Archives: 02/2009

President Honors Pledge to Post Bills Before Signing

… or does he?

Friday afternoon, the White House blog announced that the American Recovery and Reinvestment Act of 2009 was posted online for public comment. This looked like good evidence that the President intends to honor his campaign promise to post legislation online and take public comment for five days before signing it.

But it’s not great evidence of that.

The post went up at 2:05 pm, but the House didn’t vote until 2:24 pm and the Senate voted at 05:29 pm. (Click on the “votes” to see how your representatives did.) As of Saturday afternoon, the Thomas legislative tracking system doesn’t indicate that the bill has been presented to the President yet. And news reports indicate that the President will sign the bill on Monday, three days after it was “pre-posted.”

Regular order, Mr. President. When a bill is presented to you, post it online (at a consistent place on your Web site, not just at ad hoc URLs as you’ve done up to now). Then wait five days, reviewing the comments of the public as you promised to do when you asked the public to elect you.

The steps the White House has taken toward implementing the President’s promise are good steps. (In this Cato daily podcast, I characterized the President’s record on transparency so far as “mixed.”) But the promise is not fulfilled until bills receive five days online airing after they have been presented.

Presentment is a distinct, constitutional step in the legislative process. Until every non-emergency bill is posted online for five days after presentment and before signing, President Obama will look like he’s being driven by events and maneuvered by his elders in Congress.

High-Speed Stimulus

Over the past two decades, U.S. cities have wasted close to $200 billion on high-cost, low-performance rail transit projects. But that will nothing compared to the plans rail nuts have for high-speed intercity rail.

Last November, 52 percent of California voters approved $9 billion in funding for a San Francisco-to-Los Angeles high-speed rail plan. The total cost of the plan is expected to exceed $45 billion, and California expects Uncle Sam to pick up at least half the tab. If it does, Florida, Illinois, Texas, and a few dozen other states will all want federal funding for their own high-speed rail plans.

The House version of the stimulus package included no money for high-speed rail. The senate version included $2 billion. Thanks to Senator Harry Reid (D-NV), who wants a Las Vegas-to-Los Angeles high-speed rail line, the final version of the bill included $8 billion. (Conservatives have attempted to portray this as an earmark, but Reid says the $8 billion will be distributed through competitive grants.)

Earmark or not, $8 billion won’t even cover the down payment on a high-speed rail network. Based on the projected costs of California’s system and the length of high-speed rail proposals in the rest of the U.S., I estimate that a national high-speed rail network will cost the U.S. well over $500 billion. By comparison, the Interstate Highway System, adjusted for inflation to today’s dollars, cost $450 billion.

What will high-speed rail do? As my Cato policy analysis reveals, studies in California and real-life examples in Europe shows that its main effect will be to put profitable airlines out of business. It will only take about 3 or 4 percent of cars of the roads in rail corridors. Though costing more than interstate highways, a national high-speed rail network will never carry even a fifth as many people as the interstates, and virtually 0 percent of the freight. High-speed rail operations might save a little energy, but the energy cost of construction will more than wipe out any long-term operational savings.

Adding $8 billion to the stimulus bill will do nothing to stimulate the economy, as there are no shovel-ready high-speed rail projects in the country. But it does put us one more step down the path of wasting another half trillion or so dollars on an obsolete form of transportation.

The Last Word on Fiscal Stimulus?

From “the best-selling Principles of Economics textbook [which] has been teaching students in a clear, unbiased way for 40 years.” Campbell R. McConnell, Economics: Principles, Problems, and Policies.  McGraw-Hill, 7th edition, 1978.

The Last Word: The Impotence of Fiscal Policy
Some economists feel that fiscal policy is an impotent and unpredictable stabilization tool.

Well, as I wrote in a 1977 Tax Review article (reprinted 1w permission of the Tax Foundation, Inc.):

The real question is whether or not conventional fiscal policy works as advertised. If fiscal policy works, and its impact is properly measured by the size of the full employment deficit, then it should be possible to find some correlation between either the level or direction of the full employment budget and some measure of current or subsequent economic activity. George Terborgh tried to find some such link back in 1968, in The New Economics, but found only a weak correlation that turned out to be perverse. That is, larger full employment surpluses were associated with faster economic growth. More rigorous tests by economists at the St. Louis Fed, and again at Citibank, had no more luck in uncovering the magical properties of the full employment budget. A sharp shift toward larger full employment deficits did not prevent the recession of’ 1953-54, for example, nor the mini-recession of 1967. In 1946, a $60 billion reduction of Federal spending (equivalent to $400 billion today) was followed by a vigorous boom, and a combination of tax cuts and higher spending in 1948 (the equivalent of S75 billion today) was followed by a sharp recession.

