Have you heard about the bonuses paid to the losers at AIG?  OK, that’s a joke because everyone has heard about how “the very employees responsible for running the company into the ground” are making off with millions in tax payer dollars as Senator Mark Warner wrote in a letter to the AIG CEO Edward Liddy.  Now I will never receive a seven figure bonus and I can’t figure out why a company would ever agree to pay one, but with that being said, I’m just not on the Bonus Bashing bandwagon yet.  It’s not that I think AIG is great.  It’s not that I’m especially sympathetic with the downward spiral that the formally high riding AIG folks are on.  The real reason that I can’t yet bring myself to go looking for my torch and pitchfork is that we really don’t know squat about these bonuses… and neither do the congressmen building ever higher soap boxes from which to denounce them.  What we don’t know so far:  who got the bonuses, why they got them, what were the criteria for receiving them.  What we do know: $165 million in bounuses were paid and a total of close to $1 billion is slated to be paid to around 4,600 top managers in 2009.  So do all our congressmen know what they are talking about?

I heard one congressman saying something to the effect of “how do any of these people deserve performance bonuses when their company is crashing?”  Let me say again that I don’t understand million dollar bonuses, but that said, I think it is perfectly reasonable that bad companies can have great employees.  Should the top salesman at the local GM dealership give up his bonus because GM is doing poorly?  What if GM accepts government money?  What if he sells a crappy car?  My thought is that if he was working to an incentive plan and he achieved his end of the deal, he should get his check.  Many employees receive some portion on their pay as variable compensation.  Every employee at the company where I work is on a bonus plan.  We don’t get millions, but everyone has the potential to get up to 10% of their annual pay based on performance.  For more senior employees the percentage is higher.  If I meet my objectives and targets, can the government take that money away?  Personally, I don’t consider this a “bonus”, I consider it pay.  How about that guy, Douglas Poling,  who received the biggest bonus: $6.4 million?  Turns out he was reponsible for trying to clean up the mess and his work resulted in AIG recouping big dollars, dollars that we taxpayers don’t have to pay.

Gerry Pasciucco, a former vice chairman of Morgan Stanley who was brought in by Mr. Liddy in November to wind down the financial products unit, said Mr. Poling had sold off roughly 80 percent of the unit’s assets. Mr. Pasciucco said the money from the sales would go to the government, which has handed more than $170 billion in bailout money to A.I.G. in the last six months.

“He’s done an outstanding job in winding down his investment books,” Mr. Pasciucco said. “He did it at the right time, and we’ve made money. We would be losing money today if we waited to sell some of these assets.”

By the way, our boy Doug gave the bonus back.

We’ve also read about “retention bonuses paid to people who have left the company.”  How does that make sense?  OK, from far away, I can question the wisdom of offering these plans, but let’s understand that these payments are made after the service term to employees that stayed last year.  For whatever reason, AIG offered to make a payment to employees who stayed in 2008.  When that period expired, they were entitled to the payment even if they left the company.  AIG was not government supported at the time, but was feeling heat.  Maybe they felt they needed to keep top performers.  I don’t know why they made these offers.  You don’t either.  I probably wouldn’t have offered such plans, but if I was offered one and accepted it in good faith to stay on a sinking ship, I’d consider my end of the deal complete.  Was management pulling a fast one?  Let’s go find out, but at least let’s hold our fire until we know the answer.

What has all the rhetoric achieved so far?  We’ve got dubious legislation attacking people’s pay passing in Congress without debate, security memos at AIG warning employees to beware of people seeking to do them harm and employees being harassed and attacked at their homes.  Does anyone besides me think we need to get the full story before burning people at the stake?

Rush LImbaugh has been crowned the leader of the Republican Party by the Democrats and to the humor of all, his fellow Republicans have kind of completed coronation.  So how should Rush use his new found power?  It’s clear that there is a void at the top of the Republican party and Rush has a large bully pulpit, so what should he do?  I have an idea for you Rush.

