That’s the question I ask today over at Downsizing Government. President Obama wants to take the country $50 billion deeper into debt in order to finance more public infrastructure projects. I argue that policymakers should instead give the private sector a chance to satisfy our transportation needs.

The finances of the U.S. Postal Service are deeply in the red. The agency faces a permanently reduced demand for its services and its labor accounts for almost 80 percent of its costs. Thus it is not a good time for postal employees to get an increase in wages and benefits, right?

According to one postal union, the USPS’s deteriorating condition isn’t relevant. The American Postal Workers Union, which represents more than 200,000 employees, has recently entered collective bargaining negotiations for a new contract. In an interview with Government Executive, APWU President William Burrus calls a pay increase for his members an “entitlement”:

“More — more control over activities at work, more money, better benefits — we want more,” said Burrus. “We will try to fashion our proposals to reflect the entitlement to more.”

An arbitrator will most likely determine whether APWU workers get their raises. Oddly, according to federal law an arbitrator can’t take the USPS’s financial condition into account when weighing a decision. This is like instructing the captain of a ship that’s struck an iceberg to ignore the gaping hole in the boat when deciding whether or not to abandon it.

USPS management has asked Congress to change the law, which Burrus preposterously calls “antidemocratic”:

Burrus said he resents the idea that an arbitrator should be required to take into account the Postal Service’s financial situation. He called the idea antidemocratic and said it interferes with free collective bargaining.

Having watched the unionized workforces at GM and Chrysler receive preferential treatment from the federal government, there’s little incentive for Burrus and the postal unions to not ask for more. The postal unions are likely betting that in a worst case financial scenario for the USPS, policymakers will tap taxpayers for a bailout. Unfortunately, if recent history is a guide, they’re probably correct.

Like a terrible remake of Groundhog Day, the White House has unveiled yet another so-called stimulus scheme. Actually, they have two new proposals to buy votes with our money. One plan is focused on more infrastructure spending, as reported by Politico.

Seeking to bolster the sluggish economy, President Barack Obama is using a Labor Day appearance in Milwaukee to announce he will ask Congress for $50 billion to kick off a new infrastructure plan designed to expand and renew the nation’s roads, railways and runways. …The measures include the “establishment of an Infrastructure Bank to leverage federal dollars and focus on investments of national and regional significance that often fall through the cracks in the current siloed transportation programs,” and “the integration of high-speed rail on an equal footing into the surface transportation program.”

The other plan would make permanent the research and development tax credit. The Washington Post has some of the details.

Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week… The business proposal — what one aide called a key part of a limited economic package — would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs. It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled.

These two proposals are in addition to the other stimulus/job-creation/whatever-they’re-calling-them-now proposals that have been adopted in the past 20 months. And Obama’s stimulus schemes were preceded by Bush’s Keynesian fiasco in 2008. And by the time you read this, the Administration may have unveiled a few more plans. But all of these proposals suffer from the same flaw in that they assume growth is sluggish because government is not big enough and not intervening enough. Keynesian politicians don’t realize (or pretend not to realize) that economic growth occurs when there is an increase in national income. Redistribution plans, by contrast, simply change who is spending an existing amount of income. If the crowd in Washington really wants more growth, they should reduce the burden of government, as explained in this video.

The best that can be said about the new White House proposals is that they’re probably not as poorly designed as previous stimulus schemes. Federal infrastructure spending almost surely fails a cost-benefit test, but even bridges to nowhere carry some traffic. The money would generate more jobs and more output if left in the private sector, so the macroeconomic impact is still negative, but presumably not as negative as bailouts for profligate state and local governments or subsidies to encourage unemployment — which were key parts of previous stimulus proposals.

Likewise, a permanent research and development tax credit is not ideal tax policy, but at least the provision is tied to doing something productive, as opposed to tax breaks and rebates that don’t boost work, saving, and investment. We don’t know, however, what’s behind the curtain. According to the article, the White House will finance this proposal by “closing other corporate tax loopholes.” In theory, that could mean a better tax code. But this Administration has a very confused understanding of tax policy, so it’s quite likely that they will raise taxes in a way that makes the overall tax code even worse. They’ve already done this in previous stimulus plans by increasing the tax bias against American companies competing in world markets, so there’s little reason to be optimistic now. And don’t forget that the President has not changed his mind about imposing higher income tax rates, higher capital gains tax rates, higher death tax rates, and higher dividend tax rates beginning next January.
 
