Can we ever know how many jobs the Obama Administration has saved?

Can we ever know how many jobs the Obama Administration has saved?

Almost two months ago, President Obama set a specific employment goal for his Administration:

I think my initial measure of success is creating or saving 4 million jobs.

It is clear that this “create or save” phrase is now a standard and important part of the Administration’s economic message.

Greg Mankiw quickly identified both the quantitative ambiguity and political creativity in defining the goal in this way. Now that we have a couple of months of data, I’d like to reprise Greg’s post with a concrete example of why this is a misleading metric that is vulnerable to manipulation.

The Bureau of Labor Statistics reported the following on Friday:

Nonfarm employment level, January 2009 134,333,000
… plus change in February -653,000
… plus change in March -661,000
… equals nonfarm employment level, March 2009 133,019,000
Net change in Obama Administration -1,314,000

You can see that the U.S. economy has lost a net 1.314 million jobs since January. Let’s look at it graphically:

net job loss since January 2009

The traditional way to measure jobs “created” or “lost” is by taking the change between the starting point and the ending point of your timeframe. I have displayed this in red on the graph. Administrations are always judged (at least by the press) based on the change in the level of employment from January 20th in their first year to the current level.

I think the traditional way is a poor metric because political and business cycles don’t line up. I will expand on this further in a separate post about starting points, and whether it’s fair to assign blame or credit to the Obama Administration for jobs lost in the first two months of their Administration.(Hint: It’s not, but it is always done so they are stuck with it.) For now I want to focus on the “or saved” point. We start with the factual statement that the U.S. economy has lost a net 1.314 million jobs since the beginning of the Obama Administration.

Suppose, however, that you had anticipated the situation would be even worse. Suppose you had thought that the employment level would be down to 132.5 million in March, rather than the actual 133.0 million. I’ll draw this as a new yellow line on the same graph and label it the “counterfactual baseline.” This is what you could argue you think the employment situation would have looked like, had no new policies been enacted. I should emphasize that the specific yellow line I show here does not represent any numbers cited by the Obama Administration. I have chosen these illustrative numbers to explain the concept.

net job loss since January 2009 with counterfactual

The green line shows actual employment, and it includes the effects of policy changes enacted over the past two months. The yellow line represents the “counterfactual” – what you think (or claim) employment would have looked like had your policies not been enacted. You could argue that the 133.019 million people employed in March is 519,000 more people than would have been employed had your policies not been enacted. (Again, I emphasize so that nobody misconstrues me: I have chosen the numbers for the yellow line to illustrate the concept.) You would be trying to “frame” the numbers by measuring the positive orange change, rather than the negative red change.

In a world with no politics, that could be legit. I hope that the Administration’s policy changes will increase employment to be above what it would otherwise be, had those policies not been enacted. I did not like the so-called “stimulus” bill, and have big questions about the magnitude, efficiency, and timing of the economic benefits, but there is no question on the direction: these policies should be positive for employment, although over a much longer time period than that covered by this graph.

The problem is that the Administration can draw the yellow line anywhere they want it to be. Since the number of jobs “saved” (orange) is the difference between the green and the yellow lines, if you let me draw the yellow line, I can make the orange number as big as I want, and later claim credit for a large number of jobs saved. I would be arguing, “Sure things are bad. But I saved ____ million jobs from where it would have been had we done nothing. I would not be able to prove that this number is correct, but you could not disprove it either.” That’s why it is politically clever. It is specific, can be asserted, and can never be disproven.

As Greg wrote in February:

You can measure how many jobs are created [or lost -kbh] between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus.

This makes intuitive sense if you think about it on the personal level. If someone was unemployed on January 20th and they have a job on July 20th, you can understand why it would seem reasonable to count that as one additional job created since the beginning of the Obama Administration, even though policy may have had nothing to do with it.

If you had a job on January 20th, however, and you are in that same job on July 20th, does it seem reasonable to count your job as having been saved by the President’s policies? Maybe it was, but it is easy to see how that could be gimmicked by someone with a political incentive to make the numbers look good. How many of the 134.3 million people who were employed on January 20th would otherwise have lost their job? We’ll never know. A policy wonk would say that “you can neither prove nor disprove the counterfactual.”

