Archives: September, 2009

How Big is American Government?

Federal, state, and local government spending will be 42 percent of U.S. gross domestic product in 2009, according to data from the Organization for Economic Cooperation and Development. That’s huge–more than 4 out of every 10 dollars of everything produced in America now gets channeled through governments.

How does that compare to other advanced nations? Chart 1 shows that total government spending in the United States is somewhat less than the average of the 30 industrial nations in the OECD, but that the U.S. advantage is shrinking. During the 1990s, the U.S. government size was about 10 percentage points smaller than the average OECD government size, but that gap has shrunk and is now only 5 percentage points.

Most of the erosion of America’s smaller government advantage occurred during the early Bush administration years. In the last two years, the recessions and expansionary fiscal actions have boosted the size of governments both here and abroad, as shown in the chart.That’s the bad news. The good news is that some advanced nations have substantially cut the sizes of their governments in recent decades, which illustrates that it can be done. Chart 2 shows total government spending as a share of GDP for the U.S. and for five OECD nations that have had relatively sound fiscal policies. Putting aside the recent recession-induced increases, Canada, New Zealand, and the Netherlands have chopped their governments by roughly 10 percentage points or more since the early 1990s.

edwards chart 1 9-22-09

What’s the upshot for U.S. policy? Many Americans have been stunned at the rapid expansion in government spending in recent years. But international experience shows that we can stop that expansion and, indeed, reverse it. If Australian, Canadian, Dutch, New Zealand, and Spanish lawmakers can shrink the relative sizes of their governments, then we can to. We just need to elect policymakers who support that goal. That is a tall order, but entirely doable.

edwards chart 2 9-22-09

FDIC Plan to Borrow from Banks Just Back-door Way of Putting the Taxpayer on the Hook

With the declining balance of the Federal Deposit Insurance Fund, and more bank failures likely in the days ahead, the FDIC is looking for novel ways to avoid borrowing from Treasury to cover its expected shortfalls.  One proposal being floated is to have the FDIC borrow from healthy banks to cover the costs of bank failures.  Without borrowing from either the Treasury or the banks, FDIC would likely have to raise insurance premiums on all insured banks.

While the scheme is imaginative, it is in reality no different than borrowing from the Treasury.  Banks, in exchange for a loan, would receive a government bond.  Does anyone doubt that these bonds would not simply be backed by the FDIC, but also backed by the Treasury?  In effect the plan is no different than FDIC borrowing from the Treasury and the Treasury selling bonds to the banks to cover the FDIC’s borrowing. Why the FDIC and Treasury would prefer a direct FDIC borrowing from banks is that it hides the real cost of the borrowing from the American taxpayer.

If we are going to continue to put the taxpayer on the hook for the behavior of the banks, let’s at least be honest about it.

Cutting Health Care Costs

Ezra Klein, the young Washington Post blogger who writes a lot about health care, contributed an article to the paper’s Sunday Business section in which he made this compelling point along the way:

The surest way to cut health-care spending would be to make people shoulder more of the burden directly, as opposed to hiding it in taxes and lost wages.

Bingo! Exactly! So why does Klein want government to get more involved, to wrap our health care in a web of mandates and subsidies and regulations and gatekeepers and monitors? When, as he says, making the cost of health care clear and direct would be “the surest way to cut health-care spending”?

Michael Cannon’s proposal for “Large HSAs” would move us in the right direction. It would allow workers to receive the full amount that they and their employer spend on their health benefits as a tax-free cash contribution to the worker’s health savings account. That would give consumers control over their health care dollars, giving them an incentive to shop around, ask questions, and generally hold down costs as consumers do in normal competitive businesses.

You can’t say it enough:

The surest way to cut health-care spending would be to make people shoulder more of the burden directly, as opposed to hiding it in taxes and lost wages.

Congress should stop moving in the other direction.

The International Relations Academy and the Beltway “Foreign Policy Community”—Why the Disconnect?

Glenn Greenwald uncovers a very interesting sentence in Les Gelb’s Democracy essay [.pdf] on the Iraq war and the media:

gelbLes Gelb on Charlie Rose

My initial support for the war was symptomatic of unfortunate tendencies within the foreign policy community, namely the disposition and incentives to support wars to retain political and professional credibility.

I had to read that two or three times to unpack all that’s going on in there.  The question obviously being begged is where does the disposition, and where do the incentives “to support wars to retain political and professional credibility” come from?

Consider: There are two groups of people, the Foreign Policy Community (FPC) in Washington and New York, centered around the national-security bureaucracy and think tanks that produce orthodox foreign policy hands like Brookings, AEI, and CFR.  There is a second group of people, international relations academics.  The two groups have, in most cases, similar training (PhDs from top schools) and in the course of obtaining such training have been exposed to many of the same theories and topics.

Yet the two groups have been wildly at variance in terms of their views on important public policy issues.  Take the Iraq war, for example.  As anyone who was in Washington at the time knows, the FPC was extremely fond of the idea of invading Iraq.  To oppose it was to marginalize oneself for years.  Indeed, those who promoted the disastrous adventure have prospered, while those who (bravely or stupidly, depending on your point of view) opposed it remain huddled in the chilly, dusty alcoves of popular debate.

In the academy, meanwhile, there was hardly any debate over Iraq–almost 80 percent of IR academics opposed the war. [.pdf] To the extent academics did enter the public debate on the issue, it was to pay for an advertisement in the New York Times warning against the war. [.pdf] The only academics who spoke out in favor of the war (to my knowledge, anyway) were IR liberals like Anne-Marie Slaughter, who sought policy positions in Washington.  (Slaughter, of course, was rewarded with a spot as Director of Policy Planning at the State Department, while to my knowledge none of the academic opponents of the war have gained Washington policy jobs.)

