University of Rochester's Ivy Xiying Zhang last year looked at stock market reaction to Sarbanes-Oxley, finding that the law had cost public company shareholders $1.4 trillion. This is in addition to the billions of dollars companies are spending to comply with the law's new auditing and "internal control" regulations. Much of this windfall is ironically enriching the same Big Four accounting firms that everyone in politics blamed for the original scandals.”
Exaggeration? If only. Zhang's study can be found here.
And of course, Zhang concludes nothing of the sort. In fact, she explicitly says that Sarbanes-Oxley didn't cost public company shareholders $1.4 trillion.
Zhang concludes that during the rule-making period in 2002, U.S. stocks lost $1.4 trillion in market capitalization. But she notes (on page 25 and 26):
“The total market value of NYSE, AMEX and NADAQ [sic] as of July 31, 2002 was $11.3 trillion and the total market value loss around the three significant events (events 14, 16, and 17) in July 2002 amounted to about $1.4 trillion. The losses are huge and it is unlikely that all the losses can be directly attributed to SOX.I estimate the direct costs of SOX based on a recent study by A.R.C. Morgan. This study examines the actual Section 404 cost disclosure of approximately 280 firms. The average initial compliance costs range from $1.56 million for firms with annual sales less than $250 million to $10 million for firms with annual sales between $7 billion and $10 billion. The costs do not include the increase in audit fees or the internal costs. A.R.C. Morgan estimates that these excluded costs would be almost as large as the disclosed numbers, while FEI’s survey of Section 404 compliance costs suggests that the sum of internal costs and the increase in audit fees would be greater than the external costs. Suppose the excluded costs in A.R.C. Morgan’s study are as large as the average disclosed costs, and the compliance costs are capitalized in perpetuity at a rate of 10%, the total direct compliance costs would be around $260 billion. This is likely a small part of the total costs of SOX; the indirect opportunity costs are conecivably much higher. If one assumes that the opportunity costs are three times as large as the direct costs of SOX, the costs of SOX would amount to $1 trillion.
However, although this estimate is based on very pessimistic assumption such as the initial compliance costs would persist, the amount is still significantly smaller than the documented loss of $1.4 trillion in the rulemaking period. Based on the above estimates, at least $400 million of the documented loss is not directly related to SOX.
The possibilities are: (1) the person who wrote the editorial never bothered to read the paper; or (2) the person who wrote the editorial read the paper but didn't comprehend it; or (3) the person who wrote the editorial read the paper but willfully misrepresented its findings.
In other words you have your choice between (1) intellectual laziness; (2) intellectual incompetence; and (3) intellectual dishonesty. Hard to say which.
I'm guessing they won't bother to print a correction.
Posted by dan at 04:44 PM
The indefatigable Allan Sloan catches President Bush privatizing Social Security all by his lonesome.
Posted by dan at 12:27 PM
Bruce Bartlett's new book, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy, has arrived. There's not a lot of new material in here, but it's quite good nonetheless. Bartlett, a former official in the Reagan and Bush I administrations, coherently synthesizes the profligacy, incompetence, and mendacity of the last five years of fiscal and economic policy. The interesting wrinkle is that he does so by quoting almost exclusively from critics on the right. George Will is cited in the index seven times; Paul Krugman, once. You may not agree with his solutions to the problems Bush has created-a VAT--but you have to give him credit for speaking truth to power. The National Center for Policy Analysis, where he worked for six years, fired him for writing the book.
Posted by dan at 08:36 AM
Yesterday, the Wall Street Journal editorial page, desperately seeking to spin the absurd budget proposal, engages in tremendous contortions to focus the blame for the deficit and fiscal profligacy where it really belong: on the Democrats. Never mind that Republicans have controlled the White House for the past five years, and that they've essentially controlled Congress for the past five years, they can't really be blamed for continuing to pass laws that don't align receipts with outlays.
