Tag: budget

Federal Debt Per Household

This afternoon, a congressional office asked me what the estimated national debt in President Obama’s fiscal year 2010 budget submission would be on a per-U.S.-household basis.  I think the answer is worth sharing with C@L readers:

According to the president’s budget, the estimated national debt (debt held by the public) in fiscal year 2010 would equal approximately $81,000 per U.S. household. 

But no worries, “we owe it to ourselves”!

Week in Review: No End to Spending and Regulation in Sight

Geithner to Propose Unprecedented Restrictions on Financial System

geithnerThe Washington Post reports, “Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system… The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities.”

Calling Geithner’s plan another “jihad against the market,” Cato senior fellow Jerry Taylor blasts the administration’s proposal:

What President Obama is selling is the idea that government must be the final arbiter regarding how much risk-taking is appropriate in this allegedly free market economy. It is unclear, however, whether anybody short of God is in the position to intelligently make that call for every single actor in the market.

Cato senior fellow Gerald P. O’Driscoll reveals the real reason behind the proposal:

Federal agencies have long had extensive regulatory powers over commercial banks, but allowed the banking crisis to develop despite those powers. It was a failure of will, not an absence of authority.   If the authority is extended over more institutions, there is no reason to believe we will have a different outcome.  This power grab is designed to divert attention away from the manifest failure of, first, the Bush Administration, and now the Obama Administration to devise a credible plan to deal with the crisis.

A new paper from Cato scholar Jagadeesh Gokhale explains the roots of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector. Gokhale argues that recovery is likely to be slow with or without the government’s bailout actions.

In the new issue of the Cato Policy Report, Cato chairman emeritus William A. Niskanen explains how President Obama is taking classic steps toward turning this recession into a depression:

Four federal economic policies transformed the Hoover recession into the Great Depression: higher tariffs, stronger unions, higher marginal tax rates, and a lower money supply. President Obama, unfortunately, has endorsed some variant of the first three of these policies, and he will face a critical choice on monetary policy in a year or so.

Obama Defends His Massive Spending Plan

President Obama visited Capitol Hill on Wednesday to lobby Democratic lawmakers on his $3.6 trillion budget proposal. Both the House and Senate are expected to vote on the plan next week.

obama-budget1In a new bulletin, Cato scholar Chris Edwards argues, “Sadly, Obama’s first budget sets a course for more government bloat, more economic distortions, and ultimately lower standards of living for everyone who is not living off of federal hand-outs.”

On Cato’s blog, Edwards discusses Obama’s misguided theory on government spending:

Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Obama’s budget calls for a massive influx of government jobs. Writing in National Review, Cato senior fellow Jim Powell explains why government jobs don’t cure depression:

If government jobs were the secret of success, then the Soviet Union wouldn’t have collapsed, because it had nothing but government jobs. Communist China, glutted with government jobs, would have generated more income per capita than Hong Kong where, at least before the Communist takeover, there were hardly any government jobs, but Hong Kong’s per capita income was about 20 times higher than that on the mainland.

Multiplying the number of government jobs did nothing then and does nothing now to revive the private sector that pays all the bills, in large part because of the depressing effect of taxes required to pay for government jobs.

Cato on YouTube

Cato Institute is reaching out to new audiences with our message of individual liberty, free markets and peace. Last year, we launched our first YouTube channel, which has garnered thousands of views and subscriptions. Here are a few highlights:

Obama’s Spending Theory

President Obama focused on budget and economic issues in his press conference last night. One concern raised by reporters was that federal deficits were exploding and that Obama’s big spending plans would seem to make the problem worse.

Obama’s response was essentially that higher spending reduces the debt problem, which would strike most people as paradoxical to say the least:

Here’s what I do know: If we don’t tackle energy, if we don’t improve our education system, if we don’t drive down the costs of health care, if we’re not making serious investments in science and technology and our infrastructure, then we won’t grow [the economy by] 2.6 percent, we won’t grow 2.2 percent. We won’t grow. And so what we’ve said is, let’s make the investments that ensure that we meet our growth targets that put us on a pathway to growth as opposed to a situation in which we’re not making those investments and we still have trillion-dollar deficits.

First note that Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Government spending on infrastructure, education, science and energy are already at high levels. For example, infrastructure spending today is as high as it was during the 1950s, and higher than it has been in recent decades. If government worked efficiently—as liberals believe it does—then all the highest-valued uses of taxpayer money would already be funded. At the margin, the only place for Obama’s new spending would be on low-value items of less economic importance.

