Archives: January, 2010

Census Paves the Way for Subsidies

Our bloated government does a lot of things it shouldn’t, but the decennial census is one of the handful of federal activities the Constitution approves of. The census was intended simply to determine the number of seats each state would have in the House of Representatives. Today, census data is plugged into government formulas to determine how more than $400 billion in subsidies from the federal welfare state are allocated to state and local governments.

The impetus to grab federal dollars caused controversy back in December when the National Association of Latino Elected Officials distributed a census promo that read, “This is how Jesus was born…Joseph and Mary participated in the Census.” The group’s website says that, “For each uncounted Latino, more than $11,000 [in federal funding] will be lost over the next decade.” Jesus did get stuck being born in a manger because Joseph and Mary couldn’t find proper shelter, but the Bible doesn’t say that the census led to Bethlehem receiving more affordable housing subsidies from Rome.

I just received a newsletter from the town where I reside. It says that my town was named the best place in the state to raise kids by BusinessWeek, 11th best place in America to move by Forbes, and one of the top 100 best places to live in America according to Relocate America. Sounds like my town’s doing pretty good on its own, but on page six I’m hit with a plea to make sure I participate in the census so the town can grab federal dollars:

When you fill out the census form in April, you’re making a statement about what resources [the town] needs going forward…Accurate data reflecting changes in our community are crucial in deciding how more than $400 billion per year is allocated for projects like hospitals, public works projects, infrastructure improvement, senior centers, schools and emergency services. That’s more than $4 trillion over a ten year period for things like new roads and schools, and services like job training centers.

Not a single item listed by the newsletter is anything the federal government is empowered to fund. There’s no practical or moral reason why my thriving town should receive money from taxpayers in other locals across the country. Nor should taxpayers in my town be forced to send a portion of their paycheck to Washington so politicians can play Santa Claus to their parochial interests. As such, the pork politics surrounding the census is another reminder that a return to fiscal federalism is desperately needed.

Can the GOP Recover Its Principles?

Today, Politico Arena asks:

How helpful is it to the GOP to have its chairman say the party’s “credibility snapped” while in power and it became “just another party of Big Government?”

My response:

If GOP chairman Michael Steele means it, it’s very helpful for him to say that the party’s “credibility snapped” while in power and it became “just another party of Big Government?”  You first have to recognize a problem if you want to solve it.

For better or worse, we’ve had two major parties for most of our history, and that’s not likely to change any time soon.  At least since the New Deal, the Democratic Party has been the party of government, especially over economic affairs.  By contrast, since the Goldwater revolution of 1964, the Republican Party has claimed to be the party of individual liberty and limited government, although that claim was often undermined by calls for restricting certain personal liberties, and the party was slow, as were parts of the Democratic Party, in supporting the civil rights movement.  But broadly speaking, in our recent history the two parties have been distinguished, nominally, by their different conceptions of the proper role of government.

At no time was that contrast more sharply drawn than during the Reagan administration.  Yet even then there were internal struggles between the Reagan people and the Bush people.  Recall that when Bush ‘41 became president, he called for a “kinder and gentler nation,” which was a slap at Reagan’s limited government principles.  And eventually, of course, he broke his “no new taxes” pledge.

After Bush lost the presidency, the Gingrich “Contract with America,” leading to the Republican take-over of Congress for the first time in 40 years, was supposed to return the party to a principled, limited government path.  It did so briefly, in those heady days of 1995, but by the end of the year the siren song of government power was calling and the party started its slow slide, at the end of which it was barely distinguishable from the Democratic Party.

Thus, it was no accident that in 2000 the party selected as its standard-bearer George W. Bush, who had been utterly absent from the intellectual ferment of the Goldwater-Reagan years.  Not unlike his father, Bush ‘43 stood for “compassionate conservatism,” a slogan ripe with promise for government programs.  And the Republican Congress, now rudderless, was anxious to supply them.  If the party stood for anything, it was incumbency protection.  What better example than the McCain-Feingold campaign finance “reform” bill, which Bush signed while saying he thought it was unconstitutional.  What’s the Constitution among friends?

But rudderless, unprincipled government could not go on forever, and so in time it came crashing down upon the Republican time-servers – and the real party of government took over.  Immutable principles, however, such as you can’t get something for nothing, favor no party, and so Democrats too are facing, or will soon face, the harsh realities that flow from abandoning political and economic discipline.  If the Republican Party can recover the fundamental principles that are captured in the nation’s founding documents, and take them to the people, it will then fall to us to decide what we want.  And if we too believe in something for nothing, we will have no one to blame but ourselves for the consequences that follow.  But at least we will have had a choice, which we have not had in recent years.  So, yes, Mr. Steele’s call for a return to principle is helpful.

Did the Fed Buying MBS Make a Difference?