"The only thing worse than Mr. Bush's spending record is the clucking on Capitol Hill deploring it. The Members have voted to spend every dime, and Democrats especially have resisted every attempt to restrain spending growth. Only last week, not one Democrats in the House voted for a bill to slow entitlement spending by a mere $40 billion over five years."
You see, Democrats don't play any actual role in taxing or spending decisions. But they're responsible for them anyway.
This will surely be a lively topic of discussion on the little-watched Journal report on Fox this weekend, which Jack Shafer nicely smacked down in Slate.
Posted by dan at 08:28 AM
From yesterday's Financial Times
"Iraq will gradually increase state-controlled domestic fuel prices tenfold in 2006 to meet International Monetary Fund demands, Iraqi officials said yesterday. The move is likely to spark public protests. Iraq already increased prices by 200 percent in December, igniting protests and creating a rift between the oil ministry adn the government over external political pressure."
Economists will surely note that, aside from energy, inflation will remain firmly under control.
Posted by dan at 08:25 AM
My latest in Slate, on the stalling out of the ownership society.
Posted by dan at 07:59 AM
DQNews.com reports that the number of mortgage default notices being sent out in California is rising swiftly.
Lending institutions sent 14,999 default notices to California homeowners during the October-to-December period. That was up 19.0 percent from 12,606 for the third quarter, and up 15.6 percent from 12,978 for 2004's fourth quarter, according to DataQuick Information Systems.
Posted by dan at 09:07 AM
Amazon.com is rapidly becoming the Wal-Mart of the Internet. It's a place where you can pretty much everything you want at (theoretically) discounted prices. There's another way in which the biggest online retailer is becoming analogous to the biggest retailer-it operates with pretty slim margins.
As Amazon.com's most recent earnings report shows, the company's margins--operating income as a percentage of sales--was 5.54 percent for the fourth quarter of 2005, down from 6.37 percent in the fourth quarter of 2004. For all of 2005, Amazon's margins 5.08 percent, compared with 6.36 percent for all of 2004. Yes, sales rose dramatically over the year, but because of the shrinking marings, that's not translating into significantly higher operating income.
Wal-Mart hasn't released its fourth quarter earnings yet. But in the third quarter, it's margin was almost exactly the same as Amazon's, about 5.3 percent.
In other words, a hyper-efficient Internet-only retailer doesn't seem to offer much in the way of improved margins over a hyper-efficient bricks-and-mortar retailer.
Posted by dan at 08:43 AM
OMB Director Josh Bolten writes an op-ed in today's Wall Street Journal about the latest Bush budget. It's the usual garbage.
It boasts about "spending restraint," highlighting the administration's generally unsuccessful efforts to contain the growth of spending in 1/6 of the budget:
Staying on this positive path will require not only continued revenue growth generated by a strong economy, but also the second prong of the president's fiscal policy: spending restraint. Last year, Congress enacted spending bills that held the growth in total "discretionary" spending (what Congress controls in annual appropriations bills) below the rate of inflation, and that cut the non-security-related portion of that spending below the previous year's level. This week, the president will sign legislation slowing the growth of "mandatory" spending (which rises automatically by law unless Congress intervenes) by nearly $40 billion over the next five years. This is the first such legislation to reduce mandatory spending in nearly a decade.The president's 2007 budget continues this spending restraint. The president is again proposing that discretionary-spending growth be held below the rate of inflation and that non-security discretionary spending receive an actual cut. And he is proposing to reduce the growth in mandatory spending by another $65 billion over five years.
Of course, Bolten fails to mention that spending in the other 5/6 of the budget continues to rise. Nowhere in the article does Bolten mention the size of the budget Bush is proposing--about $2.7 trillion. And he rails against the prospect of tax increases even as he touts the prospect of lower deficits in the future--which will only materialize if (1) the temporary tax cuts on dividends, capital gains, and income expire (i.e. taxes are raised); and (2) the Alternative Minimum Tax continues to hit millions of more Americans each year (i.e. taxes are raised.)
