Tag: welfare

Six Reasons to Downsize the Federal Government

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

2. As federal spending rises, it creates pressure to raise taxes now and in the future. Higher taxes reduce incentives for productive activities such as working, saving, investing, and starting businesses. Higher taxes also increase incentives to engage in unproductive activities such as tax avoidance.

3. Much federal spending is wasteful and many federal programs are mismanaged. Cost overruns, fraud and abuse, and other bureaucratic failures are endemic in many agencies. It’s true that failures also occur in the private sector, but they are weeded out by competition, bankruptcy, and other market forces. We need to similarly weed out government failures.

4. Federal programs often benefit special interest groups while harming the broader interests of the general public. How is that possible in a democracy? The answer is that logrolling or horse-trading in Congress allows programs to be enacted even though they are only favored by minorities of legislators and voters. One solution is to impose a legal or constitutional cap on the overall federal budget to force politicians to make spending trade-offs.

5. Many federal programs cause active damage to society, in addition to the damage caused by the higher taxes needed to fund them. Programs usually distort markets and they sometimes cause social and environmental damage. Some examples are housing subsidies that helped to cause the financial crises, welfare programs that have created dependency, and farm subsidies that have harmed the environment.

6. The expansion of the federal government in recent decades runs counter to the American tradition of federalism. Federal functions should be “few and defined” in James Madison’s words, with most government activities left to the states. The explosion in federal aid to the states since the 1960s has strangled diversity and innovation in state governments because aid has been accompanied by a mass of one-size-fits-all regulations.

For more, see DownsizingGovernment.org.

Son of the Stimulus

Like the sequel to a horror film, the politicians in Washington just passed another stimulus proposal. Only this time, they’re calling it a “jobs bill” in hopes that a different name will yield a better result.

But if past performance is any indicator of future results, this is bad news for taxpayers. By every possible measure, the first stimulus was a flop. But don’t take my word for it. Instead, look at what the White House said would happen.

The Administration early last year said that doing nothing would mean an unemployment rate of nine percent. Spending $787 billion, they said, was necessary to keep the unemployment rate at eight percent instead.

So what happened? As millions of Americans can painfully attest, the jobless rate actually climbed to 10 percent, a full percentage point higher than Obama claimed it would be if no bill was passed.

The President and his people also are arguing that the so-called stimulus is responsible for two million jobs. Yet according to the Department of Labor, total employment has dropped significantly – by more than three million – since the so-called stimulus was adopted. The White House wants us to believe this sow’s ear is really a silk purse by claiming that the economy actually would have lost more than five million jobs without all the new pork-barrel spending. This is the infamous “jobs saved or created” number. The advantage of this approach is that there are no objective benchmarks. Unemployment could climb to 15 percent, but Obama’s people can always say there would be two million fewer jobs without all the added government spending.

To be fair, this does not mean that Obama’s supposed stimulus caused unemployment to jump to 10 percent. In all likelihood, a big jump in unemployment was probably going to occur regardless of whether politicians squandered another $787 billion. The White House was foolish to make specific predictions that now can be used to discredit the stimulus, but it’s also true that Obama inherited a mess – and that mess seems to be worse than most people thought.

Moreover, it takes time for an Administration to implement changes and impact the economy’s performance. Reagan took office in early 1981 during an economic crisis, for instance, and it took about two years for his policies to rejuvenate the economy. It certainly seems fair to also give Obama time to get the economy moving again.

That being said, there is little reason to expect good results for Obama in the future. Reagan reversed the big-government policies of his predecessor. Obama, by contrast, is continuing Bush’s big-government approach. Heck, the only real difference in their economic policies is that Bush was a borrow-and-spender and Obama is a borrow-and-tax-and-spender.

This raises an interesting question: Since last year’s stimulus was a flop, isn’t the Administration making a big mistake by doing the same thing all over again?

The President’s people actually are being very clever. Recessions don’t last forever. Indeed, the average downturn lasts only about one year. And since the recession began back in late 2007, it’s quite likely that the economic recovery already has begun (the National Bureau of Economic Research is the organization that eventually will announce when the recession officially ended).

So let’s consider the political incentives for the Administration. Last year’s stimulus is seen as a flop. So as the economy recovers this year, it will be difficult for Obama to claim that this was because of a pork-filled spending bill adopted early last year. But with the passing of a supposed jobs bill, that puts them in a position to take credit for a recovery that was already happening anyway.

