Bankrupting America’s Spending Daily

| April 2 2013

Spending Daily | April 2, 2013

Wind Energy CEO to Washington: Roll Back Misguided Subsidies

Wind energy CEO Patrick Jenevein editorializes in The Wall Street Journal, “The sequester has led to dire warnings from many camps, including advocates of clean energy, who argue that Washington’s modest cuts could derail America’s green future. But from my vantage as a CEO in the wind-power business, the sequester offers Washington a rare opportunity to roll back misguided subsidies and maybe help reverse wind power’s stalling momentum. Since 2009, as part of the president’s stimulus, wind-farm developers have been able to get a federal cash grant or tax credit covering up to 30% of their capital investment in a new project. This is especially attractive compared with another tax credit that rewards wind farms based on how much power they actually produce. Through May 2012, according to the National Renewable Energy Laboratory, Washington spent some $8.4 billion on these cash grants. But under the sequester, Uncle Sam is cutting the cash-grant program by 8.7% between March 1 and Sept. 30. Advocates of clean energy should welcome this haircut and urge for even more fundamental policy change. Government subsidies to new wind farms have only made the industry less focused on reducing costs. In turn, the industry produces a product that isn’t as efficient or cheap as it might be if we focused less on working the political system and more on research and development.”

California City Declared Bankrupt

The New York Times reports, “A federal bankruptcy judge ruled on Monday that the city of Stockton, Calif., was eligible for court protection from its creditors, clearing the way for a battle over whether public workers’ pensions can be cut when the city they work for goes bankrupt. After declaring Chapter 9 bankruptcy last year, Stockton eliminated tens of millions of dollars in city services and said it would cut some bond payments in a way unseen before in municipal bankruptcy. But bondholders objected to Stockton’s effort to protect pensions while forcing losses on investors.”

Lawmaker Salaries Exempt from Sequester

According to The Hill, “One small group is curiously immune from the sequester and the related furloughs that are about to become a fact of life in Washington: Congress. Hundreds of thousands of federal employees will take a pay cut because of this year’s $85 billion in automatic spending cuts, including about 750,000 at the Pentagon alone. Air traffic control towers are being closed, unemployment benefits are being reduced and the White House has even cancelled tours. Congressional offices aren’t escaping the sequester. They’ve had to reduce office budgets, and some members have said they may have to lay off staff. But lawmakers themselves won’t take a pay cut because member pay is completely exempted from the sequester.”

Sky Hasn’t Fallen After Sequester Cuts…Yet

CNN reports, “Forced government spending cuts, known in Washington jargon as sequestration, took effect a month ago amid doomsday predictions of freed criminals, weakened borders and a crippled military. President Barack Obama and other federal officials warned that the harshest impacts would hit in April, with worker furloughs and program cuts rippling through the economy to stunt growth during a sluggish recovery. But as April dawned Monday, little evidence of widespread damage had emerged, leaving the president vulnerable to accusations that he hyped the impact for political purposes in the unending battle with Republicans over taxes and spending. The $85 billion in cuts for the rest of fiscal year 2013, which ends September 30, were mandated by a 2011 agreement by Congress that raised the federal debt ceiling. …. Now, those sky-is-falling scenarios tied to the cuts seem to be in question, providing conservatives who seek to shrink government some political room to argue that it needs less money, not more, as Democrats argue. To Stephen Fuller, director of the Center for Regional Analysis at George Mason University, both sides got some things right and others wrong. Forecasts show a rebounding economy in 2014 and 2015, with or without the cuts, he noted.”

Sequester Backpeddle: DHS re-evaluates furloughs, overtime cuts

The Associated Press reports, “The Homeland Security Department says it’s re-evaluating plans to furlough border agents and cut overtime because of the automatic federal government spending cuts. U.S. Customs and Border Protection said Monday the agency will postpone previously announced plans to furlough border patrol agents and officers for at least 14 days. Homeland Security Secretary Janet Napolitano has previously said the forced budget cuts would mean the equivalent of losing about 5,000 border patrol agents. In a statement, the agency said a provision of a spending bill that Congress passed last month allows it to ‘mitigate to some degree’ the impacts of the reduced budget on operations and on the workforce.”

Opening Day in Baseball Not Immune to Sequester

The Washington Post reports, “Baseballs weren’t the only thing taking a hit Monday when America’s pastime restarted with Opening Day. The sequester robbed several teams of the military flyovers they had scheduled for their first home games. The Air Force halted plans for a Monday flyover at Target Field in Minneapolis, where the Minnesota Twins and Detroit Tigers kicked off the season, according to an NBC affiliate in the Twin Cities. The Marine Corps called off a flyover for the San Diego Padres’ home opener on Saturday, and the Air Force canceled support for Saturday’s opening night for the Los Angeles Angels, according to Defense Department spokeswoman Jennifer Elzea. The cuts that took effect March 1 require the Defense Department to trim $41 million from its budget. The Pentagon decided to cease all air shows — including the flyovers that traditionally take place during service-academy graduation ceremonies — as part of its plan to absorb the cuts.”

