Topic: General

The Incredible Shrinking Deficit

The federal budget deficit projection for 2006 shrank to $296 billion (story here).  White House insiders are reporting that this is a good thing.

Compared to what?  Well, compared to last year’s deficit, of course.  Or compared to where the deficit was expected to go.  But being proud of an accomplishment like that is a bit like congratulating yourself for successfully not driving your car into a brick wall. 

Before anyone accuses me of being Eeyore incarnate, I’d like to note that the economy has been growing faster than many people expected, and surprises like that are always welcome.  That’s the main reason the federal government has collected so much revenue – and it’s unlikely that the Bush tax cuts didn’t have something to do with that.

Yet it’s hard to find much solace in data that also show the federal budget has grown by a staggering 45 percent during the Bush presidency so far.  (The national economy as measured by GDP has only grown by 30 percent.)  And you just might realize the good news is also the bad news.  On the one hand, the government collected more tax money.  On the other hand, the government collected more tax money. 

Government spending is still chewing on close to 21 percent of GDP.  That’s still bigger than the 18 percent it consumed when Bush took office.  In fact, that’s the biggest the budget has been in over 10 years – which is, conveniently, a point in history right before the Republican Revolution. 

If the federal budget had grown from the day George W. Bush was inaugurated at the same annual rate it had for the six years before he came to office, the federal budget would swallow only 17 percent of GDP today.  Balanced or not, seems to me a budget of that size would be much better than what we’ve got now.  Maybe we should stop the bidding there next year. 

In the meantime, the unfunded liabilities of federal entitlements have rocketed to over $85 trillion.  That’s obviously a much bigger number than the current year deficit.  And obviously a much bigger problem.  Yet you don’t seem to hear too much about that from policymakers anymore.

Okay, enough of the gloom.  You may now return to your regularly-scheduled happiness.

Geneva and Guantanamo

The news wires are saying there has been a major policy development concerning Guantanamo Bay.  The Bush administration is now changing its stance with regard to the Geneva Convention, reports say.

The White House says today’s announcement does not reflect a change in policy.  That is probably right.  That is, the Supreme Court ruling in Hamdan established some new law with respect to the application of Geneva to detainees and the Pentagon is now simply tinkering with some policies to comply with that ruling.

Because Clintonian word games still pervade the capital, however, one must scrutinize these policy announcements very closely.  For example, whatever the Pentagon is saying about Guantanamo today may be limited to the Pentagon and to the men held at Guantanamo Bay.  I say that because in 2002, President Bush issued a directive that pledged humane treatment to all prisoners in U.S. custody.  Attorney General Alberto Gonzales later admitted in 2005 that that directive did not apply to officers of the CIA and other nonmilitary personnel. 

An Army of Bureaucrats?

A few Members of Congress will reportedly draft legislation to create the United States Public Service Academy, which would be modeled after the four existing military academies.

Proponents of this idea note on their website that, “the federal government offers only one set of undergraduate institutions for high school seniors with the patriotic desire to serve their country: the military service academies.”

That may be true, but there are plenty of educational options for those who wish to pursue such a career.  Why should taxpayers be responsible for an additional $205 million a year for a new public service academy when hundreds and hundreds of colleges and universities already offer public service programs?

Orrin Hatch Backs Drug Legalization

Who would’ve thunk it? Turns out that former Senate Judiciary Committee chairman Orrin Hatch (R-Utah) doesn’t believe in jail terms for drug users. At least I guess that’s what this story means:

U.S. Sen. Orrin Hatch of Utah, a musician in his own right, helped secure the release of Atlanta R&B producer Dallas Austin from a Dubai jail after a drug conviction, the senator’s office confirmed Saturday.

In a statement released through his staff, the conservative Republican said he was contacted by Austin’s attorneys, then called the ambassador and consul of the United Arab Emirates in Washington on Austin’s behalf.

A Grammy winner who has produced hits for Madonna, Pink and TLC, Austin was arrested May 19 and convicted of drug possession for bringing 1.26 grams of cocaine into Dubai.

