Paris Hilton may be able to shop without looking at price tags, but the State of Illinois doesn’t have that luxury—particularly when it already has .7 billion in unpaid bills. Even so, state legislators receive precious little information on how much the laws they’re approving will save or cost taxpayers.

A summer 2010 survey by the Illinois Policy Institute found that out of 545 bills pending review by the governor, only 3 percent—or 16 bills—had fiscal notes attached. Fiscal notes are like “price tags” for legislation. They are intended to estimate the costs, savings, revenue gain, or revenue loss resulting from the implementation of proposed legislation.

Many of the fiscal notes found in the Institute’s survey were just a couple of sentences long. Believe it or not, we found a fiscal note that was just one word: “minimal.”

The result of this lack of information? Legislators and the public are unable to conduct a proper analysis of the budgetary effects of proposed legislation, and this has real consequences for the state budget. Indeed, the Blagojevich All Kids Expansion passed in 2005 had no fiscal note, although an Auditor General report found that the program’s net cost was million in fiscal year 2009. The statewide sales tax holiday held this August was passed with no fiscal note, even though it is likely to reduce expected tax collections by tens of millions of dollars. Unfortunately, these examples are the norm, not the exceptions.

If Illinois is going to balance its budget, state leaders will need better information on the cost of new programs or higher taxes. Continuing with the status quo—which permits bills to be passed without realistic cost estimates—is untenable for a state that is billions of dollars in the red. How about enacting a stronger fiscal note statute and develop standardized guidelines that aim to increase note availability, accuracy, and transparency.

I look at price tags when I’m shopping at the grocery store. So should legislators, especially when they’re spending our money.

Big Government

In this week’s edition of Coffee and Markets, featuring The New Ledger’s Francis Cianfrocca, we’re talking about the latest unemployment numbers, the call for a millionaire’s tax, and Christina Romer’s goodbye remarks. We’re brought to you as always by BigGovernment.com and Stephen Clouse and Associates.

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You can subscribe to the podcast by following the links above, and if you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

TNL: Barack Obama is Losing Time
Romer: My Plan Failed
The Hill: White House Rules Out Stimulus Sequel
TNL: The Troubles Rich People Have
TNL: Critiquing Newt Gingrich’s Economic Policy

Big Government

From the LA Times:

The command center of Andrew Breitbart’s growing media empire is a suite of offices on Sawtelle Boulevard in West Los Angeles with the temporary feel of a campaign office. Only the computers seem firmly anchored.

On a recent summer day, just weeks after he posted video clips that touched off a national furor over race, Breitbart was swigging a bottled Frappuccino at his desk. In a Lacoste shirt, cargo shorts and laceless Converse All-Stars, he looked every bit the 41-year-old industry player he might have been, but for a political awakening that transformed this liberal, West Side child of privilege into a Hollywood-hating, mainstream-media-loathing conservative.

Breitbart, who has emerged as a star of the “tea party” movement, loves telling his apostate’s tale in the italicized, frequently profane manner that is his trademark. Three epiphanies stand out:

1. The Black Dorm Moment. In 1986, Breitbart was a freshman at Tulane University when his friend Larry Solov, a sophomore at Stanford, happened to mention his school’s African-American-themed residence hall.

“He just matter-of-factly said there was a black dorm and I was like, ‘What the friggin’ hell? Are you kidding me?’” said Breitbart, who is now business partners with Solov, a former corporate litigator.

“And then, when I found out that it was not segregation in the sense of white people doing it, I was like, ‘What are you talking about? Why aren’t we working toward the colorblind ideal?’”

2. The Clarence Thomas Moment. In 1991, he was riveted by Supreme Court hearings in which the future associate justice was grilled by hostile Democrats.

“I remember the mainstream media telling me, ‘Bad man! Really bad man! Sexual harassment bad man! Worst-bad-man-in-the-history-of-the-world bad man!” he told a Philadelphia tea party rally in July. “By the end of the week, I said, ‘What did this man do? This man is an American hero!’ … It was a cavalcade of Caucasians asking this man about his very private video rentals!”

3. The Kurt Cobain Moment, around 1994. “In essence, the media was saying, ‘Hey, see that guy, that’s your generation’s spokesman,’” said Breitbart, not a fan of grunge music’s suicidal prince. “I was like, ‘This guy seems like a world class [screw-up].’ And I just started to have the awkwardly pedestrian revelation that my parents were right.”

