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Recent Policy Studies
The Constitution/Civil LibertiesBy Brian Doherty, Cato InstituteBook, 11/21/2008
This past June, the Supreme Court decided a question at the heart of one of America’s most impassioned debates, ruling that individual citizens have the constitutional right to possess guns. With that decision, the District’s handgun ban—one of the toughest and most controversial in the nation—was ended. Brian Doherty tells the full story behind the landmark District of Columbia v. Heller ruling. With exclusive, behind the scenes access throughout the case, Doherty delved into the issues of this monumental case to provide a compelling look at the inside stories, including: the plaintiffs’ fight for the right to protect themselves and their families from violent neighborhoods; the activist lawyers who worked exhaustively to affirm that right; and the forces that fought to stop the case, including city officials and the National Rifle Association.
National SecurityBy Ariel Cohen, The Heritage FoundationWebMemo, 11/21/2008
The day after Barack Obama won the 2008 U.S. presidential election, Russian President Dmitry Medvedev announced the first real test for the U.S. President-elect. In his State of the Federation speech, Medvedev threatened to station Iskander short-range nuclear-capable missiles in the Kaliningrad exclave if the U.S. proceeds with deploying anti-missile defense systems in Poland and the Czech Republic. The Obama Administration should not give in to Russian threats. If it does, it will signal that the new U.S. President-elect can be pressured on other issues. Even if Obama were open to the idea of delaying or canceling the deployment, to do so following Russian missile threats would be an unmistakable sign of weakness.
Budget & TaxationBy James Jay Carafano, Eric Sayers, The Heritage FoundationBackgrounder, 11/21/2008
Eliminating misspent defense dollars is frequently cited as a remedy for reducing military spending. Such proposals ignore the fact that eliminating fraud, waste, and abuse has historically proven to be a relatively modest source of savings compared to the overall defense budget. In addition, substantial programs already exist to root out unnecessary spending. While government should, of course, take every responsible measure to ensure it is a good steward of our tax dollars and provide the best support for our men and women in uniform, procedures to guard against waste should not be so restrictive that they undermine efforts to innovate and adapt to national security challenges.
Crime, Justice & the LawBy Andrew M. Grossman, The Heritage FoundationWebMemo, 11/21/2008
Congress’s habit, when confronted with anything that its Members dislike, no matter how trivial, is to write a new criminal offense. The latest example is particularly egregious: A new bill introduced by Senator Diane Feinstein (D-CA) would criminalize the sale of inaugural tickets, which are handed out for free by congressional offices. The measure, according to reports, may win passage under expedited procedures, without any debate or deliberation. Congress can certainly ban ticket sales if it wishes, but in achieving such a narrow objective, it should avoid making our already unruly criminal law even worse.
Budget & TaxationBy Nigel Hawkins, The Heritage FoundationWebMemo, 11/21/2008
Britain’s experience with two major industries—shipbuilding and automobiles—shows why governments should hesitate to provide heavy subsidies in an effort to “save” firms with serious management and commercial problems. It also shows that the best way to turn around areas dependent on a crumbling industry can be to limit subsidies and encourage new industries. In the U.K., financial problems of major employers dominated the 1960s and the 1970s as many old industries, including the automobile industry, faced profound problems. Finally, the then-Conservative government provided £35 million (in 1972 money) in order to finance Govan Shipbuilders, the part-successor to Upper Clyde Shipbuilders. However, the U.K. commercial shipbuilding industry remained very uncompetitive. Margaret Thatcher, elected in 1979, decided enough was enough. Consequently, commercial shipbuilding was allowed to “wither on the vine,” and Glasgow embarked on a remarkable commercial turnaround.
