At the center of the debate over efforts by policymakers to “stimulate” the economy with government spending is the issue of fiscal multipliers. Some economists argue that government spending can be a free lunch: an additional dollar of government spending increases GDP by more than one dollar. Other economists say that government spending is not so free: an additional dollar of government spending increases GDP by less than one dollar or even reduces it.

My non-empirically based view is that the mainstream media tends to treat the free lunch position as gospel. Why that appears to be the case I’ll leave to others to speculate, but it is decidedly irritating. Back in 2010, my colleague Alan Reynolds noted that a survey conducted by an economist at the Federal Reserve Bank of San Francisco counted several studies that concluded that the multiplier effect of government spending is less than one.

We can now add to the list another study that found a multiplier of less than one.

From a National Bureau of Economic Research working paper by economist Valerie Ramey:

For the most part, it appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending. These results imply that the government spending multiplier is below unity. Adjusting the implied multiplier for increases in tax rates has only a small effect. The results imply a multiplier on total GDP of around 0.5.

Note: For readers who are interested in real world examples of how government spending hinders economic growth, check out DownsizingGovernment.org.

Another Log for the Government Spending Multiplier Fire is a post from Cato @ Liberty - Cato Institute Blog

A Washington Post investigation identified dozens of examples of federal policymakers directing federal dollars to projects that benefited their property or an immediate family member. Members of Congress have been enriching themselves at taxpayer expense? In other news, the sun rose this morning.

According to the Post, “Under the ethics rules Congress has written for itself, this is both legal and undisclosed”:

By design, ethics rules governing Congress are intended to preserve the freedom of members to direct federal spending in their districts, a process known as earmarking. Such spending has long been cloaked in secrecy and only in recent years has been subjected to more transparency. Although Congress has imposed numerous conflict-of-interest rules on federal agencies and private businesses, the rules it has set for itself are far more permissive.

Lawmakers are required to certify that they do not have a financial stake in the actions they take. In the cases The Post examined, not one lawmaker mentioned that he or she owned property that was near the earmarked project or had a relative who was employed by the company or institution that received the earmark. The reason: Nothing in congressional rules requires them to do so, and the rules do not address proximity.

With the fox guarding the henhouse, the most one can hope to accomplish is to limit the carnage. Many pundits, politicians, and policy wonks argue that a permanent ban on earmarks would be an effective limit. Unfortunately, that’s just wishful thinking as earmarks are merely a symptom of the real problem: Congress can spend other peoples’ money on virtually anything it wants.

Take the example of Rep. Candace Miller (R-MI):

In Harrison Township, Mich., Rep. Candice S. Miller’s home is on the banks of the Clinton River, about 900 feet downstream of the Bridgeview Bridge. The Republican lawmaker said when she learned local officials were going to replace the aging bridge, she decided to make sure the new one had a bike lane.

“I told the road commission, ‘I am going to try to get an earmark for the bike path,’” Miller said, recalling that she said, “If we don’t put a bike path on there while you guys are reconstructing the bridge, it will never happen.”

A member of the House Transportation Committee, Miller in 2006 was able to secure a $486,000 earmark that helped add a 14-foot-wide bike lane to the new bridge. That lane is a critical link in the many miles of bike paths that Miller has championed over the years. When the bridge had its grand reopening in 2009, Miller walked over from her home.

“People earmark for all kinds of things,” she said. “I’m pretty proud of this; I think I did what my people wanted. Should I have told them, ‘We can never have this bike path complete because I happen to live by one section of it’? They would have thrown me out of office.”

Forget how the federal money made it to Harrison Township, Michigan. As I’ve discussed before, the more important concern is that the federal government is funding countless activities that are not properly its domain:

There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge.

As a taxpayer, it disgusts me that Rep. Miller steered federal dollars to a project in her district that she personally benefited from. But would I be any better off had the money for a bike path in Harrison Township, Michigan come from a grant awarded by the Department of Transportation?

If Harrison Township wanted a bike path, then it should have been paid for with taxes collected by the appropriate unit of local government. Better yet, a private group could have raised the funds. Either way, I don’t see how it’s possible to argue that the U.S. Constitution gives Congress the authority to spend taxpayer money on such activities. Invoking the General Welfare Clause doesn’t pass the laugh test as the bike path obviously doesn’t benefit the rest of the country. The Commerce Clause? Please.

For more on why the federal government should stop subsidizing activities that are properly the domain of the state and local government, see this Cato essay on fiscal federalism.

Earmarks are a Symptom of the Problem is a post from Cato @ Liberty - Cato Institute Blog

I don’t recall ever agreeing with the left-liberal Center on Budget and Policy Priorities (CBPP), but their new paper on the drawbacks of the federal government switching to biennial budgeting is a good read. Congressional Republicans, including House Budget Committee chairman Paul Ryan (R-WI) and Senate Budget Committee ranking member Jeff Sessions (R-AL), are the chief proponents of switching to a biennial budget cycle. By providing (qualified) support to the CBPP paper, I’m hoping to demonstrate to would-be GOP naysayers that criticism of biennial budgeting isn’t confined to one area of the ideological spectrum.

I don’t agree with everything in the paper and I don’t share some of the authors’ concerns, but here are three solid points that the paper makes:

• In 1940, 44 states practiced biennial budgeting. Currently, only nineteen do. In addition, larger states typically have an annual budget cycle. The authors correctly ask, “if large state governments find that biennial budgeting is not the best approach given the responsibilities they shoulder, is it likely to prove appropriate for an entity with the far more extensive domestic and international responsibilities of the U.S. government?”

