Six Reasons to Downsize the Federal Government
1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.
2. As federal spending rises, it creates pressure to raise taxes now and in the future. Higher taxes reduce incentives for productive activities such as working, saving, investing, and starting businesses. Higher taxes also increase incentives to engage in unproductive activities such as tax avoidance.
3. Much federal spending is wasteful and many federal programs are mismanaged. Cost overruns, fraud and abuse, and other bureaucratic failures are endemic in many agencies. It’s true that failures also occur in the private sector, but they are weeded out by competition, bankruptcy, and other market forces. We need to similarly weed out government failures.
4. Federal programs often benefit special interest groups while harming the broader interests of the general public. How is that possible in a democracy? The answer is that logrolling or horse-trading in Congress allows programs to be enacted even though they are only favored by minorities of legislators and voters. One solution is to impose a legal or constitutional cap on the overall federal budget to force politicians to make spending trade-offs.
5. Many federal programs cause active damage to society, in addition to the damage caused by the higher taxes needed to fund them. Programs usually distort markets and they sometimes cause social and environmental damage. Some examples are housing subsidies that helped to cause the financial crises, welfare programs that have created dependency, and farm subsidies that have harmed the environment.
6. The expansion of the federal government in recent decades runs counter to the American tradition of federalism. Federal functions should be “few and defined” in James Madison’s words, with most government activities left to the states. The explosion in federal aid to the states since the 1960s has strangled diversity and innovation in state governments because aid has been accompanied by a mass of one-size-fits-all regulations.
For more, see DownsizingGovernment.org.
Thursday Links
- The populists have it wrong. Why free trade and globalization are great blessings to Americans and poor families around the world.
- How Obama’s plan for health care will affect medical innovation in America: “Imposing price controls on drugs and treatments–or indirectly forcing their prices down by means of a ‘public option’ or expanded public insurance programs–would reduce the incentive for innovators to develop new treatments.”
- Register now for the upcoming Cato forum featuring author Tim Carney and his new book, Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses. Buy the book, here.
- Podcast: “Shoes, Undies and Airplane Security” featuring Jim Harper.
ObamaCare Threatens Innovation
That’s the conclusion of economist Glen Whitman and physician Raymond Raad, who write in Forbes:
Unfortunately, the health care bills moving through Congress could curtail medical innovation. Imposing price controls on drugs and treatments–or indirectly forcing their prices down by means of a “public option” or expanded public insurance programs–would reduce the incentive for innovators to develop new treatments.
Proposed reforms could also retard business model innovation–an area where innovation is weak. Congress has already used its control of Medicare to limit the growth of specialty hospitals. A nationally mandated insurance package would severely curtail innovation in payment methods and insurance products, which have the potential to improve the coordination and delivery of health care services.
The health care debate should address more than just covering the uninsured and controlling costs. When the U.S. generates medical innovations, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.
The op-ed is based on the authors’ Cato Institute policy analysis, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation.”
Is Trade Policy Obsolete?
That is one of the conclusions in my new paper, “Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete.”
For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the “national interest.” Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between “our” producers and “their” producers and speak to a long chain of interdependent economic interests between product conception and consumption.
Will America Keep “Bending the Productivity Curve”?
Most international comparisons conclude that America’s health care sector under-performs those of other advanced nations. Aside from other serious flaws, those studies typically ignore each nation’s contribution to medical innovation — the discovery of new knowledge and practices that improve health in all nations. Today, the Cato Institute releases a new study — the most comprehensive study of its kind — that helps fill that void.
In “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” economist Glen Whitman and physician Raymond Raad conclude that the United States far and away outperforms other nations on medical innovation, but that the legislation moving through Congress threatens America’s ability to innovate. From the executive summary:
To date…none of the most influential international comparisons have examined the contributions of various countries to the many advances that have improved the productivity of medicine over time…
In three of the four general categories of innovation examined in this paper — basic science, diagnostics, and therapeutics — the United States has contributed more than any other country…In the last category, business models, we lack the data to say whether the United States has been more or less innovative than other nations; innovation in this area appears weak across nations.
