Tag: budget

President’s Budget Lacks Seriousness, Vision

The measure of our seriousness in helping children learn is not simply the number of dollars we spend, but rather the care and thought we invest in allocating them, and our openness to changing course when the evidence demands it. The education provisions of the President’s budget, released today, lack both seriousness and vision.

The FY 2014 budget overview emphasizes three educational initiatives: preschool for all, STEM and innovation, and school infrastructure.

As foreshadowed in his State of the Union address, President Obama proposes to federally subsidize statewide preschool programs. This approach seems designed to deal with the mounting evidence that the federal government’s own preschool programs, Head Start and Early Head Start, have essentially no lasting benefits. Though candidate Obama once said he would terminate ineffective programs, his latest budget retains them both, and actually grows Early Head Start. Additionally, the new budget would subsidize PreK programs like those in Oklahoma and Georgia that advocates have long touted as “high quality.” The evidence on those programs is, however, rather mixed. Relative to the national average, Oklahoma has seen modest declines on the 4th grade NAEP tests while Georgia has seen modest gains—and the declines are larger than the gains. A broader review of the evidence by early education expert Russ Whitehurst of Brookings finds the same lackluster results overall. 

Not only are these statewide programs failing to show a pattern of lasting and substantial benefits thus far, the addition of federal subsidies will likely impede efforts to improve them. Federal education dollars at the pre-college level always come with strings attached—strings that accumulate over time. That is likely to exert a homogenizing pressure on state pre-K offerings, eliminating variation and thereby preventing us from learning which approaches are effective and which are not.

On STEM, the President is keen to fund the hiring of 100,000 new Science, Technology, and Math teachers. But America does not have a teacher quantity problem, we have a teacher effectiveness problem. Over the past 40 years, we’ve grown the number of public school employees 11 times faster than enrollment [i.e., we’ve doubled the number of staff to serve only 8.5 percent more students]. This has added $200 billion annually to the cost of American public schooling, and two million of the three million new hires were instructional staff, so it’s not simply a problem of bureaucratic bloat. And yet, despite all those new teachers and teachers’ aides, achievement at the end of high school is largely flat as are real graduation rates.

In other words, our public schools have shown themselves incapable of harnessing the talents of these millions of additional educators. The solution is not to hire yet more teachers into that system, it is to liberalize the education sector, bringing it back within the free enterprise system. Only when schools have both the freedoms and incentives to make the most of their teaching staffs, will we see educators’ talents marshaled effectively.

Finally, President Obama’s proposed new infrastructure spending focuses only on the symptom (crumbling school facilities) and ignores its cause (mismanagement). I’ve analyzed school survey data on the condition of facilities and found that public schools are in a much worse state of repair than private schools, despite the fact that private schools spend far less per pupil, on average. The question is WHY are public schools in a worse state of repair, given that they spend more? According to a federal government report, it’s because districts repeatedly defer necessary routine maintenance. These deferrals increase the cost of maintaining school facilities and accelerate the deterioration of buildings and equipment. In other words, they postpone the ounce of prevention until the pound of cure becomes unavoidable—and they do this because they don’t have to pay for the cure. Once again, bringing schools back within the free enterprise system would provide administrators with the incentives to maintain their facilities so as to avoid the financial hit of costly repairs and replacements—a hit that they can now pass on to taxpayers at no cost to themselves or their careers.

Regrettably, seeing the root causes underlying our educational woes is beyond the vision of the present administration.

Margaret Thatcher and the Battle of the 364 Keynesians

With the death of Margaret Thatcher, and the ensuing profusion of commentary on her legacy, it is worth looking back at an overlooked chapter in the Thatcher story. I am referring to her 1981 showdown with the Keynesian establishment—a showdown that the Iron Lady won handily. Before getting caught up with the phony “austerity vs. fiscal stimulus” debate, the chattering classes should take note of how Mrs. Thatcher debunked the Keynesian “fiscal factoid.”

