Tag: government spending

Obama’s Job-Killing Policies: A Picture Says a Thousand Words

The new unemployment data have been released and they don’t paint a pretty picture – literally and figuratively.

The figure below is all we need to know about the success of President Obama’s big-government policies. The lower, solid line is from a White House report in early 2009 and it shows the level of unemployment the Administration said we would experience if the so-called stimulus was adopted. The darker dots show the actual monthly unemployment rate. At what point will the beltway politicians concede that making government bigger is not a recipe for prosperity?

They say the definition of insanity is doing the same thing over and over again while expecting a different result. The Obama White House imposed an $800-billion plus faux stimulus on the economy (actually more than $1 trillion if additional interest costs are included). They’ve also passed all sorts of additional legislation, most of which have been referred to as jobs bills. Yet the unemployment situation is stagnant and the economy is far weaker than is normally the case when pulling out of a downturn.

But don’t worry, Nancy Pelosi said that unemployment benefits are stimulative!

Where are the ’60s Hippies Now that They’re Needed to Fight Keynesianism?

Keynesian economic theory is the social science version of a perpetual motion machine. It assumes that you can increase your prosperity by taking money out of your left pocket and putting it in your right pocket. Not surprisingly, nations that adopt this approach do not succeed. Deficit spending did not work for Hoover and Roosevelt is the 1930s. It did not work for Japan in the 1990s. And it hasn’t worked for Bush or Obama.

The Keynesians invariably respond by arguing that these failures simply show that politicians didn’t spend enough money. I don’t know whether to be amused or horrified, but some Keynesians even say that a war would be the best way of boosting economic growth. Here’s a blurb from a story in National Journal.

America’s economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today. Nobelist Paul Krugman, a New York Times columnist, and Harvard’s Martin Feldstein, the former chairman of President Reagan’s Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. …Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact “exogenous” shock like a major war – something similar to what Krugman called the “coordinated fiscal expansion known as World War II” – would be enough to break the cycle. …Both reiterated their previously argued views that the Obama administration’s stimulus was far too small to fill the output gap.

Two additional comments. First, if Martin Feldstein’s views on this issue represent what it means to be a conservative, then I’m especially glad I’m a libertarian. Second, Alan Reynolds has a good piece eviscerating Keynesianism, including a section dealing with Krugman’s World-War-II-was-good-for-the-economy assertion.

Here’s How to Balance the Budget

Our fiscal policy goal should be smaller government, but here’s a video for folks who think that balancing the budget should be the main objective.

The main message is that restraining the growth of government is the right way to get rid of red ink, so there is no conflict between advocates of limited government and serious supporters of fiscal balance.

More specifically, the video shows that it is possible to quickly balance the budget while also making all the 2001 and 2003 tax cuts permanent and protecting taxpayers from the alternative minimum tax. All these good things can happen if politicians simply limit annual spending growth to 2 percent each year. And they’ll happen even faster if spending grows at an even slower rate.

This debunks the statist argument that there is no choice but to raise taxes.

There Is No Libertarian or Conservative Argument for Higher Taxes

Eli Lehrer has an article on the FrumForum entitled “Five Revenue Raisers the GOP Should Back.” He argues it would be good to get rid of preferences such as the state and local tax deduction and the mortgage interest deduction, and he also asserts that there should be “user fees” for things such as transportation.

As an avid supporter of a flat tax and market pricing, I have no objection to these policies. Indeed, I would love to get rid of the state and local tax deduction so that taxpayers in Texas and Florida no longer have to subsidize the fiscal profligacy of politicians in California and New York.

But there is a giant difference between getting rid of certain tax preferences as part of revenue-neutral (or even better, tax-cutting) tax reform and getting rid of tax preferences in order to give politicians more revenue to spend.

The former is a noble goal. Who can argue, after all, with the idea of getting rid of the corrupt and punitive internal revenue code and replacing it with a simple and fair flat tax? Lots of loopholes are eliminated, so there are plenty of tax-raising provisions in tax reform. But every one of those provisions is offset by provisions that lower tax rates and get rid of double taxation of saving and investment.

The latter, by contrast, is an exercise in trying to lose with minimal damage – sort of the “French Army Theory” of taxation, surrender gracefully and hope that your new masters give you a few crumbs after their celebratory feast.

What is especially strange about this approach is that the Republicans who advocate higher taxes claim that they are political realists. Yet if we look at real-world evidence, the moment Republicans show their “realism” by putting taxes on the table, the entire debate shifts.

Instead of the debate being tax-hikes vs. no-tax-hikes, it becomes a debate over who-should-pay-more-tax. Republicans win the first debate. They get slaughtered in the second debate.

Remember when the first President Bush agreed to enter into tax-hike negotiations in 1990? He set out two conditions – that there should be a reduction in the capital gains tax and that there should be no increase in income tax rates. So what happened? As everyone with an IQ above room temperature predicted, the capital gains tax stayed the same and income tax rates increased.

Last but not least, this conversation only exists because some people have thrown in the towel, acquiescing to the idea that there is no way to balance the budget without higher taxes. Yet the Congressional Budget Office data shows that the budget can be balanced by 2020 simply by limiting annual spending growth to 2 percent.

