FAA Says Wasteful Spending ‘All Good’
It’s not uncommon to hear the claim made that the “stimulus” would have had a greater economic impact had the money been focused on infrastructure. But proponents of public “investment” in infrastructure seem to forget that the government allocates capital on the basis of politics rather than economics. Government is naturally inefficient because it is immune to the market signals that guide private actors who stand to lose their own money should an investment not pan out.
A perfect example is federal spending on airport infrastructure. The USA Today’s Thomas Frank has been doing good work looking at how the Federal Aviation Administration distributes funds to the nation’s airports. In his latest piece, Frank analyzed FAA records obtained under the Freedom of Information Act and found that taxpayer money is being put to questionable use:
Airports have spent $3.5 billion in federal money since 1998 on projects the Federal Aviation Administration rated as low priority because they do little to improve the most pressing needs in the nation’s aviation system…The money comes from a program that is supposed to improve aviation safety…But the program also has funded terminals at little-used airports, hangars to store private jets, and parking areas that are free to customers.
For example, Frank reports on Pellston Regional Airport in Michigan, which “used $7.5 million in federal funds to build a terminal with stone fireplaces and cathedral ceilings. The airport averages three departures a day.”
But the FAA sees it differently:
‘They’re all good projects,’ said Catherine Lang, FAA acting associate administrator for airports.
C@L readers who get stuck in congested airports this holiday season may wish to keep that quote in mind.
In a sister piece, Frank quotes Lang as saying that the terminals at these airports are “crumbling, loaded with asbestos and have no other source [of money].” If airport infrastructure in this country is truly crumbling, then why is the FAA expending scarce resources on stone fireplaces?
Frank cites more examples:
- Lake Cumberland Regional Airport in Kentucky got $3.5 million to build a glass-fronted terminal in 2004 that was largely unused until the first passenger flights began this June. The airport now has six flights a week.
- Montgomery Regional Airport in Alabama got $22 million to build a $35 million terminal with a sloping glass facade and a rotunda topped with a domed ceiling that reflects the historical architecture of the state Capitol.
- Halliburton Field Airport in Duncan, Okla., got $700,000 for a terminal with a pilot room and a reception room. The airport, open only to private planes, has 24 landings and takeoffs a day, mostly local pilots in piston-engine planes.
We should be looking to privatize infrastructure as this Cato op-ed states:
First, privatization would reduce the responsibilities of the government so that policymakers could better focus on their core responsibilities, such as national security. Second, there is vast foreign privatization experience that could be drawn upon in pursuing U.S. reforms. Third, privatization would spur economic growth by opening new markets to entrepreneurs.
I suppose the drawback would be that politicians would be denied the fun of spending other people’s money, not to mention the campaign contributions.
Baucus Bill Would Cost More than $2 Trillion
Sen. Max Baucus’s (D-MT) health care overhaul would cost more than $2 trillion. It would expand the deficit. But he has carefully and methodically hidden those facts – so well that he has completely hoodwinked nearly all the major media.
The media are reporting that the Baucus bill would reduce the deficit by $81 billion over 10 years. Wrong.
The Baucus bill assumes that Congress will allow the “sustainable growth rate” cuts in Medicare’s physician payments to occur beginning in 2012. Yet Congress has routinely and repeatedly blocked those cuts, making Baucus’s assumption preposterous. The CBO handled the issue delicately, but essentially said, “Sure, provided that the sun rises in the west in 2012, then yes, this bill would reduce the deficit.”
That means Baucus will come up at least $200 billion short on the revenue side, making his bill a budget-buster.
The media are reporting that the Baucus bill would cost just $829 billion over 10 years. Wrong.
As Donald Marron observes, that number omits as much as $75 billion in new federal spending. It also omits a $33 billion unfunded mandate on state governments.
But the worst part is that the Congressional Budget Office’s preliminary cost estimate omits the cost of the private sector mandates in the Baucus bill. In Massachusetts, those costs accounted for 60 percent of the total cost of reform. That suggests the actual cost of the Baucus bill – $829 billion plus $75 billion plus $33 billion, times 2.5 – is well over $2 trillion.
Yet the CBO score pretends those costs aren’t even there. It’s like a mystery novel that’s missing the last 50 pages. And the media aren’t even curious.
In the words of Brad DeLong, why, oh why, can’t we have a better press corps?
Cross-posted at Politico’s Health Care Arena.
Tuesday Links
- Well, is conservatism “brain dead” after all? David Boaz: “What does conservatism stand for today, other than opposition to President Obama?”
