"a tax break for homeowners, enacted in 1997, may have contributed to the housing bubble"

An interesting post from Start Making Sense about the power of incentives:

"Perverse satisfaction?

Today's New York Times notes that a tax break for homeowners, enacted in 1997, may have contributed to the housing bubble that (coupled with pathological defects in our financial markets) did so much to bring us to our grim current economic situation.

Specifically, Congress in 1997, acting at the behest of President Clinton, provided that up to $500,000 of home appreciation would be tax-free on sale. Clinton was practicing silly but no doubt poll-tested populism, boasting that, due to the rule, middle class Americans would never again face capital gains tax on their homes. ( WHY SHOULD IT BE TAXED? )

Now let's roll the tape forward 11 years. According to the Times:

"[M]any economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law. ( WHY DO WE WANT A DISINCENTIVE TO SELL? )

"Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for 'fueling the mother of all housing bubbles.' ( HOW SO? )

"By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one. ( HOMES ARE AN INVESTMENT. THAT'S WHY I BOUGHT MINE, PRIOR TO THIS CHANGE IN THE TAX CODE )

"Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards ( THIS IS THE CAUSE. THE OTHERS ARE SILLY ) and low interest rates then gave people the means to do so ( IF THEY COULD HAVE AFFORDED THE HOUSES, WHO WOULD CARE? ).

"Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: 'Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?'” ( WHY SHOULD ANY INVESTMENT BE TAXED? HELLO! )

I happen to know a couple of people who got into the business of buying fixer-uppers, doing renovation work, and then selling for tax-free capital gain, thus achieving exemption for their labor income. There, at least, there was productive activity - but still distortion of economic choice by the tax incentive. ( THE TAX INCENTIVE WASN'T AN INCENTIVE. THE TAX WAS A DISINCENTIVE THAT WAS TERMINATED )

One further idiotic incentive effect was that, as soon as your home begins to approach $500,000 of appreciation, you have an incentive to sell it immediately and buy a new home for the current market price, so that you can run the exemption from zero all over again. Happily (?), however, that is no longer a problem in today's market.

Whenever something like this comes out about special tax breaks that don't merely create perverse incentives ( WHAT'S PERVERSE ABOUT IT? ) but seriously aggravate major economic problems, I have to admit to feeling a twinge of, well, perverse satisfaction that the rules I spend some of my time studying are at least important. Plus I duly note that the problems come from failure to heed the recommendations (e.g., for a relatively broad-based and neutral tax ( WHAT DOES NEUTRAL MEAN?) ) that nearly 100 percent of the experts in my field would make. An unworthy sentiment, to be sure, but I'm only human.

Another big example is the role of the tax system in overly entrenching employer-provided health insurance as the dominant mode of provision ( THAT IS BAD ), to the degree that, while few would advocate building on employer-provided insurance if we were starting fresh, many believe that at this point we need to just accept it as an entrenched feature. Thus, for example, one of the big criticisms of Senator McCain's healthcare plan was that it would have undermined employer-provided insurance without sufficiently putting something else in its place.

The home exemption story is admittedly a bit more complicated than just being a case of stupid Clinton-era populism. Prior to the 1997 enactment, people could generally roll over gain when they sold one home and bought a new one (for at least as much money) within a two-year period. Plus, gains on home sale were otherwise taxable ( WHY? ) while losses were nondeductible ( WHY? ), creating apparent (and some actual) tax bias. The underlying problem is that a "correct" approach would have treated gains and losses symmetrically (leaving aside the issue of taxpayer choice whether or not to sell) when they resulted from market swings, while disallowing recovery only for declines in home value that resulted from home use. Richard Epstein, before he became a libertarian icon, actually wrote an article on this, suggesting that the basis of homes be reduced by depreciation (which would not, however, be deductible since it reflected personal rather than business use), with gain or loss relative to the adjusted basis being equally recognized. That is actually a pretty logical approach, within a standard income tax accounting framework, and the failure to do it, meaning that in some cases properly deductible investment losses were being disallowed, may have helped contribute to the 1997 silliness.

Still, the predominant message here remains: stupid tax breaks interact with other defects in our economic system to help create the current horrific circumstances we face. It's happened before, and it will happen again."

