Archives: 09/2012

House Appropriations Chairman Hal Rogers on the Budget

Following the House’s passage of a six-month continuing resolution last week (my comments on the CR here), House Appropriations Committee Chairman Hal Rogers (R-KY) chatted about fiscal policy with a couple of reporters on C-SPAN. The interview did nothing to change my 2010 opinion that the House leadership handing Rogers the chairman’s gavel was “about as inspiring as re-heated meatloaf.”

While Rogers is correct that domestic discretionary spending represents a relatively small share of total spending (approximately 12 percent) and that entitlement spending is the bigger problem, his comment that “we’ve just about reached the bottom of the barrel” on such spending is a stretch. Domestic discretionary spending has dropped, but after a sizeable increase during the 2000s. And arguably more important than the dollar amount this category represents are the activities being funded. For example, the federal government shouldn’t be spending a dime on the Department of Education, which is mostly discretionary spending.

When it comes to the other side of the discretionary spending coin—military spending—Rogers parrots the standard GOP line that sequestration would be “disastrous.” That’s nonsense. Perhaps Rogers is worried that cuts to the bloated military budget will crimp his ability to dole out the goods to defense contractors back in his district (see, for example, Rogers’s $17,000 drip pan).

That leads to Rogers’s most galling comments. When asked about earmarks, the “Prince of Pork” bemoaned his alleged inability to help shovel taxpayer dollars to his district since the practice was halted two years ago. Rogers said that “it hurts me that I can’t advocate for that governmental unit that’s in some desperate need.” What hurts me is that Rogers has to nerve to cite the Constitution to justify legislative earmarking (i.e., Congress’s “power of the purse”). As my colleague Roger Pilon and I have noted, the debate over the power of the executive versus that of the legislative branch to spend is constitutionally relevant and important. As Roger says, however, “it’s the growth of spending, most on matters unauthorized by the Constitution that is far and away the larger problem.” Federal subsidies to state and local governments largely belong in the unauthorized category.

The ‘47 Percent’ and the Fundamental Attribution Error

There are a number of things wrong with Mitt Romney’s now infamous suggestion that the 47 percent of Americans who don’t pay federal income tax will automatically support larger government, because those “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them” can never be persuaded to “take personal responsibility and care for their lives.” For one, as both Matt Yglesias and Ezra Klein note, the people who aren’t paying income tax are overwhelmingly either college-aged or elderly retirees who aren’t making much taxable income, not able-bodied layabouts in their 30s and 40s. In other words, they’re mostly not some distinct parasite class, but rather ordinary, hard-working people who either already have paid or will soon be paying quite substantial taxes.

The deeper mistake, however, is what social psychologists have dubbed the “fundamental attribution error”: the nigh universal human tendency to ascribe actions and outcomes to immutable personal characteristics rather than situational factors. We assume too quickly that someone behaves kindly or callously because they are a “kind person” or a “callous person”—yet research suggests that minor variations in circumstances can elicit either type of behavior from the very same people.

Presumably there are some people out there who really do just shun responsibility and think others should work to provide them with life’s necessities—but it’s hard to believe they’re more than a very tiny fraction of the millions who depend in some way on government benefits. Most of them are just responding rationally to the circumstances of the world they live in. In a society where young people know they’ll soon be taxed to support educational subsidies, of course they’ll accept the government college loans they’ll later be expected to fund. In a society where the payroll taxes that support a government pension system leave workers with 15.3 percent less in their paychecks to save and invest for old age, of course they’re going to rely heavily on the system they’ve been paying into when they retire. But to infer that this reveals something about people’s desire for big government is a little like wondering why 18th century Americans were so much fonder of agriculture than we are. People mostly live in the world that’s presented to them.

This is an equal opportunity observation, however. Progressives, after all, often make essentially the same fallacious argument as Romney, though usually not put quite as offensively: if you benefit from government largesse—whether in the form of direct supports like Social Security and Medicare, or because the state “generously” offers to spare your earnings through tax credits or deductions—then obviously you’re logically required to fall to your knees in gratitude, and you must be either confused or some kind of hypocrite if you perversely persist in supporting smaller government. Net recipients of government aid, in this view, ought to have the political commitments Romney wrongly ascribed to them.

All of this seems confused. People want goods like health care and financial security. In a social and political environment where those things are provided by government, people will accept them from government. In an environment where they’re provided by the private sector, people will acquire them privately. In the long run, the nature of the broader system will probably influence the frequency in the population of deeper character traits and dispositions like responsibility or resilience—but you can’t legitimately infer a whole lot about people’s preferences between systems from their behavior within systems.