• The authors call the claims made by proponents that biennial budgeting will free up more time for oversight “overstated.” Authorizing committees can conduct oversight anytime they want. The appropriation committees conduct oversight when they review agency budget requests each year. What’s the benefit of having oversight conducted by the appropriations committees every two years?  (For the record, I think the value of congressional oversight is overstated for public choice reasons, but I’ll play along for today.)

• The authors explain what I consider to be the fatal flaw with biennial budgeting:

The desire of many lawmakers to rein in such supplemental appropriations and reassert meaningful control over all annually appropriated funds — and the practice the Obama Administration has followed of including war funding within the regular defense appropriations bill, which has improved budget transparency — would become much harder to fulfill if biennial budgeting were implemented. It is not possible for Congress effectively to plan ahead for unexpected needs in the second year of a biennium. Large supplemental appropriations to meet such needs outside of the two-year budget plan would almost certainly become a regular part of the budget process and could further erode budget controls and accountability.

(Note: A recent paper from Cato adjunct scholar Veronique de Rugy explains that supplemental appropriations are already a problem.)

As a former budget official in a state that uses biennial budgeting, I just don’t understand what congressional Republicans think they’re going to accomplish. The cynic in me thinks that at least part of the support stems from the unwillingness of most Republicans to get specific on what they’d eliminate from the federal budget. Like the Balanced Budget Amendment, I think a lot of Republicans are simply using biennial budgeting as political cover.

Biennial Budgeting: Baloney Budget Reform is a post from Cato @ Liberty - Cato Institute Blog

The president’s fiscal 2013 budget proposal is scheduled to be released on February 13th. State officials are predictably sounding the alarm on the coming “deep cuts” to federal subsidies now that stimulus funds are running out and Washington is being forced to confront its mounting red ink.

State officials have become addicted to federal subsidies because they allow them to spend money taken from taxpayers across the country instead of having to ask their voters to pony up the funds. As the following charts shows, total state spending continued to increase during the economic downturn because the federal government picked up the slack. Note that the federal share of total state spending went from 25.7 percent in 2001 to 34.1 percent in 2011.

See this Cato essay on federal subsidies to the states for more on why it is critical to reverse this trend.

State Dependency on the Federal Government is a post from Cato @ Liberty - Cato Institute Blog

A new paper from postal expert Michael Schuyler compares the financial performance of the U.S. Postal Service to foreign postal service providers. Not surprisingly, the USPS, which has lost over $25 billion since 2006 and ranks near the bottom of the Postal Index of Freedom, doesn’t fare too well.

From the paper:

[Universal Postal Union] data indicate that, in each year, the majority of posts in high-income jurisdictions were profitable. Declining mail demand was stressful, though: the share of posts reporting losses increased from less than one in ten in 2007 to more than one in three in 2010. Nevertheless, few posts lost money consistently: under 20% over the period 2008-2010 and under 10% over the period 2007-2008, which suggests most foreign posts reacted quickly and effectively to financial setbacks. The good news is that posts can adjust to change and remain financially viable. Unfortunately, USPS is among the posts with consistent losses. Further, UPU data show that, in each year, more than half the reporting posts in medium-income jurisdictions were profitable. Few spilled red ink year after year.

Schuyler says that he will explore the reasons for the USPS’s comparatively poor performance in a future paper, but notes that “A key finding will be that Congressional restrictions and pressure often deny the Postal Service the operational flexibility needed to manage its costs properly.” In a Cato essay, I discuss the problems with Congress’s micromanagement of the U.S. Postal Service and conclude that it should be placed on the path to privatization.

Another postal expert, Alan Robinson, notes Schuyler’s piece and offers additional commentary on the need for policymakers to figure out what to do with the flailing postal service. Should the USPS go back to being subsidized by taxpayers?  Or should the USPS remain a part of the federal government at all? Robinson concludes that “it is time for postal service stakeholders, and in particular its labor unions, to develop an acceptable path toward privatization.”

U.S. Postal Service Fares Worse in Recession than Foreign Posts is a post from Cato @ Liberty - Cato Institute Blog

Contrary to what various news outlets are reporting, President Obama is NOT proposing to cut government. The administration is proposing to take four independent federal agencies that specialize in corporate welfare – along with the Office of the U.S. Trade Representative – and combine them with corporate welfare programs at the Department of Commerce to form what I would argue should be called the Department of Corporate Welfare.

According to reports, this rearranging of the deck chairs would save $300 million a year. That’s peanuts. Worse, those alleged savings will be of no consequence to taxpayers as there is nothing to suggest that the president intends to cut overall spending for the agencies comprising the new bureaucracy. That portends bigger government, not smaller. The president is trying to sell the American taxpayer a false bill of goods.

The president’s proposal is also an attempt to counter the perception – an accurate one – that the administration’s policies are detrimental to commerce. But corporate welfare is detrimental to commerce because the market distortions it creates hinder economic output. Making it easier for select businesses to help themselves to taxpayer-financed subsidies would only perpetuate the same sort of crony capitalist schemes that gave us Solyndra and the Chevy Volt.

