Archive for February, 2009
Defense of Bank Secrecy by Austria and Luxembourg Is Good News for Tax Competition
It is no exaggeration to say that destroying tax havens is probably the number one goal of the world’s statist politicians and international bureaucrats. The European Commission has a new assault against low-tax jurisdictions. The Paris-based OECD is preparing to renew its ant-tax competition project. And American politicians such as Barack Obama want to persecute tax havens as part of his assault on private capital. Switzerland is the top target of the statists, but other jurisdictions such as Singapore, Austria, and Luxembourg also are being persecuted. Switzerland is doing a good job defending its human rights policy of strong privacy, but it’s good news to read in the European Voice that Austria and Luxembourg just announced that bank secrecy is not a negotiable matter:
Austria and Luxembourg have declared that they will resist attempts to crack down on banking secrecy, despite calls from other EU states and the European Commission for stricter rules to tackle tax evasion. Germany is pushing for tougher action against tax havens, partly motivated by discontent that German citizens are putting their savings in bank accounts in Switzerland and Lichtenstein. … A statement issued by…Josef Pröll, Austria’s finance minister, and Luc Frieden, Luxembourg’s budget minister, said… “banking secrecy is not up for negotiation”. …The European Commission on 2 February proposed that member states should abolish banking secrecy in relations between national tax authorities.
Tax competion, fiscal sovereignty, and financial privacy limit the power of governments to act like monopolists. Tax havens play an especially important role since politicians know that these jurisdictions give taxpayers some ability to protect themselves from predation. To learn more about the economic benefits of tax havens, click here. To learn more about the moral case for tax havens, click here. And to see why anti-tax haven demagoguery is misguided, click here.
Filed under: Finance, Banking & Monetary Policy; International Economics and Development; Tax and Budget Policy
Philip Pullman on the Loss of Civil Liberties in Britain
Philip Pullman had an opinion piece in the Times of London today to mark the Convention on Modern Liberty, a one-day gathering of activists interested in civil liberties. Weirdly, the piece isn’t available at the Times anymore, and it has not been for several hours. Even the Google cache has been unreliable, though it’s up as of this writing. The vast community at BoingBoing has been watching closely.
Thankfully, the Libertarian Alliance seems to have the full text:
The new laws whisper:
You don’t know who you are
You’re mistaken about yourself
We know better than you do what you consist of, what labels apply to you, which facts about you are important and which are worthless
We do not believe you can be trusted to know these things, so we shall know them for you
And if we take against you, we shall remove from your possession the only proof we shall allow to be recognised
The sleeping nation dreams it has the freedom to speak its mind. It fantasises about making tyrants cringe with the bluff bold vigour of its ancient right to express its opinions in the street. This is what the new laws say about that:
Expressing an opinion is a dangerous activity
Whatever your opinions are, we don’t want to hear them
So if you threaten us or our friends with your opinions we shall treat you like the rabble you are
And we do not want to hear you arguing about it
So hold your tongue and forget about protesting
What we want from you is acquiescence
The nation dreams it is a democratic state where the laws were made by freely elected representatives who were answerable to the people. It used to be such a nation once, it dreams, so it must be that nation still. It is a sweet dream.
If the Times doesn’t want these words, I’d like to borrow them.
Why Acquisition Reform Fails
Senators Carl Levin and John McCain this week introduced legislation to improve how the Pentagon buys things — defense acquisition reform. The President is on the same page. So chances are the Pentagon’s acquisition workforce will have a new set of rules to learn some time this year.
Here’s the bill. Highlights: a series of new reporting requirements about systems analysis of new programs, a new official to come up with cost estimates of weapons systems, another official to oversee developmental testing, a requirement for competitive prototyping of new weapons, which can be waived, and an effort to make waiving Nunn-McCurty breaches a little more onerous (the idea was that you cancel weapons systems that experience excessive cost growth, but it never happens), plus some other minor bureaucratic changes. McCain claims that the legislation will cut back on cost plus contracts in favor of the fixed price variety, but the legislation does not address that.
At best this bill will create some marginal improvements in defense acquisition. More likely it will simply add hassle.