Recent years have witnessed a multitude of new Federal Reserve programs aimed at bringing stability to our financial markets.  One of the largest programs has been the Fed’s purchase of Fannie Mae and Freddie Mac guaranteed mortgage-backed securities (MBS).  The program was initially announced in November 2008 with the goal of buying up to $500 billion, later expanded to $1.25 trillion.  Clearly we are talking a lot of money.

The ultimate objective of the FED MBS purchase program was, in the words of the Fed, to reduce mortgage rates “relative to what they otherwise would have been.”  Did the Fed meet this objective?  According to a new study by Stanford University Economists Johannes Stroebel and John Taylor the Fed did not. 

More specificially, the professors “find that the MBS program has no significant effect.  Movements in prepayment risk and default risk explain virtually all of the movements in mortgage spreads.”  So while it is clear that mortgage rates declined over the time the Fed has operated the MBS purchase program, those declines were due to factors outside of the Fed’s control.

Professors Stroebel and Taylor only look at the claimed benefits of the Fed’s MBS purchase program, leaving aside the issue of cost.  Since any losses on MBS purchased by the Fed reduces the amount of funds transferred from the Fed to Treasury, these losses are ultimately borne by the taxpayer, as that reduction will have to be made up elsewhere.  With close to a trillion in purchases, even minor declines in value can result in large losses for the taxpayer.  For instance, a 5% loss in value would translate to $50 billion loss to the taxpayer.  Another good reason to audit the Fed.

Bodyscanning Captain Underpants

I probably should’ve predicted that a huge story implicating national security surveillance policy would break just as I was boarding a flight to Madrid for the holidays. Jim Harper & c. have by now covered most of the bases admirably, but there are one or two points I feel it can’t hurt to emphasize.

First, there’s been a lot of talk about millimeter wave body imaging scanners in the wake of the attempted Christmas bombing; the New York Times headlined a story about the machines “Technology that Might Have Helped.” Really, that should read “Might Have Helped Had It Been Installed in Lagos,” which might have underscored the weirdness of some of the ensuing discussion. Because the awesome next-gen spytech you’ve got at the most advanced 20% or 50% or 90% of airports matters a lot less than the situation in the bottom 1%, where a global adversary is going to focus their efforts. At a couple hundred thou each, we’re talking about a pretty pricey solution if they’ve got to be near-ubiquitous to work.

The press have set up a familiar security/privacy debate over body imaging, but this strikes me largely as a sideshow. If no records of the scans are kept, and software is used to obscure body contour details while preserving resolution for objects concealed on the person, and the scans are reviewed by analysts in another room who don’t simultaneously see the subject, then it’s hard to see how they’re substantially more intrusive than x-rays of carry-on baggage. (Though I would, of course, want to insist on those three privacy measures.) The real questions to raise about the tech are entirely on the security side.

First, experts have raised serious doubt about the assertion that millimeter wave scanners would have detected the device involved in the Christmas attempt.  It’s hard to imagine a dumber way to blow a few hundred million bucks than on high-tech measures that wouldn’t even work against current terrorist methods, especially when alternative measures like chemical swabs—far cheaper, though without the gee-golly Total Recall factor—are on the menu. But you also have to assume that if it were effective against current methods, terrorists would switch methods—either by selecting different targets or looking for other means of hitting the same targets. Now, forcing that kind of shift can clearly be a benefit: As Jim has noted, the kind of device they had to use to circumvent metal detectors and baggage x-rays was clearly less reliable than a bomb in a suitcase could’ve been, making it possible for passengers to foil the attempt.  The question is whether the countermeasures they take in response to the body scanners require them to incur marginal liabilities that justify the cost.  It seems awfully doubtful, frankly.

If you’ll forgive a bit of frank cynicism, I predict we’ll end up debating body imagers because they’re big, flashy, sexy tech with lots of cool scifi visuals for the weekly newsmags and cable news shows to use.  The anchors get to say “naked” a lot, and air travelers get to feel like they’re being protected by cyborgs from the future.  Meanwhile, measures that actually enhance security, like reinforced cockpit doors, tend to be rather more boring and invisible to the average person. So, for instance, probably Umar Farouk Abdulmutallab should have at least been pulled aside for additional screening.  It’s not that it should have been enough, in isolation, that his father had contacted the American embassy with concerns about his son (intel agencies are drowning in vague tips, which is one reason there are half a million people on the terror watchlist, only a handful of whom are actually a threat; you can’t feasibly ground all of them) or that he bought a one-way ticket with cash or that he was traveling without baggage, or that there was chatter about a potential bombing attempt by a Nigerian. Rather, you’d think the combination of those things would have triggered a closer look at the airport. But that’s a question of abstruse and partly classified back-end data sharing procedures, which aren’t nearly as fun to talk about on Meet the Press.

