Suitably Flip

Liberal Yearbook 2006

In just a few short days, we can close the book on 2006 and all the glorious and unifying claptrap to which we've been treated by the burgeoning majority, lo these twelve months.

But before the S.S. Ethical Congress sets sail, let's send her off with one final bask in all the best banality this year had to offer.

Pander to us, baby, one more time:

(Hat tips to Hot Air, various YouTubers, and the respective media outlets for capturing the sundry splendor.)

People Everywhere Just Got To Be Free

Today, the Tax Foundation released its annual calculation of Tax Freedom Day, that marvelous day each year when we've finally earned enough money to meet our tax burden.  Unfortunately, TFD will slip this year to April 26th, a full 10 days later than it fell in 2003 and 2004 and 3 days later than last year.

As painful as it is to be indentured to the government for these extra days, the drastic dip-rise cycle observable over the last few years actually has a relatively intuitive explanation (one that paints an encouraging economic picture).

At the end of the Clinton era, with effective tax rates higher than they are now, and amid a bubbly economy enfrothed in murderously taxable capital gains, Tax Freedom Day was bound to push out further into the year.  Upon the arrival of the blessed Bush tax cuts, TFD rolled way back.  Now, after a few years of rising incomes buoyed by those tax cuts, more and more Americans are leaping into higher marginal brackets, increasing their effective tax rates (relative to the moment of the cuts) and again delaying their annual manumission.  In that light, the delay is somewhat more palatable, but it's still a craw-sticker.

So hang in there, America.  Only two more weeks until you get to go to work for yourself!

(Care to know how many days you'll work this year just to pay for Social Security?)

Liveblogging the State of the Union

Watch this space for a liveblog of tonight's State of the Union Address...

9:00  Chief Justice Roberts files in with Associate Justices, including that up-and-comer Sam Alito.

9:05  Fox News reports Cindy Sheehan was detained in the gallery above the chamber when unfurling a banner.  Blogs for Bush on the matter.  FNC reports Sheehan was someone's guest, perhaps Rep. Lynn Woolsey's.

9:08  Unexplained delay as Bush is kept in a holding room outside the chamber.  Because of the Sheehan fracas? ... Ah, here he comes. ... Clapping ... Clapping ... Intro by Hastert ... Clapping ...

9:15  The state of our union is... "strong.  And together we will make it stronger."

9:20  Echoes of the second Inaugural:

Dictatorships shelter terrorists ... and seek weapons of mass destruction ... Democracies replace resentment with hope ... and join the fight against terror ... We will act boldly in freedom's cause ... The advance of freedom is the great story of our time.

9:25  A nice dig at Presidential and military detractors:

Hindsight alone is not wisdom.  And second guessing is not a strategy.

9:30  More on the theme of seeding worldwide democracy:

Elections are vital, but they are only the beginning ... Now the leaders of Hamas must recognize Israel, disarm, and work for lasting peace ...  Liberty is the future of every nation in the Middle East.  Because liberty is the hope and right of all humanity.  The regime in Iran sponsors terrorists in the Palenstenian territories and that must come to an end.  The nations of the world must not permit the Iranian regime to get nuclear weapons.

[Standing ovation]

Speaking directly to the people of Iran, Bush expresses his respect and compassion for them and speaks of his desire to become the "closest of friends with a free and democratic Iran."

9:35  On to brass tacks.  Bush urges reauthorization of the Patriot Act.  He cites precedent set by previous Presidents for the Terrorist Surveillance Program.

If there are people in our country talkin' with al Qaeda, we want to know about it.  Because we will not sit back and wait to be hit again.

9:37  Cut to Senator Clinton, clapping what looks like a very sarcastic clap.

9:40  Bush argues for keeping America globally competitive and refers to economic centralization (read: a business-unfriendly, taxy federal government) as "protectionism" and "isolationism" for the severalth time.  This was a theme and a specific phraseology we'd been advised the President would hammer home.  I like it.

Second Congressional urging: Make the tax cuts permanent.

9:43  And a third (this one on earmark reform): pass the line item veto.

9:45  Bush refers to "two of my Dad's favorite people" about to hit retirement age... "me and President Clinton."  Notes that Congress did not act on his social security reform last year.  Now Hillary (and her side of the room) are clapping a very genuine clap (Hooray for obstructionism!).  Yet entitlement spending is a problem "That.  Is.  Not.  Going.  Away." replies Bush.  The right side of the room replies with an ovation of their own.