Acquisition reform is practically seasonal at the Pentagon, as this PowerPoint slide show comically demonstrates. And things have only gotten worse — more programs over budget and behind schedule over time. (Read this recent testimony from a Congressional Research Service expert for details.) According to another expert, former Pentagon weapons testing chief Tom Christie, the trouble is not the existing acquisition rules but the failure to use them to control costs. He says so in a chapter for the book America’s Defense Meltdown, which we will be discussing here at a forum on March 13.
The reasons for the failure of acquisition reform are complicated, but one surely is that these are technocratic solutions to political problems. The trouble is what we want, which is several technological miracles in each new platform, not how we buy it, as my professor and sometimes co-author Harvey Sapolsky explains in a recent Defense News op-ed:
The truth is you can’t fix the acquisition system. All the insiders know this…We can’t fix it because we want crazy things. We want a system that can fire missiles from a submarine hiding beneath the surface of the sea and hit a target thousands of miles away. Or we want a tank that can survive a shaped charge round, pack its own lethal punch and is airlifted by a C-130.
Systems have to perform reliably in the snow, in the mud, in the sand. They have to communicate with every friend and not reveal themselves to any foe. And we want them soon, not later.
Worse, we already have a lot of first-class ships, aircraft, missiles and tanks; proposed new weapon systems have to be a lot better than them or any obvious modification we can make. To be worthy of our approval, the advocates of the new system have to dazzle us with expectations of what will soon be in our arsenal, something no enemy can match. It will likely cost billions, but it will be great.
With that gleam in their eye, the services seek bids for the weapons that will define their futures. Only a few contractors can qualify to make offers. After all, only a few firms know the acquisition regulations well enough and have sufficient engineering talent to manage complex projects.
Moreover, government-encouraged mergers have further thinned the ranks of eligible firms. Given that new starts in most weapon lines are once-in-a-decade-or-more events, project awards are survival tests. Not surprisingly, false optimism abounds.
For more, read his recently co-authored book.
What about using more fixed price contracts and less cost-plus contracts, as McCain suggests? Isn’t it obvious that unless you pay someone a set price rather than whatever he says it costs, he will rip you off? Actually, no, not in defense contracting. Chris Preble and I addressed this in an oped last October:
In a cost-plus contract, the contractor gets paid whatever it costs to make a good, plus a profit. McCain claims that these agreements encourage contractors to spend as much possible and send the government the bill. This argument is confused. Defense contractors have essentially one customer: the Pentagon. Repeatedly gouging your only customer, one with a small army of auditors, is likely to lead to bankruptcy.
New technology is hard to price. If we used fixed price contracts— as McCain proposes—for new complex projects, like the next-generation bomber the air force will soon build, the contractors would simply ask for more money up front to limit their risks. If we force a low price on them, they will likely blow through what is allocated and ask for a new contract. Because military services badly want the weapons they contract for—and starting over would take years—Pentagon officials would then be forced to rewrite the deal.
What acquisition reform would work? It might help to increase the number of civilian acquisition overseers and pay them more, given that their workload has expanded, and to allow them more flexibility in their work, not less, as this legislation would. But these are still minor fixes. You can’t fix acquisition until you change the incentive structure that produces its outcomes. Until the services and their Congressional backers start to accept platforms that push the technological envelop less, the problems will persist.
Filed under: Foreign Policy and National Security; Government and Politics
The Washington Times and Debunked Statistics
Yesterday, the Washington Times editorialized in favor of E-Verify, the inchoate government background check system for all American workers, saying, “[T]he system is 99.5 percent accurate, according to DHS, and it permits employers to verify work eligibility in minimal time (10 minutes or less) and at minimal cost ($419 per year for a federal contractor of 10 employees).”
Don’t be so sure. The DHS mantra of 99.5 percent accuracy was debunked long ago. The government doesn’t actually know the status of the 5.3% of workers that the system bounces out, an issue the Christian Science Monitor explored last summer.
I examined the numbers in detail here, also last summer. The 0.5% error rate that DHS acknowledges is the known error rate. Others bounced out of the system DHS assumes to be illegal aliens. This is almost certainly wrong, and the program is denying legal workers the ability to earn a living, as the Christian Science Monitor reported.
But in an op-ed published in the Washington Times last fall, lobbyist Janice Kephart argued the DHS line, as carelessly as one can be with statistics: “[T]he numbers rejected by E-Verify as not authorized to work closely parallels the estimated percentage of illegal aliens in the work force, about 5 percent.” Right, the numbers are close so the program is working. Nevermind that the livelihoods of American citizens and legal workers are in the balance.
