Last week, I flayed the American Small Business League’s Lloyd Chapman for his absurd claim that legislation introduced by Sen. Richard Burr (R-NC) would close the Small Business Administration (see here). As I expected, Chapman’s response is equally absurd.

In an ASBL press release, Chapman actually threatens to take me to court over my calling him a “conspiracy theorist”:

The next time you call me a conspiracy theorist, be ready to back it up with facts. You just might find yourself in court.

Good luck with that, Lloyd. In the meantime, let’s allow the court of public opinion to decide if the following claim you recently made is the stuff of a conspiracy theorist:

Clearly Republicans like Senator Burr, his supporters and groups such as the CATO Institute are directed like puppets by the defense and aerospace industry.

I can’t speak for Sen. Burr, but Chapman’s assertion that the Cato Institute is being “directed like puppets by the defense and aerospace industry” is ridiculous. Cato’s Downsizing Government website, which I co-edit, lays out the case for cutting the Department of Defense.

My Cato colleagues past and present have consistently advocated for a limited U.S. presence abroad:

Cato’s foreign policy vision is guided by the idea of our national defense and security strategy being appropriate for a constitutional republic, not an empire. Cato’s foreign policy scholars question the presumption that an interventionist foreign policy enhances the security of Americans in the post-Cold War world, and maintain instead that interventionism has consequences, including the formation of countervailing alliances, the proliferation of weapons of mass destruction, and even terrorism. The use of U.S. military force should be limited to those occasions when the territorial integrity, national sovereignty, or liberty of the United States is at risk.

Does that strike the reader as anything the defense and aerospace industry would direct Cato to advocate? Clearly, Chapman is hopelessly lost in a fantasy world of his own creation.

Perhaps realizing that he embarrassed himself by threatening me with legal action, Chapman now says that he wants to take a different approach:

I am sure that Tad DeHaven and the staff at the CATO Institute have seen my press release in response to their attack on my credibility. I’d like to take this opportunity to try a different approach and appeal to their sense of patriotism, logic and reason.

He then proceeds to talk about all of the jobs that small businesses create and the fact that federal contracts set aside for small businesses sometimes end up instead benefiting large businesses. Uh, Lloyd, in my “attack” on you, I never said otherwise. I even noted that “Chapman is correct that government contracting is fraught with fraud and abuse.” In my testimony on the SBA before the Senate Small Business Committee, I discussed examples of fraud and abuse in government contracting, including federal contracts set aside for small businesses that ended up benefiting large companies like General Electric and Lockheed Martin.

As I noted in my “attack,” Chapman is focused on the contracting issue whereas I’m primarily focused on the SBA’s loan guarantee programs. I frankly don’t care what firms receive federal contracts so long as work is performed at the lowest cost to taxpayers. I’m more concerned with reducing the size and scope of government, which would mean lower taxes and fewer burdensome regulations for small businesses. Moreover, does Chapman not understand that those government contracts are paid for, in part, by other small businesses through taxes? I would argue that the strength of the small business community should be measured by the goods and services produced for private consumption, not government consumption.

Finally, if Chapman is so pro-small business/anti-big business, why isn’t he concerned with the SBA’s loan guarantee programs? I challenged Chapman on this issue:

I’m all for a serious discussion and debate on the SBA. The SBA’s loan guarantee programs benefit a relatively tiny number of small businesses at the expense of the vast majority of small businesses that do not receive government support. Moreover, the biggest winners from these loan guarantees are big banks who reap the profits but get to kick the bulk of any losses to the government. One would think a pro-small business/anti-big business guy like Chapman would be concerned by this. Instead, Chapman consistently resorts to wild exaggerations and conspiracy theories. As a result, I can’t take him seriously. It’s too bad policymakers do.

The silence from Chapman on this matter is deafening. In addition to resorting to wild exaggerations and conspiracy theories, we can now add the threat of legal action. Until Chapman dispenses with the antics, policymakers should stop taking him seriously.

