There has been some good analysis of this week’s much-hyped agreement between the U.S. Treasury Department – which facilitated the meeting, we are told, but didn’t use any form of coercion – and mortgage lenders to bail out assist homeowners in danger of being slammed with a much higher monthly payment on their subprime mortgage come January. But there are some elements of the deal that haven’t been greeted with much skepticism – or, indeed, haven’t been reported much at all.

For starters, Treasury secretary Henry Paulson insists the agreement won’t cost taxpayers money. What he really should have said is that it won’t cost federal taxpayers money. But it might cost state taxpayers money. The White House will push Congress to let state governments issue tax-free bonds to fund programs that help homeowners refinance their mortgage. Those bonds have to be paid off by taxpayers some day. I usually like federalism, but this is not the sort I’ve grown to love.

Another part of the deal is to allow the Federal Housing Administration to expand its programs and help refinance 200,000 mortgages. As Paulson reminded reporters, the administration is asking Congress to increase the ceiling on the amount of FHA loans and lower the down-payment requirements to below the current rate of 3% of the home price. And here I was thinking big loans that were handed out with little or no money down were part of what got us into this problem in the first place. Silly me.

Nor is it really clear that the administration’s approach here won’t actually cost federal taxpayers money, either. The proposal allows the FHA to charge loan insurance premiums based on risk, like private lenders do. Currently, all FHA mortgage holders – at a high-risk of default or not – are charged the same amount.  You realize this is a much-needed change when you discover that currently the FHA is running deficit of $143 million because so many of its loans have gone bad and the premiums it collects from all loans isn’t enough to cover the losses. But, as Bloomberg News reports, the post-refinancing default rate of the subprime loans that the White House now wants the FHA to play with could be between 40 to 60 percent.  Taxpayers might get stuck paying for these loans after all.

The implicit theme of these proposals is that Uncle Sam might just be better at this mortgage business thing than the private sector. I guess it might be tiresome to insert a joke here about the U.S. Postal Service, eh?

We’re from the Government, and We’re Here to Help You Buy a House is a post from Cato @ Liberty - Cato Institute Blog

In today’s Washington Post, columnist David Ignatius takes Congress to task for its failure to pass the appropriations bills – and not just this year but almost every year since 1977.

“The talk among some of my government buddies this week was an obscure term of federal budgeting known as a “continuing resolution.” This is what Congress passes when it hasn’t gotten its act together to pass a real appropriations bill before the start of a new fiscal year. The ‘CR,’ as it’s known, allows agencies to continue operating at the same spending level as the previous year. But it plays havoc with normal management functions such as planning and contracting.”

“[University of Maryland political scientist Roy T. Meyers] summarized the inefficiencies that result from having to run an agency without knowing your budget. ‘When regular appropriations are delayed, uncertainty about final appropriations leads many managers to hoard funds; in some cases, hiring and purchasing stops.’” [Emphasis mine.]

I don’t really have a problem with Congress getting very little done.  And I kinda like CRs, especially if they last all year.  Those sorts of CRs dramatically limit spending, as evidenced by the just-lapsed fiscal year. The budget won’t grow until Congress passes all the appropriations bills.  That’s probably what Ignatius and his “government buddies” don’t like.

When Congress passes a CR, it’s wrong to say that an agency head won’t know what his likely budget will be.  He knows exactly what it will be: last year’s spending level.  This simply means managers have to live within the constraint of a budget that isn’t higher than last year’s.

Of course, businesses have to deal with this sort of thing all the time when their profits dry up.  Perhaps it should be no surprise to the cynical that government bureaucrats – who have a guaranteed “customer base” (read: taxpayers) because anyone who doesn’t “buy” their product (read: tax evaders) can be arrested – don’t like to deal with it.

Why a Government Spending Freeze is Incomprehensible to Bureaucrats is a post from Cato @ Liberty - Cato Institute Blog

Further to Dan’s post below, here’s the McClatchy story arguing that President Bush is the biggest spending president since LBJ. The article got lots of notice — probably because it was linked on the Drudge Report for most of Wednesday. 

The story is mostly old news — I’ve been making the same point for years. But, because it is based on updated data that I provided to the reporter, I’m happy to see the message ripple through the news cycle.

