Topic: Tax and Budget Policy

Tea Party Discovers Eric Cantor’s Record on Federal Spending

I was as surprised as everybody else by David Brat’s defeat of Eric Cantor yesterday. But I’m not really surprised that Tea Party-type voters were tired of Cantor’s voting record. In 2010, I noted that Cantor, Rep. Kevin McCarthy, and Rep. Paul Ryan had published a book, Young Guns, which cast the Republican congressional leaders who preceded them as a group that “betrayed its principles” and was plagued by “failures from high-profile ethics lapses to the inability to rein in spending or even slow the growth of government.”

But, I wondered, how credible were the messengers? Once you ruin a brand, it can take a long time to restore it. And part of the solution is owning up to your own errors, not just pointing the finger.

Sadly, I discovered at the time that the authors didn’t have very clean hands when it came to the overspending and overregulation of the Bush years. Most relevantly for today, I found that Rep. Cantor voted for the Bush administration’s No Child Left Behind Act in 2001, expanding federal control over education. He voted for the costly Iraq war in 2002. He voted for the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, which was projected to add more than $700 billion to Medicare costs over the following decade. He voted for the Emergency Economic Stabilization Act of 2008, which included the $700 billion TARP bailout. 

To be fair, he did get A’s and B’s in the annual ratings of Congress by the National Taxpayers Union, which means he had a better record on spending than most of his colleagues. But as the Tea Party’s been complaining, that’s not saying much.

David Brat, a professor of economics, promised in his campaign to “fight to end crony capitalist programs that benefit the rich and powerful.” While I’m disappointed in his opposition to sensible immigration reform, I hope that if he does get to Washington he’ll bring a revitalized Tea Party message of fiscal responsibility and opposition to big business cronyism.

Eric Cantor’s Website

My Daily Caller op-ed today looks at the website of a typical modern politician, Rep. Sean Patrick Maloney (D-NY). His site is designed to impress voters and the media in his district with all the federal benefits he has brought home. Maloney is taking a pork and constituent service approach to gaining reelection.

There are other approaches to electoral success. Senator Rand Paul (R-KY) has a strategy of championing principles and specific issues that broadly resonate. The detail on Paul’s website is much better than most. Under “Issues,” he describes his general approach to each policy topic and discusses his stands on particular bills. Under “Budget” he provides a 106-page plan to cut spending.  

Looking at Rep. Eric Cantor’s (R-VA) website, you can see that he followed neither the pork nor the principled approach. If Cantor brought pork home to his district, he does not do a very good job telling people about it.

Regarding big ideas or describing his positions on issues, Cantor’s congressional website is nearly empty. Unlike most members, he does not even have an “Issues” section to explain his approach to tax reform, the budget, economic growth, civil liberties, energy, or other policies. His website is fluff.

Cantor’s primary defeat seems partly due to a lack of trust, meaning that voters in his district did not really know where he stood on issues or how he would vote. His website seems to have reflected his strategy of not taking hard stands and having few guiding principles. In his district, that ended up being a losing strategy.

(As majority leader, Cantor also runs this website. But for all the resources that office must have, this site is also very fluffy).

 

Linear Thinking and the Rahn Curve: Responding to a Critic

There’s an old saying that there’s no such thing as bad publicity.

That may be true if you’re in Hollywood and visibility is a key to long-run earnings.

But in the world of public policy, you don’t want to be a punching bag. And that describes my role in a book excerpt just published by Salon.

Jordan Ellenberg, a mathematics professor at the University of Wisconsin, has decided that I’m a “linear” thinker.

Here are some excerpts from the article, starting with his perception of my view on the appropriate size of government, presumably culled from this blog post.

Daniel J. Mitchell of the libertarian Cato Institute posted a blog entry with the provocative title: “Why Is Obama Trying to Make America More Like Sweden when Swedes Are Trying to Be Less Like Sweden?” Good question! When you put it that way, it does seem pretty perverse.  …Here’s what the world looks like to the Cato Institute… Don’t worry about exactly how we’re quantifying these things. The point is just this: according to the chart, the more Swedish you are, the worse off your country is. The Swedes, no fools, have figured this out and are launching their northwestward climb toward free-market prosperity.