How did it do so? There is no connection between tax breaks and fraudulent or ill-advised loans. None. Why was the sale of the house taxed in the first place? It's a terrible idea that causes a disincentive to buying and selling. Why? The idea that it lead to the current crisis assumes a mechanical view of human behavior, which is clearly false. Under a Human Agency Explanation, it is the committing of fraud, negligence, fiduciary mismanagement, and collusion, along with idiotic loan terms that caused the crisis, not any incentives.

"President Elect Barack Obama, who went to the mat for Lieberman"

From Joe Gandelman on The Moderate Voice:

"Joe Lieberman may have been a Democrat, he may now be an independent, and some progressive Democrats may think he is a closet Republican. But what is indisputable is that he is a survivor: he has come out of a meeting with Senate Democrats upset over his role in supporting losing GOP Presidential candidate Sen. John McCain with little more than a slap on the wrist.

He did so with a little help from a (perhaps former) friend: President Elect Barack Obama, who went to the mat for Lieberman, making it clear behind the scenes that he didn’t want to start off his White House term with Democrats stripping Lieberman of his committee chairmanship or making Lieberman so upset that he’d bolt to caucus with the Republicans.

Progressive Democrats will be and are livid. But Sen. Majority Leader Harry Reid argues that Lieberman is there when it counted on Democratic issues, and Lieberman vows its “the beginning of a new chapter.”

Here's my comment:

I thought that it was a wise political decision, and have been hoping for this. Good work.

Here was an earlier post:

"Wednesday, November 12, 2008

"Several top Democratic senators have launched a behind-the-scenes effort to save Sen. Joe Lieberman’s chairmanship"

I don't talk about these kind of issues much because so many other people do. But here goes:

"Several top Democratic senators have launched a behind-the-scenes effort to save Sen. Joe Lieberman’s chairmanship, despite calls from a Democratic base seeking retribution for Lieberman’s vocal support of John McCain’s presidential campaign.

Sens. Chris Dodd (D-Conn.), Ken Salazar (D-Colo.), Tom Carper (D-Del.) and Bill Nelson (D-Fla.) are all involved in the effort, according to top Senate Democratic aides. These four senators — along with other Lieberman allies — are reaching out to the rest of the Democratic Senate caucus to try to ensure Lieberman survives a secret ballot vote on whether to strip him of his chairmanship of the Homeland Security and Governmental Affairs Committee.

This effort, along with kind words from Majority Whip Richard J. Durbin (D-Ill.) last night about Lieberman, is giving the Connecticut senator some serious momentum heading into next week’s secret vote. Dodd’s involvement in saving his home-state senator is an extraordinary turn because Dodd backed Democratic candidate Ned Lamont in 2006 against Lieberman, who won the Connecticut Senate race as an independent. Dodd, however, had backed Lieberman in the Democratic primary and only switched support to Lamont when he became the Democratic nominee.

Also driving the effort to save Lieberman — an outcast with the progressive left — is the spirit behind Barack Obama’s victory.

“He’s got momentum, and we need to keep him in the caucus, and this fits into Barack Obama’s message of change and moving forward,” said one Senate Democratic aide familiar with discussions. “The message here is that we don’t want to start off a new era with retribution.”

I agree. Keep him where he is. It reminds me of Burke's treatment by the Whigs, which, well, really pissed me off. Lieberman is a Democrat. He was for the war. How many times have we heard the phrase "No litmus test", only to find out there's a folder of them that we have to pass before being a member of a party.

People like Lieberman, Friedman, and Hitchens, strike me as Democrats or leftists. Putting a hex on them because they supported the Iraq war seems wrong. It was a frightful mistake, but we might well make one ourselves someday out of the best of intentions.

"Obama was the true conservative, the Burkean"

Jeffrey Hart on why he voted for President Obama. He's a conservative. In my sense of conservative, I agree:

"Republican President George W. Bush has not been a conservative at all, either in domestic policy or in foreign policy. He invaded Iraq on the basis of abstract theory, the very thing Burke warned against. Bush aimed to turn Iraq into a democracy, "a beacon of liberty in the Middle East," as he explained in a radio address in April 2006.

I do not recall any "conservative" publication mentioning those now memorable words "Sunni," "Shia," or "Kurds." Burke would have been appalled at the blindness to history and to social facts that characterized the writing of those so-called conservatives.

Obama did understand. In his now famous 2002 speech, while he was still a state senator in Illinois, he said: “I know that a successful war against Iraq will require a US occupation of undetermined length, of undetermined cost, with undetermined consequences. I know that an invasion of Iraq without a clear rationale and without international support will fan the flames of the Middle East, and encourage the worst, rather than the best, impulses of the Arab world, and strengthen the recruitment arm of al Qaeda. I'm not opposed to all wars. I'm opposed to dumb wars.”