National SecurityBy Tony Blankley, Helle C. Dale, Oliver Horn, The Heritage FoundationBackgrounder, 11/21/2008
Seven years into the war on terrorism, it has become apparent that final victory must be won not only on the battlefields of Iraq and Afghanistan, but also in the hearts and minds of people. The institutions that are tasked with strategic communications (informing and influencing foreign publics) operate with too few resources and virtually no effective interagency coordination. Consequently, their messages are often ineffective, incoherent, and sometimes contradictory. While there is no easy fix, the President and Congress need to reform the strategy, doctrine, and structure of strategic communications to engage in the war of ideas seriously and effectively. This requires establishment of a new institutional framework focused on a new agency—a U.S. Agency for Strategic Communications—as well as substantial reforms of the Department of State and greater utilization of the Pentagon’s combatant commands.
National SecurityBy Loren B. Thompson, Lexington InstituteIssue Brief, 11/20/2008
The future of America’s fighter fleet is the F-35 Lightning II, also known as the Joint Strike Fighter. The F-35 is expected to begin replacing Marine Hornets in 2012 and Navy Hornets in 2015, but by the latter year the sea services will be suffering a shortage of over a hundred fighters on carrier decks. Since F-35 appears to be progressing smoothly, the main question tactical-aircraft planners need to ask themselves today is how to maintain fighter fleets until the new plane becomes available. And there, the Navy has a problem. Its cold-war inventory of F/A-18 Hornets is beginning to experience a number of age-related problems.
Health CareBy Michael D. Tanner, Cato InstituteReport, 11/20/2008
Given the problems facing our health care system—high costs, uneven quality, millions of Americans without health insurance—it seems that things couldn’t get any worse. But they can, and they would, if the health care plan being proposed by Senator Max Baucus were to become law, with Americans facing higher taxes, rising insurance costs, and, ultimately, government-imposed rationing. Senator Baucus would require every American to buy health insurance, but not just any insurance. A panel of government bureaucrats, the Independent Health Coverage Council, would get to define what benefits your insurance should have.
EducationBy John E. Chubb, Terry M. Moe, Larry Cuban , Hoover InstitutionEducation Next, 11/20/2008
Technology is a double-barreled agent of change. It generates the innovations that make change attractive, and at the same time it undermines the political resistance that would normally prevent change from happening. There will be struggles and setbacks, and the process will take decades. But the forces of resistance will ultimately be overcome, and American education transformed. This will mean real improvement for the nation, its children, and its schools. It will also bring the dawning of a new era in which education politics is more open, productive changes are more readily embraced, and learning is liberated from the dead hand of the past.
EducationBy Linda Seebach, Hoover InstitutionEducation Next, 11/20/2008
In July, the two major teachers unions entered a rare planetary conjunction, with both the National Education Association (NEA) and the American Federation of Teachers (AFT) choosing new presidents at their national conventions barely a week apart. At the NEA, Dennis Van Roekel moves up to the top rung of the officers’ ladder after serving two terms as vice president. Randi Weingarten is the new national president of the AFT. At the 2008 Democratic National Convention, she declared, “Federal education policy must be about a lot more than testing…. those children…bring us their dreams, their potential and their trust. And sometimes they bring empty stomachs, untreated ailments, and life experiences that can chill you to your core.” She proposed to replace No Child Left Behind with a sweeping vision of schools as “community schools,” providers of every service children and their families might need.
EducationBy Milton Gaither, Hoover InstitutionEducation Next, 11/20/2008
The increasing diversity of home schoolers and institutional configurations should not obscure the fact that many who home school still choose this option out of frustration with or protest against formal, institution-based schooling and seek to impart an alternative, usually conservative Christian, worldview to their children by teaching them at home. Yet it is also the case that increasing numbers who opt to home school do so as an accessory, hybrid, or temporary stopgap, or out of necessity given their circumstances. It is this newer group of home schoolers who are challenging the historical dichotomies between public and private, school and home, formal and informal that have played such an important role in the movement’s self-definition and in American education policy. Trends toward accommodation, adaptation, and hybridization will likely increase as U.S. education policy seeks to catch up to the sweeping demographic, technological, and economic changes taking place.
