ObamaCare’s New Freedom
Earlier this month, President Obama’s HHS Secretary Kathleen Sebelius took to the Washington Post‘s op-ed page to reassure everybody that ObamaCare “puts states in the driver’s seat” and “gives states incredible freedom to tailor reforms to their needs.”
One grows weary of exposing the brazen falsehoods this administration incessantly and unconscionably peddles about its corrupt, unconstitutional, and irredeemable health care law. But here I go again: the very idea that ObamaCare puts states in the driver’s seat is nonsense. States already had the power to enact all the taxes, mandates, and price controls that ObamaCare expects them to implement — and to make what few choices ObamaCare leaves them.
If you want to know what Incredible Freedom really means, look to Wisconsin, where President Obama — who is evidently bored with the federal budget — has inserted himself into a state budget dispute, as David Boaz has noted.
As it turns out, Incredible Freedom means you are free to do exactly what President Obama wants.
The Washington Post reports on talk of federal bailouts for states (like Wisconsin) that are struggling with huge deficits and unfunded liabilities in their state pension and retiree health care programs. However:
The White House has dismissed such speculation, saying states have the wherewithal to raise taxes, cut programs and renegotiate employee contracts to balance their books.
A startling admission. Perhaps someone in the White House can pull Sebelius aside and explain that states also had the wherewithal to enact all the “reforms” that ObamaCare imposed on them. States already were “in the driver’s seat. They already had the power “to tailor reforms to their needs.”
Then along came ObamaCare.
Gary Johnson and Drug Policy
As governor of New Mexico, Gary Johnson succeeded in eliminating New Mexico’s budget deficit, cutting the rate of growth in state government in half, and privatizing half of the state prisons. During Johnson’s term, New Mexico experienced the longest period without a tax increase in the state’s history. He vetoed 750 bills in eight years, more than all other governors combined. The Economist dubbed him “America’s boldest governor” — and that was before he took on drug prohibition. He discussed drug policy and other issues at the Cato Institute November 1, 2010 at a Cato on Campus forum.
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Postal Union Wants More
The finances of the U.S. Postal Service are deeply in the red. The agency faces a permanently reduced demand for its services and its labor accounts for almost 80 percent of its costs. Thus it is not a good time for postal employees to get an increase in wages and benefits, right?
According to one postal union, the USPS’s deteriorating condition isn’t relevant. The American Postal Workers Union, which represents more than 200,000 employees, has recently entered collective bargaining negotiations for a new contract. In an interview with Government Executive, APWU President William Burrus calls a pay increase for his members an “entitlement”:
“More — more control over activities at work, more money, better benefits — we want more,” said Burrus. “We will try to fashion our proposals to reflect the entitlement to more.”
An arbitrator will most likely determine whether APWU workers get their raises. Oddly, according to federal law an arbitrator can’t take the USPS’s financial condition into account when weighing a decision. This is like instructing the captain of a ship that’s struck an iceberg to ignore the gaping hole in the boat when deciding whether or not to abandon it.
USPS management has asked Congress to change the law, which Burrus preposterously calls “antidemocratic”:
Burrus said he resents the idea that an arbitrator should be required to take into account the Postal Service’s financial situation. He called the idea antidemocratic and said it interferes with free collective bargaining.
Having watched the unionized workforces at GM and Chrysler receive preferential treatment from the federal government, there’s little incentive for Burrus and the postal unions to not ask for more. The postal unions are likely betting that in a worst case financial scenario for the USPS, policymakers will tap taxpayers for a bailout. Unfortunately, if recent history is a guide, they’re probably correct.
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.
More Garbage-In-Garbage-Out from CBO
You don’t need to watch old Gunsmoke episodes if you want to travel into the past. Just read the latest Congressional Budget Office “research” claiming that Obama’s so-called stimulus “increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million.” CBO’s analysis is a throwback to the widely discredited Keynesian theory that assumes you can enrich yourself by switching money from your left pocket to right pocket. For all intents and purposes, CBO wants us to believe their Keynesian model and ignore real world data. This is akin to the famous line attributed to Willie Nelson, who was caught with another woman by his wife and supposedly said, “Are you going to believe me or your lying eyes?”
