Topic: Government and Politics

Obama Can Blame Bush All He Wants, But His Budget Is Even Worse

In the defensive-sounding statement released with his budget this morning, President Obama repeatedly blames the previous administration for leaving him in a position where he had “no choice” but to send the nation deeper into debt. He blames “irresponsible risk-taking and debt-fueled speculation—unchecked by sound oversight” for a deep recession that he speciously claims his administration’s massive spending prevented from becoming a depression.

Not once does the president acknowledge the role the government played in fomenting the recession. Instead, the president promises to move away from “business as usual” even though more spending, deficits, and debt are precisely that: business as usual. In this regard, the Obama administration’s first term is looking more like George W. Bush’s third term. Bush left the president with a $1.4 trillion deficit in FY2009; the deficit under Obama’s first year is set to rise to $1.6 trillion and would still be $1.3 trillion in FY2011. 

Just like Bush, the president proposes minuscule savings through a small number of program terminations and reductions. But overall spending continues to rise, and in a $3.8 trillion budget the president’s disingenuous attempt to “cut” anything amounts to little more than a rounding error. The president also proposes to freeze non-security discretionary spending for three years, which he falsely claims will “help put our country on fiscally sustainable path.”  In reality, last year’s stimulus and appropriations spending binge will mean actual outlays for this tiny portion of the overall budget will still be higher than what Obama inherited.

The president says that “rising to these challenges is the responsibility we bear for the future of our children, our grandchildren, and our nation.” The truth is our children and grandchildren are going to pay a painful price for the Bush/Obama profligacy. Present and future generations would be better served by Washington putting on the spending brakes and bringing to an end the economic distortions caused by government interventions.

There Is Some Budget Good News, but It Is Actually Really Bad News

The Office of Management and Budget has released the President’s FY2011 budget and the Congressional Budget Office has released its semi-annual Budget and Economic Outlook. Much of the coverage of these documents has focused on deficit numbers. This is not a trivial concern, particularly since the Bush-Obama policies of bigger government have dramatically boosted red ink.

But the most important numbers in the budget documents are the estimates of what is happening to government spending. The good news is that burden of government spending is projected to decline over the next few years from about 25 percent of GDP to less than 23 percent of GDP.

That’s the good news. The bad news is that federal government outlays only consumed 18.2 percent of economic output when Bush took office. In other words, notwithstanding the good news cited above, the size and scope of government has increased dramatically since 2001. The worse news is that the long-run spending forecasts show a cataclysmic expansion in the burden of government. The “optimistic” estimate is that the federal government will consume more than 30 percent of GDP by 2050 and 40 percent of GDP by 2080.

Do Democratic Presidents Create More Jobs? looked into a remark from Rep. Carolyn Maloney, D-N.Y., that “Democrats have been considerably more effective at creating private-sector jobs.”

The statement was rated true, as a purely statistical matter.  Yet the poltifact researcher did a good job questioning the significance of his own figures.  He noted, correctly, that the president usually “deserves less credit for the good times – and less blame for the bad times.”  And he added that job figures can be driven by outside factors such as oil price shocks, demographic changes or soldiers coming home after World War Two.  He wryly noted “how surprised we are that Eisenhower, who presided over the ‘happy’ 1950s, managed an anemic half-percent job growth per year, while Jimmy “Malaise” Carter finished second with 3.45 percent annual job growth.”   Anyone who remembers the runaway inflation of the Carter era will realize that annual rates of job growth are not enough to describe the overall economic situation.

The author also quoted me making the point that “timing can be hugely important.”   It is so important, in fact, that we may need to add another dimension to politifact’s true-false meter to deal with political comments that are simply meaningless.

For the record, what follows is the full text of my email on this topic:

The error involved with assigning rates of job growth to Presidential terms is that six recent Presidents took office within a few months of the start of a recession: Obama (recession began December 2007), H.W. Bush (July 1990), G.W. Bush (Mar 2001), Reagan (July 1981), Nixon (Dec. 1969) and Ike (July 1953).   As it happens, four of the five were Republicans.

One might argue that recessions launched near the end of the previous administration helped get these men elected. But these recessions were clearly left over from events that began previous years.  It didn’t help that the first Pres. Bush passed a tax increase three months after the 1990 recession began, but the start of that recession is more plausibly blamed on the earlier spike in oil prices when Iraq invaded Kuwait.