Burke would have agreed entirely, and admired the cogency of so few words. And one thing I know is that both Nixon and Reagan would have agreed. Both were prudential and successful conservatives. But all the organs of the conservative movement followed Bush over the cliff—as did John McCain."

This is a theme I'd like to develop more. In any case, it's why I'm not worried about President Obama's economic plans, and support him on so many others issues completely.

"A little while ago, I had the honor of calling Sen. Barack Obama to congratulate him."

Via CNN, McCain's concession speech, which I found quite moving:

"Sen. Obama has achieved a great thing for himself and for his country. I applaud him for it, and offer him my sincere sympathy that his beloved grandmother did not live to see this day. Though our faith assures us she is at rest in the presence of her creator and so very proud of the good man she helped raise.

Sen. Obama and I have had and argued our differences, and he has prevailed. No doubt many of those differences remain.

These are difficult times for our country. And I pledge to him tonight to do all in my power to help him lead us through the many challenges we face.

I urge all Americans who supported me to join me in not just congratulating him, but offering our next president our good will and earnest effort to find ways to come together to find the necessary compromises to bridge our differences and help restore our prosperity, defend our security in a dangerous world, and leave our children and grandchildren a stronger, better country than we inherited.

Whatever our differences, we are fellow Americans. And please believe me when I say no association has ever meant more to me than that."

"But Mr. McCain, if he wants to do so, can reasonably argue that he was doing fine until the Lehman collapse"

Floyd Norris in the NY Times considers Paulson's role in the campaign for President:

"If the polls are right, and Senator Barack Obama wins today, John McCain could put the blame on Henry M. Paulson Jr., the Treasury secretary.

It is now clear that the decision to let Lehman Brothers fail — made the weekend of Sept. 13 and 14 — provided a stunning blow to investor and consumer confidence. The economic statistics coming out now show that car sales and other retail sales, already weak, fell off a cliff. Business orders from other businesses dried up. What had been a fairly mild recession — and one that many denied was a recession at all — became a sharp one."

Here's my comment:

“History does not allow do-overs, so we will never know what would have happened if Lehman had been treated as Bear Stearns was, or as the American International Group soon would be.

There would have been a lot of criticism of bailing out Wall Street had Lehman been rescued, and perhaps the worsening of the financial crisis would have taken a toll anyway.”

I see the failure to bailout Lehman as the worst mistake in this current avalanche. I also thought McCain’s comments right off about the crisis were a disaster.

Having said that, I agree that this crisis has helped Sen. Obama and hurt Sen.McCain.

But, even though I’m a Democrat, and hope that Sen. Obama and my party win big today, I would not have wished this crisis on us for that. We have no idea where this crisis is leading us.

— Don the libertarian Democrat

"Maybe he leaned ( sic ) his lesson. "

Paul Krugman considers Douglas Holtz-Eakin:

"Alas, Doug Holtz-Eakin

OK, so John McCain’s chief economic spokesman, who I thought did a good job at the CBO, issued a statement on the GDP report:"

Read the post.

Here's my comment. I could learn to spell:

I though that Holtz-Eakin did a good job at CBO, so I’m puzzled by his recent analysis. But consider this:

Wednesday, October 8, 2008
Douglas Holtz-Eakin Tells The Truth
Well, at least he’s honest:

http://www.nytimes.com/2008/10/09/us/politics/09mortgag e.html?adxnnl=1&adxnnlx=1225490676-ECnJ9XGb5Agk1nXV0kOL Pg

“WASHINGTON — The homeowner assistance plan that Senator John McCain announced without detail in the presidential debate Tuesday night would allow millions of financially stretched Americans to refinance their mortgages with government help, but it would leave taxpayers to cover the losses, rather than the financial institutions that hold the original mortgages.

Mr. McCain said in the debate that the program would be expensive, and on Wednesday his chief economic adviser, Douglas Holtz-Eakin, acknowledged that the liability would be borne directly by taxpayers.”

It seems like an awful plan, but Holtz-Eakin stands up for it.

Maybe he leaned his lesson.

— Posted by Don the libertarian Democrat

"The poll seems to indicate that Mr. McCain persuaded all the wrong people."

