Tag: government spending

Canada and Jefferson’s Natural Progress

Thomas Jefferson famously opined that “the natural progress of things is for liberty to yield and government to gain ground,” but Canada has bucked that gloomy forecast in recent years. As my co-authored op-ed in the Washington Post yesterday showed, Canada has:

  • Cut government spending
  • Cut government debt
  • Balanced its budget consistently
  • Pre-funded its version of Social Security to make it solvent
  • Decentralized power within its federation of provinces
  • Cut taxes, particularly corporate taxes 

Meanwhile, the United States has headed in the opposite direction in each of these policy areas. Consider further that Canada has other economic policy advantages over the increasingly uncompetitive welfare state to its south:

  • Canada has more liberal immigration policies for highly skilled workers than does the United States, which has added greatly to the entrepreneurial vibrancy of Canada’s economy.
  • Canada has long had a stable,  efficient, and competitive financial sector, which avoided the government-assisted meltdown that occurred in the United States.
  • Canada has a home ownership rate as high as the United States, yet it does not have a distortionary mortgage interest tax deduction.
  • Canada recently implemented large Roth IRA style savings accounts, which are much more flexible than the U.S. version.
  • The Canadian federal capital gains tax rate is 14.5 percent, which compares to the current 15 percent in the United States and 20 percent under Obama’s tax plan.
  • Canada has no federal ministry or department of education. The K-12 schools are the sole responsibility of the provinces, yet Canadian kids  generally do better than American kids on international tests.
  • In recent years, Canada has probably been more supportive of NAFTA, and free trade in general, than its main trading partner, the United States.

Major pro-market reforms are possible in advanced welfare states – Jefferson can be proven wrong, as Canada illustrates. U.S policymakers can prove Jefferson wrong as well. They can start by cutting spending, decentralizing power out of Washington, and making pro-growth tax reforms in response to globalization, as Canada has, rather than imposing self-defeating “Buy America” provisions and making childish rants about “corporations moving jobs offshore.”

First 100 Days: More of the Same

President Obama campaigned on a promise of change. But the first 100 days of his administration have seen a continuation of the Bush administration’s irresponsible fiscal policies: more bailouts, higher spending, and mounting debt.

The president has already signed a tax hike that disproportionately hurts lower-income people, and is seeking additional tax increases to fund a transition to a more centrally-planned, European-styled economy.

Just as previous administrations have done, the president is using the current economic ‘crisis’ to justify further government encroachment upon the private sector. In doing so, dangerous precedents are being set that could have negative repercussions for future economic growth and individual liberty.

Waste, Fraud, and Stimulus

At Capitol News Connection, brought to you each morning by your tax dollars, they reported this morning:

With more than a trillion tax dollars tied up in the Troubled Asset Relief Program and stimulus spending, Congress is trying to figure out how to account for every penny.

Uh-huh. Congress is always on top of our federal dollars.

Coincidentally, just hours after the CNC report, the Government Accountability Office released a report warning about the lack of oversight procedures in the kitchen-sink stimulus bill. And a few days earlier the inspector general for the TARP program reported that Treasury has no real details on how TARP funds are being spent. In fact, IG Neil Barofsky told Congress that there were 20 criminal investigations into possible TARP fraud already underway.

Two months ago Barofsky and the comptroller general had warned of the likelihood of waste in huge new government programs:

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud…

Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”

One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:

[Y]ou cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Milton Friedman summed up the basic problem with government waste back in 2002:

When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it. When a man spends his own money to buy something for someone else, he is still very careful about how much he spends, but somewhat less what he spends it on. When a man spends someone else’s money to buy something for himself, he is very careful about what he buys, but doesn’t care at all how much he spends. And when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.

Members of Congress can make all the speeches they want about their commitment to ferreting out waste and fraud, but waste and fraud are inevitable in government spending and inevitably large in such massive programs. Some people think that’s fine. At least they’re realistic. But reporters shouldn’t fall for politicians promising to spend unprecedented sums of other people’s money quickly and wisely.

New at Cato, Tax Day Edition

tax-dayHere are a couple of dishes Cato Institute scholars cooked up for Tax Day:

  • Writing for National Review Online, Chris Edwards warns against the dangers of rapidly increasing government spending:

    When filling out your tax forms, you might want to think for a second about where all that money is going. After federal spending roughly doubled in the Bush years, it is growing by leaps and bounds under President Obama. What’s more, the federal government is increasing the scope of its activities — it is intervening in many areas that used to be left to state and local governments, businesses, charities, and individuals.

    There are now a staggering 1,804 subsidy programs in the federal budget. Hundreds of programs were added this decade, and the recent stimulus bill added even more. The result is that we are in the midst of the largest federal gold rush at taxpayer expense since the 1960s.

  • At Townhall, Dan Mitchell rails against the current tax code:

    Beginning as a simple two-page form in 1913, the internal revenue code has morphed into a complex nightmare that simultaneously hinders compliance by honest people and rewards cheating by Washington insiders and other dishonest people.

    But that is just the tip of the iceberg. The tax code also penalizes economic growth, distorts taxpayer behavior, undermines American competitiveness, invites corruption and promotes inefficiency.

  • At CNSNews.com, Edwards argues that policymakers should give Americans the low and simple tax code that they deserve.
  • Also, don’t miss the new Cato video that reveals how troubling the American tax system really is.

Stop the War, Stop the Spending

One of the great things about Ron Paul’s presidential campaign was its cross-ideological appeal. Libertarians, free-market conservatives, and antiwar young people all found his candidacy appealing. As someone who has despaired for years about the split between free-marketers and civil libertarians, who ought to be part of the same broad freedom movement, I looked forward to seeing that combination continue. So here’s a suggestion.

