Topic: Government and Politics

Pro-Business Does Not Mean Pro-Freedom or Pro-Market

Representatives of the business community frequently are the worst enemies of freedom. They often seek special subsidies and handouts, and commonly conspire with politicians to thwart competition (conveniently, they want competition among their suppliers, just not for their own products). Fortunately, most business organizations still tend to be - on balance - supporters of limited government. But as the Wall Street Journal notes, some state and local chambers of commerce have become relentless enemies of good policy: 

…many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government. In Colorado, a coalition of property owners, conservative think tanks, anti-tax groups and small businesses fought against a ballot initiative in 2005 that was intended to gut the state’s Taxpayer Bill of Rights (Tabor). They lost, and as a result state spending will expand by $5 billion over the next five years, costing the average family several thousand dollars in higher taxes. It was not the teachers’ unions or class-warfare liberals who spearheaded the campaign against Tabor, however – it was the Denver Chamber of Commerce. …In Virginia, the state and local chambers, along with big-business allies, have spent more than $4 million in recent years on ballot initiatives and legislative lobbying to raise $2 billion in taxes for roads, rails, buses and schools. This year they want a billion more for transportation, despite the state’s multibillion-dollar surplus, and have even threatened to run candidates against fiscal conservatives in the legislature who take a “no new taxes” pledge. …In New Jersey – home of some of the worst schools in the nation – the state chamber took out an ad with the teachers’ unions opposing a school-voucher initiative for families in inner cities. The ad was withdrawn only after pro-school reform business members hollered in protest. Last summer taxpayers revolted when Democratic Gov. Jon Corzine called for a $1.5 billion hike in the sales tax; but “the chamber and other business groups sat on their hands in order to avoid making enemies with the legislature,” notes Frayda Levin, New Jersey director of Americans for Prosperity. In Oklahoma the state chamber filed a petition with the state Supreme Court to block eminent domain reform, and vowed to fight a taxpayer-led movement to enact a Colorado-style Tabor. Massachusetts? The state chamber and allied business groups oppose an income tax cut.

Proposed Hedge Fund Regulations Would Limit Options for All but the Rich

The nanny-state mentality of the Bush Administration and its appointees shows no sign of abating. The latest farce comes from the Securities and Exchange Commission, which want to prohibit all but the very wealthy from taking advantage of successful hedge fund investing. Richard Rahn comments in the Washington Times:

Financial regulation is most often justified by arguing it is needed to protect all participants from those who would engage in fraud or theft, and to protect unsophisticated investors from losing money in investments they do not understand. The U.S. Securities and Exchange Commission (SEC) has just proposed that the amount of liquid net worth an individual must have before investing in hedge funds and other so-called risky investments be raised to as much as $2.5 million. People meeting a net liquid worth requirement are considered “accredited investors.” …Even though most people would agree it is important to try to protect “widows and orphans” from unscrupulous and/or incompetent financial promoters, there is a fine line between protecting those who need protection and denying freedom to those who don’t. Does it make sense to prohibit a person who has recently obtained a graduate degree in finance from a leading business school from buying and selling hedge funds, because he or she has not yet accumulated some arbitrary amount of wealth – while legally allowing any adult man or woman to take all of his or her wealth and go to Las Vegas and blow it at the gambling tables?

Montgomery County Socialism

For readers in or around the DC area, the Washington City Paper has a nice cover story on the draconian Department of Liquor Control in the People’s Republic of Montgomery County, Md. The DLC is a government agency that controls the supply and distribution of every drop of alcohol sold in MC.

The piece sketches out some of the nightmarish experiences that business owners in MC have to go through to procure otherwise widely-available wines, and how the county outrageously cranks up the prices and provides godawful service to the business owners. (For example, a bottle that sold for $240 at a shi-shi DC restaurant is available for MC restaurant owners to purchase from the county for $260. They’d then have to mark it up themselves, again, to make a profit.)

Finally, the author of the piece interviews the director of the DLC, George Griffin, and asks him, “What gives?”

Griffin then proceeds to reel off some impressive statistics on how control jurisdictions have lower rates of underage drinking and fewer alcohol-related traffic fatalities for people under 21 than open jurisdictions. (An independent study forwarded to me by the National Alcohol Beverage Control Association seems to confirm his stats.) But then Griffin pauses briefly and delivers a disarmingly direct kicker to his list of justifications for MoCo’s system: “And that’s in addition to the $22 million that we give the county in unrestricted funds.”

Since taking over the DLC in 2001, after disgraced director Howard L. Cook Jr. was forced to leave for misusing a county credit card (among other misdeeds), Griffin will be the first to admit the contradictory nature of his job. It’s both to promote the “moderation and responsible behavior in all phases of distribution and consumption”…and to make a buttload of money to dump into the county’s budget. In the last five and a half years alone, the DLC has transferred more than $100 million to the general fund.

It isn’t just fine wines, either. When I was in college, I worked at a Bethesda pizza place to pay the bills. I recall during one of our busiest seasons, we ran out of all draft pilsner beer — Bud, Bud Light, Miller Light, etc. We begged, pleaded, beseeched the county to bring us more. Business had gone into the toilet, with no beer to serve with the pizza. The response from the DLC? ”We’ll be there when we get there.” They got there about a week later.

