Obama and Daniels Team Up to ‘Shovel’ Subsidies
(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.
Polls Show Voters Don’t Support Corporate Welfare
Two polls of likely voters released by Rasmussen Reports today indicate that the federal government’s corporate welfare programs should be prime targets for spending cuts.
The first poll found little support for the Small Business Administration’s lending programs:
- A majority (58 percent) of likely voters said that the federal government shouldn’t guarantee loans issued by private lenders to small businesses. 23 percent said the government should back small business loans and 19 percent were unsure.
- A majority (59 percent) of likely voters said that reducing government regulations and taxes would be more helpful to small businesses than the government providing loans to small businesses that can’t obtain financing on their own. 22 percent said the government loans were better and 18 percent were unsure.
- Entrepreneurs particularly believed that reducing government regulations and taxes is preferable to government lending programs. 76 percent of entrepreneurs felt that way and 61 percent opposed government loans to small businesses that couldn’t obtain financing.
(See this new Cato essay on why the Small Business Administration should be terminated.)
Similarly, the second poll found little support for various federal corporate welfare programs:
- Only 15 percent of likely voters said the federal government should continue to provide funding for foreign countries to buy military weapons from U.S. companies. 70 percent were opposed and the rest were undecided.
- Only 29 percent of likely voters said the government should continue to provide loans and loan guarantees to help finance export sales for large corporations. 46 percent were opposed and the rest were undecided. (See Sallie James’ new Cato paper on why the Export-Import Bank should be terminated.)
- Only 37 percent of likely voters said the federal government should continue providing farm subsidies. A plurality (46 percent) said farm subsidies should be abolished and 17 percent weren’t sure. (See this Cato essay for more on farm subsidies.)
Journalism and Generality
The media makes it hard for ordinary people to be libertarians. In large part, this is because journalism is in the business of selling panic—panic about terrorism, panic about drugs, panic about food, panic about pornography, panic about our health care system. If it’s not an emergency, it’s not news. To the lazy journalist, everything becomes an emergency—and emergencies always—always—demand state action.
The media makes things hard for the would-be libertarian in other ways, too. Consider this story from today’s Washington Post, about… well, it’s hard to say, actually:
Senate Democrats unveiled a plan Tuesday to save $21 billion over the next decade by eliminating tax breaks for the nation’s five biggest oil companies, a move designed to counter Republican demands to control the soaring national debt without new taxes.
With the proposal, Democrats sought to reframe the debate over debt reduction to include fresh revenue as well as sharp cuts in spending. For the first time, Democratic leaders suggested an equal split between spending cuts and new taxes — “50-50,” said Senate Majority Leader Harry M. Reid (Nev.).
That represents a larger share for taxes than has been proposed by either President Obama or the bipartisan commission he appointed to recommend how to cut the national debt.
So far, the Democratic tax agenda is focused on ending subsidies for big oil companies, a hugely popular proposal involving what Democrats see as a prime example of wasteful giveaways in the tax code. By raising the issue, Democrats are trying to force Republicans either to drop their rigid stance against new taxes or to defend taxpayer subsidies for some of the world’s most profitable corporations, including Exxon Mobil, Shell, BP, Chevron and ConocoPhillips.
The proposal came in response to remarks Tuesday by House Speaker John A. Boehner (R-Ohio), who said raising taxes is “off the table.” A day earlier, he gave a speech demanding more than $2 trillion in spending cuts in exchange for GOP support for an increase in the legal limit on government borrowing through the end of next year.
Where am I confused, you ask? On almost everything a libertarian ought to care about. I’ll explain.
One of the key aspects of any good law is generality—that is, equality before the law. As F. A. Hayek put it:
[T]hough government has to administer means which have been put at its disposal (including the services of all those whom it has hired to carry out its instructions), this does not mean that it should similarly administer the efforts of private citizens. What distinguishes a free from an unfree society is that in the former each individual has a recognized private sphere clearly distinct from the public sphere, and the private individual cannot be ordered about but is expected to obey only the rules which are equally applicable to all….
The general, abstract rules, which are laws in the substantive sense, are… essentially long-term measures, referring to yet unnkown cases and containing no references to particular persons, places, or objects. Such laws must always be prospective, never retrospective, in their effect (The Constitution of Liberty, chapter 14, section 2).
Now, with every passing day our government stomps all over this generality requirement again and again, chiefly in the economic sphere. But is it doing so on the front page of today’s Washington Post? That’s a good question.
Sen. Rand Paul Proposes Serious Cuts
Freshman Sen. Rand Paul (R-KY) has raised the bar in Washington by releasing a bill that would make substantial, specific, and immediate cuts in federal spending. While policymakers on both sides of the aisle have largely paid lip service to stopping Washington’s record run of fiscal profligacy, Paul’s proposal makes good on his campaign promise to seriously tackle the federal government’s bloated budget.