Clearly, the folks at IBD aren’t happy with the McClatchy story. They describe the notion that Bush can be called the biggest spender since LBJ as a “dishonest argument.” Their editorial in today’s edition points out that this claim is based on annual growth rates. That’s true, but the authors go on to say that a better measure of whether a president is a big spender or not should be based on how large government is as a share of GDP.

Funny thing is, I agree with them, and I’ve made that point before. But the argument the IBD editorial makes is misguided. (I won’t stoop to calling it “dishonest.” I don’t allege they deliberately falsified data, something that would obviously be dishonest in every sense. But calling the argument I’m making “dishonest” — well, them’s fightin’ words!)

To illustrate their point, the IBD editors published a chart detailing the average burden of government spending as a percentage of GDP by president. By this measure, George W. Bush has presided over an average spending burden of 20% of GDP during his time in office to date. That puts him around the middle of the presidential pack over the past 40 years.

That may not seem so bad. But a president who reduced government spending from 30% of GDP to 10% over his term in office would get the same ranking as Bush. So would a president who increased spending from 10% to 30%. Wouldn’t we call the latter a big spender and praise the former? Yes, we would and should.

What really matters here is the direction of the change. George W. Bush will likely leave office with a government spending burden higher (around 20%) than it was when he came to office (18.5%). That’s the way things trended in his first six years. Presidents Reagan and Clinton, on the other hand, presided over drops in the spending burden by this measure.

What’s stunning is how much smaller the federal spending burden would be if Bush and the Republican-controlled Congress had not drastically expanded all variety of domestic programs. If non-defense discretionary spending had simply increased at the rate of inflation and the Medicare drug benefit hadn’t been adopted, the spending burden would be around 18.5% today, just about where it was when President Bush assumed office in 2001. It would have been even lower if the president and Congress had cut some spending when they had the chance.

If signing into law every appropriations bill that crossed your desk in the first six years of your presidency — thereby allowing the federal budget to grow faster than the U.S. economy during those years — still doesn’t make you a big-spending president, I don’t know what would.

Bush IS a Big Spender, Pt. 2 is a post from Cato @ Liberty - Cato Institute Blog

Tuesday night’s CNBC/MSNBC Republican candidate debate showed those of us who still value limited government the extent of the GOP rebuilding process to date — a preview of what Republicans would stand for in a post-Bush world.

The top-tier candidates avoided the crass populism some of the second-tier candidates favor and defended free trade instead. It also seems that the candidates have at least learned something from the electoral trouncing last year since each of them ran screaming from the wreckage that is the GOP spending record of the past six years.

Yet each candidate seemed unwilling or unable to enunciate a coherent view of what the role of government should be in a free society. The support for free trade was saddled with an incongruous quest for an unachievable and nebulous “energy independence.” The promises to “control” health care costs were mostly uninfluenced by the notion that it was government meddling that caused the problems in the first place. Even a tepid endorsement of a private-account solution to the impending bankruptcy of Medicare and Social Security was nowhere to be heard.

Some limited-government conservatives might have been slightly reassured by the look of the GOP future on Tuesday, but I’m sure many were left wanting, too.

[A version of this post originally appeared in a National Review Online symposium today.]

The Future of the GOP? is a post from Cato @ Liberty - Cato Institute Blog

In today’s Wall Street Journal, Vice President Cheney presents a friendly rejoinder to Alan Greenspan’s recent comments about the fiscal profligacy of the George W. Bush years. In it, Cheney notes:

On the spending side of the ledger, I can’t dispute Alan’s general notion that the federal government is too big and spends too much money–we’ve agreed on that point since we both worked in the Ford administration more than 30 years ago. President Bush feels the same way, and that’s why he has steadily reduced the annual rate of growth in non-security discretionary spending.

The key here is to notice that Cheney is only referring to “non-security discretionary spending.” What Cheney wrote isn’t necessarily wrong. But to make it true, you need to ignore all spending on entitlements (like Medicare and Social Security), everything the Pentagon does, and interest payments on the national debt.

What you’re left with is a very small slice of the budget. About 13%, actually. Asking Greenspan to grade the president using only this very narrow criterion is like asking your college to re-compute your graduation-day GPA using only four of the classes you took.