Exciting!

9:48  A fourth legislative urging: pass medical liability reform this year.

9:50  And now on to energy policy... Bush announces the Advanced Energy Initiative.  Lots of benchmarks and alternative energy sources, but nothing terribly innovative.

9:52  Bush also announces the American Competitiveness Initiative.  More acronyms, more benchmarks.

9:53  Here are the full remarks as prepared for delivery, just arrived courtesy of the the RNC.

9:56  Bush recognizes Justices Alito and Roberts.  He does it graciously, but firmly, and I'm glad he didn't omit such nods for fear of seeming gloaty.

10:03  Parting comment:

Before history is written down in books, it is written in courage. Like Americans before us, we will show that courage and we will finish well. We will lead freedom’s advance. We will compete and excel in the global economy. We will renew the defining moral commitments of this land. And so we move forward – optimistic about our country, faithful to its cause, and confident of victories to come.

Thank you, God bless you, and may God bless America.

---

Democratic Response:

There is a better way.

Rewind.  Repeat ad nauseum.

---

STATS

Length of Address:   50 minutes
Interruptions for Applause:   61
Most Potent Quotable:  "America rejects the false comfort of isolationism."
Best Instalexicon Entry:  "Terrorist Surveillance Program"
Best Soundbite: "We love our freedom.  And we will fight to keep it."
(in Bush's I'm dead serious tone)

Legislative urgings:

1. Reauthorize the Patriot Act
2. Make the tax cuts permanent
3. Pass the line item veto
4. Pass medical liability reform this year

My reaction:

The general tone was often conciliatory and at times, even reminiscent of leftward rhetoric (e.g. green energy initiatives, swelling government programs).  The right elements were in there (the four legislative urgings, the tough talk on Iran, unabashed pride in the success of economic policies, reiterating the grand vision of the second Inaugural address), but they were underrepresented in a 50 minute speech in which they should have been front and center.  That said, the President's overall passion, toughness, and eloquence were decently in force.  These addresses are largely pageants in leadership; tonight, Bush cut a sufficiently strong leadership profile as to make the speech a success.  But there were missed opportunities to do the job more convincingly by staying more on his own message, something this President is typically a master at.

Previously:

SOTU Pregame With GOP Senators

Liveblogging elsewhere:

Blogs for Bush, The American Princess, Weapons of Mass Discussion, Publius Rendezvous, The Washington Patriot, Daily Perspective, Conservative Blogger, Right Wing News, Captains Quarters

Further:

Transcript from the RNC
Video from the White House

Tax Cuts To the Rescue

In a speech earlier this week, Alan Greenspan warned of the importance of reducing future Medicare and Social Security benefits, lest we encounter crippling deficits as the baby boom generation retires.

He advised taking action "sooner rather than later" noting that "we owe future retirees as much time as possible to adjust their plans for work, saving and retirement spending."

Judging by a study newly released by the Tax Foundation, an effective way to ease the burden on those in retirement's on deck circle would be to extend the capital gains and corporate dividend tax cuts (which are slated to expire in 2008, the year the boomers begin to retire).

The study illustrates the disproportionate degree to which older Americans rely on capital gains and dividend income (the sharpest increase occurring at the crossover to retirement age).  Indeed, more than half of the population over 65 was found to rely on dividend income.

The study's findings are particularly timely.  Two conflicting Congressional tax proposals have recently emerged - a House plan, supported by the President, which extends the capital gains and dividend tax cuts; and a Senate plan, which does not.

Both plans have their charm, but for a variety of reasons discussed earlier, the House/Bush proposal is superior.  The plan's ability to help offset what are clearly vital, but potentially agonizing, changes to retirement benefits only adds to its appeal.

Senate Blog Row Wrap-Up

The Senate Republican Committee put on a stellar program today.  Made possible largely thanks to Conference Chairman Rick Santorum (PA), a panel of bloggers was given unprecedented access to a number of Republican Senators, who graciously indulged our questions on a variety of topics ranging from Alito to Zarqawi.

