France’s Valls Is No Bill Clinton

President Francois Hollande has put in place a new French government led by Prime Minister Manuel Valls. This maneuver has all the hallmarks of shuffling the deck chairs on the Titanic. Yes, one has the chilling feeling that accidents are waiting to happen.

President Hollande’s new lineup is loaded with contradictions. That’s not a good sign.

Just take Prime Minister Valls’ assertion that, when it comes to economics, he is a clone of Bill Clinton. For anyone familiar with the facts, this claim is bizarre, if not delusional.

When it comes to France’s fiscal stance, the Valls’ government is fighting austerity tooth and nail. Indeed, the Socialist government is seeking greater leeway from the European Commission (read: Germany) over targets for reducing France’s stubborn budget deficit. With French government expenditures accounting for a whopping 56.6 percent of GDP, it’s truly astounding that the government is reluctant to engage in a bit of belt tightening.

International Regulatory Conflict

My colleague Peter Van Doren posted here yesterday about a new National Highway Traffic Safety Administration (NHTSA) rule which mandates that “all cars and light trucks sold in the United States in 2018 have rearview cameras installed.” I’m going to leave the analysis of the domestic regulatory aspects of this issue to experts like Peter. I just wanted to comment briefly on some of the international aspects.

In particular, what if other governments decide to regulate in this area as well and they all do it differently?  That would mean significant costs for car makers, as they would have to tailor their cars to meet the requirements of different governments. Note that the U.S. regulation doesn’t just say, “cars must have a rear-view camera.”  Rather, it gets very detailed:

The final rule amends a current standard by expanding the area behind a vehicle that must be visible to the driver when the vehicle is shifted into reverse. That field of view must include a 10-foot by 20-foot zone directly behind the vehicle. The system used must meet other requirements as well, including the size of the image displayed for the driver. 

In contrast to a market solution, which provides flexibility as to what will be offered, the regulatory approach has very specific requirements.

As far as I have been able to find out, the United States is the first to regulate here, but others are likely to follow. When the EU or Japan turn to the issue, for example, will they develop regulations that are incompatible with the U.S. approach? Will there be a proliferation of conflicting regulations?

In theory, it’s easy to avoid these problems. Smart regulators would recognize that their foreign counterparts’ regulations are equally effective. But in other areas of automobile regulation, we haven’t seen enough of this cooperation. The rear-view camera issue provides an opportunity for regulators from different countries to work together to avoid making regulation even more costly than it already is.

Washington Should Not Risk War over Ukraine

Russia’s brazen annexation of Crimea has generated a flood of proposals to reinvigorate NATO. Doing so would make America less secure.

For most of its history, the United States avoided what George Washington termed “entangling alliances.”  In World War II and the Cold War, the United States aided friendly states to prevent hostile powers from dominating Eurasia. 

The collapse of communism eliminated the prospect of any nation controlling Europe and Asia. But NATO developed new roles to stay in business, expanding into a region highly sensitive to Russia. 

The invasion of Crimea has triggered a cascade of demands for NATO, mostly meaning America, to act. President Barack Obama responded: “Today NATO planes patrol the skies over the Baltics, and we’ve reinforced our presence in Poland, and we’re prepared to do more.”

The Eastern Europeans desired much more. An unnamed former Latvian minister told the Economist: “We would like to see a few American squadrons here, boots on the round, maybe even an aircraft carrier.” A gaggle of American policy advocates agreed.

NHTSA’s Rearview Camera Mandate

Last week the National Highway Traffic Safety Administration (NHTSA) completed rulemaking that mandated that all cars and light trucks sold in the United States in 2018 have rearview cameras installed.

In 2008 Congress enacted legislation that mandated that the NHTSA issue a rule to enhance rear view visibility for drivers by 2011.  Normally, such a delay would be held up as an example of bureaucratic ineptitude and waste. But in this case, NHTSA was responding to its own analysis that determined (p. 143) that driver error is the major determinant of the effectiveness of backup assist technologies including cameras.

In addition, NHTSA concluded that the cost per life saved from installation of the cameras ranged from about 1.5 times, to more than 3 times the 6.1 million dollar value of a statistical life used by the Department of Transportation to evaluate the cost effectiveness of its regulations.  NHTSA waited until the possibility of intervention by the courts forced it to issue the rule.  The problem in this case is Congress overreacting to rare events rather than the agency.

For more on auto safety regulation, see Kevin McDonald’s piece in Regulation here.

Incorrect, Gov. Bush

Speaking off the cuff, it’s easy to make a mistake. But for a long time former Florida governor – and trendy presidential possibility – Jeb Bush has been criticizing Common Core opponents for, among other things, saying the Core was heavily pushed by the federal government. His still getting the basics wrong on how Core adoption went down must be called out.

Interviewed at this weekend’s celebration of the 25th anniversary of his father’s presidential election – an event where, perhaps, he actually knew which questions were coming – Bush said the only way one could think the Core was a “federal program” is that the Obama administration offered waivers from the No Child Left Behind Act if states adopted it. (Start around the 7:15 mark.) And even that, he said, basically came down to states having “to accept something [they] already did”: agree to the Core.

Frankly, I’m tired of having to make the same points over and over, and I suspect most people are sick of reading them. Yet, as Gov. Bush makes clear, they need to be repeated once more: Washington coerced Core adoption in numerous ways, and creators of the Core – including the National Governors Association and Council of Chief State School Officers – asked for it!

In 2008 – before there even was an Obama administration – the NGA and CCSSO published Benchmarking for Success, which said the feds should incentivize state use of common standards through funding carrots and regulatory relief. That was eventually repeated on the website of the Common Core State Standards Initiative.