The theory of fiscal policy is almost as messy as the evidence. If deficit spending is financed by borrowing from the private sector, there is no obvious stimulus-even to that undifferentiated thing called “demand.” Whoever buys the government securities surrenders exactly as much purchasing power as is received by the beneficiaries of Federal largess. There would be a net fiscal stimulus only if there were no private demand for the funds needed to cover the added Treasury borrowing. Otherwise, lendable funds are just diverted from market-determined uses to politically determined uses.

There may be a stimulus in some circumstances if the deficit is financed by a more rapid increase in the money supply, but this is really a monetary stimulus, not a purely fiscal effect.

In the long run, resources allocated through the government must displace those allocated through markets, and growth of government spending must be at the expense of the private sector. The government has only three sources of revenue – taxes, borrowing, and printing money – and increasing any one of those must reduce the private sector’s command over real resources. Although deficit spending may at times be a short-run stimulus to nominal demand, it is also a long-run drag on real supply-siphoning resources from uses that would otherwise augment the economy’s productive capacity, and instead diverting those resources into hand-to-mouth consumption through government salaries, subsidies, and transfer payments.

So, the theory and evidence suggests that fiscal policy is essentially impotent, or at least unpredictable, except as a device to promote inflationary monetary policy and/or to reduce investment and growth.

Historic and Transformational

Speaker Nancy Pelosi says that the massive spending bill Congress is about to pass is “historic and transformational.” She has a point. Here’s a visual of what it’s helping to do to the federal deficit:

(Source: Strategas Group via PowerlineBlog)

The federal budget is already plunging into deficit. It hardly seems the time to add another $800 billion of spending. Doing so may very well prove to be transformational, like pushing the economy over a cliff.

The Washington Post reports, “The Obama administration’s economic stimulus plan could end up wasting billions of dollars by attempting to spend money faster than an overburdened government acquisition system can manage and oversee it, according to documents and interviews with contracting specialists.”

And as noted here previously, lobbyists have loaded the bill down with special-interest provisions, such as “a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas,” a project favored by Harry Reid. A levitating train from Fantasyland to a city built on gambling. If that isn’t a metaphor for this bill, I don’t know what is.

But it’s not the only one. The Post also notes funding for lithium batteries, Filipino veteran payments, small shipyards, North Carolina-made TSA uniforms, and “clean coal.”

Given all that, it’s especially disappointing that President Obama and Congress continue to ignore his campaign promise to let all legislation be publicly available for five days before he signs it. In this case, even members of Congress had trouble getting their hands on the actual $790 billion bill they were expected to vote on. Congress should listen to Bill Niskanen:

This is the fifth time in my adult life that the president has asked for or asserted unprecedented authority on an expedited basis with little or no congressional review. Each of the prior occasions turned out to be a disaster.

One Last Dig

Barring a miracle, the porcine juggernaut known as “The Stimulus” is going to become law, and with it around $100 billion in new education spending. At this point I can’t point to much more evidence than I already have to demonstrate how educationally worthless this will be, but I want to add a couple of bits just to make myself feel a little better.

First, for about the trillionth time, I’ve run into a statement suggesting that all that public schools ever see are funding cuts. The quote below is from an article in this morning’s Los Angeles Times about the windfall states are poised to get when the stimulus passes:

“It’s one of the most exciting things we’ve heard about in a long time,” said Chris Eftychiou, spokesman for the nearly 90,000-student Long Beach Unified School District, which stands to gain tens of millions of dollars over the next two years.

“Usually, it’s just cuts, not additional revenue.”

Come now, LBUSD! While I could only find data for current per-pupil expenditures (which do not include capital costs) going back to 1998-99, the district’s expenditure trend, shown in the chart below, has clearly been upward. (I adjusted for inflation the data found on this California Department of Education site for LBUSD. To access the original data, all you have to do is select the report “Financial Reports for District,” go to the “general fund” tab, scroll all the way to the bottom of the page, hit the ”pop-trends” link, then select “$/student(ADA).” Simple!)