Of course, no transparent attempt to appear “business friendly” would be complete without a bone toss to the Small Business Administration. The “bone” this time is the president’s intention to elevate the head of the SBA to the Cabinet. As I discuss in a Cato essay on the SBA, rather than helping small businesses compete against big businesses, the SBA’s loan guarantees mainly help a tiny share of small businesses compete against other small businesses. In reality, the biggest beneficiary of the SBA is the banks, which reap the profits from the loans guaranteed by the agency.

Finally, Republican policymakers talk a good game about cutting government, but they often hide behind calls for making the federal government “more efficient.” Now that the president has seized a political opportunity to sing from the GOP’s hymnal, it’ll be interesting – if not entertaining – to see how Republican policymakers respond. To avoid embarrassment, I recommend offering specific spending cuts.

Obama Proposes New Department of Corporate Welfare is a post from Cato @ Liberty - Cato Institute Blog

That’s the message I came away with after reading an online article from a Philadelphia Inquirer reporter about a decision by the state of Pennsylvania to limit eligibility for food stamps. The article is a perfect example of the difficulty advocates for limited government face in communicating their ideas through the mainstream press.

At issue is the PA Department of Public Welfare’s decision to eliminate eligibility for food stamps for people under the age of 60 who have more than $2,000 in assets (the value of one’s house, retirement benefits, and car would be excluded). The DPW estimates that only “2 percent of the 1.8 million Pennsylvanians receiving food stamps would be affected by the asset test.” Indeed, the DPW’s website notes that “Because of changes to SNAP, most Pennsylvania households are not subject to a net income limit, nor are they subject to any resource or asset limits.”

(SNAP is the acronym for the federal Supplemental Nutrition Assistance Program, which was known as the Food Stamp program until 2008 when Congress changed its name to sound more palatable. The program is run jointly by the U.S. Department of Agriculture and state governments, but federal taxpayers pay for the direct benefits.)

One of the “changes” that the DPW refers to is categorical eligibility, which basically means that Pennsylvania households already receiving benefits from other welfare programs, including cash welfare and Supplemental Security Income, automatically qualify for food stamps. In recent years, both the state of Pennsylvania and the federal government have made it easier to qualify for food stamps benefits.

Unfortunately, the Inquirer reporter either wasn’t aware of these details or didn’t deem them important enough for inclusion. Instead, he quotes ten—let me repeat that, ten—critics of the DPW’s decision. The critics include a “national hunger expert,” the legal director of a “leading anti-hunger group,” the executive director of the Greater Philadelphia Coalition Against Hunger, the executive director of the “liberal Pennsylvania Budget and Policy Center,” and an older woman who says that she’ll “have to give up paying for my health insurance.”

It took me all of two minutes to get a quote from Nathan Benefield, the director of policy analysis at Pennsylvania’s pro-liberty Commonwealth Foundation:

Unfortunately for taxpayers, politicians in Harrisburg and Washington have for the past few years considered it a “success” to have more families on welfare. Pennsylvania welfare eligibility and spending—including for food stamps—has exploded, threatening to crowd out everything else in the state budget. Means testing for assets is a common-sense reform to ensure those who truly need aid get it.

There, was that so hard?

Of course, journalists who are interested in getting the pro-liberty take on welfare reform are welcome to contact my colleagues and me at the Cato Institute. Honestly, we don’t want people to starve in order to save a buck—we just believe that the federal government is an improper and less effective means for assisting those who are truly in need. Pressed for time? Here are Cato essays on food subsidies, welfare, and federal subsidies to state and local government.

Pennsylvania Moves to Starve Poor People is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing the Federal Government, Chris Edwards and I have regularly complained that most policymakers have been insufficiently specific when it comes to identifying spending cuts. With the Republican primaries about to get underway, it’s a good time to see what the current crop of presidential aspirants has to offer.

There are multiple ways to skin this cat, but I decided to put together a comparison table based solely on the content found on each candidate’s campaign website. I did not consider past statements or votes, the televised debates, or outside sources (unless linked to by a campaign’s website). The idea is that statements on each candidate’s website should offer the clearest indication of their intentions should they become president. 

Ron Paul is the only candidate who actually produced a proposed federal budget. Therefore, I started with his template and added additional agencies/programs cited on the websites of the other candidates. Again, the idea is to show specifically what the candidates are proposing to cut. Thus, proposed spending reforms such as a Balanced Budget Amendment or a spending cap are not included.

There is a degree of subjectivity in putting this together, but I tried to be fair and consistent. It is for informational purposes only (i.e., it should not be construed as an endorsement of any candidate(s)). Finally, it is possible that proposals were missed, but that could be a reflection of a website’s accessibility to pertinent information.

The following are brief overviews for each candidate (in alphabetical order):

Michele Bachmann

• Bachmann says she “supports abolishing the federal Environmental Protection Agency and Department of Education.” However, she does not say if all of those agencies’ functions would be abolished.
• Bachmann says she “voted for the Ryan Plan to make sure that Medicare is secure for future generations” but that “the Ryan Plan is just the very first step on health reform, and I voted for it with an asterisk with further reforms in mind.”
• Bachmann’s statements on foreign policy portend increased military spending.

The number of specific spending cuts on Bachmann’s website is paltry and it’s evident that she supports increased military spending given her hawkish statements on foreign policy.    

