Archive for February, 2011
Deconstructing the Spending Side of Obama’s Proposed FY2012 Budget
President Obama’s proposed budget for fiscal year 2012 has been released and there is lots of rhetoric in Washington about “budget cuts.”
At first glance, this seems warranted. According to the just-released fiscal blueprint, the federal government is spending about $3.8 trillion this year and the President is proposing to spending a bit more than $3.7 trillion next year. In other words, the White House is going beyond a budget freeze and is actually proposing to spend $90 billion less next year than is being spent this year.
That certainly seems consistent with my proposal to solve America’s fiscal problems by restraining the growth of spending.
But you won’t find a smile on my face. This new budget may be better than Obama’s first two fiscal blueprints, but that’s damning with faint praise. The absence of big initiatives such as the so-called stimulus scheme or a government-run healthcare plan simply means that there’s no major new proposal to accelerate America’s fiscal decline.
But neither is there any plan to undo the damage of the past 10 years, which resulted in a doubling in the burden of government spending during a period when inflation was less than 30 percent.
Moreover, many of the supposed budget savings (such as nearly $40 billion of lower jobless benefits) are dependent on better economic performance. I certainly hope the White House is correct about faster growth and more job creation, but they’ve been radically wrong for the past two years and it might not be wise to rely on optimistic assumptions.
Some of the fine print in the budget also is troubling, such as Table 4.1 of OMB’s Historical Tables of the Budget, which shows that some agencies are getting huge increases, including:
- 17 percent more money for International Assistance Programs;
- 24 percent more money for the Executive Office of the President;
- 13 percent for the Department of Transportation; and
- 12 percent more for the Department of State.
But these one-year changes in outlays are dwarfed by the 10-year trend. Since 2001, spending has skyrocketed in almost every part of the budget. Even with the supposed “cuts” in Obama’s budget, there will be:
- 112 percent more spending for the Department of Agriculture;
- 100 percent more spending for the Department of Education;
- 154 percent more spending for the Department of Energy;
- 110 percent more spending for the Department of Health and Human Services;
- 175 percent more spending for the Department of Labor; and
- 82 percent for the Department of Transportation.
And remember that inflation was less than 30 percent during this period.
The budget needs to be dramatically downsized, yet the President has proposed that we tread water.
But even that’s too optimistic. America’s real fiscal challenge is that the burden of government spending will dramatically increase in coming decades, thanks largely to an aging population and poorly designed entitlement programs. Barring some sort of change, the United States will suffer the same problems that are now afflicting failed welfare states such as Greece and Portugal.
On the issue of entitlement reform, however, the President is missing in action. He’s not even willing to embrace the timid proposals of his own Fiscal Commission.
Tomorrow, we’ll look at the tax side of the President’s budget.
The Pentagon’s Faux Cuts
President Obama might want it to appear as though he is reining in defense spending with his budget submission for FY 2012, but his approach to the Pentagon’s budget reveals the opposite.
Perhaps the president hopes that his adoption of the faux cuts that Secretary Gates put on the table last month will be seen as responsible. Perhaps he is taking a prudent first step and signaling to the military, and its suppliers and contractors, that the days of double-digit increases are over. That may be; but far deeper cuts are warranted. . If the president had truly wanted to send a signal, he would have followed the advice of his own deficit reduction commission and endorsed far deeper cuts in military spending.
The Department of Defense will spend $78 billion less over the next five years than previous projections. This amounts to a drop in the bucket — technically just over 2% — of total Pentagon spending over that period. Nonetheless, in Washington-ese, this constitutes a cut. But the base budget (excluding the costs of the wars in Iraq and Afghanistan) will increase — from $549 billion to $553 billion, the largest budget in the department’s history. In the past 12 years, the budget that has doubled in real, inflation-adjusted terms.
Deeper cuts should be made along with an effort to lessen worldwide defense commitments, reducing the strain on the force. It will be up to outside pressure — either from Congress or from interested groups outside of government – to force Washington to cease acting as the world’s policeman, and forcing other countries to take responsibility for their own defense.
