Archives: 09/2012

PolitiFact Weighs in on Obama and Sequestration

The Romney campaign is airing a television ad in Florida, and similar ads in other states, accusing President Obama of pushing “defense cuts” that “threaten thousands of jobs.”

“Romney’s plan?” the narrator continues, ”Reverse Obama’s defense cuts, strengthen our military, create over 700,000 jobs for Florida.”

PolitiFact decided to run Romney’s claim that Obama bears the blame for sequestration through their Truth-o-Meter. Their conclusion: Half true.

I agree. As I explained to PolitiFact researcher Angie Drobnic Holan, “The logic that lays the blame for sequestration at Obama’s feet, because he negotiated the [Budget Control Act] with GOP leaders in Congress, could just as easily apply to those other negotiators or, indeed, any member of Congress who voted for the BCA in August 2011.”

Although a majority of Republicans voted for the BCA, some members were opposed to raising the debt ceiling under any circumstance. Still others thought that the cuts were not deep enough. Notably, a few members of Congress voted against the BCA because they opposed even the possibility of Pentagon spending cuts. Those Republicans who voted in favor and are now having a case of “buyer’s remorse” can’t reasonably claim that they didn’t know that such cuts were possible, nor that the cuts are “Obama’s cuts.”

I wish that the PolitiFact folks had focused on Romney’s jobs numbers (they still might, I’m told) because they are grossly inflated. Under the sequestration provision of last year’s BCA, domestic discretionary and defense spending will each be cut by about $54 billion in FY2013. The claim that these cuts will result in massive job losses derives from several flawed studies commissioned by the Aerospace Industries Association (AIA) that have been discredited, including here, here, and here.

I have observed here that military spending cuts might actually be good for the economy. As with other government spending programs, military spending shifts resources from the private sector and/or from some other agency within the public sector. In other words, government doesn’t create jobs so much as moves jobs from one industry to another or from one place to another. Gov. Romney understands this with respect to most other government spending, but he has an obvious blind spot when it comes to military spending. (I doubt that he would accept at face value the Chicago teachers union’s claims about the supposedly horrific effects that cuts in education spending would have on the wider economy, for example.)

I don’t blame the AIA (or the unions, for that matter) for peddling scary tales in order to reverse legislation that might cut into its members’ profits. That is, after all, what these companies pay the AIA to do: lobby the federal government to spend more taxpayer dollars on their clients/members. I do fault Mitt Romney and others for falling victim to this ploy—and therefore reducing the likelihood that overall government spending will ever come down, as it should.

In a perfect world, politicians would be fighting with one another over who gets credit for cutting federal spending and reducing the burden of debt that we are piling onto the backs of our children and grandchildren. They should certainly stop trying to portray such cuts as massive or draconian, because they are anything but the sort (and PolitiFact might call them on that as well).

Sequestration isn’t the best way to cut out-of-control federal spending, but it might be the only way, as Dan Mitchell, Ben Friedman, and I explain in this recent video:

‘Has the Fed Been a Failure?’

That is the provocative title of the lead paper in the prestigious economics publication, the Journal of Macroeconomics. It is authored by George Selgin, William D. Lastrapes, and Lawrence H. White. (Selgin and White are professors, Cato scholars, and many-time participants in the annual Cato monetary conference).

The journal’s editor considered the paper so important that he devoted a section of the September issue to it, with discussion by a number of prestigious economists, including professors Allan Meltzer and Jeffrey Miron (a Cato senior fellow).

The Selgin et al. paper is largely a review of the historical literature on both the Fed and the pre-1913 U.S. monetary system. In recent years, the literature has reassessed the Fed’s performance in a less favorable light. And the literature has come to view the National Banking system more favorably. The historical assessment of the Fed’s performance, especially with respect to inflation, is quite damning. For even the period most favorable to the Fed, the post-World War II period, the record compared to the pre-Fed era is not favorable.

I predict this debate has only begun.

To purchase an electronic copy of their final paper from the publisher, click here; to read the Cato Working Paper draft of their paper, click here.

Michael Gerson’s Pimply Adolescence

Michael Gerson, the former Bush speechwriter who gave us big-government conservatism and is now the #2 neocon columnist at the Washington Post, writes more about libertarianism than any other writer of such prominence. That would be great if he understood it, or could represent libertarianism fairly in his criticisms. Over the past few years he has denounced libertarianism as “morally empty,” “anti-government,” “a scandal,” “an idealism that strangles mercy,” guilty of “selfishness,” “rigid ideology,” and “rigorous ideological coldness.”