So what is going on here?  Why is there such a profound disconnect between the two groups that look so similar on paper?  The first, most obvious answer is that the academy tends to be more liberal (in the domestic political sense), so academics tend to have more peacenik-y views.  The problem with that argument is that the domestic-political liberals in the FPC supported the war just as strongly as their conservative brethren, which means that domestic political views don’t work as a determinant of support for war.

My sense is that the giant national-security bureaucracy in Washington that has emerged over the last 65 years has shaped incentives in a manner such that it is next-to-impossible to “get ahead” by advocating for restraint.  Put differently, restraint isn’t in anybody’s interest except the country’s, and there’s nobody in Washington representing broad national interests as opposed to their own parochial ones.  Every neoconservative or liberal imperialist in DC has someone’s interests behind them.  The Don Quixotes like myself and my colleagues here, by contrast, want to cut the defense budget, slow the opportunities for rent-seeking among contractors, etc, etc, etc.  As Wall Street Journal editorial page editor Paul Gigot once derisively referred to us, we’re just “four or five people in a phone booth.”  But we were right about Iraq, which is more than Gigot can say for himself.

For the legions of IR journal editors who are reading this post, I am completing an article draft examining this idea in more detail.  But for now you can cast an eye on a Steve Walt blog post that makes an argument very similar to my own:

…America’s role in the world today is shaped by two imbalances of power, not just one. The first is the gap between U.S. capabilities and everyone else’s, a situation that has some desirable features (especially for us) but one that also encourages the United States to do too much and allows others to do either too little or too many of the wrong things. The second imbalance is between organized interests whose core mission is constantly pushing the U.S. government to do more and in more places, and the far-weaker groups who think we might be better off showing a bit more restraint.

I’m open to different theories on this matter, but I think we should agree that at the very least, it’s an interesting puzzle.

Use Only U.S. Law to Interpret the U.S. Constitution

This fall, the Supreme Court will hear two cases involving Eighth Amendment challenges to the sentencing of juveniles to life without parole (“LWOP”) – Graham v. Florida and Sullivan v. Florida – claims that these types of sentences are “cruel and unusual.”  Cato takes no position on the wisdom of these types of sentences, but when evaluating their constitutionality the Court should only consider American law.

That is, regardless of the criminological or moral merits of juvenile LWOP sentences, the Supreme Court ought not consider non-binding provisions of international human rights treaties and customary international law in its analysis (as it has in cases like Roper v. Simmons and Atkins v. Virginia).  To that end, Cato joined the Solidarity Center for Law and Justice, the Sovereignty Network, and 10 other groups in a brief urging the Court to limit its constitutional analysis to domestic law and the decisions of U.S. courts.

Our brief argues that the Court should leave to the political branches the decision of whether to transform international norms into domestic law and only allow duly ratified international agreements to override domestic law – in the way the Court has set out in cases such as Medellin v. Texas. It further contends that if the Court believes this is one of the rare cases where international norms are relevant, it should follow the test it laid out in Sosa v. Alvarez Machain, which addressed the (unrelated) Alien Tort Statute: The relevant norm must be widely accepted by the civilized world and as clearly defined as the historic “law of nations” norms regarding safe conduct permits, ambassadorial rights, and piracy on the high seas.

The brief also cautions that reliance on non-binding and indefinite international norms will undermine the democratic process and rule of law, casting considerable uncertainty over many U.S. laws.

More generally, while looking to foreign and international example is prudent when designing constitutions and drafting legislation – or even adjudicating complex international legal disputes – it is simply not relevant to interpreting the nation’s founding document.

Preemptive Regulation of the Internet

Julian Sanchez has already done a fine job of assessing FCC Chairman Julius Genachowski’s speech announcing his plan for federal regulation of the Internet. There was nothing really new in it. No substantial problems justifying regulation have emerged, and—Genachowski’s claims to modest aims aside—any ‘net neutrality regulation is likely to be a substantive morass. Says Julian:

[I]t absolutely reeks of the sort of ad hoc ‘I know it when I see it’ standard that leaves telecoms wondering whether some innovative practice will bring down the Wrath of Comms only after resources have been sunk into rolling it out.”

If the FCC goes ahead with regulating the Internet, the public will get a good look at what closed systems are really like. The FCC’s retrograde “Electronic Comment Filing System” doesn’t even allow full-text searches of submissions. This is but one failing the Internet’s engineers all over the country—and not just in big telcos—will run into dealing with the FCC.  It’s laughable that this outdated telecommunications bureaucracy is trying to take over the Internet.

A complex array of network protocols and business processes make up “the Internet.” The Internet’s end-to-end architecture is good engineering because it is naturally open, flexible, and conducive to communications freedom. The Internet empowers consumers to fend for themselves, such as in their dealings with Internet Service Providers. When Comcast degraded the Bitorrent protocol, it took just weeks for consumer pushback to end the practice. The FCC opened an inquiry long after the matter was settled.

But some politicians and the FCC’s lawyers think their slow-moving, technologically unsophisticated bureaucracy knows better than consumers and technologists how to run the Internet. The FCC’s “net neutrality” plans are nothing more than public utility regulation for broadband. With federal regulation, your online experience will be a little more like dealing with the water company or the electric company and a little less like … well, the Internet!

As Julian said, Tim Lee’s is the definitive paper. The Internet is far more durable than regulators and advocates imagine. And regulators are far less capable of neutrally arbitrating what’s in the public interests than they imagine either.