Earlier this month, the Times printed Rep. Lamar Smith’s plea for E-Verify, which touted these (well, similar) discredited statistics.
It’s time for the Washington Times to stop shilling for the Department of Homeland Security and the anti-immigrant lobby by printing and reprinting discredited statistics about E-Verify.
Filed under: General; Telecom, Internet & Information Policy; Trade and Immigration
Here’s an Idea: Don’t Do Either!
One of the biggest pieces of news coming from President Obama’s budget preview is that he’d kill federal guaranteed student lending — in which the feds subsidize private lenders — and move everything to direct lending straight from the government. He promises that cutting out the middle man would save about $4 billion a year.
In the short term, that savings figure might be possible, though whether or not that is the case is likely to be hotly contested. Washington does spend a lot subsidizing loans so that they carry almost no risk to the lenders and are, hence, low-interest and abundant. Eliminating those subsidies could save some dough. That said, there is absolutely no reason to believe that making Washington the monopolist student lender will produce any long-term efficiencies. In fact, all it will do is ensure gigantic bloat, as is the case with any government monopoly.
A recent story in the New York Times, coupled with a blog entry I wrote in November, illustrates why neither guaranteed nor direct federal lending should ever be expected to produce efficient outcomes.
On the blog I wrote about how, in order to keep things rolling during the “credit crunch,” the Bush Administration was essentially going to buy up any student loans that lenders thought were too insecure. At the time, the Education Department kept declaring that whatever the feds ended up doing it would be “cost neutral” – we wouldn’t feel a thing as they kept banks and students in the money. I wondered, skeptically, how exactly that would be done, but couldn’t find anything explaining it. All I found were Education Department promises that it would be made clear…eventually.
It turns out, I was very likely right to be suspicious. As the Times reported on Wednesday:
The program is supposed to cost taxpayers nothing, but the Obama administration has asked for additional analysis.
“We have reviewed the analysis with the staff here, and we do not have confidence in the bottom line,” said a senior official at the White House Office of Management and Budget, who insisted on anonymity, citing administration policy. Referring to differences between agreements entered into by the departing Bush administration and public descriptions of the program, the official added, “The documents on their face raise serious questions about whether it’s cost-neutral.”
So it seems likely that the government essentially lied to America. “Oh yeah — ‘cost neutral.’ Sorry. We thought you wouldn’t notice.”
What this little episode illustrates is something we frankly already knew: Government officials will happily deceive us if that’s what it takes to enact policies that they think will make them look good, especially in the short term (meaning, until the next election). With that in mind, whether the feds are working with a middle man or giving students the money directly, it almost certainly doesn’t matter: money will be lost, and probably in much bigger amounts than the public will be led to believe.
So what is government to do about student loans? Nothing! Washington should get out of the loan business and leave promising students and profit-seeking lenders to find each other in pursuit of mutual gain. (A student with high earning potential? A bank looking to make some bucks? Why, it’s a perfect match!) Then we wouldn’t have to choose between the frying pan and the fire, nor would we continue to encourage tons of people to pursue college educations they don’t need, can’t handle, or both. In other words, we’d return both some sanity and taxpayer justice to the world of college finance.
Week in Review: Obama’s Speech, a $3.6 Trillion Spending Plan and a New Cato Senior Fellow
Obama Outlines National Plan in First Address to Congress
President Obama’s first address to Congress laid out a laundry list of new spending and provided hints as to what will be contained in the budget — a so-called “blueprint for America’s future”– he submitted to lawmakers Thursday.
In a new video, Cato Institute scholars offer their analyses of the president’s non-State-of-the-Union Address.
While watching the speech, Cato scholars offered live commentary on Cato’s blog and Twitter feed.
Expanding on his recent article, “Obama’s Shock Doctrine,” Cato Executive Vice President David Boaz says that Obama’s speech further proves that his administration is using scare tactics and the financial crisis to further an agenda that will expand the size of government.
President Obama made good on his reputation for giving excellent speeches. He seemed calm and confident. It’s no wonder that instant polls show that most viewers liked it.