First, recognize that all those who try to speak for the Republican Party on the stimulus all have one thing in common:  They are completely unqualified to speak about the economy in general and our current crisis in particular.  Not that the Democratic congressmen and senators are any better, because they aren’t.  On one side of this crisis, you have Obama’s administration consulting with the best economists money can buy.  One the other side, you have … what, a bunch of politicans looking to profit from being in the opposition?  People who want Obama to fail?  This is not going to work for you.

Once you understand that these people, your subjects, don’t know what they’re talking about, it’s time to take on the administration.  Put together your team of reputable economists and present your own plan!  I’m sure you can find a group of economists who are not confident about the administration’s plan to sit around a table, put together a comprehensive theory of what is happening and how we can mitigate the crisis and then propose a solution that is different than what the administration has proposed.  The economists would probably do it for free just for the press!  Armed with a counter proposal,  your minions in government would be in a position to ask for changes in the stimulus package instead of futilely cursing the Democrats.  This is your chance to lead Rush.  What are you going to do with it?

It seems like a new Republican mantra has broken free from the dark corridors where is was previously consigned to furtive whispers: they want Obama to fail.  I understand that Obama is pushing for many policies that don’t fit with the Republican party line, but how can you want him to fail?  What does an Obama failure look like for the United States?  Unemployment over 10%?  Numerous failures in the US manufacturing sector?  Significant erosion in the soft power of the US, much of which stems from our economic position in the world?  Is that what Republicans are hoping for?  How can a Republican congressman go back to his or her constituents and defend this position?  The governor of South Carolina has gone so far as to say he wants to use S.C.’s share of the stimulus money to pay down South Carolina’s debts instead of trying to create new jobs.  Since South Carolina’s unemployment rate is 10.4%, the second highest in the nation, you might think that the governor would decide to create more jobs, but even as the state is furloughing teachers and moving to larger class sizes, Governor Stanford is turning away help for politics.

Today, the Supreme Court issued a ruling that the Wyeth pharmaceutical company is liable for injuries sustained to a patient when a drug was improperly administered despite a warning explicitly called out on the label.  It wasn’t even a close vote (6-3) nor was it a new drug.  Here are the details per the NY Times.  The patient, Diana Levine, went to a clinic in 2000 with migraine pain for a shot of Demerol.  As part of this treatment, the clinic also prescribed Phenergan for nausea.  The Wyeth drug Phenergan has been in use since it was approved in 1955, but if misused, it has a horrendous side effect.  Contact with arterial blood can, according to the warning on the label, cause “gangrene requiring amputation”!  That is what happened in this case.  The clinic improperly administered the drug, accidently injecting it into an artery instead of the target vein and the patient eventually lost her arm.  So how is Wyeth liable?  If you have a drug on the market for half a century with 200 million successful uses and a warning on the label that details out the risk, what more must you do?  The Vermont jury that heard the case said that the label could have been more explicit or banned injection completely.  So I feel for Ms. Levine (who also settled a case for $700,000 against the clinic), but what is the responsibility of Wyeth here?  This is not a drug that you buy over the counter at Rite Aid.  You would only expect it to be used in a hospital or clinic setting and it would be administered (as it was in this case) by medical professionals.  Administering the drug by intermuscular injection or IV is supposed to be very safe.  The warning is spectacularly specific.

A little humor from the folks at the Journal of Economic Perspectives.  OK, they don’t mean it has humor.  Their article “Red Light States: Who Buys Online Adult Entertainment?” is a serious work looking at the various socioeconomic factors driving pornography consumption or as they say:

For economists, the adult entertainment industry offers several aspects of
interest. On the production side, for example, the adult entertainment industry has
repeatedly proven to be among the first to adopt new imaging technologies. For
example, Johnson (1996) concludes that adult videos spurred early purchases of
home video cassette recorders. More recently, as studios evaluated competing
high-definition DVD formats HD-DVD and Blu-ray, at least some studios chose
Blu-ray upon observing that adult studios favored that format (Mearian, 2006).
Looking back, adult entertainment was an early adopter of a wide variety of
image-related technologies—including ancient sculpture (Diver, 2005), the book
(Moulton, 2000), and the photograph (Loth, 1961).

