Topic: Government and Politics

Subsidies Beget Subsidies

Sorry, this blog has nothing to do with the Wall Street mess, despite the title.

Instead, consider this tiny story in the WaPo that reveals the general inanity of our subsidized nation. The article, “Federal Grant to Provide Help To Low-Income Students” reports on a $1 million federal grant to the state of Virginia. 

Will the grant money be used to buy books for poor kids, or to help pay their tuition? Nope. It will go to hire bureaucrats to train kids on how to grab more education subsidies: “The agency plans … to help educate students about college, with a sizable focus on how to obtain financial aid.”

For more about the follies of federal granting, see Federal Aid to the States.

Statism 101

Kentucky Governor Steve Beshear is trying to seize some online casinos.   Unlike casinos that are on the land, online casinos are difficult for the government to tax.  According to Mr. Beshear,  if the tax collectors can’t get their paws on a business, then that business is a “leech” on the community.  This type of thinking comes from Statism 101 and will require reading works not listed on the syllabus.  Go here and here (pdf).

Intervention Is Not the Answer

The current turmoil in financial markets is the result of bad government policy, particularly easy-money policy by the Federal Reserve and unsustainable subsidies to housing by Fannie and Freddie.

The bailout did not address these problems. Instead, it sought to compound the problem by increasing government intervention.

Ideally, politicians now will shift gears and seek to reduce government barriers to economic revitalization. Unfortunately, the political insiders from both parties almost surely will close ranks and seek cosmetic changes in hopes of ramming the bailout through Congress.

It’s Not a Pretty Picture

The failure of the bailout plan essentially shows the huge lack of confidence among the public that it would achieve its objectives. It also registers doubt about the government’s ability to implement it successfully.

The impasse shows how blunt fiscal policy is and how inept politicians are in managing the economy. The current set of problems did not arise overnight — they festered in the form of government favoritism toward housing finance companies which overextended their operations and ultimately toppled over. Now, those policies have come full circle to rest at Congress’s doorstep. Problem is, they will soon visit our doorsteps too in the form of a weaker economy.

Now that the bailout proposal has failed, Congress may seek a new approach. More likely, the existing plan will be tweaked to enable passage in a re-vote. But delay and political drama will further sap public confidence in Congress and weaken consumer confidence in the economy.

That may mean a deeper recession and trigger calls for still larger bailouts to salvage the financial sector in the future. But a larger bailout package will also be more dangerous. Larger short-term increases in federal borrowing may destabilize international capital inflows and reduce confidence in the dollar.

Overall, it’s not a pretty picture — but score one for supporters of the free market who insist on allowing market reorganization of the financial sector to continue unimpeded…albeit at high risk to the economy over the next few months.

Repeal the Income Tax?

The New York Times takes note of the brewing tax revolt in Massachusetts, where a grassroots group has put an initiative on the ballot to repeal the state income tax. The Times headline (on paper) reads, “On Massachusetts Ballot, a Tax Repeal That Worries Leaders.” Why does a newspaper that purports to be a check on government so often present questions from the government’s point of view? Did they once publish headlines like “On Washington Mall, a Peace March That Worries Leaders” or “In Massachusetts, a Civil Rights Crusade That Worries Leaders”? I doubt it.

And I should in fact congratulate reporter Pam Belluck for writing

It would save the average taxpayer about $3,600 a year. Annual revenue from the tax is about $12.5 billion, roughly 45 percent of the state’s budget of about $28 billion.

Too often, as we’ve noted before here on Cato@Liberty, the mainstream media use the formulation “the proposed cut would cost the government millions of dollars.” At least this time Belluck started with the taxpayer.

In 2002 a ballot measure to repeal the income tax got very little attention and still won 45 percent of the vote. This year, with a perception of hard economic times, it might do better. But this time the Establishment is on the alert. The advocates of repeal have raised some $270,000, and after their signature-gathering have only $25,000 left to spend. The special interest groups that thrive on taxpayer money have raised $1.3 million to oppose the initiative.

Let’s hear it for Carla Howell and the Committee for Small Government, who are at least forcing the government–and its beneficiaries–to explain why they need more than the $16 billion of citizens’ money that they would still have after repeal of the income tax. And let’s hear it for pizza shop owner Lakis Theoharis, who tells the Times, “I’m for the repeal of the tax. To me, the smaller the government, the better for the citizens.”

Let Palin Be Palin

Some commentators are suggesting that the McCain campaign has panicked about Sarah Palin’s appeal, trying to cram her head with policy-wonkery and then hiding her in a closet when that didn’t work. Let Palin be Palin, they say – let her show her authentic self, the gun-totin’, family-raisin’, reformist governor that Alaskans love.

Good idea. Let’s start with the bailout. Surely a rugged individualist reformer from way outside the Beltway is champing at the bit to denounce this $700 billion bailout for Wall Street insiders cooked up by Washington insiders behind closed doors, without public hearings, with the unanimous support of the mainstream media. Let ‘er rip, Governor Palin. Tell the Wall Street bankers that when a small business makes bad decisions in Wasilla, it goes out of business, and the same rules should apply to large businesses in Manhattan. That’s the Sarah Palin conservatives say America would love.

I Stand Corrected

In a blog last week, I suggested that after years of carrying water for the Bush administration’s big-government agenda, House Minority Leader John Boehner (R-Oh) had “suddenly found a spine” and learned to say no.    Apparently not.  Accepting little more than a fig-leaf of change, Boehner now has endorsed the president’s $700 billion bail-out of Wall Street.