You could correctly point out that the Administration has published an economic forecast that implicitly contains projections for employment, so we could at least hold the Administration to the yellow line they implicitly defined when they released their economic forecast in late February. The problem is that these official forecasts get updated every six months, and so the yellow line moves around. It will be impossible to tell how much of the yellow line’s movement from the February forecast to the July revision is legitimate changes in forecasting, and how much is political shading by an Administration that knows it will be judged on this metric. Note that I am not accusing this Administration of biasing their forecast, but instead trying to show that “or save” is an unreliable and misleading metric. We need a reliable factual metric that cannot be gimmicked or manipulated by political advocates from either side of the partisan fight.

The New York Times slipped the President’s phrasing into an editorial on Saturday that argued for even more spending and expansion of union-friendly policies:

It is painfully clear, however, that the law’s potential to create or save a few million jobs will not be enough to combat the current scale of unemployment.

Let’s return to the President’s statement from February 9th. Can we measure that?

Had he said that his Administration would create 4 million jobs, then we would have a simple metric: 134.3 million + 4 million = 138.3 million. Each month, we could compare the nonfarm employment level to 138.3 million to see if it was higher or lower than that goal.

Suppose, however, that a year from now this numbers is instead 133.3 million. If we measure this the way it has been measured for at least the past two Administrations, a fair reporter would write that “the economy has lost a net 1 million jobs since President Obama took office.” But the Administration could argue that employment would have been 129.3 million, and that they therefore saved 4 million jobs. And nobody could prove them right or wrong.

“Create or save” is unreliable and vulnerable to manipulation. Any time I hear it, I know that I am being spun.

What happened to FREE markets in London?

Thanks to Reuters’ MacroScope blog for noticing:

Keith Hennessey, a former top economic adviser to President George W. Bush, saw this one coming. He rightly predicted that the Group of 20 would drop a key word from its communique at the conclusion of the London Summit: Free.

Here is my original post from Wednesday: A quick guide to the G-20 summit.

Unfortunately the problem is even bigger than just dropping the word “free” before “markets.” Let’s compare the text of the November G-20 leaders’ declaration and the April G-20 leaders’ declaration.

Here is the key paragraph from the November summit, hosted in Washington by President Bush. Thanks to President Bush’s negotiators, led by his “Sherpa,” Dan Price, and Treasury Under Secretary for International Affairs Dave McCormick, the following text is incredible. Last November, I wrote about this paragraph: Let’s look at some important wins in the actual text of the declaration. Formerly Communist China and Russia (along with all the other participating nations) agreed to the following text.

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.

Let’s parse it a bit:

  1. “a commitment to free market principles”
  2. rule of law”
  3. respect for private property”
  4. open trade and investment”
  5. competitive markets”
  6. “and efficient, effectively regulated financial systems.”
  7. we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows”

Now let’s examine yesterday’s text:

3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.

Parsing this new language:

  1. “a commitment to free market principles” has been replaced by “based on market principles.” Note that the word “free” is nowhere in the document.
  2. “rule of law” is nowhere in the document
  3. “private property” is nowhere in the document
  4. “open trade and investment” has been replaced by “open world economy” (This one is fine, I think.)
  5. competitive markets” and the word “competitive” are nowhere in the document
  6. efficient, effectively regulated financial systems” has been replaced by “effective regulation, and strong global institutions.”
  7. The over-regulation caution is gone.

What makes this so disappointing is that all G-20 nations agreed to the November text. It should have been an extremely easy lift for negotiators from capitalist countries to insist that this leaders’ declaration merely repeat what the leaders agreed to last November.

Wednesday I wrote, In the short run, it is easy to see how a negotiator might give this up for a more concrete immediate objective. In the long run, few things are as important.

CNN interview today

Heidi Collins of CNN interviewed former Clinton Labor Secretary Robert Reich and me this morning around 10:30 AM on CNN Newsroom.

To my surprise, Secretary Reich and I agreed on a lot. We both came out strong against protectionism, and complimented the G-20 leaders for making a strong statement about this. We’ll see if the leaders follow through this time.

Heidi also asked me about the auto loans. I said I was surprised (and not in a good way) that the Wagoner firing decision was made in the West Wing. That creates an impression that politics, rather than economics or policy, may be involved in the decision. We were careful during the Bush Administration to have decisions about individual firms’ CEOs made outside the White House.

