Tag: big government

Obamanomics and Big Government: Bad News for Young People

I periodically post TV interviews and the second-most-watched segment - edged out only by my debate with Robert Reich on Keynesian economics - was when I discussed how President Obama’s statist policies are bad for young people.

So there’s obviously some concern about the future of the country and what it means for today’s youth.

The Center for Freedom and Prosperity has examined this issue and taken it to the next level, cramming a lot of information into this six-minute video.

The video highlights four specific ways that government intervention disadvantages younger Americans.

1. Labor market interventions such as minimum wage mandates make it more difficult for young people to find employment and climb the economic ladder.

Government is even bigger in Europe...leading to even worse results for young people2. Obamacare harms young people by requiring them to pay substantially more to prop up an inefficient government-run healthcare system.

3. Young people are trapped in a poorly designed Social Security system and politicians such as Obama think the answer is to make them pay more and get less.

4. Government has created a major third-party payer problem in higher education, putting young people on a treadmill of ever higher tuition and record debt.

What makes this situation so surreal is that young people - as noted at the start of the video - are the one group who think the “government should do more”!

I hope you share this video with every young person you know and help them understand that statism is the enemy of hope and opportunity.

And maybe also show them this poster if they need some extra help grasping the problem.

The Real Reason Politicians Want a Bigger Bite of Apple

Earlier this month, I explained four reasons why the Apple “tax avoidance” issue is empty political demagoguery.

And Rand Paul gave some great remarks at a Senate hearing, excoriating some of his colleagues for trying to pillage the company.

But this Robert Ariail cartoon may be the best summary of the issue.

Arial Apple Cartoon

What makes this cartoon so effective is that it properly and cleverly identifies what’s really driving the political class on this issue. They want more revenue to finance a bigger burden of government spending.

When I did my contest for best political cartoonist, I picked a cartoon about Greece and euro for Robert Ariail’s entry. While I still think that was a very good cartoon, this Apple cartoon would probably take its place if I did a new contest.

Washington’s Range of Policy Options

Ezra Klein writes in the Washington Post that congressional Republicans have moved to the right on such issues as health care, stimulus spending, and a carbon tax, forcing Democrats to move to the center to find common ground. And thus:

If you imagine a policy spectrum that that goes from 1-10 in which 1 is the most liberal policy, 10 is the most conservative policy, and 5 is that middle zone that used to hold both moderate Democrats and Republicans, the basic shape of American politics today is that the Obama administration can and will get Democrats to agree to anything ranging from 1 to 7.5 and Republicans will reject anything that’s not an 8, 9, or 10. The result, as I’ve written before, is that President Obama’s record makes him look like a moderate Republicans from the late-90s.

His argument is that Mitt Romney and Newt Gingrich used to support “the basic architecture of the Affordable Care Act,” John McCain (R-AZ) supported a cap-and-trade bill, George W. Bush pushed a stimulus bill in 2008—but now Republicans don’t want to support any of those policies. So, he says, Democrats have moved to the right, away from what they really want, like single-payer health care, command-and-control environmental regulation, and no cuts to entitlements plus massive new spending. He says that leads to center-right policy.

But another way to look at it is this: on his scale of 1 to 10, where 1 represents bigger government and 10 represents smaller government, what’s happening? Is government getting bigger or smaller? Take health care: if 1 represents national health care and 10 represents a free market in health care, then surely with income tax preferences for health insurance, Medicare, the prescription drug benefit, and government paying for more than half of all health care, we were at least at 5 by 2009. Everybody from Michael Cannon to Joe Biden thinks Obamacare is a BFD on the road to total government control of medicine. So let’s say it put us at 3 or 4.

You can see the same pattern in the other issues Klein discusses. Carbon tax, cap and trade, stimulus spending—they all make government bigger than it is now. So when Republicans endorse any of those policies, they are playing on bigger-government territory. Now, Republicans say they’re not going to do that any more. So Klein’s complaint is not really that Republicans are insisting on “8, 9, or 10” policies; they’re just no longer proposing policies in the 3 and 4 range, hoping that Democrats will agree to make government only a little bigger, rather than way bigger. Sounds like maybe the debate is moving back toward the 50-yard line, instead of taking place entirely in Democratic territory.

