Archive for August, 2011
Obama Jobs Plan to Push More K-12 Bloat?
In a recent interview, President Obama hints at the core of his much-anticipated jobs plan:
PRESIDENT OBAMA: what we do have, I think, is the capacity to do some things right now that would make a big difference …
TOM JOYNER: Like?
OBAMA: For example, putting people to work rebuilding our roads, our bridges, our schools all across America…
We’ve got the capacity right now to help local school districts make sure that they’re not laying off more teachers. We haven’t been as aggressive as we need to, both at the state and federal level.
So we haven’t been aggressive enough with our hiring at the K-12 level, hmm? Perhaps I’m an unusually timid sort, but the trend below looks pretty darn aggressive to me: k-12 employment has been growing 10 times faster than enrollment for forty years.
And the $300 billion question is: what impact has doubling the workforce had on the cost and performance of America’s public schools? According to federal government data, the answer is this:
We’ve nearly tripled the cost of sending a child all the way through the K-12 system, while performance near the end of high school has been stagnant (reading and math) or even declining (science). Just returning to the staff-to-student ratio of 1980 would save almost $150 billion annually—and somehow students weren’t performing noticeably differently in the ’80s than today.
And yet President Obama apparently wants more hiring and more spending. I wonder if voters will want more of President Obama if he indeed continues to flog the failed policies of the past two generations?
Federal Infrastructure Spending: How About This Boondoggle?
President Obama is planning to deliver a big speech on jobs and the economy. His wish list for Congress will likely include more government infrastructure spending. (Infrastructure spending is also on Rachel Maddow’s wish list).
So that citizens know what the president is talking about, they should review the success of the government’s past infrastructure projects. Here’s one to consider:
It’s the Yuma Desalting Plant in Arizona, built by the federal Bureau of Reclamation at a taxpayer cost of $245 million. After completing the plant in 1993, Uncle Sam said: “Whoops, we don’t need it after all.” The plant has sat idle for almost two decades, and taxpayers are getting hit for $6 million a year to maintain it.
It gets worse. The purpose of the Yuma plant is to reverse some of the environmental damage done by government-subsidized irrigation farming. As irrigation waters reflow back into Western rivers, they boost saline levels and can make the water useless for downstream users. The Yuma plant was supposed to desalinate some of the irrigation flow into the Colorado River, but the government spent more money to build a separate 73-mile canal to drain water straight to the ocean.
I imagine that irrigation farming makes economic sense in many places. The problem is that the federal government has vastly subsidized dams and irrigation infrastructure in the West without regard to economics or sound environmental practices. Check out the costly environmental mess created by federal irrigation subsidies in the San Joaquin Valley of California. Or consider the environmental problems in the Florida Everglades caused by federal sugar subsidies and Corps of Engineers infrastructure, which, once again, taxpayers are helping to pay to clean up.
Billions of dollars of infrastructure spending by the Bureau of Reclamation has gone into white elephant projects. Imagining that more federal infrastructure will be a panacea for the economy is a liberal fairy tale, detached from the actual experience of most federal agencies over the last century.
Wartime Contracting Report Provides More Evidence to Exit Afghanistan
Over the past decade, American taxpayers have lost as much as $60 billion dollars to massive fraud and waste in the nation building campaigns of Iraq and Afghanistan, according to a report released today by the Commission on Wartime Contracting. The independent panel confirms much of what we already know about rent-seeking in wartime; nevertheless, the panel details specific reconstruction projects and programs that display a stunning array of mismanagement:
- A modest $60 million agricultural development program in northern Afghanistan expanded to the south and east to the tune of $360 million. The cash-for-work program was intended to distribute vouchers for wheat-seed and fertilizer in drought-stricken areas. Today, the program spends $1 million a day. The panel reports, “The pressure to quickly spend the millions of dollars created an environment in which waste was rampant. Paying villagers for what they used to do voluntarily destroyed local initiatives and diverted project goods into Pakistan for resale.”
- During operations in Iraq and Afghanistan, waste and fraud averaged about “$12 million every day for the past 10 years.” [Emphasis in original];
- The Department of Defense (DoD) awarded an $82 million contract for the design and construction of an Afghan Defense University. Now, DoD officials say it will cost $40 million a year to operate—beyond the indigenous government’s ability to fund and sustain;
- The U.S. Agency for International Development, the U.S. Government’s main distributor of development contracts, funded the Khost-Gardez road project. Originally valued at $86 million it has since mushroomed to $176 million;
- The insurgents’ second-largest funding source is the U.S. taxpayer. Money for construction and transportation projects are diverted to the insurgency so Afghan subcontractors can pay them for protection. Of course, the insurgents use this money to buy bombs, IEDs, and other explosives to kill foreign troops and civilians.
