spending

 Cato's Chris Edwards is correct.  Republicans are playing small-ball.  They have no real vision, so they've ended up with policy paralysis.  - Jon Henke

As I note in a recent New York Post op-ed Republicans are fond of implying that President Obama is a big-spending socialist. But the House GOP recently offered a spending cut plan that was able to find savings worth less than one percent of Obama’s budget.

As Tad DeHaven and Brian Riedl have also pointed out, the GOP spending reform effort is rather pathetic. It proposed specific annual budget cuts of about $14 billion per year.

Consider that the center-left budget wonks at the Brookings Institution put their heads together a few years ago and came up with a “smaller government plan” that proposed about $342 billion in annual spending cuts (by 2014). The Brookings authors note:  

These cuts are achieved by reducing government subsidies to commercial activities ($138 billion); by returning responsibility for education, housing, training, environmental, and law enforcement programs to the states ($123 billion) . . . by cutting entitlements such as Medicaid, Social Security, and Medicare ($74 billion); and by eliminating some wasteful spending in these entitlement programs ($7 billion).

Thus, the Brookings scholars found cuts more than twenty times larger than the House GOP leadership cuts, and Brookings proposed its plan back when the deficit was about one-fifth of the size it is today. (Note that both the Brookings and GOP plans would also put a cap on overall nondefense discretionary spending, in addition to these specific cuts).

My point in the New York Post piece is that the GOP needs to challenge Obama’s big spending agenda at a more fundamental level. They need to do some careful research, pick out some big spending targets, and go on the offense. Why not propose to eliminate the Departments of Education and Housing and Urban Development? Why not sell off federal assets, such as the Tennessee Valley Authority, in order to help pay down the federal debt? Why not open up the U.S. Postal Service to competition?

Obama won’t agree to these reforms at this point, but they would hopefully open a serious national debate about reforming our massive and sprawling federal government. Ronald Reagan in 1980 and the congressional Republicans in 1994 didn’t win by splitting hairs with the Democrats over 1% of spending. They offered a more fundamental critique.

At least, GOP leaders need to offer up spending reforms as bold as those of the Brookings Institution.

Chris Edwards is the director of tax policy studies at The Cato Institute

In his inaugural address, President Obama said we should not worry about the size of government, but about whether we're spending money on things that work... 

The question we ask today is not whether our government is too big or too small, but whether it works -- whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And yet, in the few months since taking office, President Obama has spent hundreds of billions of dollars to prop up companies that were not working.  When, exactly, will the answer be "no"? 

The recent explosion in spending is no secret.  The government has already pledged more than $4 trillion in its attempt to solve this economic crisis—more than the cost of World War II. As though that’s not enough, the government has committed to spend trillions more over the next few years, which will bring the grand total to a staggering $12 trillion in new spending. That’s more than 24 times the size of the New Deal. 

But lost in all these colossal figures and vast amounts of debt are the consequences endured by average Americans, both today and especially tomorrow. 

When the time comes to replace Tim Geithner, might I suggest than Kelly Rutkowski, a 23 year old fan of the New York Yankees from New Jersey, might be an improvement

“I literally can’t afford to keep warm at this game,” Rutkowski said. “Can I just tell you, David, this is a sin. I’m freaking freezing, and there’s no way I’m spending $125 on a freaking sweatshirt, because that’s how this country got into this mess.”

The President talks about building our economy on a "new foundation"

Having dealt with construction financing in my career, I would suggest an economy based on well over $9 trillion in deficit spending.  is hmm...not based on a firm foundation.

Perhaps we ought to find out how many "$125 hoodies" our tax dollars are paying for?

Getting back to my old nabe I know what a rock looks like: and I know what sand looks like

Looks like we're payin for a lot of sand.

I'm sure Ms. Rutkowski can tell the difference between the Palisades and the Jersey Shore.

Our President, hmmm....not so much?

There is lots of talk about what needs to be done to fix education.  The big push is that we need to spend more.  I do not totally disagree, nor do I totally agree.  The bigger problem right now is not how much we spend but how we spend it.  To me it is like a trip to the grocery store. 