Paul’s bill would target $500 billion in cuts for fiscal 2011 alone. While audacious by Washington standards, cutting federal spending by that amount would still leave us with a projected $1 trillion deficit this year. Nonetheless, the federal government’s scope would be dramatically curtailed, which would pay dividends in coming years as the economy is unshackled from numerous failed federal interventions.
A description of Paul’s proposed cuts can be viewed here, but some of the bolder ideas merit a comment or two.
First, Paul would eliminate most Department of Education spending, with the exception of higher education subsidies. He correctly notes that the federal government’s increased involvement in education has been “detrimental” and that “the mere existence of the Department of Education is an overreach of power by the federal government.”
Second, the Department of Energy, which is becoming a chief source of corporate welfare, would be zeroed out. Paul would eliminate subsidies for all energy industries — from fossil fuels to so-called “green” energies. He notes that the government’s interference in energy development should be ended and the free market allowed to “start taking the reins.”
Third, the Department of Housing and Urban Development — one of most visible examples of government failure — would be eliminated. Among the HUD programs that Paul singles out, it is his criticism of housing vouchers that deserves the most applause as they remain popular in some Republican and conservative quarters.
Paul deserves credit for proposing cuts at the Department of Defense, although the savings would be relatively small. However, his proposal would cut the Department of Homeland Security almost in half, and would zero out billions of dollars in foreign aid. The latter is well-timed given the situation in Egypt, a major recipient of U.S. foreign aid dollars.
Finally, Paul would chop a quarter of the Department of Health and Human Service’s budget, although he doesn’t take on Medicare or Medicaid. He is reportedly at work on separate legislation that would address Medicare and Social Security. Because Paul’s proposal is focused on immediate cuts, his decision to tackle the big mandatory spending programs separately shouldn’t be viewed as a cop out.
Thus far, the spending cut bar in Washington has been set pretty low. Policymakers from both parties and varying ideological backgrounds have been timid in spelling out precisely what they would cut. By getting specific, Paul has raised the bar, which will hopefully put pressure on others — in particular, the congressional Republican leadership — to move beyond a vague, myopic fixation on nondefense discretionary spending.
State Corporate Welfare Programs Under Fire
One positive outcome of the recession, as the states struggle to find revenue to spend, is that state subsidies to businesses are facing increased scrutiny.
This week the New York Times reported that states are looking at reducing or ending programs that hand out taxpayer money to television and movie producers. In Pennsylvania, some last-minute handouts from outgoing governor Ed Rendell are under fire, including a $10 million state grant to rehabilitate a former Sony plant for new tenants. According to the Commonwealth Foundation’s Nate Benefield, this is the fourth time Pennsylvania taxpayers have subsidized the site:
Sony moved out in 2007, despite getting more than $40 million in corporate welfare under Gov. Robert P. Casey to come to Pennsylvania, then another $1 million grant under Rendell to stay in the state—a mere two years before shutting down its plant.
Before Sony, the site was occupied by Volkswagen, which got $70 million in state aid in the 1970s under Gov. Milton Shapp. This was touted as a great success — until Volkswagen moved out in 1987, after 10 years of operation.
Pennsylvania is merely renting jobs with this “economic development” spending, burdening other businesses with higher taxes. Hopefully, Gov. Tom Corbett can learn from the failed policies of the past and work on improving the state’s economic climate rather than trying to pick winners.
Happy National Entrepreneurs’ Day?
President Obama has proclaimed today to be National Entrepreneurs’ Day. The president who has brought us regime uncertainty, more regulations, more government intrusion into the economy, more debt, and is proposing to raise taxes on productive businesses and individuals wants to celebrate entrepreneurship?
I was alerted to National Entrepreneurs’ Day via an email (not online) from the Department of Commerce’s Economic Development Administration. The EDA email makes it clear that the administration wishes to celebrate political entrepreneurship, not market entrepreneurship.
In his book, The Myth of the Robber Barons, historian Burton Folsom explains the difference:
A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.
As Obama administration achievements, the EDA touts increased Small Business Administration subsidies and a smorgasbord of industrial planning contained in last year’s stimulus package:
The American Recovery and Reinvestment Act served as the cornerstone for this new foundation by pumping $100 billion into the economy to help us tackle some of the grand challenges of the 21st century in diverse fields from healthcare IT and health research, to clean energy, to smart grids, and high speed trains. Recovery Act investments are creating a virtuous cycle of investment, innovation, and job creation that have so far led to the creation of 3 million new jobs.