Using its own Keynesian model, the White House last year said that wasting $800 billion was necessary to keep the unemployment rate from rising above 8 percent. Yet the joblessness rate quickly jumped to 10 percent and remains stubbornly high. We’ve already beaten this dead horse (here, here, here, here, and here), in part because the White House has embarrassed itself even further with silly attempts to find some way of turning a sow’s ear into a silk purse. This is why Obama Adminisration estimates have evolved from “jobs created” to “jobs saved” to “jobs financed.”
The CBO’s most recent ”calculations” are just another version of the same economic alchemy. But don’t believe me. Buried at the end of the report is this passage, where CBO basically admits that its new “research” simply plugged new spending numbers into its Keynesian formula. This sounds absurd, and it is, but don’t forget that these are the same geniuses that predicted that a giant new health care entitlement would reduce long-run budget deficits.
CBO’s current estimates of the impact of ARRA on output and employment differ slightly from those presented in its February 2010 report primarily because the agency has revised its estimates of ARRA’s impact on federal spending on the basis of new information. Outlays resulting from ARRA in the first quarter of calendar year 2010 were higher than the amount that CBO projected in February 2010 in preparing its estimate of the law’s likely impact on output and employment, primarily because a larger-than-expected amount of refundable tax credits was disbursed in the first quarter rather than later in the year. That change makes the estimated impact of ARRA on output and employment in the first quarter slightly higher than what CBO projected in February.
Thursday Links
- Greece, here we come…. Congressional Budget Office estimates budget deficits will average nearly $1 trillion per year for the next decade.
- Matt Drudge re-titles a Cato op-ed: “Mob Tactics Used to Push Healthcare Through.”
- Daniel Griswold: “On trade, as on so much else, the populists have it wrong again. Free trade and globalization are great blessings to families across America.“
- Could Dennis Kucinich bring both sides of the aisle together to end the war in Afghanistan?
- Podcast: “Seventies Redux?” featuring John Samples, author of the forthcoming book The Struggle to Limit Government.
A Fiscal Train Wreck
That is the title of a 2003 New York Times column by economist Paul Krugman. The gist of his column was that the Bush tax cuts and future entitlement program liabilities would usher in calamitous deficits. Setting aside the tax cut and entitlements issue, Krugman’s comments on the dangers of deficits are interesting considering seven years later Krugman is one of the most prominent supporters of massive deficit spending to stimulate the economy.
Here are some selected Krugman quotes from the column:
With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don’t matter. But we’re looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ‘When the government reduces saving by running a budget deficit, the interest rate rises.’ Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.
But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar. It won’t happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.
Although this shouldn’t be construed as an endorsement of George Bush’s fiscal policies, the deficit for fiscal year 2003 when Krugman wrote his column was $378 billion. The Congressional Budget Office just reported that the deficit for the first quarter of FY 2010 was $434 billion.
The following chart shows the annual deficits from fiscal years 2002 through 2010 (projected). For 2009 and 2010 the first quarter deficit is also shown. In short, the two most recent first quarter deficits have been about $100 billion higher than the average annual deficits run from 2002 to 2008.
In FY2003, the deficit was 3.4 percent of GDP – for FY2010 it’s projected to be 10.6 percent. According to the President’s optimistic FY2011 budget, annual deficits won’t fall below 3.6 percent of GDP at any point in the next ten years.
Yes, Krugman believes that large deficit spending is necessary to turn the economy around. But that doesn’t change the fact that his dire warnings about deficits in 2003 should apply to today’s even larger deficits, especially now that we’re even closer to an entitlement crisis. However, Krugman recently penned a column warning against “deficit hysteria” in which he makes comments that are more than just a little at odds with his 2003 column:
These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.
Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.
Scratching your head? I am too.
Karl Rove’s Hypocritical Call for Fiscal Rectitude
Even though I’ve been in Washington for almost 25 years, I still get shocked by the deceit and double-talk that characterizes this town. A perfect example can be found in today’s Wall Street Journal, which features a column by Karl Rove attacking President Obama for fiscal incontinence. I’m a big fan of condemning Obama’s big-government schemes, but Rove is the last person in the world who should be complaining about too much wasteful spending. After all, he was the top adviser to President Bush and the federal budget exploded during Bush’s eight years, climbing from $1.8 trillion to more than $3.5 trillion. More specifically, Rove was a leading proponent of the proposals that dramatically expanded the size and scope of the federal government, including the no-bureaucrat-left-behind education bill, the two corrupt farm bills, the two pork-filled transportation bills, and the grossly irresponsible new Medicare entitlement program.
