The standard Keynesian policy proposal for a weak economy is to have the government spend more money, and run deficits to do so. Clearly much of current government spending is being financed by borrowing. So current conditions are not subject to the New Deal critique that it was mostly paid for by taxes, as during the Great Depression. Current federal expenditures have increased about 41% since the housing market peaked in 2006. Has all this government spending generated many jobs? While keeping in mind that correlation is not the same as causality, it is interesting that the trend in government spending and total non-farm employees mirror one another, but not in the way you’d like. The more the government has spent, the more people have lost their jobs. The simple correlation between government spending and jobs has been a negative 0.9. Also worth noting is that both the decline in jobs and increase in government spending began well before the financial crisis of Sept 2008. In fact, almost 2 million jobs were lost between the beginning of the recession in Dec 2007 and the financial crisis in Sept 2008. Again, I won’t pretend this proves anything, however, it does suggest to me that continued massive government spending is not going to turn around the job market.

The Department of Labor has been added to Cato’s Downsizing Government website. Proposed spending cuts are $143 billion.

The following essays examine the department’s activities:

• Failures of Unemployment Insurance. The UI system is costly to taxpayers and creates numerous economic distortions. Federal involvement should be ended and the states left free to design their own systems.
• Employment and Training Programs. Federal programs for unemployed workers have never worked very well, are relatively little used, and are unneeded in today’s economy because private markets provide many alternatives.
• Reforming Labor Union Laws. Federal union laws that mandate exclusive representation, union security, and prevailing wages are costly to the economy and restrict individual freedom. They should be repealed.
• Trade Adjustment Assistance. This program provides benefits for certain workers put out of their jobs by foreign trade, but it has no sound basis in economics.

There’s a timeline that details key events in the Department of Labor’s growth, a reading room for suggested background studies, and supporting charts and figures.

Last week, the House passed a $40.6 billion Homeland Security appropriations bill for fiscal 2012. The Constitutional Authority Statement for the bill cited Congress’s authority to appropriate money and the General Welfare Clause. Citing the General Welfare Clause might be appropriate for activities associated with the common defense of the nation. However, it is not an appropriate justification for something like the Federal Emergency Management Agency’s Assistance to Firefighters Grant program, which distributes federal taxpayer money to local fire departments.

Firefighting is a purely local concern and should be funded by those who benefit from a local fire department’s services. Why in the world am I paying federal taxes in Pennsylvania to a bureaucracy in Washington so that it can turn around and send a check (minus a cut for the bureaucracy) back to my local fire department as well as to thousands of other fire departments across the country?

A look through the Assistance to Firefighters Grant program’s current list of grant recipients shows that the small town I currently reside in received almost $750,000 this year. Shouldn’t I be happy? Well, no, because fire departments from Snowflake, AZ, to Dummerston, VT, also received handouts. Okay, but isn’t the federal program helping to make me safer? Well, the website for my local fire department says that it has been “protecting our community for over 150 years.” Hmm, somehow it managed to protect the community for 140 years prior to the AFG program’s creation in 2001.

As for the federal bureaucracy’s cut, FEMA’s website indicates that highlighting “success stories” is an important part of the agency’s job. Not only is there a webpage devoted to success stories, FEMA kindly provides a handy template to make it easier for grant recipients to share their stories. FEMA administrators like photographs, but “action shots” are apparently the key to winning their hearts:

Submitting photographs that help illustrate your story are encouraged and recommended. Action shots showing people who benefited from the success and photographs of the equipment and emergency response effort are highly effective. High resolution photos are desirable. If possible, please submit your photos as an attachment in .jpeg, .gif, .tif or .bmp format. Please provide descriptions for your photographs if possible so reviewers can understand what is occurring in the photograph.

The webpage then lists contact information for 10 different officials who are tasked with receiving submissions from a particular grouping of states. I’d be curious to know how many FEMA officials it takes to screw in a light bulb.

Sadly, 147 House Republicans joined all Democrats to restore $320 million for the firefighter grants during floor deliberation of the Homeland Security bill. Only 87 Republicans were okay with cutting the program’s funding from $800 million to $350 million. It was bad enough that the GOP wanted to give the program a dime. That they justified the expenditure under the Constitution’s General Welfare Clause adds insult to injury.

In a Cato essay on constitutional basics, Roger Pilon explains that the clause was not intended to provide cover for Congress to spend money on whatever it wanted:

[The General Welfare Clause] is followed by a detailed listing or enumeration of activities that Congress is allowed to engage in. Were this passage to be read simply as authorizing Congress to tax and spend for the general welfare, as many read it today, Congress would have been granted all but unlimited power and the enumeration of particular powers immediately thereafter would have been to no purpose. Thus, the passage must be read as permitting taxing only for those enumerated ends; and the clause restricts such funding to the general welfare only, not to the welfare of particular parties.

Remember back in January when the fresh Republican majority in the House made a show of starting the new session of Congress with a reading of the Constitution? It was a nice gesture, but with Republicans voting almost 2 to 1 to restore funding for a parochial grant program, it remains an empty one.

