Tag: regulation

Spending Our Way Into More Debt

Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must “spend our way out of this recession.”

While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.

Some leaders in Congress want a new round of stimulus spending of $150 billion or more. The following are some of the ways that money might be spent from the president’s speech:

  • Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”
  • “Cash for Caulkers.” This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf. 

  • More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.

  • More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.

The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve.” Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.

Public Housing for the Dead

The HUD Inspector General’s Office released an audit earlier this week on the department’s progress in making sure local public housing agencies aren’t subsidizing the deceased. According to the report, local “agencies made an estimated $15.2 million in payments on behalf of deceased tenants that they should have identified and corrected.”

The audit found the following “significant weaknesses:”

  • HUD and local agencies did not have effective policies related to deceased tenants.
  • Local agencies did not provide accurate and reliable information to HUD.
  • HUD and local agencies did not safeguard assets to ensure correct assistance payments.

This report is a small illustration of the fundamental problems with the federal government subsidizing local governments. The local public housing agencies are supposed to be monitoring how money is spent and reporting to HUD. HUD is supposed to be monitoring the local public housing agencies. But no one does a very good monitoring job, despite the piles of regulations and paperwork that every level of government has to deal with for such subsidies. The muddled web of responsibilities also makes it easy for fraud artists to take advantage.

Last week, HUD’s IG reported that the department is sending $220 million in stimulus funds to local agencies already known to misspend taxpayer dollars.

From USA Today:

The government is sending millions of dollars in stimulus aid to communities and housing agencies that federal watchdogs have concluded are unable to spend it appropriately, increasing the risk that the money will be wasted.

Since July, auditors working for the Department of Housing and Urban Development’s inspector general have scrutinized at least 22 cities, counties and housing authorities in 15 states and Puerto Rico to measure whether they can handle stimulus funds effectively. Only six, they found, could do so.

The rest — in line to receive more than $220 million in stimulus aid — had shortcomings ranging from poor management to inadequate staffing that threatened their ability to spend the money quickly and appropriately, a series of audit reports show.

According to a HUD spokesperson, the department is “spending millions of dollars to help local officials spend stimulus money effectively.” Maybe that’s true, but all monitoring help is a pure loss to taxpayers and the private sector economy.

Even when the federal oversight does find problems, the money often keeps flowing anyway. As the article notes:

USA TODAY reported in April that HUD planned to send $300 million in stimulus money to public housing authorities that had been repeatedly faulted by outside auditors for mishandling other forms of federal aid. Congress gave the Obama administration permission to withhold stimulus money from some of those agencies, but HUD opted earlier this year not to do so.

For more on fraud and abuse in federal programs, including housing subsidies, see this essay.

Thursday Links

  • The financial regulators’ pipe dream: “Most new regulation will do nothing to limit crises because markets will innovate around it. Worse, some regulation being considered by Congress will guarantee bigger and more frequent crises.”
  • The illegal cigarette trade in Ireland reaches “epidemic proportions“  after the government imposes draconian regulations on tobacco products.

Federal Education Results Prove the Framers Right

Yesterday, I offered the Fordham Foundation’s Andy Smarick an answer to a burning question: What is the proper federal role in education? It was a question prompted by repeatedly mixed signals coming from U.S. Secretary of Education Arne Duncan about whether Washington will be a tough guy, coddler, or something in between when it comes to dealing with states and school districts.  And what was my answer? The proper federal role is no role, because the Constitution gives the feds no authority over American education.

Not surprisingly, Smarick isn’t going for that. Unfortunately, his reasoning confirms my suspicions: Rather than offering a defense based even slightly on what the Constitution says, Smarick essentially asserts that the supreme law of the land is irrelevant because it would lead to tough reforms and, I infer, the elimination of some federal efforts he might like.

While acknowledging that mine is a “defensible argument,” Smarick writes that he disagrees with it because it “would presumably require immediately getting rid of IDEA, Title I, IES, NAEP, and much more.” He goes on to assert that I might “argue that doing so is necessary and proper because it’s the only path that squares with our founding document, but policy-wise it is certainly implausible any time soon.” Not far after that, Smarick pushes my argument aside and addresses a question to “those who believe that it’s within the federal government’s authority to do something in the realm of schools.”

OK. Let’s play on Smarick’s grounds. Let’s ignore what the Constitution says and see what, realistically, we could expect to do about federal intervention in education, as well as what we can realistically expect from continued federal involvement.

First off, I fully admit that getting Washington back within constitutional bounds will be tough. That said, I mapped out a path for doing so in the last chapter of Feds In The Classroom, a path that doesn’t, unlike what Smarick suggests, require immediate cessation of all federal education activities. Washington obviously couldn’t be pulled completely out of the schools overnight.

Perhaps more to Smarick’s point, cutting the feds back down to size has hardly been a legislatively dead issue. Indeed, as recently as 2007 two pieces of legislation that would have considerably withdrawn federal tentacles from education – the A-PLUS and LEARN acts – were introduced in Congress. They weren’t enacted, but they show that getting the feds out of education is hardly a pipe dream. And with tea parties, the summer of townhall discontent, and other recent signs of revolt against big government, it’s hardly out of the question that people will eventually demand that the feds get out of their schools.

