government spending

Where’s the Austerity?

by Ryan Young on October 14, 2011

in Economy, International, Politics as Usual

Here’s a letter I recently sent to The Economist:

SIR – you write that the “collective obsession with short-term austerity across the rich world is hurting” the prospects for global economic recovery; be afraid.

May the data allay your fears. From 2000 to 2010, the UK’s government spending boomed from 36.6 percent of GDP to 51.0 percent. France’s spending went from 51.6 percent to 56.2 percent. Even sober Germany grew its government from 45.1 percent of GDP to 46.7 percent.

When Bill Clinton left office, total U.S. government spending was 33.9 percent of GDP. It has blossomed to 42.3 percent under Presidents Bush and Obama.

If the rich world is indeed austerity-obsessed, it is no more than talk. That’s why this writer is afraid.

RYAN YOUNG
Fellow in Regulatory Studies
Competitive Enterprise Institute
Washington

*All data from OECD, downloadable at http://dx.doi.org/10.1787/888932443396

My colleague Greg Conko pointed out that the letter might be more persuasive if it used data from 2008-2010, to isolate government growth since the Great Recession’s start.

It’s a good point, so I looked it up. And the song remains the same. France’s government grew from 52.9 to 56.2 percent; Germany’s grew from 43.8 to 46.7 percent; the UK’s grew from 47.4 to 51.0 percent; and the U.S. grew from 39.0 to 42.3 percent. All that in three short years.

What Shrinking Government?

by Ryan Young on August 8, 2011

in Economy

I had a letter to the editor in Friday’s Washington Post:

Richard Cohen fretted that Tea Party activists have “shrunk the government.” He need not worry. Federal spending has gone from $2.9 trillion in 2008 to $3.8?trillion in 2011. Thirty percent spending growth in three years is hardly shrinkage. Even under the Boehner plan, federal spending will continue to increase every year for at least the next decade.

Meanwhile, federal agencies continue to finalize more than 3,500 new regulations per year. They repeal almost none, no matter how loud the Tea Party’s howls.

If anything, Tea Party activists have been devastatingly ineffective at shrinking government. Mr. Cohen can rest easy.

Ryan Young, Washington

The writer is a fellow at the Competitive Enterprise Institute.

Crony Capitalism, the TSA, and Insider Trading

by Alex Schibuola on November 23, 2010 · 1 comment

in Odds & Ends

An additional dollar of resources that government uses means one less dollar of resources for the private sector. The private sector’s use of resources must satisfy consumers’ wants. If they don’t, businesses won’t make profits. A government’s use of resources however makes no guarantee about satisfying consumers’ wants.

Take for example, the video game and movie series Resident Evil. It’s about an evil corporation that produces an army of cannibalistic zombie warriors. My willingness to pay for cannibalistic zombie warriors is $0. I imagine most people share my unwillingness to pay. Quite frankly I’d rather have a beer, or a million other goods. All those resources used to produce zombies (scientists, security guards, cement and equipment, etc.) become unavailable to satisfy my preferences for an additional beer or other wants.

So who on earth is willing to pay for cannibalistic zombie warriors? Governments are. If the zombie warrior example is to extreme for you just consider the following government waste of resources: Amtrak, bridges-to-nowhere, nuclear missiles, your DMV, the TSA’s full body scanners, etc. No single human is willing to pay for them so no business is willing waste resources to produce them.

But if a government can take resources from people (taxes) and spend it as politicians choose, businesses can avoid producing to satisfy consumer wants. Rather, by making the right political campaign contributions, businesses can avoid satisfying consumers and just get contracts from government. All of a sudden insider trading by politicians becomes a lucrative trade and crony capitalism reigns supreme.

The TSA full-body scanners are a particularly egregious case of this. George W. Bush’s former Homeland Security Secretary, Michael Chertoff has a personal financial stake in the production of full body scanners produced by Rapiscan Systems (a subsidiary of OSI Systems). Notably, the CEO of OSI Systems recently joined President Barack Obama on the recent trip to India. No doubt it was a great opportunity to convince Obama of the “necessity” of full-body scanners in the ironic battle to protect freedom.