The Fed’s New Round of Quantitative Easing

Last Thursday, the Fed announced its intention to proceed with another round of quantitative easing, or QE3. To summarize my reactions:

  1. By introducing another program to buy MBSs, to the tune of $40 billion per month, the FOMC is supporting the long-standing federal policy of special aid to housing, real estate and mortgage interests. These federal policies were the largest single contributor to the financial crisis. Why would the Federal Reserve want  to encourage continuation of these federal policies? Almost every economist, except those allied with housing interests, agrees that the mortgage-interest and real-estate tax deductions in the federal tax code should be eliminated or scaled back. I’ll wager that almost every Federal Reserve economist shares this view. The Federal Reserve says that it is apolitical but this decision is directly supportive of continuation of the current status of Fannie Mae and Freddie Mac. This action is not monetary policy but fiscal policy, extending credit to a favored industry. This policy is crony capitalism, whether practiced by the federal government or by the Federal Reserve.
  2. The FOMC’s decisions create yet another exit problem for the Fed. If job growth picks up, or inflation rises, before every future FOMC meeting the market will wonder if the Fed will stop buying MBSs. The Fed has refused to offer any genuine guidance as to when the policy will end. Conversely, if job growth remains weak, market participants will wonder before every FOMC meeting whether the Fed will do more, or introduce some new and untried policy.
  3. In his press conference, Chairman Bernanke appropriately emphasizes the need for fiscal policies to stabilize federal finances. Yet, he is promising that the Fed can make a material contribution to bringing down unemployment. That promise reduces the pressure on Congress to act. Why should Congress deal with the tough political issues if the Fed can do the job, even if more slowly than if Congress acted?

Muslim Humor

It is with delight this week that I see social media pouring derision on mainstream media’s depiction of the world. Specifically, the withering mockery given to Newsweek’s “Muslim Rage” cover.

Gawker helped catalyze things by publishing some early Twitter send-ups of the Muslim rage concept—“Wrestling is fake? #MuslimRage”—and its own spoof: “13 Powerful Images of Muslim Rage.”

My personal favorite came from hijab-wearing ‏@LibyaLiberty, who Tweeted:

I’m having such a good hair day. No one even knows. #MuslimRage

It is not automatic to recognize the personality of souls in other cultures and countries. In a Tweet posted September 12th (now apparently taken down) outgoing Village Voice editor-in-chief Tony Ortega said, “Islam needs to get a [expletive] sense of humor.” I don’t know what one means by anthropomorphizing a religion, but many individual Muslims demonstrably already have one.

AP Photo

On the Wall Street Journal Professional site, Bret Stephens writes about the derision U.S. culture can pour on minority religions other than Islam without eliciting much stir at all, official or otherwise. The unfairness is notable, and it’s worth talking about whether government-issued statements about the bizarre “Innocence of Muslims” video were called for and whether they struck the right notes.

But Stephens says something that has a quality similar to Ortega’s Tweet and Newsweek’s cover, dismissing the individuality of the one billion-plus Muslims around the world who are not rioting, attacking embassies, or doing anything of the sort.

“[T]o watch the images coming out of Benghazi, Cairo, Tunis and Sana’a,” Stephens writes, “is to witness some significant portion of a civilization being transformed into Travis Bickle.” (Travis Bickle was the misfit anti-hero in Martin Scorcese’s movie Taxi Driver, who delivered a young prostitute from New York City back to her mid-western family. Political people remember him as the inspiration for would-be Reagan assassin John Hinckley.)

“Significant portion”? How many Muslims constitute a “significant portion” of the overall number? What infinitesimal percentage of a group so large is “significant”? Stephens might have said “tiny minority” and been more accurate. His implication—hopefully unintended—is that an entire culture is massing at the border of ours, preparing—oh, who knows what—our undoing.

I believe it’s received wisdom in libertarian circles to reject the collectivist mindset that views humans strictly as members of groups rather than individuals. Any believer in individual rights, liberties, and responsibilities should suffer sharp pangs of cognitive dissonance to think of group conflict along the lines I’m reading into Stephens.

So I’m enjoying seeing Muslims express themselves as individuals, putting the lie to their caricature in the mainstream media as a raging undifferentiated mass with spittle on their beards. Especially the women.

The U.S. Takes a Dive in Economic Freedom of the World Index

Economic freedom in the United States has plummeted to an all-time low. According to the Economic Freedom of the World: 2012 Annual Report, co-published today with the Fraser Institute, the United States’ ranking has dropped to 18th place after having ranked 3rd for decades up to the year 2000. The loss of freedom is a decade-long trend—the United States ranked 8th in 2005—that has accelerated in recent years.

Virtually every U.S. indicator has seen a deterioration. Government spending and regulations have grown, the rule of law and protection of property rights have weakened, and foreign investment and non-tariff barriers have increased. Authors James Gwartney, Robert Lawson, and Josh Hall note some of the reasons for the decline, including the war on terror and the growth of crony capitalism.

As the graph below shows, the United States now has a lower economic freedom rating than it did in the 1970s.

The United States’ fall is alarming not only because it’s the most important economy in the world, long associated with market-liberal policies, but also because Economic freedom is strongly correlated with prosperity, higher growth, and improvements in the entire range of standard-of-living indicators, so a decline negatively affects those outcomes. The authors calculate, for example, that the loss of economic freedom will cut long-term U.S. growth by half to about 1.5 percent per year.

