Archives: 02/2012

The Obama Budget — Some Day My Cuts Will Come

It’s being reported that in his 2013 budget President Obama will propose to increase spending now and reduce the deficit some day.  Isn’t that what every budget promises these days? As I noted last summer during the debt ceiling fight at the Britannica Blog, fiscal conservatives should be very skeptical of plans and proposals that  promise to cut spending some day—not this year, not next year, but swear to God some time in the next ten years:

As the White Queen said to Alice, “Jam to-morrow and jam yesterday—but never jam to-day.” Cuts tomorrow and cuts in the out-years—but never cuts today.

We’ve become so used to these unfathomable levels of deficits and debt—and to the once-rare concept of trillions of dollars—that we forget how new all this debt is. In 1981, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s past $15 trillion. So here’s a graphic representation from the Washington Post (now about half a trillion behind) of debt dysfunction:
National debt


Those are the kind of numbers that caused the Tea Party movement and the Republican victories of 2010. And where did all this debt come from? As the Tea Partiers know, it came from the rapid increase in federal spending over the past decade:

Federal Spending

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office 10 years ago, and the national debt is almost three times as high. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. And yet many voters, especially Tea Partiers, know that both parties have been responsible. Most Republicans, including today’s House leaders, voted for the No Child Left Behind Act, the Iraq war, the prescription drug entitlement, and the TARP bailout during the Bush years. That’s one reason that even voters outraged at the Obama-Reid-Pelosi spending surge can’t quite get enthusiastic about Republicans.

The problem on Capitol Hill is spending, deficits, and debt. Members of Congress need to tell the president that you don’t rein in out-of-control spending by increasing it. And if voters want members of Congress to insist on cuts, they’re going to have to let their representatives know that.

Cato’s Final Obamacare Brief — on the Individual Mandate — Joined by 16 Other Groups and 333 State Legislators

With the scheduled three days of oral argument six weeks away, Cato filed its fourth and final Supreme Court amicus brief in the Obamacare saga, this time on the most critical issue: the constitutionality of the individual mandate. Alongside Pacific Legal Foundation, Competitive Enterprise Institute, 14 other organizations, and a bipartisan group of 333 state legislators, we urge the Court to affirm the Eleventh Circuit’s ruling that the mandate exceeds Congress’s power to regulate interstate commerce.

Under modern doctrine, regulating intrastate economic activity can be a “necessary” means of carrying out Congress’s regulatory authority (as that term is understood under the Necessary and Proper Clause) if, in the aggregate, it has a substantial effect on interstate commerce. But the obvious corollary is that regulating non-economic activity cannot be “necessary,” regardless of its economic effects. And a power to regulate inactivity – to compel activity – is even more remote from Congress’s commerce power.

The government characterizes not being insured as the activity of making an “economic decision” of how to finance health care services, but the notion that probable future participation in the marketplace constitutes economic activity now pushes far beyond existing precedent. Further, that definition of “activity” leaves people with no way of avoiding federal regulation; at any moment, we are all not engaged in an infinite set of activities. Retaining the categorical distinction between economic and non-economic activity limits Congress to regulating intrastate activities closely connected to interstate commerce – thus preserving the proper role of states and preventing Congress from using the Commerce Clause as a federal police power.  The categorical distinction also provides a judicially administrable standard that obviates fact-based inquiries into the purported economic effects and the relative necessity of any one regulation, an exercise for which courts are ill-suited.

Finally, the mandate violates the “proper” prong of the Necessary and Proper Clause in that it unconstitutionally commandeers the people – and in doing so, circumvents the Constitution’s preference for political accountability. The Constitution permits Congress to intrude on state and popular sovereignty only in certain limited circumstances: when doing so is textually based or when it relates to the duties of citizenship. For example, Congress may require people to respond to the census or serve on juries. In forcing people to engage in transactions with private companies, the individual mandate allows Congress and the president to evade being held accountable for what would otherwise be a tax increase. In improperly commandeering citizens to engage in economic activity, the mandate obscures Obamacare’s true costs and thus avoids the political accountability and transparent budgeting that the Constitution demands.

The mandate is thus neither a necessary nor proper means for carrying into execution Congress’s power to regulate interstate commerce. Upholding it would fundamentally alter the relationship of the federal government to the states and the people; nobody would ever again be able to claim plausibly that the Constitution limits federal power.

Where’s the Compensation for Victims in the Mortgage Settlement?

After reading the few details provided on the mortgage settlement, it could be easy to forget that this whole thing was supposed to be about compensating families who lost their homes to foreclosure due to “robo-signing” and other foreclosure process abuses.

Out of the $25 billion settlement, guess how much goes to borrowers who “lost” their homes to foreclosure?  $1.5 billion.  That’s correct, only 6% of the settlement actually could go to the victims it was all supposed to be about.  What’s worse is that the settlement does not even require that money to go to parties actually harmed.  The money can go to any borrower that had a foreclosure, harmed or not.  In fact, as far as I can tell, a borrower could get the money even if he got into the house via fraud, like over-stating his income.