I confess that he presents a clever and amusing caricature of my views.

My ideal world of small government and free markets would be a Libertopia, whereas total statism could be characterized as the Black Pit of Socialism.

But Ellenberg’s goal isn’t to merely describe my philosophical yearnings and policy positions. He wants to discredit my viewpoint.

So he suggests an alternative way of looking at the world.

Let me draw the same picture from the point of view of people whose economic views are closer to President Obama’s… This picture gives very different advice about how Swedish we should be. Where do we find peak prosperity? At a point more Swedish than America, but less Swedish than Sweden. If this picture is right, it makes perfect sense for Obama to beef up our welfare state while the Swedes trim theirs down.

He elaborates, emphasizing the importance of nonlinear thinking.

The difference between the two pictures is the difference between linearity and nonlinearity… The Cato curve is a line; the non-Cato curve, the one with the hump in the middle, is not. …thinking nonlinearly is crucial, because not all curves are lines. A moment of reflection will tell you that the real curves of economics look like the second picture, not the first. They’re nonlinear. Mitchell’s reasoning is an example of false linearity—he’s assuming, without coming right out and saying so, that the course of prosperity is described by the line segment in the first picture, in which case Sweden stripping down its social infrastructure means we should do the same. …you know the linear picture is wrong. Some principle more complicated than “More government bad, less government good” is in effect. …Nonlinear thinking means which way you should go depends on where you already are.

Ellenberg then points out, citing the Laffer Curve, that “the folks at Cato used to understand” the importance of nonlinear analysis.

The irony is that economic conservatives like the folks at Cato used to understand this better than anybody. That second picture I drew up there? …I am not the first person to draw it. It’s called the Laffer curve, and it’s played a central role in Republican economics for almost forty years… if the government vacuums up every cent of the wage you’re paid to show up and teach school, or sell hardware, or middle-manage, why bother doing it? Over on the right edge of the graph, people don’t work at all. Or, if they work, they do so in informal economic niches where the tax collector’s hand can’t reach. The government’s revenue is zero… the curve recording the relationship between tax rate and government revenue cannot be a straight line.

So what’s the bottom line? Am I a linear buffoon, as Ellenberg suggests?

Well, it’s possible I’m a buffoon in some regards, but it’s not correct to pigeonhole me as a simple-minded linear thinker. At least not if the debate is about the proper size of government.

I make this self-serving claim for the simple reason that I’m a big proponents of the Rahn Curve, which is …drum roll please… a nonlinear way of looking at the relationship between the size of government and economic performance. And just in case you think I’m prevaricating, here’s a depiction of the Rahn Curve that was excerpted from my video on that specific topic.

Moreover, if you click on Rahn Curve category of my blog, you’ll find about 20 posts on the topic. And if you type “Rahn Curve” in the search box, you’ll find about twice as many mentions.

So why didn’t Ellenberg notice any of this research?

Beats the heck out of me. Perhaps he made a linear assumption about a supposed lack of nonlinear thinking among libertarians.

In any event, here’s my video on the Rahn Curve so you can judge for yourself.

And if you want information on the topic, here’s a video from Canada and here’s a video from the United Kingdom.

P.S. I would argue that both the United States and Sweden are on the downward-sloping portion of the Rahn Curve, which is sort of what Ellenberg displays on his first graph. Had he been more thorough in his research, though, he would have discovered that I think growth is maximized when the public sector consumes about 10 percent of GDP.

P.P.S. Ellenberg’s second chart puts the U.S. and Sweden at the same level of prosperity. Indeed, it looks like Sweden is a bit higher. That’s certainly not what we see in the international data on living standards. Moreover, Ellenberg may want to apply some nonlinear thinking to the data showing that Swedes in America earn a lot more than Swedes still living in Sweden.