Thus, Obama’s new college subsidies might induce some added young people to attend college, but most of those people are probably pretty marginal students because the high-quality students are already going to college. The marginal students might pick up some added skills, but at the cost of higher tax burdens and less economic output in the years when those folks are out of the workforce. Liberals assume that more spending on any activity they are interested in, whether public or private, is always better, but the real goal of economic policy is to find the optimum because all spending has a cost. (And the optimum level of government spending on most things is pretty darn low, or zero, in my view).

Obama is essentially claiming that even with federal, state and local spending at about one-third of GDP, there are government spending projects left over that are so powerful that “we won’t grow” if they don’t happen.

Serious economists know that that is nonsense. Most government activities have negative effects on growth, not positive effects. Take the largest federal program, Social Security, which will consume about $660 billion in taxpayer money this year. The program is a negative on economic growth because it suppresses personal savings and the taxes to fund it create large distortions. Lots of liberal economists support such transfer programs for non-economic or “social” reasons, but few economists would argue that they expand GDP on net.

This Is Who’s Minding the Store?

There was a revealing colloquy during President Obama’s press conference last night.

I’ve edited it for brevity, leaving in the relevant sections. See if you can pick out the most interesting tidbit. The President called on ABC News’ Jake Tapper:

OBAMA: Jake?

QUESTION: Thank you, Mr. President.

Right now on Capitol Hill, Senate Democrats are writing a budget. And according to press accounts and their own statements, they’re not including the middle-class tax cut that you include in the stimulus, they’re talking about phasing that out, they’re not including the cap-and-trade that you have in your budget, and they’re not including other measures.

I know when you outlined your four priorities over the weekend, a number of these things were not in there. Will you sign a budget if it does not contain a middle-class tax cut, does not contain cap-and- trade?

OBAMA: Well, I’ve emphasized repeatedly what I expect out of this budget. I expect that there’s serious efforts at health care reform and that we are driving down costs for families and businesses, and ultimately for the federal and state governments that are going to be broke if we continue on the current path.

[President highlights other policy priorities]

Now, we never expected, when we printed out our budget, that they would simply Xerox it and vote on it. We assume that it has to go through the legislative process. I have not yet seen the final product coming out of the Senate or the House, and we’re in constant conversations with them.

[more on policy priorities]

Our point in the budget is: Let’s get started now. We can’t wait. And my expectation is that the Energy Committees or other relevant committees in both the House and the Senate are going to be moving forward a strong energy package. It will be authorized. We’ll get it done. And I will sign it.

OK?

QUESTION: (OFF-MIKE) willing to sign a budget that doesn’t have those two provisions?

OBAMA: No, I – what I said was that I haven’t seen yet what provisions are in there. The bottom line is, is that I want to see health care, energy, education, and serious efforts to reduce our budget deficit.

And there are going to be a lot of details that are still being worked out, but I have confidence that we’re going to be able to get a budget done that’s reflective of what needs to happen in order to make sure that America grows.

Hey, Jake? The President doesn’t sign the budget resolution. Here’s one of many budget process primers you can look over.

The Fourth Estate is pretty weak on budget process, which contributes to the poor results that come out of Congress. Since the passage of omnibus legislation completing spending for this fiscal year (2009), WashingtonWatch.com has begun to highlight how the administration and Congress are falling behind schedule for fiscal year 2010. I’ve not seen anything in the mainstream media about the impending collapse of the budget process for the coming fiscal year.

Update: Jake Tapper contacted me about this post to explain that he was using the term “budget” as a shorthand for the reconciliation legislation that Congress often produces in the budget process. It’s clear to me now that Jake Tapper knows the budget process – and that he handles criticism well.

Slashed?

The Hill is reporting that Senate Budget Committee Chairman Kent Conrad (D-ND) “has slashed Obama’s proposed increases in domestic discretionary spending from 12 percent to 6, according to lawmakers who met with Conrad.”

Unemployment is rising, businesses are failing, and folks are truly “slashing” their spending habits.  But in Washington, to “slash” means to increase spending 6% instead of 12%.  I’m sure most hard-working Americans – the poor stiffs whose taxes will pay for this “slash” – wished their budgets were in line for a 6% increase this year.

Sanford Rejects Faustian Bargain

Yesterday, as expected, South Carolina Gov. Mark Sanford became the first governor to reject some of his state’s share of stimulus funds, spurning $700 million (of the about $8 billion headed his way) that he said would harm his state’s residents in the long run.  South Carolina’s General Assembly (controlled by Republicans who have long opposed Sanford’s attempts to cut spending, lower taxes, and generally reform government operations), using a provision of the stimulus bill inserted by Rep. James Clyburn (D-SC), nevertheless plans to seek the funds without the governor’s support.  They cite section 1607 of the American Recovery and Reinvestment Act of 2009, which provides that, notwithstanding a requirement for gubernatorial certification of a request for funds:

If funds provided to any State in any division of this Act are not accepted for use by the Governor, then acceptance by the State legislature, by means of the adoption of a concurrent resolution, shall be sufficient to provide funding to such State.

