Times are hard, indeed!

The Crimson reports:

(Harvard’s) first Faculty meeting of the year kicked off without a regular staple: cookies to complement professors’ tea and coffee.

“This is the first time in modern times with no cookies,” Faculty Council member Harry R. Lewis ’68 said as he held a white mug of tea. “We are sharing the pain with the undergraduates.”

“As part of our cost-cutting efforts, we’re doing our little part here in our Faculty meetings, saving about $500 per meeting for cookies and coffee,” Faculty of Arts and Sciences Dean Michael D. Smith explained during the meeting.

Hat tip to David Nix.

The left commentariat has been burbling happily about the “success” of the democrat Cash for Clunkers program. It turned out Americans with an active interest in a new car, who happened to have an eligible, low value trade-in on hand, were happy to take some free money to do perhaps slightly more rapidly what they were going to do anyway.

Bruce Yandle points out that the relevance of Cash for Clunkers to one of the best known economic fallacies.

University of California-Berkley economist Christopher Knittel has developed a rigorous assessment of the implied cost of carbon emissions under the clunker program. (“The Implied Cost of Carbon Dioxide Under the Cash for Clunkers Program” [pdf], Center for the Study of Energy Markets, Berkeley, The University of California Energy Institute.) Knittel made plausible assumptions about the average life remaining in vehicles removed from the road, the average fuel economy associated with those vehicles, and the resulting levels of carbon emission that would have survived in the absence of clunkers. Eventually, of course, the clunkers would have died a natural but less dramatic death. Knittel then estimated the carbon reduction gained when the large fleet of clunkers was replaced by a new fuel-efficient fleet. When he ran the numbers, Knittel found the cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. And what does this tell us? The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it.

Frédéric Bastiat’s brilliant parable of the broken window reminds us that a street hoodlum throwing a brick through a window generates a series of job-generating transactions that might raise GDP by a trivial amount, if it could be measured. Indeed, the idea seems so compelling that people today often speak of the silver lining found in the clouds that create hurricanes. Think of the roofers that become employed. But Bastiat’s key lesson is that a window has been destroyed—and it had value. Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”

Finally, over the eons, human communities have contrived all kinds of devices to transmit critical survival skills and compatible behavioral norms. One of these has to do with conservation of wealth. “Waste not, want not,” we are told. “A penny saved, is a penny earned,” we are reminded. Using politics to pay people who destroy valuable vehicles, or to hold crops off the market, or to produce ethanol that may use more energy in production than it adds when burned, teaches a lesson of anti-matter and wealth destruction. When all these considerations are made, Cash for Clunkers sounds like a sorry idea that should not be the model for future policy.

Let’s stop Cash for Refrigerators before the idea spreads further.

Thomas F. Cooley and Peter Rupert discuss, in Forbes, the recent triumphant claims heard widely on the left that “the stimulus is working.”

The bloviators of the blogosphere have been in full roar the past few weeks over the claimed success of the economic stimulus program. Much of this was ignited by Christina Romer, chair of the President’s Council of Economic Advisors, in a speech addressing the question of whether the stimulus was working–and concluding that it was, “absolutely.” …

The recent economic news has been encouraging. The pace of contraction of output and the rate of job losses has declined. This is evidence enough for many people to conclude that the stimulus is working. Writing in The New York Times, Robert H. Frank concludes that the stimulus is working, and that we need more of it. It is perfectly reasonable to have that as an opinion but it isn’t supported by either facts or reasoning.

Now understand that, no matter what point of view you start from–whether you believe stimulus is effective or that it is the voodoo economics of the new millennium–the Economic Recovery Act is a grand fiscal experiment. It is a bit like throwing the baby in the swimming pool to see if it swims.

At some future time, after careful parsing of the data and studying people’s decisions, we may have a much better estimate of the effectiveness of debt-financed government spending of this sort. One should keep in mind, however, that the effectiveness (or ineffectiveness) of the programs to combat the Great Depression in the 1930s is still a matter of great debate. Of course it would be a lot easier if the stimulus programs were better designed and more focused.

