Cato

Herbert Hoover, Father of the New Deal

by Ryan Young on September 29, 2011

in Economy, Zeitgeist

Whether you love the New Deal or loathe it, its policies were not entirely new. FDR’s predecessor, Herbert Hoover, set the precedent. History remembers him as a laissez faire president; a do-nothing who simply let the Great Depression happen. This requires an odd definition of “laissez faire” and an even stranger understanding of “do-nothing” to actually be true.

A new Cato paper from St. Lawrence University economics professor Steve Horwitz takes a closer look:

In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt’s advisers knew that Hoover had started the New Deal. One of them wrote, “When we all burst into Washington … we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself.”

Read the whole paper here.

Obama’s Broken Pledge to Cut Wasteful Spending

by Hans Bader on September 16, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Politics as Usual, Sanctimony, Zeitgeist

When Obama was elected, he claimed he would “go through our federal budget– page by page, line by line–eliminating those programs we don’t need.” But as president, he seems to have forgotten about this pledge. The Cato Institute reminds him of it in a full-page advertisement in today’s Washington Post and other newspapers, identifying $525 billion he could cut annually from the federal budget by eliminating unnecessary or harmful programs.

For example, it notes that “Federal interference in housing markets has done enormous damage to our cities and the economy at large. HUD subsidies have concentrated poverty and fed urban blight, while Fannie Mae and Freddie Mac stoked the financial crisis by putting millions of people into homes they couldn’t afford. Getting the government out of the housing business will save $45 billion annually.” It also notes that “Federal workers enjoy far greater job security than their private sector counterparts—and far better total compensation: an average of $120,000 a year in wages and benefits. Cut federal compensation by 10 percent to save $20 billion annually.”

In 2008, Obama pledged to implement a “net spending cut,” but he has instead exploded government spending.  Federal domestic spending increased by a record 16 percent in 2010.  In 2010, the Congressional Budget Office concluded that “President Obama’s policies would add more than $9.7 trillion to the national debt over the next decade.”

The Obama administration’s housing spending is particularly wasteful.  It is now using regulations and billions in tax dollars to promote more of the risky lending that led to the financial crisis.  It is ratcheting up affordable-housing mandates that created markets for junk sub-prime mortgages (thus spawning the mortgage meltdown, as even the liberal Village Voice has conceded), and it is increasing regulatory pressure on banks to make risky loans.  A $75 billion federal mortgage bailout program harmed the very real estate markets it was supposed to help.

The Rahn Curve

by Ryan Young on July 1, 2010

in Economy, Personal Liberty, Regulation

A little government can do a lot of good. A lot of government can do little good.

Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.

Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.

Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.

The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.

Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.

I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.

LibertyWeek 63: Suing the Government into Honesty

by Richard Morrison on October 5, 2009

in CEI Projects, Features, Podcast, Zeitgeist

Your host Richard Morrison welcomes guest co-host Jeremy Lott and Editorial Director Ivan Osorio for Episode 63 of the LibertyWeek podcast. We start with CEI’s FOIA fight with the U.S. Treasury, 7-Eleven’s attempt to give consumers a big gulp of government and the solution to a jobless recovery. We then move on to union pension politics, Ireland’s regrettable embrace of EU hegemony and some scantily-clad Olympic News.

No “hysteria” about trade — just some facts

by Fran Smith on March 19, 2009

in Odds & Ends

I admire Dan Ikenson’s work on trade issues at Cato. Usually I agree with his views. A notable exception is his post yesterday on Cato’s blog – “Too much hysteria about trade.”

No, Dan wasn’t hitting the current climate of China-bashing or the Teamsters’ on-going campaign against Mexican trucking and NAFTA or the “Buy American” provisions in the stimulus bill. Dan instead was taking to task newspapers like the Washington Post that have been warning readers about the rising tide of protectionism in this world economic downturn.

He writes:

The fact of the matter is that there isn’t any discernible trend toward protectionism in the United States or in the world right now. World leaders issue warnings about the consequences of protectionism, but there are not trends. There are incidences, but no trends.

He uses now-US Trade Representative Ron Kirk’s Senate testimony as evidence of the Obama Administration’s support for open trade and for enforcement of trade rules.

I beg to differ. Kirk’s testimony, of course, reiterates President Obama’s Trade Agenda, which, while including some good rhetoric about the importance of open trade, strongly endorses the need to focus on non-trade issues in trade agreements, such as those involving labor and the environment. Here’s what Kirk said:

I respectfully submit that two strong steps toward restoring domestic confidence in open markets are a real and renewed commitment to enforcement of our trade rules, including those addressing labor and the environment,

And –

. . . to ensure that the way we promote trade reflects our country’s values about economic progress and justice, including through the advancement of internationally recognized labor and environmental standards.

Such issues, as Jagdish Bhagwati has often written, really act as non-tariff trade barriers and force poorer countries to adopt our regulatory schemes in these areas (to “level the playing field”) even when they don’t have the resources.

Dan may not realize that U.S. policymakers such as the Energy Department Secretary and others are seriously considering imposing carbon tariffs on countries (read China and India) that aren’t taking appropriate steps to restrict carbon emissions. Again, that would be a good way to level the playing field and improve U.S. competitiveness. Not protectionism?

Food safety is another area where protectionism may rear its ugly head under the guise of protecting consumers but actually setting detailed standards that may rely more on procedures than the safety of the end product. A bill recently introduced in the House could easily be used to block foreign competition.

And let’s not forget the stimulus package and the infamous “Buy American” provisions, which mandate that any company receiving government funding has to use “made in America” goods, such as iron and steel. The stimulus legislation also restricts companies receiving bailout funds from hiring foreign workers and restricts those firms receiving Trouble Assets Relief Program (TARP) funds from hiring foreign nationals holding H-1B visas unless they can prove they could not hire U.S. citizens instead.

The Obama Team’s emphasis on enforcement issues seems benign to Dan. But take a look at what Rep. Sander Levin, head of the trade subcommittee of the House Ways and Means Committee is cooking up on trade enforcement. Besides promising lots more WTO complaints, the legislative plan is to put back in place provisions on U.S. antidumping and countervailing duties that were changed under President Bush because they weren’t WTO-compliant. But don’t interpret that as protectionism, Levin was quoted as saying, since its purpose is to “enforce the rule of law and the openness of markets.”

“Hysteria” about trade protectionism?  Think it’s not coming from the media, Dan, but from trade protectionists.