Topic: Government and Politics

Obama and Economists

In his news conference last night, President Obama made exaggerated and untrue statements about economics, economists, and the stimulus.

On economics, the president made claims such as “I can tell you with complete confidence that a failure to act will only deepen this crisis.” Yet how can he have “complete confidence” when the economics profession is divided on the stimulus issue, and when we have seen policymakers and top economists making continual mistakes with their policies and predictions over the last year?

On economists, the president opined “although there are some politicians who are arguing that we don’t need a stimulus, there are very few economists who are making that argument.” Mr. President, please look at the Cato list of more than 300 university economists who oppose a big stimulus spending bill. Please have your advisers call these experts to get an independent outside-the-beltway view.

Finally, the president bought into the “Government as Santa Claus” theory with his statement that “the federal government is the only entity left with the resources to jolt our economy back into life.” In reality, the federal government is broke. It has no “resources” left, and will run a $1 trillion deficit this year even without a stimulus. Besides, any resources that the government spends must be vacuumed out of the private economy through borrowing and taxes, which is particularly damaging when the private economy is already suffering from recession.

What the Stimulus Is All About

With the president adopting his predecessor’s strategy of attempting to scare Congress into approving a bad bill by warning of financial doom, it’s worth remembering that the proposed “stimulus” package is about politics, not economics. If the proposed spending was worthwhile, it would be silly to fuss about whether the total comes to $800 billion, $900 billion, or $1 trillion. If we really can’t afford $1 trillion, then how can we afford $900 billion or $800 billion? In fact, the basic goal for most legislators is just to spend as much money as feasible as quickly as possible.

Thus, in Washington today the most important issues are: who gets all of the wealth extracted from the American people and who gets political credit for giving everyone else’s money away. Just consider the local boondoggles being advanced for federal funding by cities around the country–dog parks, tennis courts, neon signs, Harley motorcycles, golf courses, “eco parks,” frisbee golf courses, skateboard ramps, and much, much more not considered worth constructing with funds from local taxpayers.

Eugene Robinson admitted as much in today’s Washington Post. In urging the president to “roll over the Republicans,” he observed:

The House of Representatives loaded up the bill like a Christmas tree as powerful Democrats found room for their pet projects. This was a good thing, not an outrage. Hundreds of millions of dollars for contraceptives? To the extent that those condoms or birth-control pills are made in the United States and sold in U.S. drugstores, that spending would be stimulative in more ways than one.

Also indicative of how the proposed spending is foremost a matter of politics is the role of lobbyists in divvying up the proceeds. The role of House Financial Services Committee Chairman Barney Frank already has been exposed. But he is not alone. Reports the Washington Post:

“Earlier today, Sen. Bingaman met with Treasury Secretary nominee, Timothy Geithner,” the staffer wrote. “The Senator raised concerns regarding New Mexico based Thornburgh Mortgage and their efforts to access TARP funding and convert to a savings and loan holding company.”

Thornburg had been fighting off bankruptcy, and its best chance at a piece of the $700 billion federal bailout known by its initials as TARP could hinge on transforming itself into a regulated thrift and persuading the OTS to recommend it as a candidate for rescue. Bingaman’s aide wanted to schedule a call between her boss and OTS Director John M. Reich.

That short Dec. 9 e-mail offers a glimpse of the flurry of activity involving lawmakers and federal regulators as firms have pursued hundreds of billions of dollars from the Troubled Assets Relief Program and waited for details of how the Obama administration will disperse even more. With so much money at stake and so much uncertainty about who will get it, beleaguered companies fearful of being left behind are scurrying from Capitol Hill to K Street, trying to find a way to the front of the line.

None of this is surprising, of course. But it does demonstrate that the president’s rhetoric bears no relationship with reality. Unfortunately, his proposed “stimulus” bill will stimulate big government, debt, and inflation, not economic growth, jobs, and prosperity.

Sandefur, Science, and the State

Cato adjunct scholar Timothy Sandefur has a thoughtful post up on his blog that calls for “separating science and state.”  I recently posted on some questionable behavior by National Science Foundation employees, see here and here, but Tim’s blog gets to the heart of the matter and I highly encourage those interested in the subject to check it out.

Here are some teasers:

“It is morally reprehensible to use government’s coercive power—which, like it or not, means government’s power to imprison people, and to do other violent acts to them—to take away people’s earnings for projects that someone else considers worthwhile.”

