Topic: Cato Publications

Jeb Bush’s Fiscal Record

Former Florida Governor Jeb Bush is considering running for president. One good thing about presidential contenders who have been governors is that they have a measurable track record.

Part of that record is captured by Cato’s biennial “Fiscal Policy Report Card on America’s Governors.” This report issues grades of “A” to “F” to governors based on their taxing and spending policies. Here at Cato we believe in small government, so we award grades of “A” to the governors who cut taxes and spending the most.

Steve Moore and other Cato authors graded Bush four times during his eight years in office. In 2000 Bush received a “B.” In 2002 he scored an “A.” In 2004 he was down to a “B” again. In 2006 he fell to a “C.”

The basic story from the Cato reports is that Jeb Bush was a prolific tax cutter, but he let spending rise quickly toward the end of his tenure. Like George W. Bush, Jeb was good on taxes, but apparently not so good on spending.

Jeb Bush was in office from 1999 to 2007. Florida general fund spending increased from $18.0 billion to $28.2 billion during those eight years, or 57 percent. Total state spending increased from $45.6 billion to $66.1 billion, or 45 percent. (This is NASBO data from here and here). Over those eight years, Florida’s population grew 16 percent and the CPI, which measures inflation, grew 24 percent.

The chart on page 5 of this state budget document shows that total spending was restrained in Bush’s first term, but then rose quite rapidly in his second term. Similarly, the table on page 14 here shows the second-term budget expansion under Bush.

This Fall, look for Cato’s 2014 Report Card, which will include grades for Christie, Pence, Jindal, Perry, Walker, and other possible presidential candidates.

This Month’s Cato Unbound: The State, the Clan, and Individual Liberty

The great classical liberal sociologist Henry Sumner Maine theorized that societies progressed from status to contract: In a status-based society, one is born into a place in a hierarchy. That place may change, but typically it doesn’t change very much, and your place governs your rights and obligations. Societies of status are stable, rigid, and often deeply illiberal. They tend to be dominated by kinship groups, or clans, and those can be quite collectivist and hostile to individual liberty.

Contract-based societies are very different: In a contract-based society, individuals tend to be legally equal at birth. Family ties are affective and not quite so legally binding. Obligations tend to be voluntarily undertaken rather than assumed at birth. Societies of contract are flexible, may change rapidly, and will often act to protect individual liberty.

At Cato Unbound, this month’s lead essayist, legal historian Mark S. Weiner, argues that the state performs a sometimes unappreciated role in keeping away the status-based society: without a state that’s strong enough to break the power of the clans, then the clans will return, and individual liberty will suffer.

But how real is the danger? Do we really have the strong state to thank for our liberty? Economist Arnold Kling argues that other institutions, including the nuclear family and consensual transfers of property, make clannishness unappealing. The American Conservative’s editor, Daniel McCarthy, suggests that even liberal government is at times a very collectivist, and thus clannish, activity. Legal historian John Fabian Witt will weigh in on Monday, and we welcome your comments as well.

The Federal Reserve’s “Foreign Banking Organization” Rule Is Unnecessary

Last November, Arthur Long and I released a policy study on the likely impact of the Federal Reserve’s 2012 “Foreign Banking Organization” proposal.

We argued – along with many others – that the proposal amounted to little more than a costly corporate reshuffling exercise. Of even greater concern, we suggested that the proposal threatened the ability of global banks to allocate capital and liquidity in an efficient manner, would increase financial instability, and dampen economic growth.

Yesterday, the Federal Reserve released a final rule that is essentially the same as the original proposal. The final rule is more lenient only in the sense that it increases the timeframe for compliance, simplifies the leverage requirements a little, and impacts fewer organizations. To that end, the fundamental criticisms still apply, as does the confusion around why such a proposal is necessary.

Governor Tarullo – a leading proponent of the rule – has argued that the Federal Reserve extended financial “support” to foreign banks at unprecedented levels during the crisis and therefore should be given greater oversight of these banks’ activities. That sounds reasonable. But upon closer review, the support he refers to was limited to liquidity provided through the Fed’s discount window. Foreign banks were not eligible to receive TARP or other forms of bailout assistance.

Fed officials have gone to great lengths to argue that providing liquidity through the discount window (which may be provided only to otherwise solvent institutions on a fully collateralized basis) is a legitimate central bank function and is NOT financial assistance constituting a bailout.

I agree (although on this point, I note that I depart quite radically from some of my contemporaries). However, this argument does undermine the central pillar supporting the Fed’s new rule. In addition, if protecting U.S. taxpayers is the fundamental aim, why implement a rule that will close-off the channels of liquidity and support that the U.S. subsidiary could receive from the foreign parent? 

The Fed’s rule may well spark retaliatory actions from foreign regulators, who are even more annoyed about it than the banks they oversee. The losers will be both local and foreign banks and, most importantly, consumers of credit. Governor Tarullo himself noted during yesterday’s open meeting that the rule “may not strike the right balance indefinitely.” The Fed had an opportunity to lead from the front. That it failed to do so is unfortunate. 