Why ignore the rest of the budget? After all, the Bush administration did have a hand in expanding many parts of it – the Medicare drug benefit is Exhibit A. Nor is everything the Pentagon does related to the operations in Iraq and Afghanistan. And the rising costs of the national debt are a result of the GOP’s unwillingness to cut spending in the face of deficits.

So, what if we put everything back into the mix except the money spent on the Department of Homeland Security, the security-related functions of other federal agencies, and the operations in Iraq and Afghanistan? (The last of these has been estimated by the Congressional Budget Office as recently as January of this year.)

Doing that, you’ll notice the growth rate has not declined steadily. In fact, as you can see in the chart below, the rate has jumped all over the place. It never went below 3% and, thanks to election-year spending sprees, sometimes went as high as 9%. The average annual growth rate since 2001 was 5.8% — faster than the average annual growth of GDP during that period (4.5%) and almost twice inflation (3%).

Looks to me like Alan Greenspan is on the right side of this fight.

Refereeing the Cheney-Greenspan Debate is a post from Cato @ Liberty - Cato Institute Blog

The big surprise in the Congressional Budget Office mid-year budget estimates released today isn’t that the year-to-year deficit shrank again.  Or that the long-term liabilities in Medicare and Social Security continue to impend. 

The surprise is that federal spending will only grow about 3% in the current fiscal year that ends this October.  That’s a big improvement over the annual average 7% growth we’ve seen since the first day of the George W. Bush presidency.

How did that happen?  Those familiar with my previous research will probably not be surprised to hear that the new political reality – divided government – has something to do with it.

True, agriculture subsidies are lower this year as a result of higher crop prices.  And the run-up in spending on a variety of programs in 2006 – like the payouts on flood insurance policies after Hurricane Katrina – was temporary.  The most remarkable factor in the trends, however, is that non-defense discretionary spending has been frozen for the first time since the maiden budget of the “Republican Revolution” Congress.  (If the trends CBO estimates hold for the remainder of the year, such spending might actually decline by $1 billion.) 

Sure, part of this is also the result of a decline in spending on federal Katrina relief.  But there’s something else going on, too.  Earlier this year, the new Democratic Congress decided to put the federal budget on auto-pilot until October.  Instead of passing new appropriations bills to fund the government for the entire year, they passed what is called a “continuing resolution” to keep the government operating. 

This didn’t happen because the Democrats were all that interested in spending less money.  They just wanted to get the old budget work left to them by the outgoing Republican Congress off the table so they could get on with more ideological-base-friendly legislation, like the minimum wage increase.  And the Democrats knew that the president might finally start vetoing legislation, too.  A protracted battle over the budget wasn’t something they wanted to spend their energy on in the first half of the year.  Thus, the auto-pilot continuing resolution: a piece of legislation that keeps the government running at basically the inflation-adjusted level of the previous year. 

With the White House veto strategy finally a credible threat*, it looks like we might have a similar sort of outcome on spending this year, too.  Isn’t divided government wonderful? 

Finally, Some Not-So-Bad News on the Budget is a post from Cato @ Liberty - Cato Institute Blog

In Wednesday’s OpinionJournal.com Political Diary, John Fund writes that House minority whip Roy Blunt told reporters that he believes President Bush will deliver on his threat to veto the budget bills currently working their way through Congress. And with enough Republicans on record agreeing to uphold the veto, Blunt suggests we might end up witnessing a government shutdown later this year.

As you might recall from the mid-1990s, a federal government shutdown does not mean that every federal agency stops whatever it is they are doing. It’s only the non-essential ones that grind to a temporary halt – and, yes, there is an official definition of what constitutes essential government functions: mainly law enforcement and defense. That Congress continues to fund everything else is what keeps policy wonks like me busy.

Maybe Blunt’s statements are the opening gambit in a political game of chicken. There might be little interest in a government shutdown among the Democratic leaders in Congress. So the follow-up to an upheld Bush veto would likely be a compromise stop-gap measure (like a “continuing resolution” that puts the government on auto-pilot for the rest of the fiscal year) that results in much less spending than would otherwise occur in the course of an unimpeded appropriations cycle.