- Why Congress should not renew the PATRIOT Act’s “lone wolf” provision.
- Sex and security in Afghanistan.
- Barack Obama: “The omnipresent omnipresident.“
- Federal spending has doubled in less than a decade. Here’s what we can do about it.
- Podcast: “Unemployment and Stimulus Part II“
Chart of the Day — Federal Ed Spending
The debate over No Child Left Behind re-authorization is upon us.
Except it isn’t.
In his recent speech kicking off the discussion, education secretary Arne Duncan asked not whether the central federal education law should be reauthorized, he merely asked how.
Let’s step back a bit, and examine why we should end federal intervention in (and spending on) our nation’s schools… in one thousand words or less:
While the flat trend lines for overall achievement at the end of high school mask slight upticks for minority students (black students’ scores, for instance, rose by 3-5 percent of the 500 point NAEP score scale), even those modest gains aren’t attributable to federal spending. Almost that entire gain happened between 1980 and 1988, when federal spending per pupil declined.
And, in the twenty years since, the scores of African American students have drifted downard while federal spending has risen stratospherically.
Funding ACORN
The ACORN scandal provides a good opportunity for citizens concerned about profligacy in Washington to explore some of the tools available to find out where their tax money goes.
A good place to start your research is the Federal Audit Clearinghouse on the Census website. All groups receiving more than $500,000 a year from the government are required to file a report. Just type in “ACORN” as the entity and the system pops up the group’s filings. My assistant John Nelson summarized the federal programs and amounts received by ACORN in recent years:
2003
Housing Counseling Assistance $1,168,388
Community Development Block Grants $388,273
Home Investment Partnership $8,000
Self-Help Homeownership Opportunity $204,082
Fair Housing Initiatives Program $85,000
Total $1,853,743
2004
Housing Counseling Assistance $2,209,009
Community Development Block Grants $221,007
Home Investment Partnership Program $21,092
Self-Help Homeownership Opportunity $127,183
Fair Housing Initiatives Program $105,000
Total $2,683,291
2005
Housing Counseling Assistance $2,605,558
Community Development Block Grants $367,560
Self-Help Homeownership Opportunity $153,082
Fair Housing Initiatives Program $140,917
Total $3,267,117
2006
Housing Counseling Assistance $1,955,074
Self-Help Homeownership Opportunity $59,541
Rural Housing and Economic Development $47,619
Fair Housing Initiatives Program $150,000
Community Development Block Grants $238,809
Total $2,451,043
2007
Housing Counseling Assistance $1,813,011
Self-Help Homeownership Opportunity $46,608
Rural Housing and Economic Development $30,504
Fair Housing Initiatives Program $60,000
Community Development Block Grants $372,950
Total $2,323,073
My colleague, Tad DeHaven, has discussed why these HUD programs that funded ACORN ought to be abolished completely.
Subsidy information is also available from IRS Form 990, which is filed by all non-profit groups and compiled at Guidestar and other websites. I am not an expert on this data, but Velma Anne Ruth of ABS Community Research has done a detailed analysis, which she kindly sent to me. She finds that federal funding for ACORN was about $1.7 million in 2008 and about $2.2 million in 2009.
Finally, a user-friendly website to research recipients of federal grants and contracts is www.usaspending.gov.
ACORN’s share of overall federal subsidies is tiny, but as thousands of similar organizations have become hooked on 1,800 different federal subsidy programs, a powerful lobbying force has been created that propels the $3.6 trillion spending juggernaut. ACORN’s own website touts its lobbying success in helping to pass various big government programs. So cutting off ACORN is a start, but just a small start at the daunting task of cutting back the giant federal spending empire.
20-somethings Will Pay for Big Government
A front-page Washington Post story today notes that the cost of Obama-style health care reform will fall disproportionately on young adults.
Younger workers are typically more healthy than the population at large, and a significant share of them quite rationally choose not to buy health insurance, as my colleague Mike Tanner explains in a recent op-ed. The major health care plans on the table in Washington would force them to buy coverage. As the Post story explains:
Drafting young adults into any health-care reform package is crucial to paying for it. As low-cost additions to insurance pools, young adults would help dilute the expense of covering older, sicker people. Depending on how Congress requires insurers to price their policies, this group could even wind up paying disproportionately hefty premiums—effectively subsidizing coverage for their parents.
