Government Spending Without a Brain


It is difficult to generalize about any group because there are always readily identifiable exceptions to the rule. Even so, the old saw about a Democrat seeing a man drowning seventy five feet offshore throws him both ends of a fifty foot rope and hurries off to “rescue” someone else, while a Republican throws him a fifty foot rope and tells him to swim for it, appears to be relatively accurate.

What a mess we are in. On one side we have the Republicans who pretty much have a tin ear when it comes to recognizing human suffering and whose general response to someone else raising the issue is “get a job you dirty hippie.” And on the other side are the Democrats who have such acute antennae that they perceive a problem even before it exists and who are institutionally and intellectually incapable of finding an actual workable solution. Not only are they incapable of providing a workable solution, most often their solutions make the problems even worse. Following are three examples.

First, a large part of the current economic downturn is due to the fact that the Congress required financial institutions to lend money to people who had neither the means nor the intention to repay it. Congressional Democrats engaged in years of hand wringing that the nation’s poor were being left behind in the surge of home ownership — the American dream. (It is the moral equivalent about worrying about the fact that fish cannot play the piano — they have no hands and the poor have no money. Sewing gloves on the fish will not work any better than giving loans to those who cannot repay them.)

Congressional Democrats forced the banks to make such loans, which in turn increased demand in the housing market, which in turn caused prices to rise and building to increase — both to unsustainable levels. And, inevitably, when the loans were not repaid the government imposed solution collapsed, the supply in the housing market exceeded demand and so prices dropped, the drop in value of housing meant the security for the loans collapsed, the over supply meant that home builders collapsed and so did the financial institutions — particularly FannieMae and FreddieMac. The nation’s poor lost their homes, lost their jobs and lost what little savings they had. In the end, the Democrats’ solution to a problem for the poor left them worse off and farther from their opportunity to recover.

But the Democrats never learn from a “failed solution.” In the name of “economic recovery” the Democrat Congress is right back with the same solution. This time it is the Federal Housing Administration. In an article in the Providence (R.I.) Journal Froma Harrop writes,

“Much of the blame for the housing bubble-then-bust goes to the government agencies: They let private lenders make mortgages without adult supervision, then guaranteed them. Such loans helped push the FHA’s capital reserve fund down toward (and possible now under) its mandated 2-percent minimum. That means the suckers may be called upon in a big way. Edward Pinto, a former FannieMae executive, predicts that the taxpayers will be bailing out the FHA within the next two to three years. . .

* * *

“With nearly a quarter of the FHA loans insured in the last two years now in trouble, you’d think that the agency would show more discretion in deciding which homebuyers to help. And you’d think that Democrats running the House Financial Services Committee would be more upset over the way the FHA still hands out taxpayer guarantees.

“But committee Chairman Barney Frank of Massachusetts insists that these mortgages are needed to “˜keep prices from falling too fast.’ Thing is, we can’t support real estate values with shabby lending practices. That’s what got us into trouble.”


Just as a reminder that is the same Rep. Barney Frank who, along with the Sen. Chris Dodd, buried an investigation into identical lending practices at FannieMae and FreddieMac, declaring them to be sound institutions.

Second, a recent report has detailed how Gov. Kulongoski has spend the nearly $700 million Oregon received from the federal government in “stimulus funds.” Kulongoski claims to have saved or created 9600 jobs. There are three things wrong with these claims. First, while the number of jobs created is relatively easy to calculate, the number of jobs saved is just a wild ass guess and one usually pumped up to make those who spend the money look good. Secondly, an article by Dan Springer on FOXNews.com, noted that three-quarters of those jobs were government jobs. And while the stimulus funds are a one-time federal infusion, the government jobs — as recent Oregon history demonstrates — are permanent. Which means that Oregon taxpayers are now going to have to pick the ongoing cost of those 7200 additional government jobs. Creating long term jobs with short-term funds is a license for disaster. And third, using the stimulus funds to grow government simply delays actual economic growth and private sector job creation. Springer noted of the state government’s own economist, Art Ayers:

“Art Ayre says it generally costs more to create a public sector job than one in the private sector. That’s because the government job has an additional 35 percent in cost above salary. Most of that comes in the form of health and retirement benefits.

“‘Stimulus spending lessens the pain of a recession, but slows the recovery process because it causes companies and the government to delay hard decisions,’ Ayre said.”

At the same time, Oregon has lost over 130,000 private sector jobs — look for another loss of 7500-10,000 in October and nothing that Kulongoski or the Democrat legislature has done mitigates those job losses to date. In essence, Kulongoski has imposed on Oregon taxpayers, the most costly and least economically efficient jobs possible. But on the bright side those jobs will build the numbers and campaign war chests of the public employee unions who are the primary beneficiaries of Kulongoski’s largesse.

