Archives: 06/2012

Testifying against Corporate Welfare

My colleague Chris Edwards testified before the House Budget Committee this morning on “Removing the Barriers to Free Enterprise and Economic Growth.” The first half of Chris’s testimony focused on the problems with corporate welfare spending, which costs taxpayers almost $100 billion annually and is the topic of my forthcoming study.

The following are a few of the fundamental problems with business subsidies that we addressed in the written testimony:

  • Business subsidies undermine the bedrock American value of equality under the law. Subsidies advantage certain businesses at the expense of taxpayers, families, and other businesses. For example, farm subsidies redistribute wealth from taxpayers to often well-off farm businesses and landowners.
  • The more subsidies the government provides to businesses, the more the market’s profit-and-loss signals are weakened and the more America’s traditions of entrepreneurship and risk-taking by the private sector are undermined. When the government starts handing out money, businesses with weak ideas get in line. Enron, for example, was able to grab huge federal support for its disastrous foreign investment schemes. A more current example is the mounting failures of alternative energy companies that were subsidized by programs championed by the Obama administration.
  • Business subsidies have spawned an expanding web of lobby groups that demand ever more favors from policymakers. The more that the government intervenes in the economy, the more lobbying activity is generated, and the more new subsidy programs get created. Businesses that become hooked on subsidies become tools of the state. They lose their independence, and they may focus more on gaining special benefits from Washington than on making good products.
  • Business subsidies create an unhealthy – and sometimes corrupt – relationship between businesses and the government. Solyndra is a good example. According to the New York Times, Solyndra “spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House.”

More Sub-Par Employment Numbers

The Labor Department just released its monthly employment report and the White House is probably not happy.

There are several key bits of data in the report, such as the unemployment rate, net job creation, and employment-population ratio.

At best, the results are mediocre. The unemployment rate generally gets the most attention, and that was bad news since the joblessness rate jumped to 8.2 percent.

What makes that number particularly painful is that the Obama Administration claimed that the unemployment rate today would be less than 6 percent if the so-called stimulus was adopted. But as you can see from the chart, squandering $800 billion on a Keynesian package hasn’t worked.

While that chart is probably embarrassing to the White House, I think the most revealing numbers come from the Minneapolis Federal Reserve Bank’s interactive website, which allows users to compare employment data and GDP data for different business cycles.

I looked at those numbers a couple of months ago, so I could compare Reaganomics and Obamanomics, and the difference is startling. The Reagan policies of lower tax rates, spending restraint, deregulation, and tight money generated much better results than the statist policies of Obama.

The most recent numbers, shown below, aren’t any better for the Obama Administration.

But I suppose the good news is that the United States is not Europe. Government is even bigger on the other side of the Atlantic and many of those nations are in the middle of a fiscal crisis and the unemployment rate averages 11 percent.

Sort of makes you wonder whether there’s a lesson to be learned. Maybe, just maybe, bigger government means weaker economic performance.