All that we can say for sure is that the politicians in Washington are very nervous now that the midterm elections are just two months away. This means their normal tendencies to waste money will morph into a pathological form of profligacy.

“Now on Democrats’ agenda: Budget cuts,” proclaims a front-page headline in Saturday’s Washington Post. The online headline reads, “Democrats add fiscal austerity as a campaign issue.”

Good news, huh? Let’s check it out:

The candidate was outraged — just outraged — at the country’s sorry fiscal state.

“We have managed to acquire $13 trillion of debt on our balance sheet,” he fumed to a roomful of voters. “In my view, we have nothing to show for it.”

And that was a Democrat, Sen. Michael Bennet of Colorado, who voted “yes” on the stimulus, the health-care overhaul, increased education funding and other costly bills Congress approved under his party’s control.

Meanwhile,

Paul Hodes, the Democratic Senate candidate in New Hampshire, recently proposed $3 billion in spending cuts that would slice airport, railroad and housing funds. Elected to the House four years ago as an anti-war progressive, Hodes lamented that “for too long, both parties have willfully spent with no regard for our nation’s debt.”

So Senator Bennet is outraged at the national debt — for which we have “nothing to show” — but he has voted, apparently, for every one of the spending bills in his time in the Senate that have created today’s $13 trillion debt. The National Taxpayers Union says his overall voting record on spending bills rates an F.

And Representative Hodes is calling for a $3 billion spending cut. Sounds big, eh? Front-page news indeed. But of course, it’s less than 0.1 percent of the 2011 federal budget — and that’s assuming that all these cuts would come out of this year’s budget. Hodes’s press release doesn’t make that clear; they might be cuts over 5 years or so. And his very next press release said he was fighting for federal funds for local New Hampshire services.

Both Republicans and Democrats want voters to think that they’re getting tough on spending, deficits, and debts. But their statements are at wide variance with their actual records and actions. We didn’t pile up $13 trillion in debt while no one was looking; members of Congress, of both parties, voted for these bills. Voters need to watch what they do, not what they say.

My colleague Chris Edwards, quoted by reporter Shailagh Murray, is a little more polite:

“The problem from a fiscal conservative voter’s point of view is that every member or wannabe member claims to be a fiscal conservative these days, so it’s more difficult than usual to separate the wheat from the chaff,” said Chris Edwards, director of tax policy studies at the Cato Institute, a libertarian-leaning think tank.

“Three top Republican House members have written a book that repeatedly criticizes former GOP leaders as well as President Obama,” reports the Washington Post. “In ‘Young Guns,’ scheduled for release Sept. 14, Reps. Eric Cantor (Va.), Kevin McCarthy (Calif.) and Paul D. Ryan (Wis.) cast the Republican congressional leaders who preceded them as a group that “betrayed its principles” and was plagued by ‘failures from high-profile ethics lapses to the inability to rein in spending or even slow the growth of government.’ ”

Good point! And one we’ve made several times at Cato.

But how credible are the messengers? Once you ruin a brand, it can take a long time to restore it. And part of the solution is owning up to your own errors, not just pointing the fingers.

In this case, I’m sorry to discover that Reps. Cantor and Ryan both voted for the Bush administration’s No Child Left Behind Act in 2001, expanding federal control over education. They both voted for the costly Iraq war in 2002. They both voted for the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, which was projected to add more than $700 billion to Medicare costs over the following decade. They both voted for the Emergency Economic Stabilization Act of 2008, which included the $700 billion TARP bailout. (Rep. McCarthy, who joined the House in 2007, voted against TARP.)

To be fair, all three of the authors get A’s and B’s in the annual ratings of Congress by the National Taxpayers Union, which means they have better records on spending than most of their colleagues. But I’ll be curious to see if the book admits that any of the near-trillion-dollar votes discussed above were mistakes — not just by the departed Bush, Hastert, and DeLay but by many Republican members of Congress.

