…you see no contradiction in Joe Biden advising his family to stay off of subways while being part of an administration that is trying to force the rest of us out of our cars and on to public transportation.

Freelance journalist Dan Slater in the NYT’s “Dealbook” (via Above the Law) spies a “bailout for the plaintiff’s bar”: …settlements resulting from the scores of shareholder suits against TARP entities will stretch into the stratosphere. Sure, through TARP, taxpayer money…

… Vice President Joe Biden has foot-in-mouth disease:
Joe Biden said Thursday he advised his family to stay off airplanes and subways because of the new swine flu, a remark that forced the vice president's office to backtrack and prompted one airline official to complain about…

President Barack Obama and his economic advisors pushed hard for nearly $800 billion in additional federal spending and tax cuts to prime the economy because consumer spending had fallen off a cliff. The only way that the economy could recover, they argued, was by increasing aggregate demand through massive infusions of money into the economy. New data suggest their forecasts of what was needed to bring economy out of recession were about as inaccurate as the ones forecasting the recession–off by wide margins.

According the Washignton Post, then President-elect Obama gathered his economic team in Chicago before taking office to discuss the economy and what was needed to stem the economic recession.

Then, on Dec. 16, the staff assembled to hear Christina Romer, Lawrence H. Summers, Timothy F. Geithner and others describe an economy in a state of near-free fall.

Romer, an MIT-educated economist, took on the role of selling Obama on the need for a much larger fiscal stimulus package than had been proposed.

She had charts, graphs and a sheaf of ominous economic indicators — “numbers we’d all been looking at our whole lives,” another senior adviser said, “and had never seen anything like before.”

Just three months earlier, as the global reach of the subprime mortgage crisis came into view, economists talked about the need for a fiscal stimulus of as much as $150 billion. In internal conversations, the Obama transition team had concluded that the amount would have to be much larger.

On this day, Romer, Summers and others outlined a package of public works spending, unemployment benefits expansion and tax cuts more than four times that size. The economy was contracting at an annual rate of 6.5 percent, the fastest since 1982.

During her presentation, Romer told Obama that Americans had yet to have their “holy [expletive]” moment over the economy, a phrase she had borrowed moments earlier from the more profane David Axelrod, Obama’s senior political adviser.

The most recent data from the U.S. Bureau of Economic Analayis cast serious doubt on the wisdom of that advice. While the economy appears to have contracted by 6.1 percent (Gross Domestic Product on an annualized basis) from January through March 2009, a higher rate of contraction than expected, the bright spot was a dramatic increase in consumer spending!

Real personal consumption expenditures increased 2.2 percent in the first quarter, in contrast to a decrease of 4.3 percent in the fourth.  Durable goods increased 9.4 percent, in contrast to a decrease of 22.1 percent.  Nondurable goods increased 1.3 percent, in contrast to a decrease of 9.4 percent.  Services increased 1.5 percent, the same increase as in the fourth.

What’s going on here? For one, perhaps, this recession is a lot more conventional than many economists thought. As the housing bubble burst, and the financial markets became locked in the uncertainty of the subprime mortgage crisis, consumer spending took a nose dive. Households had to re-evaluate what their spending priorities were and what they could afford. Notably, this was a time when employment remained pretty high (unemployment rates were still very low historically), so incomes were still steady. Now, having re-set their priorities, consumers have started spending again. (Unemployment was 8.5 percent in March, high but below the levels of the 1982-83 recession.)

Naturally, private business sector spending would be expected to lag as they adjust to fewer people coming in their doors to buy goods and services. The first quarter data bear this out as well:

Real nonresidential fixed investment decreased 37.9 percent in the first quarter, compared with a decrease of 21.7 percent in the fourth.  Nonresidential structures decreased 44.2 percent, compared with a decrease of 9.4 percent.  Equipment and software decreased 33.8 percent, compared with a decrease of 28.1 percent.  Real residential fixed investment decreased 38.0 percent, compared with a decrease of 22.8 percent.

This is perfectly understandable and boringly conventional. Businesses need to get rid of excess inventories so they can begin stocking the items consumers really want absent the distortions of bubble markets and easy money. With the real-estate market is a bonafide recession, and consumer’s spooked by high consumer debt and uncertain mortgages, businesses had to re-assess the consumer market. They naturally pull back before putting stuff back on the shelves again.

In other words, this recession is doing what every recession should do–re-calibrate the economy based on the real wants of consumers. It’s an adjustment, made bigger and more visible by the extraordinary housing bubble that really threw household spending for a loop. Now, things are getting sorted out.

Bottom line: Expect third quarter results to show an even stronger economy, even if the overall GDP numbers are still flat or a little down.

Lesson: All this re-jiggering happened before the stimulus package was passed and well before any meaningful dollars began to trickle into the economy. (On this, see previous blog posts here and here.)

