‘The Moment It Produces Useful CER, PCORI Is Toast.’
An excerpt from a Politico Pro article (paywall) on the “Patient-Centered Outcomes Research Institute,” President Obama’s comparative-effectiveness research agency:
The point of comparative effectiveness research is to compare two or more different ways of treating the same condition to see which one works best. The idea is that if definitive best practices can be established, they will be widely adopted by providers and may be preferentially reimbursed by payers. Cheaper treatments that are effective would be favored.
It may sound harmless — like common sense, even, to the uninitiated — but it’s a menacing prospect to some pharmaceutical companies and medical device-makers who are concerned that their products may wind up on the wrong side of the ledger.
For this reason, Michael Cannon, director of health care studies at the Cato Institute, says good comparative effectiveness research is almost suicidal.
“The whole point of [comparative effectiveness research] is to find out what doesn’t work,” Cannon said in an email. “Every time the government has tried to do CER, the guys who provide the stuff found not to work successfully lobby to have the offending agency defunded. I see no reason to think this time will be any different. The moment it produces useful CER, PCORI is toast.”
And that’s just one source of opposition.
Other sources of opposition include patients who don’t like restrictions on their health care subsidies, thank you very much.
(The “suicidal” bit is confusing, and wasn’t my language. So to clear up any misunderstandings: comparative-effectiveness research is good. Markets both produce and employ it. Government is so incompetent that it cannot reliably produce CER, much less make use of it. Markets are smart. Government is stupid.)
The Debt Ceiling and the Balanced Budget Amendment
The Washington Post editorializes:
A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.
A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:
Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.
We’ve become so used to these stunning, incomprehensible, unfathomable levels of deficits and debt — and to the once-rare concept of trillions of dollars — that we forget how new all this debt is. In 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.
Historian John Steele Gordon points out how unnecessary our situation is:
There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.
It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”
Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.
In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.
Food Stamps Cut?
Prior to last week’s passage of another $26 billion in bailout money for state and local governments, I noted that the legislation wasn’t really offset:
Congressional Democrats say the measure is paid for with a combination of spending cuts elsewhere and tax increases. However, the new spending is front loaded and much of the spending cuts wouldn’t be realized until after 2013. For example, the Congressional Budget Office’s score of the legislation shows savings from the food stamps program of $12 billion from 2014-2018. Congress can come back any time before that and rescind the cuts.
It’s typical Beltway budgetary sleight-of-hand: increase spending up front and “cut” spending on the back-end to get a more deficit-friendly score from the CBO. Democrats don’t really intend to see these cuts actualized, and have indicated as much. That hasn’t stopped media outlets from across the ideological spectrum from running sensationalist headlines.
A headline from CBS News says “Food Stamps Slashed to Pay for Teachers Job Bill.” A hysterical headline at the leftish Huffington Post reads “Cutting Food Stamps to Save Teacher Jobs: A Hateful Trade-off.” And a headline on the conservative Human Events website claims “Democrats Rob Food Stamps to Pay Teachers.”
Adding to the heat is legislation moving through Congress that would “cut” future food stamps spending to help pay for increased child nutrition programs. But as was the case with the bailout legislation, the only change that’s being proposed is to move forward the expiration date for the temporary food stamp expansion contained in the 2009 stimulus bill.
In addition to unnecessary hand-wringing over the future, the near past is all but being ignored. As the following chart shows, the cost of the food stamps programs has exploded over the decade thanks to the recession and benefit increases under presidents Bush and Obama:
The food stamps program needs to be cut. In fact, the entire federal welfare system needs to be devolved to the states, or preferably, private charity. That phantom cuts following a massive increase in food stamps spending would cause such angst indicates that those of us who believe the needy aren’t best served by Uncle Sam have our work cut out.
Even Keynesian Accounting Can’t Find All That ‘Stimulus’
From January 2009 to the present, President Obama and his team have repeatedly made grandiose claims about the economic benefits of shoveling money at shovel-ready projects or green jobs. “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility,” said the President. He also claimed that lavish spending alone (not Federal Reserve actions or bank bailouts) is what prevented the unemployment rate from “getting up to . . . 15%.”