“[A]ny time government can impose burdens on, or grant benefits to, private interest groups, those groups will use their time and effort to persuade government to do that in their favor. Legislation then gets enacted for the private benefit of political insiders, rather than for the “genuine public good.” This is just as true in science as it is in public contracting, occupational licensing, or any other endeavor. I believe it corrupts scientific integrity for investments and grants to be made on the basis of personal favoritism and political influence.”

“The question is not whether there is some hypothetically perfect way of deciding which research projects to fund and how; there is not. The question is whether there is any reason to believe that politicians are more skilled at making those decisions than are private individuals and private organizations. Given their expertise and their incentives, I see no reason to believe that government officials are more qualified to make those decisions, and good reason to believe they are less qualified.

“Closely related to the corrupting effects on the economy caused by government “investments” is the corruption of science that inevitably results from government interference…The bottom line is: when government writes the checks, it will make the rules, and those rules will interfere with scientific independence and scientific integrity.”

“Probably the most common objection to ending government subsidies for science research is that it’s necessary because private industry won’t make the investments for pure science, or is too insistent on immediate returns on investments so that private investors will not devote money to research that lacks an obvious commercial application…Terence Kealey has pointed out that scientific research is already largely funded by private industry, and that funding tends to be dramatically more efficient in making a real difference in the lives of real people…Private philanthropic organizations devote a tremendous amount of private money to scientific research, and it is good quality research. The March of Dimes, the American Heart Association, and the American Cancer Society receive boatloads of money from non-government sources. The Hughes, Keck, Rockefeller, and Carnegie Foundations have poured hundreds of millions of dollars into top-notch scientific research. David Packard of Hewlett Packard gave $4 billion to his research foundation.”

“What’s more, take a more skeptical look at some of the alleged payoffs of government-funded research. It’s true that government-run science projects have sometimes created great new innovations (as well as some pretty awful ones). But a lot of these discoveries would have been made by private research institutions, for less cost, and with less bureaucratic interference. And much of the time, these alleged benefits are wildly exaggerated.”

Oh, So That’s The Problem

David Brooks on the Chris Matthews show explaining

I’m willing to forgive a little corruption…I think the biggest problem in Washington is not that we have too many people taking money….The biggest problem is we don’t have–know–have enough people who know how to pass legislation.

Not enough legislation.  I knew there was a problem.  Now back to the $800 billion stimulus.

Come On! Get a Piece of the Stimulus!

The lobbying frenzy to get each interest group’s agenda into the kitchen-sink stimulus bill continues to accelerate. Veterans groups want subsidies for veterans. The Creative Coalition, an association of people who have made millions by producing profitable art, argues that taxpayer-funded subsidies to unprofitable arts will produce another Orson Welles, Saul Bellow, or Burt Lancaster. One prominent actor, Patrick Swayze, is understandably more concerned that the bill include “maximum funding” for cancer research. Energy billionaire T. Boone Pickens wants energy subsidies in the bill. “The Water & Wastewater Equipment Manufacturers Association is urging congressional leaders to dedicate funding for water and wastewater projects.” Religious liberals are pushing for hikes in welfare spending. Florida congressmen want more spending on space programs. I cited more examples a week ago:

“A Republican [in Ohio] called it a once-in-a-lifetime opportunity.” “Cities, towns ready to vie for stimulus funds.” “Road Builders Compete for Slice of Stimulus.” “West Michigan’s stimulus wish list.” “A State with a Wish List for Stimulus Spending.” “Steel industry lobbyists seem to have persuaded the House to insert a “Buy American” provision in the stimulus bill it passed last week.” “JetBlue Goes to Washington to Discuss Economic Stimulus Plan.”

As with the TARP bailout, the lobbying will only heat up if and when the bill is passed. At that point, instead of trying to get your favorite line item into the bill, the challenge will become finding a member of Congress to pressure the bureaucracy to agree that your project meets the criteria for funding laid out in the bill. Considering that the headline summary of the bill runs 13 pages, it shouldn’t be too hard to find a provision to cover just about anything. And then, instead of productive activity, yet more money and talent will be directed to seeking subsidies from government. That’s no way to stimulate actual economic growth, though it will certainly stimulate the economy of Washington, D.C., and its prosperous suburbs.