Tag: public choice

Why Budgets Are Busted

Three stories in today’s Washington Post help us to understand why governments around the world are facing unmanageable deficits. On the front page:

When Prime Minister Jose Luis Rodriguez Zapatero took power seven years ago, he and his Socialist Workers’ Party set out to perfect the welfare state in Spain. The goal was to equal— or even surpass — lavish social protections that have long been the rule for Spain’s Western European neighbors.

True to his Socialist principles and riding an economic boom, Zapatero raised the minimum wage and extended health insurance to cover everything from sniffles to sex changes. He made scholarships available to all. Young adults got rent subsidies called “emancipation” money. Mothers got $3,500 for the birth of a child, toddlers attended free nurseries and the elderly got stipends for nursing care.

On page 3, a story about federal pensions, which still offer federal employees

a benefit lost long ago by many workers at private companies — a guaranteed retirement check paid largely by the boss.

These traditional pensions, called defined-benefit plans, have long been an attractive feature of government work.

On the op-ed page, George Will notes that in 1975 then-governor Jerry Brown said that his plan was

To stand up to the special pleaders who are encamped, I should say, encircling the state capitol, and to see through their particular factional claims to the broad public interest.

Three years later, “Brown conferred on government employees the right to unionize and bargain collectively.” Now, from prison guards to teachers, the public employee unions press for unaffordable spending and block efforts at reform. And again-governor Jerry Brown would rather raise taxes than stand up to the unions that helped elect him.

As has been noted many times, politicians spend all the money that comes in when times are good. They don’t put anything aside for the possibility of lean years. And they make commitments, like pensions and collective bargaining agreements, that will prove to be fiscal time bombs, exploding long after the next election. It looks like the long run is here.

Pelosi’s Constituents Found out What’s in ObamaCare, and They Don’t Like It

From the Daily Caller:

Nearly 20 percent of new Obamacare waivers are gourmet restaurants, nightclubs, fancy hotels in Nancy Pelosi’s district

By Matthew Boyle - The Daily Caller 12:07 AM 05/17/2011

Of the 204 new Obamacare waivers President Barack Obama’s administration approved in April, 38 are for fancy eateries, hip nightclubs and decadent hotels in House Minority Leader Nancy Pelosi’s Northern California district.

That’s in addition to the 27 new waivers for health care or drug companies and the 31 new union waivers Obama’s Department of Health and Human Services approved.

Pelosi’s district secured almost 20 percent of the latest issuance of waivers nationwide, and the companies that won them didn’t have much in common with companies throughout the rest of the country that have received Obamacare waivers.

What Hyman Roth Would Say about Government Waste

We often criticize a focus on government waste here at Cato. We point out that the real spending problem is the big-ticket programs, not “waste, fraud, and abuse.” But a series of recent stories in the Washington Post, several of them in Sunday’s paper, led me to write about government waste in today’s Britannica column. I followed up on my previous post about the scandal of the Alaska Native Corporation (SBA 8(a)) preference program:

Not much, even though it was hardly the first time that the problems with the Alaska Native Corporations program had been noted. There was a Senate hearing, with the reassuring title of “Promise Fulfilled: The Role of the SBA 8(a) Program in Enhancing Economic Development in Indian Country,” where “Alaska Natives and a Small Business Administration official defended federal contracting preferences for Indian and Native firms.” No critics were invited to the hearing. After all, “The purpose of the hearing is to allow the SBA, ANCS, NHOs, Indian tribes, shareholders and other stakeholders the opportunity to demonstrate the importance and legitimacy of the program to Native communities in fulfilling self-determination and self-sufficiency,” as 49-year senator Daniel Inouye (D-HI) and Alaska’s own Sen. Mark Begich wrote in a letter to whippersnapper senator Daniel Akaka (D-HI), who has served in Congress for only 34 of his 86 years and chairs the Senate Indian Affairs Committee.

And I noted:

And for those who like big government, I have to say: This is the business you have chosen. If you want the federal government to tax (and borrow) and transfer $3.6 trillion a year, if you want it to build housing for the poor and give special benefits to Alaska Natives, if you want it to supply Americans with health care and school lunches and retirement security and local bike paths, then you have to accept that such programs come with incentive problems, politicization, corruption, and waste. Maybe it’s worth the cost.

More details here.

Public Choice and Spending Cuts

The Institute for Humane Studies Learn Liberty project continues to offer clear-headed analysis in video form. The latest effort features Ben Powell of Suffolk University explaining the concept of concentrated benefits and diffuse costs in the context of ongoing budget fights.

Cato recently produced two short videos on complementary aspects of the budget fights. For a more detailed treatment of many aspects of public choice, get your free (cheap!) copy of Cato’s excellent book, Government Failure: A Primer in Public Choice.

Lobbying Wolves on the Prowl

The other day I noted that the budget cuts agreed to last week contained lots of familiar faces. Many of the agencies and programs getting a trim were also cut in 1995 in a rescissions package put together by Gingrich Republicans. In the fifteen intervening years, federal spending exploded across the board, which means that an occasional trim job doesn’t accomplish much if the goal is to limit government.

The reason why is that if the scope of government activities isn’t curtailed, the cuts will be short-lived. As long as the agencies and their programs remain, special interests won’t stop agitating Congress to continue, or more likely, increase, funding.