Natural Resources, Energy, Environment, & ScienceBy Derek Scissors, The Heritage FoundationWebMemo, 11/20/2008
In October, China’s power consumption declined for the first time this decade. With economic growth likely to remain high, by early 2009 China may appear to have made an abrupt breakthrough in energy efficiency. The data supporting such a conclusion are slippery, to say the least. Consequently, there are compelling reasons to be skeptical of both the power consumption numbers and, perhaps more important, gross domestic product (GDP). The Chinese economic miracle has been accompanied by soaring electricity production and consumption, which have even exceeded double-digit GDP growth rates. Given the recent surges in power demand and supply, a mere increase of 5 percent would be surprising; a decrease is stunning. Accepting Chinese data at face value is difficult enough; taking the data and running with it leads straight off a cliff.
LaborBy James Sherk, The Heritage FoundationWebMemo, 11/20/2008
The United Auto Workers (UAW) and Detroit automakers want to avoid bankruptcy and are seeking a taxpayer bailout. Such a bailout, however, is not an acceptable alternative to bankruptcy because it would delay the restructuring the Big Three need to become competitive again. UAW workers earn $75 an hour in wages and benefits—almost triple the earnings of the average private sector worker. Detroit autoworkers have substantially more health, retirement, and paid time off benefits than most Americans. These benefits, and a JOBS bank that pays UAW workers nearly full wages to not work, have been a major force driving the Detroit automakers’ current fiscal woes. Consequently, Congress should not force all Americans to pay for high wages and benefits for UAW workers.
Health CareBy John R. Graham, Pacific Research InstituteCapital Ideas, 11/19/2008
A major driver of health costs over the last couple of decades is chronic illness such as diabetes and heart disease. It’s time to add another chronic ailment to the list: “preventionitis.” Because much chronic disease is associated with bad lifestyle choices, many succumb to the utopian delusion that investment in “prevention” – eating better, exercising more, and so on – will cut society’s health bill. Exercise and a healthy diet are of course good ideas. The “investment” that preventionistas advocate, however, is not a personal commitment to oneself, a family member, or a friend. On the contrary, it is massive government intervention to change society’s habits, paid for by tax hikes.
EducationBy Lance T. Izumi, Pacific Research InstituteCapital Ideas, 11/19/2008
Now that Barack Obama has achieved his electoral goal, he has the opportunity to solve all those problems he pointed out during the presidential campaign, when he correctly noted the poor performance of too many students in America. His proposals to address the achievement crisis, however, are not only expensive, but have not resulted in large gains where they’ve already been tried. Mr. Obama wants to increase federal spending on education by a hefty $19 billion, including an expansion of the federal government’s role in areas such as early childhood education. How is Mr. Obama going to pay for his education plans, especially in the wake of the obvious squeeze that the Wall Street bailout will place on education and other domestic spending?
Natural Resources, Energy, Environment, & ScienceBy Amy Kaleita, Pacific Research InstituteEnvironmental Notes, 11/19/2008
A September Pacific Institute report has stated that significant reductions in agricultural water use can be done relatively simply. For example, it suggests that significant savings could be obtained by switching 25 percent of field crops in the Delta region to vegetable crops, which use less water and are easier to irrigate with more efficient irrigation systems. Indeed, this would save some water. But there are numerous reasons why this change is not nearly as “simple” as the report makes it sound. Growing field crops like alfalfa and cotton differs from growing vegetable crops in a number of important and fundamental ways. Significant changes in water subsidies and water pricing in California will encourage conservation across all water-use sectors – including agriculture – through whatever means the users deem most appropriate for their individual situations.
Economic and Political Thought
From the Great Society to Continuous Improvement Government: The Hopes of an Impatient IncrementalistBy Douglas J. Besharov, American Enterprise InstituteLecture, 11/19/2008
In the 1960s, various social programs were started or dramatically expanded. Loosely, we call that period of expansion the Great Society. Most of these programs are still with us today and most address, or at least seek to address, important social needs. But too many Great Society programs have been disappointment. Some of them are not well-designed for contemporary problems, and, in fact, many were probably not the right approach even back in the 1960s. But, forty-plus years later, we should declare that most elements of the Great Society are as permanent as any government programs, and that it is time for us to step up to the plate and do the unglamourous work of program improvement via policy and management tools.