I’m beginning to see a pattern. Those same young workers will be forced to pay the bills for soaring Social Security and Medicare expenditures when the Baby Boomers begin retiring en masse a decade from now. And of course, they will be the ones paying off the $9 trillion in additional federal debt expected to be wracked up from the current explosion in federal spending.
I always thought parents were supposed to support their kids, not saddle them with bigger bills and huge debts.
How Many Attended the Tea Parties?
Back in April there was a lot of debate about how many people actually attended the April 15 “tea parties” to oppose President Obama’s tax and spending programs. Pajamas Media, an enthusiastic backer of the protests, offered an estimate upwards of 400,000.
Nate Silver of the FiveThirtyEight blog, a more skeptical observer, diligently compiled what he considered “nonpartisan and credible” estimates — mostly from mainstream media or police sources — and came up with a detailed sum of about 311,000. Not bad for widely dispersed events, most with no big-name speakers or celebrities, not hyped by the major media (though certainly hyped by some of the conservative media).
But I’ve recently stumbled across reports of two tea parties that didn’t make Silver’s list. In a long profile of a councilwoman who supported Obama in Greenwood, South Carolina, the Washington Post reports on her encountering 200 people at a tea party in Greenwood. And the latest compilation of newspaper clippings from the Mackinac Center includes an April 16 article from the Midland (Michigan) Daily News about a tea party there that attracted 500 people. So who knows how many other farflung events didn’t get included in Silver’s comprehensive list?
Andrew Samwick of Dartmouth complained that the tea parties — and maybe even libertarians — weren’t clearly focused on the problem of spending. As I said in a comment there, I think that’s an unfair charge:
Here’s how one major news outlet reported them:
Nationwide ‘tea party’ protests blast spending – CNN.com (http://www.cnn.com/2009/POLITICS/04/15/tea.parties/ )
ABCNews.com said “Anti-Tax ‘Tea Parties’ Protest President Obama’s Tax and Spending Policies.” USA Today wrote, “What started out as a handful of people blogging about their anger over federal spending — the bailouts, the $787 billion stimulus package and Obama’s budget — has grown into scores of so-called tea parties across the country.”It’s hard to put specific cuts, especially COLAs and the like, on protest signs; but I think it’s fair to say that the tea-party crowds were complaining about excessive spending and “generational theft.”
The GOP Is Not Serious about Cutting Down Spending
A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases. Today, the House Republican leadership released a list of proposed spending cuts.
I’d love to say I’m impressed, but I can’t.
Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.
The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.
First, it should be cut — period. Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture. At least, defense spending, which is almost entirely discretionary, should be included in any cap. But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.
The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out. That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.
According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years. Like the specific cuts in the president’s proposal, they’re all good cuts. But the president detailed $17 billion in cuts for one year and I generously called it “measly.” What am I to call the House Republican leadership specifying $5 billion a year in cuts?
Democratic Deficit Hawks?
In a hagiographic profile of Obama budget director Peter Orszag, Ryan Lizza of the New Yorker writes of the “pressure” he might get from congressional deficit hawks:
The respective heads of the House and Senate Budget Committees, John Spratt, Jr., of South Carolina, and Kent Conrad, of North Dakota, have spent years trying to control the deficit…
Kent Conrad, the chairman of the Senate Budget Committee, has made eradicating the federal budget deficit his life’s work.
Now, you’d think that if the ranking Democrats on the congressional budget committees had made deficit reduction their life’s work, the budget wouldn’t have, you know, skyrocketed over the past decade and more. So let’s go to the tape.
The National Taxpayers Union has given Spratt an F for his votes on federal spending every year for more than a decade. (He had a couple of D’s earlier in his career.) In the past two years, he voted with the taxpayers 5 and 6 percent of the time. He voted for spending bills more often than the average member of the House, and more often than the average Democrat. Some deficit hawk!
Conrad has an almost identical record — almost all F’s, with ratings of 5 and 6 in the past two years.
By another measurement, in the 109th Congress (the most recent for which these calculations are available), Spratt voted for $184 billion in additional spending and voted to cut — drum roll, please — $4.8 billion in spending. Conrad voted to cut $8 billion, but he also voted to hike spending by $362 billion. In what world are these guys “trying to control the deficit”?
NTU does have one analysis that makes Conrad and Spratt look a little better: the bills they have sponsored or cosponsored. Spratt introduced 32 bills that would increase spending and 2 that would cut spending. While that may not sound very thrifty, it compares favorably to, say, Hilda Solis’s 110 bills to increase spending or Barney Frank’s 112. And the total new spending in Spratt’s bills — $7 billion — is positively Randian. Conrad’s record is similar — 36 bills to increase spending by $8 billion, which compares very favorably to, for instance, Hillary Clinton and Thad Cochran.