Attending Senators:

George Allen (VA)
Saxby Chambliss (GA)
John Thune (SD)
Wayne Allard (CO)
Craig Thomas (WY)
Rick Santorum (PA)
Sam Brownback (KS)
Bill Frist (TN)

Attending bloggers:

Mary Katherine Ham, Hugh Hewitt
William Beutler, Hotline
Justin Hart, Right Side Redux
Bill McCarthy, Defend Democracy
Pat Cleary, National Association of Manufacturers Blog
Orin Kerr, Volokh Conspiracy
TigerHawk, TigerHawk Blog
Tim Chapman, Townhall.com Capitol Report
Gerard Vanderleun, American Digest
Ed Driscoll, Open Source Media
Flip Pidot, Suitably Flip

(Please let me know if you know of anyone I didn't catch on my list.)

I'm in the process of chewing through my notes and working up a more thoughtful wrap-up, but I'd be remiss if I didn't also comment on our special behind-the-scenes tour of the Senate Republican Conference nerve center/communications office in the Hart Office Building (that's yours truly at right, in one of the SRC studios; photo by TigerHawk).

I'd already been duly impressed by the innovative ways the party has found to leverage alternative media channels.  But the SRC operations are really taking things to new heights.  In addition to being slathered in dark and shiny technology (not unlike the WOPR room from WarGames, only less 80's), but a swarm of terribly clever people are crawling around the joint, monitoring dozens of video feeds on integrated wall displays, mixing sound and video footage for web distribution, designing those flashy visual aids you see Senators using as Floor exhibits, and otherwise optimizing the 2-way flow of information among Senators, their constituents, and everyone in between (which I guess is called "the media").

Watch this space shortly for the fleshed out wrap-up of the Blog Row proper.  In the meantime, please enjoy the several prior entries below, posted live (and thus somewhat hastily) during this groundbreaking event.

First the House, then the Senate... it's been an exciting month to be a conservative blogger.  Could there be a Presidential Blog Row in the cards?

Previously:  House Blog Row Wrap-Up

Senate Blog Row

The Senate Republican Conference will host the first ever Senate Blog Row this Thursday on Capitol Hill.  Topics for discussion will include "the confirmation of Supreme Court nominee, Judge Samuel Alito, JOBS/Economy, Deficit Reduction, the War on Terror and other timely subjects".

This follows the highly successful House Blog Row put on by the House Republican Conference last month (my write-ups are here, here, here, and here), which was attended by 23 House Members and covered a similarly wide range of subjects.

The communications set-up does appear it will allow for liveblogging, so there may be an opportunity to facilitate near real-time 2-way exchange between (quick typing) readers and Senators that stick around long enough to respond to responses.  Still, if you've got a question already in mind that you'd like asked, submit it by commenting below or via e-mail.

Trackedback openly at: Basil's Blog, Stuck On Stupid, Don Surber

Home Sweet Home

Well, it's been a long, weary, and intermodal trip from Washington back to New York, so with my apologies, I'm going to have to defer further distillation and elaboration from my notes on today's Blog Row at the Capitol (see following several posts if you don't know what I'm on about).

Pictured are Reps. Eric Cantor (VA),  "Judge" John Carter (TX), and Mike Conaway (TX).

Funny, I hadn't noticed them arriving alphabetically...

Suffice it to say the whole rowdydow was a runaway success and I am wholly impressed with the way the Republican Party (as embodied by the RNC, the House Republican Conference, individual Members' offices, and other organizations) is making such effective use of the medium.  They're tapping into power of the b'sphere in ways a thousand screaming Vermonters could only dream.

For the record, attendees (with Blog Row posts linked when available) included:

William Beutler, Hotline
Matt Margolis, GOP Bloggers/Blogs For Bush
Eric Pfeiffer, National Review’s The Buzz
Tim Chapman, Town Hall
Mary Katherine Ham, Town Hall
Justin Hart, Right Side Redux
Ian Schwartz, Political Teen
Kevin Aylward, Wizbang
Pat Cleary, RedState/NAM
Flip Pidot, Suitably Flip

Sorry to anyone I missed!

Topically speaking, we hit tax policy, fiscal discipline, pork, Iraq, Harriet Miers, social security, pork, political blogging, hurricane relief, homeland security, pork, government fraud, waste, and abuse, the possibility of a 3rd Bush Supreme Court nominee, and the midterm elections.

And pork.

It was, in a word, engrossing.

