Why Politics Is Stupid
Ezra Klein and Jonathan Chait argue the only way government could reduce inefficient Medicare spending was to create a new health care entitlement program. Think about that.
The worst part is, they’re not entirely wrong. And that same system will now be controlling your health care and an ever-growing share of your income.
GOP Spending Cap
Republicans on the Senate Appropriations Committee have announced support for caps on the discretionary spending portion of the federal budget. According to press reports, discretionary spending under the cap for fiscal year 2011 would be approximately $20 billion less than what the president has proposed.
Appropriators — often referred to as the “third party” in Washington — exist to do one thing: spend other people’s money. Getting appropriators to agree to place any sort of limit themselves is a plus.
However, it’s hard to get excited about spending $20 billion less than the president. As the following chart shows, discretionary outlays have soared in the past decade:
With three months still to go in the current budget year, the federal deficit has already hit the trillion dollar mark. By year’s end the government will have borrowed about $1.4 trillion. It’s like the entire discretionary budget — defense and hundreds of other activities — are all financed by borrowing from the next generation.
Republicans apparently want agitated voters to see this gesture as evidence that the party is serious about out-of-control spending and deficits. But capping spending at the already exorbitant levels that Republicans helped reach isn’t exactly a big reform. Instead, Republicans need to propose the elimination of entire agencies and major programs for them to be taken seriously as a party willing to confront the nation’s looming financial crisis.
Fed Ed on the Move
There’s a lot to learn about what’s going on in federal education policy today, and none of it is good.
First, Steven Brill offers a revealing look at the Race to the Top evaluation process in a piece that can be added to the ever-growing pile of evidence that Race to the Top isn’t even close to the objective — or, I’d add, powerful — catalyst for meaningful reform that the Obama administration insists it is.
Second, it appears that congressional Democrats are preparing to pass a Harkin-proposed, Obama-endorsed, $23 billion bailout for teachers by attaching it to an “emergency” appropriation for the war in Afghanistan. (Passing major — and highly suspect – education legislation by attaching it to something totally unrelated? Sound familiar?) And what’s the nice thing about “emergency” legislation? No need to worry that the outlay would add to our already insane federal deficit; that can’t be allowed to interfere with saving the world (or public schooling lard).
Finally, looming on the horizon is the release of final standards from the Common Core State Standards Initiative. The Obama administration is trying to coerce all states to adopt the standards by linking adoption to Race-to-the-Top competitiveness and, potentially, Elementary and Secondary Education Act funding.
The good news is that on June 2 — potentially the very day the standards will be released — you can catch what has sadly been a rarity so far in the push for national standards: a real debate about whether national standards will actually improve educational outcomes. My answer is that there is no meaningful evidence that national standards drive superior results, but joining me to debate that right here at Cato will be the Heritage Foundation’s Lindsey Burke, Sandra Boyd of Achieve, Inc., and the Fordham Foundation’s Michael Petrilli. It will be a debate that must be replicated across the country before we make any further move to adopt one standard for every public school in America. You can register here to see our debate live, or catch it online at Cato.org.
The feds are on the move in education, and the more we learn about their plans, the more obvious it is that they must be stopped.
By Pulling His Punches, Bernanke Shatters ObamaCare’s Credibility
Federal Reserve Chairman Ben Bernanke gave a speech in Dallas yesterday where he inadvertently discredited claims that ObamaCare would reduce health care costs and the federal deficit. According to The Washington Post:
Federal Reserve Chairman Ben S. Bernanke warned Wednesday that Americans may have to accept higher taxes or changes in cherished entitlements such as Medicare and Social Security if the nation is to avoid staggering budget deficits that threaten to choke off economic growth…
While the immediate audience for the speech was the Dallas Regional Chamber, his message was intended for Congress and the Obama administration…
Bernanke has urged Congress to address long-term fiscal imbalances in congressional testimony before, but usually only when he is asked about them by lawmakers. His speech Wednesday aimed to reach a broader audience, steering away from technical economic speak and using plain, sometimes wry, language — a rare thing for a Fed chairman.
The non-partisan Congressional Budget Office projects the annual federal deficit will be at least $700 billion in each of the next 10 years. Deficit spending is a form of taxation without representation, because it increases the tax burden of generations who cannot yet vote (often because they are as yet unborn). Bernanke wants us to end deficit spending. Kudos to him.
But consider the timing of his speech. Why wait until April 7, 2010, to deliver that message directly to the public? Why not give that speech in January? Or February? Or any time before March 21?
The reason is obvious: Bernanke held back to appease his political masters.
ObamaCare’s New Entitlement Spending “Sows the Seeds” of a Budget Crisis
From Robert J. Samuelson’s column in today’s Washington Post:
When historians recount the momentous events of recent weeks, they will note a curious coincidence. On March 15, Moody’s Investors Service — the bond rating agency — published a paper warning that the exploding U.S. government debt could cause a downgrade of Treasury bonds. Just six days later, the House of Representatives passed President Obama’s health-care legislation costing $900 billion or so over a decade and worsening an already-bleak budget outlook.
Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered — though their quest was for political glory, not financial gain.
I hope Samuelson is wrong, but it’s probably a good idea to behave as if he’s right, and repeal ObamaCare’s new entitlement spending.
