Tag: obama

Here’s A “Toxic Asset” for You…

The Obama administration seems obsessed with making American taxpayers eat toxic assets. And I’m not talking about bad paper, derivatives, or any other inscrutable financial stinkers. I’m talking about good ol’ American public schooling.

Truth be told, after listening to the president’s presser last night, even I started to think that the key to American economic success is “investing” in education. After all, once you’ve heard something for about the twentieth time, you start to believe it. I mean, that’s how propaganda works, right? But somehow my mind refused to give in, and it forced me to remember:

We’ve been “investing” in government schools for decades, and have been reaping nothing but AIG-like results!

I actually laid out the startlingly awful returns we’ve gotten for our education dollars in several blog entries last month, but thought I’d revisit the basic, revolting facts one more time. I want it to be absolutely clear that lavishing more money on education isn’t change, nor, given what we get for the money, could it possibly be the key to long-term economic success.

So what have we invested? Let’s start with total outlays for elementary through post-secondary education, taken from table 26 of the latest Digest of Education Statistics. In 1969 we spent a total of $347 billion in inflation-adjusted dollars. In 2007, we spent $981 billion, a 183 percent increase.

How about public k-12 spending on a per-pupil basis? Again using Digest data (table 181) – which understates total expenditures by excluding such things as “state administration expenditures” – we can see that we’ve been spending increasingly sizable amounts. After adjusting for inflation, in 1969 we spent $5,161 per child. By 2005, that number had more than doubled, hitting $11,643. And what has that “investment” yielded?

Other than massive bloat, bupkus! Looking at National Assessment of Educational Progress long-term trend scores for 17-year-olds – essentially, our schools’ final products – we see almost complete academic stagnation. In mathematics, the average scale score was 304 (out of 500) in 1973, and only a measly 3 points higher in 2004! That’s a one percent increase in math outcomes for a roughly 100 percent increase in funding! And that actually beats the “return” in reading, where 17-year-olds were at 285 in 1971 and, yup, 285 in 2004!

How about higher education? Here we don’t have very good outcome measures and it is difficult to break down overall per-pupil expenditures. What we do have, however, suggests another bad investment.

To get a feel for expenditures, we can examine the State Higher Education Executive Officers report (figure A) showing that total revenue collected per full-time-equivalent student at public institutions, adjusted for inflation, grew from $8,463 in 1983 to $11,037 in 2008, a 30 percent increase. We can also look at aid per student, most of which came through government. According to data from the College Board (table 3), in 1983 the average full-time-equivalent student received $3,769 in inflation-adjusted aid. In 2007 she got $10,392, a 176 percent increase.

What are the returns on these investments? Again, lots of bloat, but from what we can tell, relatively little of educational value. Graduation rates, for one thing, seem to be falling.

According to the Population Studies Center, within eight years of graduating high school, 51.1 percent of students in the high school class of 1972 had finished college degrees. In contrast, only 45.3 percent of 1992’s high school class had done the same. And grads seem to be getting less well educated; according to the National Assessment of Adult Literacy, between 1992 and 2003 literacy levels dropped for both Americans whose education maxed out at a bachelor’s degree and those with graduate degrees. Whether it was graduates’ ability to read prose, documents, or handle math, scores went down while costs went up.

So all told, what do we have to show for our education investment? Pretty much just empty bank accounts. And yet, some politicians just can’t seem to get enough of those toxic assets!

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.

Who’s Blogging about Cato

Here’s the latest round-up of bloggers who are writing about, citing and linking to Cato research and commentary:

  • Blogging about Real ID, AxXiom for Liberty posted Jim Harper’s piece about DHS officials who skirted open meeting laws to promote the program.
  • No Land Grab, a blog covering eminent domain abuse, posted the latest Cato video on the Susette Kelo case. Jason Pye, who wrote a commentary on the case for the Georgia Public Policy Foundation, linked to it as well.
  • Sights on Pennsylvania blogged about international health care systems, citing Michael D. Tanner’s January article on health care reform and a 2008 Hill Briefing that compared various systems around the world.
  • Wes Messamore, AKA The Humble Libertarian, is compiling a list of 100 libertarian blogs/Web sites, and looking for recommendations. Last week, Wes penned his thoughts on the role of the U.S. in foreign policy, making heavy use of a recent Cato article by Benjamin Friedman and a 1998 foreign policy brief by Ivan Eland, citing military intervention overseas as a cause of terrorist activity against Americans.

If you’re blogging about Cato, contact Chris Moody at cmoody [at] cato [dot] org (subject: blogging%20about%20Cato) .