In either case, those of us who prefer divided government might have another example to add to our growing “Great Moments in Gridlock” list.

Another Government Shutdown? is a post from Cato @ Liberty - Cato Institute Blog

One of the behind-the-scenes initiatives of President Bush’s budget staff the past six years has been something called the Program Assessment Ratings Tool (PART) analysis. It’s an effort to measure the “effectiveness” and “efficiency” of nearly 1,000 federal programs. Each program is graded on how well it achieves its “goals,” with marks ranging from “effective” (the equivalent of an A grade) to “ineffective” (the equivalent of an F grade).

In Tuesday’s Investor’s Business Daily op-ed section, Ernest Christian and Gary Robbins take a look at the results to date of the effort:

Congress is about to wave its wand over nearly $1 trillion of additional “discretionary” spending that will, among other things, perpetuate or increase funding for nearly 500 expenditure programs that are not even “moderately effective,” according to the Office of Management and Budget. This includes more than 200 expenditure programs that have failing grades of D or F.

By our calculations, the OMB study, called Program Assessment Ratings Tool (PART), further reveals that on average more than half of all federal expenditure programs are falling about 50% short of their stated goals.

This means that out of every dollar spent, 50 cents may possibly be accomplishing something worthwhile, but the remaining 50 cents might as well have been poured down a rat hole. In these cases alone, the cost of government incompetence is over $250 billion per year.

The list of programs with the lowest grades might make any supporter of limited government point wildly and say, “Told you so!” This rogue’s gallery includes the Department of Housing and Urban Development’s pork-filled Community Development Block Grants, the Department of Education’s Even Start literacy program, and Amtrak.

But what about the ones that received the equivalent of an A or B grade – those programs that are “effective” or “moderately effective”? That list includes homeless assistance grants, agricultural export subsidies, Indian housing loan guarantees, the non-insured crop assistance program, and corporate welfare programs like the Trade and Development Agency which subsidizes overseas demand for the products of various corporations.

The main activity these programs are really “efficient” at is spending your money in new and interesting ways on things they shouldn’t be spending your money on in the first place.

Take the non-insured crop assistance program, for instance. This program subsidizes farmers who aren’t holding a federal crop insurance policy in the event of a crop-damaging natural disaster. What did it do to earn the honor of being listed as “moderately effective”? It became very good at increasing the number of crops eligible for subsidies.

Sure, knowing when the government is losing money to fraud or mismanagment is important. But it makes more sense to determine whether these programs should exist at all before deciding what they should be “efficient” at doing. Besides, an efficient but unjustified wealth-redistribution program might actually be worse than an inefficient one. The former will likely be better at finding innovative ways of expanding the scope of its operations.

Slapping the “efficiency” label on certain federal programs is a bit like putting lipstick on a pig. You can dress up Leviathan, but it’s still Leviathan.

Is Efficient Government A Good Thing? is a post from Cato @ Liberty - Cato Institute Blog

From a column on tax reform by Floyd Norris in today’s Times:

“Senator Ron Wyden, Democrat of Oregon, has traveled around to promote what he calls a Fair Flat Tax Act, which is basically an attempt to go back to what Mr. Reagan enacted. It would get rid of many deductions — but save some of the more popular ones, like retirement savings accounts and mortgage interest — and have three tax brackets, of 15, 25 and 35 percent.” [emphasis mine]

How I Learned to Read the New York Times While Simultaneously Scratching My Head is a post from Cato @ Liberty - Cato Institute Blog

A commentary from Jeff Birnbaum of the Washington Post aired on American Public Media’s Marketplace yesterday.  The topic was the evolving alternative to earmarks, what Birnbaum calls “phonemarks.” 

Here’s the basic idea (from the transcript available at the Marketplace website):

Eager to avoid the bad publicity of legislative earmarking, lawmakers are secretly calling or writing bureaucrats and demanding that they fund their pet projects by fiat. These projects-via-telephone, or “phonemarks,” are the hottest new gimmick on the Washington scene.

Executive branch officials can dole out millions of dollars with impunity. And they avoid the scrutiny of the public, since they are done quietly and without any disclosure.

