Tuesday Links

  • Richard Rahn on the growing debt bomb, set to explode within three years: “Expect to see record high real interest rates and/or inflation, coupled with a collapse of many ‘entitlements.’”
  • Let the battle of ideas begin: Economists debate the monetary lessons of the last recession.

You Don’t Have to Be a Czar, Baby, to Be in My Show

Raging against “czars” seems all but obligatory these days for movement conservatives. The proliferation of Obama administration czars means “a giant expansion of presidential power,” warns Karl Rove, former domestic policy czar for the Bush administration–which I suppose proves once again that the capacity for embarassment is a career liability in this town.

Conservatives ought to be concerned about the growth of executive power. But as I argue in my Washington Examiner column this week, “czars” are pretty far down any serious list of executive-power concerns:

conservatives’ current bout of czar mania elevates symbolism over substance. All the focus on a scary moniker for certain executive officials misses the real problem: Unconstitutional delegation of power to the executive branch. Whether those illegitimate powers are exercised by unconfirmed presidential advisers or the president himself is quite beside the point….

Often, czars are mere figureheads, appointed to signal concern over the latest hot-button issue. As one presidential scholar puts it, “when in doubt, create a czar.”

True, it’s problematic that some of these appointees aren’t vetted by the Senate, and that presidents claim czars don’t have to answer to Congress – as when the Bush administration asserted in 2002 that executive privilege shielded then-homeland security czar Tom Ridge from testifying on the Hill.

But as the Washington Independent’s Dave Weigel has pointed out, many of the “czars” who appear on the conservative target list already have to be confirmed by the Senate. Others don’t, but when Obama is hell-bent on taking over the health care sector – one-sixth of the U.S. economy – it’s bizarre to agonize over the allegedly unchecked power exercised by the likes of the AIDS and urban affairs czars.

Similarly, while it’s great to see a nutter like Van Jones denied a federal salary, few of those cheering Jones’ defenestration can coherently explain what the green jobs czar actually does, or the threat he was supposed to represent.

What, was Jones going to give 9/11 “Truthers” and black nationalists jobs weatherizing homes? Will we stop wasting money on such projects now that he’s gone?

More here.

Gruber on Whether Mandates Are Taxes

Yesterday, on PBS’s NewsHour, I debated MIT health economist Jonathan Gruber on (among other things) whether the individual mandate in President Obama’s health plan is a tax.  As you can see in this video, Gruber pretty clearly states that the mandate is not a tax:

Which seems to conflict with what he wrote in his textbook:

Suppose…the government mandated that everyone buy full insurance at the average price of $825 per year…This would not be a very attractive plan to careful consumers, however, who could view themselves as essentially being taxed in order to support this market, by paying higher premiums than they should based on their risk.

There are really two government interventions at play in that example: the mandate that requires everyone to purchase insurance (whether they want it or not), and the price controls that force low-risk consumers to pay more than an actuarially fair premium.  One could say that it is the price controls, rather than the mandate, that Gruber likens to a tax.  It might be inconsistent, however, to suggest that when price controls force you to pay more for something than the market would charge, that is a tax, but when a mandate forces you to purchase something you don’t want at all, that’s not a tax.

Gruber also suggests that, for better or worse, the arbiter of whether a mandate is a tax is the Congressional Budget Office, and the CBO has said that the mandates in the leading health-reform bills are not a tax.  I think that’s incorrect for a few reasons.

  1. As I mentioned on the NewsHour and blogged earlier, the CBO has affirmed that the penalties for non-compliance are taxes.
  2. The CBO has not declared that the mandated private payments that result from the individual mandate are not a tax.  What the CBO has said is that – as the leading health-reform bills exist today – those mandated private payments do not meet the CBO’s definition of “federal revenues.”  In this report, the CBO explains that it will consider those mandated private payments to be federal revenues only if the government denies consumers a “sufficient” or “meaningful” or “substantial” degree of choice among health plans.  Faced with the necessity of drawing a line between what it will and will not include in the federal budget, the CBO made a judgment call and drew a line.  The agency went no farther; it did not say that mandates are taxes only if they fall on one side of that line.
  3. If the CBO’s determination of what constitutes “federal revenues” were to be the arbiter of what constitutes “a tax,” that would lead to absurd results.   Suppose Congress enacts the Baucus mandate, and then next year a new CBO director changes the rule so that those mandated private payments do count as federal revenues.  The result?  A massive tax increase!  Despite the fact that CBO has no authority to raise taxes.  And despite the fact that there would be no tax increase.   CBO’s change of heart would not alter public or private fiscal flows by one penny.

The president and his supporters have a tough road to hoe if they want to claim the individual mandate isn’t a tax.

