FrontPageMagazine.com | Wednesday, April 08, 2009

President Obama says the economy is the worst since the Great Depression. Actually, it is the worst since the Reagan recession of 1982-83. Further, the 2009 market crash is not the worst since 1929 but since 1987—also on Ronald Reagan’s watch.

What did Reagan do—or, more importantly, didn’t do—in response to these “crises?” How was Ronald Reagan’s response different from what Barack Obama is doing?

In both cases, Reagan did the exact opposite of Obama’s massive government spending infusions. In fact, it’s worth noting that Bill Clinton—listen up, Democrats—didn’t invoke Obama’s method when he faced recessions at the very start and end of his presidency. (That’s another article for another time.)

As for the Reagan recession, the president waited extremely patiently—to the point where he drove his advisers nearly nuts—for his huge 1981 tax cuts to take effect. He didn’t spend money because he believed spending had been out-of-control, particularly since FDR’s New Deal and LBJ’s Great Society, which created systemic deficits. Reagan felt that high spending, high regulation, and high taxes had sapped the American economy of its vitality, and particularly its ability to rebound from recession. The economy needed to be freed in order to perform.

Reagan’s prescription rested on four pillars: tax cuts, deregulation, reductions in the rate of government spending, and a stable, carefully managed growth of the money supply. The federal income tax reduction was the centerpiece: Reagan secured a 25 percent across-the-board reduction over a three-year period, beginning in October 1981. The upper income marginal tax rate was dropped from 70 percent, which Reagan believed was punitive and stifling, to 28 percent.

By 1983, America had begun its longest peacetime economic expansion in history, cruising right through the 1987 market plunge.

What did Reagan do about the October 1987 crash? Basically nothing—certainly nothing like a massive government “stimulus.”

“Some people are talking of panic,” Reagan calmly confided to his diary. “Chrmn. of Stock Exchange is acting very upset.”

Those are Reagan’s only diary references to the financial crisis. With the economy freed, he was confident it would bounce back. Reagan let the economy correct itself.

Okay, but Reaganomics created huge deficits, right?

That’s the big criticism. It isn’t accurate. It needs to be understood—now more than ever.

First off, know these crucial facts: The deficit under Ronald Reagan increased 35 percent, from an inherited deficit (from President Jimmy Carter) of $104 billion in 1980 to a final deficit of $141 billion in 1989. The deficit peaked at $236 billion in 1983, particularly because of the plummet in tax revenue during the recession. It began dropping steadily in 1986, continuing through the 1987 crash. (Source: Congressional Budget Office figures, “Historical Tables.”)

Compare that to what’s happening now, where the direct opposite of Reaganomics is being pursued by the liberal Democratic president and Congressional leadership:

President Obama inherited a record Bush deficit of $400 billion, but is generating a far worse $1.8-trillion deficit in his first year. (Source: Congressional Budget Office, March 20, 2009.) We’ve never seen anything like this. This unthinkable explosion is a direct result of the stunning government spending unleashed by Obama and the Democratic leadership in just eight weeks—an unheard of development in 233 years of American history.

So, think about this:

Ronald Reagan increased the deficit by 35 percent in eight years, whereas Barack Obama has increased the deficit by 450 percent in eight weeks. Reagan created an extra $37 billion in annual deficit. Obama has already created an extra $1.4 trillion in annual deficit.

But what, exactly, caused the Reagan deficits? There were several factors: the recession of 1982-83, the Reagan defense spending—implemented to turn the screws on the Soviets—the domestic social spending by the Democratic Congress, and more. Some reasons were Reagan’s fault; others were Congress’ doing—both share blame in differing degrees.

Importantly, and despite what you’ve heard, Reagan’s tax cuts didn’t create the deficit. Tax revenues actually boomed from roughly $600 billion in 1981 to $1 trillion in 1989.

The primary cause of the deficit was recession and spending, mainly spending—as is always the case. It is especially the case right now under Obama, with the spending component utterly out-of-control.

The crucial lesson for today is that the best “stimulus” is one that relies on the tried-and-true American way: letting free individuals and entrepreneurs stimulate the economy through their own earnings and economic activity. Wealth confiscation and redistribution by government collectivists and central planners never works; unfortunately, it is that failed, extremely destructive method that Americans elected in November 2008.

For three decades now, the minority of Americans who make up the hard Left have been trashing Reaganomics. Well, on November 4, 2008, for the first time in American history, they convinced enough voters to join them in electing the extreme opposite. At long last, they will pay for the economic consequences of their ideology, as will their children and grandchildren.

By Peter Barnes, FOX Business Network

President Obama’s foreclosure prevention plan, to be announced Wednesday in Phoenix, will help some struggling homeowners by providing them with direct government subsidies of interest payments, among a menu of measures, financial industry sources said Tuesday.

“The interest rate buydown program [is] emerging as a central component of the administration’s battle plan to stabilize the housing market,” said former HUD official Howard Glaser, of the Glaser Group in Washington D.C.

He said the government could require mortgage lenders and private mortgage investors to match any federal mortgage interest subsidies. But the matches could be less costly to them than foreclosures, sources said.

Despite the fanfare around the announcement, sources said applicants for assistance will have to meet tough government guidelines to receive it. The standards are intended to discourage financially-healthier homeowners from purposely withholding mortgage payments to try to qualify for government help.

The administration’s plan will assist the people most in need, a source told Fox Business. But some families in danger of losing their homes — such as families in which one spouse has lost a job, thus cutting the family’s income significantly — will not be able to qualify because they just wont earn enough income to pay even lower mortgage payments, sources said.