Reason Foundation’s complete bailout and financial crisis coverage can be found here.

The National Taxpayers Union distributed the following Vote Alert to all Senators earlier today:

NTU urges Senators to vote “NO” on S. 896, the so-called “Helping Families Save Their Homes Act,” as well as S. 895, the mortgage “cramdown” legislation that will likely be offered as an amendment.

In a report on House legislation that embodied many concepts of S. 895, the Congressional Budget Office noted that “Economists and bankruptcy experts have found that the greater the financial benefit gained from filing for bankruptcy, the greater the likelihood a household will file.” NTU believes this bill does indeed create such an incentive, whose ultimate outcome could be higher interest rates for more responsible borrowers who are struggling every day to “Save Their Homes” without government bailouts. Opinions vary on the latitude courts would take under cramdown provisions, but the past year’s events ought to serve as a caution for policymakers against any further rash forays into financial industry policy.

S. 896, meanwhile, would add to the already huge pile of liabilities which Washington has loaded onto the backs of taxpayers. With one mere vote, the Senate would boost FDIC and NCUA borrowing authority from the current $30.1 billion combined to $106 billion – an unconscionable expansion of the Treasury’s already bloated portfolio of potential commitments. Any lawmaker who scoffs at the notion that these obligations might someday come due simply hasn’t been paying attention to federal policy debacles such as the takeover of Fannie Mae and Freddie Mac.

In late 2007, an NTU study of subprime mortgages noted that reforms must “carefully balance a government role for regulation with the need for borrowers, lenders, and investors to bear responsibility for their own actions.” The Senate can begin reversing a long string of failures to do so by rejecting S. 895 and S. 896. Roll call votes on this legislation will be significantly weighted in our annual Rating of Congress.

Much of our education funding is wasted on bureaucracy. The money never actually makes it into the classroom in the form of books, computers, supplies, or even salaries for better teachers. Weighted student formula changes that. Using weighted student formula’s decentralized system, education funds are attached to each student and the students can take that money directly to the public school of their choice.

At least 15 major school districts have moved to this system of backpack funding.  Reason Foundation’s new Weighted Student Formula Yearbook examines how the budgeting system is being implemented in each of these places and, based on the real-world data, offers a series of “best practices” that other districts and states can follow to improve the quality of their schools.

In places where parents have school choice and districts empower their principals and teachers we are seeing increased learning and better test scores. The results from districts using student-based funding are very promising.  Prior to 2008, less than half of Hartford, Connecticut’s education money made it to the classroom. Now, over 70 percent makes it there. As a result, the district’s schools posted the largest gains, over three times the average increase, on the state’s Mastery Tests in 2007-08.

San Francisco Unified School District has outperformed the comparable large school districts on the California Standards Tests for seven straight years. A greater percentage of San Francisco Unified students graduate from high school than almost any other large urban public school system in the country.

Oakland has produced the largest four-year gain among large urban districts on California’s Academic Performance Index since implementing results-based budgeting in 2004.

In 2008, Baltimore City Schools faced a $76.9 million budget shortfall. But Superintendent Andres Alonso instituted weighted student formula. He identified $165 million in budget cuts at the central office to eliminate the deficit and redistributed approximately $88 million in central office funds to the schools. By the 2010 school year, Alonso will have cut 489 non-essential teaching jobs from the central office, redirecting 80 percent of the district’s operating budget to schools.

The experience with weighted student formula also shows that one of the most important factors in the success of schools is decentralized decision-making. Principals should have autonomy over their budgets and control the hiring of teachers for their schools. This flexibility allows principals to tailor their schools to best fit the needs of their students.  Eliminating the top-down bureaucracy lets principals and teachers focus on teaching.

Weighted Student Formula Yearbook 2009 (Full Study .pdf)
Weighted Student Formula Overview (.pdf)
Weighted Student Formula Best Practices (.pdf)

Weighted Student Formula Case Studies Excerpted from the Yearbook:

Baltimore Public Schools (.pdf)
Belmont Pilot Schools, Los Angeles Unified School District (.pdf)
Boston Pilot Schools (.pdf)
Chicago Public Schools—Renaissance 2010 Schools (.pdf)
Cincinnati Public Schools (.pdf)
Clark County School District (Las Vegas) (.pdf)
Denver Public Schools (.pdf)
Hartford Public Schools (.pdf)
State of Hawaii (.pdf)
Houston Independent School District (.pdf)
New York City Department of Education (.pdf)
Oakland Unified School District (.pdf)
Poudre School District (Fort Collins, Colorado) (.pdf)
Saint Paul Public Schools (Minnesota) (.pdf)
San Francisco Unified School District (.pdf)

Reason Foundation’s Education Research