Natural Resources, Energy, Environment, & ScienceBy Abigail Haddad, American Enterprise InstituteThe American, 11/19/2008
Now that Democrats have won the presidency and expanded their majorities in both houses of Congress, they will be under enormous pressure from environmentalists to implement a “cap-and-trade” system for regulating carbon dioxide and other greenhouse gas (GHG) emissions. However, Obama will inevitably find that establishing the type of cap-and-trade scheme he endorsed during the campaign may not be possible—or desirable. In recent years, various cap-and-trade bills have been proposed on Capitol Hill, but none has come close to passing. Because GHG emissions are a byproduct of energy production, basic economics tells us that a cap-and-trade regime should lead to higher energy costs.
Foreign Policy/International AffairsBy Michael Auslin, Christopher Griffin, American Enterprise InstituteReport, 11/19/2008
For nearly five decades, the U.S.-Japanese alliance has underwritten peace and security in the Asia Pacific. The alliance has allowed for the forward basing of tens of thousands of American troops and cooperation between the two countries on a wide range of security issues. The alliance is being tested today by the economic and military rise of China, the continuing crisis in North Korea, and the struggle to maintain the tide of democratic reform in the Asia-Pacific region. As Asia undergoes these changes, the United States and Japan must reorient their partnership to cooperate in supporting political and economic liberalization in the region.
Economic GrowthBy Christian Broda, David E. Weinstein,Monograph, 11/19/2008
According to conventional wisdom, the economic well-being of all but the wealthiest Americans has stagnated or declined over the past twenty-five years. But this idea is based upon misleading measurements of wealth and poverty. The consumer price index used to compute official measures of real wages and poverty ignores two key sources of increased prosperity: the introduction of new and better products and consumers’ ability to substitute between goods. Deflating nominal wages by a cost-of-living index that adjusts for these previously unconsidered factors of prosperity suggests that the real wages of the poor have actually risen by 30 percent since the late 1970s—and that the poverty rate in America has fallen dramatically over the last forty years.
Natural Resources, Energy, Environment, & ScienceBy Alexandra Liddy Bourne, Heartland InstituteReport, 11/19/2008
Advanced Notice of Proposed Rulemaking for Greenhouse Gases (ANPR) and its supporting documentation violate the Information Quality Act and a number of other federal guidelines regarding objectivity, quality, integrity, and utility of information disseminated by federal agencies. Much of the scientific evidence put forth by the staff of the Environmental Protection Agency in the proposed ANPR and its supporting documentation has taken the melodramatic form of climate alarmism without the balance of scientific and economic rationale that should have equal weight in determining any environmental policy undertaken by the Environmental Protection Administration or the U.S. government with such a dramatic impact on U.S. economic and energy security.
Economic and Political ThoughtBy Karol Boudreaux, Mercatus CenterPolicy Express, 11/19/2008
The wonderful world of choice we enjoy today is made possible by the capitalist free-market economic system, which has proven over time to be the strongest engine of innovation and prosperity. Through a vastly complex worldwide marketplace, people act out of self-interest. Their self-interest, at the same time, helps you. The people who make and sell you things do so (in the vast majority of cases) because they choose to cater to your needs and your desires. In fact, they must provide you with something that you value, otherwise you won’t buy it and they won’t make a living. As a result of the exchange, both you and the producer are better off (otherwise you wouldn’t trade, would you?) and that insight—that trade benefits all parties to the trade—is at the heart of free-market economics.
