Stimulus to Nowhere

The Doctor Is In, America: Get With the Estonian Program

by Matthew Melchiorre on May 7, 2013 · 0 comments

in Economy, Employment, International, Stimulus to Nowhere

Don’t let the optimism surrounding last month’s job numbers fool you. The unemployment rate’s decline from 7.6 percent in March to 7.5 percent in April is more statistical artifact than progress.  Like that of our Western European neighbors—and the U.K. in particular—the U.S. economy is stuck in a rut. Why? The answer is simple. Government profligacy overburdens the economy while propping up private inefficiencies, as I explain in Investors Business Daily.

Since 2008, Washington policymakers have been pacing around the doctor’s office too afraid to take the bitter but effective pill America needs: slash federal spending and end the U.S. Fed’s life support for zombie banks.

Economically stagnant Britain shows us where this continued procrastination leads. Instead of dashing after our tea-drinking transatlantic neighbors, American policymakers should look to Estonia, which took its austerity meds and quickly returned to prosperity.

[click to continue…]

Jerry Brown’s Legacy Train Wreck

by Charles Katebi on April 30, 2013 · 2 comments

in Economy, Features, Mobility, Politics as Usual, Stimulus to Nowhere

Post image for Jerry Brown’s Legacy Train Wreck

California Governor Jerry Brown, along with an entourage of high-profile business and financial leaders from the Golden State, recently traveled to China on a trade tour. The agenda included government and private sector partnerships in electric vehicle production, trash-to-electricity technology, and green energy research and development.

But the tour’s main purpose centered on garnering Chinese financial interest in what Jerry Brown hopes to be his defining legacy: high-speed rail for California. (Embarrassingly for Brown, China indicted its former top rail official on corruption charges during the governor’s junket.) China is currently sitting on $3.4 trillion in foreign exchange reserves. Traditionally, these have been invested in foreign government bonds. But in recent years, China has moved to diversify its holdings away from government bonds—which have been yielding historically low interest rates—and into more lucrative brick and mortar assets. Needless to say, the China’s banks and sovereign wealth funds would be fools to invest in Jerry Brown’s white elephant for several reasons.

First, the project’s estimated costs are ballooning before construction has even begun. Since a statewide ballot initiative in 2008 authorized the creation of a high-speed rail network, projected construction costs for the entire endeavor have ballooned from $34 billion. In a revised business plan published in 2011, the California High-Speed Rail Authority estimates construction will now cost $98 billion to $117 billion, and the estimated completion date of the full first section was pushed back by 13 years. In 2012, the rail authority claimed it found $30 billion in estimated savings, primarily by abandoning the initial full-build plan that would have required completely dedicated and electrified infrastructure and moving toward a “blended” model. Basically, this means the initial system will not be true 21st century high-speed rail, in that it will share tracks with electrified mass transit and trains relying on diesel motive power. The downward cost estimates are also the result of modified inflation projections that assume rates over the course of construction will be lower than previously assumed. These are the estimates before a single track has been laid.

[click to continue…]

Bill Would Prevent CDC’s Taxpayer-Funded Anti-Food Propaganda

by Michelle Minton on April 19, 2013

in Economy, Features, Health and Illness, Nanny State, Personal Liberty, Politics as Usual, Stimulus to Nowhere

Post image for Bill Would Prevent CDC’s Taxpayer-Funded Anti-Food Propaganda

Even in a divided Washington, everyone agrees on the importance of creating jobs in America. So why are some government agencies using taxpayer money to lobby against some food manufacturers?

At least one lawmaker, Rep. Aaron Schock (R-Ill.) thinks it’s time government officials stopped using taxpayer money to run smear campaigns against the makers of lawfully produced goods that consumers want. On April 15, Rep. Schock introduced the Stopping Taxpayer Outlays for Propaganda Act (STOP) Act (H.R. 1572), which would prohibit the use of federal funds for advertising and media campaigns to discourage consumption of any food or beverage that is lawfully marketed under the Federal Food, Drug, and Cosmetic Act. In a Politico op-ed this week, Schock explains that in this time of economic stress, using taxpayer money to harm American industry doesn’t make a lot of sense.

Not only do these government-funded campaigns harm American businesses, they are doing nothing to improve Americans’ health — and may even cause harm in some cases. Government is simply not very good at determining what is best or healthy for each individual. Studies funded by government grants are often cited by legislators to promote one-size-fits-all policies that fail to take into account a person’s health risks or specific dietary needs. Yet many such studies are based on limited data that often result in incorrect conclusions.