Nonintervention: the New Isolationism?
Today, the Obama administration released its FY 2012 budget, and with it the Pentagon’s spending request. Regrettably, the Pentagon’s plan shows that the federal government’s 4th consecutive $1 trillion-plus annual deficit has not quelled an appetite for a continued quasi-imperial foreign policy that subsidizes a multitude of rich allies around the globe.
Unfortunately, if you argue against such a massive budget, you are immediately labeled an “isolationist.” Take the example of Senator Rand Paul’s (R-KY) crusade to cut the federal budget by $500 billion. Among many other substantive cuts, Senator Paul called for ending U.S. foreign aid around the globe. And when pressed, he included aid to Israel.
Aid to Israel represents less than one percent of his proposal, but the reaction was swift and immediate. The Senator was labeled a “neo-isolationist,” and condemned widely, while his argument for ending aid to Israel was not addressed. Benjamin Friedman wrote about this episode in the Daily Caller and presented his own arguments for ending aid to Israel.
Expanding on this theme, over at The Skeptics I have written a piece citing the vociferous attacks on Senator Paul as the latest example of modern conservatives—often of the neo-conservative variety—and liberals coming together to label anyone with a noninterventionist foreign policy outlook an isolationist:
Conservatism once was cautious, urged prudence, and emphasized fidelity to the Constitution. Conservatives saw responsibility as the flip-side of liberty, opposed the transfer society, and detested welfare dependence. On international affairs conservatives believed in defending America, not promoting social engineering overseas.
Liberals responded by tarring traditional conservatives as “isolationists.” Skeptical of joining imperial wars in the name of democracy, unwilling to risk American lives in dubious foreign crusades, and unenthused about transferring U.S. wealth abroad, traditionalists were treated as somehow disreputable. After all, progressive thought required turning Americans into warriors on behalf of a new global ethic.
Now neoconservatives toss the same epithet at conservatives who oppose promiscuous war-making and endless foreign aid. Never mind that many opponents of today’s hyperinterventionist foreign policy favor free trade, cultural exchange, liberal immigration, and political cooperation. If you do not believe in bombing, invading, and occupying adversaries and subsidizing allies, then you be an isolationist.
Click here to read the entire article.
Catholicism and Libertarianism
Here’s a poor, unsuccessful letter I sent to the editor of The Washington Post:
Michael Gerson’s claim that “Catholic social teaching is simply not libertarian” [“A Catholic Test for Politics,” Feb. 8], reveals that Gerson either does not understand Catholicism, or libertarianism, or both. Immediately thereafter, he cites many libertarian aspects of Catholic social teaching: “the necessity of limited government,” subsidiarity, respecting the human rights of “even illegal immigrants,” etc. When he claims that repealing ObamaCare or government funding for AIDS and malaria conflicts with Catholic social teaching, he ignores that government coercion is inherent in those policies. Is Gerson claiming that Catholic social teaching condones using violence or the threat of violence to heal the sick? Catholics who reject those policies do so because they want to heal the sick through peaceful, non-coercive means. They cast their lots with Christ – not Caesar, as Gerson recommends. Gerson should spend some time learning about libertarianism, from actual libertarians. I would be happy to arrange it.
Just another uninformed potshot from the columnist who sees libertarianism’s emphasis on limited government as “morally empty,” “anti-government,” “a scandal,” “an idealism that strangles mercy,” and guilty of “rigorous ideological coldness.”
Conservatives and Civil Rights
In my latest weekly posting on the Britannica blog, I take a brief look at conservative resistance to civil rights, from the early days of National Review to the latest CPAC kerfuffle:
In the 1960s and 1970s conservatives were bitter opponents of the feminist movement. . . . Phyllis Schlafly organized women to Stop the Equal Rights Amendment.