Health CareBy David Gratzer, Manhattan InstituteReport, 11/19/2008
How are we to deal with the obesity crisis? First, we can all agree that government policy shouldn't directly foster bad habits. Some cheap food, particularly corn syrup-based food, is a consequence of agricultural subsidies. Second, we can consider the various indirect subsidies of poor health decisions. Many Americans receive their health coverage from Medicaid. Should taxpayers foot the bill for morbidly obese Americans without any restrictions? On the whole, however, the recent obesity trend seems to be more about cultural acceptance than government policy. Legislation will take us only so far. Said Britain’s David Cameron, leader of the opposition, “We talk about people being ‘at risk of obesity’” as though it were a “purely external event like a plague or bad weather. Of course, circumstances…have a huge impact. But social problems are often the consequence of the choices people make.”
Information TechnologyBy Timothy B. Lee,Policy Analysis, 11/19/2008
An important reason for the Internet’s remarkable growth over the last quarter century is the “end-to-end” principle that networks should confine themselves to transmitting generic packets without worrying about their contents. Not only has this made deployment of internet infrastructure cheap and efficient, but it has created fertile ground for entrepreneurship. On a network that respects the end-to-end principle, prior approval from network owners is not needed to launch new applications, services, or content. In recent years, self-styled “network neutrality” activists have pushed for legislation to prevent network owners from undermining the end-to-end principle. Although the concern is understandable, such legislation would be premature. Physical ownership of internet infrastructure does not translate into a practical ability to control its use. Regulations are unnecessary because even in the absence of robust broadband competition, network owners are likely to find deviations from the end-to-end principle unprofitable.
Natural Resources, Energy, Environment, & ScienceBy Robert J. Michaels,Policy Analysis, 11/19/2008
Rising energy prices and climate change have changed both the economics and politics of electricity. In response, over half the states have enacted “renewable portfolio standards” (RPS) that require utilities to obtain some power from “renewable” generation resources rather than carbon emitting fossil fuels. Reports of state-level success have brought proposals for a national standard. Like several predecessor Congresses, however, the most recent one failed to pass RPS legislation. Before trying one more time, legislators should ask why they favor a policy so politically correct and so economically suspect. Support for a national program largely stems from misleading claims about state-level successes, misunderstandings about how renewables interact with other environmental regulation, and misinformation about the actual benefits renewables create.
Monetary Policy/Financial RegulationBy Lawrence H. White, Cato InstituteBriefing Paper, 11/19/2008
The expansion in risky mortgages to underqualified borrowers was encouraged by the federal government. The growth of “creative” nonprime lending followed Congress’s strengthening of the Community Reinvestment Act, the Federal Housing Administration’s loosening of down-payment standards, and the Department of Housing and Urban Development’s pressuring lenders to extend mortgages to borrowers who previously would not have qualified. The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. These poorly chosen policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions.
EducationBy Matthew Carr, Beth Lear, Buckeye Institute for Public Policy SolutionsPolicy Brief, 11/19/2008
What would result in Ohio’s Big 8 city school systems were the charter school program to be discontinued and all students returned to their residentially assigned traditional public schools? There would result in a net per pupil loss of revenues for the district. As a result, these districts would face either lower per pupil spending levels or significant property tax increases to maintain current spending levels. As it stands today, Ohio’s public charter schools do not, in any instance, receive funds raised by a school district’s property tax. Public charter schools operate with substantially less revenue per student in each of the Big 8 city school systems. Every Big 8 city school system receives a net gain in revenue, on average, for each student choosing to attend a charter school.
Economic GrowthBy James Sherk, Karen Campbell, The Heritage FoundationCenter for Data Analysis Report, 11/19/2008
With the economy weakening, many Members of Congress support a second economic stimulus package, including (again) extending the time period over which workers can collect unemployment insurance (UI). Select studies falsely assume that unemployed workers spend every dollar of additional UI benefits almost immediately and that extending unemployment insurance does not affect workers’ behavior. But Congress should not expect additional UI benefits to promote economic growth. Studies with the most credible research design, the natural experiment of the employee response to an exogenous change in government policy, find no effects of unemployment insurance on job quality or worker productivity. Paying workers not to work does not promote economic growth.