Floyd Norris in the NY Times with a post about Sen. McCain's campaign:

"McCain’s Economy Problem

It’s been a tough year for Senator John McCain, the Republican presidential candidate. I’m not forecasting the election, but I think the New York Times/CBS poll released last night provided some evidence of how Mr. McCain’s efforts to zigzag through the election season have failed to have their desired effect."

That seems right:

"Mr. Obama did his own zigzagging. He sounded much more like a free trader in the general election than he did in the primaries. But that issue is not a big one this year. Instead of persuading both conservatives and moderates that he agreed with them, Mr. McCain may have alienated too many voters in both camps."

Here's my comment:

This is strange. I’m a Democrat now, but I became a Republican in 2000 to support McCain. I’m voting for Sen. Obama, even though he’s not my first pick on economics, for sure. I have to pray that he’s more to my taste than he appears. Having Sen. McCain be president wouldn’t have bothered me before this campaign began, but now I feel differently.

Also, Douglas Holtz-Eakin was pretty good at CBO, and he has seemed way off of his game.

So, on economics, it’s a wash, with a slight nod to Sen. Obama. But, on everything else, Sen. Obama is way better for my beliefs. I don’t know where Sen. McCain went, but somebody might want to check for pods.

— Don the libertarian Democrat

Campaign Ads Are Misleading

I guess I could pay more attention to stories like this:

"Latest Obama Ad on Taxes Contains Half-Truths, Misleading Claims

Posted on October 11, 2008 by Gerald Prante

Barack Obama's latest ad on the issue of taxes makes many claims about his own tax plan and that of John McCain that stretch the truth and mislead voters."

Except that:

"I guess this shouldn't surprise us. Neither the Obama campaign nor the McCain campaign really cares about being honest with the voter. They just tell you the voter what sounds good, regardless if it's true or not."

Which is why I don't.

Money Still Being Spent On Elections

An interesting fact:

"The sinking economy appears to be having little effect on presidential fund-raising, with both candidates continuing to rake in record amounts of campaign cash."

Read on.

Also, an argument against public funding:

"Sen. Obama, who took the unprecedented step of refusing federal financing for the general election, has raised some $454 million from the time he began running through the end of August. Though both candidates are on track to raise similar amounts of money between themselves and their parties, Sen. Obama has one advantage: because he opted out of public financing, he can direct how and where his money is spent. Sen. McCain accepted public financing, so most of the party money he has helped to raise must be spent independently of his campaign. For example, when the McCain campaign said last week that it was pulling out of Michigan and redirecting its efforts, the Republican Party reported spending $5 million on ads in the state just the day before. It's unclear if any of that money could be recouped"

It would seem that Sen. Obama did the right thing.

It's Worse Than The Housing Bill Plan

The Curious Capitalist agrees with me about the McCain plan and gives more context:

"John McCain's announcement during the debate Tuesday night that he wants the government to spend $300 billion buying up mortgages and rewriting the terms was something of a landmark in the national discussion over what to do about our financial mess. Yeah, it was a half-baked proposal that made no acknowledgement of the fact that Barney Frank and Chris Dodd have already gotten a similar if far-less-bold and far less expensive plan enacted into law (without much help from either McCain or Obama, who missed both the April 10 the July 26 Senate votes on the bill). As the LA Times reports:...

According to the outline of McCain's newest proposal, the federal government would pay borrowers and lenders in full, regardless of how wise or fair the original transaction was. Lenders would be able to remove the bad mortgages from their balance sheets, and borrowers would be able to refinance into government-guaranteed loans. Mortgage holders would have to prove they lived in the home and had good credit at the time of the original loan. ...

By contrast, the housing bill passed by Congress over the summer, and which went into effect Oct. 1, required lenders to take a loss by writing down the principal on troubled mortgages to 85% of the house's current value. Borrowers with adequate incomes and credit records would then qualify for refinanced mortgages from new lenders.

Government funds were used only to help finance mortgage insurance for the new loans; cost estimate for taxpayers was roughly $20 billion."

This plan seems worse than the housing bill plan.

McCain's Mortgage Buyout Plan: What Is It?

Here's Sen. McCain from the debate last night:

"You know that home values of retirees continues to decline and people are no longer able to afford their mortgage payments. As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes.

Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy. And we've got to give some trust and confidence back to America.