***

On the last day of July, Breitbart was walking along a downtown Philadelphia sidewalk, hungry and a little spacey from lack of sleep. On his own dime, he’d taken a red-eye from Los Angeles to appear at a tea party rally near the Liberty Bell. Twelve days earlier, on his Big Government website, Breitbart had posted an item that made him a household name.

Read the whole thing here.

Big Government

As a service to all Americans, allow me to remind you all of Sen. Harry Reid’s infamous pronouncement in 2007:

Now, in the Las Vegas Review-Journal, Sen. Reid makes an unbelievable new claim:

At the time Sen. Reid made this comment, President Bush had been pursuing a failed, stay-the-course strategy that had cost thousands of American lives and billions of taxpayer dollars. Iraq appeared to be on the verge of a sectarian civil war. He was simply pointing out what our military leaders, including Gen. Petraeus, had been saying for months: that we could not win by staying the course; the war needed to be won diplomatically, politically, and economically. Sen. Reid and his colleagues were successful in forcing President Bush to finally abandon his failed approach and refocus on political reconciliation. This is what ultimately paved the way for the Iraqi government to take greater responsibility for Iraq’s future. Sen. Reid’s comments were directed at President Bush and his following of misguided policymakers, not at the heroic troops who continue to serve our country with incredible courage.

As Sherman Frederick of the Las Vega Review-Journal puts it:

Asked about his 2007 comment in which he proclaimed “This war is lost” while our soldiers were still in Iraq getting their heads shot at and before the so-called “surge” even had begun, Reid today said that his statement was actually a “successful” ploy to force President Bush to refocus on political reconciliation.

The undeniable fact is Sen. Reid called it wrong on Iraq. He undercut our troops in the process. Bush called it right. The “surge” worked and it (not Sen. Reid’s “This war is lost” statement) made today possible. That’s the unvarnished truth and no amount of revisionist sophistry will change it.

Big Government

Sen. Lisa Murkowski (R-Alaska) is the latest victim of the Tea Party insurgency that’s trying to take over the Republican Party. Tea Party favorite Joe Miller defeated Murkowski in The North Star State’s primary by hammering away at (among other things) her support for TARP and lack of zeal for overturning Obamacare.

Miller joins a new breed of anti-spending candidates such as Maine’s Paul LePage, Kentucky’s Rand Paul, Florida’s Marco Rubio, and South Carolina’s Nikki Haley, who promise to bring a new passion for shrinking government to D.C. and state capitals.

Here’s how Freedom Works’ Dick Armey and Matt Kibbe sum up what the Tea Party stands for in their new book, Give us Liberty: A Tea Party Manifesto: “It doesn’t take a lot of words to say that we just want to be free. Free to lead our lives as we please, so long as we don’t infringe on the same freedom of others.”

Armey and Kibbe say that the Tea Party coheres around spending and that other issues are not central to its mission. Perhaps. Joe Miller is also pro-life, pro border fence, and wants to outlaw the use of embryonic stem cells in medical research. Maine gubernatorial hopeful LePage believes the “traditional definition of marriage should be preserved.” Haley, who will probably be South Carolina’s next governor, has campaigned on tough enforcement against illegal immigrants. And the closest thing to a Tea Party spokesperson is Sarah Palin, the former “Bridge to Nowhere” supporter who oversaw a 16 percent increase in spending during her time as governor of Alaska.

Can this coalition stay together, stick to its anti-spending message, and actually change American politics? Or will it be co-opted by the very party upon which it seeks to perform a “hostile takeover?”

Reason.tv’s Nick Gillespie sat down with Armey and Kibbe to discuss these issues and more.

The interview was shot by Jim Epstein and Meredith Bragg, and edited by Epstein and Joshua Swain.

Approximately 9.30 minutes

Go to Reason.tv for downloadable versions and subscribe to Reason.tv’s YouTube channel to receive automatic notification when new material goes live.

Big Government

Corporate profits are at all-time highs and bond rates in the Treasury market are virtually at record lows. That’s a good combination for stocks, and it helped trigger a 255 point rally in Wednesday’s trading. What’s more, a surprisingly positive read on the ISM August manufacturing report delivered a strong blow to the double-dip recession pessimism that has plagued investors for many months.

