Topic: Government and Politics

$800 Billion Is a Lot of (Other People’s) Money

Even though Keynesian theory does not make sense, President Obama wants a so-called stimulus that will increase the burden of government spending by about $800 billion (including the additional interest on government debt, more than $1 trillion). This is not pocket change. In this short video, Michelle Muccio of the Acton Institute explains how this amount of money would be enough to abolish the payroll tax for the rest of the year.

Why don’t politicians choose tax relief? As John Kerry stated, people can’t be trusted to spend their own money.

Government-Funded Comparative-Effectiveness Research: a Fool’s Errand

An article in the San Francisco Chronicle by Victoria Colliver explains:

  1. Why the Left and insurers want the government to fund comparative-effectiveness research (CER),
  2. Why conservatives and the health care industry oppose government-funded CER,
  3. Why the opponents of CER will prevail,
  4. That the Left is going to keep pursuing this fool’s errand anyway, rather than better ways to generate CER, and
  5. Why I want to knock all their heads together.

All that in a rather short article.  Here are the best parts:

“The intent is to use that information to ration care. Why else would you come up with the research to help people choose what provides a lot of value for the money and what doesn’t?” said Michael Cannon, director of health policy studies at the Cato Institute, a libertarian think tank…

“It is perfectly legitimate for Congress to ration care in government programs,” said Cannon, who believes any government effort to conduct comparative-effectiveness studies will quashed by industry. “That’s exactly why you don’t want government paying for medical care.”

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.