Saturday, December 12, 2009

Watch what they spend, not what they say

More, More, More. WSJ Editorial
Watch what they spend, not what they say.
The Wall Street Journal, Dec 12, 2009, page A18

When it comes to spending, the Democrats who run Washington can't decide on their message. On the one hand, as President Obama said this week, they claim we have to "spend our way out of this recession." On the other, they keep telling us the deficit is too large and isn't "sustainable." In this tug of political spin, watch what they spend, not what they say.

And that means watching this weekend's expected Senate vote on a 1,088-page $445 billion "omnibus" package of spending bills to fund the government for fiscal 2010. The House passed a similar elephant earlier this week, allowing federal agency budgets to increase spending by some $48 billion, or about 12% from 2009. That increase—when inflation is negligible—is in addition to the $311 billion in stimulus already authorized or out the door for these programs. Adding this new stash means that federal agencies will have received a nearly 70% increase in the last two years.

Oh, and that's not all. The President and Congress also want to spend as much as $200 billion more from the Troubled Asset Relief Program on still another stimulus, though this time we are supposed to call it a "jobs" program, because stimulus now has a dirty political name.

This $445 billion bill for 2010 covers most of the domestic agencies of government, but not defense. In the first two months of this fiscal year, which began October 1, Uncle Sam is already $292 billion in the red. That's more than in the first two months of last year and at a time when the economy is growing again, so perhaps the President means we need to keep spending our way out of recovery. After the spending bill, Congress will then turn to passing a $1.8 trillion increase in the national debt ceiling, which should get them past the November elections.

Not that the press corps cares anymore, but the omnibus also continues the earmark explosion that Speaker Nancy Pelosi vowed to end when she was trying to oust Republicans in 2006. The Heritage Foundation counts 5,224 earmarks, bringing the total for the year to about 10,000, or about 23 for every Congressional district. There is money for bike paths, skate board parks, museums, water-taxis to resort towns, and other absolute necessities.

Senator Kent Conrad, the ranking Democrat on the Budget Committee, is a walking example of the split Democratic spending personality. He frets that U.S. debt will soon be 114% of GDP, a level he says is "absolutely unsustainable" and a "threat to the economic security of America." Yet he keeps voting for every spending bill and will vote for the multitrillion health bill too.

Even harder to figure is Mr. Obama, who is likely to sign this budget behemoth even as he keeps telling us it's time to "make the hard choices necessary to get our country on a more stable fiscal footing in the long run." Word is that his 2011 budget proposal will propose a spending freeze of some kind, which is another election-year pivot.

After so much double talk, we've concluded this is all part of a conscious political strategy. Spend so much and run up the deficit to unprecedented levels, then turn around and claim that there's a fiscal crisis that can only be solved with higher taxes. They spend, you pay.

Sarbox Routed in House - A rare victory for small business

Sarbox Routed in House. WSJ Editorial
A rare victory for small business.
The Wall Street Journal, Dec 12, 2009, page A18

On Wednesday we told you about two guys from Jersey, Republican Scott Garrett and Democrat John Adler, and their looming showdown with House Financial Services Chairman Barney Frank (D., Mass.). Yesterday, the Jersey boys prevailed, as the House voted 271-153 to exempt the smallest public companies from the heaviest Sarbanes-Oxley auditing regulations.

More than 100 Democrats joined with Republicans in voting down an attempt by Mr. Frank and Paul Kanjorski (D., Pa.) to kill the Garrett-Adler amendment, which saves thousands of companies from the infamous Section 404(b) audits of "internal controls."

Companies with publicly traded shares amounting to less than $75 million already undergo audits and already comply with most of Sarbanes-Oxley. Yet the Securities and Exchange Commission, despite its own study showing that smaller companies suffer a disproportionate compliance burden under Sarbox, has announced that next year these small-cap companies will have to comply with the full regulatory burden applied to giant multinationals.

In the midst of a political panic after accounting scandals at Enron and WorldCom, Congress passed Sarbanes-Oxley in 2002. Sold as a way to ensure the quality of corporate financial reporting, the law wasn't of much use to investors in Citigroup, Merrill Lynch, Bear Stearns, Lehman Brothers, AIG . . . but it did succeed in generating unexpectedly large compliance costs, particularly at smaller technology companies.