A recent article in The Hill reports that lobbyists are already hard at work:

Groups that advocate for everything from more foreign aid to bolstering the nation’s transportation system saw several of their favorite government programs suffer deep spending cuts in the fiscal year 2011 budget deal.

With millions of dollars now axed from what they consider key federal initiatives, groups are planning to redouble their efforts and lobby to restore as much funding as possible in next year’s budget.

(Note to reporter: A lot of adjectives could be used to describe the spending cuts. “Deep” is not one of them.)

A fellow who lobbies for foreign aid argues that cutting it won’t balance the budget and that “We need to be planting the seeds for future economic prosperity around the world.” It’s true that even eliminating foreign aid wouldn’t balance the budget, but every little bit helps. But what’s striking is his arrogant pronouncement that “we” (taxpayers) need to be forced by the federal government to send our money abroad for the causes he fancies.

A lobbyist with the National League of Cities is relieved that the GOP didn’t get the small cut in local handouts that were originally proposed, but is nonetheless concerned about the “anti-spending climate in Washington”:

‘We’re talking about staff layoffs at the city level. Cities are also going to have completely reorganize their budgets mid-year and prioritize some things out.’

‘In this environment, the numbers from fiscal year 2011 might be the new baseline but our message isn’t going to change,’ Wallace said. ‘We’re focusing on those local programs that create jobs and spur economic growth.’

Cities prioritizing spending? Heaven forbid. Suck more money out of the private sector in order to save bureaucratic deadweight in local government? That doesn’t sound like a recipe for economic growth to me. (See here for more on the problems with federal subsidies to state and local governments.)

Then there are the transportation lobbyists. These folks would probably argue that a giant escalator to nowhere would be a wise use of taxpayer money:

Dean’s group is lamenting spending cuts made to the high-speed rail program, transit security grants as well as funding for “fixed guideway” projects, which include commuter trains, cable cars and ferryboats among other public transit systems.

For the fans of The Simpsons who didn’t catch the escalator reference, see this link for my feelings on government-funded rail projects. (Fans and non-fans should check out these essays on urban transit subsidies and high-speed rail.)

In Washington, it’s the squeaky wheel that gets greased. Lobbyists for government programs exist to make sure that Congress hears their wheel squeaking. Yes, the deck is stacked against those who are forced to foot the bill, but if taxpayers want federal agencies and their programs to get more than a trimming every fifteen years or so, now is the time to make a lot more noise.

Thursday Links

  • The Obama Doctrine fails to address the limitations of Washington’s attempts to shape foreign conflicts.
  • The 2012 Republican presidential field has thus far failed to produce a small-government conservative.
  • FREE E-BOOK: Government Failure: A Primer on Public Choice is available for reading and download (PDF) for a limited time on our website.
  • Republicans and Democrats are quibbling over a measly $61 billion in spending cuts–that’s a failure of leadership.
  • Under the failing status quo, Big Sugar wins, and Joe Taxpayer loses.
  • Ian Vásquez, director of Cato’s Center for Global Liberty and Prosperity, joined C-SPAN’s Washington Journal to talk about the failure of foreign aid:


Why Ryan-Rivlin Beats ObamaCare on Costs — and Spending

Washington Post blogger Ezra Klein asks of Rep. Paul Ryan’s (R-Wisc.) Medicare voucher proposal (co-authored with former Congressional Budget Office director Alice Rivlin):

Why are the cost savings in his bill possible, while the cost savings in the Affordable Care Act aren’t?…when it comes to the ACA, Ryan firmly believes that seniors will quickly and successfully force Congress to reverse any reforms that degrade their Medicare experience. That’s a fair enough concern, of course. What’s confusing is why it isn’t doubly devastating when applied to Ryan-Rivlin.

Set aside that Klein violates Cannon’s First Rule of Economic Literacy: Never say costs when you mean spending.  And that he uses the word “affordable” to describe ObamaCare.

There are two reasons why the Medicare spending restraints in the Ryan-Rivlin proposal are more likely to hold than those in ObamaCare.

First, ObamaCare’s restraints amount to nothing more than ratcheting down the price controls that traditional Medicare uses to pay health care providers.  Structuring Medicare subsidies in this way – setting the prices that Medicare pays specific providers – makes it very difficult to lower those prices, because the system itself creates huge incentives for providers to organize and lobby to undo those restraints.  As I explain more fully in this op-ed from September 2010, Medicare vouchers would change that lobbying game by reducing the incentives for provider groups to expend resources in the pursuit of higher Medicare spending.  That gives the Ryan-Rivlin restraints a much better shot at surviving.  (Seriously, it’s a pretty cool feature.)

Second, Klein predicts a backlash against Medicare vouchers because he says it amounts to “giving seniors less money to purchase more expensive private insurance.”  The notion that Medicare is less costly than private insurance is pure, uninformed nonsense.  Medicare and a “public option” are attractive to the Left precisely because such programs hide the full cost of their operations from enrollees and taxpayers.  It is a virtue of vouchers that they would reveal to Medicare enrollees the actual prices of the coverage and services they demand, because that information will spur enrollees to be more cost-conscious when selecting a health plan and consuming medical services.  That, in turn, will force insurers and providers to compete on the basis of cost to a degree never before seen in this nation, competition that will generate the sort of cost-saving innovations that Jim Capretta discusses here.

Both of these reasons boil down to the truism that nobody spends other people’s money as carefully as they spend their own.  We’ll make a lot of progress in this country when the Left realizes how much damage they’ve done by ignoring that truism.