The report goes on and on with examples that should disgust U.S. taxpayers. In addition, the report was released amid news that August 2011 was the deadliest month for U.S. service members, and 2011 shaping up to be the deadliest year for Afghan civilians. Despite the spin from warhawks, people in the region know the coalition has lost. Last year, the “Godfather of the Taliban,” Hamid Gul, the former head of Pakistan’s Inter-Services Intelligence agency, laid out in extensive detail why America has been defeated (for skeptics of withdrawal, it’s worth reading).
The United States has largely disrupted, dismantled, and defeated al Qaeda. America should not go beyond that objective by combating a regional insurgency or drifting into an open-ended occupation. We have endured enough with tens of thousands of people killed, injured, and traumatized, and billions of dollars wasted.
Mill, Constant & Macaulay 1; Lind 0
Jason Kuznicki is generous indeed to describe Michael Lind’s latest screed against libertarians and classical liberals as merely “uninformed.” Of the many absurdities in Lind’s piece, the one that caught my eye was his description of the Nineteenth Century trio of John Stuart Mill, Benjamin Constant and Thomas Babington Macaulay as advocates of “autocracy,” the only evidence he proffers for this view being that none of the three thinkers embraced current thinking about universal suffrage. That the fight against “autocracy” might historically have been a multifaceted affair fought on many fronts besides the extension of the franchise — involving issues of civil liberty, the rule of law, freedom of conscience, separation of powers, federalism, and curbs on arbitrary governance on which these thinkers wrote works still highly relevant today — does not restrain Lind from sloughing them all into a rhetorical pit better suited to de Maistre or Schmitt. Mill and Constant never get another mention, but Lind lingers to insult Macaulay as supposedly wishing “to limit voting rights to those who drink champagne and ride in carriages.”
Readers might never guess from this that perhaps the best known episode of Macaulay’s career as an orator in the British Parliament — the one that “made his name,” per Wikipedia — came with his speeches in favor of expanding the franchise in the historic Reform Act of 1832. (Not long before, his famous maiden speech had deployed every resource of eloquence on behalf of the cause of removing the civil disabilities of the Jews.) Lind’s “champagne and carriages” slur would be less than accurate even as applied to many of the hidebound Tories of the time. But to apply it to the best-remembered Whig advocate of a measure extending the franchise to ten-pound (middle-class) householders is — well, “uninformed” seems a bit mild.
It would be hazardous indeed for one’s sense of history to be shaped by perusing the writings of Michael Lind.
Ed DeMarco: A Rare Public Servant
I spend a lot of time pointing out government gone wrong. Sadly it doesn’t take that much effort. But occasionally you come across someone actually doing their job and trying to protect the taxpayer. As illustrated in today’s Wall Street Journal, Edward DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mae, is such a person.
Mr. DeMarco has continued to push back against repeated plans by the Obama Administration to use Fannie and Freddie as off-budget slush-funds (they seem to have forgotten such was one of the reasons we are in our current economic mess).
As I explained yesterday, by pushing back DeMarco is simply carrying out the law as it was both written and intended. It is particularly sad to see a former Obama Administration official, who now “teaches” law, complain about DeMarco missing the big picture. As if somehow the “big picture” empowers DeMarco to ignore the law. DeMarco showed his integrity by saying, “”If we’re not authorized to do it, that’s a dangerous place to be.” He’s absolutely correct. Although he should have just stopped at “not authorized to do it.”
After the lawlessness practiced by various financial regulators in 2008, it is commendable to see a true public servant reminding us that legislative decisions are the province of legislators, not regulators. If more regulators behaved this way, we would have avoided some of the mess we are now in.
Removing Melson Will Not Fix the ATF
The controversy over the ATF’s ill-conceived scheme to “walk” guns across the border with Mexico finally resulted in the removal of one high-ranking official: Acting Director Kenneth Melson. The U.S. Attorney for Minnesota, Todd Jones, will fill the position for now.
A quick review: ATF supervisors ordered agents to facilitate firearm sales to known or suspected “straw buyers” that intended to move the guns across the border and give them to drug cartels. Gun dealers in the U.S. reported the suspicious transactions to the ATF, expecting to cooperate in apprehending the gunrunners. As it turns out, the suspect buyers had disqualifying conditions that should have shown up in federally mandated instant background checks…but didn’t. The firearms trafficked across the border predictably showed up at crime scenes, including those involved with the murder of a Border Patrol agent, an ICE agent, a Mexican military helicopter shoot-down, and other murders on both sides of the border.