Without question, the jobs picture is going to remain cloudy. There’s just too much uncertainty over the economy and the tax-and-regulatory threats coming out of Washington. Businesses can’t be sure about the costs of hiring. Meanwhile, over in housing — our other weakest sector — an inventory glut threatens further price declines.

But make no mistake about this: Businesses, at least the publically owned ones, are in very good shape. U.S. firms scored a record .2 trillion in profits during the second quarter and are sitting on roughly trillion in cash. Our private-sector companies are resilient, and they have recovered significantly from the economic plunge.

And while their hiring is still behind schedule, they have begun the process of investing in equipment, software, and other capital goods. Business investment in the June quarter rose 16 percent above year-ago levels. This is all to the good. Healthy businesses are crucial to the stock market as well as the overall economic outlook.

In fact, since 2001, business profits have doubled, even while the stock market dial has hardly moved. If Washington can just keep its paws off of business and let market processes work, firms will continue to prosper domestically and internationally and will eventually pick up their hiring.

I hate to sound too much like Calvin Coolidge, who after Reagan is my favorite 20th century president, but the business of America is business.

Yes, when second-quarter GDP came out last week, the revised 1.6 percent growth number was universally derided as a step on the road to a new recession. But not so fast.

In a blog titled “What Everyone Missed in the Revised GDP Data,” brilliant Washington economist Alan Reynolds noted that real gross domestic purchases, which are purchases by U.S. residents of goods and services wherever produced, actually increased 4.9 percent annually — a full percentage-point stronger than the first-quarter results. Reynolds blamed a government accounting miscue over falling import prices for a misread on the trade deficit that subtracted about 4 percentage points from GDP.

So import prices actually increased in the second quarter, which lends credence to the idea that the economy is doing better than folks think. And by the way, the bulk of those imports are being used for capital-goods investment, which is a good thing, not a bad one.

Smoothing out the quarterly ups and downs, the real economy is growing about 3 percent year-on-year, with the domestic economy rising by 3.7 percent. This is a tribute to the resilient and durable free-market system in America.

It’s a pity that Team Obama and the Democratic Congress had to waste nearly trillion on ineffectual spending stimulus, temporary tax rebates, cash for clunkers, and temporary homeowner tax credits — all of which have probably slowed recovery and prevented equilibrium in key sectors. And that’s not to speak of our huge and burdensome future debt.

Which brings me to the regime change coming in the midterm elections. That’s another bullish factor. As we speed toward November, the Republican party looks set to publish an agenda of limited spending, regulatory restraint, and low taxes, while momentum is gathering to at least temporarily extend the Bush tax cuts of 2003.

And lo and behold, President Obama and his economic team apparently are talking about additional tax cuts of one kind or another. I’m not holding my breath. They are likely to go for temporary and targeted tax relief, the most ineffectual kind there is. They should go Reagan, by reducing marginal tax rates across-the-board for personal, business, and investor incomes. That’s what they ought to do — strengthen incentives to reignite risk-taking. But the Republican tide is rolling in so strong right now, we just might see Democrats turn to lower taxes.

All this is good for stocks. Using conservative earnings estimates, the S&P 500 looks to be valued at a historically low 11.5 times earnings. That comes to an 8.7 percent yield on shares, compared with only a 2.5 percent rate on 10-year Treasuries.

In other words, profits up, rates down, tax cuts may be coming. In the new political environment, year-end tax-selling by investors may no longer be necessary in 2010 to beat the Obama IRS in 2011.

Let’s have a little optimism for change.

Big Government

On August 24, I posted some data and analysis on yield curves for high-grade corporate bonds since the beginning of 2008, seeking to determine whether changes in these curves are consistent with the hypothesis that the current economic crisis has given rise to regime uncertainty. If it has done so, the yield curves should display increased spreads between the period immediately before the financial panic in the latter part of 2008 and the period since mid-2009, when the extraordinary volatility of the bond markets had ceased.

A reader of this post, Chris Lemens, commented: “I would imagine that, if the yield curves for both private and federal bonds moved similarly, that would mainly tell us about inflationary expectations, not regime uncertainty. (Well, inflation is a kind of regime uncertainty, but you know what I mean.)”

Here, I respond to Lemens’s comment, which raises an important issue, inasmuch as economists commonly interpret a steepening of the yield curve as indicative of increased inflationary expectations and nothing else.