I recently criticized the idea that policymakers should focus their attention on making government more “efficient.” Instead, I argued that policymakers should focus their reform efforts on reducing government’s size.

Government efficiency proponents make the mistake of viewing the cost of government in the same light as the cost of operating a private business. However, government cannot operate like a business because it isn’t a business.

Private businesses obtain their revenue through voluntary exchange: consumers willingly give a business their money in return for a product. Businesses must control the cost of providing a product in order to maximize profits. A business that does not adequately control its costs can find itself undercut by a competitor offering a like product at a lower price. In the private sector, the market sets the price of a product through the interaction of supply and demand.

Government is unconcerned with “profit.” The “cost” of government is equal to the taxes extracted from the private sector to pay for government activities, plus the economic damage caused by extracting resources from the private sector. Taxes are involuntarily obtained through compulsion and force. Regardless of the value a citizen assigns to the services provided by government, a citizen must pay for those services, and at a price set by government. The price one pays for government is primarily a function of political factors, which are only indirectly influenced by economic considerations.

Therefore, the question of how efficiently government provides services is less important than deciding what services government should provide. For example, it matters little how quickly the USDA processes subsidy checks for farmers. More important is whether farmers should be receiving subsidy checks at all.

To understand why this is so, consider the following example of two policymakers from opposite ends of the political spectrum. Both policymakers support government efficiency as a means to a statist end.

Indiana governor Mitch Daniels has received national recognition as a “pragmatic conservative” who has focused on making state government operate more efficiently. Indeed, I worked for two years in Daniels’ budget office and one of my duties was to try making state programs more efficient.

To the degree my agency’s efforts created savings — a debatable premise — those savings were merely spent in other areas. This is because the Daniels administration was concerned with reallocating savings to other government activities instead of reducing the state tax burden. Net savings would have meant a smaller government to fund, which would have allowed for a reduced tax burden. But taxes weren’t reduced — the Daniels administration merely proposed to spend up (and now down) to the level of revenues the state took in. In fact, Indiana state tax rates have increased under Daniels.

Liberal congressman Earl Blumenauer (D‑OR) embraces government efficiency for a somewhat different reason, but the end is the same. In a recent New York Times profile, Blumenauer argues that liberals should actively embrace government efficiency measures in order to sustain public support for an expansive federal government:

Mr. Blumenauer doesn’t argue that government does too much, or that programs like Social Security and Medicare aren’t vital. Rather, in two recent conversations about the nation’s finances, Mr. Blumenauer argued that if Democrats really want to protect a vast array of federal programs from repeated Republican onslaughts, then they need to bring the costs of the programs in line with reality.

Otherwise, he said, liberals only make it easier for conservative critics of social spending to undermine the entire premise of liberal government. And they make it that much harder to propose new and much-needed investments in, say, infrastructure and education.

“We do people no favors if we have systems that leak money and don’t have the credibility they need when they’re under attack,” Mr. Blumenauer said. “People will pay for all this if they’re convinced they’re getting their value. But our challenge on the federal level is to actually deliver, and we can’t just defend the indefensible.”

The Times reporter augments Blumenauer’s position by placing it in the historical context of former Democratic senator Ed Muskie’s effort to make government more efficient:

Mr. Blumenauer may be out of step with his natural political constituencies, but his basic argument here places him squarely in a tradition of mainstream Democratic thinkers. As far back as 1976, in one of the more persuasive, if least remembered, speeches in the party’s modern history, Senator Edmund Muskie of Maine made essentially the same case to the Democratic platform committee and voiced his support for a “sunset bill” that would have subjected most federal programs to periodic review.

Mr. Muskie argued that it was hard to persuade voters to accept new programs while they entertained profound doubts about the efficiency of existing ones. Noting that some Democrats seemed to regard budget reform as “a repudiation of the New Deal,” he asked his colleagues: “What’s so damn liberal about wasting money? And what do waste and inefficiency have to do with the New Deal?”

The bottom line is that the road to smaller government won’t be paved with efforts to make government “more efficient.” In its most benign form, government efficiency is a political tool wielded by policymakers who probably aren’t serious about downsizing government. In its more pernicious form, it can lend credibility to activities that government should not be undertaking to begin with.