Surely Hatch thinks regular old Americans are due the same consideration as a Grammy-winning singer. He’d advocate the release of any American convicted of possessing 1.26 grams of cocaine, right?

Or are politicians hypocrites? Could it be that they think average Americans like Richard Paey should go to jail for using large amounts of painkillers, but not celebrities like Rush Limbaugh? Could it be that they laugh about their own past drug use while supporting a policy that arrests 1.5 million Americans a year, as a classic John Stossel “Give Me a Break” segment showed? (Not online, unfortunately, but you can read a commentary here.)

Putting people in jail for using drugs is bad enough. Putting the little people in jail while politicians chortle over their own drug use and pull strings to get celebrities out of jail is hypocrisy on a grand scale.

Porkers Get Prime Seats

This morning I attended President Bush’s speech on the release of the midsession budget review at the White House.  Bush first tied his tax cuts to the strong economic growth the nation is experiencing, and he was on solid ground. He then delivered some fine rhetoric about restraining spending and cutting special interest pork.  Perhaps his new budget and Treasury chiefs–Rob Portman and Henry Paulson–can actually get him to follow through on those frequently made promises.  But I would be more convinced if the White House hadn’t invited two of the Senate’s biggest pork barrelers–Ted Stevens and Conrad Burns–to sit right in the front row for the speech!  

Policy Dreams vs. Government Realities

When I came to Washington in 1990, central planning (“industrial policy”) was all the rage. As the 1990s progressed, the clamor for industrial policy faded, partly because the Japanese and German economies stagnated while the US economy soared.

But in my inbox this morning came news of a new study from the Progressive Policy Institute claiming that “America needs a national comprehensive strategy in order to maintain its preeminence within the world economy.”

Which government would implement this “national comprehensive stategy” I wonder? Surely not the same one that delivers non-stop pork barrel spending, management failure, and corruption year after year, decade after decade.

A Surplus of Benefits from Trade with China

The Chinese government reported on Monday that China’s trade surplus with the rest of the world hit a new monthly record in June [see story] and is on pace to reach $130 billion to $150 billion for all of 2006. The news will fuel demands that China allow the value of its currency to rise in international foreign exchange markets, making exports from China more expensive and imports to China more attractive. China’s currency, the yuan, has only appreciated about 3 percent since July 21, 2005, when its central bank announced that the currency would no longer be tightly pegged to the U.S. dollar.

Unfortunately, the news may also stoke support in Congress for imposing tariffs on imports from China if its government does not move soon to revalue its currency upward by 15 to 40 percent. As I explain in a Cato Trade Briefing Paper [“Who’s Manipulating Whom? China’s Currency and the U.S. Economy”] released today, imposing trade sanctions on China would be a colossal policy blunder.

Imposing tariffs on Chinese imports would be a direct consumer tax on tens of millions of American families. Of the $243 billion in goods we bought from China in 2005, about 80 percent were the type of products we use everyday in our homes and office—shoes, clothing, toys, sporting goods, bicycles, TVs, consumer electronics, and personal and laptop computers. In fact, shipments from China tend to bump up every fall as retailers stock up for the Christmas shopping season. The Grinch who stole Christmas would be delighted if Congress were to impose punitive tariffs on all those Chinese goods entering our country! 

The study found no support for arguments that China’s currency regime and trade with China in general are somehow hurting the U.S. economy or U.S. manufacturing. Rising imports from China have not primarily replaced domestic U.S. production, but rather they have replaced imports from other low-wage countries or from other East Asian countries that have relocated production to China. With the exception of apparel, few U.S. manufacturers compete head to head with products made in China. Overall U.S. manufacturing output is 50 percent higher today than in 1994 when China first pegged its currency to the dollar.

Focusing on the bilateral trade balance with China obscures the very tangible benefits Americans enjoy from our growing commercial ties with the people of China. 

To explore the issue further on the one-year anniversary of China’s currency reforms, Cato will be hosting a Policy Forum on July 19 titled, “U.S.-China Trade, Exchange Rates, and the U.S. Economy.” You can register for the event here.