Holiday Wishes

(Via Barry Ritholtz)

A Confused 41

Washington Whispers reports:

When the subject of Palin came up during their chat, [H.W.] Bush told of twice phoning her office but never receiving a call back. The first message was left at McCain HQ after she was picked to be Sen. John McCain’s veep; the second with the governor’s office after the election was over. He shrugged it off as staff error, but our source says he was clearly perplexed.

Somehow, Palin’s scheduling team found time for two radio jockeys from Montreal, but couldn’t return a former president’s call.  Mistakes like that understandably led the governor to lose trust in her staff, but even the best team can’t entirely mask a candidate’s deficiencies on the national stage.  Vice presidential nominees must do interviews, debates, and more, which are all opportunities to puncture a facade.  Unfortunate for Palin, otherwise she could have run one of those “front porch” campaigns.

Another Ponzi?

(Via About.com)

When Did Madoff Go Rogue?

One of Felix Salmon’s readers analyzes the fund’s return series:

Madoff was never fully legitimate — or at least, looking at this chart, he seems to have been pretty illegitimate from at least 1995 onwards. But he might not have been actively stealing his clients’ money until he blew up at the beginning of this decade, and subsequently moved from being a dishonest fund manager to the operator of a fully-fledged Ponzi scheme.

Wasilla Footnote

Palin identifies her biggest mistake during the campaign:

I could have called more shots on this: the opportunities that were not seized to speak to more Americans via media. I was not allowed to do very many interviews, and the interviews that I did were not necessarily those I would have chosen…But if I would have been in charge, I would have wanted to speak to more reporters because that’s how you get your message out to the electorate.

Hard Times for Governors

The New York Times details Jindal’s fiscal mess in Louisiana:

While the leading good-government group, citing [oil] addiction, warned last May against the Legislature’s plan for a $360 million income tax cut, Mr. Jindal called the tax break “terrific news” and happily signed it into law as legislators cheered. Admonitions on fiscal prudence went unheeded, as they have so often here, and the bill is now due. Earlier this year there was an $865 million surplus; now Louisiana has a $341 million shortfall in its current-year budget, and next year the projected deficit is $2 billion.

This speaks to the difficulties facing any governor harboring national ambitions (Jindal, Pawlenty, Sanford, Palin, etc.) over the next few years.  During economic prosperity, governors can simultaneously increase spending and cut taxes, thereby developing a pragmatic reputation.  That can-do attitude builds fodder for an attractive national platform – Bush ran on that record, for example.

However, when a downturn hits, governors must force through a combination of tax hikes and service cuts, palatable to neither side of the aisle.  With these current fiscal constraints, governors can’t rack up an impressive resume usually sought after in a presidential candidate.

Reliability of Long-Term Economic Forecasts

Ezra highlights a CBPP item, which paints a devastating economic picture:

If we continue current policies, the federal debt will skyrocket from a projected 46 percent of the gross domestic product (GDP) at the end of fiscal year 2009 to 279 percent of GDP in 2050. That would be more than two and a half times the existing record (which was set when the debt reached 110 percent of GDP at the end of World War II) and would threaten serious harm to the economy.

The group’s message is clear – we need to change course in fiscal policy – but the dire forty-year predictions will almost certainly be off the mark.  Forty years ago, could any economist have predicted the invention of microprocessors, computers, and other engines for economic growth?  On the foreign front, who would have predicted the length of the Cold War, Iraq, and Afghanistan?  There are too many variables, a preponderance of black swans, that render such ambitious forecasts useless.

Consider the track record of the CBO, a similar organization:

It is worth noting that CBO completely missed the both the stock market crash and the housing crash. The failure to miss the stock market crash led it to over-estimate capital gains tax revenue by close to $600 billion over the decade from 2001-2011.

Even over a ten year period, economic forecasters can’t predict accurately.  But  while the prediction’s precision may be debatable, the CBPP’s central thrust remains critical.  To keep expenditures from further ballooning out of control, the government must 1) reform health care and  2) carry out a combination of increased taxes and decreased spending.

Depressing Outlook

Ambinder relays the transition team’s thoughts:

Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse… a lot worse. As in — double digit unemployment without the wiggle factors.

At least, though, the public realizes the challenges and has an enormous reservoir of goodwill for the president-elect.

Pawlenty: Economically Bonkers

Pawlenty calls for Republicans to push an amendment mandating a balanced federal budget – a recipe for disaster, especially in today’s financial climate.

When the economy hits the doldrums, tax revenues will fall.  Under Pawlenty’s proposal, the federal government would not be able to offer aid to local or state governments, forcing them to raise taxes and slash services, exacerbating the slowdown.  The next batch of tax revenues would clock in even lower, and we’d need another round of cuts, which would plunge the economy into depression. (Note that a mandated balanced budget also pushes a growing economy to higher and higher inflation levels.)

Fiscal responsibility, yes, but in dire economic times, there’s no sense in constraining spending.

Valuing the Illinois Senate Seat

Back-of-the-envelope calculations here:

If you discount everything back to today, the net present value of the Senate seat would be ~$6.2 million.

Two other factors to consider: opportunity cost, which would drive the price down significantly depending on the would-be Senator’s talents, and the fame of joining the world’s “most exclusive club.”