Note: Klein talked only about economic issues, so I’ve done the same. There’s a clear trend in a liberal/libertarian direction on social issues such as marriage and marijuana. And Republicans who propose further restricting immigration or getting involved in yet another Mideast war are hardly advocates of small government. This analysis deals only with fiscal, regulatory, and entitlements issues.

Capitalizing on Big Government

The Securities and Exchange Commission is investigating “political intelligence” firms that promise to give investors advance word of what Congress and regulators may do next. A continuing Washington Post investigation reports:

Antonia Ferrier, a spokeswoman for [Sen. Orrin] Hatch, said the senator is aware that his staff participates in such events [as an investor phone call on Medicare and private insurers, organized by a Washington consulting firm] and that communicating with these types of groups is not unusual given the technical nature of the issues the committee handles.

“Staff members meet with stakeholders on every side of an issue as a means of better crafting policy solutions,” Ferrier said. “What information they share is the same information that Senator Hatch shares in an open and transparent way with his constituents. Senator Hatch has a zero-tolerance policy for anyone who would take advantage of privileged information, and he’s confident that no one on his staff has done that.”

This is just one more inevitable facet of the system we live under. As long as the federal government spends trillions of dollars, and reallocates more trillions through taxes and regulation, and issues bans and mandates on everything from contraception to local speed limits, you’re going to see a lot of money spent to control how those decisions are made. Which includes spending money to find out what the decisions will be, in order to make appropriate investment choices. 

I’ve been writing about this for years, apparently to no avail. I focused on why money flows to Washington way back in 1983 in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there.

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

As the size and power of government increase, we can expect more of society’s resources to be directed toward influencing government.

We can pass all the laws we want, launch insider training investigations – but as long as the federal government is acquiring and redistributing so much wealth, businesses and investors are going to go to great lengths to figure out where it’s going and how to get a piece of it.

Where Are the European Spending Cuts?

Paul Krugman recently tried to declare victory for Keynesian economics over so-called austerity, but all he really accomplished was to show that tax-financed government spending is bad for prosperity.

More specifically, he presented a decent case against the European-IMF version of “austerity,” which has produced big tax increases.

But what happens if nations adopt the libertarian approach, which means “austerity” is imposed on the government, rather than on taxpayers?

In the past, Krugman has also tried to argue that European nations have erred by cutting spending, but this has led to some embarrassing mistakes.

Now we have some additional evidence about the absence of spending austerity in Europe. A leading public finance economist from Ireland, Constantin Gurdgiev, reviewed the IMF data and had a hard time finding any spending cuts:

…in celebration of that great [May 1] socialist holiday, “In Spain, Portugal, Greece, Italy and France tens of thousands of people took to the streets to demand jobs and an end to years of belt-tightening”. Except, no one really asked them what did the mean by ‘belt-tightening’. …let’s check out expenditure side of Europe’s ‘savage austerity’ story… The picture hardly shows much of any ‘savage cuts’ anywhere in sight.

As seen in his chart, Constantin compared government spending burdens in 2012 to the average for the pre-recession period, thus allowing an accurate assessment of what’s happened to the size of the public sector over a multi-year period.

Austerity in Europe

Here are some of his conclusions from reviewing the data:

Of the three countries that experienced reductions in Government spending as % of GDP compared to the pre-crisis period, Germany posted a decline of 1.26 percentage points (from 46.261% of GDP average for 2003-2007 period to 45.005% for 2012), Malta posted a reduction of just 0.349 ppt and Sweden posted a reduction of 1.37 ppt.

No peripheral country - where protests are the loudest - or France et al have posted a reduction. In France, Government spending rose 3.44 ppt on pre-crisis level as % of GDP, in Greece by 4.76 ppt, in Ireland by 7.74 ppt, in Italy by 2.773 ppt, in Portugal by 0.562 ppt, and in Spain by 8.0 ppt.

Average Government spending in the sample in the pre-crisis period run at 44.36% of GDP and in 2012 this number was 48.05% of GDP. In other words: it went up, not down.

…All in, there is no ‘savage austerity’ in spending levels or as % of GDP.

I’ll add a few additional observations.

The Ryan Budget: Is Returning to Clinton-Era Levels of Fiscal Restraint Really Asking too Much?

It can be very frustrating to work at the Cato Institute and fight for small government.