I complimented the President for using the word “free” so much, and for talking about free trade in Strasbourg today, especially given the setback for “free markets” in the G-20 statement.

Secretary Reich and I parted ways on the budget. I argued that we needed much less spending and not to raise taxes. Especially with long-term entitlement spending pressures building, we need to start cutting spending now.

He responded that in the short run, government is the only possible spender, since neither consumers nor businesses are doing so. Had I had time, I would have observed that the spending bills so far, which claim to be short-term stimulus, spend most of their money in 2010 and later. That’s not short-term macro stimulus. That’s just increased government spending.

Jobs Day

Jobs Day

The Bureau of Labor Statistics released the March employment report at 8:30 am. Here is the least you need to know:

  • Net payroll employment declined in March by 663,000 jobs.
  • That’s a terrible number, and in line with expectations.
  • The unemployment rate increased from 8.1% to 8.5%.

Much of the press coverage talks about “5.1 million jobs lost since the beginning of 2008.” I think that using January 2008 as a start date gives an incomplete and possibly misleading picture. The past fifteen months can be divided into two parts. For the first nine months, the economy was shrinking slightly and employment was declining at a disappointing but not panic-inducing rate. For the last six months, beginning in September as the financial market crisis came to a head, the bottom fell out of the employment market. Take at look at the sudden drop in employment beginning as the market crashes in September. This is the best example that what happens on Wall Street affects what happens on Main Street.

payroll employment for jan 08 through march 09

Employment was clearly shrinking in the first 8-9 months of 2008. But the huge employment losses immediately followed the financial crisis. I include September in the first segment because the employment data was collected for that month before the fateful two weeks in the markets. 2008 was a bad economic year, but it’s the fourth quarter of 2008 and the first quarter of 2009 that were disastrous.

This matters because, if the diagnosis is different, then the solutions may be different. If the principal cause of the severity of this recession is the financial crisis, then that would suggest that the most important and urgent element of the solution is to fix the problems in financial institutions and financial markets.

Nobody would or should be happy if the economy were losing 137K jobs per month. But that would be a huge improvement compared to the 600K+ jobs lost over each of the past six months. By the same logic, you use different tools and prioritize different policies if the principal cause of the severe decline in growth and employment is the financial sector trouble. This may sound obvious, but I don’t think it is a given in the Washington policy debate. Everyone says “severe recession,” and then immediately jumps to “huge stimulus” or (“we need a second stimulus”). Fiscal and monetary stimulus can undoubtedly increase GDP growth, but they cannot solve the problems in financial institutions and financial markets.

This is why I try to remind myself to talk about economic problems and a financial crisis. It is also one reason why I am much more concerned about whether the Administration’s new financial policies will work, than whether their spending bill will stimulate GDP growth. In my view, if the financial problems are not fixed, we’re still in trouble almost no matter what else happens. This means I’m in line with Fed Chairman Bernanke, who included a crucial if clause in his March 3rd testimony to the Senate Budget Committee:

Although the near-term outlook for the economy is weak, over time, a number of factors should promote the return of solid gains in economic activity in the context of low and stable inflation. The effectiveness of the policy actions taken by the Federal Reserve, the Treasury, and other government entities in restoring a reasonable degree of financial stability will be critical determinants of the timing and strength of the recovery. If financial conditions improve, the economy will be increasingly supported by fiscal and monetary stimulus, the beneficial effects of the steep decline in energy prices since last summer, and the better alignment of business inventories and final sales, as well as the increased availability of credit.

Is $700 billion enough? Clearing up the confusion (or at least trying to)

Last Friday I raised the question of how much funding is left in the TARP. This is now a broader discussion involving Secretary Geithner and the Treasury staff, the General Accounting Office, the Wall Street Journal and ABC News. I’d like to review the progression of this topic over the past six days and see if I can clarify what I think is going on. I will be rigorous in this post, and will follow up later today with a more speculative post about what I surmise is going on inside the Administration that is contributing to this confusion.

