Author Archive
In Defense of Gridlock
Over at National Review’s blog, Ramesh Ponnuru wonders why it seems that divided government – aka, gridlock – tends to lead to slower growth in the federal budget.
I mount a defense of gridlock in my new book, Buck Wild: How Republicans Broke the Bank and Became the Party of Big Government. In chapter 8, to be precise. The numbers that Ramesh cites in his post come from a review of my book by Phil Kerpen on the NR website.
By way of jumping into the discussion Ramesh has started, let me clarify a few things first.
In my book I only analyze the real per capita growth rates of government spending in the years 1965 through 2005. I think this is a more useful timeframe for comparison than Ramesh’s seventy-six-year timeframe simply because the post-Great Society welfare state looks vastly different than what existed before. I was mainly curious to see if the correlation holds up within a timeframe that yields more consistency in terms of the entitlement programs being funded in the federal budget.
The methodology I used was modeled after that of Cato chairman William Niskanen and Cato senior fellow Peter VanDoren in the paper they presented to the Public Choice Society meeting in May of 2004. My data falls into the same realm of statistical significance, too. (Incidentally, their analysis goes back to 1949.)
Now on to the fun.
Divided government – gridlock – is the norm, not the exception, in American politics over the past 40 years. The only completely united government scenarios existed during the presidencies of Lyndon Johnson, Jimmy Carter, and George W. Bush. It is obviously true that Democratic united government is more common than Republican united government.
So why might divided government be more conducive to restrained spending? For starters, defense spending varies widely over the past 40 years, but the correlation between wars and united government is quite consistent. American participation in every war involving more than a few days of ground combat was initiated by a united government. You could argue that this is mere coincidence. Or you could argue that united government creates an environment where there is less resistance from Congress when a president wants to exercise his powers as commander-in-chief. The burden of proof is on those who suggest this is simply happenstance.
Budget Discipline: The Democratic Theme for ‘O6?
Remember when some of us limited-government types were wondering when the Democrats would finally realize voters were fed up with the GOP’s massive federal budgets and start talking about fiscal discipline? Well, it’s finally happened — the talking, at least. House minority leader Nancy Pelosi just gave an interview to the Wall Street Journal (subscription required) in which she professed that Democrats would launch a campaign to reduce the number of budget earmarks if they won a House majority in November.
She even sounded a bit like Jeff Flake at times: “Personally . . . I’d get rid of all of them. None of them is worth the skepticism, the cynicism the public has . . . and the fiscal irresponsibility of it.”
Most of the time, her message degenerated into standard Democratic tones. Pelosi still hopes to eliminate the Bush tax cuts for high-income taxpayers and hike the minimum wage. Yet even her support for the latter seemed to be focus-group tested: “We will not support a raise for Congress until Congress supports raising the minimum wage.” But that’s hardly a concession to fiscal discipline — it’s a hellacious twofer! (If you like this bad policy, you should love this even worse one!)
Frankly, I can’t help but be skeptical that Pelosi is really interested in getting federal spending under control. Nor am I convinced that she could keep her troops in line in such a battle. She and other Democrats had their chance to rail against earmarks and the GOP spending explosion during the past five years, but most — with very few exceptions, like Rep. Jim Cooper of Tennessee — sat out that fight.
What Pelosi really wants, of course, is to regain Democratic control of the House. The good news is that she feels like she has to talk even a little like a fiscal conservative in order to do it.
The GOP spending explosion has been awful to behold. Perhaps the fact that the public’s outrage over it is loud enough to entice a San Francisco Democrat to try to sound a teensy bit like a budget hawk might be worth savoring.
The Incredible Shrinking Deficit
The federal budget deficit projection for 2006 shrank to $296 billion (story here). White House insiders are reporting that this is a good thing.
Compared to what? Well, compared to last year’s deficit, of course. Or compared to where the deficit was expected to go. But being proud of an accomplishment like that is a bit like congratulating yourself for successfully not driving your car into a brick wall.
Before anyone accuses me of being Eeyore incarnate, I’d like to note that the economy has been growing faster than many people expected, and surprises like that are always welcome. That’s the main reason the federal government has collected so much revenue – and it’s unlikely that the Bush tax cuts didn’t have something to do with that.