Not surprisingly, Rove even tries to blame Obama for some of Bush’s overspending, writing that “…discretionary domestic spending now stands at $536 billion, up nearly 24% from President George W. Bush’s last full year budget in fiscal 2008 of $433.6 billion. That’s a huge spending surge, even for a profligate liberal like Mr. Obama.” This passage leads the reader to assume that Obama should be blamed for what happened in fiscal years 2009 and 2010, but as I’ve already explained, the 2009 fiscal year started about four months before Obama took office and 96 percent of the spending can be attributed to Bush’s fiscal profligacy. Yes, Obama is now making a bad situation worse by further increasing spending, but he should be criticized for continuing Bush’s mistakes.
Rove then has the gall to complain that Obama is “…growing the federal government’s share of GDP from its historic post-World War II average of roughly 20% to the target Mr. Obama laid out in his budget blueprint last February of 24%.” Yet a quick look at the budget data shows that the burden of federal spending jumped from 18.4 percent of GDP when Bush took office to more than 25 percent of economic output when he left office. Even if the (hopefully) temporary bailout costs are not counted, Bush and Rove are the ones who deserve most of the blame for today’s much larger burden of government. It should be noted, by the way, that none of the new spending under Bush was imposed over his objection. He did not veto any legislation because of excessive spending.
Finally, Rove concludes by writing that, “After a year of living in his fiscal fantasy world, Americans realize they have a record deficit-setting, budget-busting spender on their hands.” I’m almost at a loss for words after reading this sentence. All during the Bush years, I would complain to people in the Administration about wasteful spending. It didn’t matter whether I was talking to people at the Office of Management and Budget, the Council of Economic Advisers, the Treasury Department, or the National Economic Council. They almost always expressed sympathy for what I was saying, and then complained that the decisions were being made by the “White House political people.”
There’s an old joke about chutzpah and it features a guy who murders his parents and then asks the court for mercy because he’s an orphan. Karl Rove has taken the joke to the next level, but there’s nothing funny about the consequences for America.
Deficit Commission: Wrong Target, Wrong Approach
Legislation being considered on Capitol Hill would create a supposed deficit reduction commission. If politicians were bound by truth-in-advertising, this proposal would be called a tax increase commission. It creates a mechanism that will — at best — replicate the 1982 and 1990 budget summits, both of which were fiscal disasters from the perspective of those who favor limited government. The inevitable result of a “bipartisan” process is a 50/50 deal of “spending cuts” and “tax increases,” but the spending cuts are off the “baseline” (which assumes spending goes up), so even if the changes are real (and they rarely are), they are merely reductions in increases. The tax increases, meanwhile, are real and come on top of all the revenue growth built into current law. Moreover, many of the so-called spending cuts are actually increases in revenue (the “offsetting receipts” charade). Last but not least, this legislation is a stalking horse for VAT (that’s what all the talk about an “antiquated” tax system that needs to be “modernized” is all about).
What’s remarkable about this proposal is how Democrats are almost transparent in their desire to lure Republicans into committing political suicide. As demonstrated by the 1982 and 1990 budget deals, everything is examined through the prism of distribution tables once a budget summit or commission commences and the GOP inevitably comes across as the bad guys who try to protect the rich at the expense of the poor. Of course, if Republicans are really stupid enough to travel down this path, they’ll deserve exactly what happens. But some people in Washington are aware that the proposed commission is a recipe for a major tax hike. The Financial Times cites Cato’s Chris Edwards in its report:
The push for a bipartisan commission to deal with the fiscal challenges facing the US gained momentum on Wednesday as 27 senators sponsored revised legislation that would create such a task force. The bill, introduced by Democrat Kent Conrad and Republican Judd Gregg, both fiscal hawks, would charge an 18-member group of serving legislators and administration officials with coming up with a plan to solve what they called “the nation’s long-term fiscal imbalance”. …In a sign that the concept of such a commission is gaining ground politically, anti-tax activists immediately attacked the proposal, saying it would lead to tax increases. Grover Norquist, head of Americans for Tax Reform, published an open letter saying the “commission is unacceptable from a taxpayer perspective” because “it would lead to a guaranteed tax increase”. …Chris Edwards, director of tax policy at the small-government Cato Institute, said a commission was likely to put too much emphasis on tax increases when “long-term projections reveal a spending catastrophe, not a revenue challenge”.
