Tag: chris edwards

ICYMI: FMCS

During the hullaballoo around the government shutdown, the Washington Examiner published a jaw-dropping series of stories about blatant waste in an obscure federal agency called the Federal Mediation and Conciliation Service. These stories shouldn’t be missed.

Reporter Luke Rosiak writes:

One federal employee leased a $53,000 take-home car with taxpayer money in apparent defiance of federal regulations and regularly billed the government for service at shops such as BMW of Fairfax.

Others charged the government monthly for family members’ cell phones and high-end TV packages and Internet at home — and even at second homes.

Managers freely made out checks to employees without requiring documentation of how it would be spent, giving $1,316 directly to one who said she was reimbursing herself for furniture she bought for a “home office” and using convenience checks to give workers bonuses.

Federal bureaucrats dole themselves these perqs in an agency where the median annual salary is already $120,000. Federal pay, of course, is something Chris Edwards has highlighted for a long time.

Rosiak’s stories on FMCS are worth a read. They’re worth more than that—like maybe some congressional oversight. Because internal oversight is failing.

“With three whistle-blowers gone,” he concludes, “there is little indication that the spending abuses have stopped.”

‘Cut, Cap and Balance,’ the Debt Ceiling and Federal Spending

Cato Institute scholars Daniel J. Mitchell and Chris Edwards evaluate the plans offered by Republicans for lowering federal spending using a so-called “Cut, Cap and Balance” proposal that would make small cuts to federal spending in the short run, cap federal spending, and balance the federal budget using a tax-limited balanced budget amendment to the Constitution.

As Used-Car Prices Soar, ‘Clunkers’ Are Missed

Cato scholars have been appropriately scathing about the federal government’s 2009 “cash for clunkers” program, which paid several billion taxpayer dollars to have older cars scrapped and their engines destroyed, with owners getting vouchers toward new vehicles. When Chris Edwards nominated cash-for-clunkers as the “dumbest government program ever,” he listed among its effects: “Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.”

Guess what’s the newest trouble to hit the car business? As news outlets around the country are reporting, the price of used cars has lately soared to a modern-day record, with some cars commanding more used than they sold for when new. News accounts commonly finger the Japanese earthquake and high gas prices as reasons, but there are some problems fitting either reason to the case. While the earthquake affected the supply of new cars, it’s the previously driven kind that has scored the more impressive price jump. And while the rise in gas prices would explain a relative shift in buyer demand from SUVs and trucks toward smaller vehicles – which has indeed happened – the strength of the used-vehicle market lately has been such that even the thirstier vehicles have advanced in price, $4 gas or no.

No doubt there are multiple reasons for the price spike, including the severe general slump in new-auto sales in recent years, which has reduced the volume of newer cars coming onto the resale market. But – as Washington scrambles to take undeserved credit for whatever passes for normalization in the auto business these days – it’s worth remembering that an artificial scarcity of used cars isn’t just bad for the poor as a group: it’s bad in particular for the upwardly mobile poor, since in most of the country landing a job means needing to line up transportation to get to that job. When it suddenly costs $6,000 instead of $3,000 to get wheels, the move from unemployment to a paying job faces a new and discouraging barrier.

There’s a further irony too. Just as the federal housing stimulus lured many buyers into unwise house purchases at a time when home prices still had a good distance to fall – leaving them worse off in retrospect – so many owners who jumped for the cash-for-clunkers program would have been better off holding on to their cars a while longer. At least that’s what one might conclude from what Frederick, Maryland used-car dealer Robert Cox told his local paper, the News-Post:

People who got $3,500 for the cars they turned in would probably get $5,000 to $7,000 for the same trade today, Cox said.

Nice going, Washington.

Federal Spending Cap: Corker vs. 3%

The American Action Forum will host a conference on Capitol Hill this afternoon to discuss budget reform (details here). Sen. Bob Corker (R-TN) will discuss his “Commitment to American Prosperity Act,” which would cap federal spending at a declining percentage of GDP over ten years. Spending as a percentage of GDP would eventually be reduced to 20.6 percent, which is equal to the average from 1970 to 2008.