Lets say you are on the way home from work when your spouse calls.  They need you to stop by the store on the way and pick up toilet paper and light bulbs.  You have got $20 on you, so it will be no problem.  As you pull in to the store you realize you forgot to ask what type of bulbs are needed, but figure it is OK because you have enough to get both regular 100 watt and 3 way bulbs.  When you get there, you grab a cart and head in.  On your way to the TP and light bulbs, you pass the beer aisle.  Mmmmmmm…. Beer.  You turn down there first, like we said there is plenty of money so we can splurge.  You see a 12 pack of Federal Beer for 12 dollars.  It is a nice premium beer with a fancy package and great advertising.  No problem, you still have plenty left for what you need so you grab a case.  As you turn out of that row, you see chips.  You can’t have beer with no snacks, so you turn again.  You see a display of State Pretzels.  They are more expensive than other brands, but go perfect with beer.  They are also in a nice fancy package.  You grab a bad for $4.  You are almost to your destination when you see an end cap of Local Donuts.  You know after a night of pounding pack beer and pretzels you are going to need something for breakfast.  These things like Krispy Kreme too, so you can’t pass them up and grab a box for $3.  Finally you are where you need to be, light and TP.  Light bulbs are $4 per pack for the 3-ways and $3 for 100 watt.  With only $3 left you don’t have money for both, plus you still need that darn TP.  You see that $60 watts are only $2, so you pick that up instead.  Light is light, who cares how bright it turns out to be.  You turn around to the toilet paper.  You need at least a 4 pack, and would love something nice and fluffy.  Nice paper is at least $5.  Even if you buy the stuff that is like sandpaper it is $3 for a 4 pack.  All you have left is $1.  You grab the single roll of single ply sandpaper-like product.  Again, it does the job even if it is not very good.  You will buy something better next time.  Now you could go and put back some of that other stuff, but by now you have time invested and have convinced yourself that all the rest is just as important as what you originally came in for.   

That is the problem in a nutshell.  The purpose of the spending is education, the light bulbs and toilet paper.  We waste a lot of the money that should be paying for teachers, class rooms, books and other materials is wasted as it trickles down from Federal to State to Local Education boards.  We have teachers in trailers, or what they call portable classrooms.  The people in Washington, state capitals and county headquarters are not in trailers.  They are in beautiful buildings with huge staffs to push paperwork and discuss why the children are not learning.  We do not need more money, so much as we need to spend it on what it is intended for. 

http://federalistblogs.wordpress.com

Matt Moon keys off a tweet of mine suggesting a total earmark ban, at least until we get beyond the current disfigurement of the federal budget. He writes:

I agree with Patrick that earmarks are the most visible symbol. But that's exactly the problem. I don't agree that it's enough for Republicans to fix "symbols" of how we've lost our way. I don't agree that we need to focus on symbols. Yes, we need to fix the abuse of the earmark process by reforming it. But the fact is that not all earmarks can be construed as wasteful spending and not all wasteful spending are in earmarks.

I agree that earmarks are the tip of the iceberg when it comes to wasteful spending. Of late, I've also taken a dim view of symbolism as a substitute for policy. But here's the thing.

If we are going to spend $819 billion on an economic stimulus, and a $410 billion omnibus on top of it, the least Congress could do to signal that they are giving up some part of the gravy train is to suspend earmarked spending for the duration of the budget crisis. This is a political winner for Republicans. Republicans didn't have the votes to stop the stimulus or the omnibus, but we could rally public opinion around the idea of cutting off the part of the budget process perceived as the most politically self-serving and corrupt. It's not hundreds of billions of dollars, but it still makes a statement against the idea that the electorate can be bought with government dollars. In a minority situation such as the one we are in, it helps to pick fights we can win in the court of public opinion.

The political case for earmarks rests on the myth that constituents, Republicans and Democrats, want earmarks. In individual cases, this is true. But in the aggregate, polling has shown that the public takes a dim view of the process. And incumbents who do not take earmarks are re-elected at the same rate as incumbents who do.

The trouble with earmarks, beyond just their symbolic importance, is that earmarked spending is inherently recreational in nature. They are mostly for one-off projects that were never funded before, and are often a substitute for private investment -- making each earmark a mini-bailout.

Regardless of price tag, Republicans should not be in the business of defending new and optional spending. It's just not in our DNA as Republicans. One can be a fiscal conservative and support spending on basic public services like police, schools, and roads that are funded year in and year out. If earmarked projects are truly necessary, they should be funded through the ordinary budget process, not through haphazard one-off earmarks.

Podcast Show Notes

Pennsylvania: Dump Arlen. Toomey may run.  (Hat Tip: The Corner.)

Joe Biden: we all know he's a Democrat. (Hat Tip: Newsbusters.)

McCain slams Obama on spending: 4 months too late?

Dean snubbed by Obama.

$7500 houses in Detroit. (Hat Tip: Wizbang Blog.)

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This is a repost of an entry I wrote for QandO a few days ago. I'm reposting it here, for a different audience to get a look at it.