In general, Americans tend to receive more new treatments and pay more for them — a fact that is usually regarded as a fault of the American system. That interpretation, if not entirely wrong, is at least incomplete. Rapid adoption and extensive use of new treatments and technologies create an incentive to develop those techniques in the first place. When the United States subsidizes medical innovation, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.
Policymakers should consider the impact of reform proposals on innovation. For example, proposals that increase spending on diagnostics and therapeutics could encourage such innovation. Expanding price controls, government health care programs, and health insurance regulation, on the other hand, could hinder America’s ability to innovate.
Raad will discuss the study this Friday at noon at a policy forum at the Cato Institute.
Technology: Debating the Pace of Progress
Last night, thanks to Craigslist and a Web-enabled cell phone, I unloaded two extra tickets to tonight’s World Cup qualifying game between the U.S. and Costa Rica in under an hour. (8:00, ESPN2 “USA! USA! USA!”)
Wanting to avoid the hassle of selling the tickets at RFK, I placed an ad on Craigslist offering them at cost, figuring I might find a taker and arrange to hand them off downtown today or at the stadium tonight. Checking email as I walked to the gym, I found an inquiry about the tickets and phoned the guy, who happened to live 100 feet from where I was walking. A few minutes later, he had the tickets and I had the cash.
This quaint story is a single data point in a trend line—the high-tech version of It’s Getting Better All the Time. Everyone living a connected life enjoys hundreds, or even thousands, of conveniences every day because of information technology. Through billions of transactions across the society, technology improves our lives in ways unimaginable two decades ago.
Before 1995, nobody ever traded spare soccer tickets in under an hour, on a Tuesday night, without even changing his evening routine. If soccer tickets are too trivial (you must not understand the game), the same dynamics deliver incremental, but massive improvements in material wealth, awareness, education, and social and political empowerment to everyone—even those who don’t live “online.”
Sometimes debates about technology regulation are cast in doom and gloom terms like the Malthusian arguments about material wealth. But the benefits we already enjoy thanks to technology are not going away, and they will continue to accrue. We are arguing about the pace of progress, not its existence.
This is no reason to let up in our quest to give technologists and investors the freedom to produce more innovations that enhance everyone’s well-being even more. But it does counsel us to be optimistic and to teach this optimism to our ideological opponents, many of whom seem to look ahead and see only calamity.
From the Oxymoron File: The Neutral Subsidy
Peter Van Doren points me to some revealing passages in a new article in the Journal of Economic Perspectives. In “Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality,” Robin S. Lee and Tim Wu caution against tiered pricing for Internet access services, writing:
[U]nless sufficient bandwidth and quality of service can be guaranteed for the “free” Internet, there is a risk that . . . tiering will serve to sidestep de facto prohibition on termination fees. . . . [A] priced-priority system could simply become a de facto fee charged for all content providers if the “free” Internet was of sufficiently poor quality and consumers shifted their usage behavior accordingly. . . . [T]his might dampen the introduction of new content and services and eliminate the subsidy for content innovation currently provided by net neutrality.
Locking in net neutrality by regulation would lock in a subsidy to content providers. Lee and Wu prefer it, and many of us may like the results, but it’s hard to call a subsidy regime “neutral.”
600 Billion Data Points Per Day? It’s Time to Restore the Fourth Amendment
Jeff Jonas has published an important post: “Your Movements Speak for Themselves: Space-Time Travel Data is Analytic Super-Food!”
More than you probably realize, your mobile device is a digital sensor, creating records of your whereabouts and movements:
Mobile devices in America are generating something like 600 billion geo-spatially tagged transactions per day. Every call, text message, email and data transfer handled by your mobile device creates a transaction with your space-time coordinate (to roughly 60 meters accuracy if there are three cell towers in range), whether you have GPS or not. Got a Blackberry? Every few minutes, it sends a heartbeat, creating a transaction whether you are using the phone or not. If the device is GPS-enabled and you’re using a location-based service your location is accurate to somewhere between 10 and 30 meters. Using Wi-Fi? It is accurate below 10 meters.
The process of deploying this data to markedly improve our lives is underway. A friend of Jonas’ says that space-time travel data used to reveal traffic tie-ups shaves two to four hours off his commute each week. When it is put to full use, “the world we live in will fundamentally change. Organizations and citizens alike will operate with substantially more efficiency. There will be less carbon emissions, increased longevity, and fewer deaths.”
