American Elephants

Stimulus Funds Come With Strings! by The Elephant's Child
May 8, 2009, 9:00 pm
Filed under: Capitalism, Economy, Law | Tags: ,

Americans seldom pay much attention to the newspapers, or the news for that matter, from other countries so we are unprepared for the extent to which other countries pay attention to our news. The world has noticed  President Obama’s controversial  intervention into economic affairs. They have viewed his attempt to subvert the legal rights of lenders with alarm.  This is a matter of concern for anyone who does business in the United States or with the U.S. government.

Today the Obama administration established that this kind of banana republic power play is part of their new rule book.  The administration is threatening to rescind billions of dollars in federal stimulus money if Governor Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers which were approved in February as part of California’s budget problems.

Evan Halper of the Los Angeles Times reports:

Schwarzenegger’s office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act.  Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials.

The news comes as state lawmakers are already facing a severe cash crisis, with the state at risk of running out of money in July.

The wages at issue involve workers who care for some 440,000 low income disabled and elderly Californians.  The workers who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state’s contribution to their wages cut fro a maximum of $12.10 per hour to a maximum of $10.10.

California is having major budget problems.  Many suggestions for reducing costs have made the news. I haven’t heard anyone from California suggest drilling for offshore oil which would bring in big money.  But California will have to solve their own problems.

The Democratic Party received $58 million from labor unions for the 2008 elections, and labor leaders came up with another $44 million for the Obama campaign, as well as turning out an estimated 450,000 union associates who took part in get-0ut-the-vote efforts.  The unions get what they want.

The larger problem is that actions have consequences.  Obama has inadvertently  informed investors and businessmen all over the world that legal rights are no longer sacred, contracts can be voided at will, and the risk of state intrusion into the private economy is as real in the United States as in a developing country.

Global Warming Meets a Basic Cost-Benefits Test, and Loses. by The Elephant's Child

Bjørn Lomborg is director of the Denmark-based think tank The Copenhagen Consensus Center, author of The Skeptical Environmentalist and Cool It: The Skeptical Environmentalist’s Guide to Global Warming.  He gave a talk today at the Manhattan Institute. The transcript was published in The New York Post. Lomborg is a professor of statistics, and was at one time, a member of Greenpeace.

Here, he has some important information for politicians, and the rest of us:

IN the heart of a financial crisis, most of us carefully consider every last purchase. It is important that politicians do the same when making vital policy decisions.

Instead of focusing on initiatives with the greatest benefits, they tend to be swayed by those with the most vocal advocates. Take the Kyoto Protocol. Its $180 billion annual global cost would perhaps be worth the investment if it made any substantial difference to global warming. But even if Kyoto were implemented for the rest of this century, it would cut temperatures by just 0.3 degrees Fahrenheit.

This doesn’t pass a basic cost-benefit test. The investment would cause more immediate financial hardship than eventual good. There are many better uses for the money.

That point was underscored by Copenhagen Consensus 2008, a project I designed to champion the use of economic tools in international aid and development policy.

For two years before Copenhagen Consensus 2008, teams of experts wrote papers identifying the best ways to solve the world’s biggest problems: air pollution, conflict, disease, inadequate education, global warming, malnutrition and hunger, sanitation and water challenges, subsidies and trade barriers, terrorism and gender-disparity issues. They identified the investments that would best tackle each challenge and outlined the costs and benefits of each.

A group of prestigious economists — including five Nobel laureates — gathered and examined this research. They took the long menu of investments and turned it into a prioritized list of opportunities. At the bottom — the least cost-effective investment the world could make to respond to any of these problems — was dealing with climate change through immediate CO2 cuts, as the Kyoto Protocol attempts.

At the top was the provision of micronutrients — particularly vitamin A and zinc — to undernourished children in South Asia and Sub-Saharan Africa.

For just $60 million annually, we could reach 80 percent of the world’s 140 million or so undernourished children. The economic gains from improving their lives would eventually clear $1 billion a year.

