Tag: Sequestration

Challenge for Keynesian Anti-Sequester Hysterics, Part I: Why Did Canada’s Economy Boom When the Burden of Spending Was Sharply Reduced?

In this appearance on Canadian TV, I  debunk anti-sequester hysteria, pointing out that “automatic budget cuts” merely restrain government so that it grows $2.4 trillion over the next 10 years rather than $2.5 trillion.

I also point out that we shouldn’t worry about government employees getting a slight haircut since federal bureaucrats are overcompensated. Moreover, I warn that some agencies may deliberately try to inconvenience people in an attempt to extort more tax revenue.

But I think the most important point in the interview was the discussion of what happened in Canada in the 1990s.

This example is important because the Obama White House is making the Keynesian argument that a smaller burden of government spending somehow will translate into less growth and fewer jobs.

Nobody should believe them, of course, since they used this same discredited theory to justify the so-called stimulus and all their predictions were wildly wrong.

But the failed 2009 stimulus showed the bad things that happen when government spending rises, and maybe the big spenders want us to think the relationship doesn’t hold when government gets put on a diet?

Well, here’s some data from the International Monetary Fund showing that the Canadian economy enjoyed very strong growth when policymakers imposed a near-freeze on government outlays between 1992 and 1997. 

 

For more information on this remarkable period of fiscal restraint, as well as evidence of what happened in other nations that curtailed government spending, here’s a video with lots of additional information.

By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts.

The result? Growth has recovered and these nations are doing much better than the European countries that decided that big tax hikes and/or Keynesian spending binges were the right approach.

Paul Krugman, not surprisingly, got this wrong.

Sequestration and Voter Ignorance

Sheldon Richman and I spent a lot of time last week running through numbers from the Congressional Budget Office in order to gauge sequestration’s effect on federal spending. In the resulting column, Richman lays out the numbers and asks a pertinent question: How the $#!?% is the average voter supposed to have a clue about this stuff? 

From Richman’s column: 

I subjected myself to this pain because I’m a professional masochist. I’m paid to do it. How many people who are not so rewarded are likely to search for, locate, and download CBO spreadsheets to see the numbers for themselves? Very few, I’ll bet. And who can blame those who won’t? They have families, friends, communities, and jobs to attend to — matters they actually affect through their actions. But if most people don’t have time or incentive to learn the facts about this one issue (never mind all the others) — and if the news media can’t be counted on to tell the plain story — how can Americans fill the role of “informed voters” that democracy in theory requires? 

Next year there will be congressional elections. If a voter doesn’t know the facts about the budget, she won’t be able to judge the sequestration issue. And if she can’t do that, how can she intelligently decide which congressional candidate to vote for? 

Most people would say that voting for Congress is important, so why don’t they spend time doing this necessary research? Because they know that the effort would have no real payoff. Time is scarce, and there are always other uses of one’s time that really will make a difference. The average congressional district has 600,000 residents, three-quarters of whom are of voting age. No single vote will determine who gets elected or what policies are enacted — that is, no matter what you do, the outcome will be the same. And should your favorite candidate win and enact his program, you would pay only a tiny fraction of the total cost of that candidate’s policies; most of the cost would fall on others. So why exert much effort?

And that’s why Democrats (and Republicans devoted to the U.S. military empire) have spent the past few weeks trying to scare the pants off of voters. It remains to be seen if their efforts will pay political dividends. Saturday Night Live’s mocking of the administration’s sky-is-falling posture is a hopeful indication that the anti-spending cuts politicians might have overplayed their hand. Keep in mind, however, that we’re only talking about $44 billion in spending cuts versus $3.5 trillion in total spending this year. The cuts would have to be multiplied by a factor of almost twenty just to balance the budget. 

Imagine the hysteria if that were on the table. 

Those of us who would prefer to live under a vastly more limited federal government have our work cut out for us in convincing the average American that bigger isn’t always better

Arne Duncan, Less Than Zero?

Yesterday we laid out how, as percentages of total state education workforces, the Obama administration’s worst-case sequester job loss predictions are actually tiny. They’re so small they approach zero, generally clocking in at around 0.30 percent.

It seems, though, that even that number might be too big to fully capture the degree of fear-mongering by the administration. As the Washington Post is now reporting, U.S. Secretary of Education Arne Duncan actually has no evidence to back up the claim he made on Face the Nation this weekend that “there are literally teachers now who are getting pink slips, who are getting notices that they can’t come back this fall.” OK, he could point to one example – Kanawha County, West Virginia – but not without adding, “whether it’s all sequester-related, I don’t know.”

The big question now is, can we get the administration to cop to less than zero job losses? It might not be possible because, as trumped up as the sequester is, it probably will involve some job trimming. But it isn’t hard at all to see less than zero cuts when you put the sequester into historical context. As our by-now famous graphs make clear, for decades hiring in our schools grew well in excess of enrollment – a huge hiring boom. That means relatively minor cuts will, indeed, come out to far less than zero long-term losses. And considering that academic achievement was utlimately flat throughout the boom, much bigger cuts are clearly in order.

 

Anyway, thanks to Secretary Duncan – and the Washington Post – for making the job of exposing administration fear-mongering much, much easier.

Sequestration: Governors Are a Special Interest Too

The president made an appearance at the National Governors Association’s winter meeting to drum up support for his position that the sequestration spending cuts should be mitigated with tax hikes. The president understands that state politicians are dependent on federal handouts (see chart below), which makes them ideal candidates to help him convince the citizenry that spending cuts would usher in the apocalypse.  