Posted by dan at 08:27 AM
James R. Hagerty has an intersting article in the Wall Street Journal about the income of real estate brokers.
In the closing weeks of 2005, Chang-Tai Hsieh received nearly a dozen calendars and refrigerator magnets from real-estate agents eager to represent him the next time he buys or sells a home. Just before Halloween, two agents left pumpkins on his doorstep.Mr. Hsieh, an associate professor of economics at the University of California, Berkeley, thinks all this free stuff helps explain what's wrong with America's real-estate brokerage business: Rather than competing on the price of their services, agents tend to spend heavily on marketing gimmicks -- and pass that cost to the consumer.
As home prices soared in recent years, so did the percentage-based commissions charged by agents. Residential real-estate commissions in the U.S. totaled $61 billion in 2004, up 42% from 2000, estimates Real Trends, an industry publication. That's bad news for people who buy or sell homes. But isn't this trend at least making Realtors happy?
Alas, no. The number of real-estate agents has grown even faster than total commissions. Membership in the National Association of Realtors, the dominant trade group, totals about 1.25 million, up 63% since 2000.
As a result, there's not even close to enough commission income to keep all those agents in Porsches. The median annual income of real-estate sales agents in 2004 was only $37,600, down from $39,300 in 2002, according to the Realtors. Even that figure overstates agents' well-being. Because most agents are independent contractors rather than employees of the firms where they work, they need to pay out of their own pockets for such things as health insurance, pension plans, driving customers to see homes, and even pumpkins.
Of course, some agents do get rich. Those most successful at selling luxury housing can earn more than $1 million a year. Even in average neighborhoods, the best-known agents tend to get the bulk of the listings because homeowners want a proven performer. In 2004, Realtors with 26 years of experience or more had median income of $92,600, up 37% from two years before.
Posted by dan at 08:24 AM
E.S. Browning writes in the Wall Street Journal on the impact of expenses, inflation, and taxes on long-term stock returns.
Measured the usual way, the Dow Jones Industrial Average has been flirting with a record lately. If only the real world worked that way.Stock indexes such as the Dow industrials and the Standard & Poor's 500-stock index provide a good day-to-day measure of the market's progress. But for investors saving long term for retirement, the indexes tell only part of the story. In that real world, inflation, taxes and trading costs bite huge chunks out of the indexes' real returns, making them far lower than they seem.
If you had invested one dollar in the S&P 500 back at the start of 1926, for example, you would have had $2,655.73 at the end of December 2005 -- a very nice gain. But after removing the effects of inflation, taxes and trading expenses, that $2,655.73 would be worth just $46.59, according to a study by Thornburg Investment Management in Santa Fe, N.M. . . . .
Economists have complained for years that raw index numbers can be misleading for investors saving for the long term. Consider the Dow industrials and their record of 11722.98, set in January 2000. On Friday, the Dow finished at 10793.62, below its recent high of 11043.44 but still less than 1,000 points short of its record.
If you adjust for inflation (not even considering taxes and fees), the Dow would have to rise to 13723 to reach the real current value of its 2000 high, says William Hausman, professor of economics at the College of William and Mary in Williamsburg, Va.
"If you look at an index in nominal terms, it is going to look like it was nothing 50 years ago and like it has really, really gone up since. If you adjust it for inflation, it gives you a very different perspective," Prof. Hausman says.
Prof. Hausman says he would like to see newspapers publish stock indexes in inflation-controlled terms, to give readers a more realistic view of how much their investments are worth. He acknowledges, however, that doing so could be complicated, as different methods of controlling for inflation would produce different index values.
Controlling for inflation and the other factors would make investors less euphoric about the value of their holdings and the rate of return they are receiving. It might make people with poor investment strategies realize that they actually are losing money.
Posted by dan at 08:18 AM