Cut Saturday Mail to Fund Highways?

The Highway Trust Fund will be out of money in a few months, mainly because Congress insists on spending more than it takes in. To avert this supposed crisis, Republican leaders are proposing to cut Saturday deliveries of mail and use the savings to replenish the trust fund.

There’s actually a tiny grain of Constitutional sense behind this proposal. The original legal justification for federal involvement in highways, back when members of Congress actually cared about such things, was that the Constitution authorizes Congress “to establish Post Offices and post Roads.” If the “post roads” aren’t paying for themselves, then who better to pay for them than the post offices?

In this sense, the Republican proposal is slightly more rational than President Obama’s proposal to use the increased revenues from a corporate income tax reform that will eliminate loopholes but reduce corporate tax rates. The administration predicts reducing rates will reduce corporate tax obligations in the long run but closing loopholes will increase revenues in the short run (interesting how Obama is promising corporations lower taxes after he is out of office in exchange for higher taxes when he is still in office). Obama wants to use some of those increased revenues to supplement the Highway Trust Fund.

More than offsetting the tiny Constitutional sense of the Republican proposal is that it will take ten years of Postal Service cuts in order to cover one year’s worth of red ink from the Highway Trust Fund. In other words, the plan is far from sustainable and will simply lead to another transportation cliff in a year or so.

Pareto on Piketty

“The man in whose power it might be to find out the means of alleviating the sufferings of the poor would have done a far greater deed than the one who contents himself solely with knowing the exact numbers of poor and wealthy people in society.”

—Vilfredo Pareto, “The New Theories of Economics,” Journal of Political Economy 5: 485–502 (1896–97).

Federal Firing Rate by Department

The VA scandal has prompted a debate about whether it should be easier to fire federal workers. I’ve argued that the firing rate for poor performance should be increased.

However, there can be no debate that the current firing rate is very low. In 2013 just 9,244 workers out of a civilian federal workforce of 1.87 million were fired for poor performance or misconduct, according to OPM data underlying this Govexec.com article by Eric Katz. That is a rate of just 0.49 percent, or 1 in 200 a year. Most federal firings are for misconduct, with a smaller share for poor performance.

The Govexec.com analysis found that firing rates by type of employee vary dramatically. Blue collar and lower GS levels (1-10) are many times more likely to be fired than higher GS levels (11-15) and those in the Senior Executive Service (SES). The GS 11-15 firing rate was just 0.14 percent, while the SES rate was just 0.09 percent. Just 7 out 7,940 SES employees got fired in 2013. What would Piketty say about that?

Govexec.com charted the firing rates by department, but part of the differences stemmed from the type of workforce each department has. So, instead, let’s focus on just the largest group of civilian workers in the government—the GS 11-15 group—and see how firing rates vary. These differences may tell us more about how employment cultures differ between departments.

Govexec.com kindly provided me their firing-by-department data sourced from the OPM. I combined that information with data from these OPM tables on total GS 11-15 employment by department.

The chart shows the results. Annual firing rates vary from a low of 0.07 percent in Transportation to high of 0.22 percent in Labor. In Transportation, just 9 out of 12,389 GS 11-15 workers were fired in 2013. In HUD it was just 7 out of 7,703. In Education it was 6 out of 3,477.

VA has one of the highest firing rates for this class of worker at 0.18 percent. But that’s still just 1 in 555 workers in 2013.

Highway Bill: Fiscal Reform or Big Government?

If you are interested in financial markets, Cato has an interesting forum tomorrow on bank runs. But if you are more interested in highways and spending, you can catch me at this Heritage forum tomorrow on the Hill.  

Which Way for the Highway Bill: Fiscal Reform or Big Government?

Emily Goff, Heritage Foundation; Chris Edwards, Cato Institute; Ken Orski, Innovation NewsBriefs

Wednesday, June 4th, 2014 at 12:00p.m.

1310 Longworth House Office Building

I’m not sure which lunch forum will have the best sandwiches, but I do know that fiscal reform is the best direction for transportation policy.