Newt Gingrich

• Gingrich supports federal subsidies for agriculture and energy, but says that most of the Department of Education’s “responsibilities and positions will be eliminated.”
• On the issue of foreign policy, Gingrich says “Think Big.” Gingrich’s statements on foreign policy portend increased military spending.
• Gingrich offers a 49-page white paper on entitlement and welfare reform. Proposed reforms to Social Security include personal savings accounts. Medicare reforms include providing premium support for the purchase of private health insurance. Medicaid would “ideally” be block-granted to the states. In addition, the paper lists 184 federal means-tested programs that would be block granted.

Gingrich’s website provides a lot of information, but his spending proposals are a mixed-bag. He is heavy on ideas and reforms, but it appears that the federal government’s hand would also remain heavy. In addition, the budgetary effects of Gingrich’s proposals are murky. For instance, he proposes to replace the Environmental Protection Agency with a “pro-growth” Environmental Solutions Agency.  

Jon Huntsman

• In an op-ed linked from his website, Huntsman appears to endorse ending “unaffordable subsidies for agriculture and energy.” The website also says that Huntsman will “adopt a comprehensive energy strategy that frees us from foreign oil, that eliminates all energy subsidies, and that levels the playing field for competing fuels and technologies.”
• Huntsman says that he “will reform entitlement programs – based on the Ryan Plan – while holding true to our nation’s commitments to those in or near retirement.” It is not clear what reforms to Social Security he would embrace.
• Huntsman’s statements on military spending and foreign policy are more reserved than the hawkish tenor exhibited by the rest of the field – Ron Paul and Gary Johnson excluded.

Huntsman doesn’t offer much when it comes to specific spending cuts. The absence of specifics and details leaves a lot of question marks. Huntsman does not propose any spending increases and his relatively reserved views on foreign policy indicate that military spending cuts could be possible.

Gary Johnson

• Johnson calls for repealing the Medicare prescription drug benefit and block-granting the entire program – along with Medicaid – to the states. On Social Security, he only proposes to “fix Social Security by changing the escalator from being based on wage growth to inflation.”
• Johnson says the government should “stop spending on the fiscal stimulus, transportation, energy, housing, and all other special interests.” He also proposes to “reduce or eliminate federal involvement in education” and end “unnecessary farm subsidies.” And Johnson’s proposal to rein in the failed “war on drugs” would generate savings at the Department of Homeland Security.
• Johnson proposes to bring the troops home from Afghanistan and an end to nation-building. He clearly envisions a less interventionist foreign policy, which should translate into reduced military spending.  

Johnson embraces a sizable reduction in the scope of the federal government’s activities, but more details and elaboration would be helpful – especially on entitlement programs. Johnson’s intentions on foreign policy are best encapsulated by his statement that “it’s time to recognize that you can’t have limited government at home, but big government abroad.” Overall, Johnson’s spending proposals reflect a vision for a federal government more limited in size and scope.

Ron Paul

• Paul’s “Plan to Restore America” would eliminate the departments of Commerce, Education, Energy, Housing & Urban Development, and Interior. Numerous agencies and programs would be eliminated or cut.
• Paul supports allowing younger people to opt-out of Social Security and Medicare. Medicaid and other mandatory programs like food stamps would be block-granted to the states. Funding would be cut and froze. Further elaboration on his ideas for Social Security and Medicare would be helpful.
• Paul proposes to end all foreign aid. Military spending cuts would be achieved by bringing troops home from overseas and pursuing a non-interventionist foreign policy.

When it comes to proposing specific spending cuts and identifying the dollars amounts, Paul’s website is unrivaled. He is the only candidate to put together an actual budget proposal. Paul’s spending proposals would amount to the largest reduction in the size and scope of the federal government of any candidate.     

Rick Perry

• Perry proposes to eliminate the departments of Commerce, Education, and Energy. However, he is not proposing that all of the functions contained within those departments be eliminated. For example, Perry proposes “block-granting all funding for elementary and secondary education,” which means federal taxpayers would still be on the hook.
• Perry’s proposals on entitlements are consistent with the GOP field. Proposed Social Security reforms include the creation of personal retirement accounts for younger workers. He would block-grant Medicaid to the states and Medicare would be “reformed” to be “sustainable for the long-term.”
• In comparison to economic issues, Perry has relatively little to say on foreign policy. Although Perry does not strike the hawkish tone of other GOP candidates, there’s nothing on his website to suggest that he’ll rein in military spending.

Like Gingrich, Perry’s website contains a healthy amount of content. Perry deserves credit for offering specific spending cuts and elaborating on why he believes those cuts would be prudent. However, unlike Paul, Perry proposes to eliminate departments without also eliminating the functions contained within them. And unlike Johnson and Paul, Perry does not embrace a reduced U.S. military presence abroad, which implies that he would not rein in military spending. 

Mitt Romney

• Romney’s “Plan for Jobs and Economic Growth” is 87 pages long. Nine pages are devoted to fiscal policy. Those nine pages don’t offer much in the way of specific spending cuts. Romney does suggest some good cuts, but they are not large in budgetary terms.
• When it comes to entitlements, Romney has virtually nothing to say on Social Security. He does propose block-granting Medicaid to the states. On Medicare, Romney says “the plan put forward by Congressman Paul Ryan makes important strides in the right direction by keeping the system solvent and introducing market-based dynamics.” Romney then says that his “own plan will differ, but it will share those objectives.”
• The foreword to Romney’s 44-page paper on foreign policy was written by the prominent neoconservative, Eliot Cohen. It’s safe to say that military spending would not be threatened on Romney’s watch.