  • Last Friday I wrote that I thought the Administration was running out of money in the TARP. I wrote then, “They have $33 B — $58 B before they hit the $700 B barrier.”
  • That same day I showed that the Administration has been laying the groundwork for another TARP request since February, and using a $250 B number as a placeholder.
  • Last Sunday, George Stephanopolous asked Secretary Geithner about this. The Secretary replied, “George, we have roughly $135 B left of uncommitted resources. Less is out the door, but in terms of, if you look at what’s not committed yet, it’s roughly, you know, $135 billion.
  • Monday, Maya Jackson Randall reported in the Wall Street Journal that “The Treasury Department said it has about $134.5 billion left in its financial-rescue fund, giving the Obama administration a cushion as it implements expensive programs aimed at unlocking credit markets and boosting ailing industries.”
  • Tuesday morning I tried to reconcile this $100 B gap. I tried to show how one could interpret, or maybe reinterpret, the commitments previously made by the Administration over the past two months to justify the Secretary’s figure. I think and hope that I showed a plausible explanation for why the Secretary thinks he could say such a large number.
  • That same day (Tuesday), GAO came up with the same $32.6 B figure, that I described last Friday. GAO correctly labels that figure, “Maximum announced program funding level.”
  • Wednesday morning, Mr. Stephanopolous posted about this difference between Secretary Geithner’s Sunday morning number on the ABC News show, and the Tuesday GAO table.
  • A couple of hours later, Ed Morrissey wrote about this roughly $100 B difference on HotAir.
  • ABC News has since posted the following update on their website, although without a time stamp: “GAO officials tell ABC’s Charlie Herman that they now believe there are about $109 billion available in TARP. The office accepts Treasury accounting for all but the $25 billion Treasury estimates will come from financial institutions returning TARP money.” Clearly someone at Treasury picked up the phone and worked on GAO.

Let me see if I can clarify what I think is going on.

I think that $32.6 B is the best estimate of the amount of TARP funding available, using the fairest interpretation of the Administration’s public descriptions of a set of programs, made at varying times over the past two months.

I think that $134.5 B represents how much room they would have available, if they were to reinterpret their previous commitments in ways that technically comply with their past statements, but differ significantly from what market participants and the press expect. I think Treasury walked GAO privately through these reinterpretations.

In a way, both figures ($32.6 B and $134.5 B) are right, because (I think) the Administration is changing their policies. They just have not yet told anyone how.

As I wrote Tuesday morning,

So was I wrong last Friday? There are three possibilities:

  1. I was wrong.
  2. Circumstances changed.
  3. While over the past several weeks the Administration has emphasized the size of their new programs, they are now looking for flexibility so they can maximize their chance of avoiding another request of Congress. They know that Congress is in a foul mood about the TARP, and are therefore looking to emphasize this flexibility by stating the largest number they can justify.

I think it’s #3. The Administration needs to balance the needs of the market with what is feasible from the Congress. Given recent AIG coverage, they are now leaning hard in the maximum flexibility direction. If this direction is sustained, I think the cost will fall upon the new programs, the TALF expansion and the PPIP, which would have to be smaller than some market participants may expect.

If you review the record of the past couple of months and interpret the Administration’s public statements at face value, taking the most logical interpretation for each, the numbers add up to $667.4 B, leaving $32.6 of room. This is what I did last Friday, ABC did for the Sunday morning show, and GAO published on Tuesday.

If instead you stretch each commitment to the maximum extent possible to create more funding room, if you assume that certain previous commitments overlap and are therefore non-additive, and if you assume that $25 B of previously injected capital will be returned to Treasury by banks, you can hit the Secretary’s $135 B figure.

So the proper question is no longer, “How much room is left in the TARP, given what we know to be the Administration’s policies?” It is instead, “What are the Administration’s policies, and given those, how much room is left in the TARP?”

Specifically, I believe this confusion could be clarified if Treasury were to answer publicly the following questions. The eaisest thing would be if they would publish a table (like GAO’s, or even my simpler one) that shows the policies and numbers assumed in the $134.5 B figure. Assuming they’re not willing to do this, and if they continue to insist on the $134.5 B figure, then the press, or Congress, or GAO, should ask the following questions of Treasury. I hate to be so lawyerly about this, because I think they’re trying as hard as they can under difficult circumstances, but I believe this confusion should be publicly clarified for the benefit of market participants, Congress, and the public at large.

I think the confusion would be clarified if Treasury were to post written answers to the following questions on their website, so that they are accessible to all. Getting this information filtered through GAO or a news organization is contributing to the confusion. With that, here are the questions to which the answers are now unclear (at least to me).