Corker’s plan properly places the focus of deficit reduction on the source of the problem: too much spending. A concern with Corker’s plan is that it is somewhat complicated, which could make it difficult to explain to the public. Chris Edwards, who will be speaking at today’s event, recently showed that the government can get its finances under control by imposing a statutory limit on annual spending growth of 3 percent.

Chris explains:

Such a limit would be easy for policymakers and the public to understand and enforce. It would put ongoing pressure on Congress to cut discretionary programs and reform entitlements. With spending growth limited to 3 percent, the budget would be balanced in just over a decade and growing surpluses would be generated after that. The federal government would shrink as a share of GDP. The math is simple: federal revenues and GDP are expected to grow substantially faster than the 3 percent spending limit over the next decade and beyond.

The following chart shows spending growth capped at 3 percent versus Corker’s plan to cap spending at a decreasing percentage of GDP:

Both plans effectively limit spending growth, although the 3 percent cap would be more successful in limiting spending in the long-run. The major difference is that the 3 percent cap has the advantage of being easier to explain to the public. Public support is important for spending limitation legislation to gain traction.

Bruce Cook, the chairman and CEO of the One Cent Solution, will also be participating in today’s discussion. The Mercatus Center’s Jason Fichtner recently released a similar proposal called the “One Percent Solution.” These budget cap proposals would be tighter.

Still Not Serious About Cutting Spending

The howls of outrage that have greeted the report of the bipartisan National Commission on Fiscal Responsibility and Reform shows two things:  1) most Democrats have no interest in reducing the size and cost of government; and 2) few Republicans are actually serious about it.

From the initial reaction, one would think that the Commission has slashed government to the bone, throwing the elderly, poor and sick into the street.  In reality, the Commission report is far from a radical document.  It proposes a reduction in government spending from 24.3 percent of GDP today to 21.8 percent over the next 15 years.  That’s a start.  But as recently as 2000 total federal spending was just 18.4 percent of GDP – and people were hardly dying in the streets during the Clinton years.  

In fact, the Commission doesn’t actually “cut” federal spending.  Under the Commission’s proposal, it would rise from roughly $3.5 trillion today to more than $5 trillion by 2020.  So, under the terrible “cuts” that the Commission is recommending, federal spending would still increase faster than inflation.  This is the old Washington game of calling a slower increase than previously projected a “cut.”

But Democrats appear unwilling to support even this modest slowing in the growth of government.  Instead they call for simply raising taxes to support a virtually unlimited amount of federal spending.  Republicans, meanwhile, talk about reducing government, but fall back on bromides about reducing waste, fraud, and abuse when faced with the need to make specific cuts.

If we were serious about reducing the size, cost and intrusiveness of government, we should roll back spending to Clinton-era levels.  (My colleague Chris Edwards has shown how that can be done.)  That would eliminate the need for the tax increases that the commission proposes. 

Alas, we still await political leadership with that amount of courage.

Government’s Unwelcome Economic Distortions

A couple of weeks ago, David Boaz discussed the Old Testament story in which the people of Israel ask Samuel for a king to rule over them. God’s instructions to Samuel can be summed up as “tell them to be careful of what you wish for.” David brought up the passage in the context of civil liberties, but the story’s lesson also applies to economic liberties.

Over the past eighty years, the public has become conditioned in times of crisis to turn to their rulers and demand that they “do something.” That the rulers had a hand in the crisis is all too often either unrecognized or it’s a secondary concern. As Robert Higgs demonstrated in his seminal book, Crisis and Leviathan, the rulers will willingly oblige the public and, in the process, come away with more power and control than they had prior to the crisis. Unfortunately, the rulers’ enhanced authority begets more crises in the future.

The latest chapter in this story is the economic downturn. Many of the “seeds” for the recession were planted by government. Regardless, the average citizen reflexively looked toward Washington to quickly fix the economy. The public’s limited patience meshes well with policymakers who are naturally inclined to operate on a short-term horizon (i.e., the next election). Therefore, policymakers responded with quick-fix measures with almost no regard to the long-term consequences.

The long-term economic problems caused by massive deficit spending and mounting debt are the most obvious. But as two stories in the news show, short-term measures implemented by policymakers to “fix” the economy have also introduced unwelcome economic distortions.