OSI’s 10-Q statement reports that “Revenues for the Security division for the three months ended September 30, 2010, increased $3.8 million, or 8%, to $51.1 million, from $47.3 million for the comparable prior year period. The increase was attributable to… a $8.1 million increase in people screening equipment as a result of wider adoption of body scanners…”

If OSI Systems is representative of the crony capitalist industry, you can see here how much better crony capitalist firms (see blue line) are performing relative to the S&P 500 (see red line).

The President, as leader of the executive branch of government, is supposed to protect and defend the Constitution of the United States, which (via the Fourth Amendment) protects Americans from government searches and seizures without probable cause. I consider TSA searches to violate this.

Any economist will tell you that incentives matter. If current and former executive branch members have a personal, financial incentives regarding issues (especially ones that contradict the Bill of Rights/Constitution) they’ll be more likely to shirk their sworn duty to defend and protect the Constitution.

Tea Party Movement: Is it Enough? A Pessimistic Take

by Alex Schibuola on November 2, 2010 · 2 comments

in Odds & Ends, Politics as Usual, Zeitgeist

I am not a member of the Tea Party movement, but am a curious observer, and I am sympathetic to the original objective of reigning in government spending. However, I am pessimistic that the movement will achieve this for three reasons.*

#1 Hijacking of the Tea Party

I cringe at the idea of Sarah Palin being the self-anointed voice of the Tea Party. I see (saw) the Tea Party movement as a revival of classical liberal ideas, or at least of limited government. But now I hear anti-immigration and standard social conservative rhetoric. Consequently, they’re crowing out the original objective of controlling government spending — by taking our eye off the ball.

#2 Many Don’t Want to Really Control Government Spending

Politicians in states involved in defense manufacturing won’t want to cut defense spending. States with many retirees won’t want to cut Social Security or Medicare. States with high poverty rates won’t want to cut unemployment benefits and Medicaid. Everyone has their own pet project that and they won’t agree to cut a bit for one reason: they won’t be re-elected. Damned if you do, damned if you don’t. Lesson learned: don’t create programs that promise people they can consume more than they can produce.

#3 Politicians’ Incentives are Not Aligned with the Nations Interests

This is a systematic problem. Two-year and six-year terms and a lack of term limits means that what matters is the number of days before the nearest election, not the next two to six decades. Each problem (such as Social Security and Medicare) doesn’t have to be worried about until it’s a problem, i.e. until it reaches a boiling point and we are left with two bad options: monetize the debt or default on it. Our fiscal ship is heading full steam for the iceberg.

The ultimate issue is that the status quo is really hard to break. It’s difficult until forces outside our control break it. The improperly aligned incentives mentioned above make perilous procrastination inevitable. I hope that the Tea Party movement will succeed, but realistically I just don’t see it happening. I think we can only bet on technology and innovation from the business sector to overcome politicians’ mismanagement during the past 80 years. I fear that it may not be enough.

*I’m sure this article will make provoke some ire. I more than welcome comments that will convince me I’m wrong — indeed I really hope so.

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.

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.

Obama Rejects Reality as “Politics of the Moment,” Embraces Politics of Fear

by Alex Hankins on July 21, 2009 · 2 comments

in Healthcare, Insurance, Personal Liberty

Listening to President Barack Obama and other top Democrats on the subject of health care, one could be forgiven for thinking commercial medicine itself is on the verge of collapse, and that most of us soon will be completely unable to access decent medical treatment.  In response to criticisms from GOP lawmakers and gloomy CBO projections, Obama re-emphasized what he insists is a need for immediate, drastic reform.  He dismissed the illumination of the fiscal insanity of his prized health care plan as the “politics of delay and defeat” and “politics of the moment” and said, “The need for reform is urgent and it is indisputable.”

It is impossible to arrive at the conclusions Obama apparently has reached on health care reform without blanking out reality and ignoring a host of contradictions.  Sure, health care is expensive.  How did it get so costly?  Blank-out.  Whose responsibility is it to provide health insurance?  Blank-out.  Who will pay for this massive overhaul?  Blank-out.  How will this legislation accomplish its stated goals?  Blank-out.  How have similar programs in other countries fared?  Blank-out.  What incentives does government have to provide and maintain quality health care?  Blank-out.  Whose “need” is really served by this behemoth of a bill?  Blank-out.  What does the bill even say?  Blank-out.

