Topic: Government and Politics

Obama’s Vast New Deal

Conservatives and libertarians seem to be reeling, as economic freedom takes another blow from both the outgoing and incoming administrations every day. Remember the good old days of the $1.5 billion Chrysler bailout? Heck, remember the good old days of the $700 billion financial market bailout? Barack Obama used to call for fiscal discipline and denounce “the runaway spending and the record deficits.” Now it seems the sky’s the limit. Pundits talk about whether Obama’s first deficit will come in closer to $1 trillion or $1.5 trillion, and Republican opponents are nowhere to be seen.

Throwing fiscal discipline to the winds, in his radio address Saturday Obama proposed the biggest expansion of government spending in history, ranging from roads and bridges to “a range of programs to expand broadband Internet access, to make government buildings more energy efficient, to improve information technology at hospitals and doctors’ offices, and to upgrade computers in schools.” I just hope Republicans and Blue Dog Democrats were reading the New York Times on Sunday, which actually explained the argument against such programs in its front-page news story:

Mr. Obama’s plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them….

President Bush and many conservative economists have opposed such large-scale government intervention in the economy because it supports enterprises that might not survive in a free market. That is the crux of the argument against a government bailout of the auto industry….

Mr. Bush and other Republicans have resisted such an approach in part out of concern for the already soaring federal budget deficit, which could easily hit $1 trillion this year. Borrowing hundreds of billions of dollars today to try to fix the economy, they argue, will leave a huge bill for the next generation.

Conservative economists have also long derided public works spending as a poor response to tough economic times, saying it has not been a reliable catalyst for short-term growth and instead is more about politicians gaining points with constituents.

Alan D. Viard, an economist at the American Enterprise Institute, told the House Ways and Means Committee recently that public works spending should not be authorized out of the “illusory hope of job gains or economic stabilization.”

“If more money is spent on infrastructure, more workers will be employed in that sector,” Mr. Viard added. “In the long run, however, an increase in infrastructure spending requires a reduction in public or private spending for other goods and services. As a result, fewer workers are employed in other sectors of the economy.”

Such warnings don’t carry much weight when they come from President Bush, the trillion-dollar man. But fiscally responsible Republicans and Democrats would do well to read the Times article and start actually making these points. And kudos to Times reporters Peter Baker and John Broder for including such balance in their story.

Woe Canada!

In these heady days of hope, change, puppies, and rainbows, not too many people are paying attention to the political tableau playing out in our northern neighbor.  Those wags who do remember that Canada had its own election in October – resulting in the reelection of Prime Minister Stephen Harper – quip that, come January, the United States will have the most liberal government in North America.

Not so fast.  It turns out that while Harper’s Conservatives did strengthen their minority government – that is, they won by far the largest plurality in the nation’s multi-party parliament, increasing their previous result – by definition a minority government can be outvoted if other parties gang up on them.  Here’s the math: Canada’s House of Commons has 308 seats (meaning 155 constitutes a majority), of which the Conservatives have 143, the Liberals 77, the Bloc Quebecois (whose sole raison d’etre is that Quebec should be a separate country, but who can ideologically be described as populist-socialist) 49, New Democratic Party (socialists) 37, and unaffiliated independents 2.  And here’s the short version of what’s gone down to upset the applecart:  In a new fiscal program unveiled last week, PM Harper announced, among other things, cuts to public funding of political parties and restrictions on public sector unions’ right to strike.  The opposition would have none of this and quickly arranged what in other circumstances might be a called a palace coup: Liberal leader Stephane Dion (already a lame duck after leading his party to its worst showing ever), citing the Conservatives’ failure to prepare for a recession (nevermind that Canada’s economy grew in the third quarter, and by more than it has all year), agreed on a tripartite deal with the NDP and Bloc that would oust the Tory government.

The biggest news here is that, for the first time ever, a separatist party will be a formal part of the government – the king-makers, no less.  The federalism/Quebec “question” is, shall we say, a delicate one in Canada, so this is a pretty big deal. 