Yet it’s hard to find much solace in data that also show the federal budget has grown by a staggering 45 percent during the Bush presidency so far. (The national economy as measured by GDP has only grown by 30 percent.) And you just might realize the good news is also the bad news. On the one hand, the government collected more tax money. On the other hand, the government collected more tax money.
Government spending is still chewing on close to 21 percent of GDP. That’s still bigger than the 18 percent it consumed when Bush took office. In fact, that’s the biggest the budget has been in over 10 years — which is, conveniently, a point in history right before the Republican Revolution.
If the federal budget had grown from the day George W. Bush was inaugurated at the same annual rate it had for the six years before he came to office, the federal budget would swallow only 17 percent of GDP today. Balanced or not, seems to me a budget of that size would be much better than what we’ve got now. Maybe we should stop the bidding there next year.
In the meantime, the unfunded liabilities of federal entitlements have rocketed to over $85 trillion. That’s obviously a much bigger number than the current year deficit. And obviously a much bigger problem. Yet you don’t seem to hear too much about that from policymakers anymore.
Okay, enough of the gloom. You may now return to your regularly-scheduled happiness.
Uncle Sam Wants to Sell You a Latte
In a college town like Madison, Wisconsin, I suspect you can’t throw a copy of Das Kapital without hitting a coffee shop or a drum circle. But the federal government insists upon subsidizing that city’s grandé mocha makers. (It hasn’t found a way to subsidize the drum circles . . . yet.)
First, some background: Every year, the federal government socks taxpayer money into the Community Development Block Grant program. According to the program’s website, the goal is to encourage “viable urban communities” and expand “economic opportunities” across the nation and, in particular, within “entitled communities.”
This is done by funneling loan guarantees and direct grants to local businesses. It’s considered a form of “economic development.” Or, to translate from bureaucratese into plain English, it’s a form of grass-roots corporate welfare.
In 2004 the CDBG program funded loan guarantees for projects such as the Tempe Market Place project in Arizona (described as “a retail facility anchored by six nationally known retailers”) to the tune of $7 million. It gave guarantees in the amount of $1.9 million to the Noah Hotel project in Kingston, New York, to build a 50-room “boutique hotel,” with a 16,500-square foot ballroom, a restaurant, meeting rooms, and commercial retail space. $2.5 million went to a downtown parking garage in Watsonville, California, and $2.2 million to the redevelopment of the 427-acre Colorado Industrial Park in Lorain, Ohio.
Now back to Madison, Wisconsin. As the Mercatus Center’s Eileen Norcross explained today in testimony to Congress, last year the feds spent roughly $1.5 million on loan guarantees to help underwrite two coffee shops, a bakery, and a restaurant in that city, just to name a few.
How do the HUD managers justify this sort of thing? They claim the money helps “create” jobs for low- and middle-income residents. And who do those residents happen to be? As Norcross notes, they are college students who are classified as below the poverty line because the money they receive from their parents while attending school in Madison doesn’t count as income.
So, if you’re a local business owner it sounds like a pretty good deal, eh? Now you can open your doors in a college town and get loan guarantees from the government to hire the kind of employee (read: college students) you would have probably hired anyway.
Many members of Congress will ask, “How can we fix this program?” Only a handful – including Sen. Tom Coburn of Oklahoma, the head of the subcommittee that held the hearing on CDBG this afternoon – ever ask, “Why do we even fund this stuff in the first place?”
Budget Mission Accomplished?
The crew over at National Review Online authored an editorial today in which they suggest that President Bush might soon be able to take a victory lap. Why? Because the deficit is shrinking faster than anyone thought it would.
Fresh data from the Congressional Budget Office shows that the deficit-to-date for the current fiscal year is $50 billion smaller than it was this time last year. Since President Bush declared that one of his second-term goals would be to cut the deficit in half (as a share of GDP) by 2009, the NRO editors all-but-suggest that it might soon be time for the White House to recycle those old “Mission Accomplished” banners.