The Power of the Pen

The run-up to Tuesday’s State of the Union seemed downright ominous for those of us opposed to rule by presidential decree. “I’ve got a pen and I’ve got a phone,” the president warned uncooperative legislators: “we’re not just going to be waiting for legislation in order to make sure that we’re providing Americans the kind of help they need.” “You have to swerve really hard to the executive powers at a time like this,” a senior administration official told the Washington Post.

ObamaPenObama would, Press Secretary Jay Carney explained, “work with Congress where he can, [but] bypass Congress where necessary,” because 2014 was going to be “A Year of Action.” (Last year’s SOTU slogan was “Let’s Get It Done,” but I guess we didn’t git ‘er done).

Yet the unilateral actions mentioned in Tuesday’s speech are mostly Clintonian smallball: new “innovation centers”; expanding SelectUSA; a Biden-led review of federal job training; jawboning CEOs about unemployment, etc. (though I am curious where the president’s supposed to get the authority to conjure new retirement savings accounts into existence…)

Obama also issued a veiled threat that “with or without Congress,” he’d move forward on gun control. But it’s not much of a threat if last year’s list of 23 executive actions on guns is any indication. Contra the excitable Rep. Steve Stockman (R-TX), nominating a new ATF director and “review[ing] safety standards for gun locks and gun safes” do not “an existential threat to this nation” make.

All in all, the executive action items in the 2014 SOTU weren’t nearly as menacing as the hype. ““Stroke of the pen, law of the land,” kinda… lame.

For Europe’s Youth, Minimum Wages Mean Minimal Employment

Yesterday, in the wake of Tuesday’s State of the Union address, I poured cold water on President Obama’s claim that a hike in the minimum wage for federal contract workers would benefit the United States’ economy, pointing specifically to unemployment rates in the European Union. The data never lie: EU countries with minimum wage laws suffer higher rates of unemployment than those that do not mandate minimum wages. This point is even more pronounced when we look at rates of unemployment among the EU’s youth – defined as those younger than 25 years of age.

In the twenty-one EU countries where there are minimum wage laws, 27.7% of the youth demographic – more than one in four young adults – was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven EU countries without minimum wage laws – 19.5% in 2012 – a gap that has only widened since the Lehman Brothers collapse in 2008.

I will conclude yet again with a piece of wisdom from Nobelist Milton Friedman, who correctly noted that “the minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says.

The More We Learn about ObamaCare, the Less the President Wants to Discuss It

Remember how the more we learned about ObamaCare, the more we would like it? Well, it seems the more we learn about this law, the less President Obama wants to talk about it. He relegated it to just a few paragraphs, tucked away near the end of his latest State of the Union political rally speech. And while he defended the law, he closed his health care remarks by begging Congress not to repeal it, and asking the American people to nag each other into buying his health plans.

My full response to the president’s health care remarks are over at my Forbes blog, Darwin’s Fool. Here’s an excerpt:

Note what the president did not say: he did not say that [Amanda] Shelley would not have gotten the care she needed. That was already guaranteed pre-ObamaCare. If ObamaCare saved Shelley from something, it was health care bills that she couldn’t pay. It’s impossible to know from this brief account just how much that might have been. But we can say this: making health care more affordable for Shelley should not have cost anyone else their job. It may be that ObamaCare doesn’t reduce bankruptcies at all, but merely shifts them from medical bankruptcies to other types of bankruptcies because more people cannot find work.

Read the whole thing.

Actually, I should amend that. Making health care more affordable will cost some people their jobs, and that’s okay. Progress on affordability comes when less-trained people (e.g., nurse practitioners) can provide services that could previously be provided only by highly trained people (e.g., doctors). When that happens, whether enabled by technology or removing regulatory barriers, prices fall – and high-cost providers could lose their jobs. The same thing has happened in agriculture, allowing food prices to drop and making it easier to reduce hunger. My point was that we should not be making health care more affordable for Ms. Shelley by taxing her neighbor out of a job.

The Freedom’s the Thing

We are in the midst of National School Choice Week, and much of the talk is about test scores, helping poor children access better schools, getting more bang for our bucks, and lots of other, very worthy, important things. But something often seems to get lost in the shuffle not just of School Choice Week, but the overall choice and education debate: freedom. The most fundamental American value is liberty – individual freedom – and not only is an education system rooted in free choice the only system consistent with a free society, it is key to peaceful coexistence among the nations’ hugely diverse people.

That only an education system rooted in free choice is consistent with a free society should be self-evident. Should be, but isn’t, with “social reproduction” – shaping the young to conform with and perpetuate present society – thought by many to be a primary purpose of education, and one which must be controlled by government. As long as a “democratic” process is employed – often poorly defined as some sort of vague, deliberative/majoritarian system – then all is well.