Wrong. The stimulus has fueled an unvirtuous cycle of political entrepreneurship in which business interests chase federal hand-outs for endeavors sanctioned by inside-the-Beltway planners. Political entrepreneurs have less incentive to innovate and are naturally reluctant to criticize the government because they don’t want to bite the hand that’s feeding them. As Chris Edwards puts it, they become “tools of the state.”
If the administration were really interested in promoting entrepreneurship, it would repudiate the anti-market policies it has pursued thus far. That’s obviously not going to happen, so it’s going to be up to congressional Republicans to repudiate their own history of supporting federal subsidies. In other words, the GOP’s re-found fondness for limited government rhetoric is going to have to actually be matched by action.
The Big Government-Big Business Health Care Plan
Ross Douthat at the New York Times, with help from Reihan Salam and Tim Carney, explains how the Senate health care bill can be both a government takeover and a huge subsidy to the insurance industry:
We’ve achieved an unusual left-right convergence in the health care debate: Both conservatives and liberals are attacking the current version of reform as an egregious giveaway to the insurance industry. (Both sides sound an awful lot like Tim Carney, in other words.) Suddenly, it’s hard to tell the difference between the right’s Yuval Levin (“The bill is basically a massive subsidy to the insurers — it is not a reform of the system”) and the left’s Markos “Daily Kos” Moulitsas (“it’s unconscionable to force people to buy a product from a private insurer that enjoys sanctioned monopoly status”).
Ed Kilgore argues that the two sides’s concerns, while superficially similar, are actually contradictory:
… on a widening range of issues, Obama’s critics to the right say he’s engineering a government takeover of the private sector, while his critics to the left accuse him of promoting a corporate takeover of the public sector. They can’t both be right, of course, and these critics would take the country in completely different directions if given a chance.
He’s right about the gulf between the critics’ prescriptions, but I think he’s wrong about the incompability of their critiques. Here’s Reihan, explaining why:
Actually, it is entirely possible for both sets of critics to be correct. The concern from the right isn’t that the Obama approach will literally nationalize for-profit health insurers. Rather, it is that for-profit health insurers will continue evolving into heavily subsidized firms that function as public utilities, and that seek advantage by gaming the political process. Profits, including profits governed by medical loss ratios, can and will then be cycled into political action, which leads to the anxiety concerning a “corporate takeover of the public sector.” Again, progressives don’t literally believe that such a takeover is happening. Instead, they believe, rightly, that subsidies without effective cost containment represent a massive windfall for the private insurance sector, including non-profit insurers that generate salaries for large numbers of politically active middle and upper middle class professionals.
So yes, Obama does not intend to nationalize the private insurance industry and then turn around and auction off the new nationalized health agency to Rupert Murdoch or Monsanto. But the anxieties of critics on the left and right are, to italicize for a moment, perfectly compatible.
The point is that the more intertwined industry and government become, the harder it is to discern who’s “taking over” whom — and the less it matters, because the taxpayer is taking it on the chin either way. Or to put it another way: The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which …
Tim Carney will discuss his book, Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses, at a Cato Book Forum on January 12.
The Week in Government Failure
Over at Downsizing Government, we focused on failures in the following departments this week:
- Commerce: corporate welfare in Ohio
- Defense: cost overruns in the Pentagon’s space programs
- Energy: central planners gamble with taxpayer money
- HUD: subsidizing private firms to operate public housing isn’t a solution
Also, dubious stimulus projects point to a need to return to fiscal federalism.
The Biggest Leeches Always Live
By proposing to eliminate the Federal Family Education Loan Program, President Obama has raised a pretty big ruckus in the relatively staid world of higher education policy. For the uninitiated, FFELP uses taxpayer dollars to essentially guarantee profits to participating financial institutions, and to keep student loans cheap and abundant.
Since neither corporate welfare nor rampant tuition inflation are really good things, getting rid of this beast would be a welcome move. Unfortunately, the president wants to replace FFELP with direct-from-Washington lending and to plow the savings into Pell Grants, so there’ll be no savings for taxpayers and probably very little beneficial effect on college prices.
As I wrote on NewMajority.com in May, no one should expect big lenders to get kicked off the federal gravy train:
[T]he Obama administration is saying they’d keep private companies as servicers of loans to maintain quality customer service. Of course, this could very well be worse than the status quo: It will likely keep at least the biggest current lenders (read: Sallie Mae) at the political trough, but Washington will be THE lender for all students.
Right I was! Or, at least, signs of my prescience keep getting brighter: Despite Obama promising to go to war against an ”army” of lenders’ lobbyists, the U.S. Department of Education just awarded Sallie Mae and three other big lenders lucrative contracts to service federal loans. So while smaller leeches could very well be removed from their supply of taxpayer blood, the biggest will keep on sucking!
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