The Curious Case of Lloyd Chapman is a post from Cato @ Liberty - Cato Institute Blog

President Obama’s former head of the Council of Economic Advisers has taken to the pages of the New York Times to warn us against pursuing “fiscal austerity just now,” particularly not spending cuts.

Christina Romer’s views are Keynesian. She doesn’t use that word, but she is focused on juicing “demand” with optimally-targeted and well-managed government “investments.”

Economics has numerous schools of thought, but Romer’s writing reflects nothing but the most simplistic Keynesian framework. The fact that the huge Keynesian stimulus of recent years that she supported has coincided with the slowest economic recovery since World War II seems to be of little concern to her.

She also doesn’t seem to be interested in how government spending actually works in the real world. She assures us that “government spending on things like basic scientific research, education and infrastructure . . . helps increase future productivity.”

That view has a veneer of economic authenticity, but it leaves many issues unaddressed:

• Most federal spending is on transfers and consumption, not investment. The debt crisis we face is driven mainly by entitlements, which is consumption spending. Romer’s talk of investment spending is a rhetorical bait-and-switch.
• Romer doesn’t distinguish between average and marginal spending. If some federal investment spending has created positive net returns, that doesn’t mean that additional spending would. Governments already spend massive amounts on education, for example, so the marginal return from added spending is probably very low.
• If the government investments that Romer touts are so valuable, then why hasn’t the government done them already? After all, federal, state, and local governments in this country already spend 41 percent of GDP.
• If science, education, and infrastructure investments have the high returns that Romer seems to think they do, then why does the government need to be involved? Private firms seeking higher profits would be all over such investments.
• Romer mentions that the “social returns” on some investments might be higher than purely private returns. However, that doesn’t mean that the government should automatically intervene. For one thing, the government suffers from all kinds of management failures and other pathologies.
• Romer also ignores that the government imposes substantial deadweight losses on the economy when it commandeers the resources it needs for its “investments.”

So my reading assignment for Romer is www.DownsizingGovernment.org so she can get a better understanding of how federal programs actually operate.

And readers interested in all the economics of government spending that Romer doesn’t tell you about can consult Edgar Browning’s excellent book, Stealing From Each Other.

Christina Romer’s Naïve Keynesianism is a post from Cato @ Liberty - Cato Institute Blog

In the Washington Post Friday, Ezra Klein partly confirmed what I fear the Republican strategy is for the debt-limit bill—get to the $2 trillion in cuts promised through accounting gimmicks. As I have also noted, Klein says that there is about $1 trillion in budget “savings” ($1.4 trillion with interest) to be found simply in the inflated Congressional Budget Office baseline for Iraq and Afghanistan. Klein says, “I’m told that a big chunk of these savings were included in the debt-ceiling deal” that Rep. Eric Cantor (R-VA) and Sen. Jon Kyl (D-AZ) are negotiating with the Democrats.

Republican leaders have promised that spending cuts in the debt-limit deal must be at least as large as the debt-limit increase, which means $2 trillion if the debt-limit is extended to reach the end of 2012. In a Daily Caller op-ed, I noted that you can find $1 trillion in “savings” from this phony war accounting and another $1 trillion by simply pretending that non-security discretionary will stay flat over the next decade.

There is more evidence that few, if any, real spending cuts are being discussed. One clue is that the media keeps quoting Joe Biden essentially saying that it was easy to reach agreement on the first $1 trillion in cuts.

The other suspicious thing is that the media keeps floating trial balloons for specific tax hikes, but I’ve seen very few trial balloons for specific spending cuts. Friday, the Washington Post story on the debt discussions mentions all kinds of ideas for raising taxes on high earners. A few days ago, news stories revealed that negotiators were talking about changing tax bracket indexing to create annual stealth increases in income taxes. The only item I’ve seen being discussed on the spending side is trimming farm subsidies.