[click to continue…]

Sequester Show May Not Have Jumped The Shark, But Its Format Has Changed

by John Berlau on March 8, 2013

in Deregulate to Stimulate, Economy, Features, Politics as Usual, Stimulus to Nowhere

Post image for Sequester Show May Not Have Jumped The Shark, But Its Format Has Changed

Are you watching the Sequester Show? In today’s Wall Street Jorunal, my friend Kim Strassel says the sequester drama has “jumped the shark,”  a phrase used when a TV show loses popularity. As I have pointed out in OpenMarket before, the phrase originated with “Happy Days,” in which many a fan pinpointed the exact moment of the show’s descent to an episode in which Fonzie literally jumped over a shark with water skiis.

Yet, I’m not sure “jump the shark” is the best phrase to describe what’s happened with the Sequester Show. It may not have jumped the shark, but changed formats and become even more popular — albeit to the detriment of the Obama administration.

Specifically, the show changed its format from melodrama to comedy. Try as it might,  the Obama administration just couldn’t convince the public of all the disasters that must occur because of a 2-percent cut in government spending. Many families and businesses have had to cut much more  in these rough last few years. Then free-market activists, followed by GOP politicians, began to point out all the waste that could be cut using Twitter hashtags such as #CutWaste and #SequesterThis (the latter of which was popularized by Competitive Enterprise Institute Fellow Bill Frezza).

Noting the disastrous stunt of suspending public White House tours, Strassel’s piece contained some excellent examples of waste and extravagance at the executive mansion. For instance, the White House pays almost $300,000 a year for three White House calligraphers.

[click to continue…]

Harvard’s Jeffrey Miron: Sequestration Will Help National Economy

by Hans Bader on March 4, 2013

in Economy, Politics as Usual, Stimulus to Nowhere, Zeitgeist

Harvard’s Jeffrey Miron argues “the sequester will be good for the economy” even in the near future, helping the real economy by reducing government spending that includes “pure waste,” yet is classified as part of GDP; and by increasing production of things of real value. In his view, “the main problem with the sequester is that it is too small; it will reduce the deficit only slightly and scale back misguided government only a little. But it’s a start.”

There doesn’t seem to be any serious doubt the sequestration’s automatic budget cuts will help the economy in the long run, as we previously pointed out, citing the Congressional Budget Office’s analysis of the so-called “fiscal cliff.” Wells Fargo economists say the sequestration will boost the economy in the long run, and even increase its size — although they also argue that in the short run, it could shave 0.2 percent off of this year’s GDP. The sequestration will cause localized short-term pain to areas that include disproportionate numbers of federal employees and contractors, such as Northern Virginia, as a March 3 New York Times story illustrates (“Virginia’s Feast on U.S. Funds Nears an End”).

In an unsuccessful attempt to repeal the sequester budget cuts, the Obama administration exaggerated its short-run impact (such as falsely claiming it would result in budget cuts at a non-existent agency that closed its doors last year). Cutting spending helps  in the long run by reducing debt-service burdens on the economy that crowd out productive private investment. For example, the Congressional Budget Office says the stimulus package enacted in 2009 will hurt the economy in the long run.

Chicken Little Lives Vicariously Through Federal Union Bosses

by Trey Kovacs on February 28, 2013

in Economy, Employment, Labor, Politics as Usual, Sanctimony, Stimulus to Nowhere

We know the story of Chicken Little. The little chick thought the sky was falling because he was hit in the head by an acorn. He convinced the other barnyard animals that the sky was falling and soon they were all in hysterics.

Well, when it comes to sequestration cuts impact on federal employees, union officials have adopted a Chicken Little approach. Feeding Big Labor’s frenzy is tomorrow’s March 1 sequestration deadline with no deal to delay budget cuts in sight.

For the past few weeks, federal union leaders have been lobbying anyone who will listen to deflect cuts away from federal workers in favor of anything else. Today in U.S. News and World Report, I criticize these union officials, which many never do any government work:

When President Carter signed the Civil Service Reform Act in 1978, he said he did so to “promote the general welfare, contribute to the effective conduct of public business and to facilitate and encourage amicable settlements of labor-management disputes.” He said nothing about creating dozens of jobs within government devoted solely to the conduct of union business. But that is precisely what has happened.

According to records obtained by Americans for Limited Government through Freedom of Information Act requests, the Department of Transportation had 35 employees who did nothing but union work in 2012, and the Environment Protection Agency had 17. All 52 made at least $72,000 per year, and 37 made more than $100,000.