While coverage has been a little loose on details, it appears that about $3 billion of the settlement is going into the coffers of state governments.  You read that right: state governments are looking to get about twice what the actual victims might get.  But then that doesn’t sound too far off from the typical class-action: lawyers make out like bandits and victims get peanuts.

If you’re wondering where the rest of the money is going, it is headed to homeowners who are still in their homes, and hence  by defintion not victims of foreclosure abuse.  So much for actually helping victims.  But then, since the state AGs apparently never bothered to look for any real victims, it should not be too surprisingly that they completely forgot about them when crafting the settlement.

Obama’s Political Prophylactic

White House compromise still guarantees contraceptive coverage for women,” reads the Washington Post headline coming out of President Obama’s press conference this afternoon. Trying to tamp down the escalating political storm his administration created three weeks ago when it ruled that, under Obamacare, employers with religious objections to providing contraceptive and abortifacient coverage must do so anyway, his team has come up with a “compromise.”

Here it is, as reported by the Post – read carefully:

Women still will be guaranteed coverage for contraceptive services without any out-of-pocket cost, but will have to seek the coverage directly from their insurance companies if their employers object to birth control on religious grounds.

Religiously-affiliated non-profit employers such as schools, charities, universities, and hospitals will be able to provide their workers with plans that exclude such coverage. However, the insurance companies that provide the plans will have to offer those workers the opportunity to obtain additional contraceptive coverage directly, at no additional charge.

Got that? Then who’s going to pay for that additional coverage? (It’s not “free.”) The insurance companies? They’ll simply pass the costs back to the religious employer – insofar as the employer picks up at least part of the cost of covering his employees’ health insurance premiums, as most do. So we’re right back where we started from.

This is a fig leaf, which is why progressives have quickly rallied behind the “compromise.” It’s just another example of the something-for-nothing mindset that drives their agenda. Stay tuned. We haven’t heard the end of this.

This Week at keeps adding new stuff, so if you’re not a regular reader, now’s a great time to become one. This week we added the following:

SOPA’s Last Gasp: Was the Internet Misinformed?

In the wake of an unprecedented online protest, the Stop Online Piracy Act and PROTECT-IP Act—a pair of ill-conceived proposals to combat digital copyright infringement—appear to be dead for now, and politically toxic for the foreseeable future. But in the proud tradition of the former Iraqi Information Minister,  many supporters of increased Internet regulation remain in profound denial about the scope and seriousness of public resistance to meddling with the structure of the open Net, even for a legitimate purpose like fighting piracy. Exhibit A: Wednesday’s New York Times op-ed by Recording Industry Association of America head Cary Sherman.

On the basis of no discernible evidence, Sherman is determined to believe that literally millions of Internet users who spoke out against online censorship—to say nothing of the scores of eminent constitutional scholars, network engineers, security specialists, and entrepreneurs—were little more than dupes of a few big tech companies.  This was a widely-condemned, lobbyist-scripted proposal whose political viability was so plainly purchased that Hollywood all but demanded a refund when it didn’t pass—yet in Sherman’s mind, incredibly, it was the immense popular backlash against this that “raised questions about how the democratic process functions in the digital age.”

There is a perverse logic to this: What Sherman has in mind is the familiar  “democratic process” where policy is ultimately crafted and debated behind closed doors by powerful institutional stakeholders.  Broader public involvement—should it become an unpleasant necessity—consists exclusively of being roused to enthusiasm or opposition, as necessary, by the stakeholders’ competing marketing campaigns. The defining principle of the modern Web—that users are not passive consumers of ideas, but the source of whatever value and creativity the platform enables—is alien to the model.

Unsurprisingly, Sherman’s op-ed doesn’t really read as though it’s aimed at the general public, but rather as a last desperate pitch over their heads to members of Congress: Pay no attention to the folks in front of the curtain! Since Sherman never takes seriously the possibility that opposition was grounded in well-informed concerns, it is little surprise that he makes scant attempt to seriously address them.

Instead, the piece is an extended exercise in stroking the wounded egos of legislators: You understood the severity of the online piracy problem, having diligently examined our fabricated statistics. You “studied the problem in all its dimensions, through multiple hearings”—only one of which actually concerned SOPA specifically, and all of which were transparently stacked with handpicked supporters of the legislation. Congress heard from Floyd Abrams, commissioned by the film lobby to give the legislation his constitutional seal of approval, but not from more than 100 eminent legal scholars who explained why it was an affront to the First Amendment.  Nor did they hear from the 83 respected network engineers, or the government’s own cybersecurity experts, who warned that it would interfere with efforts to secure the Internet’s Domain Name System against malicious hackers. Indeed, online opposition truly exploded after a session of the House Judiciary Committee where it became embarrassingly clear to the tech community how imperfectly legislators truly understood the network they were regulating, in no small part because the bill’s sponsors had steadfastly resisted holding a hearing with real technical experts. When Rep. Darrell Issa finally scheduled such a hearing, SOPA boosters rapidly retreated on the previously non-negotiable question of DNS blocking, perhaps because they realized how poorly it would reflect on their own process.