Despite the fact that Romney’s website offers a lot of content, he doesn’t offer many specifics when it comes to spending. The spending cuts that Romney does specify are not easily found on his website. They are also relatively small cuts that would have little effect on the size and scope of the federal government. It’s also evident that Romney supports increased military spending.

Rick Santorum

• Santorum’s website doesn’t offer many details or elaboration, but he does list a number of proposals to cut spending. For example, he proposes to “eliminate all agriculture and energy subsidies within four years letting the markets work.”
• Santorum’s proposals for entitlement programs are vague: “reform Social Security and Medicare for sustainable retirements.” However, he does allude to having supported private retirement accounts in the past. He also proposes to “block grant Medicaid, Housing, Job Training, and other social services to the States.”
• Santorum’s statements on foreign policy – arguably the most hawkish of the candidates – clearly indicate that he favors increases in military spending.

Santorum’s statements on foreign policy put him at odds with Johnson’s view that “you can’t have limited government at home, but big government abroad.” However, he does suggest broad spending cuts – although more details and elaboration would be helpful.

A Guide to the Presidential Candidates’ Proposals to Cut Spending is a post from Cato @ Liberty - Cato Institute Blog

The office of Senator Tom Coburn (R-OK) has released the 2011 edition of its annual “Wastebook.” The document spotlights 100 particularly ridiculous expenditures of taxpayer money from the past year. From an entertainment standpoint, it’s pure gold. But it’s also infuriating, depressing, and a painful reminder of what happens when politicians and bureaucrats spend other people’s money.

Here are my five “favorites”:

• $10 million for remake of “Sesame Street” for Pakistan (U.S. Agency for International Development). Osama bin Big Bird?
• $350,000 for an international art exhibit in Venice, Italy (State Department). To really appreciate this one, check out the pictures on page 21.
• An additional $175,587 to the University of Kentucky to study how cocaine enhances the sex drive of Japanese quail (National Institutes of Health). My guess: American quails couldn’t be used because the females are prone to getting a headache at the most inconvenient time.
• $592,527 for a study on why chimpanzees throw feces (National Institutes of Health). Perhaps NIH can fund a study on how cocaine affects the chimps’ aim.
• $150,000 for the American Museum of Magic in Michigan (Institute of Museum & Library Services). It ought to be relocated to Washington given the city’s unrivaled ability to make money disappear.

Yes, the money involved here amounts to pocket change in comparison to the $3.7 trillion the federal government spent last year. But as Coburn asks in the introduction, “Do these initiatives match your understanding of the role of the federal government as outlined by the Enumerated Powers of the U.S. Constitution?” Worthy or not, very little of what the federal government spends money on comports with the Founders’ vision of a national government that was to be strictly limited in its scope. That the money is often poorly spent is proof that their intentions were wise.

Check out DownsizingGovernment.org for more information on many of the agencies and programs cited in the Coburn report.

Sen. Coburn’s 2011 Wastebook is a post from Cato @ Liberty - Cato Institute Blog

If you’re a taxpayer and you like beef jerky, I have good and bad news. The good news is that Jack Link’s is expanding the production facilities at its corporate home in Minong, Wisconsin. The bad news is the expansion is being “made possible” with a $365,000 federal grant to Minong for infrastructure upgrades.

The money comes from the Department of Housing and Urban Development’s Community Development Block Grant program. Curiously, the state’s Wisconsin Economic Development Corporation doesn’t mention in the press release that the money is coming from federal taxpayers:

The Village of Minong will receive a $356,000 Community Development Block Grant for Public Facilities for Economic Development from the Wisconsin Economic Development Corporation (WEDC) to help finance utility improvements that will facilitate the expansion of Link Snacks, Inc. Link Snacks’ expansion is expected to create 70 full-time jobs over the next three years…

The Community Development Block Grant program is a versatile financing tool for general-purpose local units of government in need of funds to undertake needed infrastructure and public building projects. The program is designed to enhance the vitality of a community by undertaking public investment that contributes to its overall community and economic development.

The WEDC was created by Republican Gov. Scott Walker to replace the state’s Department of Commerce and is modeled after Gov. Mitch Daniels’ Indiana Economic Development Corporation.  Like the IEDC, the WEDC dispenses corporate welfare and engages in what I derisively call “press release economics.” Given that the press release doesn’t mention that the money came from the federal government, and thus makes it look like the Walker administration is responsible for the “job creation,” I’d say that the WEDC has learned well from its cousin in Indiana.

The bottom line is that it is not a proper role of the federal government to fund local infrastructure projects for the benefit of a business. The bureaucratic inefficiency alone of laundering money through three levels of government (from federal to state to local) is reason enough to terminate the Community Development Block Grant program. Unfortunately, the CDBG program creates a win-win situation for politicians at all levels, which means that taxpayers are going to keep losing unless enough voters come to realize that robbing Peter to pay Paul’s company isn’t good economics.

See this Cato essay for more on fiscal federalism and this essay for more on the community development subsidies.