[click to continue…]

Wells Fargo Economists: Sequestration Helps The Economy In The Long Run

by Hans Bader on February 28, 2013

in Economy, Employment, Features, Politics as Usual, Stimulus to Nowhere, Zeitgeist

Post image for Wells Fargo Economists: Sequestration Helps The Economy In The Long Run

Yet again, the Obama administration is busy engaging in scare tactics about sequestration, inflating its impact on the government and the country (to the point of falsely claiming it will result in budget cuts at an non-existent agency that closed its doors last June).

But in reality, the sequestration’s automatic budget cuts will help the economy in the long run, as we previously pointed out. Wells Fargo’s chief economist now says that the sequestration will be economically helpful in the long run, much for the reasons I have given in the past. It will “eventually help the economy grow faster than it would have otherwise,” since “the sequester will reduce future budget deficits — and with them the odds of federal borrowing costs increasing several years from now.”

As Wells Fargo’s chief economist John Silvia and a colleague noted on page 3 of their recent report, “Should the Congress and the administration decide to cancel the sequestration completely without replacing the cuts, the result would be a lower long-run rate of economic growth stemming from higher budget deficits today and higher federal interest outlays in the future. In addition, there is a significant likelihood that the United States would face another debt downgrade, and, in turn, raise the possibility of higher interest rates.” “Should the sequestration be reversed or canceled,” noted Silvia and Wells Fargo economist Michael Brown this week, “the result would” come “at the cost of reducing the long-run rate of growth of the U.S. economy.”

[click to continue…]

The Myth Of British Austerity, And Why It Was Concocted

by Hans Bader on February 26, 2013 · 2 comments

in Economy, International, Politics as Usual, Stimulus to Nowhere, Zeitgeist

Opposition to spending cuts in America has been based heavily on “the myth of British austerity,” even though “if the British government is practicing austerity it is hard to see,” since government spending still consumes half of Britain’s GDP, and government spending there is virtually unchanged.

Indeed, spending is “projected to” grow modestly in England over the next few years. If England is not actually practicing austerity, why have critics of austerity falsely made Britain the poster child for austerity? A commenter at Bloomberg explains it in a nutshell: due to the United Kingdom’s structural economic weaknesses, and its heavy dependence on the devastated and anemic financial sector, Britain will underperform much of the world over the next few years no matter what it does. So whatever government policy is associated with it will look bad by association — giving those who oppose austerity, like Paul Krugman of The New York Times, a motive to falsely claim England is practicing austerity and suffered as a result of it (ludicrously, Krugman calls Obama a “small spender”). With government spending at around half the size of England’s economy,

there have been very few budget cuts [in England] so far. The economic weakness is a result of Britain’s heavy dependence on international finance, with the city of London being the investment banker to the whole world except the US, and the decline in North Sea oil and gas production. Domestic stimulus will have little or no impact on either. Keynes was a brilliant economist, but he recommended stimulus for situations where there is a large output gap. British unemployment is relatively low, showing that there is not a large output gap. British output potential is lower than it was in 2007, and the amount of taxes it can expect to raise is lower than thought then, and so spending must also be on a lower path. There is no choice. More spending would eventually bring bankruptcy.

With Bloomberg based in New York, the editors clearly read the New York Times (the trend-setter and ultimate source of many editorials in Bloomberg and the US media in general), and are very influenced by Paul Krugman’s characterizations of supposed British austerity, which he never supports by showing any actual austerity measures. They fail to understand that Krugman has little interest in what is actually happening in Britain. He condemns Britain’s supposed austerity because he believes by doing so, he can discredit austerity in the US, where the situation is far less troubled. Krugman knows that the relative weakness of the British economy, with falling hydrocarbon production there contrasting with a surge of oil and natural gas production in the United States, and with its greater dependence on depressed continental Europe and international finance, ensures that Britain’s economy will grow slower than the US economy over the next few years no matter what the US does. When it does, having convinced people like the editors that Britain is practicing austerity, Krugman will be able to say, “See, I told you so, austerity doesn’t work!” But he will have proven no such thing.

Britain will ultimately be forced to practice austerity because of economic weakness. There will simply not be enough taxpaying capacity to support the large government Britain built in better times. The austerity will be the RESULT of economic weakness, NOT its cause.