That may be smart politics, but it’s not good economics. The issue has never been whether the economy would climb out of recession. The real challenge is whether the economy will enjoy good growth once the recovery begins. Unfortunately, the Obama Administration policies of bigger government – combined with the Bush Administration policies of bigger government – will permanently lower the baseline growth of the United States.

If America becomes a big-government welfare state like France, then it’s quite likely that we will suffer from French-style stagnation and lower living standards.

The Federal Government Is Bribing States to Create More Welfare Dependency?!?

If you want to get depressed or angry, the New York Times has an article celebrating the effort by politicians at all levels of government to lure more people into the food stamp program. New York City is running ads in foreign languagues asking people to stick their snouts in the public trough. The City is even signing up prisoners when they get out of jail. The state of New York, meanwhile, actually set up quotas for enrolling new recipients. And on the federal level, there apparently is a program that gives states “bonuses” for putting more people on the dole. No wonder one out of every eight Americans is receiving food stamps. By the way, this is not just the fault of Democrats. The ranking Republican on the Agriculture Committee is a big defender of the program, in part because of the sordid pact among urban and rural politicians to support each other’s handouts. And President George W. Bush’s food stamp administrator actually had the gall to assert “food stamps is not welfare.” No wonder the burden of federal spending skyrocketed during the reign of so-called compassionate conservatism. The correct policy, of course, is to get the federal government out of the welfare business. If Mayor Bloomberg thinks it is a “civic duty” to expand food stamps, he should see whether New York City voters agree with him - and want to foot the bill.

A decade ago, New York City officials were so reluctant to give out food stamps, they made people register one day and return the next just to get an application. The welfare commissioner said the program caused dependency and the poor were “better off” without it. Now the city urges the needy to seek aid (in languages from Albanian to Yiddish). Neighborhood groups recruit clients at churches and grocery stores, with materials that all but proclaim a civic duty to apply — to “help New York farmers, grocers, and businesses.” There is even a program on Rikers Island to enroll inmates leaving the jail. “Applying for food stamps is easier than ever,” city posters say. …These changes, combined with soaring unemployment, have pushed enrollment to record highs, with one in eight Americans now getting aid. “I’ve seen a remarkable shift,” said Senator Richard G. Lugar, an Indiana Republican and prominent food stamp supporter. “People now see that it’s necessary to have a strong food stamp program.” …The program has commercial allies, in farmers and grocery stores, and it got an unexpected boost from President George W. Bush, whose food stamp administrator, Eric Bost, proved an ardent supporter. “I assure you, food stamps is not welfare,” Mr. Bost said in a recent interview. Still, some critics see it as welfare in disguise and advocate more restraints. …The federal government now gives bonuses to states that enroll the most eligible people. …In 2008, the program got an upbeat new name: the Supplemental Nutrition Assistance Program — SNAP. …Since Mayor Michael R. Bloomberg took office eight years ago, the rolls have doubled, to 1.6 million people… Albany made a parallel push to enroll the working poor, setting an explicit goal for caseload growth. “This is all federal money — it drives dollars to local economies,” said Russell Sykes, a senior program official. But Mr. Turner, now a consultant in Milwaukee, warns that the aid encourages the poor to work less and therefore remain in need. “It’s going to be very difficult with large swaths of the lower middle class tasting the fruits of dependency to be weaned from this,” he said.

Globalization: Curse or Cure?

Globalization holds tremendous promise to improve human welfare but can also cause conflicts and crises. How will competition for resources, employment, and growth shape economic policies among developed nations as they attempt to maintain productivity growth, social protections, and extensive political and cultural freedoms?

In a new study, Cato scholar Jagadeesh Gokhale offers policy recommendations for developed nations to reduce globalization’s negative effects and, indeed, harness it for solving economic challenges.

Food Stamps vs. Cash Welfare

A couple of weeks ago I discussed a New York Times report on soaring food stamp use. Yesterday, the New York Times reported that cash welfare use in New York under the federal Temporary Assistance for Needy Families program started to rise more recently. The Times calls this “something of a riddle” given that food stamp usage has been increasing throughout the recession.