The question arises, setting aside the relative merits of both sides’ positions, whether the governor (or someone else) could challenge this “alternative certification” provision on constitutional grounds.  Here are some initial thoughts:

A state executive (and/or citizens of the given state) could bring colorable claims under the Tenth Amendment (powers not delegated to the federal government are reserved to the States and the people) , state separation of powers (legislature exercising executive power), and the non-delegation doctrine (Congress delegating its legislative authority to non-federal actors). Whether such challenges would be successful is a different matter.

The strongest claim would probably be under a combination of the Tenth Amendment and state law (depending on what the state constitution and statutes says about the federal grant process), especially given that much of the federal money is likely to come with strings/mandates attached – or would otherwise pervert state budgeting processes (as Sanford spelled out in a letter to state legislators). That is, depending on the particular program funds in question, it could well be that the federal government is doing an end-run around the state executive in “commandeering” (a term of art taken from the important Supreme Court case of Printz v. United States) state agencies without the full lawful acquiescence of the state government – i.e., without presentment of a bill for the executive to sign in the normal course of legislative action.

Moreover, I’m not sure how federal legislation could lawfully trump a state constitutional/statutory provision requiring that, say, federal monies only be accepted by state agencies subject to executive certification. If it could, then what’s to stop the federal government from putting in a further alternative provision allowing certification by majority vote of a state supreme court, let alone by town councils, agency heads, or any other imaginable alternatives? No, a conclusion to the contrary seems facially contrary to the separation of powers, disrupting state political structures in a way that the federal government cannot do by simple legislation.

As a caveat, the above analysis hinges on the substance of the relevant state constitution and statutes (and I haven’t yet thoroughly studied South Carolina’s, though I suspect they’re favorable to the points I’m making). The point is, it is not at all clear that Section 1607 should be considered safe from legal challenge – though courts will likely go out of their way to avoid constitutional conflicts or deciding what they may characterize to be “political” questions.

No Wonder the GOP Has No Credibility on Spending

You would think Barack Obama’s tsunami of federal spending would provide an easy target for Republicans.  But they apparently haven’t learned the right lessons after two successive electoral debacles.

Earmarks don’t account for a lot of money in Washington terms.  You know, just a few billion dollars out of trillions or quadrillions or whatever we are now up to – it’s so easy to lose track!

Nevertheless, earmarks are a powerful symbol.  So trust the “stupid party” to muff its chance.  Reports Politico:

Bashing Democrats on the day President Obama signed the $410 billion omnibus spending bill was the easy part for Republican leaders Wednesday.

But getting Rep. John Boehner and Sen. Mitch McConnell on the same page on earmarks will be a lot tougher.

At a joint press conference designed to present a united Republican front against Democratic spending habits, McConnell (R-Ky.) and Boehner (R-Ohio) appeared to diverge on earmark reform.

“I think the president missed a golden opportunity to really fulfill his campaign commitment to not sign bills that have a lot of wasteful spending and are overburdened with earmarks,” Boehner said. “If you look at the earmark reforms that he proposed, the question I have is, ‘Where’s the beef?”

McConnell declined to answer the question about earmarks, and instead criticized the president’s contention that the omnibus bill was simply last year’s unfinished business.

“Let me tell what was not last year’s business was plussing the bill up 8 percent, which is twice the rate of inflation,” McConnell said. “This bill is not last year’s business. … It further illustrates my point that when you add up the stimulus and the omnibus, the spending in the first 50 days of the administration [comes] at a rate of $1 billion an hour.”

Republicans have tried to come up with a unified earmark reform plan, but have struggled as GOP appropriators are reluctant to sign on. McConnell is on the Senate Appropriations Committee and has called for earmark reforms, but he and many lawmakers defend Congress’ constitutional right to direct spending.

In the omnibus bill, McConnell secured some $75 million worth of earmarks, while Boehner, a long-time critic of earmarks, did not. Boehner says Congress should freeze earmarks for the rest of the year, saying it leads to wasteful and potentially corrupting Washington spending.

Of course, Democrats have taken not.  In signing the latest spending bill President Barack Obama landed a nice blow against GOP hypocrisy:

And I also find it ironic that some of those who rail most loudly against this bill because of earmarks actually inserted earmarks of their own and will tout them in their own states and their own districts.

If Congress can’t take a vow of poverty on distributing pork when the nation faces a $1.3 trillion budget deficit and trillions more in deficits over the coming years, then it isn’t likely ever to be more responsible with the public’s money.