Federal Job Creation
The board game Monopoly first took off during the Great Depression. A different game has become popular during today’s Great Recession. In this game, politicians race against high unemployment to create jobs in order to save their own. The players (politicians) have unlimited tax and borrowing authority, and can call upon friendly economists to help them maneuver. The players even get to keep score, although the media can penalize shoddy scorekeeping. Ultimately, voters will decide which players win and lose in the fall elections.
Okay, I’m being facetious. But as politicians continue to throw trillions of dollars at the economy in a vain effort to create jobs, and the media continues to go along with it by obsessing over meaningless job counts, the entire spectacle has become surreal. If government job creation is a game, the losers have been the taxpayers underwriting it, as well as the employers (and their employees) who are closing shop, laying off workers, or not hiring because of uncertainty over what big government schemes will be next.
Two news articles point to this “regime uncertainty” being generated by Washington.
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.
House Democrats Choose Dishonesty
I’m not a fan of the House Democrats’ proposed takeover of the health care sector. (If there’s one thing that legislation is not, it’s “reform.”) But at least House Democrats were honest enough to include the cost of the $245 billion bump in Medicare physician payments in their legislation, unlike some committee chairmen I could mention.
Unfortunately, House Democrats have since decided that dishonesty is the better strategy. They, like Senate Democrats, now plan to strip that additional Medicare spending out of health “reform” and enact it separately. (Democrats are already trying to exempt that spending from pay-as-you-go rules, making it easier for them to expand our record federal deficits.) Why enact it separately? Because excising that spending from the “reform” legislation reduces the cost of health “reform”!
But why stop there? Heck, enact all the new spending separately, and the cost of “reform” would plummet! Enact the new Medicaid spending separately, and the cost of “reform” would fall by $438 billion! Do it with the subsidies to private health insurance companies, and the cost of “reform” would plunge by $773 billion! All that would be left of “reform” would be tax increases and Medicare payment cuts. Health “reform” would dramatically reduce federal deficits! Huzzah!
Except it wouldn’t, because at the end of the day Congress would be spending the same amount of money.
The only good news may be this. If this dishonest budget gimmick succeeds, then Congress will have “fixed” Medicare’s physician payments. Absent that “must pass” legislation, the Democrats health care takeover would lose momentum, and would have to stand on its own merit. That would be good for the Republic, though not for the legislation.
(Cross-posted at Politico’s Health Care Arena.)
So Much for the Obama Administration’s Fiscal Free Lunch
So far the Obama administration has been enjoying the ultimate fiscal free lunch. Massive borrowing, massive spending, lower taxes, and low interest rates.
Alas, all good things must come to an end.
The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.
As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.
Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery.
While that is still low by historical standards — it averaged about 5.7 percent in the late 1990s, as deficits turned to surpluses under President Bill Clinton — investors are starting to wonder whether the United States is headed for a new era of rising market interest rates as the government borrows, borrows and borrows some more.
Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research firm.
Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion.
The rising tab has prompted warnings from the Treasury that the Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year.
Last week, the Treasury Borrowing Advisory Committee, a group of industry officials that advises the Treasury on its financing needs, warned about the consequences of higher deficits at a time when tax revenues were “collapsing” by 14 percent in the first half of the fiscal year.
“Given the outlook for the economy, the cost of restoring a smoothly functioning financial system and the pending entitlement obligations to retiring baby boomers,” a report from the committee said, “the fiscal outlook is one of rapidly increasing debt in the years ahead.”
While the real long-term interest rate will not rise immediately, the committee concluded, “such a fiscal path could force real rates notably higher at some point in the future.”
Alas, this is just the beginning. Three quarters of the spending in the misnamed stimulus bill (it would more accurately be called the “Pork and Social Spending We’ve Been Waiting Years to Foist on the Unsuspecting Public Bill”) occurs next year and beyond, when most economists expect the economy to be growing again. Moreover, much of the so-called stimulus outlays do nothing to actually stimulate the economy, being used for income transfers and the usual social programs.
However, we will be paying for these outlays for years. Even as, the Congressional Budget Office warns, the GDP ultimately shrinks as federal expenditures and borrowing “crowd out” private investment. Indeed, the CBO figures that incomes will suffer a permanent decline–even as taxes are climbing dramatically to pay off all of the debt accumulated by Uncle Sam.
And you don’t want to think about the total bill as Washington bails out (almost $13 trillion worth so far) everyone within reach, “stimulates” (the bill passed earlier this year ran $787 billion) everything within reach, and spends money (Congress approved a budget of $3.5 trillion for next year) within reach. Indeed, according to CBO, the president’s budget envisions increasing the additional collective federal deficit between 2010 and 2019 from $4.4 trillion to $9.3 trillion.) Then there will be more federal spending for wastral government entities, such as the Federal Housing Administration; failing banks, which are being closed at a record rate by the FDIC; pension pay-offs for bankrupt companies, administered by the Pension Benefit Guaranty Corporation; and covering the big tab being up run up by Social Security and Medicare, which currently sport unfunded liabilities of around $100 trillion.
Oh, to be an American taxpayer — and especially a young American taxpayer — who will be paying Uncle Sam’s endless bills for the rest of his or her life!
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