Archives: March, 2012

Conservative House Republicans’ Budget Proposal

The Republican Study Committee released its fiscal 2013 budget proposal this week and it’s not horrible. That’s probably a compliment given that the bar is so low on Capitol Hill that one would trip on it. According to the RSC’s numbers, federal spending as a percentage of GDP would recede to a bit over 18 percent in 2022. That’s a level of spending that hasn’t been achieved since George Bush and his fellow Republicans in Congress initiated the federal spending spree of the past ten years.

I give the RSC credit for wanting to rein in the size of the federal government. However, when it comes to budget proposals, I’m more interested in the potential impact on the federal government’s scope. Specifically, would it make it harder for the federal government to spend money on all the activities that it currently does? Unfortunately, that’s where the RSC’s budget proposal falls short.

  • Not surprisingly, the proposal calls for the repeal of Obamacare. That’s good because the president’s health care law represents a massive expansion in the federal government’s scope. Hopefully, the Supreme Court is about to render that concern moot.
  • The RSC also calls for Fannie Mae and Freddie Mac to be privatized. That would be a positive step toward reducing the federal government’s involvement in housing finance. But what about the Federal Housing Administration, which has dramatically increased its presence in the housing market and will likely need a taxpayer bailout? The RSC calls for reforming the FHA, but it ought to be abolished along with the rest of the federal government’s housing programs.
  • The proposal calls for the complete elimination of the following programs: the Corporation for Public Broadcasting, Economic Development Administration (EDA), Legal Services Corporation, National Endowment for the Arts, National Labor Relations Board, the Presidential Election Campaign Fund, Trade Adjustment Assistance programs, the Universal Service Fund and a couple of higher education subsidies. I like those cuts, but there are just so many more federal programs that should get the axe. For example, the RSC is spot on when it says that the EDA “is an improper function of the federal government, essentially redistributing wealth in the name of ‘economic development.’” But the same could be said for the federal government’s entire portfolio of economic development programs. Getting rid of only the EDA won’t stop the federal government from continuing to stick its nose in economic development. How about abolishing the Small Business Administration?
  • The RSC deserves credit for addressing agriculture subsidies. Specifically, it calls for ending direct payments to farmers, which were never supposed to become a permanent handout to begin with. The payments were supposed to end once farmers were transitioned off of the federal dole per the 1996 farm bill. The direct payments should be abolished, but the only specific farm subsidy that the RSC singles out for elimination is wool and mohair subsidies, which are a drop in the bucket. The proposal does call for the elimination of the Market Access Program and the Foreign Market Development Program, which are prime examples of corporate welfare. That’s good. But, again, the RSC’s proposal wouldn’t do anything to inhibit the ability of the federal government to continue its meddling in agriculture.
  • The RSC calls for increases in military spending. That’s good news for the military-industrial complex and our wealthy allies who free-ride off our blood and treasure, but it’s not good news for taxpayers or even national security for that matter. It also eliminates any chance of the RSC’s proposal being taken seriously by anyone other than pro-empire Republicans.
  • On the big money budget issue of entitlements, the RSC calls for reforming and “strengthening” Social Security and Medicare. The reforms include private insurance options and premium support for Medicare, and increases in the eligibility age for both programs. No mention of private accounts for Social Security, and the transformation of Medicare wouldn’t begin until 2023. So if you’re relatively young and understand that the federal government’s intergenerational redistribution programs are a bum deal, you’ll have to look elsewhere for a friend on Capitol Hill. Again, no reduction in the federal government’s scope.
  • The RSC proposal would block-grant Medicaid to the states and freeze spending. That makes budgetary sense, but it would still mean that federal taxpayers are on the hook for an activity that is properly the domain of state government. In its “Constitutional Authority Statement,” the RSC notes the 10th amendment, which says that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Contrary to what the RSC says, federal taxpayers footing the bill for a federal program with fewer strings attached would not represent a step “toward restoring a more proper balance between the states and the federal government as defined in the 10th Amendment of the United States Constitution.”