Foreign Policy/International AffairsBy Ted R. Bromund, The Heritage FoundationBackgrounder, 11/19/2008
Great Britain is a founding member of North Atlantic Treaty Organization (NATO). It is currently fighting wars in both Iraq and Afghanistan, but is spending less of its gross domestic product on its armed forces than at any point since the Great Depression. The Brown government is weakening NATO by failing to support its own forces and by giving institutional credibility to a European Security and Defense Policy that seeks to supplant NATO. Britain is in grave danger of defaulting on its obligations to its citizens, its forces, and NATO. Failure of British and American authorities to counter this trend will increase the burdens on the United States, render NATO incapable of carrying out its responsibilities, and expose the democracies of the West to the will of the world’s dictatorships.
Economic and Political ThoughtBy Robert H. Bork, Intercollegiate Studies InstituteBook, 11/18/2008
Since at least 1971, when he published a seminal article on constitutional interpretation in the Indiana Law Journal, Robert Bork has been the legal and moral conscience of America, reminding us of our founding principles and their cultural foundation. Now, for the first time, Judge Bork has gathered together his most important and prophetic writings in A Time to Speak, including a new introduction and commentary by the author. The volume includes more than sixty vintage Bork contributions on topics ranging from President Nixon to St. Thomas More, from abortion to antitrust policy, and from civil liberties to natural law. It also includes several of his judicial opinions and transcribed oral arguments. A Time to Speak is an indispensable book for all who have harkened to the truths spoken so forthrightly, in season and out, by this great American original.
The Extra-WTO Precautionary Principle: One European “Fashion” Export the United States Can Do WithoutBy Lawrence A. Kogan, Institute for Trade, Standards and Sustainable DevelopmentReport, 11/18/2008
In 2002, a Wall Street Journal columnist prepared a prescient but largely unnoticed article that described how the European Union had largely become the de facto global legislator and regulator of all kinds of rules concerning the environment, human health, and safety that would eventually touch and materially impact practically every industry sector within the United States and, by extension, the world. In effect, this article implied that America would, over time, lose its sovereign ability to determine its own economic fate and destiny, first outside, and then within its own borders, if it did not act quickly and resolutely enough to slow down and reverse Europe’s regulatory juggernaut. Indeed, Europe had long targeted the U.S. regulatory and free enterprise systems for fundamental restructuring. Its aim has all along been to achieve supranational legal and economic governance over the affairs of global (mainly U.S.) industry through an environment-centric negative paradigm of “sustainable development.”
Monetary Policy/Financial RegulationBy Jim Johnston, Heartland InstituteHeartland Perspectives, 11/18/2008
It is becoming obvious that the bailout, or “rescue” as the government wants to call it, will not unfreeze the credit market. Here is the problem. Despite the fact that the government has committed $700 billion to replace the toxic assets of investment banks and commercial banks, and ownership positions in the nine largest investment banks have been taken by the government, there remains a lack of will on the part of financial institutions to increase their lending to businesses and other banks. What else can you expect? After suffering or witnessing the severe damage to the balance sheets of the investment banks by the defaults of the subprime mortgages, which lending institutions will want to return to a regime of easy credit? Not even banks are that foolish.
Budget & TaxationBy Andrew M. Grossman, The Heritage FoundationWebMemo, 11/18/2008
The Big Three automakers (Chrysler, General Motors and Ford) have been working overtime to scare lawmakers that the consequences of denying them a bailout would be severe. As part of that effort, Big Three representatives have stated repeatedly that they have no other options and that bankruptcy, in particular, is off the table. Some have implied that, if there is a bankruptcy, it will be a Chapter 7 liquidation that results in the implosion of much of the industry. It may be, however, that in trying to twist Congress’s arm, the automakers have turned their backs on their fiduciary duties under corporate law. Congress should ask automaker executives who testify point-blank about their legal duties, the state of their preparations for bankruptcy, and what they plan to do if they are ultimately forced to file for bankruptcy.
