Monday Links
- A year later, Obamacare makes Pennsylvanians say “no thank you.”
- In a peculiar set of responses to inquiries about Libya, the Obama administration makes “kinetic military action” against the English language.
- Full or substantial government health insurance makes for an inefficient and expensive health care system.
- Emotionalism as democratic waves spread across the Middle East makes incoherent foreign policy.
- As long as big ticket items continue to make the cut, our fiscal house will remain in disarray.
- If you didn’t get a chance to celebrate Earth Hour Cato-style over the weekend, check out this clip of senior fellow Jerry Taylor making the case against “green” subsidies:
Return to Debt Mountain
Last year I noted that the White House Office of Management and Budget homepage featured a call from the president to “invest in our people without leaving them a mountain of debt.” Yet, the Congressional Budget Office’s analysis of his then-current budget proposal showed that publicly held debt as a share of GDP would rise like the steep slope of a mountain under his policies.
The president’s latest budget proposal was released in February, and according to the CBO’s preliminary analysis, Obama would once again leave “our people” with a mountain of debt:
Given that the quote is clearly embarrassing, one would think that the White House would have taken it down by now. But it’s still there.
Rand Paul’s Balanced Budget Plan
Sen. Rand Paul (R-KY) has released a detailed plan that would balance the federal budget in five years. Paul’s plan would achieve balance by halting and reversing the historic rise in federal spending. Taxes would not be increased, but revenues would steadily increase as the economy recovers.
The following charts compare Paul’s plan versus President Obama’s recent budget submission for fiscal 2012:
While Obama intends to continue spending at a historically high level, Paul would reduce spending as a share of the economy. Paul takes the scalpel to all areas of federal spending, including discretionary, defense, and mandatory. However, it is not a radical plan. In fact, it’s 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.
What if We Ran a Public School System… and No-One Came?
The New Jersey Office of Legislative Services, which estimates the budgetary impact of proposed laws, has just released its analysis of a private school choice bill called the “Opportunity Scholarship Act.” The most remarkable thing about its report is the amount of money it assumes that districts would save for each student they no longer have to teach: $0.
On that assumption, if every student were to leave for the private sector tomorrow, districts would keep right on spending exactly the same amount they spend today. Inefficient though it is, not even state-run monopoly schooling is that bad.
The OLS report does not explain why it assumes that the per pupil savings for students leaving public schools (the “marginal cost”) would be $0. It states that this figure is “indeterminate,” but by not counting it at all is effectively treating it as zero.
In fact, the marginal cost of public schooling is not “indeterminate” at all. Economists “determine” it all the time, and it’s quite easy to do. You simply observe how district spending actually rises and falls with enrollment, using a time-series regression, as I did in 2009 to calculate the marginal cost of public schooling in Nevada (see Appendix A).
Even if the NJ OLS does not conduct a marginal cost estimate specific to New Jersey, they could have done–and should still do–the next best thing: take the marginal cost estimates for other states as a rough guide and estimate the NJ district savings from them. I estimated that Nevada district spending falls by 85% of average per-pupil spending when a student leaves, and Grecu and Lindsay, a couple of years earlier, estimated the figure at 80% for South Carolina.
If they want to be conservative, the NJ OLS could use the lower of these figures, and perhaps also run the numbers for estimates 10% higher and 10% lower.
Any of the above options is preferable to the logical impossibility of their current analysis, which effectively treats the marginal cost of public schooling as $0.
Federal Spending Cap: Corker vs. 3%
The American Action Forum will host a conference on Capitol Hill this afternoon to discuss budget reform (details here). Sen. Bob Corker (R-TN) will discuss his “Commitment to American Prosperity Act,” which would cap federal spending at a declining percentage of GDP over ten years. Spending as a percentage of GDP would eventually be reduced to 20.6 percent, which is equal to the average from 1970 to 2008.
Corker’s plan properly places the focus of deficit reduction on the source of the problem: too much spending. A concern with Corker’s plan is that it is somewhat complicated, which could make it difficult to explain to the public. Chris Edwards, who will be speaking at today’s event, recently showed that the government can get its finances under control by imposing a statutory limit on annual spending growth of 3 percent.
Chris explains:
Such a limit would be easy for policymakers and the public to understand and enforce. It would put ongoing pressure on Congress to cut discretionary programs and reform entitlements. With spending growth limited to 3 percent, the budget would be balanced in just over a decade and growing surpluses would be generated after that. The federal government would shrink as a share of GDP. The math is simple: federal revenues and GDP are expected to grow substantially faster than the 3 percent spending limit over the next decade and beyond.