Sources were waiting for details of the plan to determine if it would provide enough incentives for lenders and private investors who hold billions in untraditional mortgages — so-called subprime, Alt-A and Option ARM loans — to participate in the program.

Sources said that even with the new plan, private mortgage investors and mortgage servicers are likely to seek Washington’s support for additional steps, such as changes in federal mortgage law and certain accounting rules, to make it more attractive for hedge funds, investment funds and other private holders to modify mortgages.

“Part of what we may have to do is to make some changes in the law that make it easier for the servicers — the people who take your check every day and are managing these portfolio of mortgages on behalf of a bunch of people who own bits and pieces of the mortgage — to make it easier for them to engage in these negotiations in an efficient way,” the president said at a town hall meeting in Florida last week. “There are a couple of wrinkles in order for us to accomplish this.”

For families that do qualify for mortgage modifications, the cornerstone of the plan will be government subsidies on interest charges on their loans, sources said. The subsidies will be paid from up to $50 billion of funds in the Troubled Asset Relief Program, or TARP.

Glaser provided this example of how the program could work-and how it could be cheaper for the government than other foreclosure prevention proposals:

For a $250,000 mortgage at 7.5% interest, the borrower is currently making a payment of $1,750 per month. If the rate is bought down to 5%, the new payment would be $1,350 per month — a savings of $400 per month. The cost to the federal government, assuming a 50% match by the servicer: $200. For $1 million, the federal government could reduce the rate for 50,000 borrowers. By comparison, the same $1 million might purchase a handful of mortgages, or guarantee a few hundred.

Other remedies in the plan could include incentives for lenders and investors to reduce the principal on a mortgage — though homeowners could be required to repay the reduction or interest rate subsidies, if that is the form of assistance — at the end of the term of the loan or when they sell their home, one source familiar with the plan said. In theory, the back-end payments would be covered by a rise in the homes value over time.

“The borrower is going to have to probably, if they get some assistance, agree to give up some equity once housing prices recover, so that both sides are giving a little bit,” the president said at the town hall meeting in Florida last week. “But you avert the foreclosure.”

Regardless of the options, the goal of the plan would be to make mortgages more affordable for qualifying homeowners. The plan would seek to cut monthly mortgage payments to no more than 31% of a familys pretax income, sources said.

“We must stem the spread of foreclosures and falling home values for all Americans and do everything we can to help responsible homeowners stay in their homes,” the president said Tuesday in Denver, where he signed the new $787 billion economic stimulus plan.

To pave the way for more mortgage modifications, the administration will also announce a new national template for restructuring them, sources said. The template will provide a formula for modifying mortgages held by Fannie Mae, Freddie Mac and other government entities, as well as for lenders and private mortgage investors that may adopt it.

Sources said that in announcing the plan, the administration could also address:

–modifying mortgages for homeowners with loans that exceed the current market value of the property (underwater loans).

–proposals in Congress to change bankruptcy laws to allow judges to modify mortgages in court.

–preventing re-defaults on mortgages even after they are restructured to cut monthly payments-to date, nearly half of all struggling homeowners who nave received mortgage modifications from their lenders have fallen back into the foreclosure process, according to government reports.

Administration spokespersons did not respond to request for comment.

Obama: “…5 Days To Look At Every Bill…”

WASHINGTON – Senate Majority Leader Harry Reid said Friday that Congress is nearly finished with a massive, $790 billion economic stimulus plan giving President Barack Obama a big victory, but not everything he wanted.

The Nevada Democrat said as debate resumed that the Senate would likely vote on the package of spending and tax cuts later in the day and that both the Senate and House would do the work necessary to quickly get the emergency legislation to Obama’s desk.

Obama said the heart of the emerging plan is “to create jobs.”

“Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil,” the president said.

The 1,071 page bill, eight inches thick, bill was posted on an overburdened congressional Web site late Thursday, giving lawmakers just a few overnight hours to read it before debate resumed in both the House and Senate Friday morning. Just on Tuesday, the House voted unanimously to recommend that lawmakers and the public have at least 48 hours to read the legislation before a vote.

Rep. James Oberstar, D-Minn., chairman of the Transportation and Infrastructure panel, said that just the $64 billion in key transportation investments and other infrastructure programs under his panel’s jurisdiction would “create or sustain 1.8 million jobs. Real jobs, construction jobs ….They’ll get a day’s wage and pay taxes on it.”

“Right now, we have a once in a generation chance to act boldly, to turn adversity into opportunity, and use this crisis as a chance to transform our economy for the 21st century,” Obama had said Thursday. “That is the driving purpose of the recovery and reinvestment plan.”

The plan is the signature initiative of the fledgling Obama administration, which is betting that combining tax cuts of just a few dollars a week for most workers with an infusion of hundreds of billions of dollars of government spending over the next few years will arrest the economy’s fall.

But the inclusion of a $70 billion tax break to make sure middle- to upper-income taxpayers won’t get hit by the alternative minimum tax forced a reduction of Obama’s signature tax break for 95 percent of workers.

Republicans pointed out a bevy of questionable spending items that made the final cut in House-Senate negotiations, including money to replace computers at federal agencies, inspect canals, and issue coupons for convertor boxes to help people watch TV when the changeover to digital signals occurs this summer.

“This measure is not bipartisan. It contains much that is not stimulative,” said Sen. John McCain, R-Ariz., Obama’s rival for the White House. “And is nothing short ‚Äî nothing short ‚Äî of generational theft” since it burdens future generations with so much debt, he added.