Since employment is a lagging indicator (one of the last things to improve), that means average job growth among Presidents who took office near the start of recessions is bound to look bad in comparison with Presidents who took office after an expansion was well underway.  Bill Clinton took office in 1993, long after recession ended in March 1991.   The same was true of Truman, LBJ and Carter.   JFK took office a month before the 1960 recession ended.

Two-term Presidents also have more time to show good numbers, but only if they’re lucky enough to get out of office just before the next recession starts.  Clinton squeaked by (despite falling stock prices and industrial production 2000), but Nixon, Eisenhower, Carter and G.W. Bush did not.

Since Bush 2nd began and ended office in recession, averages over 8 years outweigh 4 reasonably good years.  This unprecedented bad timing is exaggerated by Paul Krugman’s comparison of “decades” [and President Obama’s recent reference to “the lost decade” of 1999-2009] which relies on starting and ending each decade in boomy 1959 rather than slumping 1960, ditto 1969 rather than 1970, 1979 rather than 1980, 1989 rather than 1990, and 1999 rather than 2000.

In short, statistics about employment growth over Presidential terms are dominated by the timing of the “business cycle” (including Federal Reserve policy), and have no apparent connection to economic policies attributed to the White House (as opposed to Congress).

Karl Rove’s Spending

Former George W. Bush adviser Karl Rove enjoys complaining about the spendthrift ways of President Obama and the Democrats. But I noted in a Wall Street Journal letter today:

 Annual average real spending grew faster under President George W. Bush than any president since Lyndon Johnson… Even leaving out defense, President Bush was the biggest spender since Republican Richard Nixon.

My letter pointed to two prior op-eds by Rove, but he was at it again yesterday in the Journal. He said that his former boss “cut in half the growth of discretionary domestic spending from the sizzling 16 percent rate of President Bill Clinton’s last budget.” Call me crazy, but I don’t think supporting domestic spending growth of 8 percent during a time of very low inflation is an acheivement to crow about.

Over at National Review, Veronique de Rugy apparently gets just as annoyed as I do hearing big-spending Republicans complain about big-spending Democrats.

Mr. Rove’s columns are usually very interesting, but I’d like to see him accept at least some of the blame for the exploding size of government during his tenure at the White House.

Here are the data on spending by presidents.

Larry Lessig and the Lunching Libertarians

Outside the realm of copyright, Cato folk (and libertarians generally) don’t often see eye-to-eye with left-leaning cyberlawyer and Harvard prof Lawrence Lessig. Nevertheless, I wasn’t too surprised when Lessig signaled his interest in opening a dialogue with Cato scholars about his Change Congress project and his research on political corruption. After all, we’ve long argued that an expansive state will inevitably attract moneyed interests eager to feed at the public trough or co-opt well-intentioned regulation to stifle competitors. And as Lessig argues, legislators may come to see growing government as a means of creating supportive constituencies.

He’s posted the presentation he gave to a group of us at a luncheon discussion earlier this week, which I think makes an interesting case:

As he writes over at the Huffington Post, we see many of the same structural problems, though we differ as to the solutions.  Lessig has been critical of the legal reasoning behind the recent Citizens United decision, which we at Cato welcomed. Despite this, we were pleasantly surprised to hear Lessig aver that he is not interested in overturning the decision—that he prefers, rather, to find ways of reducing the political influence of special interest money without restricting speech. Lessig’s favored solution is public financing of elections, whereas I think the majority here at Cato share the skepticism of my colleague John Samples about the viability of that kind of reform.

Part of what explains the difference may be that, while we agree in very broad terms that there is a problem of policy capture, Lessig focuses above all on the influence of campaign contributions, which political scientists have not generally found to be the prime culprit. Here I’m inclined to agree with remarks by my friends Ezra Klein and Matt Yglesias, who saw the same presentation later that same day with a mixed liberal/libertarian group. Money is a symptom: The core public choice problem is a function of the informational and incentive asymmetries created by policies that concentrate benefits and diffuse costs.  While that fundamental fact remains, if I may paraphrase John Gilmore, money will interpret regulation as damage and route around.

