Never Mind

Erin Brokovich found her fame and fortune by suing PG&E for dumping hexavalent chromium in the water supply for Hinkley, California. The chemical is considered a probable carcinogen, so if it were a health hazard for the town's residents, cancer death rates should be greater than normal.

Fortunately for Hinkley's residents, although not for Brokovich's reputation, a study published in the Los Angeles Times indicates that the town had less cancer than would be expected for its demographic characteristics.

Why Now

The reaction to the latest batch of confidential documents that Wikileaks has released is a very interesting commentary on our public discourse. Many Democrats, columnists, and foreign governments are aghast that diplomatic correspondence has been made public.

To be sure, these leaks are embarrassing and potentially damaging, to the extent diplomats are less willing to share information for fear it may be leaked in the future.

Moreover, there are individuals named who they or their families may suffer retaliation for exposing their actions, so lives may be lost because of Julian Assange's war on America.

And we certainly have had confirmed or learned a number of interesting things, most notably that many Arab nations are more aggressively encouraging the United States to attack Iran to prevent it from developing nuclear weapons than Israel has publicly done so.

But there were earlier Wikileaks of American military reports, which did not receive widespread condemnation for being made public - even though the exposure of individuals in Afghanistan and Iraq who have assisted the United States and thus whose lives were put at risk by Wikileaks.

The logical conclusion is that the leak of American military reports during the Bush administration was fine for many in this country and the world, but the leaking of State Department cables under both the Bush and Obama administration is unacceptable.

It is hard not to come to the conclusion that going after the "good" State Department, the Obama administration, and implicating foreign governments is what made these leaks a problem, while leaking information on the "bad" American military is OK for many.

And this is what is so upsetting about the world's reaction to the Wikileaks episodes.

A Deal Worth Making

Count me as a supporter of the recent deal between the Obama administration and Congressional Republicans to prevent the Bush tax cuts from expiring on January 1 and to resolve absurd state of estate tax law.

The compromise is just that: it reflects many elements which are disturbing. Most importantly, the tax cuts and estate tax are resolved only for the next two years, whereas the positive impact on economic growth from the Bush tax rates would be much more significant if the tax law was permanent.

To reignite economic growth and reduce unemployment, we need individuals, businesses, and investors to take risks on new investment opportunities, and the aftertax rate of return on those investments is the fundamental determinant of whether, and how much, new investment occurs. And since new investments have a return typically measured over many years (often decades), lowering taxes (or more accurately, not allowing tax rates to rise) permanently would raise aftertax returns much more significantly than a two year tax plan with the tax rates scheduled to rise afterward.

But allowing tax rates to rise would be much worse, so two years of lower taxes with the ability to refight the battle later is better than nothing.

The estate tax change is genuinely a good thing, since estate tax law has been subject to the absurdities that John McCain and others inflicted on the nation when the Bush tax cuts were first passed. Estates were not taxed at all in 2010, but death tax rates were scheduled to increase dramatically on January 1. The compromise raises the level at which estates gets taxed, and reduces the tax rate, while preserving the estate tax. I'd much prefer to see estate taxes abolished, since after a lifetime of paying taxes on one's money, it is obscene to take 55% of one's money at death (the pre-Bush tax cut rate that would have taken effect on January 1 without the new law). But a 35% tax rate on estates over $5 million is more equitable than a 55% tax rate on estates over $1 million that would have occurred on January 1.

What is most disturbing in the law are the provisions that pay off various Senators for their support, such as maintaining the ethanol subsidy. It is also disappointing that spending wasn't cut to offset the cost of various provisions to reduce their impact on the budget deficit.

But this is the political reality of divided government: Republicans can't get all they want, nor can Democrats.

It is interesting that a number of aspiring Republican presidential candidates, such as Mitt Romney and Sarah Palin, oppose the deal. While that may or may not be good politics, it is bad economics.

Meanwhile, the Democrat left who oppose the deal, vociferous in their denunciations of the bill and Obama for agreeing to it, demonstrate their belief that the earnings of Americans belong to the government and that a tax cut (or preventing taxes from rising) is "giving" money to the affluent.

Quite the opposite: lower taxes mean people keep more of their own money, while higher taxes means the government confiscates more of your money.

The Pigs at the Trough Have Learned Nothing

While the tax deal Barack Obama negotiated with Congressional Republicans contains many features that will help the economy grow, it also faces added elements ostensibly needed to win the votes of wavering senators.

One such deal is a continuation of ethanol subsidies, which will cost $4.9 billion in 2011. Not only has Al Gore, the green lobby's "star", come out against ethanol on environmental grounds, after championing it for so many years, but it is adding billions of dollars to the budget deficit at a time of staggering deficits.

Even if ethanol had merits, we should be eliminating all business subsidies as one step in improving our awful fiscal situation.

The fact that with trillion dollar deficits projected for years the government can include this $5 billion give away that doesn't even achieve the environmental goals for which it is intended demonstrates the lack of seriousness of our political leaders.

This is how government financial crisis arise, and why tragically it often takes such a crisis to force people to make decisions they otherwise wouldn't.

TARP Returns

The federal government sold its remaining shares in Citigroup, resulting in a total profit of $12 billion on its $45 billion investment in Citigroup during the financial crisis.

As I wrote at the time, the government's investment in financial services companies under TARP is very different than its bail out of GM, Chrysler, Fannie Mae, and Freddie Mac. The two biggest American banks, Citigroup and JP Morgan, combined to make $88 billion from 2005-2007, while in that same period the two biggest auto makers, General Motors and Ford, lost a staggering combined $65 billion. Recall these years exhibited strong economic growth.

The significance of this vast difference in pre-crisis financial performance is that the TARP investment in the big banks had a much better chance of turning a profit than the TARP investment in the auto companies.

And that is exactly how things have turned out to date.