To claim, however, that the evidence suggests it is working–and that we need more of it–is nonsense for two reasons. The first, which ought to be obvious, is that we only get one observation on events. To draw a causal connection between the stimulus and the fact that we haven’t plunged into another Great Depression seems bold, to say the least. Since we don’t have a parallel universe in which to play out events without the stimulus, we can’t refute it. …

The other reason why it is illogical to claim a boost from the stimulus is that, for the most part, it hasn’t gone out the door yet. …

Doug Elmendorf, director of the Congressional Budget Office… estimates that by the end of fiscal year 2009, which falls on Sept. 30, just a month from now, 32% of the income transfers for things such as food stamps and extended unemployment benefits will have been spent and 31% of the tax cuts will have been disbursed. And by the end of fiscal year 2010 just 73% of the money allocated to these programs will have been spent.

Even Christina Romer concedes that this part of the stimulus hasn’t done much. …

..the most important stuff–the discretionary spending on infrastructure–has hardly started. By the end of the fiscal year, only 11% of the budgeted discretionary spending on highways, mass transit, energy efficiency and medical infrastructure will have gone out the door. …

There has been remarkably expansionary monetary policy in place for the last year. And there is the promise of massive spending, most of it in the future. If you, the reader, had to pick one as the key fact, would you pick the one that has already occurred and that clearly re-capitalized the banking system and restored liquidity, or the one that hasn’t hit yet?

There is nothing like data to kill a good story.

With or without stimuli, economies do recover from recessions, even great ones.

Warren Buffett spouts conventional pieties in the New York Times, but in the middle of Warren’s bromidal call for fiscal responsibility, the astute reader will find a shrewd assessment of what is really going to happen.

With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Warren Buffett’s share of the federal bailout

Rolfe Winkler so admired Warren Buffett’s old-fashioned market fundamentalism that, when he was a lad of fourteen, he wrote his idol a fan letter.

Winkler is not so admiring of the whited sepulchre of Omaha today.

Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. …

With $7 billion at stake, Buffett is one of the biggest of these shareholders.

He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.

Keeping this in mind, I was struck by Buffett’s letter to Berkshire shareholders this year:

“Funders that have access to any sort of government guarantee — banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella — have money costs that are minimal,” he wrote.

“Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that … are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.”

It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.

Elsewhere in his letter he laments “atrocious sales practices” in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.

Conveniently, he neglects to mention Wells Fargo’s toxic book of home equity loans, American Express’ exploding charge-offs, GE Capital’s awful balance sheet, Bank of America’s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachs’ reckless trading practices.

And what of Moody’s, the credit-rating agency that enabled lending excesses Buffett criticizes, and in which he’s held a major stake for years? Recently Berkshire cut its stake to 16 percent from 20 percent. Publicly, however, the Oracle of Omaha has been silent.

This is remarkably incongruous for the world’s most famous financial straight-shooter. Few have called him on it, though one notable exception was a good article by Charles Piller in the Sacramento Bee earlier this year.

Buffett didn’t respond to my email seeking a comment.

What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but he’s chosen to spend his considerable political capital protecting his own holdings. …

To me this feels like a betrayal. There’s a reason he’s Warren Buffett and not, say, Carl Icahn.

As Roger Lowenstein wrote in his 1995 biography of Buffett, “Wall Street’s modern financiers got rich by exploiting their control of the public’s money … Buffett shunned this game … In effect, he rediscovered the art of pure capitalism — a cold-blooded sport, but a fair one.”

But there’s nothing fair about Buffett getting a bailout, about exploiting the taxpaying public for his own gain. The naïve 14-year-olds among us thought he was better than this.

What would Ben Graham say?

George Santayana observed that those who cannot learn from history are condemned to repeat it. The above editorial cartoon, published April 21, 1934, shows that government pouring money into massive federal spending programs to try to improve the economy was tried before. The Great Depression continued up until WWII.

Robert Wenzel, at Economic Policy Journal blog, has more bad news from Cambridge.

Harvard’s endowment got slaughtered in the financial crash, and hard times have arrived on the Charles. The school is wallowing in debt, and the administration is finding it necessary to undertake some dramatic belt-tightening. Seems only fair. Harvard, after all, gave us Obama, and it was the threat of his election which tanked the markets.