Jack Link’s Presents: Messin’ With Taxpayers is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing the Federal Government, we focused on the following issues this past week:

• Extending the extra unemployment insurance benefits would be bad for the federal budget and bad for the economy, and there is a better long-term solution for unemployment than the current UI system.
• All of the massive speculation in the housing market didn’t “just happen”—it was the result of massive government distortions in our housing and financial markets.
• The Obama administration and Gov. Mitch Daniels team up to help build a technology park for defense contractors with taxpayer dollars.
• One would think just the sheer lunacy of federal education policymaking would make it clear to all that Washington should get out of education.
• The U.S. Postal Service gives Congress more time to inevitably kick the can down the road.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

This Week in Government Failure is a post from Cato @ Liberty - Cato Institute Blog

Last week, the U.S. Postal Service filed a plan with its regulator to close half of its mail processing facilities and reduce delivery standards in order to reduce costs. I called the move a message to Congress because “the USPS is running on financial fumes and Congress is still trying to figure out how to kick the can down the road.”

This week, the USPS said that it’s delaying the closure of mail processing facilities and post offices by a few more weeks in order to give Congress more time to come up with “comprehensive postal legislation.” According to the press release, the delay comes “in response to a request made by multiple U.S. Senators.”

That’s hardly a surprise. Here’s what I wrote last week:

The biggest obstacle standing in the way of the proposal is, of course, Congress. I would venture a guess that legislation will be introduced to stymie the plan—if it hasn’t already. After all, members of Congress have consistently fought USPS efforts to shutter post offices. Naturally, the postal employees unions aren’t happy and will make sure that policymakers know it.

According to the Washington Post, “a group of 21 senators from mostly rural states led by Bernie Sanders, an independent from Vermont, signed a letter to congressional leaders asking them to add language to legislation that would halt closings for six months.” Sen. Sanders also sponsored legislation in November that would hand the USPS a bailout and preserve the status quo. Well, Sanders calls himself a socialist so I suppose it would make sense that he’d want to do whatever it takes to preserve the government’s floundering mail business.

And in other postal news, the House passed legislation on Tuesday to name a post office.

USPS Gives Congress More Time to Kick Can is a post from Cato @ Liberty - Cato Institute Blog

(Credit: Westgate @ Crane)

The Indianapolis Star recently profiled local boy makes good (handing out other people’s money) John Fernandez, the ex-Bloomington mayor and Obama fundraiser who now heads up the Economic Development Administration. A reference to an EDA taxpayer handout to a technology park in southern Indiana caught my eye:

Southwestern Indiana got a $6.7 million boost from the EDA last year to create a multi-county technology park to tap into the research related to the Crane Division, Naval Surface Warfare Center in Martin County. At the July groundbreaking for the park, Gov. Mitch Daniels called it a ‘long-awaited development that will serve as an economic catalyst for the region.’

Why would Republican governor Mitch “Red Menace” Daniels want to help the Obama administration score public relations points with Hoosiers? One reason is Daniels’s favorite corporate welfare apparatus, the Indiana Economic Development Corporation, also handed out money from state taxpayers for the technology park.

From a WestGate @ Crane Technology Park press release:

The Indiana Economic Development Corporation offered WestGate @ Crane Authority, Inc. up to $1 million from the Technology Development Grand Fund as a local match to a U.S. Economic Development Administration grant commitment of $6.6 million.

So what is this technology park that U.S. and Indiana taxpayers are being forced to subsidize?

Qualified as a state Certified Technology Park (CTP) by the Indiana Economic Development Corporation (IEDC), the WestGate @ Crane Technology Park represents a natural marketplace for defense contractors currently providing technical support, and research and development services to the Naval Surface Warfare Center, Crane Division in southern Indiana. Operations of the $2 billion URS corporation, and SAIC, the nation’s 7th largest defense contractor, in addition to ITT, CACI, CSC, CLEC, MLE, Raydar & Associates, Novonics, NAVMAR, Stimulus Engineering and Technical Services Corporation (TSC), already maintain operations in the park.

Great. A high-tech playground for defense contractors—an industry that has enjoyed a taxpayer windfall thanks to Uncle Sam’s ten years of warring on terror.

In a blistering op-ed, Indiana Policy Review editor Craig Ladwig calls Daniels “more of an accountant than an economist, more Beltway than Hoosier” and says that “although he claims to admire the classical liberal philosophy, you strain to see any sign of it in his governing.” As evidence, Ladwig cites Daniels’s record of supporting “crony capitalist ventures.”

Craig is correct, but it’s not just Mitch Daniels. Support in the nation’s statehouses for crony capitalism is ubiquitous. And key enablers of state business subsidies are the numerous federal “economic development” programs—like the Economic Development Administration—that policymakers in Washington use to coddle special interests in the name of “job creation.”

As the Obama-Daniels tag-team demonstrates, corporate welfare is a bipartisan affliction. Indeed, back in February, Rep. Michael Michaud (D-ME) offered an amendment to restore $80 million in funding for the EDA. The amendment passed with 145 votes from Republicans and 160 from Democrats.

Obama and Daniels Team Up to ‘Shovel’ Subsidies is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing the Federal Government, we focused on the following issues this past week:

• There are bigger budgetary fish to fry than how much Congress spends on itself.
• I’ve been looking for serious proposals from members of Congress to terminate programs. I’m not finding much.
• The federal government’s involvement in education should be ended—not reformed.
• Chris Edwards on the flaws in the data being used in the income inequality debate.
• The U.S. Postal Service sends a message to Congress.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

This Week in Government Failure is a post from Cato @ Liberty - Cato Institute Blog

On Monday, the U.S. Postal Service filed its proposal to reduce service standards with the Postal Regulatory Commission (PRC). The USPS is seeking to cut costs by closing about half of its mail processing facilities, which would mean slower mail delivery. Given that the USPS is running on financial fumes and Congress is still trying to figure out how to kick the can down the road, management apparently decided that it had to act.