In sum, the RSC deserves credit for trying to cut the size of government, but even if its proposal were to be enacted, it wouldn’t do much to rein in the scope of the federal government. That means that the RSC’s proposal only amounts to a vision for smaller big government.

Interest Rates Impact Both Sides of the Household Balance Sheet

I have some mixed feelings about the good people at USA Today.  Yesterday’s paper had a great story on Romney’s support for TARP which quoted me extensively, but under the fold of the front page ran the headline “Low interest rates putting cash in American’s pockets”.  While it is true that low interest rates have reduced households’ interest expenses, they have also reduced their interest incomes, as I have noted elsewhere.

The chart below offers my estimates of household interest expenses, based upon Bureau of Economic Analysis data as compiled by the St. Louis Federal Reserve.  The overwhelming majority of this expense is mortgage related.   Since the start of the recession in December 2007, households’ annual interest payments have declined by about $400 billion.  But households’ annual interest incomes have also declined by about $400 billion, meaning the net impact on households has been about zero.  So whatever low interest rates may, or may not, be accomplishing, putting lots of money into households’ pockets is not one of them.

Now if you want to argue that the households benefiting are credit-constrained and likely have a higher marginal propensity to consume than the losing households, that’s a plausible argument if one can muster the data to support it.  Even if that argument is correct, which is far from clear, spending would only increase by the net impact across households, and not simply by the increased spending of households that benefit.

There are lots of reasons why the current low level of interest rates may or may not be good for the economy.  Let’s examine them.  Debate them.  But let’s not be fooled by simplistic notions that households are receiving massive net direct benefits from these low rates.

Update on the Media’s Top 1 Percent Fetish

In “A tide that lifts all yachts,” Washington Post columnist Harold Meyerson writes, “Occupy Wall Street is not known for the precision of its economic analysis, but new research on income distribution in the United States shows that the group’s sloganeering provides a stunningly accurate picture of the economy. In 2010, according to a study published this month by University of California economist Emmanuel Saez, 93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over. Put another way: The most fundamental characteristic of the U.S. economy today is the divide between the 1 percent and the 99 percent.”

In reality, the sample of tax returns that Piketty and Saez use to estimate pretax top incomes tells us nothing about the incomes of the bottom 90-99 percent.   A footnote to Figure A1B in the Piketty and Saez study says, “Our income definition is …  before individual income taxes and employee payroll taxes, and income excludes all government social transfers such as Social Security retirement and disability benefits, government health care insurance (Medicare and Medicaid), unemployment insurance, welfare assistance programs, the earned income tax credit, etc. The importance of taxes and transfers has grown over time …” Their figures also exclude all tax-free employee compensation (notably, employer-paid health insurance), and all investment income and capital gains accruing inside tax-favored savings accounts for college and retirement.  The result, as Brooking Institution economist Gary Burtless points out, is that the Piketty and Saez measure excluded 37 percent of personal income in 2008 [and 38 percent in 2010] − up from 24 percent in 1970.

In 2010, average incomes of the top 1 percent were down 29 percent from 2007, according to Piketty and Saez.  Does Occupy Wall Street envy that decline?  The graph below shows that average incomes of the top 1 percent from rose and fell from 1998 to 2010, yet ended up lower in 2010 ($1,019,089) than in 1998 ($1,058,891).

Myerson writes, “As Saez points out, there has been “an explosion of top wages and salaries” since 1970.  Does Saez ever look at his own data?  If he had, he would see that the “explosion” (largely an artifact of the 1986 Tax Reform and the 1997-2000 boom in high tech stock options) stopped a dozen years ago.  Measured in 2010 dollars, average salary, bonus and stock option of the top 1 percent were $494,593 in 2010 – down from $544,858 in 2007 and down from $558,986 in 2000.

