Topic: Government and Politics

CBO Long-Term Spending Projections

The Congressional Budget Office has released new long-term projections of federal spending and debt. Without reforms, spending is expected to rise steadily and dangerously as a share of the economy in coming decades. The chart below shows spending under CBO’s “extended alternative” scenario, which assumes that politicians keep current policies in place. Spending would rise from 17.6 percent of GDP in 2000, to 20.4 percent this year, to 31.8 percent by 2040.

Under that scenario, federal debt held by the public would rise from 74 percent of GDP this year to a giant 170 percent by 2040. But if spending and debt were to rise along that trajectory, we would surely have a major financial and economic meltdown long before we got to 2040.

Our fiscal outlook is actually much worse than reflected in this scenario. That’s because under the basic extended alternative, CBO does not take into account the negative effects of rising spending and debt on GDP over the long term. CBO does have a special chapter in their report looking at some of these negative effects—but only some of them. In this testimony, I mention reasons why the outlook is worse than under the CBO baseline.

    

Bulgaria Wins Balkan Prize

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.

 

All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.

That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system - which I, as President Stoyanov’s adviser, helped design and install in 1997 - provides monetary and fiscal discipline, and produces positive results in a region plagued with problems. 

Should Boehner Sue Obama?

Well into our sixth year with this president, we’re long past the point of having to demonstrate his indifference to the rule of law—the unconstitutional appointments, the Obamacare rewrites, the IRS and VA scandals, the list goes on.  In fact, it’s Obama’s indifference simply to doing his job that lately has drawn attention. “The bear is loose”—on the golf course, in the pool hall, dining late with athletes and entertainers. It’s driven House Republicans to talk of impeachment and of a House suit against him for his failure to faithfully execute the laws.

Both would be a mistake, Thomas Sowell tells us this morning, and he’s right. As November’s mid-term elections loom just ahead, either course would shift public attention from Obama to his critics, just as happened when the House impeached President Clinton. Not that there isn’t a case to be made for both impeachment and a suit. But impeachment, at the end of the day, is less a legal than a political matter, as we saw in the Clinton episode. So too is the suit that Speaker Boehner is now considering. Both proposals, therefore, have to be looked at through that lens.

To a good many in the House, however, a suit against the president seems like the lesser but wiser course. And contrary to first impressions, including my own, such a move is not as far-fetched as it might seem. In fact, if one takes the time to wade through the dense testimony that our good friend Elizabeth Price Foley presented to the House Judiciary Committee last February, it soon becomes clear that the standing objection that arises immediately with such a suit could likely be overcome in this case.

But even if a suit could get off the ground, would one be wise? True, unlike with impeachment, where the House is the “grand jury” and the Senate the “court,” in this case it wouldn’t be the other political branch attacking the president. Rather, attention would be directed to the third, non-political branch of government, where the action would be happening, and that would soften the attack to some extent, making it seem less a political than a legal charge. But those are subtleties. In the hands of the media, they’d likely pass over most heads as we move toward November.

And what turns on November? Nothing less than the courts themselves, as Sowell points out. To elaborate just a bit on the point, after November, Obama will have two more years in office. He got off to a slow start exercising the most long-lasting of a president’s powers, the power to nominate judges for lifetime appointments on our federal courts. But he’s catching up. We saw just last month how his two Supreme Court appointments have read the Constitution on some of the most important cases of the Court’s just-concluded term.

Well it’s no different below, especially in the courts of appeal, except that it’s less noticed. We tend to focus on the Supreme Court, which blinds us too often to the fact that the Court decides only 70 or so cases a year while the 13 federal appellate courts terminate some 60,000 cases—and they don’t always follow the guidance of the Supreme Court in doing so. It’s crucial, therefore, given the inclination of this president to see his view of the Constitution reflected in the people he nominates for seats on those courts, to have a Senate over the next two years that will carry out its advice and consent responsibilities more responsibly than has been done under the leadership of Harry Reid. Anything that distracts from that focus should be avoided.   