Congress Chooses the Low Road. Again.

In 2009, congressional Democrats fashioned their health care legislation out of public view.  That enabled them to avoid some public intra-party spats; to hide maybe 60 percent of the cost of the legislation and otherwise game the Congressional Budget Office’s scoring rules; to deny the public enough time to learn about how the legislation would work; and to cram the legislation through the Senate the day before Christmas.  Senate Majority Leader Harry Reid’s backroom negotiations are rightfully infamous.

Now comes word that, rather than follow the usual conference procedure that we all learned about as children, House and Senate Democrats will conduct informal negotiations – behind closed doors, all by themselves, with no C-SPAN cameras – in the hope of crafting the bill that can command 218 votes in one chamber and 60 votes in the other.

Let me be clear that Democrats are not violating any rules of which I am aware.  But one senses that the object here is not the sort of good government or open government that the Left claims to seek.  Rather, the object is power.  As my colleague Will Wilkinson writes, “They seem interested primarily in how a temporary majority can do more, faster, now.”  And a key tactic is to hide from the public as much of the process as possible.

Trade Not to Blame for a ‘Lost Decade’

For American workers and families trying to get ahead, the decade just behind us was a stinker. As a front-page Washington Post story over the long weekend summarized:

For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. …

According to the story, the Aughts (2000-09) were the first decade since World War Two with no net job creation, and the first in which median household income was actually lower at the end than at the beginning.

It won’t be long before critics of trade will try to blame the poor economic performance on trade agreements and globalization. This has been a standard line of attack, and I address it at length in my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. For now, just a few quick-hit observations:

The two recessions that book-ended the past decade were both “Made in the USA.” The first was triggered by the popping of the dot-com bubble, the second by the bursting of the housing bubble. Trade was not the cause of either recession. In fact, trade and globalization were charging ahead full steam in the 1990s, when everybody agreed the economy was doing well.

There is also the temptation to extrapolate short and medium trends into a long-term decline in living standards. As the Post reporter Neil Irwin rightly noted,

The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.

The U.S. economy has endured equally long stretches of poor performance in the past. For example, the Dow Jones Industrial Average was actually lower in 1982 as it was in 1966—16 years stuck in neutral. Real median household income was lower in 1983 than it was in 1969—14 years of no net gains. Yet the economy recovered and scaled new heights.

During difficult economic times, trade helps us weather the storm by offering lower prices and more choice to consumers struggling to make ends meet. When domestic demand sags, U.S. companies can find customers and profits in more robust markets abroad. Foreign investment in the United States helps to keep interest rates down, keeping more Americans in their homes and keeping credit markets open.

Our policy makers will only make our economy worse if they reach for the snake oil of higher trade barriers.

The Bailout Bowl

Neal McCluskey wrote an op-ed on the ways that taxpayers subsidize college football bowl games. As a college football fan, it pains me that I can’t even get a respite from big government on game day. This Wednesday’s matchup between Central Michigan and Troy will be particularly insulting to taxpayers because it’s the annual GMAC Bowl.

GMAC, the former in-house financing arm of General Motors, has been sponsoring the bowl game since 2000, when it paid $500,000 for the right. More recently, the firm was battered by the collapse of GM and the housing market, and it was allowed to restructure as a bank holding company, which made it eligible for TARP bailout funds. The federal government has given GMAC $12.5 billion in return for 35.4 percent ownership stake in the company. However, the bailout just got larger. From last week’s Wall Street Journal:

The Treasury Department on Wednesday said it will provide GMAC Financial Services with an additional $3.8 billion in capital and assume a majority stake in the firm. The money, along with adjustments to existing aid already provided to the firm, aims to close a capital shortfall identified by government stress tests in May. The additional aid brings the total U.S. investment in GMAC to $16.3 billion and raises the government’s ownership interest to 56 percent from the current 35 percent. In exchange for committing more funds, the Treasury will appoint a total of four directors to the company’s board instead of two as previously planned. The company will also continue to be subject to pay limits set by U.S. pay czar Kenneth Feinberg.

Whatever GMAC is currently paying to sponsor the bowl game, it’s not a large sum compared to the billions in billion funds it has received. Nonetheless, it is a poke in the eye to bailout-fatigued taxpayers that a government-owned corporate failure continues to blow money on a largely irrelevant football game.

People used to think of the government’s proper role in the game of business as a neutral referee between competing companies. Today, when private companies lose the game, Uncle Sam can step in to be the quarterback. Although Uncle Sam isn’t any good at the game, he’s able to change the rules to benefit his team at the competition’s expense. In addition, Uncle Sam’s team doesn’t pay his exorbitant salary –- the competition and the fans (i.e., taxpayers) foot the bill.