So where are these constant cuts?

Moving to higher education, the State Higher Education Executive Officers just released its FY 2008 state and local higher education funding numbers. Once again, they give the lie to the notion that public colleges perpetually face government budget axes and have to raise tuition just to make up the loss. As the chart below shows, inflation-adjusted state and local appropriations per full-time-equivalent student rose by $41 between FY 2007 and FY 2008, while tuition revenue grew by $57. Nonetheless, ivory tower denizens have been crying out for financial help, and they’ll get it – the House and Senate compromise bill appears to offer lots of cash for our “poor” ol’ public colleges.

You know what? Now I actually feel a little worse…

The Cost per Family of the Deficit Spending Bill has run the numbers on the deficit spending bill formerly known as economic stimulus, which is being debated in the House and Senate today. Here’s the skinny:

The bill costs the average U.S. family about $3,300, and it raises the national debt by about $7,700 per family.

Let’s go through that.

The bill spends about $5,500 per family, or $1,750 per person.
It reduces taxes by about $2,200 per family, or $700 per person.
Total cost (using our methodology): $3,300 per family, or $1,050 per person.
Added to national debt: $7,700 per family, or $2,450 per person.

Henrietta Hughes, HUD, and the Ft. Myers Public Housing Authority

Henrietta Hughes, the southwest Florida woman who was singled out this week by President Obama at a “stimulus” rally in Ft. Myers, Fl., is being labeled by the press as “the face of the economic crisis.”

According to ABC News, Hughes told the president in front of the crowd, “I have an urgent need, unemployment and homelessness, a very small vehicle for my family and I to live in…. The housing authority has two years’ waiting lists, and we need something more than the vehicle and the parks to go to. We need our own kitchen and our own bathroom. Please help.”  President Obama gave her a kiss on the cheek, and told her, ‘We’re going to do everything we can to help you, but there are a lot of people like you.”

An uproar has ensued between left and right factions of the blogosphere. There have been accusations that Hughes was planted at the rally by the president’s handlers. There have been questions regarding a house she apparently owned and sold. And yesterday a local news outlet reported that a local faith-based nonprofit had offered Hughes and her son living arrangements, which she turned down.

I have no idea what is or isn’t true, but I don’t doubt this woman and her son are in a tough spot. What caught my eye was Hughes’ accusation that the Ft. Myers Public Housing Authority has a two-year waiting list. Whether planted or not, the president was handed a convenient prop to stir public opinion in favor of the so-called “stimulus.” The implied message was: “Pass this stimulus so people like Henrietta Hughes and her son will have a home.”

So I decided to look into what sort of federal money the U.S. Department of Housing & Urban Development (HUD) has been pumping into Ft. Myers and surrounding Lee County, Fl. The government’s website is a useful, if imperfect, tool for uncovering who and where our tax dollars are going.

As it turns out, the Housing Authority of the City of Fort Myers has received over $41 million in HUD from just fiscal years 2006 to 2008. According to population estimates for Ft. Myers, that sum equals $600 for every man, woman, and child in the city. But that’s just the housing authority. When I added up all HUD housing and community development monies for Ft. Myers and Lee County, I came up with just under $70 million over the same period of time. Additionally, the U.S. Department of Health and Human Services (HHS) has given the area $18 million over those three years for consolidated health centers, which includes funds for health care for the homeless and public housing primary care. Thus, the three-year grand total of federal dollars to activities that are designed to help people like Henrietta Hughes and her son in Ft. Myers/Lee County equals almost $90 million.

Let’s keep in mind that we’re only talking about federal money. A reporter with more time than I have should look into how much state and local tax dollars are being spent on the homeless and low-income housing in the Ft. Myers/Lee County area. Even after adding in state and local government money, private charities such as churches and civic organizations also provide such services.

Let’s also keep in mind that HUD housing and community development programs are notoriously wasteful, as I noted in this post. If Hughes’ claim that the Ft. Myers Public Housing Authority has her on a two-year wait is true, I think the HUD inspector general’s office needs to launch an audit to see what’s happening with the federal taxpayer dollars that have already been spent there. In the meantime, an administration that talks a good game about transparency and accountability should not deceive the American people into believing that more federal dollars being spent on failed federal experiments, which is what HUD is, will provide economic prosperity or alleviate the impoverished.