Archive for February, 2009
Japan’s Stimulus Model
As 200 economists said in the New York Times, ” More government spending did not solve Japan’s ‘lost decade’ in the 1990s.”
And it looks like Times reporters can confirm that:
Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.
Hitting Bone Is the Least of Our Worries
Once again, the monthly jobs report is woeful except in education, health services, and government, where there were employment gains. Yet a huge part of the ever-growing “stimulus” — about $140 billion, last I’d heard — is aimed at education, including $79 billion to help ensure that states don’t have to cut a nickel from their public schools and possibly let some staffers go. I mean, the situation is dire, right?
“We’re well past cutting through the fat, through the flesh, muscle,” Miami-Dade superintendent Alberto Carvalho frantically warned in USA Today last month. “We’re now sawing into bone.”
Ignoring the infamous dysfunction in Miami, is there any reason to believe that nationwide, many states or districts are really about to hit bone? I mean, when was the last time they even saw muscle, much less what lies beneath it?
Let’s take a look at some long-term trends and see how lean and mean our schools really are, keeping in mind that throughout the last few decades long-term reading and math scores on the National Assessment of Education Progress have been essentially stagnant, especially among 17-year-olds, our schools’ final products.
First, let’s examine per-pupil expenditures. The chart below, taken from table 174 of the federal Digest of Education Statistics, has a line for every state showing inflation-adjusted, current per-pupil expenditures between 1969 and 2004 (the latest year with available data). Obviously, you can’t pick out individual states, but I wanted to show that the overall trend for every state is upward. In addition, to help better put this chart into context, know that the average, per-pupil expenditure nationwide went from $4,060 in 1969 to $9,266 in 2004, a 128 percent increase. Also, the bottom line in the chart represents Utah, and even that state saw a 73 percent funding increase between 1969 and 2004. Finally, note that these are expenditures covering current costs, which exclude capital costs like building construction and maintenance, so the numbers do not reflect full educational expenditures.
Read the rest of this post »
Congressional ‘Oversight’
Here’s an excerpt from an interview with Sen. Arlen Specter (R-Pa.) about the new president’s outrageous spending proposal.
RAY SUAREZ: Has the president been too optimistic in your view on the number of jobs that could be created by a package?
SEN. ARLEN SPECTER: No, I don’t believe he’s been too optimistic. I’m prepared to accept his figures. I think the reality is that nobody knows with any relative degree of certainty.
We pick a figure, and it doesn’t have any scientific basis. I wouldn’t say that it’s picked out of the air, but that’s — that’s pretty close.
And some people believe we’d be in big trouble without career politicians.
How Much Booze Will $900 Gazillion Buy?
In this week’s edition of Wait, Wait, Don’t Tell Me, the NPR news quiz, host Peter Sagal quips:
After binging for a decade with money we don’t have, President Obama decided the only way out of the crisis is to spend almost $1 trillion we don’t have either. This is like curing a hangover by buying a distillery.
A Niagara Falls of Money — So What?
NPR’s Andrea Seabrook had a truly disturbing discussion with House Appropriations Committee chairman David Obey (D-WI) about the absence of earmarks in the non-stimulus bill.
SEABROOK (voice-over): Instead of Congress, hundreds and hundreds of public servants all over the country will decide how to spend the economic stimulus money . . . But when you pull earmarks out of the bill, you also change the balance of power in the government. If members of Congress aren’t writing into the bill how the money is to be spent, then someone else is making those decisions . . . When this bill passes, a Niagara Falls of money will flow out of Washington and into the accounts of state highway commissioners, governors and legislatures, local school boards, county executives, even mayors . . .
OBEY: We simply made a decision, which took about three seconds, not to have earmarks in the bill.
SEABROOK (voice-over): This is David Obey, the chairman of the House Appropriations Committee. He helped write this bill, and he does not like being asked about earmarks.
OBEY: And with all due respect, that’s the least important question facing us on putting together this package.
SEABROOK: Does that mean, though, that Congress will have less control and less, in fact, ability to say, “You spend it in the way we wanted you to spend it”—
OBEY: Of course it does. Of course it does. So what? This is an emergency. And so, with all due respect, we have got to simply find a way to get this done as fast as possible, and as well as possible, and that’s what we’re doing.
SEABROOK: Aren’t there a thousand ways that this money could be spent badly, though?
OBEY: There are a thousand ways it could be spent badly. There are a thousand ways it could be spent well. So what’s new?
SEABROOK: What’s new is that you’re not telling them how to spend it as much as you usually do.
OBEY: So what?
SEABROOK: Won’t you be responsible when it’s spent badly, then?