But in 2008 conservatives adamantly insisted that a mother of five, one of them a special-needs infant and another a pregnant teenager, could easily serve as vice president of the United States. “It’s a slam dunk. I think that people who are concerned about ‘How conservative is Mr. McCain’ are now going to say, ‘If he can make a choice of Sarah Palin, then he can be trusted with our conservative ideals,’ ” said Cathie Adams, Republican National Committeewoman-elect and president of the Texas Eagle Forum (founded by Schlafly), to the Houston Chronicle. Young conservative pundit Amanda Carpenter said it was sexist to question the ability of a busy mother to handle the White House, too.
Now the battle is over gay rights . . .
Why Hospital Price Quotes Are So Often Useless
A colleague forwarded me a letter his friend received from their local hospital. The friend needs surgery. His health insurance has a very high deductible, so he figured he would do some comparison shopping. He asked the local hospital to quote him a price. Here’s how the hospital responded:
[This] hospital typically charges between $2,360.45 and $22,290.74 for this procedure or service. This is an estimate only…
Our goal is to provide you with the most informed and accurate estimate of the cost of your treatment. If circumstances result in a final bill that exceeds this estimate by more than 20%, we will work together with you to resolve the balance.
For surgical services, the price quote does not include any physicians’ charges. The surgeon and/or anesthesiologist will bill you separately for his or her time.
That price range varies nine fold, or 11 fold if you count the additional 20 percent. Translated from Hospitalese into English, the letter essentially said:
Our hospital faces so little competitive pressure, we’re just going to blow you off.
If you do have your surgery here, don’t even think about complaining about the bill unless it exceeds $27,000.
Or even then.
The hospital noted — correctly — that “people react in their own individual way to surgery.” Those individuated reactions could easily lead to an 11-fold cost variation for the same procedure. That information is useful to a hospital. It is not useful to a patient who is trying to find the lowest-cost hospital.
One would expect hospitals (or ambulatory surgery centers) to find some way to cope with the uncertainty about costs and provide useful price information to patients. For example, hospitals could offer the same flat price for each procedure; the flat price would cover the higher costs of patients who experience complications. Or they could quote higher prices to patients who have risk factors associated with complications. While they’re at it, they could also include the physicians’ charges. In a competitive market, hospitals that didn’t do these things would lose customers to hospitals that do.
The problem is that most hospitals do not operate in a competitive market. Many states pass regulations that block entry by new hospitals. Government interventions from Medicare to the tax exclusion for employer-sponsored health insurance block the creation of health systems that face greater incentives to offer a single “package” price and to reduce the uncertainty associated with surgical complications. Those same interventions also encourage excessive health insurance, which reduces the share of patients who pay out of pocket for surgeries in this price range. That reduces the demand for useful price information.
Price transparency is not a problem for government, private insurance companies, or employers. They control the money, so they get all the price information they demand. If we want to give patients useful price information, we need to let patients control the money.
A Bone Is Nice. Actually, No.
After House Republicans’ weak first attempt at offering cuts to gargantuan federal spending — a proposal that included nary a flick at education-related outlays — and the Obama administration’s hinting that it would leave education totally untouched, there is a tiny bit of good news: Both the GOP and the administration are apparently willing to trim funding putatively intended to help educate people. But these are just tiny bones they’re throwing to people who know that the federal government likely does zero net good when it comes to actually educating people, and that there is no acceptable excuse not to make big cuts to federal “education” programs.
House Republicans, for their part, scheduled lots of education programs for shaves in their second attempt at making a reasonable budget proposal. All told, though, the cuts would amount to only about $4.9 billion out of a total Department of Education budget of about $63 billion. For those keeping track at home, that’s just a 7.7 percent cut.
