Topic: Government and Politics

The Next Step after Citizens United

The debates following the Citizens United decision continue, thanks in part to President Obama’s criticism of the U.S. Supreme Court during the State of the Union address.  Keeping track of those debates might cause you to miss what may well turn out to be the next step in liberalizing our campaign finance laws, the case of SpeechNow.org v. Federal Election Commission which was argued last Wednesday before the entire U.S. Court of Appeals for the D.C. Circuit.

SpeechNow is a group of individuals with a clear mission: “SpeechNow would like to run advertisements urging voters to elect federal candidates who support full protections for First Amendment rights and to defeat candidates who are hostile to those rights.” The group has made sure that its members are independent of candidates for office and the political parties.

You would think they could set up the group and spend as they wish since SpeechNow is not tied to a candidate or party and hence cannot pose a threat of corruption. After all, the First Amendment protects speech by individuals, and the courts have only permitted regulations related to corruption (contribution limits) or public education (mandatory disclosure of spending).

Unfortunately federal law requires any groups that receives contributions of more than $1,000 during a calendar year or spends more than $1,000 during a year to register as a “political committee.” That status would mean disclosure of SpeechNow’s members and limits on contributions and spending. Fulfilling reporting and other requirements and observing the contribution limits would kill SpeechNow’s effort before it started. No group, no ads, no speech.

The Federal Election Commission argues that allowing speech by SpeechNow’s members would lead to corruption. Elected officials, they assert, will reward people who support favored speech even if those people are independent of a candidate or a party. Justice John Paul Stevens endorsed this corruption argument in Citizens United. He was dissenting and had the support of a minority of his fellow justices. The judges who heard the case for the circuit court seemed to believe Citizens United had weakened this sort of corruption argument.

Citizens United limited the power of the federal government over independent expenditures and speech by groups taking a corporate form. The reasoning in that case should apply with added force to individuals associating together to speak, individuals who have no ties to candidates or the political parties.

We’ll keep you up-to-date on the fortunes of the SpeechNow effort. For now, you can read more about the case at the Institute for Justice website or see an account of the circuit court hearing  here.

Can Unemployment Benefits Create Jobs?

At the Center on Budget and Policy Priorities, sociologist Michael Leachman claims “some of the most effective job-creation and job protection measures” in last year’s American Recovery and Reinvestment Act are excluded from the job figures to be released on recovery.gov on January 30.   He explains that, “Most of ARRA’s distributed dollars to date have gone directly to individuals (including greater jobless benefits and food stamps) and states (including greater federal support for Medicaid).  Although these dollars are likely protecting or creating hundreds of thousands of jobs, none of the aid for individuals or the Medicaid support are [sic] reflected in the January 30 jobs data release.”

In particular, Leachman claims Recovery Act funds to extend unemployment benefits from 26 to 79 weeks (and to 99 weeks since November) “produces and sustains jobs.”  For proof, he cites estimates from Mark Zandi of Economy.com “that every dollar spent on extending unemployment insurance benefits produces $1.61 in economic activity.”

This analysis runs into two big problems.  The first is that it assumes that the amount of time people spend on unemployment insurance is unrelated to how long the government offers to keep paying benefits.  The second is that it assumes that the assumptions about “fiscal multipliers” built into Economy.com econometric model are actually evidence rather than just assumptions.

On the first point, page 75 of the 2007 OECD Employment Outlook explains: “It is well established that generous unemployment benefits can increase the duration of unemployment spells and the overall level of unemployment… This could have a negative impact on productivity through inefficient use of resources and depreciation of human capital during long spells of unemployment. In addition, by reducing the opportunity cost of unemployment, generous unemployment benefits may lead existing employees to reduce their work effort, thereby lowering productivity (see e.g. Shapiro and Stiglitz, 1984; Albrecht and Vroman, 1996).”

As I recently noted, the overwhelming evidence that extended unemployment benefits raise the duration and rate of unemployment comes from economists in the Obama administration, Larry Summers and Treasury economist Alan Krueger, as well as many others such as Lawrence Katz of Harvard and Bruce Meyer of the University of Chicago.

