Topic: Government and Politics

It’s Always in the Last Place You Look

Ed Morrissey at Captain’s Quarters writes, “In the first five years of his presidency, Bush could barely find his veto pen. Now, however, freed of the burden of defending a free-spending Republican Congress, Bush has discovered his inner Reagan.”

Maybe the veto pen really was lost for years, and it just turned up in the White House Book Room.

This Post Won’t Treat Bob Frank Like a Piñata

The New York Times’ Sunday column “Economic View” is a must-read for anyone who cares about economic issues. Four academics (one of whom is Cato adjunct scholar Tyler Cowen) take turns writing the column, and they often use the academic literature to shed light on current issues.

But readers of this blog probably won’t like last weekend’s column, penned by Cornell economist Robert Frank. Frank argues that “realistic proposals for solving our budget problems must include higher revenue,” i.e., new taxes or tax increases. Those proposals, he says, are being blocked by “powerful anti-tax rhetoric [that] has made legislators at every level of government afraid to talk publicly about a need to raise taxes.” 

(I’m not sure how big that phobia is, given the numerous tax increases on the state level in recent years.  But let’s put that aside.)

Frank has spent much of his academic career arguing for raising taxes on wealthier people so as to create greater income equality (some of his work can be found here, here, and here). It would thus be expected that a Cato analyst would bash Frank’s column like a piñata. But I believe there’s merit to what he writes.

Whatever the political power of anti-tax rhetoric, it’s clear from the last seven years that it doesn’t have much effect on government spending. Despite the tax cuts of 2001–2003, Congress and the White House have found all sorts of hyper-expensive programs and actions on which to spend money, from the Iraq War and expanded overall defense spending to the new Medicare Part D, the proposed farm bill, the latest round of energy subsidies, more and more corporate welfareNo Child Left Behind, and a whole new, giant federal agency — (forget the relative spare change of all those wacky transportation earmarks). Whatever criticisms can be lobbed against the 2001–2003 tax cuts (and lower taxes in general), it can’t be said that they’ve hamstrung the government’s ability to spend

Why have the tax cuts not slowed government growth? Because Uncle Sam is quite happy to borrow money. Frank points out that the national debt has increased $3 trillion since 2002, and it will likely rise an additional $5 trillion over the next decade. As NYU law professor Dan Shaviro notes in this 2004 Regulation cover story, that debt is future taxes.

This borrow-and-spend spree means that America has been getting bigger government while (so far) paying the price of smaller government. As Cato chairman Bill Niskanen points out, this dynamic drives the growth of even-bigger government. The First Law of Demand postulates that, ceteris paribus, if the price of a product declines, demand for the product will rise. The apparent price of government has declined — and we’re getting more and more government all the time.

This leads to the core problem of borrow-and-spend public finance: Because today’s taxpayers receive government services without paying the full cost, they (and their political leaders) are not forced to consider:

  • Is this service worth its cost?
  • Would we be better off if government spent its money differently?
  • Would we be better off if government did not tax that money away from us, but we instead spent it privately?

Instead, borrow-and-spend lets both the Big Government crowd and the Anti-Taxes crowd get what they want: the Big Government folks can keep expanding government and the Anti-Taxes folks pay lower taxes — for now.

That’s why there’s merit to Frank’s column — if we were to pay, today, the full cost of government, we’d give much more thought to the opportunity cost of government spending. I strongly suspect there’d be much less demand for government services and much stronger outcry against current spending and spending proposals.

Frank, in the column, appears not to consider that possibility. Instead, he seems to assume that government activity would continue at its current pace, or even expand, under the justification that government must “provide a variety of public goods and services that would be impractical for private citizens to provide for themselves.” But let’s be real here: government spending  is far, far, far beyond anything that could be justified by a public goods problem.

Much public spending — and most all new public spending — is nothing more than government-mandated consumption. Because people don’t value a good or service enough to spend a lot of money on it privately, government forces them to buy the good publicly. That type of public finance is neither welfare-enhancing nor financially responsible — but it certainly earns the love of special interests. That’s how we end up with (pardon the cut-n-paste) Medicare Part D, the proposed farm bill, the latest round of energy subsidies, more and more corporate welfareNo Child Left Behind, and all those wacky transportation earmarks.

So, Prof. Frank, I say bully for you! If we follow your proposal, I think we’ll move several steps closer to limited government.

Cult Kidney Donations

Today’s Wall Street Journal has an article on live kidney donation as a form of charity. Half the members of a Christian sect have gone through the surgical operation of donating a kidney to a stranger. The article questions whether pressure from “cult” members creates undue influence. Social and government pressure to donate both at death and while living is mounting. See Cato’s recent Policy Analysis “A Gift of Life Deserves Compensation.”