Apparently Conrad and Spratt don’t introduce too many spending bills, but they vote for all the ones that get to the floor. Not exactly a strategy that holds the budget down. The search for a fiscally conservative Democrat continues.
Taxpayers Deserve Better from the President
President Obama’s estimated $17 billion budget cuts for fiscal year 2010 amounts to a measly .5 percent of the president’s total proposed spending, and 1.5 percent of the president’s proposed deficit for the coming fiscal year. His offerings to cut the budget should be dismissed as unserious. In fact, this is reminiscent of the Bush administration’s annual list of minuscule proposed cuts in the face of profligate spending and mounting federal debt.
President Obama says his efforts “are just the next phase of a larger and longer effort needed to change how Washington does business and put our fiscal house in order.” Promising more spending and more debt while celebrating relatively insignificant cuts and ignoring the looming entitlement crunch represents businesses as usual, not change. Current and future taxpayers deserved a serious proposal to reduce the government’s burden on their wallets and the struggling economy. Instead, the president’s first budget represents an attempt to shove the government’s hand deeper into the American peoples’ pockets and lives.
The president made several questionable statements in his address earlier today. He promised “long overdue investments” in education. But federal spending on education has already increased dramatically with no positive results. He spoke of “undertaking health care reform so that we can control costs while boosting coverage and quality” and “investing in renewable sources of energy.” Yet we know any type of reform will mean higher taxes, government rationing, and slower economic growth.
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!
The Politics of Budget-Cutting
In Washington, the symbolic almost always trumps the substantive. Thus, legislators complain, for good reason, about pork and earmarks, which ran about $35 billion at their maximum, and ignore entitlements, which entail some $100 trillion in unfunded liabilities.
So it is with President Obama. He continues the endless bailouts, which cumulatively now run around $13 trillion. He proposed a $3.6 trillion budget and will leave us with a $1.4 trillion deficit next year–and nearly $5 trillion in additional debt on top of the massive deficits already projected over the coming decade. But he asked his Cabinet officers to chop $100 million in administrative expenses.
And he says he doesn’t need a new helicopter. Fiscal responsibility in action.
Alas, the helicopter, while costing billions, isn’t an easy budget target.
Reports the New York Times:
At a Washington conference on fiscal responsibility in February, President Obama tried to set the tone by saying he did not need the new costly presidential helicopters that had been ordered by the Bush administration.
“The helicopter I have now seems perfectly adequate to me,” he said to laughter. On a more serious note, he added, “I think it is an example of the procurement process gone amok. And we’re going to have to fix it.”
But the president is learning that in the world of defense contracting, frugality can be expensive. Some lawmakers and military experts warn that his effort to avoid wasting billions of dollars could end up doing just that.
The administration’s plan to halt the $13 billion helicopter program, announced this month, will leave the government with little to show for the $3.2 billion it has spent since the Bush administration set out to create a futuristic craft that could fend off terrorist attacks and resist the electromagnetic effects of a nuclear blast.
Critics say the Pentagon would also spend at least $200 million in termination fees and perhaps hundreds of millions to extend the life of today’s aging fleet. As a result, several influential lawmakers and defense analysts are now calling for a compromise that would salvage a simpler version of the helicopter that is already being tested.
They say it could be a more palatable alternative in tough economic times than seeking new bids for a more advanced craft, which has proved difficult to develop.
No wonder Washington is known as a place where everything about government is permanent. Once you start spending money on a program, it becomes extremely hard to stop. Part of that is the political dynamic of interest groups, the problem so well dissected by the Public Choice economists. And part of it is legal and procedural. Contracts are let, cancellation fees are due. It’s bad to waste money on a gold-plated helicopter. It seems even worse to waste money developing a gold-plated helicopter, and then getting nothing at all by canceling it.
There is, however, an amazingly simple solution, of which Congress and the president apparently are not aware.
Don’t spend the money in the first place. Eschew new programs. Say no to special interests. Let taxpayers keep more of their own money.
This approach would seem to make sense at any time. But especially today, with the federal government facing a deficit approaching $2 trillion in 2009.
Didn’t Nancy Reagan lecture us to “just say no”? We should invite her back for a return tour of Washington, only she should talk about federal spending this time.
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