Investing Abroad, Investing at Home

On the campaign trail, then-candidate Obama spoke against policies that give companies tax breaks after shipping jobs overseas.

“I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America,” Obama said.

Now as president, there’s little doubt he will put those promises into action.

In today’s Cato Daily Podcast, Dan Griswold, director of Cato’s Center for Trade Policy Studies, explains why singling out those companies now for tax hikes can have a particularly painful negative side effect.

“When they talk about shipping jobs overseas what do they mean exactly? Well, if they mean U.S. companies investing in operations abroad then you’re indicting pretty much all of corporate America,” Griswold says.


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Whatever Happened to the Blue Dog Democrats?

Remember the Blue Dog Democrats? They were the fiscally conservative Democrats from Southern and Western and rural districts who weren’t going to go along with the big-spending leadership of their party. They’ve gotten a lot of attention, especially after a lot of new Blue Dogs were elected in 2006, helping to give the Democrats a majority in the House.

But where are they now? After eight years of unprecedented profligacy, with a trillion-dollar increase in federal spending, and in the face of both trillion-dollar deficits and unimaginably large long-term fiscal imbalances, the House is just about to vote to spend $825 billion that the government doesn’t have. Will any Blue Dogs vote no? Will any Blue Dogs live up to their campaign rhetoric about fiscal conservatism?

Don’t bet on it.

Their record isn’t as good as they’d like you to believe. John Fund pointed out back in 2005 that they were not supporting any Republican efforts to limit spending. But maybe that was just because the Republicans didn’t try to work with them. Fair enough. Now they’re part of the Democratic majority. And apparently they’re satisfied with vague promises from the Obama administration that after we spend all this money, we’ll get back to fiscal responsibility. (Lord, make me chaste, but not just yet.)

Blue Dogs supported fiscal responsibility at some vague point in the misty past, and they will strongly support fiscal responsibility at some vague point in the future, but right now they’re going to vote to put their constituents another $825 billion in debt.

Their members range from Rep. Mike Arcuri of New York to Rep. Charlie Wilson of Ohio, and include the newly promoted Kirsten Gillibrand. If you seek their monument, look around you.

UPDATE: By my colleague Tad DeHaven’s count, 37 out of 43 “Blue Dogs” voted for the spending bill that will probably end up costing about $900 billion. Congratulations to actual Blue Dogs Allen Boyd, Jim Cooper, Brad Ellsworth, Collin Peterson, Heath Shuler, and Gene Taylor.

National Science Foundation “Stimulated” Enough

The House version of the “stimulus” plan being developed in Congress would give the government’s National Science Foundation (NSF) an extra $3 billion, in part, to “put scientists to work looking for the next great discovery.”  Three billion dollars is a considerable chunk of change given that the NSF spent more than $6 billion in fiscal year 2008.

A story in today’s Politico says that Senator Chuck Grassley (R-IA) wants more details on a NSF Inspector General finding that “NSF employees have been spending significant amounts of company time on smut sites and in other explicit pursuits.”  The report states that one senior NSF official “had been repeatedly and excessively visiting pornographic websites and spending up to 20 percent of his official work time viewing sexually explicit images and engaging in sexually explicit on-line ‘chats’ with various women.”

I didn’t take the time to read the entire 68-page report, but what I did see was replete with examples of wasted taxpayer money by NSF employees and grant recipients.  For instance, the section prior to the porn finding discusses one NSF Don Juan who “based NSF-funded travel decisions, at least in part, on his desire to further personal relationships with women, some of whom were affiliated with NSF.” Right prior to that we learn that a Colorado grant recipient spent taxpayer money on booze for “workshop” attendees.

These examples of tawdry behavior at the NSF invite a bigger question: should taxpayers be forced to fund scientific research to begin with?  The majority of scientists would probably reply that the government doesn’t spend enough.  Then again, it’s hard to find any group that has developed a dependency on taxpayer largesse who will say otherwise.

One scientist who thinks the government shouldn’t fund scientific research is Dr. Terence Kealey, a clinical bio-chemist at the University of Buckingham in the UK.  Dr. Kealey made some interesting observations in a piece he wrote for Cato a while back called “End Government Science Funding.”

Without government funding of science, the United States overtook Britain around 1890 as the richest country in the world. So strenuously did Congress disapprove of federal involvement in research that it refused James Smithson’s bequest in 1829 and only grudgingly accepted it in 1846. (His gift helped establish the Smithsonian Institution.)

Further, government funding of university science is largely unproductive. When Edwin Mansfield surveyed 76 major American technology firms, he found that only around 3 percent of sales could not have been achieved “without substantial delay, in the absence of recent academic research.” Thus some 97 percent of commercially useful industrial technological development is, in practice, generated by in-house R&D. Academic science is of relatively small economic importance, and by funding it in public universities, governments are largely subsidizing predatory foreign companies.