What, then, is Sherman’s evidence that opponents were misinformed?  Apparently because they thought a system requiring ISPs to block access to entire web domains—including protected speech along with copyright infringing content—and forcing search engines to redact their results might plausibly be described as “censorship.” Of course, it is so glaringly obvious that this is censorship that Sherman can’t quite bring himself to describe it in literal terms, falling back instead on strained physical analogies and the strange premise that censorship isn’t censorship if you only intend to block bad speech. On this definition, I suppose, censorship only occurs when the authorities approve of the information they are demanding be filtered out.

Beyond that, there’s precious little effort to substantiate the claim that companies opposed to SOPA “drowned out” accurate information by blasting their users with propaganda.  Indeed, the media companies backing the legislation seemed conspicuously uninterested in doing much of anything to inform their own enormous audiences about the legislation—perhaps because they harbored no illusions about how ordinary people would react once they started looking into the proposals. Like Sherman, they weren’t really seeking better informed public participation; they preferred not to have to worry about public participation at all. That suited the copyright lobbies quite nicely for decades as they steamrolled through one bill after another aimed at impoverishing the public domain and swelling corporate coffers, with no compensating benefit in additional creative output.

Hence this editorial, in which Sherman does his best Grima Wormtongue impression, reassuring members of Congress that their wisdom (fed by his solicitous guidance) is unimpeachable, and that any complaints from the masses—even masses taking their cues from legal and technical experts—can only demonstrate the enemy’s willingness to resort to lies and manipulation.  It’s an appealing pitch because it ties into the fiction most legislators will find psychologically necessary to do their jobs: that a few hundred sufficiently wise men and women can aspire to such universal competence that they’re able to make rules on every topic under the sun, however complex, for a vast nation of millions. But uncomfortable as it must be to contemplate that this may not be true, such humility—as Socrates first taught us—is the beginning of true wisdom.

CBO Spending Projections, Then and Now

Each January the Congressional Budget Office provides updated projections of the federal budget for the coming decade. Let’s compare the January 2011 projections to the January 2012 projections to see whether the switchover of the House to Republican control during 2011 has made a dent in spending.

We will look at CBO projections for the three basic components of federal spending: discretionary, entitlements, and interest. The three figures below are CBO “baseline” projections of fiscal year outlays, with historical data back to 2007.

Figure 1 shows that discretionary outlays jumped from $1.04 trillion in 2007 to $1.35 trillion in 2011. The CBO’s new projection (red line) for spending in 2012 is $44 billion below what the CBO projected for 2012 last year (blue line). That small reduction is partly attributable to GOP spending restraint efforts.

Looking ahead to 2021, spending is now projected to go down significantly from what was projected last year. That is the result of the budget caps that the Republicans negotiated with the Democrats in the Budget Control Act enacted last summer, and it includes the further reduction in caps stemming from the failure of the “supercommittee.”

If the caps hold, discretionary outlays will be 16 percent lower in 2021 than they might otherwise have been. However, that’s a giant “if” given the track record of Congress. And even if the caps do hold, it would only be a cut of $256 billion in 2021, which would be less than 5 percent of total federal spending that year of more than $5 trillion.

Figure 2 shows that entitlement outlays soared from $1.45 trillion in 2007 to $2.06 trillion in 2011, a giant 42 percent leap in just four years. (I’ve excluded TARP spending, which has distorted the figures in recent years). Note that within a few years entitlement spending (in Figure 2) will be more than twice as large as discretionary spending (in Figure 1).

Looking ahead, CBO’s new projections show entitlement spending rising to $3.27 trillion by 2021. This is the spending explosion that is threatening to enslave young Americans with debt, but ironically it is the part of the budget that policymakers are doing the least to control. This year’s projection for 2021 is down a tiny $61 billion from last year’s projection, partly from the scheduled “sequester” cuts resulting from the failure of the supercommittee.

Figure 3 shows that federal interest costs have hovered around $200 billion in recent years, but are set to blast off due to rising federal debt levels and rising interest rates. The CBO has sharply cut its projections of interest costs and interest rates compared to last year’s projections. The more optimistic forecast apparently stems partly from Fed chairman Ben Bernanke’s claim that he will keep interest rates low in coming years. Over nine years (2012-2021) the new projections cut interest costs by $1.6 trillion compared to last year’s projections. It’s not a stretch to say that there is a lot of upside risk to the CBO’s new interest cost projections.

The data in these figures are based on the CBO’s budget baseline, which is an optimistic scenario for what spending may look like without any budget changes. The baseline assumes that the discretionary caps hold, that the scheduled sequester comes into force, and that the “doc fix” cut to Medicare is imposed. It also assumes that Congress doesn’t add any more programs or expand existing ones.

Nonetheless, the new discretionary budget caps and planned sequester are tiny steps toward reducing projected spending growth. Fiscal conservatives in Congress now need to focus on eliminating discretionary programs and permanently reducing benefit levels in entitlement programs. See