Consider what’s happened the past couple of days.

Congressman Paul Ryan introduces a budget and I dig through the numbers with a sense of disappointment because government spending will grow by an average of 3.4 percent annually, much faster than needed to keep pace with inflation.

But I don’t even want government to grow as fast as inflation. I want to reduce the size and scope of the federal government.

I want to shut down useless and counterproductive parts of Leviathan, including the Department of Housing and Urban Development, the Department of Education, the Department of Energy, the Department of Transportation, the Department of Agriculture, etc, etc…

I want to restore limited and constitutional government, which we had for much of our nation’s history, with the burden of federal spending consuming only about 3 percent of economic output.

So I look at the Ryan budget in the same way I look at sequestration – as a very modest step to curtail the growth of government. Sort of a rear-guard action to stem the bleeding and stabilize the patient.

But, to be colloquial, it sure ain’t libertarian Nirvana (though, to be fair, the reforms to Medicare and Medicaid are admirable and stem in part from the work of Cato’s healthcare experts).

But my frustration doesn’t exist merely because the Ryan budget is just a small step.

I also have to deal with the surreal experience of reading critics who assert that the Ryan budget is a cut-to-the-bone, harsh, draconian, dog-eat-dog, laissez-faire fiscal roadmap.

If only!

To get an idea of why this rhetoric is so over-the-top hysterical, here’s a chart showing how fast government spending is supposed to grow under the Ryan budget, compared to how fast it grew during the Clinton years and how fast it has been growing during the Bush-Obama years.

Ryan Clinton vs Bush Obama

I vaguely remember taking the SAT test in high school and dealing with questions entitled, “One of these things is not like the others.”

Well, I would have received a perfect score if asked to identify the outlier on this chart.

Bush and Obama have been irresponsible big spenders, while Clinton was comparatively frugal.

And all Paul Ryan is proposing is that we emulate the policy of the Clinton years.

Now ask yourself whether the economy was more robust during the Clinton years or the Bush-Obama years and think about what that implies for what we should do today about the federal budget.

At the very least, we should be copying what those “radical” Canadians and other have done, which is to impose some genuine restraint of government spending.

The Swiss debt brake, which is really a spending cap, might be a good place to start.

Everything You Need to Know About the Ryan Budget

Sigh. Even when they’re sort of doing the right thing, Republicans are incapable of using the right argument.

Rep. Paul Ryan (R-WI), chairman of the House Budget Committee, has unveiled his proposed budget and he and other Republicans are bragging that the plan will balance the budget in 10 years.

That’s all fine and well, but good fiscal policy is achieved by reducing the burden of government spending, and that means restraining the budget so that federal outlays grow slower than the private sector.

It’s good to balance the budget, of course, but that should be a secondary goal.

Now for the good news. The Ryan Budget does satisfy the Golden Rule of fiscal policy. As you can see in the chart, federal spending grows by an average of 3.4 percent annually, and that modest bit of fiscal discipline is enough to reduce the burden of government spending to 19.1 percent of economic output by 2023.

It’s also good news that the Ryan Budget calls for structural reform of entitlement programs, including Medicaid block grants and Medicare premium support. The budget also assumes the repeal of the costly Obamacare program.

And there’s also some good tax policy. Not bold tax reform like a flat tax, but top tax rates would be reduced to 25 percent and many forms of double taxation, like the death tax and capital gains tax, presumably would be reduced or eliminated.

Let’s be clear, though, that this is not a libertarian budget. Federal spending will still be far too high. Indeed, the budget will consume a larger share of the economy than it did when Bill Clinton left office.

And while Republicans do a good job of restraining spending in the first couple of years of the new Ryan Budget, outlays rise far too rapidly beginning around 2016.

Moreover, there’s no Social Security reform.

Equally worrisome, the budget assumes that the federal tax burden should remain at about 19 percent of GDP, higher than the long-run average of 18 percent of GDP and—for all intents and purposes—permanently enshrining Obama’s fiscal cliff victory.

And it’s depressing to see that the Ryan Budget has gotten weaker each year.

At this rate, it won’t be that long before the GOP budget and Obama budget converge.

Okay, that’s an exaggeration. But the moral of the story is that the Ryan Budget is a step in the right direction, but much more will be needed to restore limited, constitutional government.