Topic: Regulatory Studies

Farm Subsidies and Reverse Robin Hood

Liberals love to complain about Republican support for supposedly ”reverse Robin Hood” fiscal policies. Here’s Alan Blinder and Rachel Maddow, for example, pointing the finger at Paul Ryan and Mitt Romney, respectively.

However, I don’t see much liberal concern about big government spending programs that really do redistribute income upwards. What do Blinder and Maddow think about Democrats and Republicans in the Senate who are eager to extend billions of dollars worth of unaffordable payments to farm businesses and landowners? Robert Samuelson recently described these corporate welfare recipients as ”immensely profitable” because of high crop prices.

Tad DeHaven and I looked at data on farm household incomes for testimony to the House last week. Here is what we found:

Farm subsidies redistribute wealth from taxpayers to often well-off farm businesses and landowners. Farm income stabilization payments have recently fluctuated between about $13 billion and $33 billion annually.  This is a welfare hand-out like food stamps, yet it goes to higher-income households. In 2010, the average income of farm households was $84,400, or 25 percent above the $67,530 average of all U.S. households. Moreover, the great bulk of farm subsidies go to the largest farms.

I’m not in favor of Robin Hood or reverse Robin Hood programs, but it would be nice to see more liberals focusing on spending programs that are unfair to the nation’s taxpayers.

Public Housing Director Paid $644,241

When you work at a non-profit, like Cato, you accept part of the deal is being paid below-market wages.  Not that I’d reject a raise, but I actually think it improves the organization.  No one is here for the money.  You’re here for the mission.  When one hears, however, of public employees, especially those in “mission-driven” organizations, being paid out-sized compensation, you can’t help but wonder what happened to the devotion to the mission.

In response to public complaints, HUD conducted a survey of public housing authority director compensation.  The average salary, not including benefits for a housing authority director, who manages over 1,250 units, was $115,615 (2010).  Certainly in excess of the median household income, but not extreme for senior public employees (who in general are over-paid).

A few “outliers” did stand out.  The Atlanta public housing director apparently received, in 2010, $644,241 in total compensation.  Now of course, that director is claiming that such a number is “misleading” as it includes bonuses and pay-outs for unused vacation.  You can find her defense here and judge for yourself.  I would certainly say from having met her on a few occasions, she is one of the more competent and hard-working housing authority directors.  But worth $644,241?

HUD’s reaction to all this?  To cap the federal contribution to $155,500.  Given that housing authorities are themselves creatures of state law and their directors usually appointed by mayors or governors, it is not clear to me why there should be any federal contribution to their compensation.  Let’s cap the federal part at zero.  If a city, county or state wants to continue to receive federal housing money, the least it can do is manage to pay the salary of its director.  While I’m no fan of federal housing programs, I’d at least like to see said funding actually go to those in need.

The Fed’s Dilemma

Chairman Bernanke will be testifying on Thursday, June 7th before the Joint Economic Committee of Congress. His testimony comes against a background of gloomy economic data. The U.S. economy grew at just a 1.9-percent annual rate in the first quarter of 2012. At that anemic growth rate, the economy cannot produce enough jobs to accommodate an expanding labor force. That fact was evidenced in the rise in the unemployment rate to 8.2 percent. The jobless rate for recent graduates is much higher. And this is occurring in the third year of economy recovery. Harvard economist Robert Barro has analyzed this pattern as unprecedented in economic recoveries.

Clearly something is very wrong with the policy mix.

The Fed has run out of viable policy options. Three years into a range of policies intended to keep interest rates very low, near zero for short term interest rates, it is time for the Fed Chairman to recognize that more of the same policy will produce more of the same results: weak growth and high unemployment. Commercial banks are not lending all the reserves the Fed is creating. Failure to fix the financial system in the wake of the financial crisis has left us with a hobbled banking sector. The ill-advised Dodd-Frank Act worsened rather improved matters. The Fed Chairman is not responsible for Dodd-Frank. But the unprecedented low interest rates have not produced credit for manufacturers, farmers and other productive sectors. Instead they are fueling bubbles in the bond markets and financial-market speculation. The fiasco with JP Morgan’s losses in London is symptomatic of how easy money fuels speculation rather than investment.