This progress is not without cost:
Read the rest of this post »
Some Thinking on “Cyber”
Last week, I had the opportunity to testify before the House Science Committee‘s Subcommittee on Technology and Innovation on the topic of “cybersecurity.” I have been reluctant to opine on it because of its complexity, but I did issue a short piece a few months ago arguing against government-run cybersecurity. That piece was cited prominently in the White House’s “Cyberspace Policy Review” and — blamo! — I’m a cybersecurity expert.
Not really — but I have been forming some opinions at a high level of generality that are worth making available. They can be found in my testimony, but I’ll summarize them briefly here.
. . . But What Is “Cyber”?
Cyberwar. Cyberdefense. Cyberattack. Cybercommand.
You run across these four words before you finish the first paragraph of this New York Times story (as reposted on msnbc.com). It’s about government plans to secure our technical infrastructure.
When you reach the end of the story, though, you still don’t know what it’s about. But you do get a sense of coming inroads against Americans’ online privacy.
The problem, which the federal government has assumed to tackle, is the nominal insecurity of networks, computers, and data. And the approach the federal government has assumed is the most self-gratifying: “Cyber” is a “strategic national asset.” It’s up to the defense, intelligence, and homeland security bureaucracies to protect it.
But what is “cyber”?
With the Internet and other technologies, we are creating a new communications and commerce “space.” And just like the real spaces we are so accustomed to, there are security issues. Some of the houses have flimsy locks on the front doors. Some of the stores leave merchandise on the loading docks unattended. Some office managers don’t lock the desk drawers that hold personnel files. Some of the streets can be too easily flooded with water. Some of the power lines can be too easily snapped.
These are problems that should be corrected, but we don’t call on the federal government to lock up our homes, merchandise, and personnel files. We don’t call on the federal government to fix roads and power lines (deficit “stimulus” spending aside). The federal government secures its own assets, but that doesn’t make all assets a federal responsibility or a military problem.
As yet, I haven’t seen an explanation of how an opponent of U.S. power would use “cyberattack” to advance any of its aims. If it’s even possible, which I doubt, taking down our banking system for a few days would not “soften up” the country for a military attack. Knocking out the electrical system in one region of the country for a day wouldn’t let Russia take control of the Bering Strait. Shutting down Americans’ access to Google Calendar wouldn’t advance Islamists’ plans for a worldwide Muslim caliphate.
This is why President Obama’s speech on cybersecurity retreated to a contrived threat he called “weapons of mass disruption.” Fearsome inconvenience!
The story quotes one government official as follows:
“How do you understand sovereignty in the cyberdomain?” General Cartwright asked. “It doesn’t tend to pay a lot of attention to geographic boundaries.”
That’s correct. “Cyber” is not a problem that affects our sovereignty or the integrity of our national boundaries. Thus, it’s not a problem for the defense or intelligence establishments to handle.
The benefits of the online world vastly outstrip the risks – sorry Senator Rockefeller. With those benefits come a variety of problems akin to graffiti, house fires, street closures, petit theft, and organized crime. Those are not best handled by centralized bureaucracies, but by the decentralized systems we use to secure the real world: property rights, contract and tort liability, private enterprise, and innovation.
Walking Is Controlled Falling Forward
People walk by propelling themselves forward in a way that would cause them to fall, then swinging a leg ahead to prevent the collapse.
So it is with innovation and economic progress. Change comes in a way that threatens to land us on our faces, but we swing a leg forward and find ourselves further advanced than before.
I was reminded of this today when I saw the Washington Post headline about the digital television transition: “Digital TV Ready to Rule the Tube, Leaving Some Viewers in the Dark.”
If it’s true that 3,000,000 homes in the U.S. will find their TV screens blank on Saturday — and if the people in those homes care — they’ll swing a leg forward by getting a digital TV converter, and the march to progress will continue.
If you think about falling forward in isolation, it looks like a bad idea, and earlier this year Congress delayed the DTV transition. Thank goodness we’ll get to take that step now.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