Government spending is not a panacea for recessions. Herbert Hoover increased government spending in the Great Depression, both in real terms and as a percentage of the economy, but the economy failed to revive. As Megan McArdle of The Atlantic notes, government spending more than doubled as a percentage of the economy from 1929 to 1933. Although the economy temporarily revived under Roosevelt, it then went back into a nasty recession in 1937-38, the so-called Roosevelt Recession. A sustained recovery from the Depression finally occurred only after a coalition of conservative Democrats and Republicans effectively took control of Congress in 1938 and blocked (or, in one case, repealed) various anti-business measures that had been stalling a natural recovery by discouraging investment. On the other hand, America experienced an “economic boom” after our government slashed spending in 1946, and Canada’s economy grew after it slashed government spending in the 1990s.

Sequester Budget Cuts Would Increase Long-Term Economic Growth

by Hans Bader on February 12, 2013 · 1 comment

in Deregulate to Stimulate, Economy, Employment, Labor, Legal, Regulation, Stimulus to Nowhere

The automatic budget cuts contained in the sequester will increase economic growth in the long-term, if Congress will just let them happen—rather than listening to Obama’s pleas to cancel the cuts, which are currently scheduled for March.  As I note in today’s National Post, in response to a column by David Frum:

David Frum claims modest automatic budget cuts scheduled to go into effect in the U.S.A. in March will somehow harm the economy if they aren’t cancelled. But those cuts are tiny compared to Canada’s budget cuts in the 1990s, which fueled economic growth. The cuts are just 0.5% of U.S. GDP. While the Congressional Budget Office says the cuts will reduce growth in the short run, it says they will increase economic growth in the long run by cutting debt burdens. Mr. Frum wrongly blames a U.S. recession in 1937 on budget cuts. What really harmed the U.S. economy then were bad economic policies such as an undistributed profits tax that discouraged investment, and a 1937 Supreme Court decision that unexpectedly upheld a costly labour law that lower courts had struck down. That court ruling led to a wave of strikes that shrank industrial output.

As I noted in the August 5, 2011 New York Times:

In 1937, the Supreme Court upheld anti-business legislation that had been struck down by lower courts, like the National Labor Relations Act, in decisions like National Labor Relations Board v. Jones & Laughlin Steel Corporation. That made unions more powerful, led to a wave of costly strikes and discouraged hiring. The increased wages demanded by unions resulted in employers’ laying off many workers.

[click to continue…]

Bankrupting America, One Vote At A Time

by Hans Bader on January 16, 2013

in Economy, Politics as Usual, Stimulus to Nowhere, Zeitgeist

The liberal Senate earlier passed a bloated pork-filled monster of a bill labeled as “disaster” relief. There were hopes that the House would trim the size of the bill, but those hopes were dashed Tuesday, as the “House passed a $51 billion disaster relief” package almost as big as the Senate’s. “192 Democrats and 49 Republicans voted yes, while 179 Republicans and one Democrat voted no. The bill goes beyond disaster relief to include “$2 billion for the Federal Highway Administration to make improvements not related to the storm, as well as $16 billion in community development grants for nearly every state in the country.” Only a few amendments sponsored by GOP leaders to cut the bill’s cost even passed, such as “a provision to slash $150 million for a Regional Ocean Partnership grant and another to remove $9.8 million to rebuild sea walls off the coast of Connecticut.”

House leaders broke the Senate’s bill down into two bills — a $17 billion bill focused on disaster relief, and a $33 billion bill chock full of pork — but both passed, resulting in an overall price tag of $51 billion. House leaders should not have allowed a vote on the latter bill. As the progressive Daily Kos blog notes (while exulting in the passage of this pork-filled monstrosity), “Republicans have a longstanding informal rule that no legislation will come up for a vote unless a majority of Republicans support it. That rule—dubbed the Hastert Rule after former GOP House Speaker Dennis Hastert—is supposed to prevent outcomes like the one last night, where a united Democratic Party teams up with a divided GOP to pass legislation overwhelmingly opposed by Republicans. But last night they ignored the rule—and it was the second time they ignored it this year. The first time was on New Year’s Day, when 85 Republicans joined 172 Democrats in passing the tax cliff deal despite opposition from 151 Republicans.”

For several years, America has been running trillion-dollar deficits, driving the national debt up to $16 trillion. At the beginning of the year, Congress also increased the national debt by passing legislation to delay by two months the automatic spending cuts contained in the so-called Fiscal Cliff, and by extending the Bush tax cuts for all but higher-income households through the Fiscal Cliff deal. (While taxes rose on the wealthy, the revenue thereby raised was offset by revenue lost due to corporate welfare contained in the Fiscal Cliff deal, and due to additional revenue lost due to tax credits contained in the stimulus package that were renewed through the Fiscal Cliff deal.)

[click to continue…]

← Previous Entries