Earmarks actually have to be written down in a public law. Phonemarks, on the other hand, are accomplished through bureaucratic sleight-of-hand and nobody but the lawmaker and the bureaucrat need to know for sure.

My preferred descriptor is “Tony Soprano earmarks.”  As I wrote in a January 22 column for Business Week:

Even if transparency leads to fewer earmarks, there are no promises these projects won’t reappear in other ways and other places. The congressional budget process is nothing if not a game of reinvention. You could call spending items Happy Funtime Projects instead and sock them away in another part of the budget, but they will remain the coin of the realm on K Street.

Of course, Congress could simply give a bucket of money to an agency with no strings attached. But then a member of the Appropriations Committee would write a letter to the department head suggesting something like: “Gee, wouldn’t it be nice if Project X got some of this pot of money?”

Can you really blame a government department head who reads a letter like that—from a member of Congress who controls his budget and oversees his agency—and obliges? It would strike anyone in that position as similar to Tony Soprano saying to the corner grocery store owner: “Nice little place you got here. Damn shame if anything were to happen to it.”

Now for a secret.  The big problem in Washington isn’t earmarks.  They’re just a symptom of the real problem: policymakers who believe the federal government should be all things to all people.  Pork projects – disclosed or not – are inevitable in such an environment no matter what you call ‘em.      

Tony Soprano Earmarks is a post from Cato @ Liberty - Cato Institute Blog

My new Cato policy analysis goes into great detail about how the federal government uses your tax money to subsidize businesses.  In fiscal 2006, the “corporate welfare state” cost $92 billion, all of which funded programs that provide unique benefits to particular companies or industries.

One of these programs is the Rural Utilities Service (RUS).  A relic of the New Deal, the goal of the program was to electrify the countryside.  Now that reading by candlelight in the boonies is a thing of the long forgotten past, the RUS has morphed into a fountain of cash for rural electricity co-ops. 

As a story on the front page of this morning’s Washington Post highlights, it’s always easier to create a program than to kill it:

The key to the longevity of the Agriculture Department’s programs for rural utilities has been the [electricity co-ops'] powerful political voice. More than 30,000 members gave an average of $41 last year to the co-op association for political contributions. Given their geographic scope, the co-ops can mobilize letter-writing campaigns across a vast number of states and congressional districts.

To learn more about the corporate welfare budget generally, tune in to my live interview on Bloomberg Radio’s “On the Economy” today at 6:30 pm Eastern.  A podcast about the corporate welfare state will be featured on the Cato website on Tuesday.   

Uncle Sam: Electrician is a post from Cato @ Liberty - Cato Institute Blog

Washington, D.C., mayor Adrian Fenty released his proposed budget last week.  Titled “Moving Forward Faster,” it’s an example of the sort of thing you’d expect from a D.C. mayor who is quite fond of the nanny state.

To avoid having to read the entire document yourself, here’s the punch-line:  Government spending – that is, expenditures financed by locally-derived revenue, not federal transfers – grows by a proposed 8.8 percent.  By way of comparison, the city’s budget under Mayor Anthony “Baseball” Williams grew by an annual average of 7.5 percent.

But the large increase can be explained by a growing DC population, right?  Nope.  The most recent Census numbers show that the city’s population fell between July 2005 and July 2006.  Even if fewer people flee to Virginia or Maryland this year – or even if more people start actually moving in the opposite direction – it’s virtually impossible that the population growth figures will spike by nine percent.  Average annual population growth since 2003, for instance, hasn’t even come close to breaching the one-percent mark.

Fenty describes his budget proposal as “fiscally conservative” in his transmittal letter to the DC Council.  Yet maybe we shouldn’t ridicule him for that.  Since he’s operating in a city where a Republican president who spends taxpayer money almost as fast as Lyndon Johnson also calls himself “fiscally conservative,” perhaps the mayor is just mimicking the local custom.