Another country that has seen a notable, steady drop in its economic freedom is Venezuela, now ranked last in the index. Other countries have been on an upward trend. Chile is now ranked 10th and China, while still largely unfree, continues to head in the right direction (see graph).

Below are the top ten countries in this year’s index. You can see a full listing here on page 10.

As my colleague Richard Rahn says in his column today, this year’s economic freedom report should be a wake up call to all Americans.

Challenging the Need to Modernize the U.S. Nuclear Arsenal

Over the weekend, the Washington Post published a lengthy story by Dana Priest on plans to modernize the nation’s nuclear arsenal. It is difficult to comprehend the strategic rationale for the nation’s nuclear arsenal and force structure, and politics and parochialism (especially the jobs associated with the various nuclear labs) add a further layer of complexity. Most casual observers can be forgiven for becoming lost in the haze of secrecy and deliberate obfuscation that has swirled around the nation’s nuclear deterrent for decades. To her credit, Priest, one of the better national security reporters out there, is trying to pierce the fog. Unfortunately, this particular story may obscure more than it illuminates.

In excruciating detail, the Los Alamos Study Group’s Greg Mello points out his many complaints. Those who read the entire Priest story might at least want to consider Mello’s point by point analysis. For my part, I tend to agree with Mello that this line–“The need to spend heavily to modernize the nation’s shrinking nuclear stockpile has been apparent for at least two decades”–is the “money quote” of the piece.

This presents a questionable assumption as fact. There is, however, ample evidence that the nuclear arsenal is larger than what is necessary for deterrence, and, therefore, that at least some of the costs associated with modernizing it are not necessary.

I defer to experts like Mello on the costs of the weapons labs, and have also relied heavily on the good work done at the Stimson Center, the Project on Government Oversight, Taxpayers for Common Sense, the Federation of American Scientists, and others.

My own research focuses on the dubious strategic justification for the “triad” of delivery systems–manned bombers, land-based missiles (ICBMs) and submarine-launched ballistic missiles (SLBMs)–that has constituted the nation’s nuclear force structure since the early 1960s. Along with Ben Friedman and Matt Fay, I have explored the original rationale for the triad, and found it to be mainly a rationalization for a force structure that came into being as a result of competition within and among the military services. These parochial pressures–the services sought to increase their budgets by grabbing a share of the nuclear deterrent mission–tied into exagerrated fears of Soviet strength and U.S. vulnerability promulgated by hawkish defense policy analysts, and the arsenal exploded (pun intended).

There have been a few feeble attempts to restrain the growth and ultimately overkill within the nation’s nuclear arsenal since the late 1950s. These included Chief of Naval Operations Adm. Arleigh Burke’s endorsement of finite deterrence, and the post-Cold War nuclear posture review, in which then-assistant secretary of defense for nuclear security and counterproliferation Ashton Carter made the case for a submarine-only monad. These attempts failed; so spectacularly, in fact, that they might have discouraged others from even daring to challenge the status quo.

In recent years, however, scholars have raised new questions about the need for a triad (e.g. here) and others have suggested that a credible deterrent could have far fewer warheads (e.g. here and here). Ben Friedman and I explained earlier this year that the budget was putting additional pressure on the triad. As the costs associated with modernizing all three delivery vehicles cut into other projects and missions that are valued by the services, the Air Force and the Navy may seek ways to opt out of the nuclear deterrence mission.

Cato’s “Triad to Dyad” project will ultimately produce a paper, followed by a series of lectures around the country, and I will share more of our findings over the next few months. In the meantime, I hope that reporters will question some of the assumptions surrounding the nation’s nuclear arsenal, beginning with the presumed need to modernize it.

Can I Get Some Free Trade in My Free Trade Agreements?

Last week, I voiced several complaints about the Trans Pacific Partnership, the main trade agreement being negotiated by the U.S.  Let me add another concern: There’s too much protectionism in this “free trade” agreement.  Here are two good examples, as reported by Reuters:

Shoes:

U.S. athletic footwear manufacturer New Balance said on Thursday that it pressed the top U.S. trade official during a visit to its Norridgewock, Maine, factory to maintain tariffs on shoes from Vietnam in a proposed free-trade deal.

Only 3,000 workers still make footwear in the United States, with about 1,350 of them employed by New Balance, headquartered in Boston, company spokesman Matt LeBretton told Reuters by phone after the meeting with U.S. Trade Representative Ron Kirk.

New Balance wants Washington to maintain tariffs on roughly 20 categories of athletic shoes from Vietnam.

LeBretton said that at the meeting with Kirk, a New Balance employee asked, ‘Can you tell us right now you’re going to protect our jobs through this free-trade agreement?’”

LeBretton sounded a hopeful note after Kirk’s visit.

“We’re certainly encouraged by his visit today that (the) USTR is hearing what we say,” LeBretton said.

Sugar:

The U.S. government has told domestic sugar producers that it does not plan to allow Australia to export any additional sugar to the United States under a proposed regional free trade pact, a U.S. sugar industry analyst said on Friday.