First, one should appreciate, as Lemens does, that changes in expectations about future inflation may themselves reflect changes in regime uncertainty. If, for example, bond traders came to expect a transformation of government policies that would entail a substantial further attenuation of private property rights, they would also be likely to expect that in the future the rulers who preside over the new economic (dis)order will find themselves in serious economic trouble. (Economies without fairly firm private property rights do not work well.) Perhaps the most time-honored of all government actions to escape from such difficulties is the issuance of more and more new money, to be used sooner or later to pay the government’s bills; and the virtually inevitable consequence of such large-scale monetary effusion is a rising rate of general price inflation for newly produced goods and services, along with a diminished rate of real economic growth, perhaps even economic contraction.

So, increased regime uncertainty may give rise to increased inflationary expectations.

But increased inflationary expectations may also occur in a context of substantial certainty with regard to the persistence of the existing economic order. Traders may expect that the government’s actions will lead to a greater rate of price inflation simply because the government (that is, its central bank) is adopting an easier-money policy, not because the government will pose a substantially greater threat to private property rights across the board in the future than it does now. In light of these realities, we must be careful about how we try to tease from the yield-curve data a distinction between increased inflationary expectations per se and increased regime uncertainty.

To pursue this inquiry, I have constructed bond yield curves (again using the data and the graphing tools available at Bondsonline.com) for U.S. Treasury securities, creating the same comparisons by term to maturity that I examined for corporate bonds in my previous post. These graphs are shown at the end of this post. The Treasury spreads show a number of important differences with the corporate spreads.

First, most notably, the Treasury yields have neither the extreme volatility nor the yield curve inversions that the corporate yields display between September 2008, when the financial panic developed, and mid-2009, when it subsided. All of the Treasury bonds examined here (2 years, 5 years, 10 years, and 20 years to maturity) show substantial drops in effective yield in the final months of 2008, as traders scrambled for the imagined security and liquidity of U.S. government securities during the crisis, bidding up their prices and hence depressing their yields. From the beginning of 2009 onward, however, Treasury yields returned to more or less their previous levels, although at the shortest maturities, the Treasuries continued to yield much less than they had before the panic. The 2-year bond has yielded a steady 1 percent since the end of 2008, even less in recent months. The yield on the 5-year bond has also tailed off substantially in the past six months or so.

On the Treasuries with longer terms to maturity, the post-crisis persistence of approximately the same yield as before the crisis suggests that traders now expect no greater inflation than they did before the panic. Data for real yield on TIPS (Treasury Inflation-Protected Securities)―bonds that pay interest and principal adjusted for changes in the price level―show increased yields for a few months beginning with the crisis in September 2008. But after January 2009, these yields returned to more or less the level they had maintained before the crisis. The fact that the nominal yields on longer-term Treasuries, relative to the yield on TIPS of corresponding maturities, were no higher after the crisis had subsided also suggests that traders have not adjusted their inflationary expectations upward in the wake of the crisis.

Unlike the corporate bond spreads, the spreads for Treasuries did not become uniformly greater from mid-2009 onward. The yield curve steepened at the lower end, but this change reflects almost entirely the reduction in the 2-year bond’s yield, inasmuch as the longer term bonds examined here all returned to approximately the yield they had established before the panic. Spreads on longer-term bonds against the 5 year bond and against the 10 year bond have not widened noticeably since the end of 2008. At the longer end of the yield curve, spreads have remained approximately constant; indeed, they have remained about the same as they were immediately before the panic.

In sum, the widening of corporate yield spreads after mid-2009, which I documented in my previous post, has no counterpart in the Treasury yield spreads. The Treasuries also show no indication that expected inflation was substantially greater after the crisis than it was before the crisis. Whatever has caused the corporate yield spreads to widen during the past 15 months or so, it probably was not an increase in expected future inflation.

In my judgment, a very plausible reason for this widening is the emergence of regime uncertainty, which expresses itself in the traders’ insistence on a risk premium (reflecting the diminished expected security of future private property rights) that increases with a corporate bond’s term to maturity. The fact that other forms of evidence, including a great deal of direct testimony by businessmen and others, also points in the same direction only strengthens my confidence in this hypothesis.

The following charts show the Treasury bond yield spreads discussed above.

Big Government

Time Magazine discovers that it isn’t all pixie dust and unicorns in Obama-land. It is now wondering how Barack Obama became ‘Mr. Unpopular.’ Hmmm…what could it be?

Big Government