First, following the expiration of the federal homebuyer tax credit, home sales have fallen off the cliff. The Christian Science Monitor asks: was the homebuyer tax credit the “scam of the century?” The program was riddled with fraud, some folks who were induced to purchase a house are already underwater or are headed in that direction, and the billions of dollars spent on the program did zilch for the long-term health of the housing market.

When one looks at ultimate beneficiaries of the tax credit, it’s easy to see why the CSM calls it a “scam:”

[I]n trying to fully understand why the government undertook such a useless and poorly calculated program, it’s important to recognize those who truly walk away from this policy in better standing.

Realtors, home builders and mortgage bankers… some of the most notable culprits of the housing bubble years… all walk away cleanly skimming the proceeds coming from the transactions of an estimated 2 million temporarily stimulated home purchases.

It should come as no surprise that these were the very same industry groups that worked tirelessly lobbying to enact this failed policy… it was a simple exchange… your tax dollars to their wallets.

Second, we go from “scam of the century” to the “the dumbest program ever.” The latter refers to the “Cash for Clunkers” program, which Chris Edwards submitted for nomination in August 2009. Chris cited numerous problems with the program, including that “Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.”

A senior editor at Edmunds.com tells a reporter from WIOD news radio in Miami that used-car prices are way up (h/t Radley Balko):

If buying a used car is among your cost-cutting measures… be prepared to pay up to 30-percent more than you did last year.

It is a simple case of supply and demand.

Trouble is … there are fewer used cars.

The cash-for-clunkers program took a bunch off the market.

Plus, Edmunds Senior Editor Bill Visnick says 5-million fewer new cars were sold last year…which pares down the used car supply even more.

As Radley sarcastically notes, you can’t blame those supposedly selfish limited government types for this one:

[W]e have a government program whose stated aim was to shore up huge, failed corporations by giving public money to mostly upper-income people that in the end will penalize low and middle-income people. But remember folks, it’s the libertarians—who opposed C4C—who are greedy corporatists who hate the poor.

There could be a silver lining in the cloud if more Americans start to realize that asking policymakers to quickly fix problems that government policies helped foster isn’t much different than asking the arsonist to put out the fire.

Federal Employees and College Costs

For a long time now I’ve been writing about how student aid fuels explosive college costs, while Chris Edwards and Tad DeHaven have been highlighting the ever-cushier compensation of federal workers. Well, I’m pleased to have finally discovered a direct linkage between these topics: A new U.S. Office of Personnel  Management report on student loan repayment programs for federal workers.

According to the report, in calendar year 2009 “36 Federal agencies provided 8,454 employees with a total of more than $61.8 million in student loan repayment benefits.”

Now, 8,454 employees is a small chunk of the entire, roughly 2-million-person federal workforce. Still, $61.8 million isn’t anything to sniff at, and loan forgiveness is one more perk that needs to be considered when thinking of federal worker compensation. And then there’s the trajectory of forgiveness: According to the report, spending on student-loan forgiveness by federal agencies in 2009 was “more than 19 times” bigger than it was in 2002. Were things to continue at that rate, in 2017 the cost would be almost $1.2 billion, and then you’d almost be talking real money!

The important point from a student-aid perspective is to emphasize something that must never be forgotten: While many analyses of student aid will only count grants – because they don’t ever have to be paid back – as “aid,” the reality is that that hugely under counts the true cost of federal aid to taxpayers. In addition to grants, taxpayers fund all federal student loans (and eat them when they aren’t repaid), help finance work-study, and pay for federal expenses that people taking federal education tax credits don’t pay for. So when you look just at federal grants, the bill for taxpayers in the 2008-09 school year was about $24.8 billion (see table 1). Add in loans, credits, and work-study, however, and the bill suddenly balloons to nearly $116.8 billion.

“But wait,” will say the only-grants-are-aid crowd, “isn’t a lot of that $116.8 billion loan money that will be paid back?” Yup – it’s just that at least $61.8 million of that repayment is coming, once again, from beleaguered federal taxpayers. And that, to be sure, is just the tip of the federal loan-forgiveness iceberg.