Tag: economy

Monday Links

  • Harvard economist Jeffrey Miron: “Economists find weak or contradictory evidence that higher government spending spurs the economy. Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments—attempts to reduce deficits by raising taxes or lowering expenditure—work better when they focus on tax cuts.”

Public Schools = One Big Jobs Program

Who said public schooling is all about the adults in the system and not the kids? Everyone knows it’s even more basic than that: Public schooling is a jobs program, pure and simple. At least, that’s what one can’t help but conclude as our little “stimulus” turns one-year old today.

“State fiscal relief really has kept hundreds of thousands of teachers and firefighters and first responders on the job,” declared White House Council of Economic Advisers head Christina Romer today.

Throwing almost $100 billion at education sure as heck ought to have kept teachers in their jobs, and the unemployment numbers suggest teachers have had a pretty good deal relative to the folks paying their salaries. While unemployment in “educational services” – which consists predominantly of teachers, but also includes other education-related occupations – hasn’t returned to its recent, April 2008 low of 2.2 percent, in January 2010 it was well below the national 9.7 percent rate, sitting at 5.9 percent.

Of course, retaining all of these teachers might be of value to taxpayers if having so many of them had a positive impact on educational outcomes. But looking at decades of achievement data one can’t help but conclude that keeping teacher jobs at all costs truly isn’t about the kids, but the adults either employed in education, or trying to get the votes of those employed in education. As the following chart makes clear, we have added teachers in droves for decades without improving ultimate achievement at all:


(Sources: Digest of Education Statistics, Table 64, and National Assessment of Educational Progress, Long-Term Trend results)

Since the early 1970s, achievement scores for 17-year-olds – our schools’ “final products” – haven’t improved one bit, while the number of teachers per 100 students is almost 50 percent greater. If anything, then, we have far too many teachers, and would do taxpayers, and the economy, a great service by letting some of them go. Citizens could then keep more of their money and invest in private, truly economy-growing ventures. But no, we’re supposed to celebrate the endless continuation of debilitating economic – and educational – waste.

You’ll have to pardon me for not considering this an accomplishment I should cheer about.

Dr. Frankenstein on His Creation: It’s All The Monster’s Fault

As I have explained on numerous occasions, supporters of the Student Aid and Fiscal Responsibility Act (SAFRA) – which would end federal guaranteed student loans, turn everything into lending direct from Uncle Sam, and spend the resulting savings and way much more – have often shamelessly promoted the bill as a boon to taxpayers when it will almost certainly cost them tens-of-billions.  Where they have generally been right is in rebutting criticisms that SAFRA would be a federal takeover of a private industry. With lender profits all but assured under federal guaranteed lending, the vast majority of student loans haven’t been truly private for decades.

Unfortunately, SAFRA advocates are just as clueless – or, more likely, rhetorically unbridled – about what constitutes a private entity as are status-quo supporters. Case in point, an article in today’s Huffington Post that, along with U.S. Secretary of Education Arne Duncan, attempts to portray the suddenly rocky road ahead for SAFRA as a result of evil lender lobbyists dropping boulders in the selfless legislation’s way:

Taking aim at Sallie Mae, the largest student lender in the country and a driving force behind the lobbying effort, Education Secretary Arne Duncan on Tuesday accused the company of using taxpayer funds to lobby and advertise, and cast its executives as white-collar millionaires uninterested in serious education reform.

“Sallie Mae executives have paid themselves hundreds of millions of dollars in the last decade while teachers, nurses, and scientists – the backbone of the new economy – face crushing debt because of runaway college tuition costs,” Duncan said.

Here Sallie Mae is painted in the same ugly hues as Lehman Brothers, AIG, and all the other supposedly rapacious, unscrupulous companies whose unchecked greed, we’re told, brought the American economy to its knees. (We also get the baseless but obligatory pronouncement about “crushing debt” for teachers and other toilers for the “public good.”)

But wait! Doesn’t  “Sallie Mae” sound a lot like”Fannie Mae” and “Freddie Mac”? Of course! That’s because just like Fannie and Freddie, Sallie was created by the federal government,  only with Sallie’s job being to furnish lots of cheap college loans. And guess what? Just like Fannie and Freddie, Sallie became by far the biggest kid on her block because her huge federal creator fed her and protected her for decades, not setting her off on her own until 1996. But that part of her story doesn’t fit anywhere into the evil corporation narrative, so it’s just not mentioned.  All we need to know is Sallie is private, her owners and employees make a lot of money, and that is why she is evil and dangerous.

And so the politics of demonization and denial, a staple of the recession blame game, continues. Private institutions are portrayed as malevolent predators and government as a warm, pure, protective father-figure. But there is much more accurate imagery possible when it comes to Sallie Mae: Egomaniacal Dr. Frankenstein furiously blaming the monster he created for doing exactly what he built it to do.