If you’re a private citizen, this sort of thing gets you 30 years in prison. If you’re a whistleblower within ATF, you get terminated. If you’re a supervisor responsible for such a scheme, you get promoted reassigned to ATF headquarters.
This ATF scheme broke numerous firearm laws, possibly the Arms Export Control Act, and facilitated multiple murders. The end result this litany of crimes and persistent ATF and DOJ stonewalling congressional investigations cannot simply be Melson’s removal and replacement with a DOJ official who may also have been complicit in the gun-running scheme.
Meanwhile, the multiple long-gun sale reporting mandate that I wrote about last year, which imposes conditions on gun dealers in border states in violation of federal law, has been implemented by the ATF. This was almost certainly one of the goals of the “gun control for the sake of Mexico” push we’ve seen for over two years, even though the numbers of private arms in cartel hands are far lower than we’ve been told, ATF efforts notwithstanding. ATF headquarters is throwing a party to celebrate the latest round of illegal action.
Melson’s departure is certainly warranted, but we’re a few indictments and many terminations short of justice, in my mind.
He’s No Libertarian
Dana Milbank of the Washington Post warns readers that “Rick Perry is no libertarian.” Good point. Now if only the Post had warned voters about Barack Obama back in 2007. And alas, Milbank could be kept busy for the next few weeks writing about presidential candidates who are “no libertarian.”
More Confusion, Now From the F.T.
Yesterday, the Wall Street Journal’s editorial endorsed IMF managing director Christine Lagarde’s call to recapitalize Europe’s banks. Today, the Financial Times’ leader, “Ugly truths from a bold Lagarde” showers Ms. Lagarde’s proposal with praise.
The F.T. speculates that “Perhaps Ms. Lagarde has seen the light with new advisers.” There is evidence to suggest that this conjecture is not true. In July 2011, when the IMF filed its Article IV consultation report on Mexico, the IMF made clear that increasing banks’ capital-asset ratios would act as a drag on Mexico’s money supply and economic growth. In consequence, the IMF counseled Mexico to call a “time out” on increasing banks’ capital-asset ratios. Contrary to the F.T.’s conjecture, the IMF (or at least important elements within the IMF) hold views that directly contradict Ms. Lagarde’s.
More on the Ex-Im Bank
But I realize that my recent call to “X Out the Ex-Im Bank” will be facing some very entrenched interests in Washington, and some well-funded lobby groups. The Bank has historically attracted bipartisan support, and a renewal of its charter sailed through the House Committee on Financial Services earlier this year. The Washington establishment loves this program.
My friend and long-time Ex-Im Bank supporter Gary Hufbauer of the Peterson Institute for International Economics published a critique a few weeks ago of my analysis, and calls for a doubling of Ex-Im’s authorization cap (from $100 billion to $200 billion). His piece is a fair characterization of my arguments, and at least Gary tries to counter them with actual facts and analysis (not always a given in an increasingly poisonous trade policy environment). But it seems to me that Gary focuses his critique on my assessment of the effectiveness of the Bank. That’s fair enough, of course, but I tried in my paper to make the point that the efficiency or efficacy of the Ex-Im Bank’s activities is kind of irrelevant. The important point, which Gary did not address, is that it is simply not the proper role of the federal government to be in this business at all, even if they can operate “efficiently” (which I do not concede in any case). Where in the Constitution is the federal government authorized to be involved in the export credit business (a business, by the way, that benefits mainly large, profitable companies)?
My opposition to the Bank, in other words, is at a more fundamental level. On an empirical level—and this is where Gary’s critique is focused—can markets work well enough in trade finance, and if not, can government intervention work better? Gary points to the Bank’s low default rate as evidence that private markets are missing good opportunities:
These figures suggest that the Ex-Im Bank plays a large role in facilitating exports to countries that encounter reluctance from private banks but nonetheless are not ‘bad risks.” Judging by its low default rate, the Ex-Im Bank’s risk assessment seems more correct than the private market.