Alan Krueger, chairman of President Obama’s Council of Economic Advisers, once provided “Another Look at Whether a Rising Tide Lifts All Boats.”  The answer, of course, is an emphatic yes.  Whenever the top 1 percent income share has gone down, poverty and unemployment rates went up, and vice-versa.  That makes top 1 percent shares a paradoxical if not ridiculous measure of “inequality.”

Biometrics—-and the Curious Relevance of Occupational Licensing

Yesterday, I testified (by remote communications) in the Alaska House of Representatives’ Health and Social Services Committee, which is considering a bill to heavily regulate the collection and use of biometrics. The bill is inspired by a man who was denied entry into the CPA exam when he refused to have his fingerprints scanned for that purpose. You can read more about his campaign at the PrivacyNOWalaska.org site.

I’m entirely sympathetic to his concerns about potential overcollection of biometrics in digital form, and what may happen to biometric data after it is collected. As I said in my testimony, “a digital record of a biometric can be stored indefinitely, copied an infinite number of times, and transmitted around the globe at the speed of light. This creates security and privacy concerns cutting against the use of machine-biometrics.” On the other hand, the CPA exam apparently has a problem with imposter fraud and faux test-takers who go simply to memorize questions and sell them on a test-prep black market.

Unfortunately, the bill is not callibrated to balance the competing interests at stake. It would create a “notice and consent” regime for biometrics collection, an idea that has failed to produce privacy protection in other areas. It would require massive and expensive re-tooling of data systems to provide consumers a right to amend or revoke their permission to use biometrics or order destruction of biometric data. And it would flatly outlaw marketing that uses biometric information—not just the stuff we learned to be spooked about in the film Minority Report, but knowingly agreed-to tailoring of discounts at the grocery store if we used a biometrically-secured payment system, for example.

I urged the Alaska legislators to ensure that biometrics collectors account for and prevent potential harm to Alaskans when they design and use their systems, but not to constrain biometrics so much that their security benefits never materialize.

There are a number of things Alaska and other states could do to help society callibrate the use of biometrics. They could ensure that biometrics collectors are liable and subject to jurisdiction in the state of collection when contract violations and harms arise from the use or misuse of biometric data.

Alaska could also establish that there is no “third-party doctrine” under its state constitution. A person sharing data under contractual or regulatory protections should maintain his or her search-and-seizure rights in that data. The government should not be able to access such data—though shared—without proper suspicion, warrants, and subpoenas.

Alaska has rejected the REAL ID Act, and it could do more to prevent the emergence of national identity systems by rejecting any E-Verify mandate. I encouraged the Alaskans to follow the lead of New Hampshire and bar state identity data from being shared with any national ID system.

The root of the problem in Alaska, though, may be the accountancy cartel. This is an area I know precious little about, but it appears that you must take the CPA exam to act as an accountant in the state. This positions the administrators of the CPA exam to make unreasonable, privacy-invasive demands for biometric data on a take-it-or-leave-it basis.

Oh what a tangled web we weave, when first we practise to … restrict the right to earn a living!

My testimony starts with a primer on biometrics. We have much to learn yet about biometric technologies, their uses, and their consequences. Banning them would deny the public many benefits. Using them promiscuously would have many costs.

The New York Times Gets Serious about Limited Government

Can one confidently predict the editorial view of The New York Times on a “momentous” issue of the day, like ObamaCare in the Supreme Court? Does the sun rise in the east?

Speaking breathlessly from the steps of the Court just after oral argument concluded yesterday, CNN legal analyst Jeffrey Toobin, who like so many others had assured us that the Court would uphold ObamaCare’s linchpin, the individual mandate, called the government’s oral arguments on the issue “a train wreck for the Obama administration.” Risky as it is to predict how the Court will eventually rule, that’s how most other Court-watchers saw it yesterday, too, which meant that the Times had damage to control.

And so today we find the Gray Lady warning sternly that “the Supreme Court faces a central test: whether it will recognize limits on its own authority to overturn well-founded acts of Congress.” At least the good folks on the Times editorial board have some sense of limited government.