Still, even Obama recognizes that time is against him.  With his approval ratings falling, his stimulus package failing, the ugly details of the bill leaking out, and the economy already suffering enough, he knows that it’s now or never.  That is why he is determined to convince the country that without major action by the great and glorious State, health care costs will climb forever, eventually pricing everyone out of affordable care.  Never mind the fact that costs cannot rise out of consumers’ reach without bankrupting service providers.  Blank that out, too.

Former President George W. Bush was roundly criticized for employing the “politics of fear” to expand the police powers of the executive branch.  During his administration, terrorism was the great goblin to be fended off by our benevolent bureaucracy.  If the government did not get greater surveillance and detention powers, it was reasoned, terrorists could execute another massive attack, killing thousands or even millions of Americans.  We were urged to be vigilant and trust increasingly powerful law enforcement authorities to guard against evil outsiders sneaking in and attacking us once again.  Stand with your country, or the terrorists will win.

The politics of fear are even more pronounced under the new administration, and arguably more insidious.  Our sworn enemy during the Bush years at least was tangible and defined, and fighting it was basically a matter of fulfilling one of the few proper functions of government:  defending the homeland.  In the age of Obama, the enemy is privation itself–invisible, yet ever-present; undefined, yet understood and feared by all; not a prescribed province of government activity, yet action on which is demanded and welcomed by a fear-stricken populace.  To fight this enemy, we are presented with an ultimatum:  turn choice in health care over to the government, or risk losing medical coverage for our families.  We are asked to grant the state a new level of authority, the gravity of which is surpassed only by its ambiguity.  A 1,018-page bill, rammed through with little debate and against all informed judgment?  So much for that transparency we were promised.

The urgency Obama conveys in his push for universal health care coverage reflects his own concerns about his dwindling political capital, not the dangers of rising health care costs.  He knows as well as Congress does that the more time we have to examine the bill and consider the veracity of the claims made to justify it, the more likely we are to hold him accountable for the unprecedented and unacceptable power grab this really is.

Just How Much is $13 Trillion?

by Cord Blomquist on February 12, 2009 · 7 comments

in Bailout Watch, Economy, Features, Stimulus to Nowhere, Zeitgeist

Regardless of your political party or ideological leanings, the notion of the federal government spending $2 trillion, adding to the national debt of nearly $11 trillion already, should make you stop and consider the staggering size of our national tab.

If the irony of using debt-based spending to solve a problem caused by debt-based spending has escaped you, perhaps these fun facts will put things into perspective:

  • If you spent $1 every second, you’d have to keep spending for 412,000 years to get to $13 trillion.  That means you’d have to start shortly after the time human beings first starting using stone tools and fire to get to $13 trillion today.
  • $13 trillion in one dollar bills weighs 28 million pounds.  That’s as much as 87 blue whales or 462 Statues of Liberty.
  • If you laid 13 trillion one-dollar bills end-to-end they’d reach from the earth to the sun and back…five times over.  That’s 946 million miles of greenbacks.

The amount we’re looking at now—roughly $2 trillion between the Secretary Geithner’s new bank bailout plan  and President Obama’s stimulus package—isn’t small potatoes either.  So what is $2 trillion?

  • $2 trillion is bigger than the entire Gross Domestic Product of our neighbor to the north, Canada.  In fact, according to the IMF, only Japan, Germany, China, the United Kingdom, France, and Italy have bigger total economies than the combined bailout/stimulus plan—all other countries on Earth have economies smaller than $2 trillion per year.

Then there’s the interest on this staggering debt, which isn’t exactly small.  Paying the interest on the current $10.7 trillion debt cost Americans $451.1 billion last year alone.  How big is that?

  • That’s $1478 dollars in interest for every man, woman, and child in the United States.
  • That’s bigger than the annual budgets of  New York ($121.1 billion), California ($111.1 billion) and Texas ($83.8 billion) combined.

If you’re scared, upset, or disgusted by this, you can do something.  Visit BeyondBailouts.org and tell your Congressman and the President what you think of the bank bailout and stimulus.

You can also click on the “ShareThis” button at the top of this post to forward these fun facts to your friends or share them on your favorite social network.

Correction: I originally listed the state budget of Texas as $167 billion, but that figure was not annual.  Texas budgets for two years at a time, so the figure has been cut in half.