I arrived in Madrid yesterday for a speech to the annual Convention of Independent Financial Advisors, and it is somehow fitting that Spain was downgraded by Standard and Poor’s as I entered the country. I’m not a fan of the bond‐rating agencies, and the fact that it has taken so long for Spain to be downgraded simply reinforces my skepticism about their value. So let’s focus instead on identifying the sources of Spain’s fiscal crisis. If you look at the OECD’s fiscal database, you will see that Spain’s short‐run problem is solely the result of a growth in the burden of government spending. Over the past seven years, the budget in Spain has skyrocketed from 38.4 percent of GDP to 47.2 percent of GDP. And since tax revenues have stayed the same as a share of national economic output, it is difficult to see how anyone can conclude that the fiscal crisis is the result of inadequate revenue. In the long run, the problem also is excessive government spending, largely because demographic factors such as an aging population will push up outlays for pensions and health care.
In other words, Spain is in trouble for the same reason that Greece is in trouble. Government is too big and politicians are unwilling to take the modest steps that are needed to rein in dependency. This, of course, is exactly why there should not be a bailout. Subsidizing Greek politicians and Spanish politicians — regardless of whether the bailout comes from German taxpayers and/or the IMF — will send a signal to other European nations that there is an easy way out. But the “easy way out” simply postpones the day of reckoning and makes the eventual adjustment much more challenging. Here’s an excerpt from the Washington Post report:
European and International Monetary Fund officials on Wednesday were considering a dramatically increased $158 billion bailout package for Greece as the country’s debt crisis continued to ripple across Europe, with Standard & Poor’s downgrading the credit rating on Spain, the continent’s fourth‐largest economy. …In Europe, the most intense focus remains on Greece, but fears were intensifying elsewhere, especially in Portugal and Spain. Though analysts noted that both countries are in better shape than Greece — with lower ratios of debt — they both shared large fiscal deficits and poor long‐term economic prospects. On Wednesday, the government in Portugal announced that it would move up a program of painful spending cuts to shrink its budget deficit and shore up confidence amid signs that fearful depositors were moving capital out of Lisbon banks. After lowering Greek debt to junk bond status on Tuesday, Standard & Poor’s kept Spain at investment grade status, but lowered its rating one notch, to AA.
The president’s fiscal reform commission started off with some breathtaking chutzpah from Senate Budget Committee Chairman Kent Conrad (D-ND):
Rising federal debt is like a tsunami that could swamp the country at any moment…Our economic strength and security is on the line. Now is the time to act. And we need everyone, Democrats and Republicans, working together on a solution.
I personally believe that saying, ‘everything is on the table’ is critical. I hope none of us will take things off the table prematurely, because I think it is clear it’s going to take dramatic changes on the spending side of the ledger, and it’s going to take changes on the revenue side of the ledger.
Does Sen. Conrad consider farm subsidies to be on the table? In February, the Wall Street Journal exposed Conrad as a hypocritical big spender. For example, Conrad doesn’t miss an opportunity to shower his farm constituents with federal largesse:
He has been a defender of the state’s grain farmers ever since [his election to the Senate in 1986]. He voted last April against a proposal to cap federal payments to the nation’s farmers at $250,000 per farmer per year, a measure that Mr. Conrad criticized as disastrous but that supporters said would have saved $1 billion a year.
He also helped draft a five‐year, $300 billion farm bill in 2008 that boosted overall farm subsidies. The bill created a $3.8 billion emergency “trust fund” for farmers who lose crops or livestock to natural disasters, which was Mr. Conrad’s idea. Since 2008, North Dakota ranchers have received $23 million under the fund, second only to Texas.
What about federal entitlement programs, which represent the biggest budgetary threat going forward?