The problem, of course, is that it’s misplaced. The question is not whether Congress’s acts are well-founded but whether they’re constitutional. And on that score, the view of the Times is little different than that of then-Speaker Nancy Pelosi, who responded famously, when asked in October 2009 where specifically in the Constitution she found congressional authority to enact an individual mandate, “Are you serious?” which she repeated for emphasis.

Well yes, the question was serious, as numerous suits by some 28 states and others, to say nothing of yesterday’s arguments in the Supreme Court, have made abundantly clear. But you’d never know it from reading today’s Times editorial. Indeed, judging from “the skepticism in the questions from the conservative justices” it appears, the Times writes, that they “willfully reject both the reality of the national health care market and established constitutional principles that have been upheld for generations.”

No, the justices don’t reject the reality of a national health care market, “willfully” or otherwise, nor do they reject the power of Congress to regulate interstate commerce, however much the post-New Deal Court has expanded that power beyond its original purpose, which was to ensure a national market free from unjustified impediments.

What they do appear to reject is the idea that Congress’s commerce power is boundless. That, in fact, was the very point of Justice Anthony Kennedy’s opening question to the government’s lawyer: “Can you create commerce in order to regulate it?” Congress may have the power to regulate (interstate) commerce that already exists. But that power is altogether different from a power to compel a person to engage in commerce so that Congress can then regulate it under its commerce power. That is bootstrapping, plain and simple. Such a power would be unprecedented, as Justice Kennedy went on to say. It would change fundamentally “the relation of the individual to the government.” And that, he concluded, means that the government has “a heavy burden of justification to show authorization under the Constitution.”

But the Times apparently believes that such distinctions are irrelevant. Writing in broad terms throughout, the editors conclude that “if the Supreme Court hews to established law, the only question it must answer in this case is modest: Did Congress have a rational basis for concluding that the economic effects of a broken health care system warranted a national solution?” If that’s the only question, then the proper response to those who ask for more is, indeed, “Are you serious?” And that would mean the end of a Constitution that authorizes a government of delegated, enumerated, and thus limited powers.

Obama’s Energy Repackaging: Not the Problem but Not the Solution Either

A too little-noted aspect of Obama rhetoric is the incessant repetition of outlandish claims. Energy is a major example. He repeats so often that reiteration of the defects is desirable. Whatever he may say, Obama is actually devoted only to the proposition that global warming is such a threat that the United States should rapidly move away from its reliance on fossil fuels. The basic implementation plans have undergone a major change after the 2009 fiasco of the Waxman-Markey bill. That bill proposed an extremely convoluted program to limit greenhouse-gas emissions. A core element was setting caps on such emissions, allocating them to energy-users, and allowing those users to buy and sell the rights. Government allocation of any valuable rights is always an invitation to unseemly battles for shares. At best, dubious vote-seeking allocations arise. At worse, bribery prevails. The combination of controversial meting out of quotas and the mess of additional regulations imposed by the bill led first to House of Representative passage only through arm-twisting. Next, fear of a similar fight caused the Senate not to consider either Waxman-Markey or various Senate alternatives.

Obama has since turned to his typical response. He has devised a public presentation of limited dubious ideas that supposedly allow the United States both to maintain fossil-fuel use as long as necessary and transition to non-fossil energy. He repeats these frequently. With the rise of gasoline prices, Obama has tried radically to change the form of presentation. Given the inherent defects of his stated objectives and the disparity between them and his actions, Obama has turned to an outrageously vituperative effort to claim that he has presented a vision of the truth that only politically motivated opponents reject. He vainly hopes that the public cannot see past his innocence about current prices to his guilt in wanting higher energy prices that he does cause.