Still, it’s not hard to find humor in the reams of data contained in the report.  The top state in Internet porn subscriptions per broadband user:  Utah.  Numbers two and three: Alaska and Mississippi.  Those are really red states consuming all that porn.  OK, Hawaii comes in at number four, but then comes Oklahoma, Arkansas, North Dakota and Louisiana.  See any pattern there?  Maybe those blue state folks are just better at finding free porn. 

After President Obama’s address, the latest “rising star” of the Republican Party took the stage to present the party response.  Bobby Jindal’s speech has been pretty widely panned with pundits commenting unfavorably on his delivery, diction, stage presence, etc, but in terms of respresenting current Conservative thought, it was right on the money.  Skip all the window dressing and look at the meat of his address. Here is what I take away about Conservative views on government, taxes, education, science and defense.

Role of government

Governor Jindal starts with this story:

During Katrina, I visited Sheriff Harry Lee, a Democrat and a good friend of mine. When I walked into his makeshift office, I’d never seen him so angry. He was yelling into the phone: “Well, I’m the Sheriff and if you don’t like it you can come and arrest me!” I asked him: “Sheriff, what’s got you so mad?” He told me that he had put out a call for volunteers to come with their boats to rescue people who were trapped on their rooftops by the floodwaters. The boats were all lined up ready to go, when some bureaucrat showed up and told them they couldn’t go out on the water unless they had proof of insurance and registration. I told him, “Sheriff, that’s ridiculous.” And before I knew it, he was yelling into the phone: “Congressman Jindal is here, and he says you can come and arrest him too!” Harry just told the boaters to ignore the bureaucrats and go start rescuing people.

There is a lesson in this experience: The strength of America is not found in our government. It is found in the compassionate hearts and the enterprising spirit of our citizens.

The point here: Government is an obstacle to be overcome.  This particular story is pretty ironic.  My father was one of the late sheriff Lee’s deputies in the mid eighties and if there is one thing that is beyond doubt is that Lee was a politician through and through, the most influential politician in Jefferson Parish from the 80’s until his recent death.  Jindal praises Lee’s work organizing relief while at the same time implying that government is the problem.  The Governor envisions a world where the government is too small to help so that the “compassionate hearts and the enterprising spirit of our citizens” can shine through.

If President Obama’s campaign promises are worth going by, there is going to be a healthcare debate in the United States in the next couple of years.  Now’s the time to ask “who pays?”  The annual health care cost in the US passed the $2 trillion mark in 2006 and is rising at twice the cost of inflation.  If the government moves to a more universal health care system, won’t that move that cost onto the taxpayer?  The answer is that the citizens of the United States are already paying all the costs of our health care system.  Our employers, the primary sources of health insurance in the United States, pay third parties to pay for our health care, then immediately pass those costs along to their customers.  Every plane ticket you buy is paying for some healthcare.  That GM car?  Lots of health care built in there.  Banking services, ditto.  Taxes to state and local governments go to paying for health care for their employees.  Indigent care in hospital emergency rooms?  Paid for with tax dollars or higher fees for paying customers and that money comes from us.  WE ARE ALREADY PAYING THE ENTIRE COST OF OUR HEALTHCARE SYSTEM!

In some cases, those costs are killing off American businesses.  GM doesn’t need help because they don’t make good cars.  OK, the Japanese have a quality advantage, but the reality is that Detroit has caught up a lot over the last two decades and US cars have been climbing in the quality rankings for over a decade.  GM is saddled with $2,000 per car in costs for retired employees that their competitors don’t have to pay, and lot of that is healthcare.  Not only do we pay for that cost when we buy a car, we pay again in lost jobs, lower salaries and bailout money.  It’s like paying your mortgage a little several times a day instead of once a month.  It doesn’t make it cost any less.  It probably drives up expenses.  But it hides the cost.  You may feel better about it, but it still means that at the end of the month you are wondering where your money went.