Overhauling CBO and JCT Is a Real Test of GOP Resolve, not the ‘Pledge to America’

While I’m glad Republicans are finally talking about smaller government, I’ve expressed some disappointment with the GOP Pledge to America. Why “reform” Fannie and Freddie, I asked, when the right approach is to get the government completely out of the housing sector. Jacob Sullum of Reason is similarly underwhelmed. He writes:

In the “Pledge to America” they unveiled last week, House Republicans promise they will “launch a sustained effort to stem the relentless growth in government that has occurred over the past decade.” Who better for the job than the folks who ran the government for most of that time? …Republicans, you may recall, had a spending spree of their own during George W. Bush’s recently concluded administration, when both discretionary and total spending doubled – nearly 10 times the growth seen during Bill Clinton’s two terms. In fact, says Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center, “President Bush increased government spending more than any of the six presidents preceding him, including LBJ.” Republicans controlled the House of Representatives for six of Bush’s eight years.

Redemption is a good thing, however, so maybe the GOP actually intends to do the right thing this time around. One key test is whether Republicans do a top-to-bottom housecleaning at both the Congressional Budget Office and the Joint Committee on Taxation.

These Capitol Hill bureaucracies are not well known, but they have enormous authority and influence. As the official scorekeepers of spending (CBO) and tax (JCT) bills, these two bureaucracies can mortally wound legislation or grease the skids for quick passage.

Unfortunately, that clout gets used to dramatically tilt the playing field in favor of bigger government. It was CBO that claimed that Obama’s stimulus created jobs, even though the head of CBO was forced to admit that the jobs-created number was the result of a Keynesian model that was rigged to show exactly that result . You would think that would shame the bureaucrats into producing honest numbers, but CBO continues to produce absurd job creation estimates regardless of the actual rate of unemployment.

CBO favors deficits and debt when it is asked to analyze proposals for more spending, but it rather conveniently changes its tune when the discussion shifts to tax increases. Since we’re on the topic of twisted economic analysis, CBO actually relies on a model which, for all intents and purposes, predicts that economic performance is maximized with 100 percent tax rates.

The Joint Committee on Taxation, meanwhile, is infamous for its assumption that taxes have no impact - at all - on economic output. In other words, instead of showing a Laffer Curve, JCT would show a straight line, with tax revenues continuing to rapidly climb even as tax rates approach 100 percent.  This creates a huge bias against good tax policy, yet JCT is impervious to evidence that its approach is wildly flawed.

And don’t forget that CBO and JCT both bear responsibility for Obamacare since they cranked out preposterous estimates that a giant new entitlement would lead to lower budget deficits.

Not that we need additional evidence, but the head of the CBO just repeated his higher-taxes-equal-more-growth nonsense in testimony to the Senate Budget Committee. With this type of mindset, is it any surprise that fiscal policy is such a mess?

Douglas Elmendorf said extending breaks due to expire at year’s end would increase demand in the next few years by putting more money in consumers’ pockets. Over the long term, he said, the tax cuts would hurt the economy because the government would have to borrow so much money to finance them that it would begin competing with private companies seeking loans. That, in turn, would drive up interest rates, Elmendorf said.

I’ve already written once about how the GOP sabotaged itself when it didn’t fix the problems with these scorekeeping bureaucracies after 1994. If Republicans take power and don’t raze CBO and JCT, they will deserve to become a permanent minority party.

Venezuela Votes against Chavez

The Venezuelan opposition has won an important victory—for now. In Sunday’s parliamentary elections it managed to receive 52 percent of the popular vote, which translates into some 60 out of 165 seats in the legislature, thus depriving Chavez of the two-thirds majority he needs to pass some laws and make some major decisions such as naming Supreme Court justices.

The victory shows that a majority of Venezuelans are tired of the regime’s autocratic ways and its results; it has emboldened the up-until-now ineffective and disorganized opposition; and it undermines the legitimacy that Chavez has claimed to have in speaking for the people (it will be difficult for him to continue to dismiss serious criticisms of his government as the concerns of a small oligarchy).

So life may be a bit more difficult for Chavez in the future, but it would be naïve to think that Chavez will suddenly begin respecting democratic institutions and let the election results stand in the way of his socialist revolution. He’s used every dirty trick in the book to subvert and silence his opponents—technical disqualification of candidates, gerrymandering, intimidation, de-funding local governments led by the opposition, exiling or jailing critics on false charges, shutting down media outlets, etc.—and to gain autocratic control of every major institution in the country.

Chavez will surely try to circumvent the legislature if it suits him. He has set up parallel government structures that he controls, and has spoken of creating local “communes” throughout the country whose decisions would override those of the parliament. Chavez controls virtually all government spending in an opaque process that imposes no accountability. It will be a challenging task for a new parliament to make spending transparent and accountable. The lame duck congress that lasts for the next three months (and that Chavez fully controls) can still pass a law empowering Chavez to rule by decree for any period of time that it chooses. So Chavez still has the ability to get his way.

In the end, politics matter, but the factor that will determine whether Chavez will be able to hold on to power may very well be economics. The economy is the worst performing in Latin America, inflation is about 30 percent, the country suffers power outages and water shortages, there is a scarcity of basic foods and other goods, infrastructure is crumbling and the dramatic rise in crime has made Venezuela one of the most criminally violent places in the world. It is no surprise then that most Venezuelans are fed up with Chavez. The rise in discontent, including among his base, threatens Chavez’s hold on power. Thus, the autocrat’s need to move fast in consolidating his revolution a la Cuba, at which point popular discontent matters little. Venezuela is still very much in a race between a deteriorating domestic economy and the completion of Chavez’s totalitarian project.