But I would argue that its low default rate suggests the Ex-Im Bank’s backing is unnecessary. We don’t know that private credit wasn’t available to finance those exports. And even if it wasn’t, private credit not always being available on terms that the trading partners would like does not necessarily signify market failure. So a finance company missed an opportunity that may have paid out. So what? Maybe they had even better opportunities available to them that we (and bureaucratic Washington) don’t know about, or they simply wanted to hold on to their capital for future investment or to meet new reserve standards. The would-be exporter might miss out, but government intervention to direct that private capital (either through mandates, or siphoning it through the Ex-Im Bank) would come at another producer’s or bank shareholders’ expense.
Gary argues that:
Ex-Im’s capability should be strengthened so that the United States can respond when official finance offered by other countries violates the principles of fair competition…Successful multilateral negotiations…are certainly a superior option to tit-for-tat retaliation…[but]…without sufficient leverage…it is difficult to see what will bring China and India to the negotiating table.
But will China and India (and others) see higher Ex-Im funding as “leverage” to bring them to the table, or will it be seen as just the next step in the escalating arms race of subsidized export credit? I suspect, and fear, the latter.
Confusion over Confusion
On August 29th, I penned “Lagarde Confused, Again.” In it, I argued that Christine Lagarde, the new managing director of the International Monetary Fund, misdiagnosed Europe’s banking crisis.
Ms. Lagarde’s assertion that Europe’s banks “need urgent recapitalization” is based on faulty economics. While the higher capital-asset ratios that Ms. Lagarde extols are intended to strengthen banks (and economies), higher ratios destroy money and are “deflationary.” This is not what a struggling Europe needs. Indeed, higher capital-asset ratios imposed on Europe’s banks at this juncture would virtually ensure that Euroland would take another dive. In consequence, some of the banks that were made “safer” by Ms. Lagarde’s medicine would go to the wall.
Today, the Wall Street Journal‘s lead editorial “A TARP for Europe?” adds to the confusion by enthusiastically endorsing Ms. Lagarde’s prescription.
Federal Spending Hits $4.1 Trillion
If you looked at the new CBO report on the budget, you may have noticed that federal spending this year will be $3.6 trillion.
In fact, federal spending this year will top $4 trillion. But virtually all reporters and budget wonks (including me) routinely use the lower number when discussing total federal spending. I don’t think the higher $4 trillion number even appears anywhere in the CBO report.
The $3.6 trillion figure is “net” outlays. But “gross” outlays, or total spending, is quite a bit higher. The difference is caused by “offsetting collections” and “offsetting receipts.” These are revenue inflows to the government that are netted against spending at the program level, agency level, or government-wide level. Some examples are national park fees, Medicare premiums, and royalties earned on mineral deposits. There are hundreds of these cash inflows to the government that offset reported spending.
Details on these revenue offsets can be found in Chapter 16 of OMB’s Analytical Perspectives (pdf). In fiscal year 2010, net federal outlays were $3.456 trillion, but gross outlays were $4.057 trillion. Thus, gross outlays were 17 percent larger than widely reported net outlays.
In FY 2011, OMB expects gross outlays to be about 15 percent larger than net outlays. Thus, gross outlays this year will be $4.1 trillion, compared to net outlays of $3.6 trillion. As a share of GDP, gross outlays will be about 27.3 percent of GDP, compared to net outlays of 23.8 percent.
Accounting for offsets in this manner is a long-standing convention, but it is one of the sneaky ways that Washington tries to hide its large intrusion into the economy. Certainly, the CBO and OMB should include more prominent presentations of gross outlays in their regular budget updates.
For citizens and reporters, a rule-of-thumb to remember is that total federal spending is 3 to 4 percentage points of GDP larger than usually reported by officials.
Nearly Two-Thirds of ObamaCare’s Supposed Beneficiaries Think It Won’t Help Them
Here are a few takeaways from the Kaiser Family Foundation’s most recent monthly poll.
1. Nearly Two Thirds of ObamaCare’s Supposed Beneficiaries Think It Won’t Help Them.
ObamaCare‘s actual beneficiaries are politicians, government bureaucrats, insurance companies, drug manufacturers, etc.—but that’s another blog post for another time.
The law’s supposed beneficiaries are the uninsured. Yet 61 percent of them think the law will either not help them or will hurt them (see pie chart below). The main takeaway: Congress can repeal ObamaCare and its supposed beneficiaries won’t even care.
2. Some of the Uninsured Who Think ObamaCare Will Help Them Are Wrong.
One respondent said that under ObamaCare, you “can go to the doctor with no problems, unlike now you have to worry about insurance and bills.” Yeah. Good luck with that.
3. ObamaCare Is Less Popular than Ever.
In August 2011, support for ObamaCare hit an all-time low in the KFF poll:
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