It is a lengthy think piece, and it may be completely off base. But the fundamental point I think we should be looking at is this: We are, quite possibly, watching the collapse of the Post-WWII global financial system. The first collapse in the 1930s saw off the Gold Standard. This collapse will probably see off the concept of government-backed fiat currencies.

So, what happens then?

Back in the Contract with America days, a Balanced Budget Amendment was a major tenet of Republican policy, and a couple of times, it came close enough to passing Congress to inspire furious lobbying and vitriolic sky-is-falling claims from the Democrats. 

A balanced budget requirement isn't some radical pie-in-the-sky idea. 49 out of 50 states have it. The good news is that it works -- those states are actually forced to balance their budget. The bad news is that it's often ugly, with drastic spending cuts and tax increases in many states in the current budget year. 

Albeit more responsible than rampant deficit spending at the federal level, the states aren't any less short term in their thinking than the feds. In good years, state governments rush to spend the surplus only to abruptly cancel programs in a recession -- because there's no real incentive to bank surpluses against a downturn or use state rainy day funds. A budget $5 billion in surplus is just as balanced as one with $0 in surplus, so the politicians might as well spend the money currying favor with voters.  

The only way I can think of to stop this problem is to extend the horizon of the balanced budget from one year to five years. Essentially, the budget would have to be in balance over the course of 5 years, covering most recessions with 2 or 3 years of recovery. 

In bad times, states could deficit spend -- by no more than the surpluses of the previous four years. In good times, states would be forced to bank surpluses -- particularly if the past few years were economically tough. 

One downside is that politicians use it to recreate the present, with budgets just barely in balance across the board, but more likely than not, the politically convenient thing to do would be to slip into a deficit for one or two years, thus kicking off a virtuous circle where subsequent years' budgets would not only have to be in balance, but the extra debt accumulated during a recession would have to be paid off. This could head off irresponsible spending binges in good times and keep state budgets on more of an even keel. 

It's true that budgets wouldn't have to be balanced every year -- though the overall fiscal impact is the same -- but it sure beats the farce of Washington needing to bail out the states when they run off the rails. 

With the stimulus signed into law, Barack Obama got the dramatic, unprecedented jolt to the economy that he wanted -- the yearly budgetary impact of the stimulus is about 3 times what the 2001 Bush tax cuts were -- and now we'll have a chance to see if it works. Today was the day Barack Obama took ownership of the economy. A President could traditionally expect an 18 to 24 month honeymoon -- but with this dramatic action that honeymoon period shortened to 6 to 12 months. For Obama's stake -- and for liberalism's -- it had better work. 

Let's lay down some markers on what success means, and hold the Democrats accountable for meeting them. Start with their own words. Advocates of the stimulus have taken one of two tacks to describe its impact: 

• The President's contention that the stimulus will save or create 4 million new jobs
• The fact that the stimulus needed to be be at least $775 billion since this was the projected difference between the economy's actual and potential capacity. 

President Obama is on the record stating that employment will be 4 million higher than if we did nothing by the end of 2010, and that economic growth will be about 2.8% higher (over two years, the stimulus represents about 2.8% of GDP) -- if you assume every dollar of stimulus is a dollar of economic growth, as is strongly implied by the second bullet. 

What does this mean in terms of actual levels of economic activity? 

First, we have to establish some baselines. Last week, Nate Silver posted an insightful chart forecasting the unemployment rate based on postwar recessions. If job growth continues along the average trajectory of the postwar period, unemployment will peak at about 8.1% this summer and begin declining. Most economists would say this is getting off relatively easy. However, if the trajectory continues along the lines predicted by recessions in the modern period marked by the Fed chairmanship of Alan Greenspan, unemployment will top out at 9.6% in June 2010 before beginning a steeper decline. 

This is if we "do nothing."

Obama's projected four million jobs saved translates to a projected 2.8% off the unemployment rate by the end of 2010. My reading of the post-1987 chart suggests that unemployment if we do nothing would be at 9.1% in January 2011 and 6.3% post-stimulus. This is the worst case scenario. Looking at the postwar curve, 6.8% unemployment pre-stimulus would be converted into an astonishing 4.0% post-stimulus. This is highly unlikely, but it's the best case scenario. 

Split the difference between these scenarios and you get an unemployment rate of 5.15% at the end of 2010. Either way, we should expect an unemployment rate no worse than 6.3% at the appointed date if Obama's economic theory proves correct. 

The economic growth targets are a bit more nebulous, but the implicit promise is that the economy will get no worse than it is when the stimulus first kicks in. So we should expect zero economic growth at a minimum over the next two years if what we are promised actually occurs -- and likely more, since even 1-2% percent declines in economic activity are rarely sustained over four quarters or more (Obama has seven economic quarters to make it happen).