But the Times solves the riddle when it acknowledges: “It is much simpler to receive food stamps than cash assistance.” The 1996 welfare reform that replaced the broken Aid for Families with Dependent Children with TANF imposed more stringent time limits and work requirements on recipients. By contrast, the 2002 farm bill expanded food stamp eligibility, increased benefits, and made it easier to claim benefits. The following chart shows the result:

200912_blog_dehaven2

A food stamp user interviewed by the Times explains:

“It used to be easier to go on cash assistance,” she said as she left a food stamp office in Brooklyn this month. “You didn’t have to go to work, you didn’t have to report every day to an office and sign in and sign out. Now, if you don’t go to those group job meetings in the mornings, they shut down your whole welfare case. So that’s why I just get food stamps.”

In the Times article on food stamps, the USDA official in charge of the program was reportedly happy that usage was up and even wanted to see continued growth. The new article quotes an advocate for government welfare programs with similar feelings on cash welfare:

“It should be considered a positive thing and a natural thing as we start to head into a 10 percent overall unemployment rate in New York,” said David R. Jones, the president and chief executive of the Community Service Society, one of the city’s oldest social services agencies for low-income people. “If unemployment rates continue to spiral upward in New York, and you didn’t see an increase in welfare, something would be seriously wrong. That would mean that we weren’t getting people on relief quickly enough.”

The Community Service Society’s website says its mission “is to identify problems which create a permanent poverty class in New York City, and to advocate the systemic changes required to eliminate such problems.” But the federal welfare system has created a permanent poverty class.

Michael Tanner got it right in his book, The Poverty of Welfare, that government officials and welfare activists have a vested interest in these programs:

Whatever the intention behind government programs, they are soon captured by special interests. The nature of government is such that programs are almost always implemented in a way to benefit those with a vested interest in them rather than to actually achieve the programs’ stated goals. Among the non-poor with a vital interest in anti-poverty programs are social workers and government employees who administer the programs. Thus, anti-poverty programs are usually more concerned with protecting the prerogatives of the bureaucracy than with fighting poverty.

The Pelosi Bill’s High Water Mark

Democrats are having difficulty corralling 218 votes for the Pelosi bill because Americans do not want government to be as big and as powerful as the House leadership does. Pro-life Democrats do not want a government so big that it can force taxpayers to fund abortions. Pro-choice Democrats do not want a government so big that it uses subsidies to restrict access to abortion coverage. Other Democrats don’t want a government so big that it turns the United States into a welfare magnet.

The American people don’t want the Democrats’ approach to health care generally. The more time the public has to digest ObamaCare, the more they dislike it:

And the Pelosi bill is the most expensive and extreme version of ObamaCare.  Opposition will climb higher when the public learns the bill costs some $1.5 trillion more than Democrats claim.

Even a majority vote would not necessarily indicate majority support for the Pelosi bill. Rep. Jim Cooper (TN) and other Democrats are voting aye only because they want to keep the process moving – i.e., because this isn’t the vote that counts.

Win or lose, tonight’s vote will be the high water mark for the Pelosi bill.

(Cross-posted at Politico’s Health Care Arena.)

Yes, Mr. President, a Free Market Can Fix Health Care

At his White House forum on health reform back in March, President Barack Obama offered:

If there is a way of getting this done where we’re driving down costs and people are getting health insurance at an affordable rate, and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I’d be happy to do it that way.

In a new Cato study titled, “Yes, Mr. President, a Free Market Can Fix Health Care,” I take up the president’s challenge and explain that markets are indeed the only way to achieve those goals.  I also explain how Congress can remove the impediments that currently prevent markets from doing so:

  1. Give Medicare enrollees a voucher (adjusted for their means and health risk) and let them purchase any health plan on the market,
  2. Reform the tax treatment of health care with “large” health savings accounts, which would give workers a $9.7 trillion tax cut (without increasing the deficit) and free them to purchase secure coverage that meets their needs,
  3. Free consumers and employers to purchase health insurance across state lines (i.e., licensed by other states), which could cover up to one third of the uninsured,
  4. Make state-issued clinician licenses portable, which would increase access to care and competition among health plans, and
  5. Block-grant Medicaid and the State Children’s Health Insurance Program, just as Congress did with welfare.

Unlike the president’s health care proposals (which, as Victor Fuchs explains, would merely shift costs), these reforms would reduce costs, expand coverage, and improve health care quality – without new taxes, government subsidies, or deficit spending.

Would a free market be nirvana?  Of course not.  But fewer Americans would fall through the cracks than under the status quo or the government takeover advancing through Congress.

There is a better way.

(Cross-posted at Politico’s Health Care Arena.)