Yes, the economy is growing faster than anyone anticipated, and that’s very good (if underreported) news. This has led to a larger-than-expected boost in tax revenue, too – so unexpected, in fact, that Congress and the President haven’t been able to find ways to spend it all, although that’s not for lack of trying. Ergo, the budget deficit shrinks.
But if you look beyond the self-congratulation, you might notice how far Republicans have retreated from the battle for limited government (as I explain in my forthcoming book). When Republicans won control of Congress in 1994, they promised elimination of the budget deficit in seven years – a promise they were able to make good on in just three years. Now the GOP’s fiscal Maginot line has been drawn at merely halving the deficit in five years. That this less-than-impressive goal might be achieved sooner than later is really a tiny consolation.
Besides, a single-minded focus on the yearly budget deficit causes the GOP to draw their eyes off what should be the real prize: A reduction in the size of government altogether. Is there a good reason, for instance, why supporters of limited government should prefer a balanced budget that swallows up 20% of the U.S. economy to one that eats 18.4% as it did in 2000?
It looks like we might just have to settle for the former. According to the most recent data available, gross domestic product grew by 6.8% since last March. But federal spending ballooned by 9% over the same period. The U.S. economy has substantial ground to cover to make this a competitive race.
Or, think of it this way: If the federal budget had grown from the day George W. Bush was inaugurated at the same annual rate it had for the six years before he came to office, the federal budget would consume only 17% of GDP today. And it would be balanced, even after taking into account the tax cuts. Instead, the budget is still unbalanced today and government spending hovers around 20%.
This fall, Republicans will likely trumpet the news of the incredible shrinking deficit as an unsung victory for small-government conservatives. That the economy is getting better is something to which the mainstream press should be paying more attention. But the news on the deficit is only a very small victory, however, and one that hardly proves that the GOP is still a party of small government.
Why Massive Tax Increases Are Not Inevitable
Optimistic economist (no, that’s not an oxymoron) David Henderson provides some food for thought on the question of whether the explosion in government spending – current and future – will inevitably lead to a tax increase. Henderson argues in this very compelling essay from the Hoover Institution’s journal Policy Review that the prospects for entitlement reform and spending restraint are not as grim as some conservatives and libertarians think they are.
Government revenue has never exceeded 21 percent of GDP in the past half-century. And as Brink Lindsey pointed out on this blog last week, government spending has been stable for at least a generation. These conditions persist for a variety of reasons, but Henderson suggests the primary influence is a “political equilibrium” we have reached in the U.S. That equilibrium is likely to tip in favor of entitlement reform as the Social Security and Medicare systems become more costly per worker than they are now.
Thus, the odds are that when it finally becomes politically necessary to do something about the entitlements problem, reform is likely to be the more politically preferred avenue than massive tax hikes. Just because something is not yet politically feasible, argues Henderson, does not mean it never will be.
Money quote:
“The budget numbers are such that various market-based reforms will be looked at seriously – soon and for a long time. We must not give up on these reforms because they are not politically popular today. What reformers should do, instead, is keep honing their proposals for reining in government spending and keep their powder dry.”
What if They Held an Election and Nobody Came?
The interesting story about the new Associated Press-Ipsos poll is not the further decline in approval ratings for President Bush and the Republican Congress. The interesting story is how the decline is being driven by discontent among self-identified conservative voters.
Bush’s disapproval rating among conservatives is 45%. That is not as high as the overall 66% disapproval score, but it is quite remarkable considering Bush is supposed to be—according to the media—the most conservative president since Ronald Reagan. Even more stunning is the whopping 65% negative score among polled conservatives for the Republican Congress. Close to a third of conservatives surveyed would be happier if the GOP lost control of Congress.
There are many reasons for the low poll numbers. But one of the primary drivers of conservative discontent with the GOP has got to be that the Republican Congress and President Bush are the biggest spenders since LBJ.
The AP-Ipsos results seem to corroborate what other pollsters have discovered among likely voters over the past two years. In February 2006, a George Washington University Battleground poll revealed that only 36% percent of those surveyed trusted Republicans in Congress to keep spending under control—down from 47% in the same poll two years before. This isn’t because Democrats have effectively wrapped themselves in the mantle of fiscal responsibility. It’s entirely a result of the public realizing that the GOP is no longer a party committed to small government.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