Larry Summers, a former Clinton administration Treasury secretary and now head of Obama’s White House-based economics council, was asked Friday how far the bill will go toward reviving the economy.

“It is the biggest fiscal expansion in our country’s history,” he replied in an appearance on NBC’s “Today” show.

But Summers cautioned against raising expectations too high.

“I think this is a key part of what’s gong to be a multipart strategy to contain this decline,” he said. But Summers added that the problems “weren’t made in a week, a month, a year. It’s going to take time to fix.”

He said it should not be considered a “silver bullet,” or panacea for deeply rooted business woes.

“We don’t have a viable alternative,” he said. “We’re going to have starts and stops.”

Much of the spending won’t be delivered this year or even next, and Republicans pointed to studies by the Congressional Budget Office that say that adding so much to the national debt would cost the economy by the end of the decade.

The $790 billion plan combines $286 billion in tax cuts with $311 billion in programs funded by the appropriations committees and about $193 billion in spending for benefit programs such as unemployment assistance, $250 payments or millions of people receiving Social Security benefits, and extra money for states to help with the Medicaid health program for the poor and disabled.

Obama’s “Making Work Pay” tax cut would be scaled back from $500 for most workers to $400, with couples getting $800 instead of $1,000.

Republicans, lined up to vote against the bill, piled on the scorn. “This is not the smart approach,” said Sen. Mitch McConnell of Kentucky, the Republican leader. “The taxpayers of today and tomorrow will be left to clean up the mess.”

It was clear that the measure was the result of old-fashioned sausage-making. Pet provisions were coming to light that had not been included in the original bills that passed the House or Senate ‚Äî or that differed markedly from earlier versions. Some appeared to brush up against claims of the bill’s supporters that no pet projects known as “earmarks” were included.

One last-minute addition was a $3.2 billion tax break for General Motors Corp. that would allow the ailing auto giant to use current losses to claim refunds for taxes paid when times were good. GM got a $13.4 billion federal bailout late last year — and is expected to receive more in 2009 — and argued that without the provision, its government-financed turnaround plan could force the company to pay higher taxes.

Then there was $8 billion for high-speed rail projects, a priority for both Obama and Reid, who’s up for re-election and is a GOP target. While not explicitly named, a Los Angeles to Las Vegas rail project that Reid’s been backing for years stands to win funding as does a project in Obama’s home state of Illinois.

NEW YORK (CNN) — Well, that didn’t take long. Three weeks into the new administration and the Democrats are squandering their advantage and threatening to snatch defeat from the jaws of victory.

Credit House Speaker Nancy Pelosi for getting the ball rolling. Under her leadership, House Democrats excluded Republicans from having any voice in crafting the stimulus package.

Acting like children who hadn’t seen Santa Claus for eight years, House Democrats busily loaded up the bill with stuff they had been unable to get for eight years. It was payback time.

Contraception, funding for the arts, restoration of the national mall, stop-smoking programs. All while Americans lose their homes, their jobs, and their savings. It was both childish and disgraceful.

Apparently tone deaf to the disgust and disappointment of Americans with the bailout package for Wall Street and the banks last year, as well as the voters’ strongly stated desire for change as represented by the election of Barack Obama, House Democrats set the table for failure — again.

Not a single Republican in the House voted for the bill, despite efforts by our new president to reach out to the other side. Nancy Pelosi strikes again.

When asked if the lack of Republican support was at least partly her fault, she gave some snotty answer about not being partisan but working for the American people. Right.

My guess is President Obama is busy these days sticking pins in his Nancy Pelosi doll. To his credit, Obama argued against a lot of the pork while stressing that time is our enemy. Pelosi could care less.

As the legislation headed for the Senate amid cries for more stimulus and less pork, the Republicans pounced. Sensing yet another Democratic miscalculation, the Republicans seized the advantage in the debate.

They want more tax cuts and more real stimulus — stuff that will create jobs now. Not some pie in the sky proposal that may pay dividends years down the road. And they’re right.

The real game starts if and when the Senate passes a bill devoid of a bunch of the garbage the House Democrats stuffed into it. Then it goes to a conference committee where the drama will be whether, in a grand twist of irony, President Obama and the Republicans wind up aligned against members of the Democratic Party in an effort to get something realistic on the table before the economy simply slides the rest of the way into a deep crevasse.

Meanwhile, angry voters are jamming Capitol Hill phone lines screaming about the politics as usual that is so far the hallmark of the new administration. Welcome to Washington, Mr. Obama.

When it comes to the Democrats under Nancy Pelosi, what was it Pogo used to say? “We have met the enemy and it is us.”

The opinions expressed in this commentary are solely those of Jack Cafferty.

The dangers of building a new social contract between government and citizens by making it up as we go along.

In a couple of weeks last September, the Federal Reserve and Treasury Department made more lightning- fast decisions, involving more government money, than at any time in the nation’s history. This was much bigger than a mega-rescue of the nation’s financial system. It was a big step toward redefining the social contract about what government does for all of us – and how it does it. The Fed and Treasury jumped in with the hope that the bailout would be brutally tough but relatively short and antiseptic. Sop up the toxic mortgages, free borrowing that had become frozen, and the Bush administration hoped the economy would right itself. But this plan (think of it as Phase I) didn’t work. As President Bush later confessed, “This is a difficult time for a free-market person.”

That led the administration in its waning days to Phase II: a shift from a hope in a self-correcting market to a conclusion that government not only had to fuel the economy but also to grab its wheel. Then President Obama intensified the shift with his own dramatic plan for the government to devote hundreds of billions of dollars to an economic stimulus program. It’s now clear that we’ve committed ourselves to a process of building a new social contract that will be brutal but also huge and wide. We’re escalating our commitments without a plan about where to go or how to get out.