The Secretary has stated, and Treasury staff have confirmed, that they have $134.5 of uncommitted resources in the TARP.

Q1. How much does this assume is committed from the Capital Purchase Program? (The original commitment was $250 B. The WSJ reported that Treasury was assuming stopping at $218 B.)

Q2. How much does this assume will be repaid by banks, and when? Does Treasury know of specific banks that will return these amounts, and if so, (roughly) when should we expect that to happen? Within days, weeks, or months?

Q3. How much TALF subsidy is assumed within this $134.5 B figure? Please break this down among the following components:

  • TALF for securitization of consumer credit
  • TALF for securitization of new mortgages
  • TALF for securitization of “toxic/legacy” mortgages as part of the new program announced last week?

Q4. How big should we expect the TALF lending capacity to be for each of the components in Q3? (This is a joint Fed/Treasury question that isn’t directly relevant to the amount of TARP commitments. It is, however, essential to markets to understand what to expect.)

Q5. Please list all the components of the “Consumer and Business Lending Initiative” and the TARP commitments for each.

Q6. The Administration has stated a range of $75 B — $100 B for the Public-Private Investment Partnership program. What figure for PPIP is assumed within the $134.5 B figure?

Q7. Is the TALF subsidy for the securitization of toxic/legacy mortgages a subcomponent of the answer to Q6, or is it separate?

On air

I will be on BBC Radio 5 Live’s Wake Up to Money show at 5:30 AM GMT, 12:30 AM EST, talking about the G-20 summit. If you’re up, you can listen here.

I was on Fox News’ The Live Desk with Martha MacCallum this afternoon around 2:20 pm, talking about banks and taxpayer investments. Martha grilled me on whether the (current and former) Administration should discourage banks from paying Treasury back now, and whether the CEOs of the large banks should be fired.

I hope you will subscribe to the mailing list and/or RSS feeds in the right sidebar.

A quick guide to the G-20 summit

The President has arrived in London for the G-20 economic summit. I have different policy views than the President on some of these issues, but I will not criticize him while he is overseas. I will attempt to gently highlight a couple of substantive issues that concern me, but at the same time I want to send a clear signal that I support the American President and his team in negotiations with other states, even if I am not in the same place on some of the substance.

I wrote last November about the first G-20 Economic Summit, initiated and hosted by President Bush. You can see some neat behind-the-scenes photos of the gorgeous National Building Museum and read about the accomplishments of that summit. Last November the press tried to write the story “Lame duck President – not much accomplished.” That storyline was incorrect. Now we have a new American leader and one fundamental policy shift, but much of the agenda remains consistent.

There is a symbolically important change to watch for in the text of the leaders declaration, compared to that in the November text. I fear that the word “free” may be absent in the successor statement to this sentence from the November leaders declaration:

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems.

Losing “free” would be an enormous step backward. All G-20 nations agreed to the above statement last November, so there is no good reason to change it if the U.S. objects. In the short run, it is easy to see how a negotiator might give this up for a more concrete immediate objective. In the long run, few things are as important. I hope the American team will insist on repeating this language, and in particular keeping the phrase “a commitment to free market principles,” as our negotiator did last fall.

Four of the five major topics of discussion at the summit are extensions and continuations of the November efforts. There is one big difference, influenced greatly by our new President. After reviewing the available press and talking with Dan Price, President Bush’s “sherpa” for the first G-20 summit last November, here are my expectations for the London G-20 summit.