If Republican and Democratic lawmakers were really discussing major spending cuts, then the media would be full of stories mentioning particular changes to entitlement laws to reduce benefits and stories about abolishing programs widely regarded as wasteful, such as community development grants.

I hope I’m wrong, but this is starting to look a lot like the phony $100 billion spending cut deal from earlier this year.

Sean, Rush, Greta, Glenn, Bill: When you get Republican leaders on your shows, get them to promise that they won’t use phony baseline accounting like war costs to reach the $2 trillion in cuts. The budget and the nation desperately need real cuts and real government downsizing.

$1 Trillion in Phony Spending Cuts? is a post from Cato @ Liberty - Cato Institute Blog

A fierce storm from Mother Nature killed my Internet connection last Friday (I didn’t see any black helicopters, so I’m assuming it was her). Therefore, the following are issues we focused on over the last two weeks at Downsizing the Federal Government:

• Federal employees enjoy benefits that aren’t available to most private sector workers.
• A bottom-up approach to transportation policy would save taxpayers money and increase mobility.
• Trims to discretionary agriculture programs leads one congressman to channel his inner Harold Camping.
• Education policy: the Obama administration wants a race to the cradle.
• Only six other Republicans voted for Sen. Rand Paul’s plan to balance the budget in five years through spending cuts.
• Two key House Republicans want to halt Amtrak’s dream of high-speed rail in its tracks.
• Chris Edwards on tax cuts, loopholes, and the size of government.
• The federal government’s housing stimulus fails.

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

An insert that ran in the Washington Times this week didn’t say directly that the Federal Trade Commission’s budget should be cut. But a few short steps get you there.

The FTC-produced insert—a 16-page, color brochure appearing in a number of papers—is titled: “Living Life Online.” It’s aimed at teaching children how to use the Internet, with articles titled: “Sharing Well With Others” and “Minding Your Manners.” An ad on the back points kids to an FTC Web site about advertising called Admongo.gov, and little smart-phone insets contain factoids like:

DID YOU KNOW? Teens text 50 messages a day on average, five times more than the typical adult (who sends or receives 10 text messages a day).

Well, I have some factoids to share, too:

DID YOU KNOW? The U.S. Constitution provides for a federal government of limited, enumerated powers (and teaching kids about the Internet is not one of them).

Here’s another:

DID YOU KNOW? The federal government has had massive deficit spending in recent years, of $459 billion in FY2008, $1.4 trillion in FY2009, $1.3 trillion in FY2010, and $1.5 trillion in FY2011 (which is a huge damper on economic recovery).

It’s time to make serious budget cuts, and a government agency that seeks to replace parenting with government propagandizing to children is a great opportunity to do that.

Cato’s Downsizing Government project has been making its way through the major agencies, but don’t overlook the little ones. President Obama’s budget called for the FTC to spend $321 million in fiscal 2012. Zeroing that out would save a bunch, not only in direct expenses but in the dead-weight loss to the economy and consumer welfare symbolized by the FTC’s awful “Man Restraining Trade” statues.

FTC Advert: Cut Our Budget! is a post from Cato @ Liberty - Cato Institute Blog

House Speaker John Boehner has promised to tie substantial spending cuts to upcoming debt-limit legislation. He said spending cuts will have to be at least as large as the dollar value of the allowed debt increase. Thus, if the legislation increased the legal debt limit by $2 trillion, then Congress would have to cut spending over time by at least $2 trillion.

How can we be sure that spending cuts are real?

There are only two types of solid and tough-to-reverse spending cuts—legislated changes to reduce entitlement benefit levels and complete termination of discretionary programs. Republicans will have to define what time period they are talking about, but let’s assume it’s the standard 10-year budget window.

