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.
Less Is More in Education Funding
Spend more money on education, the President says? Actually, we should be looking there for savings . . . here are some of the numbers:
State governments spent 35 percent of their general funds on K–12 education in 2007, according to the National Association of State Budget Officers. In contrast, Medicaid — which is continually singled out as a problematic state-budget item, even though most Medicaid funds come from the federal government — accounted for just 17 percent of general-fund expenditures. Combined, state and local governments spend 27 cents of every dollar they collect on public K–12 education system, but only 8 cents on Medicaid.
Filed under: Education and Child Policy; Tax and Budget Policy
Is Keynesian Stimulus Working?
In his Brookings Institution speech yesterday, President Obama called for more Keynesian-style spending stimulus for the economy, including increased investment on government projects and expanded subsidy payments to the unemployed and state governments. The package might cost $150 billion or more.
The president said that we’ve had to “spend our way out of this recession.” We’ve certainly had massive spending, but it doesn’t seem to have helped the economy, as the 10 percent unemployment rate attests to.
It’s not just that the Obama “stimulus” package from February has apparently failed. The total Keynesian stimulus is not measured by the spending in that bill only, but by the total size of federal government deficits.
The chart shows that while the federal deficit (the total ”stimulus” amount) has skyrocketed over the last three years, the unemployment rate has more than doubled. (The unemployment rate is the fiscal year average. Two months are included for FY2010.)
The total Keynesian stimulus of recent years has included the Bush stimulus bill in early 2008, TARP, large increases in regular appropriations, soaring entitlement spending, the Obama stimulus package from February, rising unemployment benefits, and falling revenues, which are “automatic stabilizers” according to Keynesian theory.
The deficit-fueled Keynesian approach to recovery is not working. The time is long overdue for the Democrats in Congress and advisers in the White House to reconsider their Keynesian beliefs and to start entertaining some market-oriented policies to get the economy moving again.
Thursday Links
- The War on Terrorism ends; and the winner is… China.
- Fairness Doctrine 2.0: How the government is finding new ways to regulate media.
- Don’t miss Cato’s 27th annual Monetary Conference Thursday, November 19th.
- New Hampshire state government guaranteeing loans to help bail out a local newspaper.
- Podcast: “Atomic Obsession:” When threats are exaggerated, what’s the cost? John Mueller, author of Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats, and Why We Believe Them, comments.
Debt Aggravates Spending Disease
USA Today’s Dennis Cauchon reports that ”state governments are rushing to borrow money to take advantage of cheap and plentiful credit at a time when tax collections are tumbling.” That will allow them to “avoid some painful spending cuts,” Cauchon notes, but it will sadly impose more pain on taxpayers down the road.
When politicians have the chance to act irresponsibly, they will act irresponsibly. Give them low interest rates and they go on a borrowing binge. The result is that they are in over their heads with massive piles of bond debt on top of the huge unfunded obligations they have built up for state pension and health care plans.
The chart shows that total state and local government debt soared 93 percent this decade. It jumped from $1.2 trillion in 2000 to $2.3 trillion by the second quarter of 2009, according to Federal Reserve data (Table D.3).
Government debt has soared during good times and bad. During recessions, politicians say that they need to borrow to avoid spending cuts. But during boomtimes, such as from 2003 to 2008, they say that borrowing makes sense because an expanding economy can handle a higher debt load. I’ve argued that there is little reason for allowing state and local government politicians to issue bond debt at all.
Unfortunately, the political urge to spend has resulted in the states shoving a massive pile of debt onto future taxpayers at the same time that they have built up huge unfunded obligations for worker retirement plans.
We’ve seen how uncontrolled debt issuance has encouraged spending sprees at the federal level. Sadly, it appears that the same debt-fueled spending disease has spread to the states and the cities.