OBEY: No, the person who spends the money badly will be responsible. We are simply trying to build as many protections in as possible. We’ve got more oversight built into this package than any package in the history of man. If money is spent badly, we want to know about it, so we can hold accountable the people who made that choice. And guess what? Regardless of what we do, there will be some stupid decisions made.
Will be?
The entire story is worth a listen.
Putting Children First
Last week’s The Economist reported this regarding the bad blood between Turkey and Israel over the latter’s recent military incursion into Gaza:
An education ministry circular particularly annoyed Israel by telling Turkish schoolchildren to observe a minute’s silence in solidarity with Palestinian children. In the event, the Israelis persuaded the Turks to cancel a proposed essay and drawing contest for schoolchildren to air their feelings of hatred towards Israel. Israeli officials were apparently poised to respond by proposing a programme in Israeli schools for discussing the genocide of Armenians by Turks in the first world war.
I guess this is one of the many “wonders” of public schooling. You can take diplomatic rows to the classroom and teach your children how to distrust your neighbor.
The Incredible Growing Spending Bill
Headlines today tell us that Senate centrists are trying to trim the massive spending bill that President Obama is pressing for. They may even have found as much as $90 billion in cuts already. But remember: This snowballing kitchen-sink bill has already grown by more than $100 billion since it left the House. A cut of $90 billion would be less than 10 percent of its now gargantuan girth. It would leave the bill larger than the $819 billion monstrosity that passed the House, which would already be the largest spending bill in the history of the world. (Barney Frank may be right that the total cost of the Iraq war will end up being more than the cost of this liberal wish list — though right now it looks like a close race — but there were actually many separate authorizations for the war, so this remains the largest single spending hike.)
Can we afford this bill? No we can’t.
P.S. Don’t miss Charles Krauthammer, “The Fierce Urgency of Pork,” today:
It’s not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It’s not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.
It’s the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus — and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress’s own budget office says won’t be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.
Orange County Register Slams SCHIP
The Orange County Register editorializes on the State Children’s Health Insurance Program expansion that President Obama just signed into law:
Sure enough, as Jonathan Gruber of MIT and Kosali Simon of Cornell demonstrated in a recent paper for the National Bureau of Economic Research, six of every ten families enrolled in SCHIP in recent years already had private health insurance, meaning that subsidized insurance was crowding out private insurance. As Michael Cannon, director of health policy studies at the libertarian Cato Institute put it to us, “Only in government is a program deemed to ‘work’ when it covers four uninsured children for the price of ten.”
The other fallacy embodied in SCHIP (and other programs) is that providing health insurance is the key to improving the health of poor and near-poor children. Helen Levy of the University of Michigan and David [Meltzer] of the University of Chicago medical school have explored extensively the fact that improving health is more complex than generally acknowledged. It turns out that targeted programs, policies that lead to increased incomes and even improved education offer more bang for the buck than providing insurance.
Given all this, it is not difficult to imagine that the real reason to expand SCHIP is to crowd out private health insurance, and when families are faced with fewer and less affordable choices, they’ll opt for a government-run or “single-payer” system. As P.J. O’Rourke once warned us, however, “If you think health care is expensive now, wait until it’s free.”
I would say that increasing incomes, improving education, or targeted health programs may be more cost-effective than expanding access to health insurance. No one really knows, which makes adopting a one-approach-fits-all strategy like SCHIP rather foolish.
I think it’s time to induct the Orange County Register‘s editorial page into the Anti-Universal Coverage Club.
Week in Review: Stimulus, the Drug War and Partisanship
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Stimulus Debate Heats up in Senate
President Obama’s stimulus bill moved to the Senate this week where it is facing stiff opposition from Republicans. In its current form, the bill still lacks enough votes to make it to the president’s desk.
The Cato Institute placed a full page ad in newspapers nationwide showing that there is no consensus among economists about the stimulus plan. The ad features a statement signed by more than 200 economists, including Nobel laureates and other leading scholars who agree that the best way to boost economic growth is to lessen the burden of government. Each day, more economists continue to add their names to the online version of the ad. On Monday, a new version of the ad with more names will run in The Wall Street Journal.
Read Chris Edwards and Ike Brannon’s recent article in the National Post, “Barack Obama’s Keynesian Mistake,” to learn more about the economic principles underlying the stimulus plan.
You can also watch senior fellow Alan Reynolds discuss the stimulus plan on CNN, Fox News and listen to his latest interview on the false consensus for stimulus.
If you think the word “stimulus” is a misnomer given the actual contents of the bill, then you’re not alone. Cato executive vice president David Boaz and senior fellow Daniel J. Mitchell discuss why the plan should not be termed a “stimulus.”