Phase II is about much more than pumping out lots of cash. We also want to do big things with it. We want to save the banks and help individual mortgage holders. We want to bandage state budgets and rebuild local infrastructure. We want to help the auto companies, save employees’ jobs, and build a new generation of fuel-efficient cars.

That involves more than an all-lobbyists-on-deck call. Everyone realizes this is a historic opportunity to use government’s cash to promote big economic and social goals. But milliseconds after that cash started to flow, demands surfaced for tougher rules to prevent the crisis from happening again. And along with the funding came the irresistible urge to use the money to pursue a wide array of economic and social goals – often laudable, but frequently conflicting.

The New Social Contract

Lots of crosscutting requirements have become attached to federal cash over the years. No one who takes a nickel of Uncle Sam’s money can discriminate on the basis of race, religion, or other factors. Planners using federal funds for projects must first assess the environmental impact of new construction. Government-funded facilities must be handicap-accessible. As the bailout rolled out, giant investment banking firms meekly became banking holding companies, with tighter government regulation, as the price of a cash infusion.

On the one hand, no one actually likes all the rules. Government souvenir shops still sell acrylic-encased bits of genuine government red tape, once used to bind Civil War-era veterans’ files. (Cutting the red tape was the only way to get into the files to determine the benefits for which the vets were eligible.) But on the other hand, when public money starts to flow, we can’t resist the temptation to use red tape to direct what the money does. As we moved from Phase I to Phase II of the financial bailout, we shifted from trusting the market to insisting on government’s firm hand on the wheel. Now that government is in the game, it’s in deep. We’re heading for a public role in private life that’s unlike anything we’ve ever seen before, and many features are likely to be permanent.

We’ve long been sliding into a more expansive government role, of course. From tainted tomatoes to melamine-laced dog food, Americans expect their purchases to be safe. If storms wipe out their towns, they expect government help to rebuild them bigger and better than ever – even if that only gives Mother Nature a fatter target the next time. We want government to protect our airplanes and infrastructure from terrorists.

The financial meltdown has accelerated our expectations that government will keep us safe. And it has brought public officials directly into the big decisions about who wins and loses in the markets. We’ve gone from debates over privatizing the public sector to big steps toward governmentalizing the private sector. We’re writing this new social contract with three guides: more public money in the private economy, more rules to shape how the private sector behaves, and more citizen expectations that govern-ment will manage the risks we face. The problem? We’re making it up as we go along, and we’re not sure where we’re going.

No Exit Strategy

Barack Obama ran as the candidate of “change we can believe in.” Because of the financial crisis, change is inevitable and epic. We’ve drifted into a new brand of government-directed capitalism, in which “neither Adam Smith nor John Maynard Keynes, neither Joseph Schumpeter nor today’s econometricians, give one a clue about how to track, temper or tame it,” University of Pennsylvania political scientist John DiIulio concludes. In just a few months, we’ve gone from debating toxic mortgages to pushing the government into direct decisions about capital flows and subsidies to big financial institutions in which the government now has a substantial ownership stake.

So far, corporations have resisted pressures to unload their private jets and divulge their market decisions. When pressed about what JPMorgan Chase did with federal bailout money, a spokesman said, “We have not disclosed that to the public. We’re declining to.” That position, echoed by 20 other banks that received more than $1 billion each from the government, leaves federal officials with two options: Shovel out hundreds of billions of dollars and hope for the best, or view the bailout money as an investment – expecting certain results and insisting on openness about how the money is being used. Both the Obama administration and Congress have made clear they reject the first position and will insist on the second.

But even if that’s the case, how will they make the system of accountability work? We know we want to get out quickly, but we haven’t charted the path. In the debate over a potential bailout for automakers, one federal official asked a congressional staffer about how the government’s proposed oversight would function. “We’re too busy to worry about that now,” was the reply.

Three Puzzles

The war in Iraq shows the dangers of jumping in with the hope of a quick, surgical win but without a plan to get out. The broader and deeper the financial rescue gets, the longer the federal government’s role is likely to last and the more money will be at risk. If we care about making the rescue work – if we care about making our entire system of government work – we can’t be too busy to worry about these issues. Three big puzzles loom.

First, we’re inventing new tools on the fly and we haven’t figured out how to use them. For the last half of the last century, the government expanded most of its programs through indirect proxy tools: contracts, grants, regulations, loan programs and tax incentives. We created programs to provide nursing home care and clean the environment, to fund health care for seniors and subsidize home mortgages, to support local schools and create sophisticated military technology, to go to the moon and make airlines safer.

Now government has directly grabbed the wheel. We’re telling banks what kind of investments they can make. We’re imposing new expectations on the auto industry in exchange for financial transfusions. We’re layering government by bailout on top of government by proxy, and we’re not doing either well.

It’s tempting to label this “socialism,” because Karl Marx’s shadow provides at least a point of reference. But in fact it’s very different, with stronger reliance on market forces than Marx would have approved but a stronger government role than Adam Smith or Alexander Hamilton could have imagined.

Moreover, we’re building the new direct tool on top of old ones that simply haven’t worked well. The Government Accountability Office’s “high-risk list” catalogs a host of current programs – most of them of the government-by-proxy variety – that are especially prone to waste and mismanagement. From the conduct of the 2010 census to contract management at agencies ranging from the Energy and Defense departments to NASA and the Federal Aviation Administration, we’ve seen searing examples of government’s failure to update its management strategies to match its ambitious goals.

