I’ve Never Seen an Unbroken Window Create Jobs
Such is, literally, the wisdom of retiring Rep. Barney Frank (D-MA), who (according to ThinkProgress) said:
I’ve never seen a tax cut put out a fire. I’ve never seen a tax cut build a bridge.
That is the equivalent of saying, “I’ve never seen an unbroken window create jobs, so let’s break this one.”
Frank either never read his Bastiat, or didn’t understand what he read.
Barney Frank: Cut Military Spending by Following Cato Plan
U.S. Representative Barney Frank (D-Massachusetts) believes that cutting the military means rethinking the purpose of our military. He argues that the far-flung adventures that have killed thousands of American soldiers and consumed trillions of dollars simply haven’t been justified by U.S. defense needs. He also takes issue with President Obama exempting military spending from his so-called “spending freeze” proposed earlier this year. He spoke at the Cato Institute November 19, 2010.
Let’s Regulate Barney Frank’s Pay
“Rep. Barney Frank, chairman of the House Financial Services Committee, said Tuesday that he will hold a hearing this fall to examine whether regulators are being tough enough in curbing pay practices at Wall Street firms that can lead to excessively risky practices,” writes Zachary Goldfarb in the Washington Post.
Hmmm. “Pay practices that can lead to excessively risky practices.” Since Barney Frank entered Congress, federal spending has risen from $590 billion in 1980 to $3.7 trillion this year. (U.S. Budget, Historical Tables, Table 1.1) The annual deficit has risen from $74 billion to $1.5 trillion. Gross federal debt rose from $909 billion to $13.8 trillion — and to over $15 trillion next year. (Table 7.1) And all this without a major war or depression during those 30 years.
Maybe we should adjust pay practices for members of Congress to give them an incentive to avoid risky, unaffordable, out-of-control borrowing and spending.
How to Cut Military Spending
Several months ago, I co-authored an op-ed in Politico with Heather Hurlburt of the National Security Network calling on the White House and Congress to include the Pentagon’s budget in any deficit reduction package.
because our national security rests on our economic health as well as on the strength of our military, a liberal and a libertarian can agree that the Pentagon should no longer get a pass.
That op-ed caught the attention of Congressman Barney Frank. He formed the Sustainable Defense Task Force, an ad hoc advisory panel to assemble a list of possible reductions in military spending that would not undermine essential U.S. security.
Last Friday, the task force presented its findings at a press conference at the Capitol. You can read the full report here [.pdf].
Ben Friedman and I collaborated on the portion of the report that makes the case for a new grand strategy of restraint that would allow for substantial cuts in military spending. Our op-ed in this morning’s Los Angeles Times focuses on one key theme: we spend too much because the U.S. military does too much.
A few excerpts:
The Cold War is over. While we were defending our allies in Europe and Asia, they got wealthy. The new status quo is that we offer them perpetual security subsidies — and risk being drawn into wars that do not serve our security interests.
[...]
By avoiding the occupation of failing states and shedding commitments to defend healthy ones, we could plan for far fewer wars, allowing cuts in force structure, manpower, procurement spending and operational costs. The resulting force would be more elite, less strained and far less expensive.
[...]
Our deficit problem is an opportunity to surrender the pretension that we are the world’s indispensable nation, preventing instability, shaping the international system and guiding history. We should be content to settle for being the big kid on the block that looks out for itself and occasionally helps friends in a bad spot. That approach would take advantage of the security we have, and save money we don’t.
As Cong. Frank explained at the press conference, if cutting defense was easy, we would have done it by now. Defense is a core function of government — any government. That might explain why conservatives, and even some libertarians, are more resistant to Pentagon spending cuts than they are to cuts at the Departments of Agriculture, Commerce, Energy, Education (etc.).
Yet much of what Washington does today isn’t defense, which means that the Pentagon’s budget shouldn’t escape scrutiny. The notion that we should close the budget deficit while leaving the military’s share off the table is untenable.
For one thing, it is a key driver of the enormous growth in government spending over the past decade; inflation-adjusted “national defense” outlays (including the costs of the wars in Iraq and Afghanistan) have grown by 86 percent since 1998.
What’s more, the phrase “national defense” is a misnomer, at worse, misleading, at best. We should ask “Defend whose nation?” Most of what Americans spend on our military today is focused on defending other countries that should defend themselves. Once that reality sinks in — and I think it has already — it shouldn’t be that hard to focus the public’s attention on what we spend on our military, and what we get in return.