• Entitlements: The legislation, for example, could change the indexing formula for initial Social Security benefits from wages to prices. The Congressional Budget Office says that change would reduce spending by $137 billion over 10 years (2012-2021). Other options include raising the retirement age for Social Security and raising deductibles for Medicare.
• Discretionary: Each session of Congress decides the following year’s discretionary spending. Promises of discretionary spending cuts beyond one year are meaningless. Thus, the various promises in Republican and Democratic budget plans to freeze various parts of discretionary spending through 2021 or reduce spending to 2008 levels over the long term have no weight. Those are not real cuts.

The only way to get real cuts in discretionary spending—cuts that would be tough to reverse out in later years—is complete program termination and repeal of the program’s authorization. That way, policymakers in future years would generally need at least 60 votes in the Senate to reinstate the spending.

Thus, if the GOP promises to save $50 billion over 10 years by reducing the levels of Title 1 grants to the states for K-12 schools, that is not a real and solid cut. However, if they pass a law to repeal Title 1 spending altogether, that cut may well be sustained over the long term.

To make spending cuts even more secure, the GOP should also insist on a statutory cap on overall outlays with a supermajority requirement to break, as I’ve outlined here. For program termination ideas, see www.DownsizingGovernment.org.

In sum, the GOP needs to ensure that spending cuts tied to the debt-limit vote are either:

1. Changes to entitlement laws to reduce benefit levels, or
2. Discretionary program terminations.

Promises to hold down future discretionary spending levels and partial program trims are not real spending cuts.

John Boehner’s Spending and Debt Promise is a post from Cato @ Liberty - Cato Institute Blog

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

• A lot of Americans are aware that their tax dollars subsidize cotton farmers. However, it’s unlikely that many Americans are aware that their tax dollars are now supporting cotton farmers in Brazil.
• Chris Edwards released an updated version of his Plan to Cut Spending and Balance the Federal Budget. No sacred cows are spared. Defense, domestic, and so-called entitlement programs are all cut.
• The good news in a new Deloitte survey of members of the U.S. business community is that optimism is on the rise. The bad news is that the heavy hand of government is still a dark cloud hovering over the recovery.
• In her budgets, in her speeches, and in her strategic plans, Secretary of Labor Hilda Solis says that her “vision” for federal action is “Good Jobs for Everyone!”
• Some good news for once: President Obama’s dream of connecting 80 percent of Americans to a high-speed rail line appears to be dead.

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

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

• Michael Tanner’s new paper is a sobering reminder that it’s the major entitlement programs that are pushing us toward the cliff’s edge.
• This week the House Republican leadership finally put the Pentagon on the chopping block. However, the cuts suggested by the GOP are pathetic.
• The federal government engages in a lot of activities that are difficult to defend. But when it comes to sugar, the government’s protections are clearly indefensible.
• We’re still looking for a convincing argument as to why farmers deserve taxpayer- and consumer-funded special treatment compared with other businesses.
• Record spending levels…trillion dollar plus deficits…mountainous debt…a weak economy…what, Congress worry?
• Uncle Sam sticks it to the Easter Bunny.

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

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

• Sen. Rand Paul introduces a practical, common sense budget that recognizes that the federal government’s growth has become unsustainable, and thus a threat to our economic well-being and future living standards.
• According to the Congressional Budget Office, the president’s latest budget proposal would once again leave “our people” with a “mountain of debt.”
• It would be nice if the latest example of FAA bungling woke Congress up to the idea of privatizing our nation’s air traffic control system.
• Instead of tinkering with federal welfare programs, let’s have a public discussion and debate over the fundamental justness and desirability of letting Washington dictate how to meet the needs of the less fortunate.
• Electric vehicle subsidies: The Obama administration apparently believes that it possesses the unique foresight to optimally plan the economy.