Moving (Government) Forward Faster is a post from Cato @ Liberty - Cato Institute Blog

True to form, Congress has added some non-defense items to the current “emergency” supplemental spending bill that was proposed mainly as a way to fund the troop surge in Iraq.  Among my favorites (as reported in this chart – subscription required – in today’s Congressional Quarterly):

* $1.8 billion in crop subsidies

* $283 million in price supports for milk producers

* $74 million for “peanut storage” subsidies

* $25 million in aid to spinach growers who lost money during the 2006 contamination scare

The Emergency Du Jour is a post from Cato @ Liberty - Cato Institute Blog

JetBlue CEO David Neeleman issued a mea culpa yesterday in an attempt to explain why hundreds of JetBlue passengers were stuck in nine of their planes on the tarmac at John F. Kennedy International Airport for six hours last week.  He partly blamed a “shoestring communications system” that was insufficient to assist airline managers during the confusion caused by a massive ice storm.

That’s not the whole story, although you wouldn’t know if from reading most news reports of the incident.  It turns out that Federal Aviation Administration regulations had a role, too.  The FAA presides over a system of rules that virtually guarantees flight delays by encouraging pilots to stay on the tarmac instead of losing their place in the take-off queue.

As Scott McCartney of the Wall Street Journal reports today (subscription required):

Part of the problem is that airlines, pilots and often passengers are reluctant to throw in the towel. Planes wait in line hoping for a break in the weather. And wait. And wait . . .

The FAA’s air-traffic-control system can penalize flights that go back to a gate, even for a temporary bathroom break. Air-traffic controllers generally take flights first-come, first-serve, unless the airline can badger officials into giving a flight higher priority, or trade places in line with another of its own flights.

Indeed, last month a JetBlue flight ended up on the ground for eight hours at JFK because it returned to the gate and then was required to file a new flight plan, the FAA says.

It’s enough to make you wonder if there is a better way to allocate take-off and landing slots at our nations airports.  And, indeed, there is.  Nobel economist Vernon Smith has proposed an auction system that, like the stock market, would allocate scarce resources – like the use of a runway – much more efficiently than current practices.

As Smith explains in a 2002 interview with Reason magazine:

We’re doing work on creating a market for the exchange of landing and takeoff slots at airports. In normal circumstances, those rights have been fully allocated among the airlines at a given airport. But let’s say a bad weather front moves in, so there’s a ground delay. They’ve been doing maybe 60 landings and takeoffs per hour, but now they’ve got to reduce that to 30. What airports tend to do is just stretch out the existing schedule, which leads to cancellations and other problems. What you need is a market mechanism so that the flights that have higher priority get out. What would be a higher priority? Bigger planes, probably, but also full planes and planes with a lot of passengers who have connecting flights.

Suppose we’re talking about planes leaving LaGuardia in New York. If a plane’s going to Los Angeles, it’s probably the final destination for a lot of the passengers. Planes going to Chicago or Dallas probably have a lot of passengers who are catching connecting flights. Maybe those flights should have a higher takeoff priority in bad weather. In any case, you need a market mechanism where the airlines can compensate one another-and their passengers-to cancel their flights and trade takeoff slots.

The power of market forces unleashed by federal deregulation of the airlines has put air travel – once a luxury – within the reach of virtually everybody. Now perhaps it’s finally time to deregulate the act of actually taking off. 

Travelin’ (Jet) Blues is a post from Cato @ Liberty - Cato Institute Blog

The White House has been spinning reporters all day with the claim that the new budget holds non-defense spending down, and in some cases even cuts some domestic spending from 2006 budget levels. 

To test the claim, I’ve compiled below the proposed fiscal 2008 inflation-adjusted growth rates for spending in the non-defense Cabinet-level agencies compared to the 2006 budget:

All told, there are five agencies that receive a cut in real dollars: Agriculture, Education, HUD, Justice, and the Environmental Protection Agency. Yet even by the White House’s own numbers, all of these programs combined will still grow beyond the 2006 levels by 4 percentage points above inflation. 

Still, we need to wonder: What does this standard really tell us? 

Not much. The 2006 budget levels were already bloated after a six-year Republican spending spree. What’s actually interesting to see is how much these agencies would grow — after adjusting for inflation and assuming Congress rubber-stamps the president’s new budget — when compared to budget levels on the day Bush assumed office: 

To put it another way: Bush’s new budget still does next to nothing to strip away most of the massive budget increases in domestic programs he signed into law since 2001. It’s the fiscal equivalent of a recovering alcoholic patting himself on the back for merely drinking six beers a day instead of eight.