Meanwhile, DC restaurant owners are laughing all the way to the bank:

Some drinkers are already laughing at the wine choices in MoCo. “Nobody can think of a single restaurant that’s in Montgomery County that has anything approaching a noteworthy wine list,” says Mark Slater, chef sommelier at Citronelle, who once co-owned a restaurant in the county. “I don’t know why the citizens of the county even let that stuff go on. It’s punitive.”

Get the whole sorry scoop here.

Unsurprising News from the Pentagon

The Washington Post reports yesterday on cost overruns for weapons procurement. “It is not unusual for weapons programs to go 20 to 50 percent over budget, the Government Accountability Office found.”

That’s for sure. As I’ve documented, it’s not unusual for weapons to more than double in cost. I’m talking about the F/A-22 Raptor, the V-22 Osprey, the CH-47F helicopter, the Patriot missile, and on and on. See here, and see the discussion in Downsizing the Federal Government.

The same pattern occurs in federal highway projects, energy projects, and many other government endeavors.

Part of the reason this occurs is that contractors and government officials have a quiet understanding that the initial cost numbers that are used to get projects launched should be low-balled. Both sides know that later on, after projects are underway, excuses can be found to raise the price tag. “The scope of work has expanded.” “We couldn’t have foreseen those additional problems.” “The mission requirements have changed.” “There are new regulatory requirements.”

It doesn’t really matter. Once the money is flowing to certain states and jobs are at stake, no member of Congress has an incentive to be frugal with taxpayer money. 

Not Overstated

Last year, Jagadeesh Gokhale and I estimated [pdf] that state and local governments were sitting on about $1.4 trillion of promised, but unfunded, health care costs for their workers.

The Economist kindly discussed our estimate in their November 18 issue, but noted: “Even if Messrs Edwards and Gokhale have overstated the problem …”

It turns out that we hugely understated the problem for at least one state. We had New Jersey down for $20 billion, but news from that state today indicates that taxpayers may get hit with a $78 billion tab for state worker health costs unless are reforms are made (or $8,500 for every resident of the state).

Some Perspective on the President’s Budget Request

The White House has been spinning reporters all day with the claim that the new budget holds non-defense spending down, and in some cases even cuts some domestic spending from 2006 budget levels. 

To test the claim, I’ve compiled below the proposed fiscal 2008 inflation-adjusted growth rates for spending in the non-defense Cabinet-level agencies compared to the 2006 budget:

Real Proposed Change in 2008 Non-Defense Cabinet-Level Agency Budget vs. 2006 Budget Level
   
Agriculture -9.2%
Commerce 5.9%
Education -40.2%
Energy 6.1%
Health and Human Services 8.5%
Housing and Urban Development -0.2%
Interior 10.8%
Justice -1.7%
Labor 15.6%
Transportation 6.3%
Treasury 7.7%
Veterans Affairs 13.8%
EPA -10.9%
Total
4.1%

All told, there are five agencies that receive a cut in real dollars: Agriculture, Education, HUD, Justice, and the Environmental Protection Agency. Yet even by the White House’s own numbers, all of these programs combined will still grow beyond the 2006 levels by 4 percentage points above inflation. 

Still, we need to wonder: What does this standard really tell us? 

Not much. The 2006 budget levels were already bloated after a six-year Republican spending spree. What’s actually interesting to see is how much these agencies would grow — after adjusting for inflation and assuming Congress rubber-stamps the president’s new budget — when compared to budget levels on the day Bush assumed office: 

Real Proposed Change in 2008 Non-Defense Cabinet-Level Agency Budget vs. 2001 Budget Level
   
Agriculture 8.0%
Commerce 16.8%
Education 36.2%
Energy 10.7%
Health and Human Services 35.6%
Housing and Urban Development 8.3%
Interior 12.0%
Justice 7.7%
Labor 8.8%
Transportation 12.4%
Treasury 11.7%
Veterans Affairs 52.7%
EPA -12.8%
Total
22.4%

To put it another way: Bush’s new budget still does next to nothing to strip away most of the massive budget increases in domestic programs he signed into law since 2001. It’s the fiscal equivalent of a recovering alcoholic patting himself on the back for merely drinking six beers a day instead of eight.

Why 2012?

I’ll chime in with a broader analysis of the new Bush budget later. For now, it’s worth noting one of the big questions it raises: What’s so special about 2012? 

That’s the year the president claims the budget can be balanced while simultaneously renewing the Bush tax cuts. It’s also three fiscal years after Bush leaves office.

What the president could have done is propose a plan to balance the budget in two years. Revenues are on the upswing, so it could be accomplished — assuming you cut spending, that is. 

For a president who is, according to insiders, interested in bequeathing a healthy Republican Party to the 2008 presidential candidate, it seems there would be great value in simultaneously handing them a balanced federal budget while also showing voters there is still some inkling of interest in smaller government within the party. And it would eliminate the Democrats’ ability to use the deficit bogeyman as a reason to kill the Bush tax cuts that expire in 2010. 

Instead, President Bush resorted to increasing spending in almost all categories — in some cases, like the Pentagon budget, massively. It’s not a budget that supporters of small government can really sink their teeth into. It is weak sauce indeed.