The cadre of Representatives that stopped in was nothing short of astounding (especially as there was a vote going on).  I have to admit in the hubbub of it all, I missed a couple of the introductions.  Thankfully, the exceptional event organizers followed up with official rosters, pictures, statements, and more.  For posterity, I give you the 23 blogophilic Representatives in attendance:

Louie Gohmert TX-1
Deborah Pryce OH-15
Mike Pence IN-6
David Dreier  CA-26
Kevin Brady TX-8
Jack   Kingston GA-1
Mario  Diaz-Balart L-25
Phil   Gingrey  GA-11
Scott Garrett  NJ-05
Marsha   Blackburn TN-7
Steve   Pearce  NM-2
Chris Chocola  IN-2
Chris Cannon  UT-3
Dan Lungren  CA-3
Mark Kennedy  MN-6
Katherine Harris  FL-13
Bob Inglis  SC-4
Trent Franks  AZ-2
Mike Conaway  TX-11
Jeb Hensarling TX-5
Joe Wilson  SC-2
John Carter  TX-31
Eric Cantor  VA-7

Self, you've just attended the first ever exclusive GOP Blog Row live at the United States Capitol.  What are you going to do now?

I'm going to Disney World.

No, seriously.  Next post will be from the Grand Floridian.

Meantime, click on the post extension link below for Conference Chairwoman Pryce's statement published after the conclusion of the event.

FOR IMMEDIATE RELEASE             CONTACT: Sean Spicer or Andrea Tantaros

October 20, 2005                                  PHONE: 202-226-9000WASHINGTON,

House Republican Conference Hosts First Ever ‘Blog Row’

DC—Today, House Republican Conference Chairman Deborah Pryce (R-OH) issued the following statement after the first ever Blog Row:

“Today House Republicans welcomed eleven bloggers into the Capitol in what was the first of many communication events directed at the blogosphere.” said Pryce.  “I am always excited about opportunities to reach out directly to constituents, be it through a podcast or a conference video posted to our website.  Today’s event is just another example of how House Republicans are taking our policies and plans for this Congress directly to the American people.”

“Bloggers serve a wonderful purpose in today’s twenty-four hour, blitz and glitz media world.  They have the ability to report the stories behind the stories and empower the American people to really think about the news they take in from mainstream media. Today, I thank the Blogging community for helping House Republicans get our message of strong fiscal policies directly to the internet and the American people.”

During the first ever Blog Row, Members were able to take questions and provide in depth answers while bloggers posted comments and summaries throughout the entire two and a half hour forum.  The House Republican Conference reached out to bloggers nationwide, with eleven able to attend the event and post live from the Capitol. Today twenty-three Members spoke at “Blog Row’ on everything from belt tightening in the budget to the recent elections in Iraq.

Live from the Capitol

Great turnout so far.  About a dozen Representatives have been through so far, and have included Deborah Pryce, Katherine Harris, and David Dreier.  Rumors abound that Speaker Hastert will drop in soon.

Between trying to think of insightful questions, taking notes, and grappling with two laptops and a mess of cabling, it's not looking like I'm going to be able to liveblog with any coherence during the conference.  But there's plenty of good stuff pouring out in here.

Stay tuned!

Chris Cannon (UT) just walked in...

Storm for Reform

Couretsy of an attentive reader, here's a worthwhile event being hosted by "Fix Our Future" this Sunday.  If you're a Washington area 18-39-year-old, stop on by Capitol Hill for an afternoon of Social Security statement shredding and free t-shirt receiving.

Sign up here.

In a Post-(n/2)+1 World

From Social Security reform to confirmation of Presidential nominees, it seems the Senate just can't get things done like it used to.  (Well, I suppose they do get certain measures passed now and then.)

In today's Golden Age of Filibusters, however, getting politically charged measures through the upper house just isn't realistic.  There is, after all, only an 11 seat spread between the majority and minority positions.  And that's simply not enough of a mandate to allow such tyrannies as setting a political agenda, confirming nominees, or other legislative duties once carried by simple majority.

And yet, what if that majority were to graduate from simple... to Super?  The legislative consequences would plainly be dramatic (read: work would get done).  But is it realistic?  Indulge me in a brief saunter through this chimera...