  1. Global macroeconomic stimulus — The big difference is the new #1 agenda item for the G-20, global macroeconomic stimulus. President Obama’s first domestic economic policy effort was the enactment of a law that he argues will stimulate near-term macroeconomic growth. He is pushing other nations to take similar actions, and for the G-20 as a whole to support similar global efforts.I expect the final G-20 statement will broadly support national actions for macroeconomic stimulus, but will not include any numbers. It will say something like “Nations should do what is necessary.” It may also emphasize the fiscal actions already taken by a large number of nations.Reading between the lines of President Obama’s answer to a question in a press conference this morning confirmed this expectation.
  2. Financial market stabilization — I expect this will be a continuation of efforts in November, but with some details fleshed out. The final statement will likely highlight three subgoals to financial stabilization: restarting lending, enhancing the capital structure of financial institutions (aka recapitalizing banks), and dealing with toxic assets. This is consistent with discussions from last fall, but I expect a greater American emphasis on the last item from the new team.
  3. Regulatory reform - While financial market stabilization focuses on short-term actions the G-20 nations need to take, the regulatory reform section will focus on longer-term reforms to reduce the chance that these same problems recur in the future. The negotiators and their staffs have spent a lot of time on these issues, and I expect the final product will continue to flesh out the construct created last November, with a lot of details now filled in.I expect an emphasis on improving oversight and greater cooperation among national regulators. To my delight, I do not anticipate any mention of any sort of “single global regulator.” There is a so-called “college of supervisors” that was part of the November and prior efforts, but my expert advisors on this subject assure me that this group is about coordination, not the creation of a supra-national sovereign group. Participant nations appear interested in coordination of national efforts while maintaining national sovereignty. This is a big deal for me. Let’s work together, but Americans should have the final say in what America does.There is an interesting debate about “convergence” of national regulatory structures that underlies this question. I expect the statement will emphasize the goal of “convergent” regulatory structures. A tension exists between two goals. We want a level playing field across nations so that government policies distort capital flows as little as possible. In this respect, convergence of national regulatory structures can be a good thing. At the same time, if they converge to a consensus position that is unwise, then that’s a bad thing. My own instinct is to worry that, in a politically governed process negotiated by national governments and regulators, there will be a tendency to converge to a structure that is overly restrictive and burdensome. This is a tension that will play out in obscure international regulatory fora over months and years, and can have long-lasting and important consequences on the international flows of capital. I could be OK in theory with “convergence” language, if I knew what the final details would look like. Since no one can know that in advance, “convergence” language makes me nervous now, as it did last November.

    I further expect that the regulatory reform section will talk about the importance of better oversight of “systemically important institutions” (read: too-big-to-fail) in ways that parallel how Secretary Geithner, and Secretary Paulson before him, and Chairman Bernanke, have spoken about the issue.This will send an international signal that the problem of regulation of institutions that are deemed to be too big to fail is a critical area for future policy development. My own view is that this is the big enchilada. I trace back much (most?) of our current financial pain, as well as almost all of the tension between Wall Street and Washington, to consequences from being on the back end of a too-big-to-fail problem, where all options are terrible. I think it’s our primary long-term financial policy challenge. I wrote about the causes of the financial crisis last October, following a speech by President Bush.

    There is an important follow-on question about the relative importance of strengthening the oversight of huge banks and insurance companies on the one hand, versus expanding regulation into hedge funds and private pools of capital on the other. I am absolutely convinced that the former needs major reform. I am far less certain that the second is as large of a problem. I am in the minority in this view. This is a topic for further discussion.

    I also anticipate that the final statement will say something on tax havens. My views here on international convergence of taxation differ significantly from those expressed in the past by those who are now senior American officials. I will refrain from commenting while they are overseas negotiating. They have the ball for America.

    I expect the regulatory reform section will talk about the importance of moving the trading of Credit Default Swaps (CDS) onto organized exchanges, which parallels efforts that Secretaries Paulson and Geithner have pushed here in the U.S. This is a good and important thing.

    I expect the statement will continue to flesh out work to harmonize accounting standards. This is simultaneously mind-numbingly boring and incredibly important.

    There will also be some structural changes to the Financial Stability Forum – they will change the name to the Financial Stability Board and add more members from the G-20. They will also have language, I think, similar to that in the November document on executive compensation.

  4. Increased resources for the IMF and restructuring of the World Bank and IMF- One of the advantages of being Treasury Secretary is you get some leeway to push issues that are important to you. Secretary Geithner has spoken of tripling the IMF’s budget, and Prime Minister Gordon Brown has spoken of doubling it. We will see where the number ends up, but it’s clearly going to increase. I am interested to see how willing Congress will be to fund the increased U.S. contribution.They will also change the governance structure of the IMF and World Bank. I anticipate that China and other developing countries will get more weight in decisions of these international bodies, but only if they pay their share of the budgets. There is an important thematic here for China and India that crosses a range of international economic policy issues. In international negotiations, China and India sometimes try to have it both ways. Their negotiators argue they should have the same say in international economic policy questions as major developed economies like the U.S., Japan, and major European economic powers. At the same time, they plead poverty and argue that they cannot possibly sacrifice economic growth for the global good. My view is: in or out. You decide. If you want to be a first-tier economic nation, that’s fantastic. You play by the same rules as everyone else, and you make the same sacrifices for the global good. You cannot have it both ways.Finally, I anticipate the U.S. and Europe will give up what some call the “knightship rights” of choosing the leaders of the World Bank and the IMF. I expect one result will be some kind of new (supposedly) merit-based selection process.
  5. Fighting protectionism - This is the topic that I hope will make almost all of the G-20 leaders uncomfortable. In November the G-20 leaders agreed to a fantastic strong statement that opposed protectionism, in which they said,