For the sake of our fiscal health as well as our physical security, we can and should make responsible reductions in military spending. By drawing down the size of our military, reducing our global footprint, and adopting a more restrained grand strategy, we can achieve a sustainable level of military spending that keeps America safe and strong for a very long time to come.
Congress Begins Conference on Financial Regulation
Today begins the televised political theatre that Barney Frank has been waiting months for: the first public meeting of the House and Senate conferees on the two financial regulation bills. While there are a handful of important differences between the House and Senate bills, these differences are overshadowed by what the bills have in common. The most important, and tragic, commonality is that both bills ignore the real causes of the financial crisis and focus on convenient political targets.
As our financial system was brought to its knees by an exploding housing bubble, fueled by government mandates and distortions, one would think, just maybe, that Congress would roll back these distortions. Despite their role in contributing to the crisis and the size of their bailout, however, neither bill barely mentions Fannie Mae and Freddie Mac. Except, of course, to continue their favored and privileged status, such as their exemption from a proposed new “consumer protection” agency. What we really need is a new “taxpayer protection” agency.
Nor will either bill change the government’s meddling in what is probably the most important price in the economy: the interest rate. Given the overwhelming evidence that loose monetary policy was a direct cause of the housing bubble, one might expect Congress to spend time and effort preventing the Fed from creating another bubble. Not only does Congress ignore the issue, the Senate won’t even allow GAO to look at the Fed’s conduct of monetary policy.
Instead of spending the next few weeks gazing into the camera, Congress should stop and gaze into the mirror. This was a crisis conceived and born in Washington DC. The Rayburn building serving as the proverbial back-seat of the housing bubble.
The Four Congressmen of the Cotton Subsidy Apocalypse?
Yet another show of that rare commodity, bipartisan efforts to reduce the size of government today. Four members of the House—two Republican and two Democrat—have sent a letter to President Obama, calling on him to reverse the insane policy of bribing Brazilian farmers with subsidies in an attempt to correct, in accordance with the perverse two-wrongs-make-a-right school of logic, for illegal U.S. subsidies. (There were other questionable parts of the deal with Brazil).
Barney Frank (D, MA), Ron Kind (D, WI), Paul Ryan (R, WI) and Jeff Flake (R, AZ) make compelling arguments for finding a better and more permanent solution to the dispute than the current (dodgy) deal with Brazil, including arguments about fiscal responsibility, the adverse effects of distorting markets in this way, and the implications for the U.S. economy of continuing to operate the cotton program in its current form.
They also cleverly allude to President Obama’s emphasis on enforcement in his trade policy, pointing out that enforcement runs two ways:
Should we fail to effectively reform [the cotton] program now, American businesses and workers wil pay the price because we refused to write a law that complies with our international obligations. We cannot expect our trading partners to play by the rules if we are not willing to do the same. [emphasis added]
The press release from Rep. Flake’s office contains some great quotes, too. Flake, for example, says, “This proposal takes our federal farm subsidy policy from the impractical to the absurd.”
But I’ll give the last word to Rep. Frank, who has this gem to offer:
[T]he Obama administration apparently feels compelled to preserve our right to subsidize American cotton farmers by extending that subsidy to Brazilian cotton farmers. People looking for an illustration of the meaning of the phrase, ‘from bad to worse,’ need look no further.
Don’t Need More Rental Subsidies
At Tuesday’s congressional hearing on the future of Fannie Mae and Freddie Mac, Rep. Barney Frank (D-MA) said that “It’s a mistake for the government heavily to subsidize homeownership.” Coming from one of the biggest cheerleaders for federal homeownership subsidies, and an architect of the housing meltdown, a conversion from Frank would be welcome.
Unfortunately, Frank followed the comment with a call for more rental housing subsidies:
We are much better off trying to subsidize rental housing, because when you put people into decent rental housing, you do not confront the problems we have seen putting people inappropriately into homeownership.
Frank is correct that tying oneself to a mortgage is much riskier than renting. The federal bias toward homeownership has been predicated on its alleged civic virtues, but there’s no virtue in being a slave to an expensive mortgage, especially when one’s house is worth less than the note.
But the government’s dismal experiences with rental subsidies, including public housing, demonstrate that more federal interventions are unwarranted. In addition to abolishing homeownership subsidies, the federal government should also abolish rental subsidies, as a Cato essay by Howard Husock argues.
The following are some key points from the essay:
- Before federal subsidy programs were begun, and before the widespread use of detailed housing regulations and zoning ordinances, private markets did a good job of provided housing for lower-income Americans. During the period from 1890 to 1930, for example, vast amounts of new working-class housing were built in American cities. Data from that period show that a significant percentage of residents of poor neighborhoods did not live in overcrowded tenements, but instead lived in small homes that they owned or in homes where the owners lived and rented out space.