In 2003, Mr. Conrad joined most Democratic senators to support Mr. Bush’s plan to provide Medicare prescription‐drug coverage to seniors, at a cost of around $40 billion a year. The plan required Congress to scrap the spending controls Mr. Conrad once championed. Republicans won the votes of Mr. Conrad and other rural senators by agreeing to expand the program by pumping $25 billion more into rural hospitals and doctors over 10 years.
Flanked by the co‐chairmen of the new commission, Obama challenged the two parties to join in taking a “hard look” at the growing gap between what the government spends and raises in revenue, and to “think more about the next generation than the next election.”
The “growing gap” the president cites is one of his own doing. The following chart shows the projected gap between spending and revenues according to the Congressional Budget Office’s analysis of the president’s latest budget proposal:
The chart shows that revenues are already set to consume a larger share of the economy. The problem is that spending is on an elevator going up.
The politicians with the most power in Washington are precisely the ones pretending that they are powerless to steer the nation away from a looming fiscal disaster. Their claims are total, utter, complete nonsense. Both Obama and Conrad could have proposed budgets this year that actually cut spending to reduce the deficit. Both chose not to. They are the ones fueling the “tsunami.” They are the ones who don’t have the guts to cut off this generation’s subsidy recipients for the sake of the next generation. It’s that simple.
- All eyes on Pennsylvania’s 12th District: The May 18th special election “may provide an early glimpse for anyone wondering how big a millstone the health care law will be for Democrats this fall.”
- Richard Rahn: It’s going to be much harder to start a business in America under the new proposed financial regulations.
- The experts discuss: “How do we regulate or restrict new Wall Street creations, like synthetic C.D.O.’s, without squelching innovations that might enhance market efficiency?”
- Members of Congress react to the Citizens United ruling.
- Podcast: “Don’t Tape Me Bro” featuring David Rittgers.
I don’t think it’s accurate to say that some Tea Partiers “like” big government; it’s more like some aren’t enthusiastic about dismantling as much of the federal government as others, especially the more doctrinaire libertarians.
In the video I noted that polls showed a majority of the people who identify with the Tea Party movement also thought the entitlement programs were worth their cost. My colleague, Jagadeesh Gokhale, has estimated that paying for current entitlements would require 9 percent of GNP in perpetuity. This is unlikely. Entitlements will have to be changed since too much has been promised. People who think the programs have been worth their cost are not likely initially to support reining in the entitlements. In saying that, I expressed a concern, not a prediction. It may be that Tea Party people will also come to recognize, as Ed Morrissey does, that the entitlement state cannot continue.
I said in the video that Tea Party people should recognize that “Democrats are not always the enemy.” Morrissey rightly says I should not talk about enemies in domestic politics. He adds that the current House Democratic caucus does not deserve support because its leaders favor expanding government. He’s right. Divided government is what we need now. However, I had in mind the more centrist Democrats that supported the tax and spending cuts of 1981 and the tax reform of 1986. I am urging Tea Party people to avoid becoming too partisan. Perhaps some of them will still be in Congress in 2011.
Then there’s the question of foreign policy and defense spending. In the video I said that a limited government movement like the Tea Party should start thinking outside the box on spending. I suggested rethinking America’s expansive commitments in foreign affairs as a way to reduce our military spending. I did not deny — who could deny it? — that the Constitution entrusts the common defense to the federal government. I also recognize that the United States continues to have enemies. The question is: what should the government do to provide the common defense consistent with limited government?
In the past decade, we have spent enormous sums trying to transform two nations and the entire Middle East into liberal democracies. This was our “forward strategy” for dealing with terrorism. It reminded me of past Progressive crusades at home and abroad. The strategy was a domestic political disaster, and we shall see whether our massive outlays eventually produce stability in Iraq or Afghanistan. For my part, I remain partial to the conservative virtues of realism, restraint, and prudence in dealing with other nations.
The United States is currently spending about half of all military spending in the world. We have some room for restraint without endangering American lives. We will still have a Navy that protects trade routes to the extent they are threatened. As I said in the video, we need to rethink our overall place in the world if we are to corral the big government beast. The Tea Party folks can lead the way here.