In the battle with congressional Republicans over sequestration, it would be particularly helpful to the president to have Republican governors fan the flames. The post-appearance coverage that I’ve read indicates that some GOP governors took the bait and others did not. For instance, Louisiana Gov. Bobby Jindal dismissed the president’s position as “just trying to scare the American people.” On the other hand, Virginia Gov. Bob McDonnell expressed dissatisfaction with congressional Republicans (and the president’s) inability to come to an agreement to avoid sequestration. 

If an article in Politico is accurate, however, Republican governors are working behind the scenes to get congressional Republicans to acquiesce: 

The new rumblings match what’s been going on behind the scenes for months. Governors have publicly signed on to letters bashing Obama and praising House Republicans’ efforts, but privately their offices have been urging lawmakers to work harder to avoid potentially devastating cuts — particularly those that could hit local programs. 

Having worked for a Republican governor who made it a mission for his state to grab as many federal dollars as possible, I have zero reason to doubt that this is the case. The reason is simple: every federal dollar that a state politician can spend is a dollar that he or she doesn’t have to ask his or her voters to part with. Thus, state politicians love the “free” money from the feds and expend great effort (and additional taxpayer money) trying to obtain it. 

Of course, it isn’t really free.

The Sequestration Immigration Scare

Immigration and Customs Enforcement (ICE) has released several hundred unauthorized immigrants from detention in Texas, Florida, Arizona, and Louisiana in preparation for budget cuts as part of the sequestration. The administration has noted that cuts would effectively reduce Border Patrol by about 5,000 agents—down to about 2007 levels of staffing if all of the cuts occur on the Southwest border. 

This reduction in Border Patrol will not unleash a tidal wave of unauthorized immigrants like many claim. Since 1989 the Border Patrol’s appropriations have increased by 750 percent and there are six times more staff today than in 1989. 

Apprehensions of unauthorized immigrants on the border are also near 40 year lows because fewer unauthorized immigrants are trying to enter illegally due to the poor economy. Decreasing the size of the Border Patrol will not do much to increase unauthorized immigration because many would-be immigrants are repelled by high unemployment rates.  

Unauthorized immigration has slowed dramatically because of a lack of economic opportunity in the United States, not because border patrol is larger or more effective. Cuts to Border Patrol, even those that would return its size to the 2007 levels, will not much affect unauthorized immigration.

American unemployment rates and demand for immigrant workers drive unauthorized immigration.  Look at this graph relating border apprehensions and the national unemployment rate:

Apprehensions and Unemployment Rate

The higher the rate of unemployment, the fewer unauthorized immigrants try to enter, and the fewer apprehensions are made.   

Perhaps if you had looked at this graph, you might have thought that the size of the Border Patrol could deter unauthorized immigration:

Apprehensions and Border Patrol Staff on Southwest Border

But if Border Patrol deterred unauthorized immigration, it would probably also deter other illegal activity—like cross border drug seizures. Consider this graph:

Border Patrol Staff and Marijuana Seizures 

Drug seizures have increased along with the size of the Border Patrol. Americans still demand marijuana so increased security results in more marijuana seizures (and more marijuana entering the black market). In contrast, unauthorized immigration is down because there is less American economic demand for their labor. Decreasing the size of the Border Patrol down to 2007 levels will not result in a flood of unauthorized immigration because not as many people want to come here as they did during the housing boom.

Sequestration Will Not Make the United States Less Safe

Will sequestration undermine U.S. national security? Hardly. Today, the Cato Institute released a new infographic putting these minor cuts in perspective.

Military spending will remain at roughly 2006 levels—$603 billion, higher than peak U.S. spending during the Cold War. Meanwhile, we live in a safer world. The Soviet Union has been dead for more than two decades; no other nation, or combination of nations, has emerged since that can pose a comparable threat. We should have a defense budget that reflects this reality.

To be clear, sequestration was no one’s first choice. But the alternative—ever-increasing military spending detached from a legitimate debate over strategy—is worse. We should have had such a debate, one over the roles and missions of the U.S. military, long before this day of reckoning. And politicians could have pursued serious proposals to prudently reduce military spending. Instead, they chose the easy way out, avoiding difficult decisions that would have allowed for smarter cuts.

Until now, there have been few constraints on Washington’s ability to spend what it pleases on the military. As my colleagues Benjamin Friedman and Justin Logan put it, Americans “buy defense like rich people shop, ignoring the balances of costs and benefits.”

Policymakers can’t postpone the tradeoffs forever, especially when the public has grown increasingly weary of foreign entanglements. If forced to choose between higher taxes, less military spending, or lower domestic spending, in order to balance the budget, the military fares least well, with solid pluralities favoring cuts in military spending over cuts in other programs.

Which is why it is so important to get the foreign policy debate right. If we are going to give our military less, we need to think about asking it to do less.

A number of experts have done that, rethinking the military’s purpose, and documenting the savings that would flow from a more modest foreign policy. The sequester is a first step, albeit an imperfect one, that could finally compel policymakers to do the same.

Download and share this infographic on your blog, Twitter, or Facebook.

Only Doom Without the Denominator

The Obama administration tried to turn the doom-and-gloom up a notch over the weekend, releasing reports on how many employees each state could lose if sequestration isn’t stopped. Teachers were prominently featured, of course, because nothing scares people like the prospect of their kids not getting educated.

“Could” is a crucial word here, because it is entirely possible that savings could be found that would negate the need to dismiss people. For instance, unnecessary purchases could be cancelled, or all employees could take small pay cuts. But suppose worst-case firings did come. How horrific would the education damage be?

It turns out, once you look at the overall staffing picture, not very. Using a compilation of the state reports put together by the Washington Post, as well as Digest of Education Statistics staffing data, we assembled the following table calculating how big a percentage of public school employees in each state would disappear in the worst-case scenario. Unlike the administration, we included the numerator and the denominator.