And finally, third. Shortly after the legislative session, Gov. Kulongoski vetoed the repeal of the costly “green subsidy” to Oregon’s alternative energy industry. A recent article in the Oregonian by Henry Esteve stated:

“State officials deliberately underestimated the cost of Gov. Ted Kulongoski’s plan to lure green energy companies to Oregon with big taxpayer subsidies, resulting in a program that cost 40 times more than unsuspecting lawmakers were told, an investigation by The Oregonian shows.

“Records also show that the program, a favorite of Kulongoski’s known as the Business Energy Tax Credit, has given millions of dollars to failed companies while voters are being asked to raise income taxes because the state budget doesn’t have enough to pay for schools and other programs.

“The incentives are now under intense scrutiny at the Oregon Department of Energy, which is scrambling to curb their skyrocketing costs.

“Energy officials were worried about the impact on the state budget in 2006, when Kulongoski and his staff proposed a dramatic boost in tax breaks to woo wind and solar companies to Oregon — upping the subsidies from a high of $3.5 million per project to as much as $20 million.

“According to documents obtained under Oregon’s public records law, agency officials estimated in a Nov. 16, 2006, spreadsheet that expanding the tax credits would cost taxpayers an additional $13 million in 2007-09. But after a series of scratch-outs and scribbled notes, a new spreadsheet pared the cost to $1.8 million. And when energy officials handed their final estimate to the Legislature in February 2007, they pegged the added cost at just $1.2 million for the first two years and $4.1 million for 2009-11.

“The higher estimates were never shown to lawmakers. Current and former energy staffers acknowledged a clear attempt to minimize the cost of the subsidies.”

Subsidizing an industry that produces a more costly product is simply stupid. In this instance, wind generated electricity is substantially more expensive than hydroelectric or fossil fuel based electricity. And Oregon’s state government is not only subsidizing the least efficient mode, it is mandating that a portion of electricity delivered by the state’s utilities must be derived from those modes — all resulting in higher average costs to the utility customers. And those at the lower end of the economic strata suffer the greatest pain because utility costs absorb a significantly higher portion of their income.

This isn’t just incompetence. It is either studied ignorance or just plain old Chicago style corruption.

Regardless, at a time when Gov. Kulongoski and the Democrat legislature have sought to permanently raise taxes by over $1 Billion, it is abundantly clear that Kulongoski and the Democrats do not have the solution to Oregon’s economic woes. I don’t doubt the sincerity of the Democrats in identifying these problems; however, their solutions seldom work and usually only add to the pain.

Now, if we could just do something about the Republican’s tin ear.

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Posted by at 06:00 | Posted in Measure 37 | 5 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Jerry

    Clearly both parties are to blame. They are both inept.
    Clearly.

    • brenda sisson

      Is there a type ‘O’ on your name? Who is Jerry? The name on the article is Larry.
      I would like to address this comment to Larry.
      You appear to be a seasoned gentleman. I read your writting, and like so many (writtings) it sounds like, well, whinning.
      If I may be so bold, I would like to hear of your past. I am sure, the times in ehitch you have lived, the experiences, we would much more benefitting to our coming times.
      You see, I percieve our life style is going to regress.
      Just a thought.
      brenda

  • Jack Roberts

    Well said, Larry.

    My one caveat on the Business Energy Tax Credit is that it has been very successful in attracting solar energy firms, which require substantial investment, create good jobs and really are positioning Oregon to seize a major share of this growing market.

    The main problems with the BETC has been with wind power and biofuels, which seem motivated more by political correctness that economic reality.

    Republicans should be on the forefront of righting this ship, not celebrating the fact that it has capsized with Kulongoski as captain. The opportunity for political gain for Republicans is there, to be sure, but people are waiting for us to offer positive solutions and not just retreads of old slogans.

    And I am with you 100% on the “tin ear” problem. I hope you’ll follow up with some suggestions on how we overcome that problem as well.

  • Leo

    “First, a large part of the current economic downturn is due to the fact that the Congress required financial institutions to lend money to people who had neither the means nor the intention to repay it.”

    This is only partially true. The truly outrageous loans (Option Negative Amortization and Alt-A “Liar Loans”) that really fueled the housing bubble were entirely private industry inventions. The two government-backed financial institutions, Fannie Mae and Freddie Mac, were expressly forbidden from buying such mortgages until relatively late during the housing bubble. They only began buying such mortgages because they were afraid of losing market share to the private market.

    Here is a reminder of what the situation looked like in 2006, 6 years into the housing bubble:

    “Worse, both the GSEs and the jumbo lenders have strict standards with respect to documentation of income, etc. for the borrower. Many of those who can’t meet these standards but who are for other reasons attractive candidates as mortgage customers fall into what’s called Alternative A, or Alt-A. The housing bubble has spawned a horde of new non-conforming Alt-A mortgages, enough so that an industry think tank is now predicting that F&F, excluded from this class of loans, may never again be the dominant players in the US mortgage industry. ”

    http://housingdoom.com/2006/08/14/alt-a-surge/

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