At Harvard University, they have lowered thermostats during the winter months from 72 degrees to 68 degrees. Hot breakfasts are no longer served on weekdays at undergraduate residential houses. Instead of bacon, poached eggs, and waffles, students have to get by on cold ham, cottage cheese, cereal, and fruit. These are just some steps Harvard is taking to battle serious financial problems. …

Harvard College, the Graduate School of Arts and Sciences, and the School of Engineering and Applied Sciences is facing a budget deficit of $220 million. Construction is halted on a $1.2 billion science complex.

Over the 20-year period from 1980 to 2000, Harvard University added nearly 3.2 million square feet of new space to its campus. But so far this decade, incredibly, from 2000 through 2008, Harvard has added another 6.2 million square feet of new space.

At it’s peak in 2008, Harvard’s endowment stood at $36.9 billion. Some estimates now have its value at around $18 billion, much of it in illiquid investments.

According to Forbes magazine, Harvard has $11 billion of unfunded commitments—money promised, but not yet paid, to various private-equity funds, real-estate funds, and hedge funds.

Last December, the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038. …

Today, on average, a full professor at Harvard earns $192,600, before benefits; that’s more than he or she would make at any other school in the nation. (At Yale, for example, the average salary is $174,700. At the University of California, Berkeley: $143,500.)

60% of Americans pay no income taxes right now. Democrats want people who do pay taxes to buy everybody their health care, too. How do they plan to pay for all this?

With more than a trillion dollars in new taxes, falling primarily on small business owners and investors, as the Wall Street Journal explains:

(The) draft bill would impose a “surtax” on individuals with adjusted gross income of more than $280,000 a year. This would hit job creators especially hard because more than six of every 10 who earn that much are small business owners, operators or investors, according to a 2007 Treasury study. That study also found that almost half of the income taxed at this highest rate is small business income from the more than 500,000 sole proprietorships and subchapter S corporations whose owners pay the individual rate.

In addition, many more smaller business owners with lower profits would be hit by the Rangel plan’s payroll tax surcharge. That surcharge would apply to all firms with 25 or more workers that don’t offer health insurance to their employees, and it would amount to an astonishing eight percentage point fee above the current 15% payroll levy.

Here’s the ugly income-tax math. First, Mr. Obama has promised to let the lower Bush tax rates expire after 2010. This would raise the top personal income tax rate to 39.6% from 35%, and the next rate to 36% from 33%. The Bush expiration would also phase out various tax deductions and exemptions, bringing the top marginal rate to as high as 41%.

Then add the Rangel Surtax of one percentage point, starting at $280,000 ($350,000 for couples), plus another percentage point at $400,000 ($500,000 for couples), rising to three points on more than $800,000 ($1 million) in 2011. But wait, there’s more. The surcharge could rise by two more percentage points in 2013 if health-care costs are larger than advertised — which is a near-certainty. Add all of this up and the top marginal tax rate would climb to 46%, which hasn’t been seen in the U.S. since the Reagan tax reform of 1986 cut the top rate to 28% from 50%.

States have also been raising their income tax rates, so in California and New York City the top rate would be around 58%. The Tax Foundation reports that at least half of all states would have combined state-federal tax rates of more than 50%.

Mr. Rangel also wants to apply his surcharges to investment income like capital gains. So the combined effect of repealing the Bush tax cuts and the new surcharges would be to raise the tax on stock appreciation by at least 60% — to as high as 24% from 15% today. President Obama has been worrying about a capital squeeze on small businesses, but raising the capital gains tax would only further starve them of funds. …

America’s successful small businesses would pay higher tax rates than the Fortune 500, and for that matter than most companies around the world. The corporate federal-state tax rate applied to General Electric and Google is about 39% in the U.S., and the business tax rate is about 25% in the OECD countries. So the U.S. would have close to the most punitive taxes on small business income anywhere on the globe.

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Greg Mankiw notes that the final tax impact after state sales taxes are included would take over half of top earners’ incomes.

(Some) calculations seem to ignore sales taxes, which are significant in many states. Because income earned will eventually be spent and thus subject to sales taxes, sales tax rates need to be combined with income tax rates to find the true tax wedge that distorts the consumption-leisure decision. Once sales taxes are included, a top earner in a typical state would face a marginal tax rate of about 55 percent.

So much for an economic recovery. If this monstrosity passes, get ready for many years of economic chaos and decline. Teach your kids how to ask “Will you have fries with that?” in Mandarin would be my advice.

