WaPo columnists look at the national debt

by Michael Smith.

In today’s Washington Post, Fareed Zakaria reports that America’s 500 largest nonfinancial companies are sitting on $1.8 trillion in cash. Why aren’t they investing? The political climate in Washington is creating fear and uncertainty. In other words, who knows which industry might catch Barney Frank’s eye next?

John, in your line of work, I’m sure the importance of a predictable business environment never comes up at the water cooler, so be sure to spread the word!

Meanwhile, Ruth Marcus has discovered that the national debt is an urgent problem. Who’s next, Nancy Pelosi? I’m not anxious to hear Ruth’s battle plan, but it’s good to know she hears the cannon fire in the distance.  

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3 Comments
  1. John Lumbard says:

    We do indeed worry that businessmen are reacting to the anti-business climate (in Washington and in the media) by holding onto their cash, avoiding new initiatives, and avoiding hiring. The unemployment rate will be stuck near 10% for a long time.

    However, we ARE bullish on stocks. Fear of a double-dip recession has caused blue chip companies like Microsoft, IBM, and AT&T to sell at ten times earnings. Exxon sells at 8 times, and Pfizer sells at 7x. These companies—scores of them—have done a spectacular job of navigating their way through a difficult economic environment, and now they’re boosting earnings growth by purchasing their own shares at bargain prices. When stock prices are this low the effect can be very powerful. It will be less powerful when stock prices are higher, so don’t wait!

    Another positive for stocks and the economy is the palpable sense of fear in Washington right now. It’s quite likely that Congress will behave responsibly in the months and years immediately ahead. It is nevertheless essential that voters seize on this rare and wonderful opportunity to change the rules under which the Congress operates, so that it will more difficult to act irresponsibly in the future.

    A lot of this pain would have been avoided if we had passed the balanced-budget amendment to the Constitution that was put up in 1995. Congress was one vote short!

    Reply
  2. Michael S says:

    I hope there’s fear inside the Beltway, because there’s plenty outside of it. With luck, we’re done with the public-spirited self-sacrifice that helped pass healthcare. Those who voted for it knowing that it would cost them their jobs–whether to save an historic law that the folks back home were too dumb to appreciate or to save the Obama presidency–may be more dangerous than the typical unprincipled careerist. Heaven forbid that John “Cap’n Trade” Kerry finds more of these shmoo-like critters in time to pass an energy tax! It’s like strategizing against the terrorists: how do you deter people who aren’t afraid to die? OK, I’m getting a bit partisan here…

    Reply
  3. Joe Perry says:

    Congress Debates Proposed Pay Raise WSJ June 13, 2019

    Goose-gander egalitarian principles should apply to congress. A few years ago, legislation introduced “pay-for-performance” measures that provide a tiny incremental pay increase for medical providers (I fit in this category) if their practice meets certain goals. Why not congress?
    When one recognizes the legislative gridlock that has delayed or precluded a number of governmental functions or died as purely partisan cudgels, one might ask why pay these people anything. That’s (somewhat) facetious, of course. The point is we should provide financial incentives for favorable legislative performance.
    All of the incentives that I perceive as an outsider for legislators are to spend more money. Our elected representatives are expected to “bring home the bacon”, meaning bring federal projects to the state that provide jobs and money. Now that the federal government has usurped social programs of pensions and retirement, healthcare, disability, disaster relief, housing, education, educational loans, and (gosh, where does this list end?), there is a virtually endless array of financial programs to slather on voters to purchase their loyalty. And vote. Let’s try to balance the scale with a pay mechanism that promotes a balance between income and spending.
    One idea is to give our federal legislators a raise. For example we increase their base pay from $174,000 annually to $225,000. We increase budget for each congressional office by $150,000 for each office as well. They get paid this much plus a $75,000 annual bonus as long as spending appropriations do not exceed revenues. In other words, if they achieve a balanced budget. For a 1% budget deficit, staff budget falls by 5%, the bonus goes away completely. For every 1% budget deficit beyond that, office budget and legislator salary falls by 2%.
    As an example, assume annual Treasury receipts are $3.5 trillion and spending is $4.5 trillion. This results in an annual budget deficit of $1 trillion, roughly where we are now. In percentage terms, this is spending 29% more than what the Treasury takes in or a budget deficit of 29%. This would result in a 61% reduction in staff budget and a base pay for legislators of $99,000. We could adjust the cuts to be more draconian and the incentive stronger by increasing the 2% fall to 3% or less persuasive by lowering the cut.
    A very different approach is more like a carrot than a stick. First we create a reduction in salary of rank and file Senators and Congresspersons from $174,000 to $100,000 (and commensurate reductions for leadership). We then offer a series of bonuses. The payment of bonuses requires that, for each of the following pieces of legislation, they must be passed with a minimum of 10% of each major political party voting for the measure in both Senate and House in order to mitigate the partisanship and foster good faith negotiation. The bonus lasts the duration of the term. New performance goals must be outlined in the 90 days prior to each federal election. I’m happy to provide them or others can come up with a less random list.
    Matching or exceeding revenue to spending (“a balanced budget”) : Bonus of $200,000.
    Immigration reform and border security: Bonus of $100,000
    Either declare war or cease funding war: Bonus of $75,000
    The pay-for-performance legislation created another requirement for physicians, measuring and reporting of patient satisfaction. If I had a patient satisfaction rating similar to the approval rating for congress, south of 25%, I would never be able to find a job. Give the legislators a reduction in pay for a RealClearPolitics favorability rating under 40% for their branch (Senate, House) and a bonus for a rating over 55%.
    Of course, this is all just idle chatter. The probability that such laws would be passed by congress is essentially zero. This would need to happen based on pure democracy through petitions and propositions in every state.

    J Joseph Perry MD

    Reply
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