Now, maybe that would be reasonable if ED-administered programs worked, but as we at Cato’s Center for Educational Freedom have laid out repeatedly, they do not. Overall, they pour money into already cash-bloated K-12 and higher education systems; insulate public elementary and secondary schools from ever having to compete for and earn their money; and fuel rampant college tuition inflation by constantly increasing aid that lets schools raise their prices with impunity. Perhaps the most telling sign that the House GOP is not serious about really cutting Washington down to size, though, is that the laughable Exchanges with Historic Whaling and Trading Partners program is not on their chopping block. If you won’t pick off this ridiculous, almost-on-the-ground-it’s-hanging-so-low fruit, you simply aren’t really trying.
For the Obama administration, while the details of their proposed cuts aren’t yet out, early Fox News reporting says the administration will propose cutting Pell-Grant spending by $100 billion over ten years. That’s a bit surprising, because President Obama has made getting as many people to graduate college as possible — regardless, sadly, of whether that means there’s actually greater learning – a key education goal. Moreover, constantly growing Pell has long been a way for federal politicians to demonstrate that they ”care” about educating all Americans. So, maybe, one cheer for the administration.
Unfortunately, as is often the case when it comes to budgeting, this might be a trick. An unnamed administration official reportedly told Fox that the administration will propose keeping the maximum Pell at $5,550 a year and would realize savings by ending year-round Pell eligibility. With year-round Pell, a student could get two grants in a calendar year for taking a regular academic-year load as well as summer school. According to the Fox News story, the ”official said the costs” of year-round Pell ”exceeded expectations and there was little evidence that students earn their degrees any faster.”
So why’s this potentially a trick? The budget experts could no doubt give you lots of reasons, but knowing education policy I can safely say one thing: It is far too early to say whether or not the year-round Pell would help students earn their degrees any faster. Why? Because year-round Pell was only instituted in 2008, much too recently to have any useful empirical data about its effect on graduation rates. It also seems likely that this will produce no savings regardless because students will still take Pell grants for the same number of total credit hours.
Of course, the main problem with Pell is that it enables schools to ratchet up their tuition rates, capturing all the aid and not making students any better off. Even bigger than this, though, is that almost certainly because spending on education plays so well politically, the administration is ignoring the same screaming reality as the House GOP: Federal spending on education does little if any educational good! Add to that the unconstitutionality of federal involvement and there is simply no acceptable argument – including a desire to “win the future” — for not eliminating federal spending done in the name of “education.” Indeed, if we want to win the future, ending bankrupting spending we know does zero good is absolutely imperative.
To Fix the Budget, Bring Back Reagan…or Even Clinton
President Obama unveiled his fiscal year 2012 budget today, and there’s good news and bad news. The good news is that there’s no major initiative such as the so-called stimulus scheme or the government-run healthcare proposal. The bad news, though, is that government is far too big and Obama’s budget does nothing to address this problem.
But perhaps the folks on Capitol Hill will be more responsible and actually try to save America from becoming a big-government, European-style welfare state. The solution may not be easy, but it is simple. Lawmakers merely need to restrain the growth of government spending so that it grows slower than the private economy.
Actual spending cuts would be the best option, of course, but limiting the growth of spending is all that’s needed to slowly shrink the burden of government spending relative to gross domestic product.
Fortunately, we have two role models from recent history that show it is possible to control the federal budget. This video from the Center for Freedom and Prosperity uses data from the Historical Tables of the Budget to demonstrate the fiscal policy achievements of both Ronald Reagan and Bill Clinton.
Some people will want to argue about who gets credit for the good fiscal policy of the 1980s and 1990s.
Bill Clinton’s performance, for instance, may not have been so impressive if he had succeeded in pushing through his version of government-run healthcare or if he didn’t have to deal with a Republican Congress after the 1994 elections. But that’s a debate for partisans. All that matters is that the burden of government spending fell during Bill Clinton’s reign, and that was good for the budget and good for the economy. And there’s no question he did a much better job than George W. Bush.
Indeed, a major theme in this new video is that the past 10 years have been a fiscal disaster. Both Bush and Obama have dramatically boosted the burden of government spending — largely because of rapid increases in domestic spending.