Jim Lindgren, at Volokh Conspiracy, warns that today is the day. The key basis for Barack Obama and the democrat party’s new Even Greater Depression will be voted on in the House of Representatives today. If Nancy Pelosi can bribe enough farm state democrats with ethanol subsidies into getting in line, you may very well need to kiss the American Economy as you’ve know it good-bye.

Before the last few years, scholars used to say that we couldn’t get a depression today because policymakers wouldn’t make mistakes as bad as the ones they made in the 1930s. Though we’ve made some great moves in the last year — increasing the money supply and guaranteeing money markets funds — we’re also repeating many of the same mistakes as Hoover and FDR (propping up failing industries; raising taxes; wasting money on unneeded public works projects; corruption; expensive new anti-business government programs).

Certainly, the Smoot-Hawley bill of 1930 was dumb; it imposed huge tariffs on foreign goods imported into this country, which backfired when those countries raised their tariffs too. In a sense, cap-and-trade looked like it would be even dumber; it seemed that it might impose a tariff on our own US manufactured goods, but not on foreign goods. But the House realized this and decided to require the administration to impose tariffs on goods imported from countries that don’t restrict their own emissions to the same extent as the US (tip to Maguire and OandO. This 21st century version of Smoot-Hawley will probably take years before the tariffs will be imposed.

The cap-and-trade bill, if passed by the Senate and actually implemented over the next few decades, would do more damage to the country than any economic legislation passed in at least 100 years. It would eventually send most American manufacturing jobs overseas, reduce American competitiveness, and make Americans much poorer than they would have been without it.

The cap-and-trade bill will have little, if any, positive effect on the environment — in part because the countries that would take jobs from US industries tend to be bigger polluters. By making the US — and the world — poorer, it would probably reduce the world’s ability to develop technologies that might solve its environmental problems in the future.

If this bill were very likely to pass the Senate and if the restrictions were to be phased in quicker in the early years of the program than the bill provides, then a double-dip recession would be a near certainty.

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The Wall Street Journal explains how much this is going to cost.

Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill’s restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn’t take into account the fact that certain regions and populations will be more severely hit than others — manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Even as Democrats have promised that this cap-and-trade legislation won’t pinch wallets, behind the scenes they’ve acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

The reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change. What comes out of the computer is a function of what politicians type in. A better indicator might be what other countries are already experiencing. Britain’s Taxpayer Alliance estimates the average family there is paying nearly $1,300 a year in green taxes for carbon-cutting programs in effect only a few years.

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can’t repeal that reality.

Household Net Worth as Percentage of GNP

Well, we’ve recently on the average lost the last decade’s growth of personal assets.

Household Net Worth, according to the Fed, is down $14 trillion from its peak in 2007, and as the chart above illustrates, is down to levels very much like those of the 1990s when we were just beginning to emerge from a painful recession.

All over the country, current bad times have forced families to dip into savings, to sell equities at drastically reduced values, and to liquidate real estate in a very unfavorable market.

The impact of Barack Obama’s spending binge, of course, and the new regime of government regulation, intrusion, and control over the economy is really still yet to be felt.

Arthur Laffer, in the Wall Street Journal, contemplates what government has done so far, and shudders at the consequences yet to come.

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.

50 states’ changes in GDP, jobs, and home prices in 2008

The Atlantic links a WSJ chart which it then graphs (above), showing the varied impact of the recession on all 50 states.

North Dakota, Wyoming, Alaska, Texas, Hawaii, and South Dakota all managed modest increases (1.9-.2%) in home prices, while California real estate insanity exacted a ferocious toll not only within its own borders (-25.5%), but also in the neighboring California refugee destinations of Nevada (-28.2%) and Arizona (-20.6). Florida, of course, traditionally always jumps on board any real estate collapse and also came in the top ranks of disaster (-24%).

John Steele Gordon warns that Barack Obama’s plans for nationalized industries have plenty of precedents, all of which show that government-run business enterprises are a disaster.

The Obama administration is bent on becoming a major player in — if not taking over entirely — America’s health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government’s track record in running economic enterprises. It is terrible.

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.

When the plant was finally finished, however — three years after World War I had ended — it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.

Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.

These examples are not aberrations; they are typical of how governments run enterprises.

Read the whole thing.