For another $286 million, we could iodize salt and fortify basic food with iron for 80 percent of the children who are at risk of stunting and poor development because they’re going without.

Interestingly — and perhaps predictably — many of the economists’ top-ranked solutions were to problems that don’t attract many headlines or much celebrity attention. The simple act of deworming children in developing countries, for example, would improve nourishment and allow some of the world’s most disadvantaged kids to learn more and get better jobs later.

Copenhagen Consensus 2008 showed that we know how to stop people from dying from malnutrition, pollution, HIV/AIDS and malaria. Solving these problems would open a world of opportunities, including allowing a disadvantaged community to grow, develop and care about longer-term issues like global warming.

What we need to do now is cheap and simple. It’s mostly a question of getting what’s needed (micronutrients, cleaner forms of fuel, free condoms and mosquito nets) to those in need. Death tolls remain high because we have limited resources, and these problems are not considered our biggest concerns.

Economic tools such as cost-benefit analysis and prioritization will never offer the last word in public policy debate — and nor should they — but they can provide a vital input for decision-makers.

The process that worked for Copenhagen Consensus 2008 — and that encouraged philanthropic organizations to invest more in malnutrition — is also relevant for national and state governments and city administrations.

Prioritization is difficult for any politician, whether a member of the Obama team or a city administrator. The project would give a city like New York the opportunity to focus on the spending priorities that achieve the most. Vested interests and lobbying groups create a lot of noise. Copenhagen Consensus sets aside that noise, so that the costs and benefits of competing options can be seriously considered side-by-side.

The recession that has made life more difficult also offers an opportunity for us all to rethink our priorities — and ensure that each dollar spent achieves as much as possible.

And the News from Our Allies Is… by The Elephant's Child
May 8, 2009, 2:38 am
Filed under: Foreign Policy, Freedom, Military | Tags: , ,

From the Wall Street Journal:

Since World War II, U.S. military dominance has underpinned the Asia-Pacific region’s prosperity and relative peace.  So it’s cause for concern when one of America’s closest allies sees that power ebbing amid unstable nuclear regimes such as Pakistan and North Korea and the expanding military power of China.

In the preface to a sweeping defense review released Saturday Australian Defense Minister Joel Fitzgibbon writes: “The biggest changes to our outlook…have been the rise of China, the emergence of India and the beginning of the end of the so-called unipolar moment; the almost two-decade-long period in which the pre-eminence of our principal ally, the United States, was without question.”

Australia prepares for U.S. decline.  Read the whole article here.

Arbitrary Government Intervention Could Lead to Money Flowing Elsewhere. by The Elephant's Child
May 8, 2009, 1:56 am
Filed under: Capitalism, Economy, Law | Tags: , , ,

From the Guardian, in the UK:

(Reuters) – Political risk is becoming a growing concern for investors in the United States as the government plays a larger and more controversial role in private enterprise because of the financial crisis.

State intervention in economic affairs is always closely watched by investors for what it means for their decisions on where to allocate money, although this is usually more of a worry in emerging markets than in developed economies…

They view President Obama’s restructuring plan for bankrupt automaker Chrysler as an attempt to subvert the legal rights of lenders and say lenders will also be unfairly targeted if the U.S. Congress passes a bill to rewrite bankruptcy law to reduce home mortgage payments.

Investors concerned that politics could hurt them may demand a risk premium before they buy stocks or bonds or do a business deal.  That could make the U.S. less competitive and money might flow elsewhere.

“There is a much larger political risk premium on investing in the United States than there has been in years,” said Sean West, an analyst at Eurasia Group, a research and consulting firm that studies political risks.

“What we’re seeing now in the United States is much more like what we see in emerging markets, where the government either by choice or as a result of circumstance is in a position to decide which companies or banks survive and which ones don’t” he said.  “These were almost unthinkable risks a year ago.”

Ouch!  The Guardian is a left-of-center paper, and Reuters is, well, Reuters.  You can read the whole article here.  Sometimes it is helpful to discover what others are saying about you.

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