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

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

• Another good example of how well-intentioned policies invariably become corrupted as Washington insiders and well-connected special interests game the system to their advantage.
• Spending growth capped at 3 percent versus Sen. Corker’s plan to cap spending at a decreasing percentage of GDP.
• With all the subsidies we have for mortgage finance, are mortgages actually cheaper in the United States?
• Members of Congress have introduced legislation to bail out the U.S. Postal Service.
• Local government officials really like a free lunch, particularly when that lunch is paid for by federal taxpayers.

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

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

• A new Cato video puts $61 billion in spending cuts in perspective.
• Republicans and Democrats are arguing over the 17 percent of the federal budget known as nondefense discretionary spending. We take a look at what constitutes that spending.
• Merely capping federal spending growth at 3 percent a year would get the budget under control without having to raise taxes.
• A look at what has caused the U.S. Department of Agriculture’s budget to boom.
• Alleged devotees of a more limited government often waste their time on quixotic moral crusades to “make government more efficient.” In doing so, they’re really just playing into the hands of those that want big government. They’re also helping lead citizens to believe that our budget problems can be solved with just a little house cleaning.

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

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

• Despite the record $1.6 trillion deficit this year, and the consensus that exploding spending and debt is pushing the nation toward catastrophe, the Obama administration completely chickened-out on spending reforms in its new budget.
• The George W. Bush administration ushered in a new era of big government. The Obama administration has built on Bush’s profligacy, and the president’s new fiscal 2012 budget proposal would further cement the trend.
• Obama’s new budget proposes slightly more discretionary and entitlement spending for next year than did his last budget!
• Like countless other individuals and interest groups, state and local government officials have become addicted to federal taxpayer money. This addiction has encouraged irresponsibility and profligacy at all levels of government.
• It’s important to explore the costly failures of big spending programs such as the stimulus because the next time the economy goes into a downcycle the Keynesians, sadly, will be back on Capitol Hill pushing their expensive solutions and further bankrupting the nation.

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

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

• Another example of cost overruns and mismanagement in government.  This time it’s the National Archives.
• President Obama will release his budget blueprint for fiscal 2012 next week. If an op-ed penned by his budget director is any indication, the administration intends to continue fiddling while the government’s finances burn.
• End, don’t mend, the dozens of wasteful federal job training programs.
• With House Republicans and the White House proposing tiny cuts, get ready for a barrage of slasher stories in the press. Readers are invited to submit the best (worst?) “slasher story” they come across.
• Vice President Joe Biden’s recent pitch for high-speed rail brings to mind the classic Simpsons episode in which a con-man convinces the town’s residents to waste money on an exciting-sounding high-speed train that turns out to be a boondoggle. Watch the clip and judge for yourself.

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

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

• Republican conservatives in the House propose spending cuts.
• Government health care in 1798.
• The president’s decision to ignore the need for Social Security reform brings to mind a song from Monty Python and the Holy Grail.
• Freezing nondefense discretionary spending at the levels specified or implied by Republicans and Democrats is only a start toward needed reforms in the federal budget.
• The U.S. Postal Service needs to adjust to the times, but congressional meddling makes the task nearly impossible.

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

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

• It should be clear that we, as a society, would be better off abandoning efforts to socially engineer a specific homeownership rate, either for the population in general or by racial group.
• The GOP should insist on the $100 billion in initial cuts they promised, and also demand passage of a legal cap on overall federal spending.
• Perhaps we should start calling farm subsidies “landowner subsidies.”
• How much money do federal taxpayers lose to food stamp fraud each year? Nobody really knows.
• A new House rule requires members of the 112th Congress to cite specific constitutional authority when introducing any new bill or program. A brief summary of how the General Welfare, Commerce, and Necessary and Proper Clauses was understood by the Framers is in order.

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

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

• The White House and Congress need to restructure our military responsibly, based on a realistic assessment of available means and achievable ends, with the savings being returned to U.S. taxpayers.
• Policymakers in a position to do something about the Federal Aviation Administration need to start thinking bigger: privatization.
• While new House Agriculture Committee chairman Frank Lucas may be a “Wheat Champion,” he sure isn’t a Taxpayer Champion — at least not on agricultural issues.
• Rep. Kevin Brady (R-TX) has introduced the Cut Unsustainable and Top-heavy Spending (CUTS) Act, which would cut spending by $44 billion annually.
• A perfect illustration of why government subsidies for economic development are immoral.