The funding came in the form of Race to the Top, a piece of the 2009 “stimulus” that de facto required states to adopt the Core to compete for a chunk of $4.35 billion. Indeed, most states’ governors and chief school officers promised to adopt the Core before the final version was even published. The feds also selected and paid for national tests to go with the Core. Finally, waivers from the widely hated NCLB were offered after RTTT, cementing adoption in most states by giving only two options to meet “college- and career-ready standards” demands: Either adopt the Core, or have a state college system certify a state’s standards as college and career ready.

Gov. Bush, the facts are clear: The feds bought initial adoption with RTTT, then coerced further adoption through NCLB waivers. And all of that was requested by Core creators before there was a President Obama!

Let’s never have to go over this again!

50 Years of Federal Spending

Fifty years ago, one of the biggest-spending presidents in U.S. history was settling into office after coming to power the prior November. Lyndon Johnson signed into law Medicare, Medicaid, and hundreds of subsidy programs for the states and cities.

Johnson was followed in office by one of the worst presidents of the 20th century in terms of domestic policy. Richard Nixon added and expanded many programs, and he helped to cement in place the array of new federal interventions pioneered by Johnson.

The chart below shows federal spending over the five decades since Johnson. Spending is divided into four components and measured as a share of gross domestic product (GDP).

Blue Line: Entitlement spending soared from the mid-1960s to the early-1980s. Medicare and Medicaid grew rapidly after being created in 1965, and Nixon signed into law numerous large increases in Social Security for current recipients. A month before the 1972 election, Social Security recipients received a letter informing them that Nixon had just signed a law bumping up their benefits by 20 percent. The recent spike in spending stems from increases in Medicare, Medicaid, food stamps, and other programs.

Black Line: Defense spending spiked in the late 1960s due to the Vietnam War. The number of U.S. troops in Vietnam peaked in 1968, then fell steadily after that. The Ronald Reagan and George W. Bush defense build-ups are also visible on the chart.

Red Line: Defense spending fell as a share of GDP in the 1970s, while nondefense discretionary spending rose. Then in the 1980s and 1990s, nondefense spending was restrained under Reagan and Bill Clinton, but then rose under George W. Bush in the 2000s.

Green Line: Bush and Barack Obama have been lucky budgeters because federal interest costs have been low during the past decade, despite the large deficits run by these two presidents. The luck won’t last: under its baseline, CBO projects that interest costs will rise from 1.3 percent of GDP today, to 2.7 percent by 2020, and to 4.1 percent by 2030.

Update: All data from the 2015 Federal Budget, Historical Tables, Table 8.4.

The Golden Rule of Spending Restraint

My tireless (and probably annoying) campaign to promote my Golden Rule of spending restraint is bearing fruit.

The good folks at the editorial page of the Wall Street Journal allowed me to explain the fiscal and economic benefits that accrue when nations limit the growth of government.

Here are some excerpts from my column, starting with a proper definition of the problem.

What matters, as Milton Friedman taught us, is the size of government. That’s the measure of how much national income is being redistributed and reallocated by Washington. Spending often is wasteful and counterproductive whether it’s financed by taxes or borrowing.

So how do we deal with this problem?

I’m sure you’ll be totally shocked to discover that I think the answer is spending restraint.

More specifically, governments should be bound by my Golden Rule.

Ensure that government spending, over time, grows more slowly than the private economy. …Even if the federal budget grew 2% each year, about the rate of projected inflation, that would reduce the relative size of government and enable better economic performance by allowing more resources to be allocated by markets rather than government officials.

I list several reasons why Mitchell’s Golden Rule is the only sensible approach to fiscal policy.

A golden rule has several advantages over fiscal proposals based on balanced budgets, deficits or debt control. First, it correctly focuses on the underlying problem of excessive government rather than the symptom of red ink. Second, lawmakers have the power to control the growth of government spending. Deficit targets and balanced-budget requirements put lawmakers at the mercy of economic fluctuations that can cause large and unpredictable swings in tax revenue. Third, spending can still grow by 2% even during a downturn, making the proposal more politically sustainable.

The last point, by the way, is important because it may appeal to reasonable Keynesians. And, in any event, it means the Rule is more politically sustainable.

I then provide lots of examples of nations that enjoyed great success by restraining spending. But rather than regurgitate several paragraphs from the column, here’s a table I prepared that wasn’t included in the column because of space constraints.

It shows the countries that restrained spending and the years that they followed the Golden Rule. Then I include three columns of data. First, I show how fast spending grew during the period, followed by numbers showing what happened to the overall burden of government spending and the change to annual government borrowing.

Golden Rule Examples

Last but not least, I deal with the one weakness of Mitchell’s Golden Rule. How do you convince politicians to maintain fiscal discipline over time?

I suggest that Switzerland’s “debt brake” may be a good model.

Can any government maintain the spending restraint required by a fiscal golden rule? Perhaps the best model is Switzerland, where spending has climbed by less than 2% per year ever since a voter-imposed spending cap went into effect early last decade. And because economic output has increased at a faster pace, the Swiss have satisfied the golden rule and enjoyed reductions in the burden of government and consistent budget surpluses.

In other words, don’t bother with balanced budget requirements that might backfire by giving politicians an excuse to raise taxes.

If the problem is properly defined as being too much government, then the only logical answer is to shrink the burden of government spending.

Last but not least, I point out that Congressman Kevin Brady of Texas has legislation, the MAP Act, that is somewhat similar to the Swiss Debt Brake.

We know what works and we know how to get there. The real challenge is convincing politicians to bind their own hands.