That reaction is all part of the guiding strategy of this administration: using a crisis atmosphere to amass more money and power in Washington. There’s a long history of government growth in times of crisis such as wars, natural disasters, or economic shocks. Think of FDR’s revolutionary “first 100 days” or LBJ’s driving through his Great Society programs in the wake of John F. Kennedy’s assassination.
George W. Bush did it, too, with both the Patriot Act and the invasion of Iraq after the shock of 9/11. And in so doing, he left his successor both a presidency and a federal government with unprecedented powers, ready to be employed for a different agenda.
For analysis of Obama’s speech, Cato scholars weigh in by topic on the president’s plans for America’s future.
Obama’s New Budget Includes $3.6 Trillion in Spending
On Thursday, the Obama administration introduced its new budget framework for the coming years, including $3.6 trillion in spending for the current fiscal year.
Chris Edwards, Cato’s director of tax policy studies, says that despite what Obama might say behind a microphone, the new administration has little interest in fiscal responsibility.
President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.
The president says the money in his new budget will be spent wisely, but Boaz explains why it’s impossible for the government to spend trillions of dollars without waste or fraud.
In the new edition of the Cato Handbook for Policymakers, Chris Edwards offers six ways Congress should cut spending.
Cato Welcomes Tucker Carlson
Television commentator, author and journalist Tucker Carlson has joined the Cato Institute as a senior fellow.
Carlson will use his initial time with Cato to focus on writing a book on the state of the American polity. Through other writings as well as media and public speaking appearances, he will also seek to educate the broader public about how the libertarian philosophy differs from the standard liberal and conservative orthodoxies embodied in the two main U.S. political parties.
Carlson was co-host of the staple CNN debate program “Crossfire” and also had his own programs on MSNBC (“Tucker”) and PBS (“Tucker Carlson: Unfiltered”), as well as appearing regularly on numerous other news programs. Though sometimes showcased by these networks as the “conservative” point of view, Carlson became a dependable critic of numerous Bush administration policies, including wasteful spending and the war in Iraq.
When Is an Iraq Withdrawal not a Withdrawal?
When it means leaving 50,000 troops in Iraq to train and fight.
President Obama has invited members of Congress to the White House for a meeting later this afternoon to discuss his plans for drawing down troops in Iraq — a plan that has already drawn stiff criticism from his Democratic allies.
After Speaker Nancy Pelosi complained that the level of troops — 50,000 — who would remain in Iraq is too high, other senior Democrats voiced similar concerns on Thursday. Among Democratic leaders, only Sen. Richard Durbin of Illinois is defending the new Obama plan, which will take three months longer than he promised and still leave a significant force structure on the ground.
“I’m happy to listen to the secretary of defense and the president, but when they talk about 50,000, that’s a little higher number than I had anticipated,” Senate Majority Leader Harry M. Reid (D-Nev.) said.
“It has to be done responsibly, we all agree, but 50,000 is more than I would have thought, and we await the justification,” said Sen. Charles Schumer (D-N.Y.).
“I do think we have to look carefully at the numbers that are there and do it as quickly as we can,” said Sen. Patty Murray (D-Wash.).
Sen. Russ Feingold (D-Wisc.) issued a statement saying he was “concerned” about the level of troops that would remain in Iraq.
It’s not just a “little higher number” than most Americans want. It is a lot higher. President Barack Obama should bring home all of America’s troops from Iraq. If he doesn’t, Democratic officials and peace activists need to make their views known to him just as vigorously as they did to President George W. Bush when he was launching and escalating the war. Congressional Democrats certainly shouldn’t be bought off by a little sweet talk in the Oval Office.
New Podcast: ‘Paul Krugman’s Nostalgianomics’
Expanding on his February 9th White Paper, “Paul Krugman’s Nostalgianomics: Economic Policies, Social Norms, and Income Inequality“, Cato Vice President for Research Brink Lindsey discusses the problems with the 2008 Nobel laureate’s analysis of income inequality in today’s Cato Daily Podcast.
[Krugman] has a clear ideological incentive to portray the ‘50’s and ‘60’s as this enlightened period of governance. Liberals were in charge, it was a time of very activist government, lots of intervening in markets, and yet the economic numbers were stellar. Growth was fantastic, income growth in particular was great, and these egalitarian values of income compression were being fulfilled as well. To him, it looks like a wonderful model for liberals of today. ‘Look back at what liberals did in the 50s and 60s and we can do that again.’ But to reach that kind of ideologically satisfying, for him, conclusion I think he has to be very selective about what was actually going on back in the 50s and 60s. He has to cherry-pick policies he likes.
