Tag: economy

A Picture Is Worth $300 Billion

I blogged this morning that the research shows higher public school spending slows the economy, and explained that this is because spending more on public schools doesn’t increase students’ academic performance. Some readers no doubt find that hard to accept. With them in mind, I present the following chart:

Spending vs. AchievementSpending vs. Achievement

If public schools had merely maintained the level of productivity they exhibited in 1970, Americans would enjoy a permanent $300 billion annual tax cut. Now THAT would stimulate economic growth.

Research Shows $100 Billion Ed. Stimulus Likely Hurting Economy

Tomorrow morning, the president’s Council of Economic Advisers will release a report assessing the short and long-term effects of the stimulus bill on the U.S. economy. As with previous iterations, this report will attempt to forecast overall effects of the stimulus across its many different components and the different economic sectors it targets. In doing so, it ignores the clearest research findings available pertaining to a key portion of the stimulus: k-12 education.

The president has committed $100 billion in new money to the nation’s public school systems, and required that states accepting the funds promise not to reduce their own k-12 spending. The official argument for this measure is that higher school spending will accelerate U.S. economic growth. But a July 2008 study in the Journal of Policy Sciences finds that, to the authors’ own surprise, higher spending on public schooling is associated with lower subsequent economic growth. Spending more on public schools hurts the U.S. economy.

How is that possible? There is little debate in academic circles that raising human capital – improving the skills and knowledge of workers – boosts productivity. So an obvious interpretation of the JPS study is that raising public school spending must not increase human capital. While this possibility surprised study authors Norman Baldwin and Stephen Borrelli, it is consistent with the data on U.S. educational productivity over the past two generations.

Since 1970, inflation adjusted public school spending has more than doubled. Over the same period, achievement of students at the end of high school has stagnated according to the Department of Education’s own long term National Assessment of Educational Progress. Meanwhile, the high school graduation rate has declined by 4 or 5%, according to Nobel laureate economist James Heckman. So the only thing higher public school spending has accomplished is to raise taxes by about $300 billion annually, without improving outcomes.

The fact that more schooling without more learning is not a recipe for economic growth is confirmed by the independent empirical work of economists Eric Hanushek and Ludger Woessmann. Their key finding is that academic achievement, not schooling per se, is what matters to economic growth.

Based on this body of research, the president’s decision to pump $100 billion into existing public school systems is likely slowing the U.S. economic recovery.

If I Only Had a Crisis

Bloomberg News points out that President Obama needs a health-care crisis in order to impose a health-care “solution”:

President Barack Obama returns to Washington next week in search of one thing that can revive his health-care overhaul: a sense of crisis….

“At the moment, except for the people without insurance, we’re not in a health-care crisis,” said Stephen Wayne, a professor of government at Georgetown University in Washington. “You do need a crisis to generate movement in Congress and to help build a consensus.”

This administration has used Naomi Klein’s book The Shock Doctrine as a manual. Klein said in an interview that

The Shock Doctrine is a political strategy that the Republican right has been perfecting over the past 35 years to use for various different kinds of shocks. They could be wars, natural disasters, economic crises, anything that sends a society into a state of shock to push through what economists call ‘economic shock therapy’ – rapid-fire, pro-corporate policies that they couldn’t get through if people weren’t in a state of fear and panic.

Whether or not that’s true about the “right-wing” policies that she purported to analyze, the Obama admininstration has taken it to heart. Rahm Emanuel said, “You never want a serious crisis to go to waste.  And this crisis provides the opportunity for us to do things that you could not do before” such as taking control of the financial, energy, information and healthcare industries. Vice President Joe Biden, Secretary of State Hillary Clinton, and the president himself all echoed Emanuel’s exultation about the opportunities presented by crisis.

The financial crisis turned out to be shocking enough to let the federal government extend the power of the Federal Reserve, nationalize two automobile companies, spend $700 billion on corporate bailouts and another $787 billion on pork and “stimulus,” and inject a trillion dollars of inflationary credit into the economy. But now people are balking at further expansions of government, and the administration is longing for just a little more crisis to serve as a further opportunity.

Does the Government Need More Employees?