Look at it this way: We don’t get draconian copyright policies because the RIAA and MPAA actually have more money, all told, than those of us who’d benefit from a more balanced intellectual property regime.  They’re richer, of course, but there’s a lot more of us. The problem is that their resources are already pooled, and they’re far more acutely aware of which side their bread is buttered on. That’s the asymmetry we need to address. And as Clay Shirky has so cogently argued, we may finally have the means to do so, because for the first time in human history, we have in the Internet (and Web 2.0 especially) a mass medium that is simultaneously good at enabling interactive conversations (as the telephone does) and groups (as magazines or television did).  The costs of processing and disseminating information have fallen dramatically over the past decade, and now the same is happening to the costs of organizing people and coordinating action.

That’s why I think Lessig’s focus on public finance as a silver bullet is less likely to bear fruit than an array of solutions that exploit transformative technology—something he’s so keenly analyzed in his writing on Free Culture. My colleague Jim Harper’s Washington Watch project, or the efforts of the folks at the Sunlight Foundation, are one part of the solution: Backroom deals are typically held in the back room for a reason. Sites like ActBlue and Slatecard are another, because they make it easier for a national audience to punish bad actors in their local races.  Note that it’s only in the last four or five years that “primary” has become a transitive verb, as in “The Netroots primaried Joe Lieberman.” What might we do with a transpartisan cloud of activists committed to targeting the most egregious policy vendors on both sides of the aisle? What disciplinary effect might the loss of a few “safe” seats have on the rest of Congress?

At the same time, I expect the Internet to gradually undermine the central importance of television ads, which have done so much to drive up the cost of modern campaigns. It’s not just that audiences fragment as video programming moves online and the outsized importance of the broadcast networks drops off. Rather, it’s that paid ads themselves matter less as more sources of information open up. Ten years ago, I might give a restaurant or other business a shot on the basis of an appealing advertisement, but in 2010? Even if the ad gets my attention, I’m going to go check Yelp and see what actual customers have to say.

Lessig is eager to channel just this kind of networked engagement, but he appears to see it primarily as a means to get his preferred process reforms implemented.  I think the more promising approach is going to ultimately be to cut out the middleman entirely: Don’t organize online to regulate the money out of politics; organize in ways that make money less relevant, and that raise the electoral costs of trading outcomes for campaign cash.

That aside, I thought we had a productive conversation, and I’m glad that in these polarized times it’s still possible to engage constructively with people despite substantial differences.  For those interested in a short primer in the problems of public choice, Lessig’s presentation is well worth a viewing.  And for further reading, I’ll humbly recommend this fine survey we published in our journal Regulation, and Gordon Tullock’s wonderful and concise primer Government Failure.

The Presidential Scold

Today, Politico Arena asks for comments on:

Duking it out in Baltimore

My response:

It’s all well and good that President Obama wants to meet with Republicans – giving the appearance of reaching out – but when it’s mainly to “chastise” them for opposing his programs, as the AP is reporting after his session at the House Republicans’ retreat in Baltimore today, it’s little but a continuation of the lecture he gave to Congress, the Supreme Court, and even the American people on Wednesday evening.  “I am not an ideologue,” he’s reported to have said.  Yet it appears that he rejected the Republicans’ proposals for a different approach to health care, a line-item veto for spending bills, and across-the-board tax cuts.

But why should that surprise?  Ideologues aren’t open to new or different ideas, because they have the truth.  Yet the deeper truth that’s been apparent all along is that we have here a president who, along with so many on his staff, has little grasp of economic reality, because he has no experience in the business world – indeed, appears often to be hostile to that world.  Just today, for example, the White House unveiled its plan for a new tax break to spur job creation.  As reported by CNN, Obama “wants to give businesses a $5,000 tax credit for each net new employee they hire this year.”  The CNN headline captures it all:  “Here’s $5,000.  Go hire someone.”  That’s not the way the world works.  Temporary tax gimmicks like that, which the White House estimates will cost $33 billion, are hardly what’s needed.  If businesses are to start hiring on a regular basis, they need assurance of a regular climate that will enable them to plan rationally.  This administration has given them anything but that kind of assurance.  And today’s meeting in Baltimore, like Wednesday night’s lecture, hasn’t helped.

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 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.