President Obama’s frightening tax-spend-and-take-over-private-businesses policies are re-energizing a free-enterprise constituency that had been depressed and dispirited by the reality of a Republican government giving us bigger, more expensive government for eight years. Cato’s full-page newspaper ads against the “stimulus” bill generated much enthusiasm and media discussion. CNBC’s Rick Santelli and South Carolina governor Mark Sanford have become folk heroes for speaking out against Obama’s economic policies. Now there are anti-tax “tea parties” planned in more than 300 cities. The growing resistance to Obama’s spending agenda is encouraging.

But meanwhile, where’s the antiwar movement? President Obama rose to power on the basis of his early opposition to the Iraq war and his promise to end it. Now he has doubled down on the war in Afghanistan and has promised to keep the war in Iraq going for another 19 months, after which we will have 50,000 American troops in Iraq for as far as the eye can see. If McCain had proposed this sort of minor tweaking of the Bush policy, I think we’d see antiwar rallies in 300 cities. Calling the antiwar movement!

So here’s my suggestion. Some libertarian group – which may or may exist already; the Internet makes it amazingly easy to organize a new group at a moment’s notice – should start a campaign to unite the antitax and antiwar constituencies with a simple message:

Stop the War, Stop the Spending

Or maybe it should be “Stop the Wars, Stop the Spending.” But it would pick up on Ron Paul’s appeal with his TV ads in which he said, “I’m the only presidential candidate who’ll bring our troops home from Iraq immediately and stop wasteful government spending.” Millions of Americans are tired of the war and worried about soaring federal spending. Somebody should give them a rallying point.

Stop Spending Our Future

That’s the title of an alarming, but informative, video over at Reason TV.  The video contains lots of eye-popping comparisons between amounts being spent on bailouts/”stimulus” and previous big-ticket government expenditures like the World War II and the New Deal.

And if you haven’t done so already, check out my colleague Dan Mitchell’s videos on the fallacies of Keynesian economics and the folly of so-called fiscal “stimulus” packages.

Week in Review: ‘Saving’ the World, Government Control and Drug Decriminalization

G-20 Summit Agrees to International Spending Plan

g-2The Washington Post reports, “Leaders from more than 20 major nations including the United States decided Thursday to make available an additional $1 trillion for the world economy through the International Monetary Fund and other institutions as part of a broad package of measures to overcome the global financial crisis.”

Cato scholars Richard W. Rahn, Daniel J. Ikenson and Ian Vásquez commented on the London-based meeting:

Rahn: “President Obama of the U.S. and Prime Minister Brown of the U.K. will be pressing for more so-called stimulus spending by other nations, despite the fact that the historical evidence shows that big increases in government spending are more likely to be damaging and slow down recovery than they are to promote vigorous economic expansion and job creation.”

Vásquez: “The push by some countries for massive increases in spending to address the global financial crisis smacks of political and bureaucratic opportunism. A prime example is Washington’s call to substantially increase the resources of the International Financial Institutions… There is no reason to think that massive increases of the IFIs’ funds will not worsen, rather than improve, their record or the accountability of the aid agencies and borrower governments.”

Ikenson: “Certainly it is crucial to avoid protectionist policies that clog the arteries of economic recovery and help nobody but politicians. But it is also important to keep things in perspective: the world is not on the brink of a global trade war, as some have suggested.”

Ikenson appeared on CNBC this week to push for a reduction of trade barriers in international markets.

With fears mounting over a global shift toward protectionism, Cato senior fellow Tom Palmer and the Atlas Economic Research Foundation are circulating a petition against restrictive trade measures.

Obama Administration Forces Out GM CEO

rick-wagonerPresident Obama took an unprecedented step toward greater control of a private corporation after forcing General Motors CEO  Rick Wagoner to leave the company. The New York Post reports “the administration threatened to withhold bailout money from the company if he didn’t.”

Writing for the Washington Post, trade analyst Dan Ikenson explained why the government is responsible for any GM failure from now on:

President Obama’s newly discovered prudence with taxpayer money and his tough-love approach to GM and Chrysler would both have more credibility if he hadn’t demanded Rick Wagoner’s resignation, as well. By imposing operational conditions normally reserved for boards of directors, the administration is now bound to the infamous “Pottery Barn” rule: you break it, you buy it. If things go further south, the government is now complicit.

Wagoner’s replacement, Fritz Henderson, said Tuesday that after receiving billions of taxpayer dollars, the company is considering bankruptcy as an option. Cato scholars recommended bankruptcy months ago:

Dan Ikenson, November 21, 2008: “Bailing out Detroit is unnecessary. After all, this is why we have the bankruptcy process. If companies in Chapter 11 can be salvaged, a bankruptcy judge will help them find the way. In the case of the Big Three, a bankruptcy process would almost certainly require them to dissolve their current union contracts. Revamping their labor structures is the single most important change that GM, Ford, and Chrysler could make — and yet it is the one change that many pro-bailout Democrats wish to ignore.”

Daniel J. Mitchell, November 13, 2008:  “Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe. But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity — under court supervision — to reduce costs and streamline operations.”

Dan Ikenson, December 5, 2008: “The best solution is to allow the bankruptcy process to work. It will be needed. There are going to be jobs lost, but there is really nothing policymakers can do about that without exacerbating problems elsewhere. The numbers won’t be as dire as the Big Three have been projecting.”

Cato Links

  • As the North Atlantic Treaty Organization celebrates its 60th birthday, there are signs of mounting trouble within the alliance and increasing reasons to doubt the organization’s relevance regarding the foreign policy challenges of the 21st century. In a new study, Cato scholar Ted Galen Carpenter argues that NATO’s time is up.
  • Should immigration agents target businesses knowingly hiring illegal immigrants? Cato scholar Jim Harper weighs in on a Fox News debate.
Topics: