federal spending

Obama Administration Understated Deficits by $2.3 Trillion; Resists Spending Cuts Needed to Stem Deficits

by Hans Bader on March 25, 2011

in Economy, Employment, Energy, Environment, Stimulus to Nowhere

The Congressional Budget Office reported last week that the Obama administration understated budget deficits “by more than $2.3 trillion over the upcoming decade,” and that “if Obama’s February budget submission is enacted into law it would produce deficits totaling $9.5 trillion over 10 years — an average of almost $1 trillion a year.” President Obama objects to even a tiny two percent cut in the federal budget, submitting a self-indulgent, smoke-and-mirrors budget that would actually increase spending even faster than previously proposed for 2012.

Obama’s record deficit spending is based on the notion — contrary to all evidence — that if the government increases spending, that spending will more than pay for itself through increased economic growth. (Never mind that Canada’s economy boomed after it slashed government spending in the 1990’s, and America experienced an “economic boom” after our government slashed spending in 1946.)

For example, even though “federal education spending has gone through the roof” in recent years, Obama has called for big increases in education spending, saying that “the best economic policy is one that produces more college graduates.” But dumping more money on colleges won’t spur economic growth.

Jacking up college attendance rates further just results in the presence of bored, unmotivated students who are not interested in learning, and only go to college to get a diploma, while spawning an economically-destructive “arms race” over who can acquire the most unnecessary credentials. Already, “36%” of “the nation’s undergraduates” learn “little” or nothing after four years of college, according to a study cited by USA Today. Many of their professors didn’t even try to teach them much: “32% never took a course in a typical semester where they read more than 40 pages per week.”

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A Potentially Bold Fiscal Policy Experiment in U.K.

by Alex Schibuola on October 15, 2010 · 1 comment

in International

The Wall Street Journal reports that the Conservative government of Prime Minister David Cameron plans to cut 192 independent government agencies in an effort to reign in government spending.

I believe this will be the first instance in a Great Depression-like scenario where the government of a developed nation will actually cut spending (if they follow through). Some like to say that federal spending was heavily cut in the U.S. during the early 1930s under the Hoover administration. This is false (it increased 10.8 percent in 1930, 3.4 percent in 1931, and 2.3 percent in 1932).

Assuming that the financial sector remains fairly stable in the U.K. (no explosive inflation or implosive deflation) this will be an interesting development to follow for two reasons:

We will get a better look at who was to blame for the Great Depression’s severity.

Was it the ignorant use of monetary policy or absence of proactive fiscal policy? If government spending declines don’t carry the UK into a massive depression, such an observation will take the earlier, more conservative fiscal policymakers of the 1930s off the list of culprits (except for the worldwide slice and dice of international trade and supporting nominal wage freezes). Such an outcome would also diminish the strength of future arguments for Keynesian-style government spending.

We will get to see which sector can better stimulate the economy: private enterprise or government.T

Conventional macroeconomic models suggest that cutting government spending is a bad idea. Doing so causes aggregate demand to fall and will put (more) deflationary pressure on prices and wages leading to lower output (and higher unemployment). It is argued that increasing government spending (holding taxes constant) will create a multiplier effect that increases subsequent output levels.

The crowding out theory holds that consumption and investment should increase one-for-one with the decrease in government deficit spending. If this holds, then the private sector will have more resources at its disposal and means private spending (personal consumption and business investment) will increase. What will be interesting to see is how strong the private sector multiplier is relative to the government expenditures multiplier.

Keep your eyes open on this development given its unprecedented importance.

Fun Fiscal Policy Fact

by Alex Schibuola on October 15, 2010

in Economy, Politics as Usual, Stimulus to Nowhere

Table: Real growth rates of GDP, government expenditures, and federal tax receipts (year-end).

The conventional wisdom is that the Hoover administration cut federal spending and increased its tax revenues. Looking at the data, the conventional wisdom is wrong. Except in 1932 when real government expenditures fell 3.3 percent; after this the Roosevelt administration came in and spending again fell at 3.3 percent in 1933.

Although there were budget surpluses in 1930 and 1931, after this the deficits began.

I surmise the Keynesian response was that this was not enough. Nevertheless, the burden of the Great Depression arose from the gross incompetence of the Federal Reserve.

Disappointing, but Not Surprising

by Ryan Young on February 17, 2010

in Economy, Politics as Usual, Zeitgeist

Headline from The Hill – “Pay-go gets passed, then it gets bypassed”

Pay-go budgeting rules — that any spending increases must be offset with spending cuts or tax hikes elsewhere — have loopholes big enough to drive a truck through. One of them, the emergency exemption, is invoked as early as the second sentence of the article.

In theory, pay-go is supposed to be a way to slow the growth of government. But it’s all for show. Nobody really means it. Just invoke the emergency exemption. Then spend all you like. Appearances matter, especially in Washington. But they should not be confused with reality. And reality is that Congress is going to spend and spend some more, no matter what budgeting rules are in place.

Shame on them for trying to make people think otherwise.

Dems’ Health Care Bill Looking Weaker by the Day

by Alex Hankins on July 27, 2009

in Economy, Healthcare, Insurance, Personal Liberty, Politics as Usual, Regulation

For the Democrats still supporting the health care overhaul, the blows just keep coming. As if the financial problems I described in a previous post were not enough to deter this fiscal suicide, the Congressional Budget Office has now said that a plan to offset the massive costs by putting an outside panel in charge of budget-cutting for other government health care programs will amount to savings of only about $2 billion over 10 years — practically negligible in comparison to the final price tag, which is already expected to exceed $1 trillion.  For those who still consider this legislation financially feasible, that is a discount of 0.2%.  Oh boy, I can’t wait to cut out the coupon!

When the Congressional Budget Office announced its cost assessment of the health care bill, Senator Chuck Schumer (D-N.Y.) called the estimate “wacky” and accused the CBO of omitting the savings he inexplicably expected the plan to reap after full implementation. This new statement from the CBO directly counters that claim and casts even further doubt on both the viability of the bill and the credibility of leading Democrats.

Yet, instead of heeding the advice of their own budget analysts, Democratic lawmakers are still charging forward and losing Blue Dog support in the process.  Senate Majority Leader Harry Reid has already acknowledged that the bill will not come to a vote in the Senate until after the recess.  By then, the bill likely will have lost so much support due to increased awareness of what it entails that it will either disappear entirely into obscurity (along with the last of Obama’s invested political capital) or be diluted down into a politically innocuous and much less  economically threatening shell of its former self.

The latter is the safer and more probable option for the administration to choose. Its rush to pass this legislation may be related to its desire to have some major policy accomplishment of which it can boast in time for the 2010 midterm elections, the inevitably disastrous effects of which will not materialize until well afterward.  Obama has a lot riding on this.  Given his rock-star status and his party’s dominance of Congress, Obama will look embarrassingly weak if his prized health care initiative fails to pass.  He and the leaders in Congress must quietly cut away much of the spending from the bill or risk halting their already ebbing momentum.

Senator Jim DeMint (R-S.C.), who compared the prospect of a defeat for Obama on health care to Napoleon’s career-ending battle at Waterloo, may turn out to have been right on the money.  Obama’s victories so far have been enabled by confidence in his personal leadership and still-unfulfilled promises — so if he cannot deliver on the crown jewel of his policy agenda, he will be vulnerable to a catastrophic loss of both the necessary support in Congress and the iconic status that has served him so well until now.

Departing President Bush to Establish “Freedom Institute”

by Cord Blomquist on January 20, 2009 · 4 comments

in Politics as Usual, Zeitgeist

The Washington Post reports that President Bush will be starting something called the “Freedom Institute” as part of his presidential library in Dallas. This institute would focus on a what the Post describes as a “broad portfolio of topics, including the expansion of democracy abroad and education reforms of the kind Bush implemented during his presidency, according to organizers.”