Sen. Tom Carper (D-DE), the chairman of the Senate subcommittee that oversees the USPS, acknowledges this in his statement on the proposal:

Although we’ve made some progress in moving postal reform bills forward in the House and Senate, we still have a lot of work that needs to be done in order to find a comprehensive solution to the Postal Service’s serious financial problems. In the absence of assistance from Congress and the Administration, the Postal Service has been forced to take matters into their own hands and try to modernize their business model with the limited tools and resources available to them. This situation is less than ideal. The few measures that the Postal Service can adopt on its own—such as closing distribution centers and slowing down first-class mail delivery times—to extend its survival and avoid insolvency will also potentially further erode its declining business.

Carper concluded his statement by making a pitch for bipartisan postal reform legislation that I recently panned.

The biggest obstacle standing in the way of the proposal is, of course, Congress. I would venture a guess that legislation will be introduced to stymie the plan—if it hasn’t already. After all, members of Congress have consistently fought USPS efforts to shutter post offices. Naturally, the postal employees unions aren’t happy and will make sure that policymakers know it.

Anticipating the pushback from policymakers and special interests, postal management sent a not-so-subtle message at the conclusion of the filing (bolded text is my emphasis):

The statutory scheme governing operation of the Postal Service permits the agency to make rational adaptations to market and fiscal realities, while still fulfilling its public service obligations. That scheme does not require that long-standing products, service features, and operational practices be maintained primarily for the purpose of preserving a tangible link to an iconic past, or to perpetuate a nostalgic image of the agency or its employees. It would be troubling for the future of the Postal Service if stakeholders responsible for its stewardship allowed their vision to be so clouded that, through omission or commission, they undermined or prevented significant adaptations that could help to preserve the long-term viability and relevance of the postal system. The needs of postal customers are changing. The circumstances affecting the Postal Service are dire. If the Postal Service is to remain viable and relevant, it must be permitted to implement operational and service changes consonant with such changing needs and dire circumstances.

I couldn’t have said it better myself—although I believe that privatization is the best way to “preserve the long-term viability and relevance of the postal system.”

USPS Sends a Message to Congress is a post from Cato @ Liberty - Cato Institute Blog

The House passed a bill last week eliminating the Presidential Election Campaign Fund, which the Tax Foundation calls a “voluntary tax that stirs little enthusiasm.” It would also save a whopping $14 million by eliminating the Election Action Committee and transferring certain functions to other federal agencies.

The Republican-sponsored bill passed on a straight party-line vote with the exception of Rep. Walter Jones’ (R-NC) no vote. Eliminating the fund would result in the transfer of $200 million to the U.S. Treasury for deficit reduction. From a fiscal standpoint, $200 million in deficit reduction isn’t even worthy of a yawn. And based on press reports, floor debate centered on whether Republicans were really just trying to disenfranchise Democratic voters. Seriously, didn’t the GOP leadership have anything more substantial to bring to the floor?

I went looking for bills introduced in the House that would eliminate programs. The conservative Republican Study Committee’s Sunset Caucus has a list of bills sponsored by their members that would cut spending (see here). Although there are some worthy bills that the GOP leadership ought to at least get to the floor, I wasn’t overwhelmed by the offerings.

One that did look particularly good is a bill from Rep. Duncan Hunter (R-CA) that would “eliminate ineffective and unnecessary federal education programs.” I’d say that describes the entire Department of Education. However, as soon as I saw the bill’s title – The Setting New Priorities in Education Spending Act – I immediately knew that it would be a joke. Sure enough, the Congressional Budget Office’s scoring of the bill shows that I was, unfortunately, correct:

H.R. 1891 would amend the Elementary and Secondary Education act of 1965 to eliminate more than 40 discretionary grant programs. For 2011, the Department of Education allocated $413 million in funding from amounts appropriated in the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10) to programs that would be eliminated by H.R. 1891. Under current law, however, the funds allocated to those programs may be used for other grant programs that would not be eliminated by the bill.

Because annual appropriations to the Department of Education can be used for other programs, enacting the bill would not have a significant effect on spending from the appropriation provided for 2011. Furthermore, the authorizations for all of the programs specified in the bill have expired, so CBO estimates the bill would have no impact on such authorization levels. However, savings would accrue – as compared to 2011 appropriations levels – if the total amounts provided in 2012 and subsequent years are lower than the current-year funding for the department.

Note to Duncan Hunter: Why bother?

Looking for Serious Program Terminations is a post from Cato @ Liberty - Cato Institute Blog

A new poll conducted for The Hill found that 67 percent of likely voters think members of Congress should take a pay cut. With the economy still struggling and the government’s debt continuing to mount, congressional pay is — understandably — a sore subject with voters. However, I get the impression that a lot of people think that cutting Congress’s budget would have a sizable impact on the government’s financial situation.

It wouldn’t.

The following chart shows fiscal 2011 spending for the House and Senate, the entire legislative branch, and the entire government:

Spending for the House and Senate, which includes salaries, mailings, and committee expenses, represents only .07 percent of total federal spending. The entire legislative branch includes additional expenses for the Government Accountability Office, the Congressional Budget Office, the Library of Congress, and other functions that can be viewed here. It only amounts to .14 percent of total federal spending.