And some wonder why there’s such widespread outrage – the real reason SAFRA is in trouble – about ever-expanding federal power?

Obama’s Big Tax Hike on U.S. Multinationals Means Fewer American Jobs and Reduced Competitiveness

The new budget from the White House contains all sorts of land mines for taxpayers, which is not surprising considering the President wants to extract another $1.3 trillion over the next ten years. While that’s a discouragingly big number, the details are even more frightening. Higher tax rates on investors and entrepreneurs will dampen incentives for productive behavior. Reinstating the death tax is both economically foolish and immoral. And higher taxes on companies almost surely is a recipe for fewer jobs and reduced competitiveness.

The White House is specifically going after companies that compete in foreign markets. Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral. The White House thinks that this income should be taxed right away, though, claiming that “…deferring U.S. tax on the income from the investment may cause U.S. businesses to shift their investments and jobs overseas, harming our domestic economy.”

In reality, deferral protects American companies from being put at a competitive disadvantage when competing with companies from other nations. As I explained in this video, this policy protects American jobs. Coincidentally, the American Enterprise Institute just held a conference last month on deferral and related international tax issues. Featuring experts from all viewpoints, there was very little consensus. But almost every participant agreed that higher taxes on multinationals will lead to an exodus of companies, investment, and jobs from America. Obama’s proposal is good news for China, but bad news for America.

Five Decades of Federal Spending

The chart below shows federal spending in three component parts over the last five decades. It includes Obama’s proposed spending in 2011. Here are a few thoughts on the recent spending trends:

Defense: In the post-9/11 years, defense spending bumped up to a higher plateau of around 4 percent of GDP. But now we have jumped to an even higher level of around 4.9 percent of GDP.

Interest: The Federal Reserve’s easy money policies reduced federal interest payments in recent years. That is coming to an end. Obama’s budget shows that interest payments will start rising rapidly next year and hit 3 percent of GDP by 2015. And that’s an optimistic projection.

Nondefense: This category includes all other federal spending. After a steady decline during the Clinton years to 12.9 percent of GDP, President Bush pushed up nondefense spending to a higher plateau of around 14.5 percent. Then came the recession and financial crisis, and the Bush-Obama tag team hiked spending to an even higher level of around 19 percent of GDP. That level of nondefense spending is almost double the level in 1970 measured as a share of the economy.

Deficit Prognostications

Exactly two years ago, George W. Bush released his final budget. Here’s what the Washington Post had to say:

[T]he president’s budget envisions a big jump in the budget deficit, from $163 billion in 2007 to about $400 billion in 2008 and 2009. Much of that increase will be the result of a slowing economy and a stimulus package expected to cost about $150 billion.

Today’s release of President Obama’s FY 2011 budget shows that those deficit prognostications were way off:

Instead of a “big jump” to $400 billion in 2009, the actual deficit turned about to be a trillion dollars higher. Bush deserves most of the blame for that deficit, but the 2010 and 2011 deficits will be on Obama.

The frightening prospect is that, like Bush, Obama’s future budget projections will also turn out to be low-balled. Whether it has been war, natural disasters, or a recession, Bush and Obama have both responded to any “crisis” by spending gobs of money. Given that even Obama is projecting annual deficits still in the trillion dollar range by 2020, taxpayers had better hope the Taliban, Mother Nature, and the economy start cooperating.

How the Washington Post Covers Education

Yesterday, the president proposed yet another big increase in federal education spending. The Washington Post quoted ”senior White House officials” as saying that the spending would boost “the nation’s long-term economic health.”

I sent the story’s authors a blog post laying out the evidence that higher government spending hasn’t raised student achievement, and that if you don’t boost achievement, you don’t accelerate economic growth.

Today, there is an updated version of the original WaPo story. It no longer mentions the stated goal of the spending increase. It doesn’t mention that boosting gov’t spending has failed to raise achievement, and so will fail to help the economy.

But it does cite a single non-government source for comment on the president’s plan: the Committee for Education Funding. The Committee is described by the Post as “prominent education advocates,” and as an organization that “represents dozens of education groups.”

Here’s how the CEF itself measures its accomplishments: “The… Committee [has] been very successful in championing the cause of increasing federal educational investment. Through strong advocacy… [it has] won bipartisan support for over $100 billion in increased federal education investment over the last five years.” Its members, if you haven’t guessed already, include virtually every public school employee organization you can name, including, of course, the national teachers unions.

That’s the source, the one source, the Washington Post asked to weigh in on a new federal education spending gambit.

I asked the author of the revised version of the story to comment for this blog post. At the time of this writing, I’ve received no response.