In a 2003 interview with Scientific American, Dr. Kealey had this to say:

Research and development, which is a wider category, is largely funded by the private sector [for industrial purposes]. There’s no doubt in my mind that if government didn’t fund science, there would be significantly more private funding even for academic science. By “academic science” I mean pure or basic science as opposed to university science; the latter would dwindle, but the former would grow within industry. My belief–and it’s based on historical evidence of how good American science was before 1940–is that you have significant foundations [that would fund pure science]. Indeed, in my book I pointed out that quite a lot of the big foundations of science preceded 1940, and then after the huge influx of American government funding, people said, “Well, the government’s doing that,” and they started turning their attention to other things. More recently we’ve had people like [Bill] Hewlett and [Dave] Packard and others leaving billions to endow research, as the government started to withdraw slightly from that activity.

Who’s Blogging about Cato

A special thanks to all bloggers who wrote about Cato’s letter showing that there is not a unanimous agreement among economists about President Obama’s stimulus package.

Although we can’t name everyone who linked to the page, some of the bloggers include Michelle Malkin, Don Boudreaux, Damon W. Root, Alex Singleton, Cord Blomquist, , Jason Pye, Jason Talley, Andy Roth, Gerrit Lansing, J.D. Tuccille, , Frank Ahrens, ahrensf [at] washpost.com ( )Rodger Thomas, Amber Gunn, Colin Grabow, Russ Johnson, Michael Patterson, Robert Huberty, David Adams and Mitch Berg.

Also blogging about Cato:

If you’re writing about Cato on your blog, let us know by emailing cmoody [at] cato.org or reply on Twitter using @catoinstitute.

Behold the Power of Education Tax Credits and Tremble

Arizona is proving a great example of why education tax credits have so much potential to expand over time compared with vouchers.

The state is facing budget shortfalls and some Democrats have demanded an end to the education tax credit program. So, is the program in mortal danger?

Nope. From an Arizona Republic news report:

Anyone who does [oppose the tax credits] could face an abrupt end to a political career because the program is so popular… Tinkering with the school-tax-credit donations is a political grenade, policy analysts say. “Voting against a tax credit can be seen as a vote to raise taxes,” said Michael Griffith, a school-finance expert for the Education Commission of the States, which tracks education-policy issues… . Arizona Superintendent of Public Instruction Tom Horne warned that “the constituency is too strong” in support of tax-credit donations to private and public schools. He cannot imagine legislators would change the credits to pull the state budget out of the red.

These quotes illustrate two extremely important differences between tax credits and vouchers.

One, vouchers are seen as government spending and welfare while tax credits are seen as tax cuts. When you cut a voucher program, you’re slashing spending. When you cut a credit program, you’re raising taxes. We’ve been saddled with wasteful and distorting tax credits for years because of this political dynamic. It can now be used to advantage.

Two, tax credits multiply the school choice constituency. A voucher program counts only voucher recipients as constituents. An education tax credit program counts recipients, donors, and scholarship organizations as constituents, adding not just numbers but individuals with more money and political influence to the category of active choice supporters.

Economists against the Stimulus

Cato has just published a full-page ad in the New York Times with the names of some 200 economists, including some Nobel laureates and other highly respected scholars, who “do not believe that more government spending is a way to improve economic performance” – contrary to widespread claims that “Economists from across the political spectrum agree” on a massive fiscal stimulus package. Of course, many economists don’t like to sign joint statements, so this is only a fraction of stimulus opponents in the profession. Greg Mankiw pointed to a few noted skeptics last week:

In a TV interview last month, Vice President Joe Biden said the following:

Every economist, as I’ve said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs.

That statement is clearly false. As I have documented on this blog in recent weeks, skeptics about a spending stimulus include quite a few well-known economists, such as (in alphabetical order) Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales–and I am sure there many others as well. Regardless of whether one agrees with them on the merits of the case, it is hard to dispute that this list is pretty impressive, as judged by the standard objective criteria by which economists evaluate one another. If any university managed to hire all of them, it would immediately have a top ranked economics department.

And of course Mankiw’s list isn’t comprehensive. There’s also former Treasury economist Bruce Bartlett, former Yale professor Philip Levy, former Ohio State and Federal Reserve economist Alan Viard, Russell Roberts of George Mason, and many more. Under the current circumstances, plenty of economists are endorsing large fiscal stimulus programs. But it’s just not correct to claim that there’s any consensus or that “every economist … from conservative to liberal” supports the kind of massive spending program that the Obama-Biden administration has proposed.

UPDATE: Martin Feldstein, whose support last October for a fiscal stimulus is the reed upon which journalists justify their claims about “economists across the political spectrum,” now calls this stimulus bill “an $800 billion mistake.”