Topic: Government and Politics

Your Government at Work

In case you are the careless sort who doesn’t ask who is funding all of those wonderful government projects around you, the Obama administration intends to create a special stimulus brand.  Really.

Reports ABC News:

President Obama announced today that his administration will begin stamping an emblem on projects funded by the economic stimulus package so that people can easily recognize the effects of the American Recovery and Reinvestment Act.

All projects will be stamped with the ARRA logo (short for the American Recovery and Reinvestment Act) and lists the recovery.gov website on the emblem.

Aara_logo_2

In remarks at the Department of Transportation this morning, Mr. Obama referenced the new emblems.

“We’re also making it easier for Americans to see what projects are being funded with their money as part of our recovery. So in the weeks to come, the signs denoting these projects are going to bear the new emblem of the American Recovery and Reinvestment Act,” Obama said. “These emblems are symbols of our commitment to you, the American people – a commitment to investing your tax dollars wisely, to put Americans to work doing the work that needs to be done.  So when you see them on projects that your tax dollars made possible, let it be a reminder that our government – your government – is doing its part to put the economy back on the road of recovery.”

Of course, I’m sure the program has nothing to do with the desire to win political points for bringing goodies to the voters.  No one in Washington thinks like that.  On the other hand, when the inevitable abuse and waste emerges, the administration might begin tearing off its brand as quickly as it once put it on.

Why Acquisition Reform Fails

Senators Carl Levin and John McCain this week introduced legislation to improve how the Pentagon buys things – defense acquisition reform. The President is on the same page. So chances are the Pentagon’s acquisition workforce will have a new set of rules to learn some time this year.

Here’s the bill.  Highlights: a series of new reporting requirements about systems analysis of new programs, a new official to come up with cost estimates of weapons systems, another official to oversee developmental testing, a requirement for competitive prototyping of new weapons, which can be waived, and an effort to make waiving Nunn-McCurty breaches a little more onerous (the idea was that you cancel weapons systems that experience excessive cost growth, but it never happens), plus some other minor bureaucratic changes. McCain claims that the legislation will cut back on cost plus contracts in favor of the fixed price variety, but the legislation does not address that.

At best this bill will create some marginal improvements in defense acquisition. More likely it will simply add hassle.

Acquisition reform is practically seasonal at the Pentagon, as this PowerPoint slide show comically demonstrates. And things have only gotten worse – more programs over budget and behind schedule over time. (Read this recent testimony from a Congressional Research Service expert for details.) According to another expert, former Pentagon weapons testing chief Tom Christie, the trouble is not the existing acquisition rules but the failure to use them to control costs. He says so in a chapter for the book America’s Defense Meltdown, which we will be discussing here at a forum on March 13.

The reasons for the failure of acquisition reform are complicated, but one surely is that these are technocratic solutions to political problems. The trouble is what we want, which is several technological miracles in each new platform, not how we buy it, as my professor and sometimes co-author Harvey Sapolsky explains in a recent Defense News op-ed:

The truth is you can’t fix the acquisition system. All the insiders know this…We can’t fix it because we want crazy things. We want a system that can fire missiles from a submarine hiding beneath the surface of the sea and hit a target thousands of miles away. Or we want a tank that can survive a shaped charge round, pack its own lethal punch and is airlifted by a C-130.

Systems have to perform reliably in the snow, in the mud, in the sand. They have to communicate with every friend and not reveal themselves to any foe. And we want them soon, not later.

Worse, we already have a lot of first-class ships, aircraft, missiles and tanks; proposed new weapon systems have to be a lot better than them or any obvious modification we can make. To be worthy of our approval, the advocates of the new system have to dazzle us with expectations of what will soon be in our arsenal, something no enemy can match. It will likely cost billions, but it will be great.

With that gleam in their eye, the services seek bids for the weapons that will define their futures. Only a few contractors can qualify to make offers. After all, only a few firms know the acquisition regulations well enough and have sufficient engineering talent to manage complex projects.

Moreover, government-encouraged mergers have further thinned the ranks of eligible firms. Given that new starts in most weapon lines are once-in-a-decade-or-more events, project awards are survival tests. Not surprisingly, false optimism abounds.