Please do not take this post to mean that I believe that congressional pay is completely unimportant. The point is that congressional pay is relatively unimportant when measured against the overall size of the federal budget. Therefore, I think those readers who are concerned about government spending and debt should focus their attention on considerably larger problems like Social Security, Medicare, and military spending.

Congress’s Budget in Perspective is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing the Federal Government, we focused on the following issues this past week:

• I argue that we don’t need a Balanced Budget Amendment to the Constitution.
• Thoughts on the “Tea Party Budget.”
• The 21^st Century Postal Service Act would keep the U.S. Postal Service stuck in the 20^th century.
• If Congress is intent on cutting payroll taxes, it should do so within the context of long-run fiscal reforms.
• Republicans who say they want smaller government should walk the talk by introducing legislation that would eliminate agencies and programs.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

This Week in Government Failure is a post from Cato @ Liberty - Cato Institute Blog

Three weeks ago, a national commotion erupted when the Drudge Report headlined a story from the Heritage Foundation on the Obama administration’s implementation of a new tax on Christmas trees. I noted here that the 1996 legislation enabling the U.S. Department of Agriculture to implement the tax received most of its support from Republicans, including co-sponsor John Boehner.

The National Taxpayers Union gives a tidy explanation of how the law almost led to the “Christmas Tree Tax”:

The Federal Agriculture Improvement and Reform Act of 1996 permitted producers of agricultural commodities such as beef, pork, or popcorn to create what are known as research and promotion programs, or “checkoffs.” These are analogous to unions: producers pay “dues” to the checkoff which works to fund research and advertising efforts on behalf of the industry represented. Board members are appointed by the Secretary of Agriculture who also has authority to enforce dues-payment. Because the dues are government-coerced, they are essentially taxes passed on to consumers.

There are currently 18 checkoff programs. And while the Obama administration quickly stopped the Christmas tree tax checkoff program from going into effect, there are still other agricultural commodity groups, such as the hardwood lumber industry, pushing for their own checkoff. There are also efforts to allow the creation of non-agricultural commodity checkoffs.

NTU notes that now another Republican wants to create a similar scheme at the Department of Commerce:

Congressman John Shimkus (R-IL) introduced H.R. 3395 to create the Concrete Masonry Products Board to promote and market concrete products. The Board would be made up of representatives of the concrete industry appointed by the Secretary of Commerce. Producers and importers of concrete masonry would initially be assessed $0.01 per concrete masonry unit sold in the United States. The Board will have authority to change the assessment rate, but it can be no higher than $0.05 per unit. The Secretary of Commerce would have authority to levy late-payment and interest charges on those producers who fail to remit an assessment.

That would be the same John Shimkus who received a “Taxpayer Hero” award from the Council for Citizens Against Government Waste in October. Carrying water for a special interest at the expense of consumers is not what I would consider to be an act of heroism. Worse, granting this authority to the Department of Commerce would add another layer of cement to the foundation (pun intended) of a bureaucracy that one former Commerce secretary derided as “nothing more than a hall closet where you throw in everything that you don’t know what to do with.” Fortunately, the bill only has two co-sponsors (Republican Rep. Richard Hanna of New York is one of them), so it’s probably not going anywhere.

Republicans who say they want smaller government should walk the talk by introducing legislation that would eliminate agencies and programs. For example, Rep. Mike Pompeo (R-KS) has introduced legislation to abolish Commerce’s Economic Development Administration. Otherwise, they’re just part of the problem, or—in the case of Shimkus and Hanna—they make matters worse.

See here for more on downsizing the Department of Commerce.

Revisiting the ‘Christmas Tree Tax’ is a post from Cato @ Liberty - Cato Institute Blog

The USPS is supposed to operate like a business by relying on the revenues from the sale of postal products to cover costs. Congress makes that harder by imposing various obligations and stifling attempts to reduce costs. Add in a weak economy, the growth in alternative forms of communication, and a predominantly unionized workforce that has secured excessive compensation and privileges and the result is a financial mess.

The Senate will soon consider a postal reform bill that is supposed to save the USPS: “The 21st Century Postal Service Act of 2011.” That’s a mighty peculiar title considering that the legislation would keep the U.S. Postal Service stuck in the 20th century. It’s also an overly-confident title as there’s zero chance that the legislation would enable the USPS to “flourish” into the 21st century as Sen. Joe Lieberman (I-CT) claims.

I’m not going to go through all of the bill’s particulars (interested readers can view the committee’s summary here). The bottom line is that the bill does nothing to alleviate the USPS from the burden of congressional micromanagement. For example, one provision prevents the mere possibility of eliminating Saturday service for two more years. Talk about kicking the can down the road. For those who are perplexed by our enlightened leaders’ inability to reach a deal on deficit reduction, consider what this provision implies about their ability to oversee the government’s mail operation.

In the long term, either the USPS is going to be privatized or it’s going to go back to relying on taxpayer subsidies. Fortunately, a taxpayer bailout is off the table for now. However, taxpayers might not be so lucky the next time Congress steps in to “fix” a mess that is largely of its own doing. In fact, the continuing failure to think outside the box, which the Senate bill is a perfect example of, only increases the likelihood of government mail going on the dole.

See this Cato essay for more the U.S. Postal Service and privatization.

Senate Postal Reform Bill Needs a New Title is a post from Cato @ Liberty - Cato Institute Blog