If any of that were remotely close to being true then, as a matter of simple accounting, rising federal spending would have shown up as a huge offset to falling GDP in 2009, and also as a major component of the modest increase in GDP growth in early 2010. On the contrary, the table below shows that the increase in federal nondefense spending contributed only two-tenths of one percent (0.2) to the change in GDP in 2009. That was no better than 2008 when the Recovery Act did not exist. If nondefense spending had not increased at all in 2009 (unlike 2008) then GDP would have fallen 2.8% rather than 2.6% — scarcely the difference between a recession and a “second Depression.” If nondefense federal spending had not increased at all in 2010, the economy still would have grown at a 3.6% pace in the first quarter, 2.1% in the second. Cutbacks in state and local spending were a trivial damper on GDP growth last year, contrary to recent speculation, and real state and local spending rose significantly in this year’s second quarter (unlike the first).
This is just an exercise in crude Keynesian accounting, not economics. Yet it nonetheless makes the stimulus bill look like a huge waste of money. The reason Keynesian accounting is no substitute for economics is that governments can only spend other peoples’ money. To claim that such spending is a net addition to “aggregate demand” is to ignore those other people — namely, current and future taxpayers.
Nobel Laureate Robert Lucas put it this way:
If the government builds a bridge . . . by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.
Obama vs. Common Sense
President Obama delivered a commencement speech at the University of Michigan in Ann Arbor on Saturday.
He called on all Americans “to maintain a basic level of civility in our public debate.” Who could argue? Yet the president apparently believes that civility means protecting his policies from valid criticism.
He instructed graduates that “the practice of listening to opposing views is essential for effective citizenship.” Right again. But the civics lesson rings hollow coming from a president who falsely claimed there was “no disagreement” over his massive “stimulus” bill, and that opponents of his health care takeover offered no proposals of their own.
He explained, “what we should be asking is not whether we need ‘big government’ or a ‘small government,’ but how we can create a smarter and better government.” Which is pretty much what every politician says when he wants big government and voters want small government.
Most troubling was this: “What troubles me is when I hear people say that all of government is inherently bad.” That remark reminded me of this passage from Thomas Paine’s Common Sense: “Government, even in its best state, is but a necessary evil.” And it has me thinking that our president, a former constitutional law professor, who just received an honorary Doctor of Laws degree from the University of Michigan, really doesn’t get the American idea of government. At all.
Ron Paul, the Chamber of Commerce, and Economic Freedom
Tim Carney has a blog post at the Examiner that’s worth quoting in full:
The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R-Tex. — certainly one of the two most free-market politicians in Washington — gets the lowest score of any Republican.
Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:
- Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
- Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
- Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.
(Rep John Duncan, R-Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)
I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free-market agenda:
Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.
Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro-business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro-business” is not the same as “pro-freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.
I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber’s position than to Ron Paul’s. But to suggest that Paul is wrong to vote against business subsidies — or that DeMint was wrong to vote against Bush’s 2008 stimulus package and the $700 billion TARP bailout – certainly does illustrate how much difference there can be between “pro-business” and “pro-market.” Instead of “Spirit of Enterprise,” the Chamber should call these the “Spirit of Subsidy Awards.”
At Just One Year Old, Stimulus an Overgrown Drain on the U.S. Economy
On the first anniversary of the stimulus bill’s passage, administration officials are traversing the country (on the taxpayer dime) touting its alleged successes.
But the inconvenient truth is that no number of orchestrated press events can mask the threat massive deficit spending poses for future living standards.
What administration officials are calling “investment” is really the opportunity cost of the government borrowing resources out of the economy. As a result, to the degree there has been any “stimulus,” it has been in the stimulation of government jobs and debt.
It is the private sector that fuels job growth and wealth creation, whereas government spending necessarily comes at the private sector’s expense. Fortunately, it appears that a growing segment of the populace is beginning to understand that there’s no free lunch when it comes to government spending.
State of the Union Fact Check
Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.
THE STIMULUS
Obama’s claim:
The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right — the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.
Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.
CUTTING TAXES
Obama’s claim:
Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.
Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”
Visit Cato’s Tax Policy Page for much more on this.