Week in Review: Bailout Bonuses, Marijuana and Eminent Domain Abuse

House Approves 90 Percent ‘Bonus Tax’

Sparked by outrage over the bonus checks paid out to AIG executives, the House approved a measure Thursday that would impose a 90 percent tax on employee bonuses for companies that receive more than $5 billion in federal bailout funds.

Chris Edwards, Cato’s director of tax policy studies, says the outrage over AIG is misplaced:

While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion — an amount 7,200 times greater than the $165 million of AIG retention bonuses.

So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.

Cato executive vice president David Boaz says this type of selective taxation is a form of tyranny:

The rule of law requires that like people be treated alike and that people know what the law is so that they can plan their lives in accord with the law. In this case, a law is being passed to impose taxes on a particular, politically unpopular group. That is a tyrannical abuse of Congress’s powers.

On a related note,  Cato senior fellow Richard W. Rahn defended the use of tax havens in a recent Wall Street Journal op-ed, saying the practice will only become more prevalent as taxes increase in the United States:

U.S. companies are being forced to move elsewhere to remain internationally competitive because we have one of the world’s highest corporate tax rates. And many economists, including Nobel Laureate Robert Lucas, have argued that the single best thing we can do to improve economic performance and job creation is to eliminate multiple taxes on capital gains, interest and dividends. Income is already taxed once, before it is invested, whether here or abroad; taxing it a second time as a capital gain only discourages investment and growth.

Obama to Stop Raids on State Marijuana Distributors

Attorney General Eric Holder announced this week that the president would end federal raids on medical marijuana dispensaries that were common under the Bush administration.

It’s about time, says Tim Lynch, director of Cato’s Project on Criminal Justice:

The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.

The Cato Institute hosted a forum Tuesday in which panelists debated the politics and science of medical marijuana. In a Cato daily podcast, Dr. Donald Abrams explains the promise of marijuana as medicine.

Cato Links

• A new video tells the troubling story of Susette Kelo, whose legal battle with the city of New London, Conn., brought about one of the most controversial Supreme Court rulings in many years. The court ruled that Kelo’s home and the homes of her neighbors could be taken by the government and given over to a private developer based on the mere prospect that the new use for her property could generate more tax revenue or jobs. As it happens, the space where Kelo’s house and others once stood is still an empty dustbowl generating zero economic impact for the town.

• Daniel J. Ikenson, associate director of Cato’s Center for Trade Policy Studies, explains why the recent news about increasing protectionism will be short-lived.

• Writing in the Huffington Post, Cato foreign plicy analyst Malou Innocent says Americans should ignore Dick Cheney’s recent attempt to burnish the Bush administration’s tarnished legacy.

• Reserve your spot at Cato University 2009: “Economic Crisis, War, and the Rise of the State.”

Update: Obama on Iran

In response to President Obama’s video message to the Iranian people this morning, Iranian presidential aide Aliakbar Javanfekr is quoted as saying, “The Obama administration so far has just talked. By words and talking the … problems between Iran and America cannot be solved.”

I wish we knew the reaction of Khamene’i, but I do find myself fearing that the CIA may continue its major covert operations to undermine Tehran’s clerical regime. The administration has yet to repudiate this official policy. If Obama decides to repeal it, and dialogue with Iran falls through, Bush administration officials will trumpet that their policy could have had a chance to succeed.

Obama may be in a tough spot, but history is on his side. As we witnessed in 1953 with the overthrow of Mossadegh, covert activities, at least in the long-term, hold no promise of achieving our desired objectives.

The Incredible Expanding Stimulus Programs

Get on a media list, and you get lots of emailed press releases. Like this one today:

APPLIANCE AND RETAIL INDUSTRY URGE QUICK ACTION ON CONSUMER REBATE PROGRAM FOR APPLIANCES

In case you’re wondering, it’s from the Association of Home Appliance Measures (AHAM). And it won’t surprise you to hear that “The Association of Home Appliance Manufacturers (AHAM) and the Retail Industry Leaders Association (RILA) urge the U.S. Department of Energy (DOE) to quickly disburse funding to state energy offices for the Energy Efficient Appliance Rebate Programs so that consumer rebates will be available for the summer months to purchase ENERGY STAR appliances.” Yes, indeed, that’s the way to get the economy moving again: get people out there buying new appliances.

You know what I think would really stimulate the economy? Federal tax credits for contributions to free-market think tanks. Nonprofits are facing diminished revenues and layoffs during these tough times. A tax credit would “create or save up to 4 million jobs.” OK, maybe not quite 4 million, but some number “up to” that. And by focusing the credit on free-market think tanks, you’d help to encourage sound long-term economic policy. It’s a win-win idea. I should get out a press release.

