Topic: Government and Politics

Stimulus Package = The Dems’ PATRIOT Act

That’s what Steve Horwitz says here.  Like the PATRIOT Act, it’s a preexisting wishlist of initiatives being rammed through in an atmosphere of hysteria. Where the Obama administration has, to its credit, backed away from the language of war and crisis when it comes to international affairs and homeland security, the Obama team seems all too willing to revert to Bush-style fearmongering in the service of greater state involvement in the economy.

Yesterday’s coverage in the New York Times (of all places) suggests that the stimulus package is a Trojan Horse effort designed to make dramatic and likely permanent changes in the federal role in health care and education, among other things:

For Democrats, [the stimulus package] is also a tool for rewriting the social contract with the poor, the uninsured and the unemployed, in ways they have long yearned to do….

Altogether, the economic recovery bill would speed $127 billion over the next two and a half years to individuals and states for health care alone, a fact that has Republicans fuming that the stimulus package is a back door to universal health coverage…. The federal share of Medicaid spending now ranges from 50 percent in higher-income states like New York and Connecticut to more than 73 percent in poor states like Mississippi and West Virginia. Under the House bill, the federal share would be increased by at least 4.9 percentage points in every state, and by much more in states with large increases in unemployment.

Critics and supporters alike said that by its sheer scope, the measure could profoundly change the federal government’s role in education, which has traditionally been the responsibility of state and local government…. In recent years the federal government has contributed 9 percent of the nation’s total spending on public schools, with states and local districts financing the rest. Washington has contributed 19 percent of spending on higher education. The stimulus package would raise those federal proportions significantly. The Department of Education’s discretionary budget for the 2008 fiscal year was about $60 billion. The stimulus bill would raise that to about $135 billion this year, and to about $146 billion in 2010. Other federal agencies would administer about $20 billion in additional education-related spending. “This really marks a new era in federal education spending,” said Edward Kealy, executive director of the Committee for Education Funding, a coalition of 90 education groups.

Does the Trojan-Horse theory sound cynical? Well, as my colleague Will Wilkinson points out, what this country needs, now and ever, is a healthy dose of constructive cynicism:

“There are some who question the scale of our ambitions, who suggest that our system cannot tolerate too many big plans,” President Obama observed in his [inaugural] address. “Their memories are short,” he said, “for they have forgotten what this country has already done, what free men and women can achieve when imagination is joined to common purpose and necessity to courage.”

This is a tediously familiar and dangerous message. Can you recall the scale of our recent ambitions? The United States would invade Iraq, refashion it as a democracy and forever transform the Middle East. Remember when President Bush committed the United States to “the ultimate goal of ending tyranny in our world”? That is ambitious scale.

Not only have some of us forgotten “what this country has already done … when imagination is joined to a common purpose,” it’s as if some of us are trying to erase the memory of our complicity in the last eight years—to forget that in the face of a crisis we did transcend our stale differences and cut the president a blank check that paid for disaster. How can we not question the scale of our leaders’ ambitions? How short would our memories have to be?

So What Is Wrong with “Ideology?”

In its lead editorial today, the New York Times dismisses criticism of the stimulus bill that passed the House last night as “mostly ideological.” Similarly, a McClatchy News story about the economists who signed Cato’s newspaper advertisement opposing the stimulus bill, dismissed signers as “ideologically opposed” to government spending. This is part of a trend we’ve seen since President Obama’s election. Opposition to Obama’s programs is dismissed as “ideological,” whereas the belief by President Obama and Congressional Democrats in ever bigger and more activist government is, in the word’s of EJ Dionne, “anti-ideological.”

After all, President Obama has called for “a new declaration of independence, not just in our nation, but in our own lives — from ideology and small thinking, prejudice and bigotry.”

Apparently then, to believe in free-markets, limited government, and individual liberty is to be “ideological,” on a par with being a small-thinking bigot. On the other hand, to believe that government should run more and more of our lives, that government functions better than markets, and that government should redistribute wealth is…what? 

This country was founded by men who believed in such ideological ideas as “all men are created equal”  and are “endowed by the creater with certain unailenable rights.”  Since when is that a bad thing?

Trade Lessons Unheeded

Leaving aside the many other disastrous implications of the pork-laden “stimulus” bill, here are some thoughts about its impact on international trade. For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s.  “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery.  It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path.

The bill that passed the House includes the following language:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.

The version currently before the Senate contains the same language, which would seem to indicate that scrapping the provision won’t be necessary to reconcile the two versions in conference.  So, unless the “Buy American” clause is dropped in the final Senate bill or is somehow defused during conference, the U.S. will have fired the first shot in what could evolve into a much wider trade war.

It’s usually better to be circumspect and to issue such dire warnings sparingly, but I see little room for alternative conclusions here.