He and Secretary of Energy Steven Chu are also trying to defuse their prior candid admissions that they wanted higher energy prices. Their current statements at best recognize that events beyond their control caused the increases and try to evade the reality that their goals also would produce higher energy prices. Suddenly, the widely available record is ignored. A quick Google search confirms that Obama admitted that cap and trade would cause electricity prices to skyrocket and bankrupt the coal industry. Similarly Chu did say “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” They have not backed off from seeking to implement these goals.

Obama’s March 15, 2012 speech kicked off this new packaging. He claimed “What I just said about energy, by the way, is not disputed by any energy expert. Everybody agrees with this.” Obama would have been right if he had only said “There is no such thing as a quick fix when it comes to high gas prices. There’s no silver bullet. Anybody who tells you otherwise isn’t really looking for a solution – they’re [sic] trying to ride the political wave of the moment.” It is agreed both that developing energy substitutes is time consuming and likely to increase energy costs intolerably.

However, he goes on to argue “So if we don’t develop other sources of energy, if we don’t develop the technology to use less energy to make our economy more energy-efficient, then we will always be dependent on foreign countries for our energy needs.” That is disputed at both ends. Dependence on foreign oil is no more undesirable than dependence on other foreign commodities. Removing energy imports would leave the indirect impact of oil instability on our trading partners in other commodities. It is generally believed by advocates of action on global arming that policies that do not include China and India are doomed to failure. Some fear that the proposed alternatives are so unattractive that crash effort are needed to develop alternatives. Obama’s statements of goals (which appear in every energy speech and are reiterated excessively in this one) make things worse

So we can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future – an all-of-the-above strategy for the 21st century that develops every source of American-made energy. Yes, develop as much oil and gas as we can, but also develop wind power and solar power and biofuels. Make our buildings more fuel-efficient. Make our homes more fuel-efficient. Make our cars and trucks more fuel-efficient so they get more miles for the gallon. That’s where I want to take this country.

He adds later the blatantly jingoistic and protectionist assertion, fortunately grossly in conflict with his actual foreign-policy posture:

We can’t allow ourselves to be held hostage to events on the other side of the globe. That’s not who we are. America controls its own destiny. We’re not dependent on somebody else.

His oil statements are selective. His noting of the positive steps taken to increase oil and gas drilling ignores his anti-drilling actions. No mention is made of the anti-coal measures involving restrictions on coal use and making some forms of mining more difficult emanating from the Environmental Protection Agency; indeed the speech makes no mention of coal. The alternative-energy and energy-efficiency goals are widely criticized as too intrusive, too slow moving, and too doubtfully efficacious.  At least two well-researched books argue that alternative energy in general will at best take many decades to become substantial contributors to energy supply. Ethanol, the biofuel now in use, at a minimum produces a stain on food supply and may raise rather than lower greenhouse gas emissions. Experts hold that alternatives such as cellulosics and algae are the only hope and disagree about when, if ever ,either will emerge as viable alternatives.

Mandated energy standards suffer at a minimum as paternalistic measures to impose the supposed values of the government on individuals. A key example is the decision (back in the George W. Bush administration) to offset consumer rejection of the inadequate light from energy efficient light bulbs by banning traditional incandescent bulbs.

Auto-efficiency standards on which Obama ranted at length have at least three drawbacks. First, they are a particularly obnoxious effort to impose standards. Good reasons exist for American to want large cars. (Obama who is always accompanied by a fleet of obvious gas guzzlers and helicopters to the Boeing 747 that is Air Force One makes himself particularly vulnerable in asking others to use more fuel-efficient cars.) Second, the main way to boost fuel efficiency is to make cars lighter and thus expose riders to greater safety risks.  Third, mileage standards are inferior to gasoline taxes in discouraging gasoline use. The tax makes every purchase of gasoline more expensive and thus clearly discourages gasoline consumption. A mileage standard raises the cost of the car itself. This fosters a delay in replacing lower mileage vehicles. Once the car is purchased, the higher mileage lowers the cost of driving. People drive more. Conceivably, that incentive could produce increases in gasoline use.
His further point that the low United States share in reserves makes energy independence impossible was unnecessary political posturing. At best, the numbers are one of the less satisfactory indicators that independence would be inordinately expensive.