The Pentagon is not most of the federal budget. It is the only part historically, however, that can vary downward as well as upward. Sometime soon, the non‐defense parts of the budget are going to have to vary downward rather than just upward. Being serious about limiting government, however, requires that all spending be considered. Since I think the Tea Party movement is serious about cutting government, it would be better if they had a look at all spending from the start.
Popular discontent with ObamaCare extends even so far as the traditionally left‐of‐center Columbus Dispatch editorial page:
Almost daily, the ill effects of the health‐care overhaul passed by Congress last month are becoming apparent. As employers and government bureaucrats analyze the law’s effect on bottom lines for the private sector and for government, the alarm bells are ringing.
The tragedy is that these ill effects could have been and should have been calculated before the law was passed, not after.
In fact, many of them were prophesied before passage of the bill, but the prophets were ignored by President Barack Obama and the Democratic majority in Congress. That’s because their uppermost goal was not to pass the best health‐care bill possible but merely to pass anything that could be called “health‐care reform” and could be claimed as a political victory by a president desperate for one.
The latest analysis of the bill’s likely effects comes from the Office of the Actuary in the federal Centers for Medicare and Medicaid Services. The report by Chief Actuary Richard S. Foster says that, far from reducing the cost of health care, the overhaul will add $311 billion to the nation’s health‐care costs over the first decade the law is in effect…
As the weeks roll by, more and more unintended and should‐have‐been‐anticipated consequences of this ill‐conceived law will be revealed.
This should be no surprise, considering that the law was slapped together behind closed doors without proper testimony and vetting by health‐care, financial and insurance experts, and is a patchwork of political and special‐interest deals rammed through Congress using procedural gimmicks.
The nation deserved something much, much better than this.
Read the full editorial. Repeal the bill.
Tim Carney has a blog post at the Examiner that’s worth quoting in full:
The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R‐Tex. — certainly one of the two most free‐market politicians in Washington — gets the lowest score of any Republican.
Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:
- Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
- Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
- Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.
(Rep John Duncan, R‐Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)
I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free‐market agenda:
Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.
Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro‐business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro‐business” is not the same as “pro‐freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.
I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber’s position than to Ron Paul’s. But to suggest that Paul is wrong to vote against business subsidies — or that DeMint was wrong to vote against Bush’s 2008 stimulus package and the $700 billion TARP bailout — certainly does illustrate how much difference there can be between “pro‐business” and “pro‐market.” Instead of “Spirit of Enterprise,” the Chamber should call these the “Spirit of Subsidy Awards.”
With the first round of the so-called "Race to the Top" having produced just two winning states -- and those states appearing to have won primarily because they were able to get teachers' unions to sign onto their reform proposals -- there seems to be a growing backlash against RTTT.
For one thing, several states are not applying for the second round of RTTT grants. Apparently, many just don't think jumping through all the RTTT hoops is worth it, especially when, as a welcome new Economic Policy Institute briefing paper illustrates, who wins and who loses is pretty arbitrary.
Perhaps the more interesting new ojection to RTTT, though, is that it is, frankly, illegal. So writes the Brookings Institutions' Grover J. "Russ" Whitehurst, who asserts that nowhere in the "stimulus" legislation authorizing RTTT does it say that the U.S. Secretary of Education can award money based on states doing things he prescribes. No, the authorizing legislation, according to Whitehurst, says that the money must go to states that have already made significant reform progress.
None of this, importantly, gets at the main problem with RTTT (in addition to its unconstitutionality): That there is just no good reason to believe that it will lead to any meaningful, lasting reform. Still, the crescendoing drumbeat against what so far has been the crown jewel of the Obama administration's education policy is a good sign. More people, it seems, are realizing that the administration talks a great game about reform, but delivers quite the opposite.
Of course, hope still springs eternal for some folks.