Trying Al-Marri
The Washington Post is reporting that the Obama administration is planning to charge Ali Saleh Kahlah al-Marri with providing material support to Al Qaeda. Al-Marri is an alleged sleeper agent for Al Qaeda, and the FBI intercepted him while he was an exchange student in Illinois. Prior to his trial, the Bush administration moved him into military custody and dropped the charges with prejudice, meaning that they could not be re-filed. Apparently, there is enough evidence to file a fresh indictment. The ACLU statement is available here. My prior posts on the topic are available here and here.
This is probably an attempt to remove the case from the Supreme Court’s docket and avoid the constitutional controversy of keeping someone out of the criminal justice system.
The Supreme Court should not be deterred from hearing the case. Cato filed an amicus brief with the Constitution Project and the Rutherford Institute in al-Marri’s case. We were not alone, as virtually every civil liberties organization weighed in. A group of retired military officers filed an amicus brief arguing that the Posse Comitatus Act and associated statutes specifically prohibit the “direct participation by a member of the [Armed Forces] in a search, seizure, arrest, or other similar activity unless participation in such activity by such member is otherwise authorized by law.”
It is time to drive a stake through the heart of domestic military detention. The Bush administration moved detainees into military custody and to different jurisdictions to avoid judicial review. In 2006 the Supreme Court denied certiorari to convicted Al Qaeda operative Jose Padilla’s habeas petition. He had just been moved to civilian custody and indicted in Florida, so he was no longer detained by the military. The prospect of returning to military custody was taken seriously enough by three justices that they voted to grant certiorari – one shy of the requirement for the Court to hear the case.
Kennedy was sufficiently unnerved by domestic military detention that, although he voted not to grant certiorari, he wrote separately. “In light of the previous changes in his custody status and the fact that nearly four years have passed since he was first detained, Padilla, it must be acknowledged, has a continuing concern that his status might be altered again.” Chief Justice Roberts and Justice Stevens joined him.
As I have said before, the line between the civilian criminal justice system and the military is in many ways the line of liberty. The Court should take up this case and put that line back in place.
Calling All Harvard Alumni
As my colleague Dan Mitchell has noted, Harvard is about to hold a conference about how the “free market ideology has dominated legal discourse and lawmaking the last few decades.” That’s a dubious narrative (to say the least (pdf)).
In any event, Harvard alums who read this blog should know that Cato adjunct scholar Harvey Silverglate is running for a position on Harvard’s Board of Overseers. Pass the word to all the Harvard alumni you may know. Additional background here.
New Mandatory Savings Plan?
I haven’t seen any media attention paid to it yet, and I don’t recall the president mentioning it in his speech Tuesday night. Regardless, p.37 of today’s budget blueprint calls for “Making Saving for Retirement Easier as the Economy Recovers.” Although it sounds innocuous, I believe the contents could be cause for alarm:
“Over the long-term families need personal savings, in addition to Social Security, to prepare for retirement and to fall back on during tough economic times like these. However, 75 million working Americans—roughly half the workforce—currently lack access to employer-based retirement plans. In addition, the existing incentives to save for retirement are weak or non-existent for the majority of middle and low-income households. The President’s 2010 Budget lays the groundwork for the future establishment of a system of automatic workplace pensions, on top of and clearly outside Social Security, that is expected to dramatically increase both the number of Americans who save for retirement and the overall amount of personal savings for individuals. research has shown that the key to saving is to make it automatic and simple. Under this proposal, employees will be automatically enrolled in workplace pension plans—and will be allowed to opt out if they choose. Employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. The result will be that workers will be automatically enrolled in some form of savings vehicle when they go to work—making it easy for them to save while also allowing them to opt out if their family or individual circumstances make it particularly difficult or unwise to save. Experts estimate that this program will dramatically increase the savings participation rate for low and middle-income workers to around 80 percent.”