According to the Oxford English Dictionary, a factoid is “an item of unreliable information that is reported and repeated so often that it becomes accepted as fact.” The standard Keynesian fiscal policy prescription for the maintenance of non-inflationary full employment is a fiscal factoid. The chattering classes can repeat this factoid on cue: to stimulate the economy, expand the government’s deficit (or shrink its surplus); and to rein in an overheated economy, shrink the government’s deficit (or expand its surplus).

Even the economic oracles embrace the fiscal factoid. That, of course, is one reason that the Keynesians’ fiscal mantra has become a factoid. No less than Nobelist Paul Krugman repeats it ad nauseam. Now, the new secretary of the treasury, Jack Lew (who claims no economic expertise), is in Europe peddling the fiscal factoid.

Unfortunately, the grim reaper finally caught up with Margaret Thatcher—but not before she laid waste to 364 wrong-headed British Keynesians.

In 1981, Prime Minister Thatcher made a dash for confidence and growth via a fiscal squeeze. To restart the economy, Mrs. Thatcher instituted a fierce attack on the British fiscal deficit, coupled with an expansionary monetary policy. Her moves were immediately condemned by 364 distinguished economists. In a letter to The Times, they wrote a knee-jerk Keynesian response: “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”

Mrs. Thatcher was quickly vindicated. No sooner had the 364 affixed their signatures to that letter than the economy boomed. Confidence in the British economy was restored, and Mrs. Thatcher was able to introduce a long series of deep, free-market reforms.

As for the 364 economists (who included seventy-six present or past professors, a majority of the Chief Economic Advisors to the Government in the post-WWII period, and the president, as well as nine present or past vice-presidents, and the secretary general of the Royal Economic Society), they were not only wrong, but also came to look ridiculous.

In the United States, the peddlers of the fiscal factoid have never suffered the intellectual humiliation of their British counterparts. In consequence, American Keynesians can continue to peddle snake oil with reckless abandon and continue to influence policy in Washington, D.C., and elsewhere.

And the King of the Fiscal Squeeze Is…Bill Clinton?

When Congressman Paul Ryan takes the stage at CPAC Friday morning, he will, of course, tout his new budget as a solution to America’s spending problem. The 2014 Ryan plan does aim to balance the budget in 10 years. That said, it would leave government spending, as a percent of GDP, at a hefty 19% – as my colleague, Daniel J. Mitchell, points out in his recent blog.  

Proposals like the Ryan budget are all well and good, but they are ultimately just that – proposals. If Congressman Ryan really wants to get serious about cutting spending, he should look to the one U.S. President who has squeezed the federal budget, and squeezed hard.

So, who can Congressman Ryan look to for inspiration on how to actually cut spending? None other than President Bill Clinton.

How can this be? To even say such a thing verges on CPAC blasphemy. Well, as usual, the data don’t lie. Let’s see how Clinton stacks up against Presidents Barack Obama and George W. Bush. As the accompanying chart shows, Clinton was the king of the fiscal squeeze.

Yes, Bill Clinton cut government’s share of GDP by a whopping 3.9 percentage points over his eight years in office. But, what about President Ronald Reagan? Surely the great champion of small government took a bite out of spending during his two terms, right? Well, yes, he did. But let’s put Reagan and Clinton head to head – a little fiscal discipline show-down, if you will (see the accompanying chart).

And the winner is….Bill Clinton. While Reagan did lop off four-tenths of a percentage point of government spending, as a percent of GDP, it simply does not match up to the Clinton fiscal squeeze. When President Clinton took office in 1993, government expenditures accounted for 22.1% of GDP. At the end of his second term, President Clinton’s big squeeze left the size of government, as a percent of GDP, at 18.2%. Since 1952, no other president has even come close.

Some might argue that Clinton was the beneficiary of the so-called “peace dividend,” whereby the post-Cold-War military drawdown led to a reduction in defense expenditures. The problem with this explanation is that the majority of Clinton’s cuts came from non-defense expenditures (see the accompanying table).

Admittedly, Clinton did benefit from the peace dividend, but the defense drawdown simply doesn’t match up to the cuts in non-defense expenditures that we saw under Clinton. Of course, it should be noted that the driving force behind many of these non-defense cuts came from the other side of the aisle, under the leadership of Speaker Gingrich.