To increase their Senate position to a filibuster-proof supermajority of 60 and thereby scratch the Dems' increasingly itchy filibuster finger, the GOP will need to pick up 5 net seats in 2006.  I recently bounced this prospect off of Dr. Larry Sabato, Director of the University of Virginia's Center for Politics, and creator of the much-gazed Crystal Ball, which provides analysis and predictions for major elections.

There are 33 Senate elections in 2006, 18 of which are for seats currently held by Democrats and people named Jim Jeffords.  According to Center for Politics research, 8 of these Democrats are "moderately to very vulnerable" (6 of the 15 Republicans are given the same rating).

Per the Crystal Ball, these 8 most fertile GOP hunting grounds are as follows (colorization mine).  2004 Bush vote share is shown in parentheses:

Florida:  Bill Nelson (52%)
Maryland:  Open (43%)
Michigan:  Debbie Stabenow (48%)
Minnesota:  Open (48%)
North Dakota*:  Kent Conrad (63%)
Nebraska:  Ben Nelson (66%)
New Jersey**:  Open (46%)
Washington:  Maria Cantwell (46%)

*  In play if GOP Governor John Hoeven runs
** In play if Senator Jon Corzine is elected governor

If Republicans can flip the seat in each of the three red states on the most vulnerable list, and pick up any two from Maryland, Michigan, Minnesota, New Jersey, and Washington, they'll get to 60 (and scores from Hollywood will renew promises of emigration... I smell a tipping point).  If one or more of the at-risk Republican seats should turn, however, there'll obviously need to be a corresponding cushion provided either by additional blue state poaching, or by a surprise party change among the less vulnerable seats.

Is it far-fetched?  Maybe a tad.  Is it too early to get overly piqued about it?  Okay, probably.  But with stewards the likes of Howard Dean, Joe Biden, and Dick Durbin at the helm of the party's rhetorical ship, there's magic in the air.

Crystal Ball offers analysis and early predictions for each 2006 Senate race here.

Liveblogging the Fed

Or... "How I Learned to Stop Worrying and Love the Froth"

At 10:00 am, Federal Reserve Chairman Alan Greenspan testified before the Congressional Joint Economic Committee.

All in all, there were no real surprises, other than, perhaps, the lack of surprises.  Dallas Federal Reserve Bank President Richard Fisher made comments last week that suggested a defined end to the pattern of rate hikes, but Greenspan's language today was unchanged from that of the most recent FOMC minutes, which leaves the schedule indeterminate.

Greenspan's remarks, in brief:

• The economic soft patch observed earlier in 2005 is behind us.
• Inflation is contained for now, but no promises on when 1/4 point hikes on the Fed Funds will pause.  The Fed will be "vigilant" and "data-dependent".
• The flattened yield curve environment is an international phenomenon and is contributing to 1) high housing prices and 2) a moderated economic growth rate.
• We're in trouble when the baby boomers retire in earnest, given current savings rates, committed entitlements, and GDP growth.
• And by far the point hammered home the hardest, we must improve our system of education, particularly between 4th and 12th grade.  This is vital to long-term productivity, GDP growth, balanced budgets, and meeting the demands imposed by the pending labor force exodus.

Click below for the spine-tingling liveblog play-by-play:

10:00 am
Dow:  10461.86
10 Yr Note: 101.188 3.98%

Still waiting...

While we wait, fun words to watch for:
Bubble, Froth, Conundrum, Knife's Edge, [any baseball analogy]...

Here we go.  Greenspan paraphrasals looks like this.  [My annotations look like this.]

Summary of Chairman Greenspan's prepared remarks:

The past year's economic activity has alternatively paused and quickened.  The recent soft patch did not presage a more serious slowdown.  Spending has firmed.  Business investment is upbeat.  We have the same imbalances and uncertainties as we did a year ago.  Household savings remains negligible.  Pending mass retirement of baby boomers is still looming. The current account deficit exceeds 6% of GDP.  The surge in the price of oil has diminished U.S. purchasing power (oil climbed from 1.4% of GDP in 1Q04 to 1.8% in 1Q05).

On net, economy has done well over the last 12 months.  Real GDP has grown by 3.7%.  Unemployment fell to 5.1%.  2.5% productivity growth in first half of 2005, while respectable, is far less than >5% seen throughout 2004.