While the Bloc will not have any ministers (the Liberals and NDP are to divvy up cabinet spots in a 3:1 ratio), it will, per the formal text of the deal, be part of a “permanent consultation mechanism.”  As blogger and National Post columnist Ezra Levant put it:

Well, we already have one of those – it’s called Parliament. But Parliament is a little too public for this coalition – you know, with nosy Canadians watching how deals are made. This consultation mechanism will be private – a way for the separatists to make their demands in secret, and for Prime Minister Stephane Dion to meet those demands in secret.

Indeed, those demands were many: an immediate $1 billion transfer to Quebec, along with a slew of patronage posts, including Senate seats (the Prime Minister appoints senators, and there are currently 18 vacancies).  Apparently, Elizabeth May, leader of the Green Party (which won no seats in parliament but captured 6.8% of the vote) was also offered a Senate seat. 

And, as part of a “Policy Accord to Address the Present Economic Crisis,” the new coalition proposes such “stimulus” measures as “support for culture, including the cancellation of budget cuts announced by the Conservative government” and ”support for Canadian Wheat Board and Supply Management.”  And then came word of a (further) $30 billion national “bailout,” as yet undefined.  In other words, a mish-mash of left-wing policy ideas dressed up as emergency measures.

OK, so now what happens?  Well, according to parliamentary procedure, Dion, as Leader of Her Majesty’s Loyal Opposition, will call for a “vote of non-confidence” in the government.  Assuming the Liberal-NDP-Bloc coalition holds together – Canada’s mainstream media, displaying the same bias as America’s, calls this the “Liberal-NDP” coalition so average Canadians don’t think about the separatists – the prime minister will have to resign and Governor-General Michaelle Jean (the titular head of state, filling the role the British monarch used to, in this case appointed by the Queen on former Liberal PM Paul Martin’s recommendation) can either invite Dion to form a government or call new elections.  Harper plans to head off this turn of events by asking Jean to “prorogue” (suspend) the parliament until January, by which point the Conservatives will have plead their case to the people and thereby either win a confidence motion or force new elections.

The bottom line: Canada is having a bit of a constitutional crisis, the most likely result of which is an unstable governing coalition composed of liberals, socialists, and socialist separatists.  In the meantime, the Toronto Stock Exchange has tanked.  It almost makes card check, the Fairness Doctrine, and the auto bailout look good by comparison.

Dynastic Politics in Delaware…

…or, “Here, hold this until my son gets back.”

Edward Kaufman is about to become the Benjamin A. Smith II of Delaware. Smith was a college roommate of John F. Kennedy. When JFK was elected president in 1960, he persuaded the governor of Massachusetts to appoint Smith to his Senate seat. Smith took the job and obligingly chose not to run in the 1962 special election, when brother Teddy was finally old enough to serve in the Senate.

Now Kaufman is doing the same favor for Joe Biden. Biden persuaded outgoing governor Ruth Ann Minner to appoint Kaufman, his longtime friend and Senate chief of staff, to his Senate seat. Kaufman said he will not run for the seat in 2010, allowing Biden’s son Beau, attorney general of Delaware and currently serving with the National Guard in Iraq, to claim the seat then.

Like Alaska, Delaware has a relatively small population, so maybe there really aren’t many people in the state qualified to serve in the U.S. Senate. But it’s awfully nice of Kaufman to hold on to the seat until the Biden family can reclaim it.

This Month at Cato Unbound: What Happened?

Writing the history of a financial crisis can’t be easy, and it’s even harder when that crisis is still unfolding.  That’s why this month we’ve invited a team of economic experts for a very special issue of Cato Unbound.  Each brings a different perspective on our financial troubles, and, partly because the matter is so far from settled, we’ve decided to give them all equal billing:  Lawrence H. White, William K. Black, Casey Mulligan, and J. Bradford DeLong will each write a full-length essay in a first of its kind roundtable format.  The question at hand:  What happened?