This is one of the reasons why the economy is weak. For further information, this video looks at the theoretical case for small government and this video examines the empirical evidence against big government.
Another problem is that many people in Washington are fixated on deficits and debt, but that’s akin to focusing on symptoms and ignoring the underlying disease. To elaborate, this video explains that America’s fiscal problem is too much spending rather than too much debt.
Last but not least, this video reviews the theory and evidence for the “Rahn Curve,” which is the notion that there is a growth-maximizing level of government outlays. The bad news is that government already is far too big in the United States. This is undermining prosperity and reducing competitiveness.
Budget Follies
Today POLITICO Arena asks:
Is the Obama budget a serious stab at deficit reduction? And do congressional Republicans have any credibility in knocking the budget plan since, other than Sen. Rand Paul (Ky.), they have not detailed many cuts that would seriously slice the deficit?
My response:
It’s Valentine’s Day and love is in the air, especially on Capitol Hill where Congress anxiously awaits the 10:00 a.m. arrival of the president’s FY 2012 budget. It should be well shredded by noon.
And as it is, across the land we’ll be hearing the cries of “Not me, please, not my sinecure” — no more plaintively than from the minions of the Corporation for Public Broadcasting. How will the average Chicago Bears fan endure without the latest BBC soap – excuse me, Masterpiece Theatre production?
But if that should come to pass, woe be unto those CPB congressional supporters who survived the November shellacking, the very ones who brought us to this sorry state by failing, for the first time in our history, to pass a single spending bill. Hell hath no fury like that of an NPR patron scorned.
Austrian Economics in the News
The financial crisis of 2008 led to a lot of unfortunate Keynesian and corporatist policymaking, but also to a renewed interest in Austrian economics and particularly to the Austrian theory of the business cycle and the role of the Federal Reserve in creating bubbles and busts. Austrian ideas are most recently examined on BBC and in the Washington Post.
Sales of F. A. Hayek’s book The Road to Serfdom have soared in the past three years, actually hitting no. 1 on Amazon last summer. The New York Times complained that Tea Party activists had “reached back to dusty bookshelves for long-dormant ideas [in] once-obscure texts by dead writers” such as Hayek, even as its reporters continually urged policymakers to Read. More. Keynes. A rap video on the intellectual battle between Hayek and Keynes, created by economist Russell Roberts and filmmaker John Papola, has been viewed almost 2 million times. A YouTube cartoon video on “quantitative easing” has done even better, with more than 4 million views.
And now Rep. Ron Paul’s appointment as chairman of the House subcommittee on monetary policy has brought new attention to the Austrian critique of orthodox economics and economic policy. A long article on Paul’s ideas and his plans for the committee by Annie Lowrey filled a full page of the Sunday Washington Post:
But Paul’s adversary is not only the Federal Reserve. It is also mainstream monetary economics itself. As a devotee of the Austrian school, whose luminaries include Friedrich Hayek and Ludwig von Mises, Paul stands firmly outside policymaking and academic circles, a point he enthusiastically admits. (The Austrian economists also often quibble with other libertarians, such as those at Cato.) His beef is not with how central bankers do their jobs; it’s with central banking itself.
“The Fed, rightly so, criticizes Congress for spending too much – but they make the money available to us!” he said. “It buys debt, keeps interest rates low, and sticks it to the people who want to save and make money. It is so unfair. And I think it is the first time in the history of the Fed that people realize it is not their friend. It just gives us booms and busts.”
The line about Cato is a little misleading. At our 28 annual monetary conferences and in our publications, we’ve presented the ideas of many Austrian economists, from our 1979 publication of two classic manuscripts by Hayek, A Tiger by the Tail: The Keynesian Legacy of Inflation and Unemployment and Monetary Policy: Government as Generator of the “Business Cycle” and our first monetary conference in 1982 featuring Fritz Machlup and Gottfried Haberler, to a 1999 issue of the Cato Journal featuring studies of Hayek and Ludwig von Mises, to a new Working Paper, “Has the Fed Been a Failure?” by George Selgin, William Lastrapes, and Lawrence H. White.