For more, read his recently co-authored book.

What about using more fixed price contracts and less cost-plus contracts, as McCain suggests? Isn’t it obvious that unless you pay someone a set price rather than whatever he says it costs, he will rip you off? Actually, no, not in defense contracting. Chris Preble and I addressed this in an oped last October:

In a cost-plus contract, the contractor gets paid whatever it costs to make a good, plus a profit. McCain claims that these agreements encourage contractors to spend as much possible and send the government the bill. This argument is confused. Defense contractors have essentially one customer: the Pentagon. Repeatedly gouging your only customer, one with a small army of auditors, is likely to lead to bankruptcy.

New technology is hard to price. If we used fixed price contracts— as McCain proposes—for new complex projects, like the next-generation bomber the air force will soon build, the contractors would simply ask for more money up front to limit their risks. If we force a low price on them, they will likely blow through what is allocated and ask for a new contract. Because military services badly want the weapons they contract for—and starting over would take years—Pentagon officials would then be forced to rewrite the deal.

What acquisition reform would work? It might help to increase the number of civilian acquisition overseers and pay them more, given that their workload has expanded, and to allow them more flexibility in their work, not less, as this legislation would. But these are still minor fixes. You can’t fix acquisition until you change the incentive structure that produces its outcomes. Until the services and their Congressional backers start to accept platforms that push the technological envelop less, the problems will persist.

Obama’s $1.3 Trillion Tax Hike

Here are some notes on the tax proposals in the new federal budget:  (See Table S-6; All figures are 10-year totals)

  • There are $770 billion in “tax cuts for families and individuals.”  However, the fine print on page 129 shows that $326 billion of that is actually spending, or the “refundable” portion of the tax changes. That leaves a net $444 billion in tax cuts for individuals.
  • The budget would impose a $646 billion tax increase from new “climate revenues,” which would create a burden on families in the form of higher energy prices.  Thus, there is a net tax hike on “families” of about $202 billion, even aside from the income tax increases at the top end.
  • Income tax increases on those with higher incomes total $637 billion. Note that these hikes land on both individual filers and the huge number of small businesses that file through the individual system.
  • Other tax hikes on businesses total a net $183 billion.
  • Finally, Obama proposes to limit deductions for higher earners to raise $318 billion.
  • Thus, President Obama proposes to hike taxes by a net $1,340 billion, or about $1.3 trillion, over the next decade. That’s the last thing we need to recover from recession and to compete in the global economy in coming years.

How to Spend a Trillion Dollars without Waste and Fraud

You can’t.

And the federal government knows it. On Tuesday,

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud….

Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”

With the government having already allocated $700 billion for TARP, and $787 billion for “stimulus,” and President Obama now calling for $635 billion for health care and a federal budget soaring to $3.6 trillion – well, you’d think two government reports on the likelihood of fraud and waste would be news. But this testimony didn’t make the New York Times or the Washington Post. There was a small inside story in the Wall Street Journal.

One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:

you cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Saying “nobody messes with Joe” is not a solution to the inevitability of waste and fraud when an unaccountable bureaucracy is spending trillions of other people’s dollars.

President Obama’s Budget: Higher Taxes & Bigger Government

“As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day… Not because I believe in bigger government – I don’t. Not because I’m not mindful of the massive debt we’ve inherited – I am.”
     –President Obama to congressional joint session, February 24

President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.

Americans have a fundamental choice to make in coming months: Do they want President Obama and Congress to impose huge increases in the size of government, perhaps as dramatic as occurred in the 1930s and 1960s?

Apart from defense, federal spending has hovered around 16.5 percent of the economy since 1980, through both Democratic and Republican administrations. But under President Obama, nondefense spending is soaring to 23 percent of the economy this year and will remain at historic high levels in the future.

Even after current stimulus spending is supposed to end, nondefense spending is expected to be more than 19 percent of the economy – or 25 percent more than the size of government during the later Clinton years.

Americans need to decide whether they want the European-sized government that President Obama is promising – with all its damaging effects on individual freedom and economic growth – or whether they want to return to the greater prosperity of the smaller-government Clinton years.