Building highly ambitious new tools on top of old ones that don’t work well, and doing so without thinking about how the new ones will work, is a prescription for a multibillion- (maybe multitrillion-)dollar crisis. As we seek to reshape the way markets work, we’re focusing on the nails without thinking about the hammers we’ll need to drive them.

Second, our plans frame big and largely unexplored trade-offs. In Phase I of the financial bailout, economists confidently predicted we’d get almost all our money back. As Phase II geared up, however, it became clear that, at best, it will take us a long time to unwind the infusion of public cash, and we haven’t thought much about how to run the process in the meantime.

Just how long will Uncle Sam hold a stake in private companies? How will government exercise its ownership role? Will federal representatives sit at board meetings? Will private plans need to pass muster with a government czar? How much public – including media – scrutiny will private companies have to accept as the price for government cash?

And that’s just the beginning. How will the government balance its fiduciary interest – maximizing return to the taxpayers – with its wide-ranging social and economic goals, from protecting collective bargaining to preserving industries that market competition has punished? How will we address further market failures? How will we set priorities for which businesses to save, and who will make these calls? Fannie Mae and Freddie Mac, for example, are required to pay a 10 percent divi- dend on the money the Treasury invested to prop them up. Does the goal of maximizing the return to taxpayers increase the risk the companies will fail?

We’re not very good at asking, let alone answering, such questions. We’re likely to carom along from issue to issue, without confronting the big puzzles until the implications begin to accumulate. We’ll probably slide sideways into a whole new understanding of whom government will help and how it will act. That frames the third puzzle: whether our public institutions have the capacity to act effectively in a world where all important problems are global and where international markets swiftly punish fumbles. In Phase I, the Fed and the Treasury made the key decisions with relatively little oversight. Will Congress continue to allow a White House-Treasury-Fed triumvirate to strip the legislative branch of any real role in some of the most important decisions the country has ever faced? After Congress’ struggle to move on the first stage of the rescue, the bailout of the car companies, and an economic stimulus package, can it deliberate but still govern?

Then there’s the issue of who runs the daily operations. Should we concentrate administrative power in a czar? The history of federal czars – for drugs, homeland security and faith-based programs – is not a happy one. Should we move instead to a multimember board to avoid centering too much power on a single official? Should we put the power in the Treasury, where political pressures could be greater, or in a Fed-like independent agency, where political responsiveness might be less?

The Next Government

The answers to these questions stretch far beyond our experience, but two things are certain. First, since we’re going to be in this for a long time, we need to sort out the governance issues upfront before we drift into game-changing economic decisions without political accountability. Second, if we’re uncertain about the right answers, we should put a big marker on transparency. We’re reinventing accountability on the fly, so the more we know about what’s going on, the better we’ll be able to figure out what institutional and procedural reforms we need.

If history is a guide, once we jump in, we’re unlikely to back out when the economy recovers. In 1979’s Chrysler bailout and the savings and loan rescue of the early 1990s, the government got in and out relatively quickly. But the responses to the really big crises – such as the economic recovery programs of the New Deal, the World War II mobilization, the strategies of the Cold War, and the creation of a homeland security apparatus after Sept. 11 – teach us once we advance government’s power, we tend not to roll it back. So we’re not just figuring out how to get through the next four months or the next four years. In all likelihood, we’re also permanently redefining the social contract between citizens and their government.

Trying to run a 21st century government with clumsy 20th century tactics is a prescription for disaster. But that doesn’t have to happen. We can begin by recognizing that big plans are worthless unless there’s an effective strategy to carry them out. We can follow by understanding that in such a fluid environment, we need to create a foundation of trust and accountability for what we’re doing. Follow the money and we’ll have some sense of where we’re taking ourselves.

The story is hopeful if we’re smart. At each of the big turning points throughout American history, we’ve found a way to step up to the challenges we face. What we now need is the next government of the United States, one that is nimble enough to tackle the challenges we’re facing, smart enough to steer well through the new crises and clever enough to stay half a step ahead of the strategies it is creating.

Donald F. Kettl is Robert A. Fox Leadership Professor at the University of Pennsylvania and a fellow at the National Academy of Public Administration. He is author of The Next Government of the United States: Why Our Institutions Fail Us and How to Fix Them (W.W. Norton, 2009).

WASHINGTON ‚Äì President Barack Obama’s ban on earmarks in the $825 billion economic stimulus bill doesn’t mean interest groups, lobbyists and lawmakers won’t be able to funnel money to pet projects.

They’re just working around it ‚Äî and perhaps inadvertently making the process more secretive.

The projects run the gamut: a Metrolink station that needs building in Placentia, Calif.; a stretch of beach in Sandy Hook, N.J., that could really use some more sand; a water park in Miami.

There are thousands of projects like those that once would have been gotten money upfront but now are left to scramble for dollars at the back end of the process as “ready to go” jobs eligible for the stimulus plan.

The result, as The Associated Press learned in interviews with more than a dozen lawmakers, lobbyists and state and local officials, is a shadowy lobbying effort that may make it difficult to discern how hundreds of billions in federal money will be parceled out.

“‘No earmarks’ isn’t a game-ender,” said Peter Buffa, former mayor of Costa Mesa, Calif. “It just means there’s a different way of going about making sure the funding is there.”

It won’t be in legislative language that overtly sets aside money for them. That’s the infamous practice known as earmarking, which Obama and Democratic congressional leaders have agreed to nix for the massive stimulus package, expected to come up for a House vote this week.