Yet another constant is his attack on “subsidies” for the oil industry. This relates to tax benefits. Whether the term subsidy is the best is debatable but not central. What matters is the demagoguery of Obama’s tax proposals. Where the need is simplification and the total cessation of use of the Internal Revenue code for social engineering, Obama wants to give and take to increase such engineering. His actual oil proposals were buried in an annex to fiscal year 2011 budget. The vast majority of the tax changes came from removing oil from inclusion in a stupid provision to benefit manufacturing. The rest come from tax provisions that largely benefit smaller oil companies. More broadly, he argued that rather than eliminate equally unwise tax benefits to alternative energy only the modest offset for oil should be removed.

Obama, moreover, cannot refrain from adding a demonstrably misleading point “Ending these subsidies won’t bring down gas prices tomorrow.” Since he goes on to talk of other things, it might charitably be concluded that he was admitting the tax change was but another symbolic snipe at the U.S. oil industry to make politicians feel good. Given the tone of the speech, the alternative that he was trying to suggest that a tax increase would lower prices seems likely. Whatever the virtues of a tax change, taxing more is a disincentive and would raise oil prices (modestly to be sure, but then why bother with the tax change.)

His March 17, 2012 weekly speech (largely a recap of the earlier one) added the outrageous claim that traders manipulated oil prices but the Dodd-Frank bill would eliminate this.

Thus, the quickly refuted use of an urban legend about Rutherford B. Hayes and the revival of the flat-earth myth are just the most obvious of the misstatements to which Obama is devoted.

Bureaucrats and Big-Governmenters Work to Revive Their National ID

There are some rich ironies in a recent Stewart Baker blog post touting the slow crawl toward REAL ID compliance he believes states are making. One of the choicest is that his cheerleading for a national ID appears under a Hoover Institution banner that says “ADVANCING A FREE SOCIETY.”

No, having a national ID would not advance a free society. You could say “ADVANCING A SECURE SOCIETY” but even then you’d be overstating the case. A national ID would reduce the security of individuals massively in the aggregate in exchange for modest and arguable state security gains.

Speaking of which, Baker posts a picture of Mohammed Atta’s Florida driver’s license in his post. The implication is that having a national ID would have prevented the 9/11 attacks. In fact, having a national ID would have caused a mild inconvenience to the 9/11 attackers. Billions of dollars spent, massive aggregate inconvenience to law-abiding American citizens, and a much-more-powerful federal government so that terrorists could be mildly inconvenienced?

One of the greatest ironies is that Baker doesn’t—as he never has—takes on the merits of how and how well a national ID would advance security goals. But the merits don’t matter. Baker’s post provides a nice reminder that the bureaucrats will use their big-government allies to restart their moribund national ID plans if they can. Despite massive public opposition to REAL ID, they’ll try to build it anyway.

An anti-immigration group recently issued a report saying that states are getting on board with REAL ID. (They’re meeting massively reduced REAL ID “milestones” coincidentally, not to meet federal demands.) National ID advocate Jim Sensenbrenner (R-WI) put on a lop-sided show-hearing in the House Judiciary Committee last week, hoping to prop up REAL ID’s decaying body.

As if anyone would believe it, a DHS official said at the hearing that the January 2013 deadline for state compliance would not be extended. Book your tickets now, because there won’t be a damn thing different on the airport come January. The Department of Homeland hasn’t stood by any of its deadlines for REAL ID compliance. If it did, by refusing IDs from non-compliant states at the airport, the public outcry would be so large that REAL ID would be repealed within the week.

REAL ID will never be implemented. That doesn’t stop the federal government from spending money on it, so the bureaucrats keep trying to corral you into their national ID. They get occassional help, and sometimes it even travels under the false flag of “ADVANCING A FREE SOCIETY.”