And here’s today’s entry:

A few libertarians have wanted this fight [Mitt Romney’s reference to 47 percent of Americans being “dependent on government”] ever since they read “Atlas Shrugged” as pimply adolescents. …

Republican politicians could turn to Burkean conservatism, with its emphasis on the “little platoons” of civil society. They could reflect on the Catholic tradition of subsidiarity, and solidarity with the poor. They could draw inspiration from Tory evangelical social reformers such as William Wilberforce or Lord Shaftesbury. Or they could just read Abraham Lincoln, who stood for “an unfettered start, and a fair chance, in the race of life.”

Instead they mouth libertarian nonsense, unable to even describe some of the largest challenges of our time.

Well, let’s see here. Burke’s little platoons get a whole chapter in Charles Murray’s libertarian book In Pursuit: Of Happiness and Good Government and a good bit of attention in this Cato essay based on it. They’re people, not governments. The Catholic principle of subsidiarity, as explained by Pope Pius IX in Quadragesimo Anno, holds that “Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do.” Which sounds pretty libertarian to me. And it doesn’t seem to recommend turning local schools and individual marriages over to the federal government, as Messrs. Bush and Gerson endeavored to do.

Libertarianism is a philosophy of individual rights, civil society, and limited government. Those may be unfamiliar concepts to Mr. Gerson, but he really should, you know, read a book before presuming to criticize them.

I wonder what Gerson read when he was a pimply adolescent. Maybe the Bible, Burke, and Lincoln? Does he think that those ideas can be dismissed by referring to their readers as “pimply adolescents”? Is that what passes for conservative argument these days?

And why oh why can’t the Washington Post add a libertarian columnist to its array of lefties, welfare liberals, conservatives and neocons?

U.S. Bends to Protests in Pakistan

To contain mass protests in Pakistan over a now infamous anti-Islamic film, President Barack Obama and Secretary of State Hillary Clinton appear in a $70,000, U.S.-funded ad on Pakistani television denouncing the film and saying America “respects all faiths.”

This joint White House-State Department effort seems terribly misguided, as I would wager that Pakistanis are angrier with Washington dropping bombs on their domes—both cranial and architectural. But what makes this public relations endeavor particularly ill conceived is that, on a basic level, the U.S. Government should be taking this opportunity to promote one of its core foundational principles: the free speech of private citizens.

The ad does not do that. It instead emphasizes America’s tolerance for religious freedom without reference to other fundamental rights. I recognize that Obama and Clinton not only want to stop the anti-American protests, but also challenge the misconception that private and public speech in America are essentially one and the same. But when demonstrators in Peshawar are burning movie theaters and setting fire to posters of female movie stars, our leaders convey the impression that they are kowtowing to radicals. (It should be noted that the savagery perpetrated by radicals in the Muslim world disgusts many moderate Muslims.)

It is bad enough that Pakistan’s Ministry of Foreign Affairs has asked its American counterpart to have the anti-Islamic film removed from YouTube. It would be worse if Washington fulfilled that expectation by obliging. As writer Salman Rushdie has said of the protests more generally, free speech is at risk because “religious extremists of all stripes” attack people who criticize beliefs.

Americans live under a different set of laws and customs and should never be scared into bending to extremists. And, however offensive the film mocking Mohammed was, there is no excuse for the violent behavior on display.

The Fraud Lobby

Evidently, there’s fraud in Medicaid.

The following are excerpts from an article in today’s Wall Street Journal. See if you can spot the fraud lobby:

In 2011, New York charged [Medicaid] a per-diem rate of $5,118 for residents of the [state-run] institutions, a network of 11 centers that now house about 1,300 people with severe developmental disabilities. Over the course of a year, Medicaid spends $1.9 million for every resident, or $2.5 billion in total—with half coming from the federal government. But the cost of running the institutions is only a quarter of that amount.

[A congressional] report said New York took advantage of a complex formula and kept federal officials in the dark for years…

The committee’s report said Gov. Andrew Cuomo’s administration refused to cooperate with the investigation. Joshua Vlasto, a spokesman for Mr. Cuomo, said the report’s conclusions were “wrong and totally misleading” and that a threatened “precipitous reduction” in funding would jeopardize administration efforts to modernize and restructure its Medicaid program…

But at a Thursday hearing, Penny Thompson, a CMS deputy director, suggested…, “You can expect to see a rate that’s about one-fifth of its current level” … without specifying a time frame. Such a reduction would reduce the annual federal reimbursement by about $1 billion, punching a hole in New York’s $54 billion Medicaid program…

The skewed methodology traces back more than 20 years, when New York got permission from the federal government to use a different formula for state-run developmental centers, assuring officials that the rates would hew close to costs.