If you run a blog or Web site and want to take a stand against this massive government intervention plan, go to cato.org/fiscalreality and click “Spread the word.” We have created an online widget that you can post on your Web site that will show your readers that you do not agree with the stimulus plan.
The Washington Post Magazine Takes Another Look at the Berwyn Heights Tragedy and the Drug War
In an article in The Washington Post Magazine, author April Witt recounts the day police stormed into the home of Berwyn Heights, Md., mayor Cheye Calvo on a botched drug raid, killed his two dogs and held him and his mother-in-law at gun point. Police said they conducted the raid because a package containing marijuana had been delivered to Calvo’s doorstep earlier that day. It was later found that Calvo had nothing to do with the suspicious package.
Over the past 25 years, police agencies throughout the United States have increasingly become militaristic, using no-knock raids to carry out routine police work. But how far is too far? In the Washington Post article, Witt cites a Cato paper, “Overkill: The Rise of Paramilitary Raids Across America,” in which former Cato policy analyst Radley Balko examines the increasing role of military tactics in domestic police work, especially when involving drug enforcement.
Calvo spoke at a Cato forum in September, where he told his story about that day.
In Mexico, the drug war has had an even worse outcome than in the United States. While the Mexican government attempts to quell the illegal drug trade, violence has broken out along the border. Signs indicate that it will only continue to get worse. In a new Cato policy analysis, vice president for defense and foreign policy studies Ted Galen Carpenter says the only way to slow the violence is to abandon the prohibitionist model of the drug problem.
“As long as the prohibitionist strategy is in place, the huge black market premium in illegal drugs will continue, and the lure of that profit, together with the illegality, guarantees that the most ruthless, violence-prone elements will dominate the trade,” Carpenter writes. “Ending drug prohibition would de-fund the criminal trafficking organizations and reduce their power.”
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Defense Spending Correction
In the podcast posted today on Cato’s main site, I say that it appears likely that Obama will accept a massive increase in defense spending foisted on him by the Pentagon for its FY 2010 budget. It did appear that way a week ago when I recorded the podcast. Bill Lynn, the Raytheon lobbyist Obama nominated to be Bob Gates’ number two at the Pentagon, had said as much, and I figured he knew what the administration was planning.
Turns out, he didn’t. Over the weekend, various news outlets reported that the Office of Management and Budget told the Pentagon to forget the $70 billion bump they hoped for, which would have brought non-war defense spending from about $513 billion to $584 billion, and accept a far smaller increase – about $14 billion, which is about what Pentagon plans called for before this gambit.
As I wrote here a couple months ago, the Pentagon, and the services within it, presumably hoped that they could present Obama with a fait accompli. If he ordered the Pentagon to roughly hold spending level, neoconservatives on the Hill and the Washington Post’s oped page could spin it as a cut and scream “surrender!” Bob Kagan, Max Boot, and others fell right into line.
Boot defends himself here by saying A. he doesn’t know enough about defense spending to know when FoxNews is misleading him, so it’s not his fault, and B. $584 is what the Joint Chiefs say they need to defend the nation, so it really is a cut. He asks, “Are Obama and his budget director prepared to say they understand the military’s needs better than the senior military leadership?” One would certainly hope so, given the concept of civilian control of the military. Boot is apparently unaware that the military organizations usually ask for what they think they can get and call it what they need.
Missing from all this discussion is a fact I only see hidden behind a subscription wall at Inside the Pentagon — the Obama team is going to increase the planned amount of spending over five years. Rather than the leveling off in defense spending that Bush administration had planned, the Obama administration plans to keep it growing mildly.
Hopefully that report is premature or the decision will be reconsidered — and historically these plans rarely hold up. The Pentagon’s budget should be drastically reduced. See the defense budget chapter of the Cato Policy Handbook for details. The bottom line is that it starts with restraint. Do less to spend less. That would avoid needless wars, which is the category of most of those we might fight these days, and the cost incurred by preparing for so many.
*I also say in the podcast that: “We spend more on research and development on new weapons systems than any other country other than China.”
I meant to say “We spend more on researching and developing new weapons than any other country spends on its entire military, other than China.”
Big difference.
Show Your Opposition to the Stimulus Plan
The Cato ad showing that there is no consensus among economists about the stimulus plan is still running in print and online publications nationwide. To spread the word even further, we’ve created a special widget that you can post on your blog or website.
We’re calling on all bloggers who agree that lessening the burden of government is the best way to boost economic growth to post the widget on your site.
It’s easy: Grab the code on Cato.org/fiscalreality by clicking “Spread the word.” Post it on your blog and let readers know where you stand on stimulus.