The Washington Post reports on the results of a survey of federal agencies on their hiring needs conducted by the Partnership for Public Service:

The federal government needs to hire more than 270,000 workers for ‘mission-critical’ jobs over the next three years… Mission-critical jobs are those positions identified by the agencies as being essential for carrying out their services. The study estimates that the federal government will need to hire nearly 600,000 people for all positions over President Obama’s four years – increasing the current workforce by nearly one-third.

Given the mind-set of most government managers I’ve encountered, I’m a little surprised they didn’t define all 600,000 as “mission critical.”  But 270,000 or 600,000, that’s a lot more folks living at the expense of the economically productive class of people in this country called taxpayers.

According to the Post:

The nation’s unsettled economy and high unemployment rate may ease the government’s task, as workers turn to the federal sector for job security and good benefits.

As my colleague Chris Edwards has been pointing out, the average federal employee is doing quite well in comparison to the average private sector employee when it comes to compensation.  See here, here, and here.

But here’s the line that made my skin crawl:

It [federal government] has to win the war for talent in order to win the multiple wars it’s fighting for the American people,’ said Max Stier, president and chief executive of the Partnership for Public Service, the think tank that conducted the survey of 35 federal agencies, representing nearly 99 percent of the federal workforce.

I could be wrong but I don’t think Stier is referring to Afghanistan and Iraq, so what are these “wars” for the American people?  Is he talking about the government’s counterproductive “war” on poverty?  Its failed “war” on drugs?  Its “war” on [insert societal ill here]?  There’s a war going on alright: it’s the federal government’s war against the productive men and women out there who have the fruits of their efforts gobbled up by that Leviathan on the Potomac.  The last thing the economy needs are the best and brightest this country has to offer wasting their abilities in some bureaucracy when they could be out starting businesses, creating new technologies, etc., etc.  As Chris Edwards likes to point out, would we rather Bill Gates had put his talents to work at the U.S. Department of Commerce?

Tuesday Links

  • Paul Krugman claims a victory for Big Government, which he says “saved” the economy from an economic depression. Alan Reynolds debunks his claim and shows why bigger government  produces only bigger and longer recessions.
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A Warning for President Obama

Last November’s rejection of the failed GOP didn’t mean voters were ready to embrace a massive increase in the size of the federal government, says Scott Keeter, director of survey research at Pew Research Center:

Obama campaigned for strong government action on the economy and health care, and most of his voters agreed with this direction. But Obama’s efforts to expand the role of government have alienated many of those who did not vote for him but nonetheless gave him high marks when first he took office.

Pew Research’s political values survey this spring showed no surge in public demand for more government. Indeed, anti-government sentiment, which had been building for years, was heightened by the financial bailout and stimulus program.

Deficits, Spending, and Taxes

The White House and the CBO announced this week that:

The nation’s fiscal outlook is even bleaker than the government forecast earlier this year because the recession turned out to be deeper than widely expected, the budget offices of the White House and Congress agreed in separate updates on Tuesday.

The Obama administration’s Office of Management and Budget raised its 10-year tally of deficits expected through 2019 to $9.05 trillion, nearly $2 trillion more than it projected in February. That would represent 5.1 percent of the economy’s estimated gross domestic product for the decade, a higher level than is generally considered healthy.

What is the right response to these deficits?

One view holds that most current expenditure is desirable — indeed, that expenditure should ideally be much higher — so the United States should raise taxes to balance the budget. Taxes are a drag on economic growth, however, and unpopular with many voters, so this view presents politicians with an unhappy tradeoff.

The alternative view holds that a substantial fraction of current expenditure is undesirable and should be eliminated, even if the revenue to pay for it could be manufactured out of thin air. To be concrete:

  • Medicare and Medicaid encourage excessive spending on health care.
  • The invasions of Iraq and Afghanistan encourage hostility to the U.S. and thereby increase the risk of terrorism.
  • Drug prohibition generates crime and corruption.
  • Agricultural subsidies distort decisions about which crops to grow, and where.
  • And much, much more.

So, under this view, the United States can have its cake and eat it too: improve the economy and reduce the deficit without the need to raise taxes.

This approach is not, of course, politically trivial, since existing expenditure programs have constituencies that will fight their elimination.

But thinking about these two views of the deficits is nevertheless useful: it shows that discussion should really be about which aspects of government are truly beneficial, not just about the deficits per se.

C/P Libertarianism, A to Z