Some Perspective on the President’s Budget Request is a post from Cato @ Liberty - Cato Institute Blog

I’ll chime in with a broader analysis of the new Bush budget later. For now, it’s worth noting one of the big questions it raises: What’s so special about 2012? 

That’s the year the president claims the budget can be balanced while simultaneously renewing the Bush tax cuts. It’s also three fiscal years after Bush leaves office.

What the president could have done is propose a plan to balance the budget in two years. Revenues are on the upswing, so it could be accomplished — assuming you cut spending, that is. 

For a president who is, according to insiders, interested in bequeathing a healthy Republican Party to the 2008 presidential candidate, it seems there would be great value in simultaneously handing them a balanced federal budget while also showing voters there is still some inkling of interest in smaller government within the party. And it would eliminate the Democrats’ ability to use the deficit bogeyman as a reason to kill the Bush tax cuts that expire in 2010. 

Instead, President Bush resorted to increasing spending in almost all categories — in some cases, like the Pentagon budget, massively. It’s not a budget that supporters of small government can really sink their teeth into. It is weak sauce indeed.    

Why 2012? is a post from Cato @ Liberty - Cato Institute Blog

It might seem obvious why support for the minimum wage persists in Congress. Politicians always want to be seen as helping the little guy. So they would naturally support an increase of the minimum wage to $7.25, as is currently being proposed.

Let’s assume that everyone who supports an increase in the minimum wage also knows – and perhaps even agrees with – the fundamental economic insight that such an increase would lead to either lower-skilled workers being laid off or prices for goods going up or both. It’s conceivable that someone could still support a minimum wage increase after being convinced of that. It’s a price worth paying, they might say. Or they could argue, as some supporters of the current proposal do, that an increase to $7.25 – phased in over three years, no less! – won’t do that much damage. After all, it’s not a $15 increase.

Now let’s try a little thought experiment. Assume support for a minimum wage increase is conditional and dependent upon the proposal offered. A call for a $20 minimum wage, for instance, would arguably be greeted with much less enthusiasm. Evidence of this is the fact that even supporters of the minimum wage aren’t willing to go so far as to propose such a thing.

What follows, then, is a workable assumption about the politics of this issue: How adversely affected by the policy a congressman’s district would be is the main determinant, all other things being equal, of that congressman’s enthusiasm for a minimum wage increase. A congressman representing a rural district with many small businesses that the proposed minimum wage would burden most heavily would be a less enthusiastic supporter than one from a big city with many large businesses, the employees of which make far more than the minimum wage.

But the cost of living differs dramatically in different parts of the country, too: $7.25 doesn’t buy the same amount of stuff in Manhattan as in Kansas City. And there’s the rub. It’s easy for a congressman from Manhattan to support a $7.25 minimum wage since it might have only imperceptible economic effects in his district. In Kansas City, however, the effects would be relatively greater.

Now consider what might happen if Congress were required to adjust the federal minimum wage by the cost of living in each congressional district. In areas where the cost-of-living is close to the national average, the minimum wage would be around $7.25. In Manhattan – where it costs twice as much to live when compared to other areas, like Kansas City – the minimum wage would be at least $14.

This would set off all sorts of protests from congressmen in districts in which the upward adjustment is greatest. Now the businesses in their districts would feel a pinch they wouldn’t feel under a non-adjusted minimum wage. Those formerly enthusiastic congressmen might even start to question why it’s the federal government’s business to meddle in the often complex process – going on all around the country within hundreds of companies and cities, each of which are faced with vastly different economic situations – by which an employer and employee come to their own agreement on compensation for employment. And isn’t that the sort of debate we should be having?

Why Support for the Minimum Wage Persists in Congress: A Thought Experiment is a post from Cato @ Liberty - Cato Institute Blog

Today, President Bush called for reform of budget earmarks, the fiscal baddie de jour. Those are the budget items commonly called “pork projects.” Think of the funding for the World Toilet Summit, for instance, and the obvious jokes about fiscal incontinence.