Deciphering the ‘Buy American’ Dispute
Many of you may have heard the argument that the United States already has Buy American laws, so therefore all of the whining about the provisions in the spending bill is nothing but bluster. Well, that’s not really an argument. That’s just the pep rally speech that Steel Caucus representatives give before sympathetic, unquestioning fans.
A short (but by no means complete) summary of Buy American laws might help give some perspective to the significance of the language in the spending bills.
Yes, since 1933, Buy American laws have been used to limit competition for government procurement projects to domestic firms. Under current law, there are general Buy American restrictions affecting all government procurement of supplies and materials for use within the United States. And there are even more restrictive Buy American provisions governing Transportation Department procurement rules for highway and related projects. In a nutshell, the language in the spending bill would subject its appropriations to the more restrictive Buy American process, while denying the waivers we currently grant to most major trade partners.
The “general” Buy American provision requires all “unmanufactured” products (essentially, raw materials) procured to be mined or produced in the United States and that all manufactured articles procured fit the definition of a “domestic end product,” which is an article manufactured in the United States from components, which are at least 50 percent (by value) U.S.-produced.
Those Buy American restrictions can be waived if any one of three conditions applies: (1) a waiver would be in the public interest; (2) the products are not available from domestic sources in sufficient quantity or of satisfactory quality, or; (3) the cost of using U.S.-made products is deemed “unreasonable.” Under the Federal Acquisition Regulations, “unreasonable cost” is defined as a situation where foreign supplies and materials are offered at a price that is six percent or more below the price of domestic supplies and materials.
The more restrictive Buy American provision governing Transportation Department procurement requires that all of the iron, steel, and manufactured products used be produced in the United States. The definition of U.S.-manufactured products is the same here as under the general Buy American provision, and the same thresholds for public interest and short supply waivers also apply. However, the unreasonable cost waiver is considerably different. Under this provision waiving the restriction on the basis of unreasonable cost requires that the total project cost (not the input cost) be at least 25 percent higher. That is an enormous cushion for domestic suppliers.
For example, under the general provision, a domestic supplier has to be mindful of the world price for steel. The domestic offer could be rejected in favor of a foreign supplier if there is more than a six percent price differential. But under the more restrictive Transportation Department provisions, the domestic supplier’s price is not even remotely disciplined by the potential of foreign participation in the bidding process because it is the total cost of the project—and not a competitor’s bid—that would trigger the waiver. So, if the steel in a highway project constitutes about 10 percent of the total cost of the project—say $10 million out of $100 million—then the steel price can rise from $10 million to $260 million before the project cost increases by 25 percent. Effectively, suppliers under the more restrictive Buy American rules can charge whatever they want to charge.
There is another set of waivers that are perhaps the most effective at ensuring some competition in the U.S. government procurement market. Under the Trade Agreements Act of 1979, the president is authorized to invoke the public interest waiver of the Buy American rules and exempt countries which reciprocally waive their own buy-local restrictions for U.S. firms. Those countries include signatories to the World Trade Organization’s Government Procurement Agreement or parties to U.S. free trade agreements (like the North American Free Trade Agreement) that contain full government procurement chapters.
The Buy American provisions in the recently-passed House bill and the still-pending Senate bill seek to apply the more restrictive Transportation Department rules to all public works projects funded by the legislation—with the exception that in the House version manufactured goods are excluded. Not only would the unrealistic 25 percent “unreasonable cost” waiver threshold apply, but the waivers granted to U.S. trade partners under obligation of international agreement would not apply. And that is why there has been so much resistance and opposition to this proposal from overseas.
Now we can properly assess the meaning of language inserted into the Senate bill last night. The amendment simply inserts the “assurance” that the Buy American provision will be “applied in a manner consistent with United States obligations under international agreements.” That is no doubt a subjective and therefore vague assurance. It doesn’t preclude the promulgation of new regulations that intend, but fail, to administer the law in a manner consistent with U.S. obligations under international agreements. It would be clear, objective, and reassuring to stipulate that the same waivers that firms in foreign countries enjoy now will be honored with respect to the appropriations authorized under the legislation. That would make things right with Canada, Europe, Mexico, Japan and about 12 other important trading partners, and the talk of trade retaliation would subside.But it still stinks for U.S. taxpayers (and will foster some ill-will abroad) because the U.S. government procurement market will be made even less accessible to suppliers from countries that are not signatories to the various procurement agreements. The more rigid cost waiver will exclude bids from, among others, Chinese suppliers of iron, steel, and manufactured goods (in the Senate version). And with low-cost suppliers of crucial materials effectively excluded from the process, U.S. suppliers will be less restrained in their cost proposals. And that means fewer projects, fewer higher, and more wasted resources.
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