The Post story goes on to talk about the institute’s goal of focusing on debate:

“The president’s vision is for it to become an incubator of ideas, discussion and debate about the issues that were front and center during his presidency, including the controversy,” said Dan Bartlett, a former counselor to Bush who is acting as a spokesman for the project. “The idea here is to have a place where that debate can continue.”

Not surprisingly, many find President Bush creating something called the “Freedom Institute” to be ironic, or even offensive.  David Boaz of the Cato Institute had this to say at the Cato@Liberty blog:

The president who launched our longest war, arrogated more power to the executive than ever before, increased federal spending by a trillion dollars, pushed for the biggest expansion of entitlements since Lyndon Johnson, further nationalized education, tried to nationalize marriage, and held Americans in jail without access to a lawyer or a judge has found a theme for his presidential library: freedom.

Surely this is an effort to repair George W. Bush’s reputation—his approval rating is the lowest since Richard Nixon resigned in 1974.  But the soon-to-be (at the time of this post) former president insists that the library and public policy institute won’t be about him.  Again, from the Washington Post:

“This is not going to be a ‘George Bush Is a Wonderful Person Center,’ or ‘The Center for Republican Party Campaign Tactics,’ ” Bush said during one of his last media interviews as president. “It’s going to be a place of debate, thought, writing, lecturing.”

Well put, Mr. Bush.

Land Grab Bill: Senators Check Principles at the Door

by Myron Ebell on January 17, 2009 · 1 comment

in Energy, Environment, Politics as Usual

I have heard several Republican congressional leaders say that the party has learned its lesson from their disastrous losses in the past two elections. From now on, it’s back to being the party of limited government, fiscal discipline, lower taxes, and against pork barrel spending.

Sounds good, but Senate Republicans have blown their first opportunity to demonstrate that they mean what they say. The first bill that Senate Majority Leader Harry Reid (D-Nev.) brought to a vote in the 111th Congress is the omnibus land grab bill that was blocked in the waning days of the last Congress by Senator Tom Coburn (R-Okla.). It was re-introduced by Senator Jeff Bingaman (D-NM), Chairman of the Energy and Natural Resources Committee, as S. 22. It contains around 160 titles. Lots of new National Parks, Wilderness Areas, Wild and Scenic Rivers, National Trails, and National Heritage Areas. Plus making official a whole new designation of public land lockups for the Bureau of Land Management called Areas of Critical Environmental Concern. And withdrawing 1.2 million acres from the Bridger-Teton National Forest in Wyoming from future oil and gas production–an area with high gas potential.

The Senate voted on Thursday 73 to 21 to pass this monstrosity. Twenty-one Republicans voted against it, but nineteen Republicans (and all 54 Democrats who voted) voted for it. This first vote suggests that it’s going to be business as usual for many Republican Senators in the 111th Congress. Talk about shrinking government and reducing federal spending. Talk about increasing domestic energy production. Talk about stopping pork barrel spending. And then vote the other way.

The twenty-one Senators who voted against S. 22 were:
Brownback (Ks.), Burr (NC), Chambliss (Ga.), Coburn (Okla.), Cornyn (Tex.), DeMint (SC), Ensign (Nev.), Graham (NC), Grassley (Ia.), Hutchison (Tex.), Inhofe (Okla.), Isakson (Ga.), Johanns (Neb.), Kyl (Az.), McCain (Az.), McConnell (Ky.), Roberts (Ks.), Sessions (Ala.), Shelby (Ala.), Thune (SD), and Vitter (La.). They should be congratulated.

If you hear any of the nineteen Republicans who voted for the land grab bill talk about getting back to the basic conservative principles of less government, lower spending, and protecting property rights, have a good laugh.

S. 22 now moves to the House of Representatives.