A Sustainable Budget Should Endure Any Storm

Former advisor to President George W. Bush and Harvard economics professor N. Gregory Mankiw editorializes in The New York Times, “In the national debate over fiscal policy, an important question is what the long-run goal should be. Representative Paul D. Ryan, chairman of the House Budget Committee, has a plan to balance the federal budget in 10 years. When asked if he would do the same, President Obama demurred. ‘My goal is not to chase a balanced budget just for the sake of balance,’ the president told George Stephanopoulos of ABC News. The White House press secretary, Jay Carney, said the president’s goal was instead a ‘fiscally sustainable path.’ Which raises two questions: What is fiscal sustainability? And how do we know when we have achieved it? For you and me, the answer is pretty easy. As individuals, we have to balance our budgets over our lifetimes. In other words, in the longrun, our spending is constrained by our earnings. If you ever tried to imitate the federal government, by spending more than you earned every year, your creditors would eventually catch on and pull the plug.”

Former Budget Chiefs Warn of Overspending

Reuters reports, “David Stockman, who was Republican Ronald Reagan’s budget director from 1981 to 1985 and a key architect of tax-cutting policies, and Peter Orszag, budget director for Democratic President Barack Obama from January 2009 until July 2010, agreed the United States spends more on defense than is needed. … But the two men, who appeared together at a Thomson Reuters Newsmaker event, were at odds over how quickly and forcefully the government should act to reduce the deficit. … Stockman criticizes politicians of both parties, starting with Democrat Franklin Roosevelt in the 1930s and including his former boss Reagan, as well as former Republican President George W. Bush. … He admits he does not believe Washington will adopt his recommendations. Stockman said in an interview, before taking the stage with Orszag, that with his approach ‘there would be a lot of pain,’ with job losses and reduced income, perhaps for a generation. He said that would be better than further putting off the day of reckoning with the deficit.”

Obama Picks Budget Deputy

POLITICO reports, “President Obama is tapping economic adviser Brian Deese to be deputy director of the White House Office of Management and Budget. ‘From helping to navigate our rescue of a financial system on the brink of collapse to retooling a flatlining auto industry to crafting a policy to put our nation on a fiscally sustainable path, Brian Deese has proven an indispensable member of my economic team,’ Obama said in a statement Monday. ‘He has a deep and intuitive understanding of economic and budgetary policy, and I am confident he will serve America well in this new role.’ Deese is currently serving as deputy director of the White House National Economic Council. He will serve at the budget office under Director Sylvia Mathews Burwell, whom Obama appointed last month.”

Manufacturing Had Nowhere to Go But Up

The Wall Street Journal reports, “The idea that American manufacturing is on the cusp of a renaissance is everywhere these days—except in the hard numbers. It’s true that industrial production has grown twice as fast as the economy as a whole in this recovery, and manufacturers are adding jobs again. But economists see those gains as too small relative to what was lost in previous years to suggest a full-blown revival. Factories fell so hard, the logic goes, some gains are a given. … To be sure, many U.S. manufacturers are doing better than they have in some time. That’s visible in hiring. Manufacturers have added more than 500,000 jobs since early 2010, and Monday’s report from the Institute for Supply Management showed manufacturers continued expanding in March. But those gains pale compared with the deep hole created during the recession and just before it: U.S. factories lost nearly 5.7 million jobs from 2000 to 2010.”

Cyprus is the Rule, Not the Exception

The New York Times editorializes, “The recent crisis in Cyprus has highlighted the curious and dangerous phenomenon of banking systems that are much bigger than the economies in which they are based. One reason the government of Cyprus struggled to deal with its failing banks was that their assets were seven times as big as the country’s economy. Cyprus is not the only such country in the euro zone. Luxembourg and Malta, which have established themselves as tax havens serving big global corporations and the superrich, have banking systems that are even larger. Luxembourg’s bank assets are a staggering 22 times its gross domestic product, and Maltese bank assets clock in at eight times the size of its economy. Leaders of both countries have insisted that they should not be compared with Cyprus and that they expected European leaders to stand behind their governments and banks come what may. Speaking of his banking system, the finance minister of Luxembourg, Luc Frieden, said: ‘We want to expand it further, not to downsize it.’ Banks in Luxembourg and Malta, many owned by big European and American financial firms, are healthier than those in Cyprus, according to the International Monetary Fund. But the I.M.F. raised concerns about the ability of the countries to properly monitor their banks or support them in a crisis. In other words, the euro zone and the I.M.F. would have to step in to bail them out if they ran into trouble. In any case, the euro zone needs urgently to finish work on a banking union that would allow the European Central Bank to supervise large banks instead of leaving that task to national policy makers who may be too protective of their banks.”

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