Instead, the money will be doled out according to arcane formulas spelled out in the bill and in some cases based on the decisions of Obama administration officials, governors and state and local agencies that will choose the projects.

“Somebody’s going to earmark it somewhere,” said Howard Marlowe, a consultant for a coalition working to preserve beaches.

Lobbyists are hard at work figuring out ways to grab a share of the money for their clients, but the new rules mean they’re doing so indirectly ‚Äî and sometimes in ways that are impossible to track.

Congressional earmarks have had a bad name since the 2004 scandal that sent superlobbyist Jack Abramoff to prison and earned the congressional spending committees a new nickname: “The Favor Factory.”

Obama, who campaigned promising a more transparent and accountable government, is advocating a system that will eventually let the public track exactly where stimulus money goes through an Internet-powered search engine. In addition, Democratic lawmakers have devised an elaborate oversight system, including a new board to review how the money is spent.

But none of that will happen until after the bill becomes law. Even critics of the earmarks system acknowledge that specifying projects upfront offers some measure of transparency.

“We hate earmarks, but at least it’s a way of tracking where influence is had,” said Keith Ashdown of the watchdog group Taxpayers for Common Sense. “There is a challenge now that projects will be added behind closed doors without a paper trail.”

Indeed, some lawmakers hearing from local groups say they’re doing their own lobbying of governors and state and local officials who could have say-so over the funds.

“I’ve talked to my governor and suggested some things I think are important in our area,” said Republican Rep. C.W. Bill Young, who represents St. Petersburg, Fla. “He knows what the needs are.”

Democratic Rep. Ed Pastor of Arizona suggested it’s not entirely accurate to say there will be no earmarks in the measure. “There are and there aren’t,” Pastor said. “A lot of it depends on what the formula looks like.”

For instance, the House measure, which includes $358 billion for road, water and energy programs among others, gives priority to transportation projects in high-unemployment areas that could be begun and completed quickly and that state and metropolitan transportation authorities have included in their long-term plans.

In California, Buffa, now board chairman of the Orange County Transportation Authority, said he’s changed his strategy from asking for specific projects to pleading for more favorable general guidelines, including more money for infrastructure projects overall and a formula that lets cities ‚Äî not states ‚Äî decide how to spend it.

His organization has enlisted Potomac Partners, a large firm that specializes in lobbying for project spending, to help.

In most cases, lawmakers know exactly which projects in their districts can benefit from the money, even though the legislation won’t spell them out. State and local officials have released lists of projects that could start quickly and be completed within a few years.

In Orange County, they include freeway improvements and the Placentia Metrolink station. The American Shore and Beach Preservation Association, which is pushing for more water projects to be funded, wants repair and restoration of beaches from Sandy Hook, N.J., to Newport Beach, Calif.

Members of Congress are privately outlining their priorities, too.

“Everybody’s making their list and checking it twice,” said Sen. Mitch McConnell, R-Ky., the minority leader. “You are inevitably going to have a lot of projects that are not going to pass the smell test.”

Some groups are careful not to get too specific, fearing that public scrutiny could draw unwelcome attention to projects easily caricatured as special-interest goodies, such as a 2007 earmark for spinach growers that found its way into an Iraq war spending bill or the now-infamous “Bridge to Nowhere” in Alaska.

The United States Conference of Mayors released a 300-plus-page list of some $150 billion in “ready-to-go” projects that quickly became fodder for criticism. It included money for the Miami water park, which McConnell has ridiculed publicly, and a skate park in Portland, Maine.

The American Association of State Highway and Transportation Officials was more guarded about its list of 5,000 projects totaling $64 billion. No specific projects were mentioned — just the number in each state and an overall dollar amount — making it impossible for lawmakers, advocacy groups or members of the public to criticize any one item.

Peter J. “Jack” Basso, an association executive, said it’s up to states to decide what goes on their “ready-to-go” wish lists, but that the projects must meet rigorous tests including clearing environmental reviews.

“We really rely on them to pick things that, frankly, are not bridges to nowhere,” Basso said.

A growing media frustration with Barack Obama’s team spilled into the open at Thursday’s briefing, with reporters accusing the White House of stifling access to his oath re-do and giving Obama’s first interview as president to a multi-million dollar inauguration sponsor.

Veteran CBS newsman Bill Plante was one of the most vocal critics, questioning the White House’s handling of Wednesday night’s second swearing in – which was covered by just a four-reporter print pool that didn’t include a news photographer or TV correspondent.

He also asked new press secretary Robert Gibbs why ABC, which paid millions to host the DC Neighborhood Ball, was granted the only inauguration day interview with President Obama – a move he equated to “pay to play.”

“We have a tradition here of covering the president,” said Plante, who is covering his fourth administration.

Gibbs defended the White House’s moves, insisting aides acted in a “way that was upfront and transparent” in allowing the standard pool into the swearing-in. And Obama himself seemed mindful of making a good impression, paying a surprise visit to the White House pressroom a few hours after the briefing.

It’s been a bumpy 24 hours for Gibbs and company, as members of the White House press corps have publicly expressed frustration with an administration promising openness and transparency.

At the same time, some members of the Obama administration’s press team have signaled that they plan to shake up some of the old traditions of White House coverage, some of the longest-standing – and most jealously guarded – in town.

In recent weeks, New York Times editors complained that its White House team hadn’t gotten a sit-down with Obama during the transition, breaking an unofficial tradition whereby recent president-elects have free-wheeling exchanges with the Gray Lady before the inauguration.
In the case of the second swearing-in, however, it seemed to give reporters a chance to lay down an early marker on questioning whether Obama would live up to one of his key campaign pledges, at least when it comes to the media.