There Is No Such Thing as Mandatory Federal Spending

Sometimes, governments lie.  For example, the U.S. government describes outlays for Social Security, Medicare, and Medicaid as “mandatory” spending, in contrast to “discretionary” spending on things like national defense and bridges to nowhere.

Yet “mandatory” spending is not really mandatory.  It too is discretionary, and everyone knows it.  The only thing that makes “mandatory” spending different is that Congress creates legislative formulas that automatically determine spending levels, instead of determining spending levels each year through the regular appropriations process.  Congress can change those formulas at its discretion, which means that such spending is actually … discretionary.  Calling such spending “mandatory” is therefore a lie that serves only to conceal the choices Congress has made.

The U.S. government, its officers, and its agents should describe federal spending as either “automatic” or “appropriated.”  There is no such thing as mandatory federal spending.

Update: I stand corrected.

Media Bias

There’s an interesting new blog called The Monkey Cage written by three political scientists at the George Washington University.  Any blog that takes its motto from H.L. Mencken deserves a look from libertarians, even if the authors are not libertarians (I have no idea whether they are or not).

The blog has only been up for a few days, but it already has some interesting posts on voter ID, campaign finance, and negative advertising in campaigns. The authors don’t follow the conventional wisdom on those issues. For example, they praise the work of Cato visiting research fellow John Mueller on the bias in threat assessments of terrorism. (You can find the short version of Mueller’s work here).

One of the group, John Sides, has a concise and interesting post on media bias.

His claim that newspapers are in the business of confirming the prior beliefs of their readers seems accurate, and yet it confirms the original concern (or, at least, a legitimate concern) about liberal bias: responding to readers or viewers leads to a biased or distorted account of reality.

Is there a market for unbiased reporting? You would think so, but perhaps not. Maybe it doesn’t matter. We may just dump media messages, bias and all, into the marketplace of ideas and trust that something like an unbiased political result will come out the other end.

Reading Sides, some might wonder: Why not relieve the media of market pressure as a way of dealing with bias? That prompts another question: Are NPR and the CPB free of political bias in their reporting and analysis?

The post also prompted the following thought: I have worked on the campaign finance issue for many years now and I have never talked to a reporter from major media who doubted any part, much less the whole, of the reform case. Political scientists have not found that campaign contributions have much effect on members of Congress (see the earlier link). But that has not affected the prior beliefs of reporters . One raw assertion of corruption by Fred Wertheimer outweighes a hundred careful studies of the influence of money on politics. That might suggest that how monolithic liberalism is in the media depends on the issue. But still, do reporters favor reform because they are liberal or because they get to write “Look, corruption!” a couple times a week? Or do they favor reform because it tends to suppress accounts of reality and messages that compete with the product offered by their employers? In other words, do they support regulations that confer directly nonproductive deadweight rents on their employers?

Finally, Sides does not discuss the Milyo-Groseclose study of media bias. Maybe he will in future posts.

We’re from the Government, and We’re Here to Help You Buy a House

There has been some good analysis of this week’s much-hyped agreement between the U.S. Treasury Department – which facilitated the meeting, we are told, but didn’t use any form of coercion – and mortgage lenders to bail out assist homeowners in danger of being slammed with a much higher monthly payment on their subprime mortgage come January. But there are some elements of the deal that haven’t been greeted with much skepticism – or, indeed, haven’t been reported much at all.

For starters, Treasury secretary Henry Paulson insists the agreement won’t cost taxpayers money. What he really should have said is that it won’t cost federal taxpayers money. But it might cost state taxpayers money. The White House will push Congress to let state governments issue tax-free bonds to fund programs that help homeowners refinance their mortgage. Those bonds have to be paid off by taxpayers some day. I usually like federalism, but this is not the sort I’ve grown to love.

Another part of the deal is to allow the Federal Housing Administration to expand its programs and help refinance 200,000 mortgages. As Paulson reminded reporters, the administration is asking Congress to increase the ceiling on the amount of FHA loans and lower the down-payment requirements to below the current rate of 3% of the home price. And here I was thinking big loans that were handed out with little or no money down were part of what got us into this problem in the first place. Silly me.

Nor is it really clear that the administration’s approach here won’t actually cost federal taxpayers money, either. The proposal allows the FHA to charge loan insurance premiums based on risk, like private lenders do. Currently, all FHA mortgage holders – at a high-risk of default or not – are charged the same amount.  You realize this is a much-needed change when you discover that currently the FHA is running deficit of $143 million because so many of its loans have gone bad and the premiums it collects from all loans isn’t enough to cover the losses. But, as Bloomberg News reports, the post-refinancing default rate of the subprime loans that the White House now wants the FHA to play with could be between 40 to 60 percent.  Taxpayers might get stuck paying for these loans after all.

The implicit theme of these proposals is that Uncle Sam might just be better at this mortgage business thing than the private sector. I guess it might be tiresome to insert a joke here about the U.S. Postal Service, eh?