Rise in manufacturing costs has not yet fed into the core price level.  The pronounced decline in U.S. Treasuries - despite the cumulative 2% hike in the Fed Funds rate - was the biggest surprise of the last year.
[This is the "interest rate anomaly" or "flattened yield curve" referred to throughout the hearing.]

On housing, a bubble does not appear likely, but signs of "froth" are apparent in localized markets.  The upward pressure on housing is due to:

• Surprisingly low interest rates [the aforementioned anomaly, i.e. mortgages are cheap]
• Localized variance in housing prices, due to the inherent illiquidity, low transferability, and high transaction costs of the housing commodity
• If local housing markets do undergo a housing price correction, it is unlikely it will have a major macroeconomic impact.

10:20 am
Dow: 10458.56
10 YR Note: 101.079 3.99%

[Concluding his prepared remarks...]

"Inflation remains contained... Policy accommodation could be removed at a pace that will likely be measured, but the Fed will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."

[This is the same language used in the most recent FOMC minutes, which suggests we're not in the "8th or 9th inning" (which would've more clearly signaled only 1 or 2 additional 1/4 point hikes, followed by a pause) that many had predicted.]

Q&A:

Regarding the interest rate anomaly:

"Something unusual is at play... of international origin."

Theories on the cause of the interest rate anomaly:

• The world economy is slowing down
• The accelerated pace of globalization opened up new areas of educated, skilled employment, bringing the cost structure of the world economy down, bringing down inflation premiums in the long end of the yield curve, and bringing down real risk premiums [real long term interest rates].

Effects of the interest rate anomaly on U.S. Economy:

• Mortgage rates are lower than they would normally be at this point in the business cycle, leading to the continued buoyancy of the housing market
• Other asset values that respond similarly to low long-term rates have similarly appreciated
• There is very little evidence of inflationary pressures on the product side [consumer prices], but wholesale costs may be rising.  Inflation risk: modest.  Fed: vigilant.  [Meaning if they start to see inflation creep in, don't expect them to ease off the hikes.]

10:30 am
Dow:  10453.29
10YR Note: 101.078  3.99%

Regarding the overall ability of the U.S. economy to weather difficulties:

Not inclined to expound on previously released FOMC statements.

Regarding income distribution in the U.S.:

Due to an underperforming U.S. education system (children perform well above the world median in 4th grade and well below by 12th), wage disparity and wealth concentration are increasing, an issue a democratic society should not tolerate.

[This was the first of many times Greenspan pointed to improvement in education as the lynch pin to securing our global competitiveness, long-term GDP growth, ability to make good on committed entitlements, and other triflings.]

Regarding a rambling thorough question posed by Sen. Jack Reed (D-RI) about the Congress having used the flat yield curve as an excuse to carry large deficits [the notion being that it's less fiscally undisciplined to borrow more when the borrowing is cheap], the merits of repealing the death tax, and proper fiscal policy in light of the recent shift from a surplus to a deficit:

Fiscal policy will run into large problems in the next decade if we don't restore pay-go [deficit-neutral fiscal programs] and other fiscal discipline.  "Something very unusual is about to happen to this country" involving the huge exodus from the labor force. [the looming baby boomer retirement]

10:45 am
Dow: 10445.89
10 Yr Note: 101.062 3.99%

On a plea from Sen. Robert Bennett (R-UT) for the Chairman to hint where he thinks the long-term neutral Fed Funds rate might be (suggesting 3.5%).

Impossible to forecast, but we'll know it when we see it. [valiant effort, Senator]

Regarding proposed payroll deductions ("Save More Tomorrow Accounts") and their likely effect on household savings rates:

• There is evidence to suggest that "opt-out" savings plans (like SMTAs) will induce higher savings rates than "opt-in" plans
• But rise in savings rates is more likely to be due to changes in mortgage rates

10:55 am
Dow: 10458.39
10 Yr Note: 101.125  3.99%

On whether foreign investment in U.S. Treasury issues will shift the balance of the benefit of domestic production increasingly to foreigners (question from Rep. Carolyn Maloney (D-NY)):

Yes.  The impact will be "evident, but not serious."

On the future burden of delivering on committed healthcare entitlement benefits:

This must be dealt with "sooner rather than later" to avoid an "unhappy circumstance".

11:05 am
Dow: 10465.04
10 Yr Note: 101.281  3.97%

On whether the weak world economy theory [above] is a good theory to explain the yield curve anomaly:

Not really.