With yesterday's vote, Sarbox appears to have lost its last significant constituency, if one does not count the regulators, auditors and consultants who directly profit from it. And even in this last category there are second thoughts. One reader who installs Sarbox-compliant IT systems for retailers tells us that these expensive overhauls reduce productivity and raise the cost per transaction with no discernible benefit.

The only cloud to yesterday's silver lining is that Sarbox relief is still trapped inside Mr. Frank's larger bill to create a permanent bailout fund for financial regulators. Thank goodness the Frank bill has no chance of passing the Senate, but now a bipartisan effort is needed to free the legislative hostage inside. The 271 House Members who voted against senseless bureaucracy yesterday can help do so by signing a discharge petition to bring the Garrett-Adler amendment to the floor as a stand-alone bill.

At a minimum, now that the House has clearly expressed its will, SEC Chairman Mary Schapiro should extend the small-company exemption beyond next summer, and consider relief for larger firms. If President Obama is looking for a way to create jobs without spending a taxpayer dime, Sarbox relief is made to order.

Fruits of Engagement in Sudan - Khartoum's hard men and Obama's diplomacy

Fruits of Engagement in Sudan. WSJ Editorial
Khartoum's hard men and Obama's diplomacy.
The Wall Street Journal, Dec 12, 2009, page A18

In his Oslo address Thursday, President Obama mulled the trade-offs in dealing with repressive regimes. "There's no simple formula here," he said. "But we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time."

From Nobel theory, we move to practice in Sudan. As a candidate, Mr. Obama stood with the human rights champions of Darfur and pledged tougher sanctions and a possible no-fly zone if a Sudanese regime infamous for genocide didn't shape up. His tone has changed in office.

Unveiled in October, the Administration's Sudan policy emphasized carrots for the regime to ease up in Darfur and implement a peace deal in southern Sudan; any sticks were relegated to a secret annex. The President's special envoy to Sudan, retired Major General Scott Gration, was reluctant even to allude to tougher sanctions. He said that "cookies" and "gold stars" are preferable to threats and that Darfur was experiencing only "remnants of genocide."

President Omar al-Bashir, whose Islamist National Congress Party took power in a 1989 coup, got the message and decided to test the limits of this new indulgence. Almost immediately the regime hardened its stance on implementing the peace accord. Brokered by the Bush Administration in 2005, the deal calls for political reforms, including free parliamentary elections now scheduled for April, and a referendum on independence for the south in two years. Long before the ethnic cleansing in Darfur turned into a Hollywood cause célèbre, a two-decade war between the Muslim north and the Christian and oil-rich south took two million lives.

On Monday, police in the capital Khartoum beat and arrested opposition leaders who were pressing parliament to adopt the necessary laws to hold the April elections. Time is running out to pass them. The Bashir regime now refuses to overhaul the national security and criminal laws as also stipulated in the 2005 deal. Its recalcitrance means the election and referendum, assuming both come off, would be tainted. This could in turn end up restarting the civil war.

At the same time, the preference for diplomacy over pressure has encouraged the hard men in Khartoum to stoke the flames in Darfur, ignoring an arms embargo and challenging the U.N.-African Union peacekeeping force there.

In the man-bites-dog story of the year, the U.N. last week took the Obama Administration to task over its lax efforts to enforce the arms embargo, while praising the Bush Administration. "In contrast to that leadership of 2004 and 2005, the United States appears to have now joined the group of influential states who sit by quietly and do nothing to ensure that sanctions protect Darfurians," Enrico Carisch, who was the top U.N. investigator of violations of the arms embargo until October, said in written testimony before a House Foreign Affairs subcommittee on Africa.

The Sudanese aren't even the hardest of cases. Concerted American pressure forced this regime to cut ties with al Qaeda in the 1990s, end aerial bombing and support for slave-hunting militias in the south and accept the 2005 peace deal.

Mr. Obama can summon up tough rhetoric. "Yes, there will be engagement; yes, there will be diplomacy—but there must be consequences when those things fail," he said in Oslo. But the world's rogues might be forgiven for missing the nuances. So far, they've seen only the engaging side of this American President.