Contrary to Leachman, bribing people to stay on the dole for an extra 53-73 weeks leaves them with less money to spend, not more.   It also looks bad on resumes, and may cause lasting damage to future job prospects.

Leachman’s second problem concerns fiscal multipliers, such as Zandi’s astonishing 1.6 multiplier for unemployment benefits.

In a similar effort to pretend that borrowed money is free, and therefore “creates jobs,” the Council of Economic Advisers claims to use “mainstream estimates of economic multipliers for the effects of fiscal stimulus.” Yet the cited sources are not from academic research at all, but from the mysterious innards of notoriously unreliable econometric forecasting models from Economy.com, Global Insight, J.P. Morgan Chase and Goldman Sachs.

At the Federal Reserve Bank of San Francisco, by contrast, economist Sylvain Leduc surveyed contemporary research by ten distinguished scholars, including current CEA chair Christina Romer and IMF chief economist Olivier Blanchard.

“An interesting aspect of this new literature,” wrote Leduc, is that, notwithstanding their vastly different methodologies, they reach surprisingly similar conclusions. Regarding the impact of tax cuts on the level of real GDP one year after the change in taxes, the three studies predict a multiplier of roughly 1.2…  Moreover …  in contrast to theoretical predictions from the simple Keynesian framework, the analyses found that government spending had less bang for the buck than tax cuts. For instance, one year after the increase in spending, the impact on the level of real GDP is less than one-for-one, partly reflecting a decline in investment.”

In this new academic research, the estimated multiplier for deficit spending ranged from 0.4 to 0.6 — meaning a dollar of added federal debt added far less than a dollar to GDP.   Moreover, an IMF paper on “Fiscal Multipliers” adds that negative multipliers are quite possible: “fiscal expansions can be contractionary if they decrease consumers’ and investors’ confidence, especially if the fiscal expansion raises, or reinforces, fiscal sustainability concerns.”

Whether the government pays people to work or to stay on the dole, it has to get the money by taxing, borrowing or printing money — all of which reduce real income and employment opportunities in the private sector.  To imagine that borrowing from Peter to pay Paul is a way to create or save Paul’s job is to forget that Peter expects his money back with interest.

If every dollar of unemployment benefits really added $1.61 to real GDP, then putting everyone on the dole would make us all much richer

More Data on “Fiscally Conservative, Socially Liberal” Voters

A study by the Tarrance Group for the Republican organization GOPAC provides further evidence on the existence of voters who don’t fall into the “conservative” or “liberal” box.  Tarrance asked people who voted in the 2008 election not just to label themselves conservative or liberal, but to describe their views on both fiscal and social issues. The questions were:

When thinking about fiscal issues, like taxes and government spending, do you consider yourself to be:
Very conservative, Somewhat conservative, Somewhat liberal, or Very liberal?

When thinking about social issues, like abortion and gay marriage, do you consider yourself to be:
Very conservative, Somewhat conservative, Somewhat liberal, or Very liberal?

Tarrance leaves out the “moderate” option, but a few respondents volunteer it.

The results were interesting. While 69 percent of respondents described themselves as conservatives on fiscal issues, only 53 percent said they were conservative on social issues. When you combine the responses, you find that 23 percent of respondents described themselves as fiscally conservative but liberal or moderate on social issues. That’s pretty close to the estimates of the libertarian vote that David Kirby and I presented in “The Libertarian Vote in the Age of Obama.” See pages 4-7, especially Figure 3, in the full study. Using fairly strict criteria, we declared 14 percent of the electorate to fall into the libertarian category. But three other studies yielded 23 to 26 percent who gave libertarian answers to questions about both fiscal and social issues.