Budget & TaxationBy Eli Lehrer, Competitive Enterprise InstituteOn Point, 11/18/2008
Almost all observers agree that the current system for dealing with catastrophes places large burdens on state governments, does not do enough to encourage people to secure structures against the worst, and poses significant financial risks to the insurance industry. Discussions in Congress, state capitals, and at insurance industry events have revolved around proposals to transfer some or all “catastrophic” risk to the federal government. Opponents of such risk transfers—including environmentalists, free market groups, some insurance companies, and nearly all reinsurance companies—argue that the private sector can handle these things on its own and that government-backed reinsurance would encourage unwise development.
Health CareBy Stuart M. Butler, The Heritage Foundation11/17/2008
Senate Finance Chairman Max Baucus (R-MT) has just unveiled a comprehensive health plan in the form of a white paper, which he sees as framing the upcoming debate on health care reform. Among the key proposals in the Baucus document is a health exchange. While the idea of an exchange generates broad interest and support among a wide range of policymakers, Baucus—like President-elect Obama—proposes a national exchange rather than encouraging a variety of state exchanges that would reflect local conditions and stimulate state creativity in designing better access to private health insurance. While it is true that a national system of exchanges can achieve a well-functioning health insurance market across the United States, it would be wise to let states propose the best ways of realizing those objectives. Within his national exchange, Baucus also proposes letting a new public plan “similar to Medicare” compete with private health plans, an approach fraught with difficulty and danger.
Monetary Policy/Financial RegulationBy James L. Gattuso, David C. John, J.D. Foster, The Heritage FoundationWebMemo, 11/17/2008
Treasury Secretary Henry Paulson recently announced yet another change in direction of the “Troubled Asset Relief Program” (TARP), sowing more uncertainty and confusion in the very financial markets the program is supposed to stabilize. Instead of buying mortgage-backed assets as originally intended, Paulson says he is now considering three alternative initiatives: stock purchases in non-bank financial firms; federal financing for investors in securities backed by consumer debt such as car loans, student loans, and credit cards; and subsidies to mitigate mortgage foreclosures. Rather than moving forward with these new and troubling approaches, Paulson should follow his own advice and let the markets work—including time for them to absorb his earlier initiatives. Markets need to engage the price discovery process and to clear transactions. These functions are being hindered by uncertainty regarding Treasury’s next move.
Budget & TaxationBy James L. Gattuso, Nicolas Loris, The Heritage FoundationWebMemo, 11/17/2008
Should Washington bail out Detroit? The Detroit-based automakers—General Motors, Ford, and Chrysler—argue that they need more money from U.S. taxpayers. That approach, however, is more likely to extend the status quo rather than lead to reform. Proponents of a bailout argue that taxpayer funding would provide carmakers critical breathing space to address their problems. But many of the needed changes have already been put off for years—more “breathing space” would likely allow them to be put off even longer. Moreover, the types of changes that are needed will be painful and unpopular. One can just see the headlines: “Government Funds Job Cuts,” “Taxpayer Money Funds Dealership Closings.” It is difficult to imagine politicians allowing these changes, never mind insisting on them. A far better approach is to restructure the old-fashioned way, through a formal bankruptcy process if necessary.
Budget & TaxationBy Andrew M. Grossman, The Heritage FoundationLegal Memorandum, 11/17/2008
The U.S. auto industry is in dire need of a shakeup. With General Motors, and perhaps Ford after it, facing looming liquidity crises, staying the course is no longer an option. But rather than face facts, the auto industry is seeking yet another government lifeline: a $25 billion bailout on top of the billions in subsidized loans already approved by lawmakers. While a bailout promises continued stagnation and decline, reorganization is the only chance that automakers have to rebound and survive in the global marketplace. Rather than throw even more money at the problem to little effect, Congress and the Administration should let the automakers take advantage of the same legal process to reorganize that thousands of other businesses use each year: bankruptcy.