Let’s put aside all the political debate and just look at costs.  It’s cheaper to treat a cavity at the dentist office than it is to treat an abscess in the emergency room.  Cheaper to pay for pre-natal care than a problem delivery.  Cheaper to pay for a flu vaccine than treat the flu.  A single payer system is a more cost effective way to deliver healthcare in this country and it doesn’t cost the taxpayer a single dime more.  We’re paying it already.

Less than a month in, President Obama can claim his first foreign policy success, if only quietly.  During the run up to the election, Obama said he was willing to have discussions with countries the US has been avoiding for decades, notably Iran.  After the election, he reiterated the point, tossing a bomb shell into Iranian politics.  For the last several years, Iran’s President Ahmadinejad has scored political points pitting himself against a politically inept Bush administration.  At every turn, Ahmadinejad has come out on top in the view of his constituents and the larger Muslim world that is his major theater of operations.  Whether he was allowing himself to be battered by aggressive university crowds in the US (see how poor the hospitality is in the US) or refusing to correct poor translations in the NY Times (Ahmadinejad never said anything remotely like Israel “should be wiped off the face of the Earth”), he effortlessly outwitted his US opponents who weren’t able or willing to put in the effort to court Muslim opinion.  Those efforts have been critical to his administration because the tide of economic discontent that brought him into power is still there and growing.  In a country with huge oil reserves, there are routine power outages in Tehran.  The economy continues to sputter and the best and brightest in Iran leave. If he could have prompted a military strike, his reelection would probably have been guaranteed.

But the Obama administration presented Ahmadinejad with a new challenge and so far he seems not to know how to handle it.  Apparently, Ahmadinejad perceived Obama’s open hand remark as a weakness because his first response was an anti-US tirade perhaps meant to test which way the Obama team would jump.  But the Obama team didn’t jump, not to a reflexively defensive position, nor to an aggressive position.  That open hand just sits out there.  Ahmadinejad’s demands for apologies seemed to get no where in the international press with some outlets pointing out that the Clinton administration had already apologized for just about everything where Iran was concerned.  Without a radical US response, grumblings in Iran’s progressive communities started to percolate.  Former President Khatami, a well known reformist, had been vacillating on whether to jump into this year’s election, but with Ahmadinejad’s fiery late January speech failing to rouse, Khatami decided to toss his hat into the ring, offering the Iranian people a real, sharp choice in how they want their country to proceed.  Last week, Ahmadinejad had to backtrack, saying

The Iranian nation is prepared to talk. However, these talks should be held in a fair atmosphere in which there is mutual respect.

This seems to be the first diplomatic round the US has won since Ahmadinejad has come to power.  The rhetoric has failed, at least temporarily.  Between now and June, the Iranian people will have to look at that extended hand to determine if they want to reach out for it.  Not that a Khatami victory will change the world overnight.  Despite real efforts from the Clinton administration, Khatami could not overcome interference from the theocracy to affect real change in the ’90s.  Still, it’s a chance and that is more than we had last month.

Word has it that the Senate has a compromise stimulus plan ready, but the details are being held up while negotiations are still in progress.  We might not know what is in the package, but we’ve seen plenty of trial balloons over the last couple of weeks.  Here are my thoughts on those ideas, both as stimulus and as good policy.  I’ve provided a grade for both and these grades represent only my thoughts.

Critical infrastructure project spending (Stimulus: A+, Policy A+)

This one is a no-brainer for Congress and you could easily spend a trillion dollars on just this alone if Congress has sufficient desire.  Infrastructure spending results in the direct creation of jobs and the purchase of mostly local materials.  Infrastructure improvements directly benefit the economy by laying the groundwork for more efficient use of resources as in roads, electrical grid or data grid improvements or by minimizing loss with levy improvements and wildfire control.