Correction of the Day

A Sept. 18 Page One article about the community organizing group ACORN incorrectly said that a conservative journalist targeted the organization for hidden-camera videos partly because its voter-registration drives bring Latinos and African Americans to the polls. Although ACORN registers people mostly from those groups, the maker of the videos, James E. O’Keefe, did not specifically mention them.

Washington Post, September 22, 2009

Original article here.

What is Condoleezza Rice Talking About?

In an interview with Fortune Magazine, former Secretary of State Condoleezza Rice says, “The last time we left Afghanistan, and we abandoned Pakistan, that territory became the very territory on which Al Qaeda trained and attacked us on September 11th.” She goes on to say, “So our national security interests are very much tied up in not letting Afghanistan fail again and become a safe haven for terrorists.” She declared, “It’s that simple, if you want another terrorist attack in the U.S., abandon Afghanistan.”

Actually, Ms. Rice, it’s not that simple. Your logic ignores the fact that terrorists can move to governed spaces. Rather than setting up in weak, ungoverned states, enemies can flourish in strong states because these countries have formally recognized governments with the sovereignty to reject foreign interference in their domestic affairs. This is one reason why terrorists find sanctuary across the border in Pakistan. Besides, 9/11 was planned in many other countries with competent law enforcement agencies, Germany and the United States included.

If there were (god forbid!) another 9/11, it would prove that invading and forcibly democratizing two Muslim-majority countries has not made America safer. In fact, if Ms. Rice is so concerned about abandoning Afghanistan, where was she in 2002 when her boss diverted America’s resources away from those who attacked us on 9/11 by invading a country that did not?

Americans should reject Ms. Rice’s atrocious interpretation of policy and remember that she and her ilk were adept at keeping the American public in an elevated state of panic. Fear-mongering should be rejected and replaced with a sober analysis of policy and its consequences.

Al Qaeda poses a manageable security problem, not an existential threat to America. Yet, as I mention here, policymakers tend to conflate al Qaeda with indigenous Pashtun-dominated militias. America’s security, however, will not be at risk even if an oppressive regime takes over a contiguous fraction of Afghan territory; and if the Taliban were to provide sanctuary to al Qaeda once again, it would be easier to strike at the group within Afghanistan than in neighboring, nuclear-armed Pakistan.

How Big is American Government?

Federal, state, and local government spending will be 42 percent of U.S. gross domestic product in 2009, according to data from the Organization for Economic Cooperation and Development. That’s huge–more than 4 out of every 10 dollars of everything produced in America now gets channeled through governments.

How does that compare to other advanced nations? Chart 1 shows that total government spending in the United States is somewhat less than the average of the 30 industrial nations in the OECD, but that the U.S. advantage is shrinking. During the 1990s, the U.S. government size was about 10 percentage points smaller than the average OECD government size, but that gap has shrunk and is now only 5 percentage points.

Most of the erosion of America’s smaller government advantage occurred during the early Bush administration years. In the last two years, the recessions and expansionary fiscal actions have boosted the size of governments both here and abroad, as shown in the chart.That’s the bad news. The good news is that some advanced nations have substantially cut the sizes of their governments in recent decades, which illustrates that it can be done. Chart 2 shows total government spending as a share of GDP for the U.S. and for five OECD nations that have had relatively sound fiscal policies. Putting aside the recent recession-induced increases, Canada, New Zealand, and the Netherlands have chopped their governments by roughly 10 percentage points or more since the early 1990s.

edwards chart 1 9-22-09

What’s the upshot for U.S. policy? Many Americans have been stunned at the rapid expansion in government spending in recent years. But international experience shows that we can stop that expansion and, indeed, reverse it. If Australian, Canadian, Dutch, New Zealand, and Spanish lawmakers can shrink the relative sizes of their governments, then we can to. We just need to elect policymakers who support that goal. That is a tall order, but entirely doable.

edwards chart 2 9-22-09

FDIC Plan to Borrow from Banks Just Back-door Way of Putting the Taxpayer on the Hook

With the declining balance of the Federal Deposit Insurance Fund, and more bank failures likely in the days ahead, the FDIC is looking for novel ways to avoid borrowing from Treasury to cover its expected shortfalls.  One proposal being floated is to have the FDIC borrow from healthy banks to cover the costs of bank failures.  Without borrowing from either the Treasury or the banks, FDIC would likely have to raise insurance premiums on all insured banks.

While the scheme is imaginative, it is in reality no different than borrowing from the Treasury.  Banks, in exchange for a loan, would receive a government bond.  Does anyone doubt that these bonds would not simply be backed by the FDIC, but also backed by the Treasury?  In effect the plan is no different than FDIC borrowing from the Treasury and the Treasury selling bonds to the banks to cover the FDIC’s borrowing. Why the FDIC and Treasury would prefer a direct FDIC borrowing from banks is that it hides the real cost of the borrowing from the American taxpayer.

If we are going to continue to put the taxpayer on the hook for the behavior of the banks, let’s at least be honest about it.