But almost immediately, reimbursements began to skyrocket. The new methodology allowed New York to bill Medicaid for ghost patients: When a patient was discharged from a state-run facility, New York retained nearly two-thirds of the reimbursement amount. The formula also double-billed taxpayers: Many of those patients who left the centers moved into Medicaid-financed group homes.

Between 1990 and 2011, the daily reimbursement rate grew to $5,118 from $348. Ms. Thompson said it wasn’t clear if CMS “completely understood” the cost projections when it approved the rates. CMS officials acknowledge they first became aware of the problem in 2007 but waited three years before launching a probe.

In June 2010, the Poughkeepsie Journal ran a lengthy investigative piece about the rates. CMS started its investigation in response to the newspaper’s report, the committee said.

Lest you think I’m blaming Medicaid fraud on one political party, have a gander at my recent article, “Entitlement Bandits”:

Even conservatives fight anti-fraud measures, albeit in the name of preventing frivolous litigation, when they oppose expanding whistle-blower lawsuits, where private citizens who help the government win a case get to keep some of the penalty.

Protecting Medicare and Medicaid fraud is a bipartisan pastime.

Amtrak Shrugged

Watching one of the first showings of Part II of Atlas Shrugged was a surrealistic experience for me after testifying earlier in the day (September 20) to the House Transportation Committee about Amtrak. In the movie, government officials piously argue that for the “greater good” they need to provide “guidance” to the nation’s capitalists—and the more guidance they give, the more capitalism fails, which naturally justifies even more guidance.

In the hearing, I testified that Amtrak can’t be reformed because, as a government entity, it will still be controlled by politics, and the only solution was privatization. This led Peter DeFazio, my own former congressman (I moved to an adjacent district four years ago) to reem me out for not having faith in government.

“You don’t believe government should run our air traffic control? You don’t believe government should run our highways? You don’t believe government should subsidize the Port of Los Angeles?” Before I could fully answer each question, he would roll his eyes and interrupt me with incredulous moans. Fortunately, one of the other committee members rescued me and gave me a chance to answer.

Ironically, one of DeFazio’s own questions should have been his undoing. Somehow, he didn’t think Americans could manage to buy cheap goods from Asia unless the federal government subsidized the Port of Los Angeles. Aside from the fact that he probably bemoans the import of cheap goods from Asia, why subsidize the Port of Los Angeles when there are so many other suitable West Coast ports—and in particular, the heavily underutilized Port of Coos Bay in DeFazio’s own district?

Of course, DeFazio also thinks the feds should subsidize the Port of Coos Bay. But given that the Los Angeles metro area has 12 million people and therefore some two dozen representatives in Congress, while the Coos Bay area has about 60,000 people and therefore a fraction of one representative, subsidies are mainly going to go to the former and not the latter even though the latter is a much better natural harbor.

But it was not just DeFazio who supported government control of the economy. Republicans and Democrats at the hearing were equally guilty of thinking that they, the enlightened representatives of the people, should decide where “investments” should be made in transportation, how much people should get paid, and who should produce what “for the greater good.”

“Everyone here believes in creating jobs,” said one Republican. I wanted to raise my hand and say, “No, I believe in creating wealth, not jobs. Your idea of ‘creating jobs’ destroys wealth by taking from some people the wealth they created and giving to others who aren’t creating it.” But I realized that by “everybody here,” the Member meant “every elected official in the room,” not us non-entities who were there to testify or witness the hearing.

Later, another Republican who had been critical of Amtrak’s losses said, “No one here wants to destroy Amtrak; we just want it to run more efficiently.” Once again, I wanted to raise my hand and say, “I want to destroy Amtrak, because Amtrak is spending phenomenal amounts of money running crappy trains.” But again, I restrained myself.

Rather than privatize Amtrak, at least some Republicans propose to contract out Amtrak’s trains to private operators. Congress would still decide where those trains should run. The Republicans who support this proposal would also require the private operators to honor Amtrak’s contracts with workers. Those two requirements would destroy most of the benefits of contracting out.

In Atlas Shrugged, a man named John Galt convinces all the smart people in the country to “go on strike” until the government fails from mediocrity. Fortunately, such a strike won’t be necessary in real life as the mediocre results of government control will lead to failure all by itself. We just have to hope that there is enough wealth left in the country that we can put it back together.

U.S. Corporate Tax Rate Is Double the Average

Cato has released a new study by scholars Duanjie Chen and Jack Mintz on corporate effective tax rates in 2012 for 90 countries. The study provides estimates of marginal effective tax rates, which are an important driver of real investment flows.

The U.S. rate of 35.6% is about double the 18.2% average rate of the 90 countries studied. The U.S. rate is also the highest of the 34 countries in the Organization for Economic Cooperation and Development.