The jury is still out on whether Ryan (or Boehner) will prove to be a Gingrich – or Obama, a Clinton. But, at the end of the day, the presidential scoreboard is clear – Clinton is the king of the fiscal squeeze.

So, when Congressman Ryan rallies the troops at CPAC with a call for cutting government spending, perhaps the crowd ought to accompany a standing ovation for the Congressman with a chant of “Bring Back Bill!”

You can follow Prof. Hanke on Twitter at: @Steve_Hanke

Federal Withholding: One Budget or Two?

“Federal withholding” may take on new meaning if the Senate passes H.R. 325, the “No Budget, No Pay Act.”

Along with increasing the debt ceiling to whatever level it reaches by May 18th, the bill would withhold the pay of members of Congress and senators if their respective bodies don’t pass a budget by the April 15th deadline found in the Congressional Budget Act of 1974.

But does “pass a budget” mean that each house of Congress can pass its own budget? Or does it mean that the two have to agree on a budget? In a WashingtonWatch.com blog post running down the prospects for a normal budget year, I said “both houses of Congress are supposed to agree to a final budget plan by April 15th.” But most people believe that No Budget, No Pay simply requires each house of Congress to pass its own budget in order to stave off “federal withholding” of their paychecks.

I’m a simple country lawyer, and I looked at the language of No Budget, No Pay, which says:

If by April 15, 2013, a House of Congress has not agreed to a concurrent resolution on the budget for fiscal year 2014 pursuant to section 301 of the Congressional Budget Act of 1974, … the payroll administrator of that House of Congress shall deposit in an escrow account all payments… [blah blah blah].

And I looked at section 301 of the Congressional Budget Act of 1974, which says:

On or before April 15 of each year, the Congress shall complete action on a concurrent resolution on the budget for the fiscal year beginning on October 1 of such year. The concurrent resolution shall set forth [various things]…

And I thought to myself, “A concurrent resolution on the budget agreed to pursuant to section 301 of the Congressional Budget Act is one that is passed by Congress.”

Existing law calls for one budget resolution to be passed by Congress—i.e., both houses—by April 15th, so a budget resolution passed pursuant to the Congressional Budget Act is one that has been passed by both houses. What does “pursuant to” mean if not “in conformance to or agreement with”? A budget resolution not agreed to by both houses of Congress is not agreed to pursuant to the law.

Much of section 301 of the Congressional Budget Act refers to the budget resolution using the definite article, “the,” as opposed to indefinite articles, such as “a” or “any.” This, too, suggests that the law contemplates a single budget resolution passing both houses.

The bulk of conventional opinion is that the No Budget, No Pay Act would only require each of the two houses of Congress to pass their own budgets in order to prevent federal withholding of their paychecks. Perhaps the phrase “pursuant to” only modifies “concurrent resolution,” not “agreed to.” But that is an odd use of language to say that a “concurrent resolution” matching the one described in the Congressional Budget Act is “pursuant to” it. Why not say “as described in”? No, I think “pursuant to” modifies “agreed to,” meaning that a budget resolution has to be agreed to by both houses.

The Act does use the indefinite article—”a concurrent resolution.” One could argue that the current Congress is superceding the Congressional Budget Act’s call for a budget resolution passed by both houses. But that doesn’t jibe with the use of “pursuant to,” which I think binds the phrase “concurrent resolution” to its meaning in section 301 of the Congressional Budget Act.

The upshot is that I don’t think either house of Congress should be paid until they come to agreement on a budget. I like the use of federal withholding when Congress doesn’t do its job. It’s odd that they have to institute an incentive system like this to get them to follow the law. So, the more federal withholding the better, and I think I have the better reading of the law, too. My hope is that we don’t have to find out because Congress passes a budget on time, starts in with appropriations on time, and has set federal spending for 2014 before the beginning of the 2014 fiscal year on October 1st.