“It is ironic, the same day that the president is talking about transparency, we were not let in,” CNN’s Ed Henry said on the air Wednesday night after news of the second swearing-in broke.

Henry’s main gripe was that television reporters weren’t permitted to cover a historic moment, when Obama once again raised his right hand and took the oath before Justice John Roberts. The only images came from White House photographer Pete Souza.

Three wire services — The Associated Press, Reuters and Agence France-Presse – refused to move those images, in protest of the White House’s handling of the event.

The wire services’ photographers were also denied access to photograph Obama sitting in the Oval Office on the first day, and similarly refused to move the White House approved photos.

Michael Oreskes, the AP’s managing editor for U.S. news, told his own news outlet that “we are not distributing what are, in effect, visual press releases.”

Later, in a statement to Politico, Oreskes said that the AP believes “access for news photographers has been a time-honored tradition at the White House through many administrations and needs to be continued.”

“We are working diligently with the White House staff to ensure this access,” he added.

Jennifer Loven, the AP‚Äôs White House correspondent and president of the White House Correspondents’ Association, said she and the group’s board “are addressing this aggressively with the White House‚Äîour strong objections to both the issue of them releasing photo handouts from events that the press should be able to cover, and the issue of how the pool was structured last night.”

Providing access is probably the easiest ways to appease the White House press corps, which feeds on it. So by not allowing the three wire services in the Oval Office for day one—a ritual that typically yields flattering shots of a new president writing at his desk or chatting with aides—the press team picked a fight that could have been avoided.

But those weren’t the only issues of access to come up in Thursday’s roughly 50-minute briefing.

Before Gibbs took the podium, reporters were given a background briefing under an agreement to only attribute information to “senior administration officials”—a policy some news organizations object to as a matter of policy.

But when Gibbs let slip the name of one briefer, Greg Craig, a couple times, The Wall Street Journal’s Jonathan Weisman asked, “Are we allowed to repeat that name?”

During the earliest days of the Clinton administration, such abrupt changes in the traditional press access were often met with harsh criticism from the briefing room pack, most notably, the blocking off of access to the office of then press secretary George Stephanopoulos.

Former Clinton press secretary Dee Dee Myers, who succeeded Stephanopoulos, said in PBS’s “The Clinton Years” that the move “made the press very angry because they lost access to a part of the building that they had had access to.”

‚ÄúAnd it didn’t serve us,‚Äù she continued. ‚ÄúAnd it was stupid and didn’t last very long. I can’t remember when the decision was made and the door was finally reopened but it was a complete waste of energy. It alienated people for no purpose. It served nothing. It served no one. And it was a rookie, rookie mistake.‚Äù

Myers said Thursday that the Obama team’s decision to bar widespread access to the re-do of the oath wasn’t in the same category as shutting access to the press office, but wouldn’t help in relations with the media.

“I think not letting video, that’s a bit of a rookie mistake,” Myers said, adding that “when you can, it’s better to err on the side of inclusiveness with the press.”

On balance however, she said of Obama’s press team, “I think generally speaking they’re doing very well so far,” said Myers.

There have been a handful of rocky moments so far. Some press staffers found their name cards misspelled on Wednesday and phone lines weren’t properly hooked up. Reporters trying to reach the press staff got emails bounced back.

Also, press aides informed reporters that the doors of the lower press office will be locked until 8:30 am, an inconvenience for those on the early shift. Following a USA Today blog item, there was confusion about whether the Whitehouse.gov site would regularly publish pool reports since there was a “pool report” link on the site. And in the hours before Gibbs’ briefing, the northwest gate of the White House started running out of temporary passes.

Now, given the expected learning curve, most of these wrinkles should be ironed out in time. But on broader issues of access, it remains to be seen if the Obama press team is making rookie mistakes, or simply asserting a new protocol, not bound to past traditions that White House reporters have grown accustomed to. While the press corps balks at changes in access, these rules aren’t written in stone. It may chafe veterans of the briefing room, but it’s the administration’s prerogative on such matters.

Of course, the media landscape has changed significantly over the 16 years, and getting one’s message across through establishment media isn’t the only option for the new administration.

The Obama campaign proved that one could skirt around the mainstream media at times, whether by blasting out text messages to millions of supporters (the Biden pick), or leaking to select news outlets and blogs as a means of getting out the day’s talking points out.

But even if the press team is keeping reporters and photographers at bay, perhaps the President will draw them a bit closer.

After Obama signed an executive order Thursday morning to close the prison at Guantanamo Bay within a year, “press office staffers began to shoo the pool out the door, and the camera lights were dimmed,” wrote Scripps Howard’s Bartholomew Sullivan in a pool report.

However, Obama stopped the reporter from being ushered out, saying, “there are three of these.” The lights came back on.

There may be less than meets the eye to the executive orders President Obama issued yesterday to close the prison at Guantanamo Bay and prohibit the torture of prisoners in American custody. Those pronouncements may sound dramatic and unequivocal, but experts predict that American policy towards detainees could remain for months or even years pretty close to what it was as President Bush left office.

“I think the administration’s commitment to close Guantanamo is heartening; the fact they want to give themselves a year to do it, not so much,”, said Ramzi Kassem, a Yale Law School lecturer who represents prisoners like inmate Ahmed Zuhair, who was captured in Pakistan in 2001. “That would bring men like my client to eight years imprisonment for no apparent reason.”