    We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary.

    And yet on March 17th the World Bank reported that 17 of the G-20 nations “have implemented 47 measures that restrict trade at the expense of other countries.” The U.S. is one of the 20, and the World Bank highlighted “the US direct subsidy of $17.4 billion to its three national [auto] companies.” President Obama’s Monday announcement extending the auto loans make this a challenging topic for him in London.

    I’d like to praise World Bank President (and former U.S. Trade Representative and Deputy Secretary of State) Bob Zoellick for this excellent and well-timed study. We need more “name and shame” tools to highlight protectionist actions by governments. The fragile world economy makes it even more important that everyone push for free trade and open investment.

    Dan Price was President Bush’s international economic advisor in the White House, and also the President’s “sherpa” for the November G-20 summit. Dan suggests that President Obama could demonstrate U.S. leadership with a move that promotes both free trade and his clean technology agenda, by getting the G-20 nations to agree to eliminate tariffs on clean energy technologies. President Bush launched this effort last November, and it would be a huge win on multiple fronts for our new President if he could bring this to a successful closure. I strongly agree with Dan.

    I conclude with a warning from Dan Price, who says, “In the process of needed reform, there is a risk of political demonization of particular products or services, like CDS or securitization, that in fact perform a very useful function.”

    I wish President Obama and his team the best in their efforts to represent America at the G-20 summit.

Welcome, Instapundit, Wall Street Journal, Greg Mankiw, and National Review readers!

You’re probably here this morning either because of a link from Instapundit, or from Bill McGurn’s excellent Main Street column in today’s Wall Street Journal, or because of Yuval Levin’s kind reference on The Corner, or from Greg Mankiw over the weekend. However you may have found me, welcome!

As background, I served as a White House economic advisor to President George W. Bush for more than six years, and ran the National Economic Council for him in 2008, in a position now held by Dr. Lawrence Summers.

While I plan to write about a wide range of economic policies over time, I’ve got two big series going on right now. The first is on auto loans, and the second is on the TARP.

Auto loans series
  1. A deadline looms (background)
  2. The President’s options
  3. The Bush approach (which I coordinated for President Bush)
  4. Chyrsler gets an ultimatum, GM gets a do-over (analysis of President Obama’s Monday announcement)
  5. The press forgot to ask about the cost of the taxpayer
TARP series
  1. Is $700 billion enough?
  2. The Obama warning
  3. Secretary Geithner says we have more room

I hope you’ll sign up for the mailing list in the right sidebar.

Auto loans, part 5: The press forgot to ask about the cost to the taxpayer

As I explained yesterday in part 4 of this series, the President delivered different substantive messages to General Motors and Chrysler. I would like now to focus on one element of that message, because there’s an enormous hole in yesterday’s announcement, and it appears that the press missed it. It appears that the Administration did not say how much additional taxpayer funding it is committing over the next 60 days.

We do know from the President’s remarks and from the White House fact sheet that part of the message delivered to Chrysler was:

  • We will subsidize you through April 30th so you have time to try to merge with Fiat.
  • We’ll consider subsidizing the merger with Fiat by up to $6 billion of taxpayer funds, as long as we get paid back first.

We also know that part of the message delivered to General Motors was:

  • We will “provide [you] with working capital for 60 days to develop a restructuring plan and a credible strategy to implement such a plan.”