Meet the Press, Check the Facts

This Sunday (2 December 2012), David Gregory hosted a lively session of NBC’s Meet the Press. The focus of Sunday’s program was the so-called Fiscal Cliff. Gregory rounded up many of the usual Washington suspects, including Treasury Secretary Timothy Geithner, and drilled them on their talking points.

Several times, in the course of Gregory’s questioning, he referred to President Bill Clinton’s tough 1993 budget deal. Throughout the broadcast, Gregory kept stressing the fact that the 1993 deal included defense cuts. For Gregory, those cuts were the flavor of the day.

This isn’t surprising. Indeed, most members of Washington’s chattering classes parrot the line that the economy boomed during the Clinton years because Clinton was the beneficiary of the so-called peace dividend, which allowed him to cut defense expenditures.

In fact, if we look carefully at the federal budget numbers, while Clinton did cut defense expenditures, as a percent of GDP, the majority of the Clinton squeeze came from non-defense expenditures. Indeed, as can be seen in the accompanying table, the non-defense squeeze accounted for 2.2 percentage points of President Clinton’s 3.9 total percentage point reduction in the relative size of the federal government.

Clinton squeezed the budget and squeezed hard, from all major angles. This was a case in which a president’s actions actually matched his rhetoric. Recall that, in his 1996 State of the Union address, he declared that “the era of big government is over.”

Clinton’s 1993 deal marked the beginning of the most dramatic decline in the federal government’s share of the U.S. economy since Harry Truman left office. The Clinton administration reduced government expenditures, as a percent of GDP, by 3.9 percentage points. Since 1952, no other president has even come close. At the end of his second term, President Clinton’s big squeeze left the size of government, as a percent of GDP, at 18.2 percent—the lowest level since 1966.

The table contains the facts. President Clinton knew how to squeeze both defense and non-defense federal expenditures. Indeed, he squeezed non-defense a bit harder than defense. Since 1952, the only other president who has been able to reduce the relative share of non-defense expenditures was Ronald Reagan. Forget the “peace dividend”—it’s all about the Clinton “squeeze dividend.”

ObamaCare Implementation News

Here’s some ObamaCare implementation news from around the interwebs:

  • Minnesota Facing Bigger Bill For State’s Health Insurance Exchange”: Kaiser Health News reports Minnesota has increased its spending projections for operating the state’s ObamaCare Exchange by somewhere between 35-80 percent for 2015. Spending on the Exchange will rise by another 19 percent in the following year.
  • The Wall Street Journal  defends the 25-30 states that aren’t gullible enough to create an Exchange and therefore take the blame for ObamaCare’s higher-than-projected costs.
  • Arizona Gov. Jan Brewer (R) has announced she will not implement an Exchange. That creates another potential state-plaintiff, millions of potential employer-plaintiffs, and (by my count) 430,000 potential individual plaintiffs who could join Oklahoma attorney general Scott Pruitt in challenging the IRS’s illegal ObamaCare taxes. It also means that Arizona can start luring jobs away from tax-happy California. There are four Hostess bakeries in California that might be looking to relocate.
  • I’m enjoying a friendly debate with The New Republic’s Jonathan Cohn and University of Michigan law professor Samuel Bagenstos over whether the those taxes really do violate federal law and congressional intent (spoiler alert: they do). I owe Bagenstos a response.
  • PolitiFact Georgia rated false my claim that operating an ObamaCare Exchange would violate Georgia law. I explain here why it is indeed illegal for Georgia (and 13 other states) to implement an Exchange.
  • ThinkProgress.org reports, “Romney’s Transition Chief Is Encouraging States To Implement Obamacare.” A better headline would have been, “Government Contractor Encourages More Government Contracts.”
  • The Washington Examiner editorializes, “In California…state regulators have warned…insurance premiums will rise by as much as 25 percent once the exchange comes online…That’s the best-case scenario.” And, “In 2014, seven Democratic Senate seats will be up for grabs in states Mitt Romney carried (Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia). Unless Obama’s HHS bureaucrats pull off an unprecedented miracle of central planning, Obamacare could well sink Democrats again in 2014, the same way it did in 2010.”