Here are my concerns just off the top of my head:
Obviously, it represents yet another government encroachment upon individual liberty. While employees would be “allowed” to opt out, employers would not. More ominously, while there is no mention of government subsidization of individual plans or forced contributions by employers, how long will it take for activists and their congressional allies to go down those roads? I can already envision hordes of politicians bemoaning the inability of low- and moderate-income workers to direct any portion of their wages toward their accounts. And don’t just think this will be limited to leftist politicians. When I worked for the U.S. Senate a conservative senator once asked me to design a mandatory savings plan for all citizens in which the government and employers would “contribute.”
I guess the bright side here is that the administration is implicitly acknowledging that Social Security isn’t the wonderful retirement nest egg defenders have wanted us to believe. I also can’t help but chuckle at the political reintroduction of savings as being beneficial. Over the past year we’ve been repeatedly warned that savings is bad and spending is good. Anyhow, this issue is going to be one to watch going forward.
New on YouTube: Juan Carlos Hidalgo on Obama’s Latin American Policy
Appearing on HITN’s “Destination Casablanca,” Cato analyst Juan Carlos Hidalgo discusses Latin American policy, Cuba and the future of the drug war under the Obama administration.
“It’s not Washington’s business to try to impose or suggest an agenda for Latin American countries,” Hidalgo says.
For more videos, subscribe to Cato’s YouTube channel.
Filed under: Foreign Policy and National Security; General
FY2009 Deficit = FY2000 Spending
Total federal spending in FY2000: $1.79 Trillion.
Total estimated FY2009 deficit according to today’s budget blueprint: $1.75 Trillion.
“It Is a Sordid Business, This Divvying Us by Race”
Yesterday Cato filed a brief in what will be one of the most talked-about cases in the current Supeme Court term, Ricci v. DeStefano.
In Ricci, the City of New Haven, Connecticut developed an exam for firefighters seeking promotion to command positions. The city went out of its way to ensure that the exam was race-neutral and tested only relevant skills and abilities. When the exam results came down, however, white candidates had done better than their African-American and Hispanic peers. Given the few command positions available and the city’s rule that the highest scorers on an exam be promoted first, few minority firefighters would thus have been eligible for promotion. After a series of meetings and political machinations, the city refused to certify the results of the exam and promote anyone. Several of the firefighters who would have been eligible for promotion filed a lawsuit, claiming racial discrimination under Title VII.
The district court, affirmed by the court of appeals, granted summary judgment for the defendants, holding that the City’s alleged fear of an adverse impact claim (a different type of racial discrimination claim under Title VII) — based merely on the fact that the exam results yielded a racial disparity — was a legitimate reason for its decision not to certify the exams.
Cato’s brief, joined by the Reason Foundation and the Individual Rights Foundation, points out the absurd incentives at play: if the lower court’s ruling stands, employers will throw out the results of exams (or other criteria) that produce racial disparity, even if those exams are race-neutral, entirely valid, and extremely important to the employer and (as in this case) the public.
The Case will be argued April 22.
Hmmmm, Why Would That Be?
Weak Health Care Stocks Drag Market Lower
– Associated Press, February 26, 2009
Obama Proposes $634 Billion Fund for Health Care
– Washington Post, February 26, 2009
So the government wants to take over one-seventh of the U.S. economy and the market drops. I’m shocked.
Obama’s $1.3 Trillion Tax Hike
Here are some notes on the tax proposals in the new federal budget: (See Table S-6; All figures are 10-year totals)
- There are $770 billion in “tax cuts for families and individuals.” However, the fine print on page 129 shows that $326 billion of that is actually spending, or the “refundable” portion of the tax changes. That leaves a net $444 billion in tax cuts for individuals.
- The budget would impose a $646 billion tax increase from new “climate revenues,” which would create a burden on families in the form of higher energy prices. Thus, there is a net tax hike on “families” of about $202 billion, even aside from the income tax increases at the top end.
- Income tax increases on those with higher incomes total $637 billion. Note that these hikes land on both individual filers and the huge number of small businesses that file through the individual system.
- Other tax hikes on businesses total a net $183 billion.
- Finally, Obama proposes to limit deductions for higher earners to raise $318 billion.
- Thus, President Obama proposes to hike taxes by a net $1,340 billion, or about $1.3 trillion, over the next decade. That’s the last thing we need to recover from recession and to compete in the global economy in coming years.