Non-critical infrastructure project spending (Stimulus A, Policy C)

Non-critical infrastructure is my friendly term for a certain type of pork.  But pork is bad, right??  For most people, pork is only bad if it is not in their district.  Still, pork is stimulus for the same reasons that critical infrastructure spending is.  Almost by definition, the spending is very localized, it stays in the US economy and generates local jobs.  What makes it bad policy is that the future benefits of pork spending are secondary to the local, short term impact.  That new VA hospital might be useful, but not in a district with no veterans.  The center to study frisbee dynamics at the local university?  Those research dollars might allow the college to keep a couple of professors on the payroll and maybe avoid a tuition increase next year.  Will it generate the type of sustaining, well paying industries that might have been spawned from putting that money in stem cell research?  Probably not.  Still, that bridge to no where is valuable to the folks living in no where and some projects are too big for local governments even if they have great local value.  Pork doesn’t always have to be bad.

Incentive payments for purchases (Stimulus: C, Policy D)

There’s talk of a $15,000 credit to new home buyers and possibly a credit for car purchases as well.  On the home owner front, this will certainly allow some renters who are close to moving into home ownership to make the leap.  It will also prop up home prices since sellers will know that buyers have this incentive and price their homes accordingly.  Buyers and sellers with a little more cash might go out and buy a little more, but peope are afraid to spend and this type of credit is a very indirect way to stimulate the economy.  It also doesn’t increase sales, just moves them up.  Car and home buyers taking advantage of the credit are probably already in the market and would make a purchase in the next year or two.  By incenting them to buy now, you get a short term boost, but drain the pool of buyers for the next couple of years.

Increased “safety net” payments (Stimulus D, Policy A)

With more people out of work, there is a lot of talk about extending unemployment benefits are making shifts in the tax code to help those at the bottom of the spectrum.  The children’s health insurance program, SCHIP, has already been extended.  In terms of stimulus, this is not going to do much.  Many people in this situation have reduced their spending as far as they can and they are getting by on credit.  More government support will allow them to limit the debt spiral, but it won’t make them spend any more money.  But in terms of policy, this is a home run.  The rapid increase in the unemployed is the first pebble in an avalanche that could overwhelm our social systems.  The demands of high unemployment suck up all the available oxygen at the state level, killing other necessary programs and forcing cutbacks in other areas where we need more spending, not less.  Increasing government support in this area limits this disruption and provides enough time for the shocks to be absorbed by the states.

General tax breaks or credits (Stimulus F, Policy F)

I love low taxes as much as the next guy, but in the situation we’re in now, they have no stimulus effect.  I’m sure my Republican friends would disagree, but the whole idea of the stimulus is for the government to make up for the lack of private sector spending.  The private sector is not spending because of fear.  Some of that fear is very reasonable (“will I have a job tomorrow?”) and some is irrational (“things are bad!”).  In a mild recessionary situation, tax breaks add a little more to the banking account and provide a little “wealth effect” spending, but all the tax breaks in the world are not going to alleviate the fear running through the economy.  People are hoarding their dollars and if you give them a small tax break, they will just hoard it also.  Without spending, there is not stimulus.  From a policy point of view, tax breaks are also terrible.  Over the last couple of decades and especially under the Bush administration, Americans have come to believe that the federal government has tons of money and can do everything without any contribution from them.  You really don’t see this on a local level.  Communities that lay out reasonable, transparent bond referendums for education or recreation generally are successful in getting the votes they need to move forward.  People understand that services must be paid for.  We’ve lost that sense at the federal level.  Tax breaks at this point would further undermine the idea that we pay for what we receive.