SPENDING FREEZE
Obama’s claim:
Starting in 2011, we are prepared to freeze government spending for three years.
Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.
“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”
Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.
JOB CREATION
Obama’s claim:
Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.
Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”
Federal Transportation Follies
The 2009 stimulus bill gave the U.S. Department of Transportation $50 billion to distribute to the states for highways, roads, and bridges. A House bill passed in December would add another $28 billion. According to Washington folklore, spending on infrastructure is always good because it’ll create jobs and spur economic growth. However, three recent examples are a reminder that the government often does a poor job of allocating resources.
First, an Alaska legislative audit concluded that the state should not have spent federal transportation money building a road to the site of the proposed “Bridge to Nowhere,” which was canceled after a national outcry. Alaska kept the federal money originally earmarked for the bridge, and then-Governor Sarah Palin agreed to spend $26 million of it on the road despite the fact there was no bridge.
Second, the Department of Transportation is supposed to exclude “unethical, dishonest, or otherwise irresponsible” parties from receiving federal funds. But according to a report from DOT’s inspector general, the average case took DOT officials “300 days to reach a suspension decision and over 400 days to reach a debarment decision.” For example, Kentucky awarded $24 million in transportation stimulus money to companies with officials under review by the Federal Highway Administration for bribery, theft, and obstruction of justice. The FHA took 10 months to review the companies before ultimately suspending them, but Kentucky had already given the companies the money.
Third, a Tennessee television station analyzed the state’s use of federal transportation stimulus money and found that it “spent an average of $161,500 per job created and that some paving jobs, which were temporary, cost taxpayers more than $1 million each.” The station interviewed a construction company that had been busy during the summer when it had federal money. Now its trucks are idle and the workers it hired have all been laid off.
Randal O’Toole says that “The best test of infrastructure value is whether users are willing to pay for it.” There’s almost no connection between infrastructure projects funded by federal taxpayers and the typically local users. Leaving infrastructure projects to state and local governments to fund would make more of a connection. Privatization, which would utilize tolling and other user fees, would be even better.
Obama to Find Budgetary Sobriety?
The White House is hinting that its fiscal year 2011 budget due out in February will be “austere.” White House Press Secretary Robert Gibbs didn’t provide any specifics but recently said that “it will not look as it has in the past.” Well that’s a relief because the FY2010 appropriations process finally wrapped up and spending continues to be anything but austere.
The “minibus” appropriations bill signed by the President last week jacked up funding by a combined 8 percent for programs ranging from education to housing to transportation. And that’s at a time when inflation is low. Further, funding hasn’t been passed yet for the president’s recently announced troop surge in Afghanistan, which will cost around $40 billion per year.
President Obama will be probably be announcing in his new budget a FY2010 deficit that’s even larger than FY2009’s massive $1.4 trillion deficit. He’s blowing the bank on his stimulus bill, giant health care bill, and large increase in FY2010 appropriations. He’s also looking at the polls, which show his plunging popularity and rising concerns over federal spending and debt.
He’s got to pretend to introduce an “austere” budget for his political survival and the political survival of Democrats up for election next year. That’s why I’m wondering whether the Democrats are purposely jacking up FY2010 spending so high so that they can show a freeze or even “cuts” for FY2011.
Taxpayers need to consider any such austerity budget in the context of the massive increase in discretionary spending over the past decade. In FY2000, total discretionary spending was $615 billion. So if FY2011 discretionary spending is just half of the decade’s average annual increase of 8.7%, total discretionary spending will be $1.474 trillion. If Obama imposes a hard freeze for FY2011, discretionary spending will still be about $1.412 trillion, still far more than double the level a decade ago.
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.
Spending Our Way Into More Debt
Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must “spend our way out of this recession.”
While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.
Some leaders in Congress want a new round of stimulus spending of $150 billion or more. The following are some of the ways that money might be spent from the president’s speech:
- Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”
- More infrastructure spending. This will lead to misallocation of resources since only markets can allocate resources efficiently. Governments allocate capital on the basis of politics instead of economics.
- “Cash for Caulkers.” This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf.
- More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.
- More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.
The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve.” Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.
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