Here are a few of the delays, caveats and loopholes that could limit the impact of Obama’s orders:

1. Everyone has to follow the Army Field Manual—for now…

Obama’s executive order on interrogations says all agencies of the government have to follow the Army Field Manual when interrogating detainees, meaning the CIA can no longer used so-called enhanced interrogation techniques, which have included waterboarding, the use of dogs in questioning, and stripping prisoners.

However, the order also created an interagency commission which will have six months to examine whether to create “additional or different guidance” for non-military agencies such as the CIA. One group that represents detainees, the Center for Constitutional Rights, deemed that an “escape hatch” to potentially allow enhanced interrogations in the future.

White House counsel Greg Craig told reporters such fears are misplaced. ‚ÄúThis is not an invitation to bring back different techniques than those that are approved inside the Army Field Manual, but an invitation to this task force to make recommendations as to whether or not there should be a separate protocol that’s more appropriate to the intelligence community,‚Äù he said.

The distinction Craig made between “protocols” and “techniques,” though, seems less than clear.

“For now, they’re punting, saying they’ll comply with what’s in the Army manual…but at some point in the future this commission may revert to the executive” to recommend harsher techniques, said Kassem, adding that he was concerned about how transparent the commission’s recommendations would be.

“I’m happy to postpone that discussion [on “enhanced interrogation”]… on the condition that [it] happens transparently,” he said.

A Columbia law professor who worked on detention issues at the State Department under President Bush, Matthew Waxman, said Obama is wise to leave open the possibility of different guidance for the CIA’s experienced interrogators. “I’ve worked on drafts of the Army Field Manual,” Waxman said. “It’s designed to be in the hands of tens of thousands of people who may not have a lot of training or supervision.”

2. Obama ordered a 30-day review of Guantanamo conditions—by the man currently responsible for Guantanamo.

A section of Obama’s order on Guantanamo entitled “Humane Standards of Confinement” orders Secretary of Defense Robert Gates to spend the next thirty days reviewing the current conditions at the Caribbean prison to make sure they’re legal and follow the Geneva Convention. It seems doubtful that Gates, who has been atop the chain of command for Guantanamo for more than two years, will suddenly find conditions that were just fine on Monday of this week are now flagrant violations of the Geneva Convention.

“He’s not exactly impartial,” Kassem said.

Waxman pointed out that adhering to the Geneva Condition is “already the law,” and deemed that section of the order “bizarre.”

3. Obama vowed no torture on his watch, but force-feeding and solitary confinement apparently continue at Guantanamo for now.

It’s possible that the 30-day referral to Gates is simply an effort to buy the Obama team time to deal with two Guantanamo practices that some consider torture, or at least inhumane: force feeding and isolation of prisoners. According to detainee lawyers, about two dozen inmates who refuse to eat as a form of protest are currently being force fed, and about 140 are in some form of solitary confinement.

The Bush administration has argued that the feeding is humane and that the solitary, at least as practiced now, is not the kind of total isolation that amounts to torture. “There’s an important distinction to be made between isolation and separation” from other prisoners,” Waxman said.

As far as we know, the force feeding and solitary practices continued onto Obama‚Äôs watch. Craig dodged a question about the new president‚Äôs views on those issues. ‚ÄúI’m not going to get into the details,‚Äù Craig said.

4. The vast majority of detainees in American custody may see no benefit from Obama’s orders

While Obama ordered a case-by-case review of the 245 prisoners held at Guantanamo, the 600 prisoners held in indefinite American custody in Afghanistan and roughly 20,000 in Iraq won’t get such attention. The general policy review might aid them, eventually, but unless someone was about to torture them it’s unclear how they are better off.

“I think there’s a fairly good chance that on the whole from the perspective of my clients at Guantanamo and Bagram [the site of an American air base and prison in Afghanistan], their lives will be the same until those facilities are shut down, unfortunately,” Kassem said.

Asked why the reviews are limited to prisoners at Guantanamo, and those at Bagram or Abu Ghraib, Craig said, ‚ÄúThe president asked us to look at Guantanamo. That’s the answer.‚Äù

5. The orders downplay the possibility that some prisoners might be set free in America.

Obama ordered that when Guantanamo closes, any remaining inmates “be returned to their home country, released, transferred to a third country, or transferred to another United States detention facility in a manner consistent with law and the national security and foreign policy interests of the United States.” But Obama’s wordsmiths seem to have deliberately trimmed out any explicit mention of the explosive possibility of freeing prisoners on American soil.

While Obama’s aides seem to prefer trying prisoners in civil courts or freeing them abroad, there are no obvious charges to be filed against some of the detainees. Once Guantanamo closes, letting them loose in the U.S. may be the only option if other countries won’t take them.

Craig said he was “hopeful” that other governments will take many of the detainees, but some nations may not step up until the U.S. does. “One question a lot of countries keep asking is, ‘How many are you going to take?” Waxman said. “There may be some countries that want to earn some credit [with the] new administration…but I don’t expect this problem to go away.”

6. Military commissions are shut down…. for now

One of the attention grabbing provisions of Obama’s orders calls for military tribunals at Guantanamo to be “halted.” But the Obama administration is not ruling out returning to some sort of military forum to deal with some of the prisoners.

“This order does not eliminate or extinguish the military commissions, it just stays all proceedings in connection with the ongoing proceedings in Guantanamo,” Craig said, making clear that “improved military commissions” were still on the table.

That suggestion exasperates detainee lawyers like Kassem. “That would be a huge mistake, “ he said. “That system [is] set up to launder statements obtained through torture… What’s the point of getting rid of our offshore, improvised, sham, military tribunals in Cuba, only to recreate it here in the United States?”