On the fiscal side, policy is equally wrong. The mindset of the Obama administration is that spending lots of money today, and taxing its citizens tomorrow to pay for todays’ spending, will make them feel wealthy and stimulate spending. That view is at odds with the lessons of Economics 101 and commonsense. Tuesday’s election in Wisconsin was less about an endorsement of Scott Walker the man, as an endorsement of his commonsense Midwestern antipathy to debt and large government as a solution to the economic woes that have befallen us. It is in that sense that Wisconsin is a bellwether for the nation.

Supreme Court Spanks HUD

Having one’s read of the law vindicated by the Supreme Court is always a nice feeling, even if I had to wait about a decade.  From 2002 to 2003, I managed the HUD office which administered the Real Estate Settlement Procedures Act (RESPA).

In 2001, prior to my arrival, the legal staff at HUD released a “policy statement” claiming that RESPA’s Section 8(b) prohibited some instances of fees as excessive or unreasonable because said fees would constitute a person “giving or accepting any unearned fees”.  How HUD even knows what is earned or unearned is besides the point, Section 8(b) of RESPA only prohibits fees that are basically split between two or more parties.  As far as statutes go, RESPA is actually quite clear.  That clarity, however, did not stop HUD from taking the convoluted position that one can split or share a fee with one-self.  This was obviously an attempt to create a “reasonable” test for fees where one did not exist.

During my brief tenure at HUD, the RESPA office largely ignored this section of the 2001 policy statement.  The staff there related to me that its inclusion was largely “political” anyway, an attempt to the make the remainder of the policy statement more palatable.  I made clear at the time that the policy statement went far beyond any actual authority in RESPA.  It seems, however, that the trial bar was not willing to let this statement remain dormant, and assembled a class action based upon this erroneous reading of RESPA, leading to last week’s decision, which rejected 9 to 0 HUD’s reading of RESPA.

Dodd-Frank moved the RESPA office from HUD to the newly created Consumer Financial Protection Bureau (CFPB).  It moved much of the HUD enforcement and legal staff as well.  What is not clear is whether the willingness to simply make up law where there is no statutory authority was also left behind.  One of the reasons why I, among others, have strong concerns as to the current structure of the CFPB is this trend of regulators constantly going around the letter of the law.  How are we to hope for respect for the law when those tasked with enforcing it show so little respect themselves.

Feds Delay ADA Pool Lift Rules Again

Did anyone think the U.S. Department of Justice was really up for a flood of “pool closes for fear of ADA liability” stories over Memorial Day weekend? So instead they’ve announced another delay in their rules, this time carrying them until safely after the election, specifically Jan. 31. The Department is murmuring about being “flexible” when it eventually gets around to enforcing the mandatory permanent-lift regulations, which have raised a storm of criticism (more here and here) as unreasonably burdensome to pool operators. The House has passed a rider cutting off funds for the enforcement of the regulation, over objections from Rep. Steny Hoyer (D-MD) and others, but the fate of the rider in the Senate is considered less promising.

Canada’s Economic Reforms

The lead article in the new Cato Policy Report is entitled “We Can Cut Government: Canada Did.” The article reviews Canada’s economic reforms since the 1980s, which have included free trade, privatization, spending cuts, sound money, large corporate tax cuts, personal tax reforms, balanced federal budgets, block grants, and decentralizing power by cutting the central government.

Those all sound like things we ought to pursue in America. The political systems of the two countries are different, but Canada’s pro-market reform lessons are universally applicable.

Canada’s reforms, for example, refute the Keynesian notion that cutting government spending harms economic growth. Canadian federal spending was cut from 23.3 percent of GDP in 1993 to 16.5 percent by 2000. Keynesians and their macro models would predict a crushing economic blow from such a spending reduction. They would argue that the “austerity” would slash “aggregate demand” and “take money out of the economy.”

Yet Canada’s spending cuts of the 1990s were coincident with the beginning of a 15-year economic boom that only ended when the United States dragged its neighbor into recession in 2009. As the government shrank in size during the 1990s, the Canadian unemployment rate plunged from more than 11 percent to less than 7 percent.

Canada still has a large welfare state, and its provincial governments are prone to overspending. However, its experience shows that even a modest dose of public sector austerity combined with pro-market reforms can lead to substantial gains in private-sector prosperity. American and European leaders still under the Keynesian spell should take note.

For more, see here and here.