One final comment. It is utterly absurd to categorize Senator Kent Conrad as a fisal hawk. This term supposedly suggests a member who actively pursues deficit reduction. Yet according to the vote rating of the National Taxpayers Union, Conrad’s most recent rating is an F. Which is the same grade he got the previous year, and the year before that, and the year before that. Indeed, Conrad “earned” failing grades in 14 out of 17 years, and got a D in the other three years.
Defending Obama…Again
I caught a lot of flack from my Republican friends for my post blaming the FY2009 deficit on Bush instead of Obama. Well, I must be a glutton for punishment because I can’t resist jumping (albeit reluctantly) to Obama’s defense again. I’m venting my spleen for two reason. First, FoxNews.com posted a story headlined “Obama Shatters Spending Record for First-Year Presidents” and noted that:
President Obama has shattered the budget record for first-year presidents — spending nearly double what his predecessor did when he came into office and far exceeding the first-year tabs for any other U.S. president in history. In fiscal 2009 the federal government spent $3.52 trillion …That fiscal year covered the last three-and-a-half months of George W. Bush’s term and the first eight-and-a-half months of Obama’s.
This story was featured on the Drudge Report, so it has received a lot of attention. Second, Bush’s former Senior Adviser wrote a column for the Wall Street Journal eviscerating Obama for big budget deficits. Given Bush’s track record, this took considerable chutzpah, but what really nauseated me was this passage:
When Mr. Obama was sworn into office the federal deficit for this year stood at $422 billion. At the end of October, it stood at $1.42 trillion.
I’m a big fan of criticizing Obama’s profligacy, but it is inaccurate and/or dishonest to blame him for Bush’s mistakes. At the risk of repeating my earlier post, the 2009 fiscal year began on October 1, 2008, and the vast majority of the spending for that year was the result of Bush Administration policies. Yes, Obama did add to the waste with the so-called stimulus, the omnibus appropriation, the CHIP bill, and the cash-for-clunkers nonsense, but as the chart illustrates, these boondoggles only amounted to just a tiny percentage of the FY2009 total — about $140 billion out of a $3.5 trillion budget.
There are some subjective aspects to this estimate, to be sure. Supplemental defense spending could boost Obama’s share by another $25 billion, but Bush surely would have asked for at least that much extra spending, so I didn’t count that money but individual readers can adjust the number if they wish. Also, Obama used some bailout money for the car companies, but I did not count that as a net increase in spending since the bailout funds were approved under Bush and I strongly suspect the previous Administration also would have funneled money to GM and Chrysler. In any event, I did not give Obama credit for the substantial amount of TARP funds that were repaid after January 20, so the net effect of all the judgment calls certainly is not to Bush’s disadvantage.
Let’s use an analogy. Obama’s FY2009 performance is like a relief pitcher who enters a game in the fourth inning trailing 19-0 and allows another run to score. The extra run is nothing to cheer about, of course, but fans should be far more angry with the starting pitcher. That having been said, Obama since that point has been serving up meatballs to the special interests in Washington, so his earned run average may actually wind up being worse than his predecessor’s. He promised change, but it appears that Obama wants to be Bush on steroids.
Obamacare Will Be a Budget Buster
Does anyone think that a huge new entitlement program will lead to lower budget deficits? Sounds implausible, yet proponents of government-run healthcare claim this is the case according to the official estimates from the Congressional Budget Office and Joint Committee on Taxation.
To use a technical phrase, this is hogwash. This new 6-1/2 minute video, narrated by yours truly, gives 12 reasons why Obamacare will lead to higher deficits – including real-world evidence showing how Medicare and Medicaid are much more costly than originally projected.
By the way, this video doesn’t even touch on the mandate issue, which Michael Cannon explains is not being counted in order to make the cost of government-run healthcare less shocking.
What They Aren’t Telling You About the CBO Score
The CBO report that said the health care bill won’t raise deficits makes it clear that the Baucus bill’s reduction in future budget deficits comes not from controlling government spending or reducing health care costs, but because of a rapid escalation in tax revenues.
The bill imposes a 40 percent excise tax on health-insurance plans that offer benefits in excess of $8,000 for an individual plan and $21,000 for a family plan. Insurers would almost certainly pass this tax on to consumers via higher premiums. As inflation pushes insurance premiums higher in coming years, more and more middle-class families would find themselves caught up in the tax.
In fact, overall, the tax increases in the bill are more than double the amount of deficit reduction. This isn’t a health care efficiency bill or a cost containment bill. It is a tax and spend bill, pure and simple.
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