Prof. White’s essay is available here, and I found the following particularly interesting:

One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.

I’m just old enough to remember how everyone called the 1980s a decade of greed. Then there were the 1990s, also a decade of greed. The 2000s? Greed yet again. (I wish I could invest in this “greed” thing. It never seems to go out of style.)

I also liked the following, which makes one of its most substantive points in the final parenthesis:

As calculated by the Federal Reserve Bank of St. Louis, the Fed from early 2001 until late 2006 pushed the actual federal funds rate well below the estimated rate that would have been consistent with targeting a 2 percent inflation rate for the PCE [Personal Consumption Expenditure] deflator. The gap was especially large—200 basis point or more—from mid-2003 to mid-2005. [4]

The excess credit thus created went heavily into real estate. From mid-2003 to mid-2007, while the dollar volume of final sales of goods and services was growing at a compounded rate of 5.9 percent per annum, real-estate loans at commercial banks were (as already noted) growing at 12.26 percent. [5] Credit-fueled demand both pushed up the sale prices of existing houses and encouraged the construction of new housing on undeveloped land. Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates. The housing sector thus exhibited a disproportionate share of the price inflation predicted by the Taylor Rule. (House prices are not, however, included in standard measures of price inflation.)

I understand that it isn’t easy to incorporate housing prices into measures of inflation, and that there is no generally accepted method of doing it. It seems more important than ever, though, to include these prices in some way, if only to let the public know the sort of trouble housing inflation has very likely been causing.

The Pre-Public Choice View

I always thought the view that the private sector is full of greed and self-interest, while the public sector is all about selflessness and public service, was confined to 1950s civics books. But lo and behold, it turns out that view is still held by federal appointees interviewed by NPR:

“We’ve always thought of the government as motivated by a sense of service to the people,” says Charles Tiefer, whom Congress appointed earlier this year to the new Commission on Wartime Contracting, which oversees Pentagon contracts in Iraq and Afghanistan. “We’re getting away from that [by contracting out government services].”

After all, he says, federal employees take an oath to the Constitution, while private contractors are just motivated by their own economic interest. It’s a lovely vision, and apparently some people actually believe it. But about 50 years ago the public choice economists, such as James M. Buchanan, Gordon Tullock, and William Niskanen, began to suggest that people in government are still people, with all their good and bad characteristics. And also that analyzing the actions of government in the light of self-interest leads to pretty sound predictions and observations. As Buchanan put it in an interview:

I usually have a three-word description [of public choice economics] – it is “politics without romance”. Politics is a romantic search for the good and the true and the beautiful. “Public choice” came along and said, “Why don’t we model people more or less like everyday persons? Politicians and bureaucrats are no different from the rest of us. They will maximize their incentives just like everybody else.” By taking that very simple starting point, you get a completely different view of politics and its analysis.

Buchanan won a Nobel Prize for his insights, but obviously they haven’t fully permeated Washington yet.

A Perfect Introduction to Congress

NPR reports on the new public entry to the U.S. Capitol:

The U.S. Capitol Visitor Center formally opens to tourists Tuesday, over budget and behind schedule.

At 580,000 square feet, it’s the largest project in the Capitol’s 215-year history. It was originally scheduled to open almost four years ago, and the $621 million price tag is double the initial estimate.

What a perfect introduction to Congress and its activities! I hope they have a display in the entryway about the construction of the Visitor Center. And maybe they could have interactive graphs and figures showing cost overruns in the Visitor Center, weapons systems, Medicare, Medicaid, and other federal programs. A sign of the times in the Bush-Obama New New Deal era.

The Washington Post offers more details on the progress toward the Visitor Center:

The unveiling that will be marked with one Capitol Hill staple – speechifying by politicians in an invitation-only morning ceremony – already has achieved much else for which Congress is noted.