The Subway Business Administration

Yesterday, President Obama announced a government initiative to help small businesses, largely through the Small Business Administration (SBA). But more on that in a bit…

A February 24th Wall Street Journal article discussed the fact that defaults of SBA-backed loans to franchisees at 500 franchises went up 52% in fiscal year 2008. Loan losses went up 167%. Sure, the economy isn’t doing too hot right now. What grabs my attention is the fact that taxpayers are backing loans to business operations like Subway, Domino’s Pizza, and Planet Beach tanning salons. Is capitalism in this country so incapable, recession or not, that the government needs to ensure an adequate supply of credit to sandwich shops? Tanning salons? A recent headline on MSNBC.com reads, “In many cities, tanning salons exceed Starbucks.”

The Journal reported that in the last eight years 42% of SBA-backed loans to Cornwell Quality Tools Co. franchisees went into default. Yet, Cornwell’s CEO says that it opened 127 new franchisees last year and indicated that “relatively few used SBA lending to enter the business,” according to the article. Proponents of the SBA argue that the agency is needed to help businesses that are unable to obtain credit or financing through traditional channels. What this story shows is there’s obviously a very good reason why these businesses couldn’t obtain private financing. It also shows that, in the case of Cornwell, there’s no “need” to have taxpayers backing loans to its franchisees when so many are opening up without such help.

Is it even true that small businesses are generally so unable to obtain credit that the government must fill the void? According to a recent study by the Government Accountability Office (GAO), “Between October 2006 and March 2008, SBA determined that 31 of the 97 lenders reviewed had failed to consistently document that borrowers met the credit elsewhere requirement or personal resources test.” In other words, a third of the borrows didn’t prove they couldn’t obtain money elsewhere. Moreover, the GAO says, “we found that lenders evaluate a borrower’s ability to obtain credit elsewhere on reasonable terms against their own conventional lending policies.” That litmus test hardly provides proof that deserving small businesses are being left out in the cold. The reality is that the SBA-backs loans to small businesses that could have obtained credit through private means – or shouldn’t have been loaned money in the first place.

Cato adjunct scholar, Dr. Veronique de Rugy, has found that “no more than 1 percent of [all] small business loans each year are SBA loans. The private sector finances most loans without government guarantee and, hence, the SBA is largely irrelevant in the capital market.” Moreover, because SBA financed loans have below market rates, small businesses who aren’t subsidized by the government are placed at a competitive disadvantage. Table 3 of de Rugy’s study for Regulation magazine (download article here and go to pdf page 7), lays bare the SBA’s irrelevance, and the competitive disadvantage the vast majority of small businesses face because of the agency’s subsidies.

The table shows the top 25 industries receiving SBA 7(a) loans for fy2002. At the top of the list are full-service restaurants, with limited-service eating places in second, and automotive repair and maintenance in third. The SBA loan ratio (SBA loans divided by total number of small business establishments in the industry) for the top three, are 1.5%, 1.2%, and 0.6%. The ratio for the top 25 industries was 0.3%; the ratio for all industries was 0.2%. I’m not a math whiz, but less than 1% isn’t very much.

Let’s circle back to the President’s announcement…

First, the President said the U.S. Treasury “will begin making direct purchases of securities backed by [Small Business Administration] loans to get the credit market moving again, and it will stand ready to purchase new securities to ensure that community banks and credit unions feel confident in extending new loans to local businesses.” That idea sounds kind of familiar to me. Oh, right.

Second, the President said “These purchases, combined with higher loan guarantees and reduced fees, will help provide lenders with the confidence that they need to extend credit, knowing they both have a backstop against their risk and a source of liquidity.” According to the Wall Street Journal, “Mr. Obama’s plan, aimed at helping troubled small businesses, will increase that guarantee to as much as 90% of a loan. The plan also will temporarily eliminate many of the loan fees that help pay for the program and cover potential defaults.”

It’s this second part that should be particularly galling to regular taxpayers and the vast majority of small businesses dealing with subsidized competitors. The President mentions some temporary tax breaks, but as Raymond Keating, chief economist at the Small Business and Entrepreneurship Council, told the Journal, “the Obama administration would accomplish much more in terms of boosting confidence and getting the economy moving by, at the very least, moving away from imposing higher personal income, capital gains, dividend and estate taxes on investors and business owners.” Additionally, a small business owner writing in Slate, in a piece entitled “Why Small Business Hates the Taxman,” says that what rankles a lot of small businesses is “the sheer hassle of compliance with the tax laws and the complete loss of control you feel when dealing with the government.”

Instead, the administration’s idea of helping small businesses is perpetuating the same moral hazzards that has the government already bailing out reckless private interests to the tune of trillions of dollars in current and future taxpayer dollars. This is change we can believe in? Unbelievable.