I know how the do that, my friends. And it's my proposal, it's not Sen. Obama's proposal, it's not President Bush's proposal. But I know how to get America working again, restore our economy and take care of working Americans. Thank you."

Here are some details about Sen. McCain's mortgage buyback plan he talked about last night:

"The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be restructured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered.

The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages, the McCain Resurgence Plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets...

The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion, because the purchase of mortgages would relieve homeowners of “negative equity” in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed, by stabilizing mortgages, it will likely be possible to avoid some purposes previously assumed needed in that bill.

The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government's conservatorship of Fannie Mae and Freddie Mac. It may be necessary for Congress to raise the overall borrowing limit."

Here was Bernanke yesterday about TARP:

"Second, the $700 billion allocated by the legislation is not an authorization to spend but rather an authorization to purchase financial assets. The Treasury will be a patient investor and will likely hold these assets for an appreciable period of time. Eventually, however, some assets will mature, and the Treasury will choose to sell others to private investors. Financially, in the long run, the taxpayer may come out either ahead or behind in this process; in light of the many uncertainties, no assurances can be given. But the ultimate cost of the program to the taxpayer will certainly be far less than $700 billion."

Here's the NY Times about the McCain plan today:

Under the plan, it added, the Treasury would buy unaffordable mortgages directly from mortgage servicers and, in a reflection of the properties’ diminished values, renegotiate “manageable, fixed-rate mortgages that will keep families in their homes.” Mr. McCain proposes that the roughly $300 billion cost would be covered by the $700 billion bailout law.

That $700 billion total, however, was intended to give the Treasury the means to buy and hold troubled assets from financial institutions that might otherwise fail, so that those assets can be sold when markets recover and the assets regain value. But the McCain summary said that “by stabilizing mortgages, it will likely be possible to avoid some purposes previously assumed needed in that bill.”...

“Is it expensive?” he said of the proposal. “Yes. But we all know, my friends, until we stabilize home values in America, we’re never going to start turning around and creating jobs and fixing our economy.”

While the Obama campaign’s reaction indicated that the candidates were in agreement, the mortgage proposal raises a number of administrative questions, given the millions who might seek help. It also raises fairness issues, given the many homeowners who are scrimping in order to continue paying off mortgages based on former market values far higher than their properties’ current worth."

I already said the following about what Bernanke said:

"3) Challenges:

A: We don't know exactly how we're going to purchase these assets or for how much ( But we're smart guys, and, once again, there's oversight )"

So, theoretically, the McCain plan could fit into this, leaving aside the enormous work of identifying whose eligible and negotiating and buying an untold number of mortgages. However, this plan seems to envisage a real loss right at the beginning of it's implementation, thereby violating Bernanke's hold them and sell them rule.

Or am I missing something?

Sen. Obama On The Bailout

Ezra Klein has an excellent post today entitled "Obama On The Bailout Plan":

"Obama's speech on the bailout plan is pitch perfect, one of the best statements he's given on the crisis thus far:

Even with all these taxpayer protections, this plan is not perfect. Democrats and Republicans in Congress have legitimate concerns about it. I know many Americans share those concerns. But it is clear that this is what we must do right now to prevent a crisis from turning into a catastrophe. That’s why I’ve been reaching out to leaders in both parties to do whatever I can to help pass this plan. That’s why I’ll be flying back to Washington today to cast my vote to safeguard the American economy. And to the Democrats and Republicans who have opposed this plan, I say – step up to the plate and do what’s right for the country, because the time to act is now.

I know many Americans are wondering what happens next. Passing this bill will not be the end of our work to strengthen our economy – it’s just the beginning of a long, hard road ahead. So let me tell you exactly how I’ll move forward as President."

Read on.

Do I agree with everything that Sen. Obama says? No. But, given political realities, Sen. Obama is proving himself to be ready to lead. There is no sense of undue panic, and a real emphasis on getting things done. The contrast with Sen. McCain is clear.

Another Objection To Bailout

Jesse Walker weighs in with an excellent post on Reason entitled "Henry Paulson, Regent Dictator". Here's a quote:

"And the Democrats, those alleged alternatives? Maybe it's their innate affection for economic intervention, maybe it's just the same spinelessness they've brought to issues ranging from FISA to Iraq, but they don't seem to be objecting to the Paulson plan. ("The consequences of inaction could be catastrophic," says Harry Reid, according to the Bloomberg report I quoted above. The consequences of really stupid actions must not be up for discussion.*) McCain's position on these issues keeps evolving; I expect that at some point next week he'll call for parading short sellers through the streets in dunce caps."