- Since the 1930s, the federal government has funded one expensive approach to low-income housing after another—without seeming to notice that the new approaches were made necessary less by market failure than by the failure of past public policies. Public housing projects erected to replace slums soon became severely distressed, housing vouchers meant to end “concentrated poverty” instead moved it around, and the low income housing tax credit program provides large subsidies to developers and few benefits to low-income families.
- A major social benefit of private and unsubsidized rental and housing markets is the promotion of responsible behavior. Tenants and potential homeowners must establish a good credit history, save money for security deposits or downpayments, come with good references from employers, and pay the rent or mortgage on time. Renters must maintain their apartments decently and keep an eye on their children to avoid eviction. By contrast, public housing, housing vouchers, and other types of housing subsidies undermine or eliminate these benefits of market-based housing.
- Federal housing subsidies are very expensive to taxpayers. In 2010, the federal government will spend about $26 billion on rental aid for low-income households and about $8.5 billion on public housing projects.
Fannie, Freddie, Peter, and Barney
Last week, after Rep. Barney Frank (D-MA) said that holders of Fannie Mae and Freddie Mac’s debt shouldn’t be expected to be treated the same as holders of U.S. government debt, the U.S. Treasury took the “unusual” step of reiterating its commitment to back Fannie and Freddie’s debt.
If ever there was case against allowing a few hundred men and women to micromanage the economy, this is it.
Fannie and Freddie, which are under government control, are being used to help prop up the ailing housing market. If investors think there’s a chance Uncle Sam won’t back the mortgage giants’ debt, mortgage interest rates could rise and demand for housing dampen. Therefore, Frank’s comments caused a bit of a stir. However, with the government bailing out anything that walks or crawls, investors apparently weren’t too concerned with Frank’s comments as the spread between Treasury and Fannie bonds barely budged.
As I noted a couple weeks ago, the Treasury is in no hurry to add Fannie and Freddie’s debt and mortgage-backed securities to the budget ($1.6 trillion and $5 trillion respectively). Congress certainly isn’t interested in raising the debt ceiling to make room. And as Arnold Kling points out, putting Fannie and Freddie on the government’s books would actually force the government to do something about the doddering duo.
All of which points to what an unfunny joke budgeting is in Washington. Take a look at what current OMB director Peter Orszag had to say about the issue when he was head of the Congressional Budget Office:
Given the steps announced by the Treasury Department and the Federal Housing Finance Agency on September 7, it is CBO’s view that the operations of Fannie Mae and Freddie Mac should be directly incorporated into the federal budget. The GSEs’ revenue would be treated as federal revenue and their expenditures as federal outlays, with appropriate adjustments for the manner in which credit transactions (like a mortgage guarantee) are reflected in the federal budget.
Note that Orszag wrote that statement less than two years ago. And since then, the bond between the government and the mortgage giants has only gotten tighter.
The same people that say Fannie and Freddie shouldn’t be on the government’s books are often the same people who once dismissed concerns that the two companies were headed toward financial ruin. In 2002, Orszag co-authored a paper at Fannie’s behest that concluded that “the probability of default by the GSEs is extremely small.”
Another one of those persons, Congressman Frank, has his fingerprints all over the housing meltdown. In 2003, a defiant Frank stated that “These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.” Frank couldn’t have been more wrong. Yet there he remains perched on his House Committee on Financial Services chairman’s seat, his every utterance so important that they can move interest rates.
Fed Opposed by Left and Right
On its front page today, the Washington Times reports that expanded powers for the Federal Reserve are being opposed by “odd allies.” The Fed’s imperial over-reach for additional regulatory powers is being opposed by Democrats and Republicans, and liberals and conservatives alike. As well it should be. As Senator Shelby observed, “Anointing the Fed as the systemic-risk regulator will make what has proven to be a bad bank regulator even worse.”
The regulation of financial services failed conspicuously to prevent the worst financial crisis since the Great Depression. The Fed failed most conspicuously as it was charged with oversight of all the major banks, including notably Citigroup and Bank of America. Bank regulation now functions to insulate banks from the consequences of their own bad acts. The regulatory system enables banks to engage in excessive risk taking.
The Obama Administration and Chairman Barney Frank of the House Financial Services Committee propose that an expanded role for the Fed and generally more of the same will improve matters. Instead, the proposed legislation will worsen the situation by codifying the status of the major financial institutions as “too-big-to-fail.” It would thereby provide them with special legal status. We have all seen this movie and how it ends. Fannie Mae and Freddie Mac had such a status and collapsed. Do we need 20 more such disasters?