Increased Higher Education Spending (Stimulus: B, Policy A)

OK, no one is really talking about this… but they should.  Our economy is changing and our population has to change to meet the need.  The GI Bill after WWII was one of the most successful long term spending efforts ever implemented by the US government.  What was a huge spending program at the time reaped an entire generation of well educated, productive employees who went out and grew the US economy into the juggernut that it is today, even in recession.  If you consider human capital as part of our country’s infrasturcture, this is a way to invest in that direction with proven long term results.  Create an opportunity for all of those unemployed workers to go back to school and get the training they need to really succeed.  It takes them off the unemployment lines immediately and pours money into their communities.  If you combine it with a living stipend, you can make it possible for displaced workers with families to pursue new opportunites.  When the economy needs them in a couple of years, they’ll be ready.

So I was listening to some 70’s era rock this weekend and came across a STYX song written for the Bicentennial.  STYX was known to include a political song here and there on their albums, but this one struck me because of how it resonates with President Obama’s inauguration speech.  Maybe the President listened to it when he was a teenager.  OK, it’s not deep, but here are the lyrics for your enjoyment.

Suite Madame Blue
Written by Dennis DeYoung

Time after time I sit and I wait for your call
I know I’m a fool but why can I say
Whatever the price I’ll pay for you, Madame Blue
Once long ago, a word from your lips and the world turned around
But somehow you’ve changed, you’re so far away
I long for the past and dream of the days with you, Madame Blue

Suite Madame Blue, gaze in your looking glass
You’re not a child anymore
Suite Madame Blue, the future is all but past
Dressed in your jewels, you made your own rules
You conquered the world and more …………..heaven’s door

America….America…America..America..
America….America…America..America..
America….America…America..America..

Red white and blue, gaze in your looking glass
You’re not a child anymore
Red, white, and blue, the future is all but past
So lift up your heart, make a new start
And lead us away from here

As we sit here on the last day of G. W. Bush’s presidency, I can’t help remembering what I thought we were getting eight years ago.  I just read this Vanity Fair article by Brian Smith describing his visits to the White House as a friend of Barbara Bush (the President’s daughter).  He describes joining the family for dinners and movies in the early days of the Bush administration.  While his story is interesting in itself, what it brought back for me was my expectations from eight years ago for our new President.  Sure, we knew “W” was not as qualified as Vice President Gore.  Heck, he didn’t even win the popular vote.  But Americans were ok with George.  He was an everyday guy despite his family’s riches and political history.  He was a devoted family man, Christian, recovered hard partier, etc and we were looking for a care-taker President.  Times were good, the economy was flying high, and unemployment was very low.  All we needed was someone to keep up the good times and honestly, we were suffering from a bit of Clinton fatigue.  Bush had a reputation, a good one, from his Texas days.  Words like bi-partisan and modest came from both sides in Texas.  He might not have been the brightest bulb in the pack, but all we wanted was the status quo… and we blew it.  You can’t have an average Joe as the President of the United States.  You can’t be ok with the status quo in an ever changing world.  So this time, we’re going the other way.  We elected the smart, accomplished guy.  The guy who thinks before he speaks, then speaks clearly and eloquently.  The guy who thinks bipartisanship means listening to the other side instead of inviting them over for a cookout.  I think we learned our lesson, but it sure was a painful experience.

Yesterday, President Elect Obama pulled off what I think is one of the hardest political acts to perform; he admitted he was wrong.  From back in the campaign, Obama suggested that part of his stimulus package would be a tax credit to businesses who create jobs.  In 2007, Obama was one of the senators pushing the “Patriot Employer Act”.  That bill would try to designate businesses who hire more US workers and reward them with tax credits.  Last week, that policy started to take the form of a $3,000 tax credit for each job in Obama’s stimulus package.  But the cry against this came from all quarters.  Republicans, economists, business writers and members of his own party brought up their concerns that this plan won’t work.  It’s like eliminating the tax on gasoline when prices are high: lots of politics, no benefit.