And don’t miss a recent BBC program, “Radical Economics: Yo Hayek!” Jamie Whyte spends 30 thoughtful minutes looking at Austrian views of boom and bust, with such guests as White, Papola, Steven Horwitz, Robert Higgs, and Robert Skidelsky.
It took the biggest bubble and crash since 1929 to revive the interest in Austrian economics, but at least now more people are studying the real problems with central planning, government intervention, and money manipulation.
Obamacare Defenders Grasping at Straw Men
Last week saw a splash of publicity for defenders of Obamacare’s constitutionality. First, Yale law prof Akhil Amar had a hyperbolic op-ed in the L.A. Times, prompting a thorough fisking by Tim Sandefur, Ilya Somin, and me (among others). Then Harvard law prof Larry Tribe (who has written for the Cato Supreme Court Review) had one in the New York Times. Here’s an excerpt:
Since the New Deal, the court has consistently held that Congress has broad constitutional power to regulate interstate commerce. This includes authority over not just goods moving across state lines, but also the economic choices of individuals within states that have significant effects on interstate markets. By that standard, this law’s constitutionality is open and shut. Does anyone doubt that the multitrillion-dollar health insurance industry is an interstate market that Congress has the power to regulate?
Well, actually, Prof. Tribe, you’re asking and answering the wrong questions, as I say in my letter to the editor that appeared in the Sunday Times:
First, this is indeed a “novel” issue for the Supreme Court: Never before has the federal government asserted the power to require people to engage in economic activity under the guise of regulating commerce.
Second, those challenging the law do not question Congress’s power to regulate the “multitrillion-dollar health insurance industry,” but rather distinguish such regulation from a command for individuals to purchase that industry’s products.
Third, the difference between activity and inactivity is anything but “illusory”; if Congress can regulate mere decisions, then it can tell me, for example, that I shouldn’t spend time writing letters to the editor.
And finally, imagining that Justice Antonin Scalia would support the government here because he previously ratified prohibitions on the production and consumption of marijuana is to remove the very activity-inactivity distinction that he recognized in that earlier opinion.
Most recently, the Times itself editorialized against the views Randy Barnett presented to the Senate Judiciary Committee — and Randy replied here.
Setting aside the issue of why Congress is only now getting around to holding hearings on the constitutionality of a fundamental piece of legislation it passed nearly a year ago, it’s clear now at least that the proponents of limitless, extra-constitutional government are running scared. Obamacare delenda est.
The Federal Government’s Police Power
Last week, after I responded to Akhil Amar’s op-ed that defended, in an uncharacteristically unthoughtful and ad hominem way, the constitutionality of the individual mandate, a reader suggested that Amar’s argument — particularly that “breathing is an action” that Congress can regulate — reminded him of that Police classic, “Every Breath You Take.” What’s ironic about this suggestion, perhaps inadvertently, is not only the invocation of “breathing” but that the whole Obamacare battle boils down to competing views of federal power: Does the government have a general “police” power or is its authority limited to that finite set of powers listed in the Constitution?
And so, without further ado, here’s how the song would look updated for 2011′s favorite constitutional debate (with apologies to Gordon Sumner aka Sting):
Every breath you take
Every move you make, or
Decide not to take
Even when you flake
We’re mandating youEvery single day
Every word you say
Every game you play
Even if you stay
We’re coercing youO don’t you fuss
You belong to us
How we regulate every step you takeEvery move you make
Every vow you break
Every smile you fake
Every claim you stake
We’re mandating youThe Constitution’s lost without a trace
Since ’37 we go every place
Limits on government you can’t replace
Got rid of those so we’re always in your face
We’re commanding you, no saying pleaseEvery move you make
Every vow you break
Every smile you fake
Every claim you stake
We’re mandating you
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