“Fair Pay Act” Will Only Further Damage Economy

When President Obama signs the Lilly Ledbetter Fair Pay Act, he will be fulfilling a campaign promise but undermining the American economy.  This bill is not about sex discrimination — paying men and women different wages for the same job has been illegal for nearly half a century — but rather about statutes of limitations.  How long after an incident of discrimination should someone be allowed to sue?  The Supreme Court ruled that an employee has six months after a company’s initial pay decision to file a discrimination claim.  While this was a fair reading of existing law, critics legitimately questioned whether the law itself unfairly foreclosed redress for a decision made long before an employee discovered the pay discrimination.  They correctly went to Congress to fix the law, instead of demanding that courts rewrite it themselves. 

But the solution is not to eliminate statutes of limitations altogether, which is essentially what the Fair Pay Act does when it restarts the litigation clock with every new paycheck.  No, the proper solution is simply to codify the common law “discovery rule” for these types of cases, making clear that the statute of limitations begins to run only when the employee discovers the wrong that had been committed against her way back when — a compromise that was proposed by Senator Kay Bailey Hutchison but rejected by the Senate.  Instead, the new law introduces major uncertainty into business operations and gives every employee a Sword of Damocles to dangle over her employer’s balance sheet.  Companies will all of a sudden be subject to decades-old discrimination claims they have no ability to defend.

At bottom, the Lilly Ledbetter Fair Pay Act takes a bludgeon to an already reeling economy, acting as a stimulus only for the lawyers bringing and defending the coming avalanche of lawsuits.

Whatever Happened to the Blue Dog Democrats?

Remember the Blue Dog Democrats? They were the fiscally conservative Democrats from Southern and Western and rural districts who weren’t going to go along with the big-spending leadership of their party. They’ve gotten a lot of attention, especially after a lot of new Blue Dogs were elected in 2006, helping to give the Democrats a majority in the House.

But where are they now? After eight years of unprecedented profligacy, with a trillion-dollar increase in federal spending, and in the face of both trillion-dollar deficits and unimaginably large long-term fiscal imbalances, the House is just about to vote to spend $825 billion that the government doesn’t have. Will any Blue Dogs vote no? Will any Blue Dogs live up to their campaign rhetoric about fiscal conservatism?

Don’t bet on it.

Their record isn’t as good as they’d like you to believe. John Fund pointed out back in 2005 that they were not supporting any Republican efforts to limit spending. But maybe that was just because the Republicans didn’t try to work with them. Fair enough. Now they’re part of the Democratic majority. And apparently they’re satisfied with vague promises from the Obama administration that after we spend all this money, we’ll get back to fiscal responsibility. (Lord, make me chaste, but not just yet.)

Blue Dogs supported fiscal responsibility at some vague point in the misty past, and they will strongly support fiscal responsibility at some vague point in the future, but right now they’re going to vote to put their constituents another $825 billion in debt.

Their members range from Rep. Mike Arcuri of New York to Rep. Charlie Wilson of Ohio, and include the newly promoted Kirsten Gillibrand. If you seek their monument, look around you.

UPDATE: By my colleague Tad DeHaven’s count, 37 out of 43 “Blue Dogs” voted for the spending bill that will probably end up costing about $900 billion. Congratulations to actual Blue Dogs Allen Boyd, Jim Cooper, Brad Ellsworth, Collin Peterson, Heath Shuler, and Gene Taylor.

Economists against the Stimulus

Cato has just published a full-page ad in the New York Times with the names of some 200 economists, including some Nobel laureates and other highly respected scholars, who “do not believe that more government spending is a way to improve economic performance” – contrary to widespread claims that “Economists from across the political spectrum agree” on a massive fiscal stimulus package. Of course, many economists don’t like to sign joint statements, so this is only a fraction of stimulus opponents in the profession. Greg Mankiw pointed to a few noted skeptics last week:

In a TV interview last month, Vice President Joe Biden said the following:

Every economist, as I’ve said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs.

That statement is clearly false. As I have documented on this blog in recent weeks, skeptics about a spending stimulus include quite a few well-known economists, such as (in alphabetical order) Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales–and I am sure there many others as well. Regardless of whether one agrees with them on the merits of the case, it is hard to dispute that this list is pretty impressive, as judged by the standard objective criteria by which economists evaluate one another. If any university managed to hire all of them, it would immediately have a top ranked economics department.

And of course Mankiw’s list isn’t comprehensive. There’s also former Treasury economist Bruce Bartlett, former Yale professor Philip Levy, former Ohio State and Federal Reserve economist Alan Viard, Russell Roberts of George Mason, and many more. Under the current circumstances, plenty of economists are endorsing large fiscal stimulus programs. But it’s just not correct to claim that there’s any consensus or that “every economist … from conservative to liberal” supports the kind of massive spending program that the Obama-Biden administration has proposed.

UPDATE: Martin Feldstein, whose support last October for a fiscal stimulus is the reed upon which journalists justify their claims about “economists across the political spectrum,” now calls this stimulus bill “an $800 billion mistake.”