In this morning’s Rose Garden speech, the president summed up why these projects are bad:

Washington insiders are able to get billions of dollars directed to projects, many of them pork barrel projects that have never been reviewed or voted on by the Congress . . . Some of the earmarks are not even included in legislation. They are stuffed into committee reports that have never been passed, and are never signed into law. Earmarks often divert precious funds from vital priorities like national defense. And each year they cost the taxpayers billions of dollars.

He closed with what was touted by his press spinners as a grand proposal to curtail earmarks:

Congress needs to adopt real reform that requires full disclosure of the sponsors, the costs, the recipients, and the justifications for every earmark. Congress needs to stop the practice of concealing earmarks in so-called report language. And Congress needs to cut the number and cost of earmarks next year by at least half.

It’s certainly nice to hear this rhetoric coming from the president. And nobody can really object to what he’s proposing. It’s hard to disagree with an attempt to shine some light on what über-lobbyist Jack Abramoff called the “favor factory.” Even Nancy Pelosi has endorsed the goal of “transparency” in earmarking by requiring members of Congress to put their names alongside the projects they sponsor.

These reforms assume that members of Congress will be shamed into stopping these sorts of projects when forced to attach their names to them. But the truth really isn’t that members of Congress don’t want their names affiliated with most of these things. It’s that so many of them do! When earmark sponsors remain anonymous, numerous congressmen could take credit for a single project. There was no way to verify who was telling the truth. Now there is. Think of it as intellectual property protection for government waste. It just might lead to more pressure to multiply the number of earmarks, not less.

Even if “earmarks” as currently defined are monitored and reduced, there are no promises that these silly projects won’t appear in other ways and other places. The congressional budget process is nothing if not a game of reinvention. You can call these spending items Happy Funtime Projects instead and sock them away in another part of the budget. They will still remain the coin of the K Street realm.

Of course, Congress could simply give a bucket of money to an agency, no strings attached. But then it’s also likely a member of the Appropriations committee would write a letter to the department head that reads something like, “Gee, wouldn’t it be nice if Project X got some of this pot of money?” Can you really blame a department head who reads a letter like that – from a member of Congress who has power over their budget and oversight of their agency – and takes it seriously? It would strike anyone in that position as similar to Tony Soprano walking into the corner grocery store you own and saying, “Damn shame if anything were to happen to this nice little place.”

Earmark transparency shouldn’t be seen as the endgame of budget reform. It is merely a beginning. Yet the goal should be to reduce the scope of government overall. As long as a culture of spending persists in Washington – fueled by a budget process that commands Uncle Sam to be all things to all people – earmarking in some form will always be with us no matter who is in power.

A Head-Check on Earmark Reform is a post from Cato @ Liberty - Cato Institute Blog

In my book, Buck Wild: How Republicans Broke the Bank and Became the Party of Big Government, I argue that many voters no longer see the GOP as the party of small government. 

Now a new poll from the Club for Growth provides more quantitative backing to my narrative. It’s based on a survey taken in 15 congressional districts. Each of the districts was represented by an incumbent Republicans and each district was generally considered among the most competitive for the GOP this year. Neither were the Democratic or Republican candidates on the ballot in these districts suffering from a scandal that touched them directly.

Two damning results:

Q: “Now tell me whether you think the following phrase better describes the Republicans or the Democrats in Washington: “The Party of Big Government”

Republicans: 39.3%
Democrats: 27.9%
Both: 16.3%
Neither: 9.3%
Don’t know/Refused: 7.4%

Q: Would you agree or disagree with the following statement: “The Republicans used to be the party of economic growth, fiscal discipline, and limited government, but in recent years, too many Republicans in Washington have become just like the big spenders that they used to oppose.”

Agree: 65.8%
Disagree: 26.4%
Don’t know/Refused: 7.9%

A Party of Small Government No More is a post from Cato @ Liberty - Cato Institute Blog

An interesting poll from Rasmussen Reports:  A majority of voters (52%) like divided government.  Only thirty percent think single-party control is preferable.

Apparently partisan affiliation had something to do with the result.  Perhaps not surprisingly, Democrats favored divided government by sixty percent.  However, it’s worth noting that not even half (47%) of Republican respondents favored one-party control.

Voters ♥ Gridlock is a post from Cato @ Liberty - Cato Institute Blog