Three cheers for all those opposing this destructive piece of legislation. End “too-big-to-fail” instead.
Mortgage Mods: Congressman Prefers Coercion over Cooperation
The recent focus in Washington on mortgage modifications once again illustrates one of the most fundamental flaws in current political debate: the notion of using government to threaten or force the “voluntary” transfer of wealth from one group of citizens to another.
Just this week Rep. Barney Frank warned the banking industry if they don’t “voluntarily” do more to reduce foreclosures, Congress will step in and make them do so, by allowing bankruptcy judges to re-write mortgage contracts. This proposal is really nothing more an ex poste transfer of wealth from investors in mortgage backed assets to borrowers.
Of course, Rep. Frank and others respond that they are only trying to “bring lenders to the table” in order to keep negotiations going. In the words of many “consumer” advocates, this is just a “stick” to the motivate the lenders. I could think of few things more offensive to a free society. In a government truly constituted on the notion of the common good or general welfare, it would be no more appropriate to use the stick of the state on lenders than it would be on borrowers. Government quite simply should not take sides in purely private disputes.
One would think that if anyone could understand the principle that government should not interfere in the private, voluntarily entered relationships of consenting adults, it should be Mr. Frank.
Democratic Deficit Hawks?
In a hagiographic profile of Obama budget director Peter Orszag, Ryan Lizza of the New Yorker writes of the “pressure” he might get from congressional deficit hawks:
The respective heads of the House and Senate Budget Committees, John Spratt, Jr., of South Carolina, and Kent Conrad, of North Dakota, have spent years trying to control the deficit…
Kent Conrad, the chairman of the Senate Budget Committee, has made eradicating the federal budget deficit his life’s work.
Now, you’d think that if the ranking Democrats on the congressional budget committees had made deficit reduction their life’s work, the budget wouldn’t have, you know, skyrocketed over the past decade and more. So let’s go to the tape.
The National Taxpayers Union has given Spratt an F for his votes on federal spending every year for more than a decade. (He had a couple of D’s earlier in his career.) In the past two years, he voted with the taxpayers 5 and 6 percent of the time. He voted for spending bills more often than the average member of the House, and more often than the average Democrat. Some deficit hawk!
Conrad has an almost identical record — almost all F’s, with ratings of 5 and 6 in the past two years.
By another measurement, in the 109th Congress (the most recent for which these calculations are available), Spratt voted for $184 billion in additional spending and voted to cut — drum roll, please — $4.8 billion in spending. Conrad voted to cut $8 billion, but he also voted to hike spending by $362 billion. In what world are these guys “trying to control the deficit”?
NTU does have one analysis that makes Conrad and Spratt look a little better: the bills they have sponsored or cosponsored. Spratt introduced 32 bills that would increase spending and 2 that would cut spending. While that may not sound very thrifty, it compares favorably to, say, Hilda Solis’s 110 bills to increase spending or Barney Frank’s 112. And the total new spending in Spratt’s bills — $7 billion — is positively Randian. Conrad’s record is similar — 36 bills to increase spending by $8 billion, which compares very favorably to, for instance, Hillary Clinton and Thad Cochran.
Apparently Conrad and Spratt don’t introduce too many spending bills, but they vote for all the ones that get to the floor. Not exactly a strategy that holds the budget down. The search for a fiscally conservative Democrat continues.
There Are Always Strings Attached…
Following up from my blog entry last week on Rep. Barney Frank’s (D, MA) efforts to reduce restrictions on Americans’ freedom to gamble online, it seems that the prospect of more tax revenue has made some folks see religion.
An article from Texas Insider has details on the political shenanigans needed to get this bill passed, including an associated bill introduced by Rep. Jim McDermott (D, WA) to tax (at a rate of 2%) the deposits into online gambling accounts. Apparently, that could provide up to $43 billion in tax revenue over 10 years. For the children.
Apparently we get our freedoms restored with a side-dish of tax.
As an aside: Note long-term opponent Rep. Bob Goodlatte’s (R, VA) non-sequitur on why allowing the Frank bill to pass is a bad idea:
Apparently, Rep. Frank believes that [Treasury Secretary] Timothy Geithner can do a better job at enforcing our nation’s criminal laws than the Department of Justice, which is scary considering [Geithner’s] track record on complying with the tax code,” he said.
(he is referring to the Frank bill’s proposal to shift responsibility for the licensing and regulation of online gambling companies to the Treasury)
HT: hero of the revolution Radley Balko.
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