On the expected economic effects of a flattened yield curve:

One expects to see a squeeze in commercial banking activity [due to lower rate spreads], which generally leads to a slowdown in economic activity [because businesses are less able to borrow and invest in new projects]

On the federal government carrying unfunded liabilities [akin to a corporation carrying off-balance sheet financing]:

The federal government needs to adopt more uniform accrual accounting methodology to better recognize the cost of financing such liabilities.

11:15 am
Dow: 10464.00
10 YR Note: 101.250 3.97%

Do you still support the Bush tax cuts and do you think they should be made permanent?

Yes, if consistent with pay-go.

On how to get back to pay-go, given currently committed entitlements, defense spending, discretionary spending, and tax structure:

"Being as explicit as I dare," choices between "very goods" and "lesser goods" need to be made by legislators in order to curtail spending and/or increase revenues.  Balancing the budget is not being given sufficient priority.  "Unless you repeal the laws of arithmetic, it won't work."

On revisited worries about the threat of a cool-off in the housing market:

• The level of mortgage debt will go down due to equity extraction as the housing market cools.
• A major macroeconomic effect is not perceived as a consequence to the housing market cooling off.

11:30 am
Dow: 10454.84
10 YR Note: 101.234 3.97%

On the management of pension fund assets:

To the extent that funds are invested in other than risk-free assets [Treasuries], investors can expect higher returns as well as higher risks.  In the event of failure, that risk must be borne by employees, shareholders, or public benefit guarantees [the American taxpayer].  Those risks and the bearers of those risks must be identified.

On economic growth persisting despite high oil prices:

When gasoline and heating oil prices rise, consumption doesn't decrease measurably in the short term.  Long-term, when prices stay high, consumers will demand more fuel-efficient technologies, lowering overall relative consumption.

On the expanding dispersion of global current account imbalances, of which the U.S. is heavily on the deficit side: 

• Driven by increasing tendency of citizens to invest outside their country.
• Not necessarily a problem, provided significant levels of debt are not built up to finance the deficit.

On whether there's any way other than cutting expenditures AND raising taxes to restore fiscal discipline:

"Not that I'm aware of." [ouch, Alan.]

On the wealth of nations and why the United States consistently outperforms other countries:

1. The U.S. Constitution and its protection of personal property rights
2. The nature, education, and intellect of the American people [God bless 'em]

#2 is in serious jeopardy if we don't address declining educational standards in time to meet increasing entitlement burdens.

12:00 pm
Dow:  10503.83
10YR Note: 101.328  3.96%

On the levels of job creation and unemployment, compared to prior periods of economic recovery:

The earlier lag in job growth was in part due to increases in productivity growth (in 2002-2003).  This raised overall standard of living, offsetting the delayed recovery in employment.

A little tiff then ensued between Committee Chairman Saxton and Rep. Carolyn Maloney over the current unemployment rate (5.1%) compared to average unemployment rates for the prior three decades (which were all higher).  Rep. Maloney slipped in a final retort that the rate was lower in 2000.

[*sigh*]

12:15 pm
Dow:  10501.69
10YR Note: 101.266  3.97%

Revisiting the issue of income distribution:

High quality education is both a "necessary and sufficient condition" to solve the problem.  If we don't address that issue "nothing else we do is going to help very much."

Rep. Maurice Hinchey (D-NY) took a stab at bullying the Chairman into conceding that a more progressive (less "reckless and radical") tax policy is the better solution.  Greenspan responded with a brief economics refresher, explaining that returning tax revenues to high income tax payers results in productive reinvestment of that money, and very infrequently is put toward domestically unproductive projects, like the purchase of private islands and foreign factories that the Congressman was lamenting.

On the ability of econometric models to accurately characterize international trade between capitalist and totalitarian states (e.g. between the U.S. and China):

• They don't work very well.
• Applying principals of development economics works better than attempting to apply standard econometric models.

12:30 pm
Dow:  10523.41
10 Yr Note: 101.266  3.97%

On Rep. Loretta Sanchez's (D-CA) question about what other legislative policies need to be changed to address the country's income distribution:

[Say it with me now...]
SOLVE THE EDUCATION PROBLEM.

Chairman Saxton thanks Chairman Greenspan and concludes the hearing at 12:35 pm.