Biden’s Shock Doctrine

Vice President Biden is the latest member of the Obama administration to declare the administration’s intent to use shock and awe to ram through their statist agenda in a crisis atmosphere:

“Opportunity presents itself in the middle of a crisis,” Biden said on ABC’s “Good Morning America.”

HT: Johan Norberg, the author of a devastating critique of Naomi Klein’s The Shock Doctrine.

The Bush administration used crisis tactics, too, of course, ramming through the Patriot Act, the nationalization of airport security personnel, the creation of the Homeland Security Department, and the war in Iraq after the shock of 9/11 and a bevy of bailouts during the economic crisis. As Steve Horwitz wrote:

Just as the Patriot Act was a bunch of laws waiting for a political “crisis,” so is much of the stimulus package a bunch of programs waiting for an economic “crisis.” 

Plenty of earlier administrations used the same tactics, from FDR’s first hundred days of frenetic legislation to LBJ’s forced march to the Great Society after the Kennedy assassination. The difference is, the Obama administration is the first one to publicly and proudly proclaim that they intend to use the crisis atmosphere to force through an agenda that wouldn’t otherwise be possible.

Obama’s Lobbying Bonanza

The Bush administration was good to lobbyists, especially in its final year, when lobbyists earned $3.2 billion, the most ever. But the Obama administration promises to be even better, according to those who follow the field. Marketplace Radio reports:

Washington lobbyists earned a whopping $3.2 billion last year. That’s the highest amount in the decade tracked by the nonpartisan Center for Responsive Politics. Executive Director Sheila Krumholz says interest groups spent $17.4 million on lobbying every day Congress was in session last year. And with Washington on a spending spree, companies are boosting their influence on Capitol Hill.

SHEILA KRUMHOLZ: There was this unique opportunity that government was handing out money and anytime that happens, companies will spend what they must to get in line to get a piece of the pie.

And that’s expected to continue. Craig Holman is a governmental affairs lobbyist with the non-profit group Public Citizen.

CRAIG HOLMAN: The amount spent on lobbying is not related to the disclosure or the regulation of the lobbying profession. It is related entirely to how much the federal government intervenes in the private economy.

That’s right. Even the Naderite Public Citizen understands that “the amount spent on lobbying … is related entirely to how much the federal government intervenes in the private economy.”

Marketplace’s Ronni Radbill goes on, “In other words, the more active the government, the more the private sector will spend to have its say…. With the White House injecting billions of dollars into the economy, lobbyists say interest groups are paying a lot more attention to Washington than they have in a very long time.”

Or, as F. A. Hayek explained the process 65 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

And just who is doing all this lobbying? The Center for Responsive Politics says that health and pharmaceutical companies were the biggest spenders, which wouldn’t surprise lobby-watcher Tim Carney, followed by the finance, insurance, and real estate industry (even though many of those companies cut back their lobbying late in the year, after getting the moolah they came for). But, Marketplace also reports, “There’s a report out today from the Center for Public Integrity that says the number of green lobbyists has tripled in the last five years. There are nearly 2,500 people now employed trying to get their clients views heard on climate policy. Wall Street in particular sank a lot money into green.” With the economy slowing, banks were pulling back from investments in so-called renewable energy. “That is, until the stimulus package tossed it a lifeline.”

So the $3.2 billion bonanza for lobbyists in 2008 was just a precursor of the lollapalooza to come. Within three weeks of Obama’s inauguration, the Washington Post reported that more than 90 organizations had hired lobbyists specifically to influence the stimulus bill. Since President Obama has made clear that in his “blueprint for America,” the $800 billion stimulus bill is just the start of his money flow to and from Washington, we can expect lobbying expenditures to keep on rising. Federal spending will be directed by politicians to politically favored recipients. That’s just reality. If you want money flowing to the companies with good lobbyists and powerful congressmen, then all this spending may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers. That’s not a recipe for recovery.

I’ll give the last word again to Craig Holman of Public Citizen: “the amount spent on lobbying … is related entirely to how much the federal government intervenes in the private economy.”