Take, for example, spending. What was proposed as a $71 million project in the early 1990s became a $265 million endeavor a decade later. By the time work got underway in 2002, the price tag was up to $368 million. Tomorrow, the ribbon will be cut on a $621 million project.

Then there was the congressional penchant for thinking big. The center’s architects were ordered to include 150,000 square feet of “shell space” for some future day when Congress might need more office area. The finished center is about two-thirds the size of the entire Capitol.

Then there have been delays, a malady common to many federal endeavors. The project once was expected to be finished in time for the presidential inauguration – in January 2005. As that date neared, the center was about half done, so the completion date was bumped ahead to spring 2006.

Six months after President Bushwas sworn in for a second term, the Government Accountability Office reported that the architects and contractors were making so many mistakes and facing so many unexpected problems that March 2007 was probably more realistic. When that target rolled around without a ribbon-cutting, project officials were summoned before a House subcommittee to explain why, and Rep. Jack Kingston(R-Ga.) scolded them for overseeing “a monument to government inefficiency, ineptitude and excessiveness.”

Members of Congress did manage to achieve one thing with the timing:

Top lawmakers and Congressional officials have been fretting for months that the visitor center would finally open its impressive doors in the weeks before Election Day. They worried that it would inspire a raft of news stories and snide commentary about how Congress had erected another monument to itself, just in time to irritate voters already irked at Washington.

Here Comes Democracy!

(Before you finish reading this, you’ll want to sign up for this policy forum.)

Ben Goddard’s most recent column in The Hill is called “Obama Marketing Lesson,” and he reviews how the Internet and savvy use of media energized President-Elect Obama’s campaign effort. “[S]ocial networks have returned as one of the most powerful forces in politics,” he says.

President-elect Obama has a database of some 10 million names and e-mail addresses, and those who built it have made clear they’ll activate that army to support the new president. MoveOn.org is already preparing its supporters to advocate for progressive policies. Groups like Divided We Fail, Healthcare for America Now! and the American Medical Association are already running television and online campaigns to advocate for healthcare reform.

(Goddard will be lending some of his insights about communications strategies to secure the country against fear and overreaction at our January conference on counterterrorism strategy, by the way.)

The substance of the campaigns he talks about might be far from encouraging for libertarians. None of these are limited government advocates. Politicized online social networks could be the agar in which a new mobocracy grows - something our republican form of government was designed to prevent.

But what’s the solution? To oppose democracy and an active citizenry? Other than restoring constitutional limits on government, I don’t think so. As with speech, the cure for bad democracy is more of it, but good.

It’s not a given that online politics will amount to crowds of avatars with digital pitchforks and torches. The Internet is a fertile medium for careful debate about our public policies. Social networks can be smart and informed - if they get the data.

That process is starting. USASpending.gov delivers data about where federal contracting dollars and grant awards go. This was a project of President-Elect Barack Obama who, with Senator Tom Coburn (R-OK), made transparency a signature issue in the Senate. The non-profit effort that broke ground for this is OMBWatch’s FedSpending.org, which logged its 10 millionth search in June.

My humble effort, WashingtonWatch.com, attaches cost estimates to the bills in Congress and recently welcomed its millionth visitor for the year. The Sunlight Foundation has a list of insanely useful Web sites, each exposing some dimension of government action to greater public scrutiny. The organization is dedicated to developing a stable of private, non-profit, and volunteer efforts that promise revolutionary change once they can access standardized, structured, and open government data.

And that’s the bottleneck: access to good data. Government information now comes to us mediated by government Web sites and government-defined database queries. Getting the raw data would allow all kinds of actors to generate all kinds of new information about government. All citizens would have better information to work with, not only about taxes and spending, but about the results of government programs.

Libertarians bet that this would reduce demand for government. Liberals and progressives believe that this would deliver on the promise of government. If either side wins, we’re better off than we are here in the dark disappointment of government today.

On December 10th, the Cato Institute is having a policy forum on this topic. The title is “Just Give us the Data!