The following chart shows spending growth capped at 3 percent versus Corker’s plan to cap spending at a decreasing percentage of GDP:
Both plans effectively limit spending growth, although the 3 percent cap would be more successful in limiting spending in the long-run. The major difference is that the 3 percent cap has the advantage of being easier to explain to the public. Public support is important for spending limitation legislation to gain traction.
Bruce Cook, the chairman and CEO of the One Cent Solution, will also be participating in today’s discussion. The Mercatus Center’s Jason Fichtner recently released a similar proposal called the “One Percent Solution.” These budget cap proposals would be tighter.
Spending Still Increases with GOP Cuts
House Republicans engineered a continuing resolution for fiscal 2011 that would trim $61 billion in “regular” discretionary budget authority versus fiscal 2010. The Obama administration and the Democratic majority in the Senate balked at the cuts, and a two-week continuing resolution will be passed in order to avoid a “government shutdown” and give the sides more time to reach an agreement.
Based on the Congressional Budget Office’s score of the continuing resolution containing $61 billion in funding cuts, and the CBO’s recent budget projections, both discretionary and total federal outlays (actual spending) would still be higher in fiscal 2011 versus fiscal 2010.
Keep these charts in mind the next time you hear or read that the Republicans’ supposedly “major spending cuts” will lead to reduced economic growth and hundreds of thousands of jobs lost.
House Debates Spending—and REAL ID Is on the Chopping Block
It’s a good thing for Congress to have an open debate on the bill that would fund the government from March 4th through the September 30 end of the 2011 fiscal year. The alternative is for the bill to be written and the political log-rolling to be done entirely behind the scenes. Open debate of the bill and amendments requires at least some level of discussion about various projects and programs rather than spending decisions being based solely on raw political power. And it gives the public some chance to have a say.
The debate may include an amendment to strip funding from the REAL ID Act, our deplorable national ID law. As I wrote here before, money spent on REAL ID is waste. That money should be put to better uses, including deficit reduction. No future money should go to the national ID boondoggle, and ultimately REAL ID should be repealed once and for all.
Amendment #277 (find it on this page, scroll down…) would add the following language to the FY 2011 spending bill:
None of the funds made available by this Act may be used by the United States Citizenship and Immigration Services for the implementation of the REAL ID Act of 2005 (Public Law 109-13).
Congratulations are due to David Price (D-NC) for highlighting this issue. A national ID would not provide security gains that come anywhere close to the costs of creating a national ID and living under a national ID system. People who desire a national ID for immigration control conveniently forget or omit that natural-born citizens would be required to have and carry a national ID while illegal immigrants work various ways to defeat any of the utterly porous “internal enforcement” systems that restrictive immigration policies have made plausible. A national ID would be used not just to control access to working, but to housing, health care, financial services, and more. In short, it would make the country less free.
I’ll report here what happens with this amendment and the debate on it, which is a debate worth having.
Federal Budget: Obama Chickens Out
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 has completely chickened out on spending reforms in its new budget.
The president took a “shellacking” in the November elections as a result of his big-government policies. Does his new budget reflect any movement to the fiscal center? Not at all — spending levels in his new budget are virtually the same as in last year’s budget.
Read my post at NRO for full details.
Cost Overruns at the National Archives
A new report from the Government Accountability Office finds that the National Archives and Records Administration’s Electronic Records Archive project is headed for major cost overruns. Initiated in 2001, the project was originally projected to cost $745 million but could end up costing $1.4 billion. The project’s development phase was supposed to be completed by September, but the GAO estimates that it won’t be completed until 2017.
The purpose of the Electronic Records Archive project is to create a digital system for gathering and storing government records that would be accessible to the public. In 2005, the National Archives selected Lockheed Martin to develop the system. Unfortunately, the GAO report makes it clear that the National Archives hasn’t been up to the task of properly overseeing the project.
The examples of shoddy management are too numerous to recount. For instance, the National Archives was supposed to follow a system for managing the project’s costs and progress called earned value management (EVM). However, the GAO found “anomalies” in the monthly reports submitted to the National Archives from Lockheed Martin that are crucial to EVM.
From the report:
- Planned work was removed from the [performance measurement] baseline without also removing its corresponding budget. This is an inappropriate EVM practice and results in the appearance of favorable cost and schedule performance trends.