Our party needs to oppose this power grab forcefully.

Can We Really Avoid Some Regulations?

Nick Gillespie has a good post on Reason called "McCain On AIG". Here he quotes Tyler Cowen:

"There are two ways to view this history. First, with the benefit of hindsight, one could argue that we needed only a stronger political will to regulate every corner of finance and avert a crisis.

Under the second view, which I prefer, regulators will never be in a position to accurately evaluate or second-guess many of the most important market transactions. In finance, trillions of dollars change hands, market players are very sophisticated, and much of the activity takes place outside the United States—or easily could."

It's a good point, but here's my response:

"Don the libertarian Democrat | September 17, 2008, 2:34pm | #We'd better come up with a way to avoid these kinds of crises, otherwise there will more bailouts and more regulations. That's the real world. I say that we should try and develop some decent and minimal regulations. But,hey,if the world changes, that's fine with me."

Two points:

1) I agree that we can't regulate every corner of finance, but would like to try and set up some minimal, but suitable, rules to avert future crises like the current one.

2) I'm not sure that we can't have regulators focus on a few well thought out regulations or aspects of the most important market transactions.

Still, I take the point. I just don't see any other real option than some regulations.

Greenspan On McCain's Tax Plan

Via Huffington Post, here's Alan Greenspan saying exactly what I have in earlier posts:

"Greenspan Says McCain Tax Plan Needs Corresponding Budget Cuts

By Scott Lanman

Sept. 12 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the country can't afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without corresponding spending reductions.

Greenspan, a lifelong Republican and longtime friend of McCain, said today on Bloomberg Television's ``Political Capital With Al Hunt'' that ``I'm not in favor of financing tax cuts with borrowed money.''

McCain has said he would balance the cost of most of his tax cuts with budget reductions, while providing few details beyond eliminating earmarks and other pork-barrel spending, which have totaled about $171 billion since 2001. Democratic nominee Barack Obama is proposing fewer tax cuts and more ambitious spending programs."

The idea that McCain is going to drastically cut spending defies belief.

Earmarks As Be All And End All

Here's another odd post:

Robert Bluey of the Heritage Foundation beat me to the punch by detailing the differences between McCain-Palin and Obama-Biden on earmarks.

Bluey makes an important point: even unquestioned reformers like Jim DeMint (R-SC) only recently found earmark religion. Better late than never. Especially in a state like Alaska, which is basically a welfare state where corruption is the status quo, Sarah Palin has built an impressive record of reform. Important questions remain to be answered about her stances on tax and budget policy, but compared to Obama and Biden, there’s no question the appropriations cardinals would be sweating bullets under a McCain-Palin administration."

The idea that Sen. McCain will be tough on earmarks is hilarious. There's no reason to believe that Sen. McCain will do anything about the size of the federal government. Given his recent shift on any number of positions, he might well give in on any number of issues in order to vastly increase our military. As for Palin, the evidence is mixed, at best.

The Democrats clearly believe in earmarks. So do I. In theory, there might well be occasions where federal money can be used for local or state projects. Show me the list. If you don't, fine. But, again, the main goal should be to decrease the overall size and power of the federal government, something the last eight years of Republican rule has not accomplished.

I personally don't believe that Sen. McCain will do anything about earmarks. There are too many Republicans, including Alaskans, who are dependent on them. The only way to attack earmarks, for the time being, is focus on the egregious ones and attack each Senator, say, on their record.

Here's is a NY Times piece about Sen. Obama and earmarks. It's not a very successful record, and it is public.

Republican Convention Blues Part 1

I'm a Democrat, so it's not really possible for me to fairly judge the Republican convention. I used to be a fan of Sen. McCain, but he has morphed into a political form I find intolerable. He is not a Democrat, and he is not a libertarian. His sole policy seems to be patriotism, as defined by having a peculiarly belligerent and expensive military policy. Everything else he says seems to be a mere mouthing of platitudes he might or might not believe.

As for Palin, she is an astonishing pick. There's not enough evidence to determine what she would do as president, and will follow McCain's lead in what she now says, making it virtually impossible to know where she would lead the country.

The idea that she is a libertarian of any kind cannot be judged. She has never faced budgets or issues like the ones she will face in Washington. Does anybody know what she thinks about immigration?