The press could have reported yesterday’s story as, “President Obama today committed to put another $X billion of taxpayer funds at risk to save the auto industry, as he extended the loans provided by President Bush in December. He gave Chrysler a hard deadline, and promised taxpayers that they would spend no more than $Y billion to help Chrysler avoid bankruptcy. He made no similar commitment to taxpayers on General Motors, promising only that they would pay for at least enough to ‘provide [General Motors] with working capital for 60 days. These new commitments of taxpayer funds will come from the shrinking remainder of the $700 B of TARP funds appropriated by the Congress last September, leaving less to address the President’s goals in stabilizing the financial system.” I have seen no reporting like this, and I cannot see any evidence of the White House press corps asking what X and Y are.

Two reporters appear to have come close. In yesterday’s White House press briefing, one asked White House Press Secretary Robert Gibbs the following:

Q: … One of the very big debt holders to these two companies right now is the United States government and the United States taxpayer. Is part of why it looks like the White House is being tougher on these companies the fact that that taxpayer money isn’t going to come back, because once you go into bankruptcy or writing down debt, the taxpayer money is also in jeopardy — unlike the banks, which claim they’re going to pay it back eventually?

Q: And are the taxpayers one of those stakeholders at this point that’s going to have to make an additional sacrifice?

MR. GIBBS: Well, I — the President believes that the decision will put these companies on the best path forward and ultimately putting them on that stable and strong path to where they’re regaining market share and they’re selling automobiles is the best way for the taxpayer to recoup the money that has been loaned to Chrysler and GM.

Yes, sir.

Q: For the taxpayer that you’re trying to protect, what can you tell that person will be different under the new management of GM that was not true yesterday?

MR. GIBBS: Well –

Q: What will Rick Wagoner’s departure mean in the next 60 days that was not achievable with him at the top of the company?

I compliment these two reporters for at least asking about the taxpayer. They just need to get a little more specific.

The President’s immediate actions were to extend the March 31st deadline to April 30th, as he is permitted to do by the terms of the loans we issued in December, and also to commit new but unspecified amounts of taxpayer funding to keeping GM and Chrysler from having to file for bankruptcy over the next 30 (Chrysler) and at least 60 (GM) days.

We do not know how much more these new commitments will cost the taxpayer (and squeeze the TARP). We know that $29.9 B has already been loaned or committed to these two manufacturers, their suppliers, and now auto parts suppliers:

($ B)
Auto manufacturers
…. General Motors $13.4
…. Chrysler $4
Auto finance companies
…. GMAC(including $1B from US Treasury –> GM –> GMAC) $6
…. Chrysler Financial $1.5
Auto parts suppliers $5
Total $29.9

We also know that the Administration is willing to sweeten a Chrysler-Fiat deal by “up to $6 billion,” with a list of conditions. It appears that Sheryl Stolberg and Bill Vlasic misreported this in today’s New York Times as “will consider giving $6 billion in additional taxpayer aid.” There is a big difference between “up to $6 billion, if you meet certain conditions,” and “$6 billion.” The Administration has left themselves room to bargain with Chrysler-Fiat any number between $0 and $6 billion.

The White House staff deserve credit for managing the press to frame the story in a way that benefits the President.

  • Sunday afternoon the press learned that General Motors CEO Rick Wagoner would be stepping down at the request of the White House. This is irresistible to the press.
  • Sunday evening, reporters were briefed (I will guess by phone) by “senior officials.”
  • Monday morning, the President gave his remarks.

Like a bird that cannot resist looking at a shiny object, the press focused their initial coverage on Mr. Wagoner’s departure. (I intend no disrepect to Mr. Wagoner by this comparison.)

The President’s remarks then gave them plenty of new material for their stories. Faced with impending deadlines and a tidal wave of new information, most of them combined the information they were given with some outside analysis, producing the coverage you see in today’s papers.

If you read Mr. Gibbs’ press briefing yesterday, you will see that almost all of the questions are about Mr. Wagoner’s departure, or about comparing the government’s treatment of the auto companies compared to its treatment of Wall Street firms. Today’s coverage discusses in detail what might happen to these companies 30 or 60 days from now. In contrast, I have seen no coverage about the ambiguity about how much new taxpayer funding the President has decided to spend now. If you have seen some coverage of this point that I missed, please let me know. I would like to compliment the reporter.

$30 B is a lot of money. This amount is going up, but we don’t know by how much. I hope someone else asks.

(Hint for reporters: If Administration officials tell you, “It’s uncertain,” ask what estimate the President was provided. There’s no way they went in to brief the President without at least having an estimate.)


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