Filed under: Government and Politics; Tax and Budget Policy
Virginia Bureaucrats Look to Extort Yoga Instructors
Last month I blogged about attempts by various state governments to regulate yoga instructors by forcing them to obtain a costly government license. Today the Washington Post has a story on Virginia’s efforts to place the government boot on the necks of its yogis:
The State Council of Higher Education for Virginia recently declared that studios offering yoga teacher instruction must be certified. That involves a $2,500 fee, audits, annual charges of at least $500 and a pile of paperwork.
Let’s call this what it is: extortion. And if you still harbor the illusion that bureaucrats don’t sit around thinking up ways to pilfer more money from productive members of society, think again:
In Virginia, yoga teacher training first hit the state’s radar late last year after a state employee conducting school audits happened upon an advertisement, said Linda Woodley, the higher education council’s director of private and out-of-state postsecondary education. Before that, Woodley said, ‘I was not aware they existed, and they were not aware we existed.’
Well congratulations, Ms. Woodley — the yogi community now knows you exist.
Studios can teach lotus poses to as many clients as they like, state officials said. But teacher training programs, which the state views as similar to dog grooming, massage therapy or other classes intended to prepare someone for a job, must be certified under state law. (For instance, Simply Ballroom Dance Teachers Academy, Danny Ward Horseshoeing School and Jiggers Bartending School are certified.)
Virginia citizens should sleep sound at night knowing ballroom dance teachers, horseshoers, and bartenders are government certified.
Woodley said it’s also about ensuring that students who plunk down cash for training programs that can run a few thousand dollars are getting their money’s worth. Plus, she said, being listed on the government registry will give schools a marketing tool, like a Good Housekeeping seal of approval.
Good Housekeeping seal of approval? Ladies and gentleman, this is the mentality of the state bureaucrats that the federal government has tasked with “stimulating” the economy with YOUR money.
False Accounts of Massachusetts’ Health Reforms
Recent editorials in both the Boston Globe and The New York Times contained some staggering falsehoods about the cost of Massachusetts’ health reforms. Here is a poor, unsuccessful letter I sent to the editor of the Globe:
The editorial “Mass. bashers take note: Health reform is working” [Aug. 5] states that “the cost to the state taxpayer” of the Massachusetts health reforms is “about $88 million a year.” That claim is unquestionably false. The cost to state taxpayers is 19 times that amount, while the total cost is 24 times that amount.
The Massachusetts Taxpayers Foundation explains that the $88-million figure represents not the total cost to the state government, but the average annual increase in the state government’s costs. Worse, the editorial completely ignores new spending by the federal government and the private sector, which account for 80 percent of the law’s cost.
According to Massachusetts Taxpayers Foundation estimates, health reform will cost at least $2.1 billion in 2009. The total cost to state taxpayers is at least $1.7 billion and growing. (The fact that other states’ taxpayers bear the balance should not be a source of pride.)
One wonders how such a falsehood comes to appear on a leading editorial page.
And one I sent to the Times:
“The Massachusetts Model” [Aug. 9] understates the cost of the Massachusetts health plan.
The editorial claims, “the federal and state governments each pa[y] half of the added costs, or about $350 million” in 2010. The Massachusetts Taxpayers Foundation, which generated that estimate, assumes that Massachusetts will eliminate $200 million in subsidies to safety-net hospitals next year. Given that those hospitals are currently suing the Commonwealth and exerting political pressure to increase such payments, those assumed cuts are hypothetical. More certain is the foundation’s estimate that the on-budget cost will reach $817 billion in 2009.
Yet the foundation’s estimates also show that the law (1) pushes 60 percent of its cost off-budget and onto the private sector; (2) costs about three times the $700 million that the editorial suggests, and (3) is covering 432,000 previously uninsured residents at a cost of about $6,700 each, or $27,000 for a family of four. That’s more than twice the average cost of family coverage nationwide.
The editorial admonishes that “the public should demand an honest assessment, from critics and supporters” of the Massachusetts health plan. Indeed.
A fuller response to these spurious claims may be found here.
I wish I could run a newspaper, so I could print false stuff and then not correct it. Oh wait, I do blog…
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