Government Infrastructure and Political Enthusiasm

Most politicians are optimistic about the government’s ability to intervene and solve problems. That’s one reason why they run for office. Neocons, for example, have excessive faith that foreign intervention can fix the world, while liberals embrace the misguided idea that subsidies and regulations can boost the economy.

On infrastructure, we’ve seen political enthusiasm leading to overpromised and underdelivered projects since the founding of the nation. The construction of the National Road—funded by Congress beginning in 1806—was fraught with problems. The Army Corps of Engineers has been known for boondoggles since the 19th century. In recent decades, government infrastructure has become so notorious for waste that The Simpsons had an episode about a failed monorail scheme.

Chapter 1 of Burton and Anita Folsoms’ book, Uncle Sam Can’t Count, examined the inefficiency of the government’s fur-trading infrastructure from 1795 to 1825. Chapter 2 of the book looked at how 19th century subsidies for steamship transportation were wasteful and damaging.

Chapter 3 of the book looks at the orgy of state government canal building from the 1820s to the 1840s. Here is the basic story:

  • New York State funds construction of the Erie Canal, which opens in 1825.
  • The Erie Canal is a big success, which spurs canal fever across the nation and encourages other state governments to hand out subsidies. Government canal schemes are launched in Michigan, Pennsylvania, Ohio, Indiana, Maryland, and Illinois. There is particular excitement about subsidized “internal improvements” among Whig politicians, including Abraham Lincoln.
  • However, politicians overestimate the demand for canals in their states and underestimate the costs and difficulty of construction. They do not recognize that the Erie Canal is uniquely practical and economic as it traverses relatively flat land and connects the Great Lakes with the Atlantic.
  • Some of the state-sponsored canals are huge boondoggles and are abandoned. And other than the Erie Canal, all of the state canals sustain heavy losses, including other subsidized canals in New York.
  • After the failures, numerous states privatize their infrastructure and change their constitutions to prevent politicians from wasting further money on such schemes.

Thomas DiLorenzo writes about these issues here. And Clifford Thies goes into detail about the canal follies in this Cato Journal article. As these authors discuss, governments unfortunately made similar mistakes subsidizing railroads in the 19th century.

Perhaps our current political leaders are not funding escalators to nowhere—as they did on The Simpsons monorail episode—but today’s uneconomic streetcars and high-speed rail schemes are not that much different.

Google Co-Founders Sergey Brin & Larry Page: Health Care Regulation Is Blocking Innovation

At a forum sponsored by Khosla Ventures, Google co-founders Sergey Brin and Larry Page discussed the burden of health care regulations in the United States. When asked, “Can you imagine Google becoming a health company?”, Brin responded:

Health is just so heavily regulated, it’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.

Page agreed:

I am really excited about the possibility of data also to improve health. But I think that’s what Sergey’s saying. It’s so heavily regulated, it’s a difficult area…I do worry, you know, we kind of regulate ourselves out of some really great possibilities.

But surely, the United States does not have government-run health care.

The discussion begins at about 29:00.

Still No Halbig v. Burwell Ruling, But Plenty of Halbig Chatter

The latest bit of chatter about a someday-forthcoming ruling from the D.C. Circuit in Halbig v. Burwell is the banter between myself and Washington & Lee University law professor Timothy Jost. (For a quick primer on the Halbig cases, click here. For a comprehensive reference guide to the cases, click here.) Or as my email traffic has described it, “The subtle repartee between Michael Cannon and Tim Jost continues.” And, “What a summer! Argentina vs. Germany, Cannon vs. Jost. What’s next?“ 

Jost’s contribution appeared on the oped page of the Washington Post. Mine…didn’t.

Jost explains that while the Supreme Court’s ruling against the government in Hobby Lobby will not have much of an impact on the Patient Protection and Affordable Care Act, “a number of ACA lawsuits percolating up through the courts could be much more destructive. The theory of these suits seems to be that the drafters of the ACA planted a secret bomb in the heart of the statute.” Jost, along with a federal judge he quotes approvingly, thinks it’s “preposterous” that Congress would have intended to give states the power to block the expansion of health-insurance coverage that’s supposed to happen through the PPACA’s health-insurance “exchanges.”

