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Cato Daily Dispatch for February 1, 2006

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Bush on Energy, Health Care and the Budget
Budget Cutting?
Bernanke Replaces Greenspan as Fed Chairman

Bush on Energy, Health Care and the Budget

"President Bush offered the nation a modest menu of energy, health and education proposals and warned against the `false comfort of isolationism' on Tuesday in a State of the Union address that sought to reassert his control over the nation's agenda heading into a pivotal midterm election campaign," reports The New York Times. "In one of his most striking declarations, Mr. Bush said 'America is addicted to oil' and set a goal of replacing 75 percent of the nation's Mideast oil imports by 2025 with ethanol and other energy sources."

Jerry Taylor, a Cato senior fellow, comments on the president's energy policy: "The President offered bracing new rhetoric about where he would like to take energy policy in the coming year, but he suggested little more than a bit more money for the same old programs that have failed in the past. In short, it reminds me of metaphor about 'old wine in new bottles.' Regarding the rhetoric, it's odd that the President would complain that America is 'addicted to oil.' Another way of putting it is that American consumers are attracted to the lowest cost sources of energy to meet their energy needs. It's a bit distressing to call that sensible inclination an 'addiction.'"

Cato's director of health policy studies, Michael Cannon, had this to say about health care: "Fortunately, President Bush recognizes that price distortions created by the federal tax code are the biggest impediment to quality, affordable health care, and that health savings accounts are the best hope for removing those harmful distortions. The president's innovative proposal to expand health savings accounts (HSAs) moves in the right direction. Increasing HSA contribution limits would help the chronically ill afford medical care, and would help all individuals save for their future medical needs. Allowing HSA holders to purchase health insurance tax-free with their HSA funds would make health insurance more portable and remove stark inequities in the tax code."

On the federal budget and taxes, Stephen Slivinski, Cato's director of budget studies, comments: "President Bush recognizes that keeping government spending under control is a vital element in any plan to help the economy grow. A government that spends an increasingly larger share of GDP each year hurts the economy. Unfortunately, the president and the Republican Congress have passed budgets that grew faster than the economy, causing government spending to go from a 20-year low of 18% of GDP in 2001 to over 20% of GDP today."

Budget Cutting?

"Republican leaders remain confident that they will prevail Wednesday on the five-year, $39 billion budget-cut measure," according to The Associated Press. "It's a leftover item from their fall agenda that many Republicans say is an important step to restoring their party's reputation for discipline on spending. House passage would send the bill to President Bush for his signature."

Chris Edwards, Cato's director of tax policy studies, remarks on the Congressional Budget Office's (CBO) report that the U.S. budget deficit will reach $337 billion this year: "President Bush and Republicans in Congress keep claiming that they are getting spending under control and that spending growth rates are falling. That is simply not correct. The 8.0% growth rate in 2006, and massive 43% spending increase the past five years (FY2001 to FY2006), shows that federal government growth is completely out-of-control under the Republicans.

"President Bush's goal of cutting the deficit in half is not good enough. He should lay out a plan to bring the federal deficit down to zero by the end of the decade by cutting spending. A detailed plan to do just that is in Downsizing the Federal Government, which proposes a balanced array of cuts to defense, non-defense, and entitlement programs."

Bernanke Replaces Greenspan as Fed Chairman

"In his last day, Federal Reserve Chairman Alan Greenspan ended his 18-year tenure Tuesday with one more rate hike and a few parting words to give his successor some room to maneuver," The Investor's Business Daily reports. "[A]s accolades continue to rain on the outgoing chairman, economists and investors are looking ahead to his replacement, White House economist Ben Bernanke. He'll be sworn in Wednesday after Tuesday's Senate approval."

In the winter edition of the Cato Journal, Bernanke writes about the role of "monetary policy in enabling economies to take maximum advantage of the increasing openness and depth of international capital markets" in the article "Monetary Policy in a World of Mobile Capital."

Bernanke argues "for an international system based on the principles of flexible exchange rates, free capital mobility, and independent monetary policies, at least within the great majority of countries. Important complementary elements include free trade and the further development of the 'soft' infrastructure -- the legal, regulatory, fiscal, and financial frameworks that characterize advanced economies. The fundamental virtue of this system is its flexibility and adaptability qualities that will become increasingly essential in a complex and interdependent world."

Greg Garner, editor, ggarner@cato.org