- Work was shown as fully completed in one month’s report but, in subsequent reports, the same work was reported as less than 100 percent complete. For example, Increment 3 development work was reported as 100 percent complete in July 2009, but 2 months later, in September 2009, it was reported as 10 percent complete. In another example, program support activities for Increment 3 were reported as 100 percent complete in August 2009, but in the subsequent month as 49 percent complete.
- Dollars were reported as spent in a given month, but no work was reported as scheduled or completed.
The GAO says that National Archives and Lockheed Martin officials “provided justifications for these anomalies…. However, these justifications were not always valid.”
Cost overruns in government are not anomalies. In fact, as a Cato essay on government cost overruns demonstrates, they occur all too frequently. The reason is simple:
People tend not to spend other people’s money as carefully as they spend their own. In governments, policymakers and administrators deal with large amounts of other people’s money, and so wasteful spending is a big problem…. Cost overruns are illustrative of the persistent failures of federal management and provide one justification to downsize the government.
Another Nail in REAL ID’s Coffin
The REAL ID Act—the 2005 national ID law rejected by the states asked to implement it—continues its long slow death. The latest nail in the coffin: moves in Congress to defund the “hub” system that would share driver information nationwide.
The House-passed “Full-Year Continuing Appropriations Act” contains the following language in the section that funds U.S. Citizen and Immigration Services: “none of the funds made available in this section shall be available for development of the system commonly known as the ‘REAL ID hub’.”
And also: “From unobligated balances of prior year appropriations made available for United States Citizenship and Immigration Services for the program commonly known as the ‘REAL ID hub’, $16,500,000 is rescinded.”
Senator Inouye’s (D-HI) amendment in the Senate also denies USCIS funding for the REAL ID hub. And it, too, rescinds $16.5 million in prior-year funding.
Money spent on REAL ID is waste. That money should be put to better uses, including deficit reduction. No future money should go to the national ID boondoggle, and REAL ID should be repealed once and for all.
Where are the ’60s Hippies Now that They’re Needed to Fight Keynesianism?
Keynesian economic theory is the social science version of a perpetual motion machine. It assumes that you can increase your prosperity by taking money out of your left pocket and putting it in your right pocket. Not surprisingly, nations that adopt this approach do not succeed. Deficit spending did not work for Hoover and Roosevelt is the 1930s. It did not work for Japan in the 1990s. And it hasn’t worked for Bush or Obama.
The Keynesians invariably respond by arguing that these failures simply show that politicians didn’t spend enough money. I don’t know whether to be amused or horrified, but some Keynesians even say that a war would be the best way of boosting economic growth. Here’s a blurb from a story in National Journal.
America’s economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today. Nobelist Paul Krugman, a New York Times columnist, and Harvard’s Martin Feldstein, the former chairman of President Reagan’s Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. …Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact “exogenous” shock like a major war — something similar to what Krugman called the “coordinated fiscal expansion known as World War II” — would be enough to break the cycle. …Both reiterated their previously argued views that the Obama administration’s stimulus was far too small to fill the output gap.
Two additional comments. First, if Martin Feldstein’s views on this issue represent what it means to be a conservative, then I’m especially glad I’m a libertarian. Second, Alan Reynolds has a good piece eviscerating Keynesianism, including a section dealing with Krugman’s World-War-II-was-good-for-the-economy assertion.
“We’re Talking Bridges…”
On Labor Day, President Obama announced his plan for an additional $50 billion in spending, mostly on transportation. An area Obama specifically mentioned was more spending for bridges, playing on the widely held perception that America’s bridging are falling apart. While clearly there are bridges that are greatly in need of repair and represent a threat to passenger safety, what has been the overall trend in bridge quality? In one word: improving.
According to the U.S. Bureau of Transportation Statistics only about 1 in ten bridges today can be characterized as “structurally deficient”, this is, in need of serious repair. This may sound high, but it is down from 1 in four back in 1990. As one can tell from the accompanying chart, the percent of deficient bridges has been on a steady decline over the last two decades.
It is also worth noting that over 80 percent of the deficient bridges in the U.S. are in rural areas, and subject to much less passenger traffic. Many of these bridges likely see little, if any, traffic.
Perhaps more important from the perspective of “economic stimulus” is that additional bridge construction and repair would take years to have any real impact on employment. Rather than coming up with policies designed with solely political appeal in mind, the President and Congress should focus on broad policies that allow the private sector to determine what investment needs should be addressed.
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