Never mind that Congress did exactly that with the other coverage expansion – the Medicaid expansion – in the very same bill. Or that Congress has allowed states to block the entire Medicaid program for the past 49 years. Or that that’s how Jost himself proposed Congress could set up the bill’s health insurance Exchanges. Or that in 2009, both Republicans and Democrats introduced legislation that would have conditioned health-insurance subsidies on states establishing Exchanges. Or that, in particular, the other leading bill advanced by Senate Democrats in 2009 also gave states the power to block Exchange subsidies. Or that that’s what Jost admits the plain language of the PPACA “clearly” says.

Forget all that. Following the clear, consistent, uncontradicted language of the statute, which is completely consistent with the law’s legislative history, would be preposterous. Why? Because if the courts implement the law as Congress intended, then not even ObamaCare’s supporters would like how ObamaCare works. 

Subsidies Make Businesses Weaker

The technical arguments against the Export-Import Bank are provided in this excellent summary by Veronique de Rugy. However, one argument against Ex-Im and other business subsidies is not stressed enough in policy debates: subsidies weaken the businesses that receive them.

Subsidies change the behavior of recipients. Just like individual welfare reduces work incentives, corporate welfare dulls business competitiveness. Subsidies give companies a crutch, an incentive not to improve efficiency or to innovate, as I noted here.

Yesterday, I looked at Chapter 1 of Burton and Anita Folsom’s new book, Uncle Sam Can’t Count, which examines federal fur trading boondoggles of 1795-1822. 

Now let’s look at Chapter 2, which focuses on the steamboat industry of the 19th century. The historical lesson is clear: subsidies make companies weak, inefficient, and resistant to innovation.

Here is a thumbnail sketch of the Folsoms’ steamboat story:

  • In 1806 New York gives Robert Fulton a legal monopoly on steamboat travel in the state. Breaking this misguided law, a young Cornelius Vanderbilt launches a competitive service in 1817.
  • The U.S. Supreme Court strikes down the New York law in 1824. The effect is to usher in an era of steamboat innovation and falling prices for consumers.
  • Vanderbilt launches many new steamboat routes whenever he sees an opportunity to drive down prices.
  • With subsidies from the British government, Samuel Cunard launches a steamship service from England to North America in 1840. In response, Edward Collins successfully lobbies Congress to give him subsidies to challenge Cunard on the Atlantic route. With this unfortunate precedent, Congress proceeds to hand out subsidies to steamship firms on other routes.
  • By the 1850s, Congress is providing Collins a huge annual subsidy of $858,000. Irked by the subsidies and Collins’ inefficient service, Vanderbilt builds a better and faster ship and launches his own Atlantic service.
  • In 1856 two of Collins’ inferior ships sink, killing almost 500 people. Collins builds a new ship, but it is so shoddy that it is scrapped after only two trips.
  • Congress finally realizes that the aid to Collins is damaging, as it has spawned an inferior and mismanaged business. Congress cuts off the subsidies in 1858. Without subsidies, Collins’ steamship company collapses.
  • Vanderbilt also out-competes subsidized steamship companies on the East Coast-to-West Coast route through Central America.
  • In England, an unsubsidized competitor to Cunard—the Inman Line—is launched and begins out-competing and out-innovating the subsidized incumbent.
  • The subsidized Cunard and Collins aim their services at the high-end luxury market. The more efficient and unsubsidized Vanderbilt and Inman focus on driving down prices for people with more moderate incomes.
  • Government subsidies “actually retarded progress because Cunard and Collins both used their monopolies to stifle innovation and delay technological changes in steamship construction.”

Government subsidies have similar negative effects today, whether it is subsidies to energy companies, aid to farm businesses, or the Ex-Im program.

The difference is that in the 19th century Congress eventually cut off subsidies when the damage became clear, as it did with steamship subsidies in 1858 and fur trading subsidies in 1822. Maybe I’m overlooking something, but I can’t think of a business subsidy program terminated by Congress in recent years, or even in recent decades.