Topic: Government and Politics

Obama, Transparency and Stimulus

On the campaign trail, Barack Obama promised that bills coming to his desk from Congress would sit for five days so the public could read, analyze and comment on them before he signed them into law. In yesterday’s Cato Daily Podcast, Jim Harper, Cato’s director of information policy studies, discussed Obama’s record on fulfilling that promise.

Of course, Obama’s guarantee to let a bill sit for five days did not include emergency legislation. As for the stimulus bill, should it be considered “emergency legislation?” Harper says no.

A five day difference from the time it goes into effect is very small, especially in regard to the fact that most of the people who are expecting to change their behavior in light of the passage of the bill will be able to do that during the five day pendency of it…it should sit for five days before it gets signed, according to the promise that President Obama made during his campaign.

Will Stimulus Become a $3 Trillion Nightmare?

A huge threat from the $800 billion stimulus plan in front of Congress this week is that much of the spending may morph into a permanent expansion of government. If the bill is signed into law, lobbyists will immediately start pressing for the long-term extension of all the new spending on health care, transportation, education and other items.

Let’s look at the Senate bill to illustrate the fiscal impact of such a nightmare scenario. The CBO finds that the Senate bill would increase outlays by $546 billion and cut taxes $292 billion over fiscal years 2009-2019.

Figure 1 shows CBO’s assumed pattern of spending under the bill. Since we are already part way through 2009, outlays peak in 2010 at $206 billion and taper off after that. Note that 41 percent of total spending occurs after 2010 because federal and state agencies have limits on how fast they can spend the huge pile of cash. (Thus 41 percent of spending in the bill is certainly not short-term “stimulus” even if you believe in Keynesian theory).

What if special interest groups successfully lobby to extend all the new benefits and subsidies? One possibility would be that the 2010 funding level of $206 billion is extended permanently, as shown in Figure 2. Rather than the stimulus bill costing $546 billion through 2019, it would trigger spending totaling $2.2 trillion over the period.

In sum, here are the budget effects through 2019 of the stimulus nightmare scenario:

- Temporary tax cuts in the Senate bill: $292 billion

- Spending continued permanently at the 2010 level: $2.2 trillion

- Rough guess at the additional federal interest costs: $500 billion

- Total increase in federal debt under nightmare scenario: $3 trillion

Extending the (mainly useless) tax cuts in the stimulus package would make deficits even larger. And, of course, all this increase in debt would come on top of the debt piling up from financial industry bailouts and regular budget spending. It’s madness.

Obama Truth Check

President Obama may have preempted the first hour of prime time Monday night, but he certainly did not fail to entertain with several pronouncements that require suspension of disbelief.

Here are four Obama statements that deserve closer scrutiny:

1.      “[I]f you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of. We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough…”

The fact is that numerous presidents, including Obama’s immediate predecessor, have used desperation and fear to sell some of the truly awful policies to come out of the U.S. government in the last 50 years – the Gulf of Tonkin resolution and the Iraq War resolution, to name two.

2.      “What it does not contain, however, is a single pet project, not a single earmark, and it has been stripped of the projects members of both parties found most objectionable.”

This one severely strains credulity.  The president is right about one thing: many of the bill’s projects are online for all to see.  But could any reasonable person agree that these projects are stimulative and not aimed at special political interests?

3.      “Most economists, almost unanimously, recognize that…when you have the kind of problem we have right now…that government is an important element of introducing some additional demand into the economy.”

We’ve been over this, Mr. President.  The truth is that a huge and still-growing number of respected economists think that a massive government spending effort in our present circumstances is wasteful and foolhardy.

4.      “What I won’t do is return to the failed theories of the last eight years that got us into this fix in the first place…”

OK, so we actually agree with the president on that one.  But then why is he bound and determined to repeat the reckless spending habits of George W. Bush?  We thought the November campaign was all about “change.”

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.”