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

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

• A high priority for the new Congress should be to privatize the Federal Aviation Administration.
• It seems clear that allowing the private sector to play a greater role in space is ideal, especially given NASA’s history of fiscal mismanagement.
• Earmarking is a symptom of the problem. The problem is the existence of programs that enable the federal government to spend money on parochial activities.
• The Beltway class will be starting the New Year off in better shape than the rest of the country.

Thank you to everyone who has helped make the Downsizing Government website a success this year. Now it’s time to get cocked, locked, and ready to rock with the new Congress.

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

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

• Downsizing Government was featured on C-SPAN.
• Unfortunately, because government has come to dominate road construction, most citizens probably don’t stop to consider that the private sector can provide superior alternatives.
• Evidence that higher education subsidies are counterproductive handouts.
• The omnibus abomination makes it easy to understand why Congress’s approval rating is at a new low.
• The United States is #1!  We now have the highest corporate tax rate among the 34 wealthy nations of the Organization for Economic Cooperation and Development.

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

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

• The Obama administration adopts Cato’s federal employee pay proposal.
• Social Security Disability Insurance: What was supposed to be a narrowly tailored program to help individuals who could no longer work has blossomed into a gigantic budgetary burden that acts more like an unemployment program.
• Rep. Jack Kingston (R-GA) has some good ideas for reforming the House Appropriations Committee.
• The Fiscal Commission’s report provides a useful menu of reform options that incoming members of a more conservative Congress can pursue next year.
• The Government Accountability Office reports that the Federal Aviation Administration’s new air traffic control system could ultimately cost four times more than originally estimated.

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

President Obama’s Fiscal Commission has produced a serious and sobering analysis of the government’s budget mess, and it provides some of the needed solutions. Three of the report’s main themes are on target: the need to make government leaner, the need to cut business taxes to generate economic growth, and the need to impose tighter budget rules to discipline spending.

The report rejects the view of many Democratic leaders that the welfare state built over the last 80 years must be defended against any and all budget cuts. “Every aspect of the discretionary budget must be scrutinized, no agency can be off limits, and no program that spends too much or achieves too little can be spared. The federal government can and must adapt to the 21st century by transforming itself into a leaner and more efficient operation.” How lean the government should be, and how many agencies to eliminate, will be the central fiscal debate in coming years. Downsizing government is the order of the day.

The report recognizes the need to spur economic growth, particularly by cutting the corporate tax rate. “The corporate income tax, meanwhile, hurts America’s ability to compete… statutory rates in the U.S. are significantly higher than the average for industrialized countries … and our method of taxing foreign income is outside the norm…. the current system puts U.S. corporations at a competitive disadvantage against their foreign competitors.” The report recommends cutting the 35 percent federal corporate tax rate to 28 percent or less to respond to the Global Tax Revolution and to “make America the best place to start a business and create jobs.”

Finally, the report suggests that Congress impose new procedures to enforce budget restraint. However, the rules suggested by the commission are complex and not tight enough. It would be simpler and more powerful to impose a cap on overall federal spending. For example, a law could require that the government’s overall budget not grow faster than general inflation each year else the president would sequester spending across-the-board. Such a cap would be easy for the public to understand and enforce.

In sum, the report provides a useful menu of reform options that incoming members of a more conservative Congress can pursue next year. We need bigger spending cuts than the commission has laid out—as I’ve outlined in this balanced-budget plan—but the commission deserves credit for spurring a national discussion on how to downsize the federal government.

Bright Spots in Fiscal Commission Report is a post from Cato @ Liberty - Cato Institute Blog