Filed under: Government and Politics; Tax and Budget Policy
Obama Budget Irresponsibility Inconsistency
Page 14 of the President’s FY2010 budget “blueprint” contains a section called “Fiscal Irresponsibility” that deserves scrutiny:
“Another manifestation of irresponsibility is the large budget deficits we are inheriting. These deficits, over time, will harm economic growth and impose burdens on our children and grandchildren.”
True.
“Between 2000 and 2008, real Government outlays increased at a 3.6 percent annual average rate, three times the 1.2 percent annual average rate between 1992 and 2000…Furthermore, the amount of debt held by the public has nearly doubled to $6.4 trillion from 2001 to 2008. We are now living with the fallout of this deep fiscal irresponsibility.”
True.
“Unfortunately, we are also inheriting the worst economic crisis since the Great Depression—which will force us to increase deficit spending temporarily as we try to jumpstart economic growth.”
Time-out. The administration accurately states that federal spending and debt have increased at a detrimental pace this decade. Then it says we’re in the worst economic crisis since the Great Depression.
And the solution to the economic downturn caused in part by too much spending and debt is to increase deficit spending and further run up the national debt? By the administration’s own logic, shouldn’t we be experiencing economic growth with all the deficit spending it “inherited?”
How to Spend a Trillion Dollars without Waste and Fraud
You can’t.
And the federal government knows it. On Tuesday,
Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud….
Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”
With the government having already allocated $700 billion for TARP, and $787 billion for “stimulus,” and President Obama now calling for $635 billion for health care and a federal budget soaring to $3.6 trillion — well, you’d think two government reports on the likelihood of fraud and waste would be news. But this testimony didn’t make the New York Times or the Washington Post. There was a small inside story in the Wall Street Journal.
One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:
you cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.
Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”
Saying “nobody messes with Joe” is not a solution to the inevitability of waste and fraud when an unaccountable bureaucracy is spending trillions of other people’s dollars.
Filed under: Government and Politics; Tax and Budget Policy
President Obama’s Budget: Higher Taxes & Bigger Government
“As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day… Not because I believe in bigger government — I don’t. Not because I’m not mindful of the massive debt we’ve inherited — I am.”
–President Obama to congressional joint session, February 24
President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.
Americans have a fundamental choice to make in coming months: Do they want President Obama and Congress to impose huge increases in the size of government, perhaps as dramatic as occurred in the 1930s and 1960s?
Apart from defense, federal spending has hovered around 16.5 percent of the economy since 1980, through both Democratic and Republican administrations. But under President Obama, nondefense spending is soaring to 23 percent of the economy this year and will remain at historic high levels in the future.
Even after current stimulus spending is supposed to end, nondefense spending is expected to be more than 19 percent of the economy — or 25 percent more than the size of government during the later Clinton years.
Americans need to decide whether they want the European-sized government that President Obama is promising — with all its damaging effects on individual freedom and economic growth — or whether they want to return to the greater prosperity of the smaller-government Clinton years.
Filed under: General; Government and Politics; Tax and Budget Policy
Whither the F-22?
I have been thinking for months about canceling my print subscription to the Washington Post, but I just can’t seem to pull the trigger. Now I have a new reason for holding onto the messy things just a little while longer: those full-page advertisements for the F-22.
They have appeared almost every day for the past few weeks – full-colored ads that boast “95,000 employed, 300 million protected.” They feature pictures of smiling workers who (presumably) would be thrown out of work if we were to stop building the planes. They claim that the F-22 keeps us all safe and secure, now and well into the future. The ads tell us that the F-22 is essential both to our physical security, and our economic security. It just wouldn’t be the same if all that happy talk were confined to flashing banners on my computer screen.
But while the Post is surely happy to keep taking both my subscription money and the revenue from the International Association of Machinists and Aerospace Workers and the 13 companies that paid for the ads, I’m still not convinced that the F-22 is worth the money (more than $350 million per plane).
Neither is Fred Kaplan (maybe he is reading the online version of the Post?)
It likely won’t be the last word in the debate, but Kaplan’s latest at Slate makes a pretty good case for what I’ve been saying for some time: If the plane cannot be justified on its strategic merits, then it is unfair for 299,105,000 Americans to pay merely to keep 95,000 employed. Our defense decisions should be driven by strategic necessity, not slick advertising campaigns and dubious claims about the economic harm that will come if some people have to switch jobs.
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