The Senate is set to take up legislation reauthorizing the Department of Commerce’s Economic Development Administration. A relic of the Great Society, the EDA was created to help economically depressed areas of the country. Today it’s just another example of an unnecessary, unconstitutional program that lingers around because politicians like to demonstrate to the public that they’re “doing something.”

Politicians also like to present oversized U.S. Treasury checks to constituents.

The EDA’s forerunner was the Area Redevelopment Administration created by Congress in 1961. Sen. John McClellan (D‑AK) presciently warned at the time: “if we ever begin permitting the government to enter into one area, one community, and foot the entire cost of a project, then we shall have every community in the country appealing to the federal government for the same treatment.”

Sure enough, when the EDA replaced the ARA in 1965, its scope expanded. Eligibility expanded as members of Congress fought to secure a piece of the pie for their constituents. Originally intended for depressed areas, over 80 percent of the nation eventually became eligible for EDA assistance. According to the Congressional Research Service (no link available), “An estimated 90% of counties in the United States qualify for EDA’s economic distress designation based on the per capita income criterion alone.”

The federal government now operates a small army of economic development programs. From a new Government Accountability Office report:

Our work involving 80 economic development programs at four agencies—Commerce, HUD, SBA, and USDA—indicates that the design of each of these programs appears to overlap with that of at least one other program in terms of the economic development activities that they are authorized to fund. For example, as shown in table 1, the four agencies administer a total of 54 programs that can fund “entrepreneurial efforts,” which include helping businesses to develop business plans and identify funding sources.

Comically, the Senate report to S.782 (the EDA reauthorization bill) notes that the legislation requires the GAO to report on duplication in economic development programs:

Section 21 requires the Government Accountability Office to report to the Environment and Public Works Committee of the Senate within 90 days after enactment with a list of programs or portions of programs from other federal agencies, including the Department of Housing and Urban Development, Department of Agriculture, and the Small Business Administration, that are duplicative of programs administered by EDA.

I guess the Senate EPW Committee isn’t aware of the 2006 GAO report that identified 86 federal programs in 10 federal agencies and various commissions that provide economic development funding.

Of course, the response from the EDA is that its programs are unique, special, etc. Government administrators are sort of like parents who swear to family and friends that their special Little Johnny is one day going to be president despite the fact he’s been repeatedly suspended from school for setting things on fire. Indeed, the new GAO report cites the EDA for continuing to do a poor job of collecting information on grant recipients:

Commerce’s Economic Development Administration (EDA), which administers eight of the programs we reviewed, continues to rely on a potentially incomplete set of variables and self-reported data to assess the effectiveness of its grants. This incomplete set of variables may lead to inaccurate claims about program results, such as the number of jobs created.

The EDA’s effectiveness is somewhat beside the point. The federal government has no businesses trying to direct economic activity through politicized subsidy vehicles like the EDA. As the current failure of massive deficit spending to get the economy humming shows, economic development is not a task suited for “do something” politicians and well-intentioned, but knowledge deficient, central planners.

With a budget of $500 million a year, which is the level of funding that the bill would authorize, the EDA would remain a tiny blip on the radar screen in a $14 trillion economy. (Thank goodness.) And getting rid of it obviously wouldn’t put much of a dent in the massive deficits the government continues to run up. But if we are ever to get our budgetary house in order by limiting the size and scope of government, central planning bureaucracies like the EDA have to (finally) go.

See this Cato essay on the Economic Development Administration for a more detailed argument for its abolition. Also see these blog posts (here and here) on the EDA.

At the Britannica Blog I note Sarah Palin’s misstatement about President Obama’s record on the national debt, and then ask whether that’s the real problem:

Sarah Palin and Michelle Bachmann have both said in recent days that, as Palin put it, ”Look at the debt that has been accumulated in the last two years. It’s more debt under this president than all those other presidents combined.” And they’ve both been rapped by journalistic fact-checkers.…

So what’s the real problem here? Is it Bachmann’s and Palin’s exaggeration of Obama’s record on deficits and debt? Or is it President Obama’s unsustainable spending?

It reminds us of the need to repeat, and repeat, and repeat the same messages. Tornadoes, diseases, and wars are not good for “the economy.” They may be good for hardware stores, doctors, and military contractors, but not for the rest of us. Still, the New York Times couldn’t help but tell us on the front page that “Reconstruction Lifts Economy After Disasters.”

Frederic Bastiat exploded the fallacy long ago. Here’s a modern (and shorter) retelling:

A fierce storm from Mother Nature killed my Internet connection last Friday (I didn’t see any black helicopters, so I’m assuming it was her). Therefore, the following are issues we focused on over the last two weeks at Downsizing the Federal Government:

• Federal employees enjoy benefits that aren’t available to most private sector workers.
• A bottom-up approach to transportation policy would save taxpayers money and increase mobility.
• Trims to discretionary agriculture programs leads one congressman to channel his inner Harold Camping.
• Education policy: the Obama administration wants a race to the cradle.
• Only six other Republicans voted for Sen. Rand Paul’s plan to balance the budget in five years through spending cuts.
• Two key House Republicans want to halt Amtrak’s dream of high-speed rail in its tracks.
• Chris Edwards on tax cuts, loopholes, and the size of government.
• The federal government’s housing stimulus fails.

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