Tarrance presented the results to GOPAC this way (the “moderate” category includes both those who volunteered the word moderate and those who declined to pick either liberal or conservative as a label):

Interestingly, these “fiscally conservative, socially moderate or liberal” respondents made up 17 percent of Republicans but 24 percent of Democrats – and 41 percent of ticket-splitters:

So a couple of interesting points to take away from this study (which was actually done right after the 2008 election but I only just learned about): First, conservative pundits have talked a lot over the past year about Gallup’s findings throughout 2009 that conservatives outnumbered both moderates and liberals, suggesting a slight shift to the right among Americans. The GOPAC study shows us that lots more Americans think of themselves as fiscal conservatives than as social conservatives. That’s a result that Ramesh Ponnuru, who regularly argues that Republicans win more votes on social conservatism than on economic conservatism, might ponder.

Second, as Kirby and I keep saying, there actually are libertarian-ish voters, who generally prefer less government in both economic and personal matters, and politicians, consultants, and pundits ought to pay attention to them.

Third, Tarrance found that 23 percent of likely voters declare themselves conservative on fiscal issues but not on social issues (and only 7 percent say they’re socially but not fiscally conservative, and they’re almost all Democrats), and that number is very close to numbers found by other pollsters. But when Zogby asked people, “Would you describe yourself as fiscally conservative and socially liberal?” 59 percent said yes. That’s a much larger number. Maybe the combination is particularly attractive – “best of both worlds.”

George Will on Obama

In the Washington Post and many other papers today, in re the State of the Union:

Obama’s leitmotif is: Washington is disappointing, Washington is annoying, Washington is dysfunctional, Washington is corrupt, verily Washington is toxic – yet Washington should conscript a substantially larger share of GDP, and Washington should exercise vast new controls over health care, energy, K-12 education, etc.

Mark your calendar for May 13, when George Will keynotes the biennial Milton Friedman Prize for Advancing Liberty Dinner here in Washington. I anticipate similarly acerbic analysis.

How Will the Independents Vote?

In a recent Cato study, “The Libertarian Vote in the Age of Obama,”  authors David Boaz and David Kirby found that libertarian voters, who make up about 14 percent of the electorate, are a leading indicator of how independents will cast their ballots.

Appearing on Freedom Watch earlier this week, Boaz explained the results of the study, and what it means for the next election. Watch:

Post-State of the Union Links

  • Time for the SOTU fact check:  Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.
  • During this year’s SOTU, President Obama criticized the Supreme Court decision in the Citizens United case. Today’s podcast examines the Court’s ruling.

Obama’s SOTU Export Promise: Bold and Unrealistic

In his State of the Union speech, President Obama vowed to double U.S. exports in five years to (all together now) “create jobs.”

Exports are dandy, and they do support higher-paying jobs, but the president’s pledge was unrealistic and raises false hopes that it will make any dent in the unemployment rate.

U.S. exports have not doubled in dollar terms during a five-year period since the inflation-plagued 1970s, not exactly a golden era for the U.S. economy. In real terms, according to the U.S. Bureau of Economic Analysis, exports have not come close to doubling during any five-year stretch in the past 40 years. The fastest growth in inflation-adjusted exports came in the second half of the 1980s, when they grew by two-thirds from 1985 to 1990. Other periods of robust growth were the mid-1990s, and during the second term of George W. Bush, when five-year export growth approached 50 percent.

Export growth is certainly enhanced by a weaker dollar and lower trade barriers abroad, but the primary driver of export growth is rising GDP and demand abroad, and that is something outside even this president’s direct control. The key to reducing U.S. unemployment is not primarily selling more to growing markets abroad, but selling more in a robustly growing market at home.

Other Obama policies will actually make it more difficult to achieve his export pledge. The president renewed his misguided pledge last night to raise taxes on U.S. multinational companies that “ship jobs overseas.” Yet, as I pointed out in a Free Trade Bulletin last year, U.S.-owned affiliates in other countries sold $4 trillion worth of U.S. branded goods and services in 2006. A large chunk of our exports go to those affiliates to help them make their final products for sale. Forcing U.S. firms to cut back their foreign operations will douse an important source of demand for U.S. exports.

The only major foreign market that has recently doubled its demand for U.S. exports in a five-year span is China. Yet President Obama has needlessly antagonized potential customers in our fourth-largest export market by imposing tariffs on Chinese tire imports and threatening other trade-reducing actions.

We can best promote more open markets abroad by setting a good example ourselves.