Of course, there is the other side of the realism argument: How realistic is it to think that the federal government can be made into a force for good in education? It certainly hasn’t been one so far. Just look at the following chart plotting federal education spending against achievement, a chart that should be very familiar by now.

Education Spending

Notice anything? Of course! The federal government has spent monstrous sums on education without any corresponding improvement in outcomes!

Frankly, it’s no mystery why: Politicians, as self-interested people, care first and foremost about the next election, not long-term education outcomes. They care about what will score them immediate political points. That’s why federal politicians have thrown ever-more money at Title I without any meaningful sign it makes a difference. That’s why No Child Left Behind imposed rules that made Washington politicians look tough on bad schools while really just pushing more dough at educrats and giving states umpteen ways to avoid actual improvement. That’s why Arne Duncan vacillates between baddy and buddy at the drop of a headline. And that basic reality – as well as the reality that the people employed by the public schools will always have the greatest motivation and ability to influence government-schooling policies – is why it is delusional to expect different results from federal education interventions than what we’ve gotten for decades.

OK. But what about a law like the Individuals with Disabilities Education Act (IDEA)? Hasn’t it helped millions of disabled kids who would otherwise have been neglected by states and local school districts?

For one thing, it is constitutional and totally appropriate under the 14th Amendment for the federal government to ensure that states don’t discriminate against disabled children in provision of education. IDEA, however, does much more than that, spending billions of federal dollars, promoting over-identification of “disabilities,” and creating a hostile, “lawyers playground” of onerous, Byzantine rules and regulations, all without any proof that the law ultimately does more good than harm. And again, this should be no surprise, because federal politicians care most about wearing how much they “care” on their reelection-seeking sleeves, no matter how negative the ultimate consequences may be.

Alright-y then. How about the National Assessment of Educational Progress (NAEP)? Isn’t it an invaluable source of national performance data?

NAEP results are used in the above chart, so obviously I have found NAEP of some value.  But does its usefulness justify ignoring the Constitution? Absolutely not. For one thing, instead of NAEP we could use extant, non-federal tests such as the SAT, ACT, PSAT, Stanford 9, Terra Nova, and many other assessments to gauge how students are doing. And as useful as NAEP may be, it sits perilously close to being as worthless as everything else that Washington has done in education. All that has kept it from being hopelessly politicized is that there is no money attached to how states and local districts do on it. And as Smarick’s boss at Fordham, Chester Finn, testified in 2000, even with that protection NAEP and other supposedly netural federal education undertakings are under constant threat of political subversion:

Unfortunately, the past decade has also shown how vulnerable these activities are to all manner of interference, manipulation, political agendas, incompetence and simple mischief. It turns out that they are nowhere near to being adequately immunized against Washington’s three great plagues:

• the pressing political agendas and evanescent policy passions of elected officials (in both executive and legislative branches)and their appointees and aides,

• the depredations and incursions of self-serving interest groups and lobbyists (of which no field has more than education), and

• plain old bureaucratic bungling and incompetence.

Based on all of this evidence, it is clear that the only realistic avenue for getting rational federal education policy is, in fact, to follow the Constitution and have no federal education policy. In other words, the very realistic Framers of the Constitution were absolutely right not to give the federal government any authority over education, and it is time, right now, for us to stop ignoring them. Doing anything else will only ensure continued, bankrupting failure.

How Did the FCC Come to Acquire This Power?

Jeff Eisenach and Adam Thierer have a great essay in The American honoring the 50th anniversary of Ronald Coase’s article “The Federal Communications Commission.” It’s timely given the FCC’s proposal to establish public utility-style regulation of the Internet under the banner “net neutrality,” and it’s a good general warning to Neo-Progressives who “see market failure as the source of most problems, and government as the centerpiece of most solutions.”

‘Net Neutrality’ Regs: Corporate Interests Do Battle

Some people have labored under the impression that “net neutrality” regulation was about the government stepping in to ensure that large corporations would not control the Internet. Now that the issue is truly joined, it is clear (as exhibited in this Wall Street Journal story) that the debate is about one set of corporate interests battling another set of corporate interests about the Internet, each seeking to protect or strengthen its business model. The FCC is surfing the debate pursuing a greater role for itself, meaning more budget and power.

Tim Lee’s paper, The Durable Internet, dispels the idea that owners of Internet infrastructure can actually control the Internet. The preferred approach to “net neutrality” is to let Internet users decide what they want from their ISPs and let ISPs and content companies do unmediated battle with one another to create and capture the greatest value from the Internet ecosystem.

If the FCC were to reduce its power by freeing up more wireless spectrum—either selling it as property or dedicating it to commons treatment—competition to provide Internet service would strengthen consumers’ hands.

Whitehouse.gov Switches to Drupal

There was some buzz earlier this year when the White House used the free, open-source Drupal content management platform for Recovery.gov. Now the administration’s marquee Web site Whitehouse.gov will be using it.

The AP story linked just above does a good job of recounting the benefits of open source in this application: chiefly, low cost and high security.

Arnold Kling wrote recently on the Library of Economics and Liberty blog relating the work Elinor Ostrom did to win the Nobel prize in economics to how the Internet enables private provision of public goods—no regulation, little to no centralized authority at all.

Open source is nothing if not an example of that, and it’s good to see this use of open source joining many others across the big, beautiful Internet.