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Archive for February, 2011

This story from the Manhattan Institute’s City Journal makes the point, excerpted below, that the welfare state subsidizes dysfunctional behavior. But read the story to understand how big government destroys lives, ruins families, and creates inter-generational poverty. A very powerful, albeit very depressing article. It’s basically the American version of this grim news report from England.

Connecticut is among the most generous of the states to out-of-wedlock mothers. Teenage girls like Nicole qualify for a vast array of welfare benefits from the state and federal governments: medical coverage when they become pregnant (called “Healthy Start”); later, medical insurance for the family (“Husky”); child care (“Care 4 Kids”); Section 8 housing subsidies; the Supplemental Nutrition Assistance Program; cash assistance. If you need to get to an appointment, state-sponsored dial-a-ride is available. If that appointment is college-related, no sweat: education grants for single mothers are available, too. Nicole didn’t have to worry about finishing the school year; the state sent a $35-an-hour tutor directly to her home halfway into her final trimester and for six weeks after the baby arrived.

In theory, this provision of services is humane and defensible, an essential safety net for the most vulnerable—children who have children. What it amounts to in practice is a monolithic public endorsement of single motherhood—one that has turned our urban high schools into puppy mills. The safety net has become a hammock.

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America faces a fiscal crisis. The burden of federal spending has doubled during the Bush-Obama years, a $2 trillion increase in just 10 years. But that’s just the tip of the proverbial iceberg. Because of demographic changes and poorly designed entitlement programs, the federal budget is going to consume larger and larger shares of America’s economic output in coming decades.

For all intents and purposes, the United States appears doomed to become a bankrupt welfare state like Greece.

But we can save ourselves. A previous video showed how both Ronald Reagan and Bill Clinton achieved positive fiscal changes by limiting the growth of federal spending, with particular emphasis on reductions in the burden of domestic spending. This new video from the Center for Freedom and Prosperity provides examples from other nations to show that good fiscal policy is possible if politicians simply limit the growth of government.

These success stories from Canada, Ireland, Slovakia, and New Zealand share one common characteristic. By freezing or sharply constraining the growth of government outlays, nations were able to rapidly shrinking the economic burden of government, as measured by comparing the size of the budget to overall economic output.

Ireland and New Zealand actually froze spending for multi-year periods, while Canada and Slovakia limited annual spending increases to about 1 percent. By comparison, government spending during the Bush-Obama years has increased by an average of more than 7-1/2 percent. And the burden of domestic spending has exploded during the Bush-Obama years, especially compared to the fiscal discipline of the Reagan years. No wonder the United States is in fiscal trouble.

Heck, even Bill Clinton looks pretty good compared to the miserable fiscal policy of the past 10 years.

The moral of the story is that limiting the growth of spending works. There’s no need for miracles. If politicians act responsibly and restrain spending, that allows the private sector to grow faster than the burden of government. That’s the definition of good fiscal policy. The new video above shows that other nations have been very successful with that approach. And here’s the video showing how Reagan and Clinton limited spending in America.

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Since February is the 100th anniversary of Ronald Reagan’s birth and I still haven’t gotten over my man-crush on the Gipper, I figured it would be interesting to look at Reagan’s fiscal record, particularly to see whether he was successful in restraining the growth of domestic spending.

There is lots of good information in the Historical Tables of the Budget, which is produced by the Office of Management and Budget. I was particularly fascinated by the data on inflation-adjusted total domestic spending (discretionary and entitlements), which can be obtained by adding columns E and H of Table 8.2.

As you can see in this chart, Reagan managed to limit average domestic spending increases to less than one percent per year. These figures, which are adjusted for inflation, show that spending has grown more than five times as rapidly during the Bush-Obama years.

The comparison is even more dramatic if we examine the average annual increase in inflation-adjusted domestic spending. In other words, we’re looking at how much spending increased each year, not the percentage change. During the Reagan years, overall domestic spending grew less than $10 billion per year, while spending has soared more than $100 billion per year during the Bush-Obama era. Remember that we’re using inflation-adjusted dollars, so this is an apples-to-apples comparison.

The final chart maps annual domestic spending (in constant 2005 dollars) for Reagan’s eight fiscal years on the right vertical axis and the 10 fiscal years of Bush-Obama on the left vertical axis. Two things stand out. First, the bailout dramatically affected outlays in recent years, both because of a huge jump in fiscal year 2009 and an artificial dampening in the past two years (because repayments from banks and other bailed-out institutions count as “negative spending” rather than revenues).

Second, you can’t blame the poor record of Bush and Obama on bailouts. The chart axes are designed to give a similar starting point for Reagan’s spending and Bush-Obama spending, and it is obvious that Bush’s approach of so-called compassionate conservatism meant a bigger and more wasteful budget for domestic spending. Obama promised hope and change, of course, but he grabbed the big-spending baton from Bush and continued in the same direction, though TARP payments and repayments make it more challenging to discern the precise impact of the “stimulus” and other Obama initiatives (Tables 8.6 and 8.8 of the Historical Tables have program-by-program data for those who want the gory details).

Last but not least, don’t forget that FY2009 began October 1, 2008, nearly four months before Obama took office, and the bad numbers for that fiscal year generally should be attributed to Bush. Yes, Obama added to FY2009 spending with an omnibus appropriations bill and the faux stimulus, but I’ve estimated that 96 percent of that year’s spending was the result of Bush Administration decisions.

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I sometimes assert that the greatest enemies of freedom in Washington are mortgage payments and tuition bills. When people give me a blank stare, I say that I’m joking, but I use the opportunity to explain that the desire for easy wealth (and the lifestyle it enables) lures many Republicans to become lobbyists and to promote policies that they almost surely understand are bad for America.

These GOPers, who do the wrong thing to line their own pockets, are the worst people in Washington. They presumably first got involved in policy because they recognized government is a cesspool, but eventually got corrupted and decide it is a hot tub. To put it mildly, this gets me very agitated. For instance:

I have slammed a former Reagan Administration official for defending earmarks. I think it is morally offensive that he gets rich by facilitating the transfer of money from taxpayers to powerful interest groups.

I have condemned the former Senate Republican leader for defending Obamacare. I think it is disgusting that he puts his lobbying income ahead of America’s best interests.

I have denounced Illinois Republican legislators for killing school choice. I think it is downright nauseating that they condemn inner-city children to terrible schools in exchange for campaign contributions from teacher unions.

So you won’t be surprised to know that I am on the verge of going postal after reading a report from The Hill about all the Republican lobbyists who are getting lucrative contracts to fight against the Tea Party agenda and lobby on behalf of big government. Here are the utterly nauseating details.

A stable of former GOP aides has been hired by public television stations, children’s hospitals and other interest groups that fear they’ll be targeted for spending cuts by the Republican House.

Most of the aides left Congress years ago, but many still have close ties to senior Republicans on Capitol Hill, including Speaker John Boehner (Ohio). They’ve been hired to try to convince the new GOP Congress that some public spending is worth continuing and not reducing.

An advocacy group for the Association of Public Television Stations, for example, has hired GOP lobbyists John Feehery and Marc Lampkin of Quinn Gillespie & Associates to fight off budget cuts.

…A review of lobbying disclosure records by The Hill shows the public television stations are hardly alone in recruiting GOP muscle.

A number of associations hoping to retain federal funding have recently added GOP lobbyists with connections to the new majority. The hiring binge indicates Republican lobbyists are earning dividends from their party’s re-taking of the House in November and points to the headaches in store for a Republican House that wants to take a hatchet to public spending.

Targets of GOP budget cuts say they need all the help they can get from the coming GOP-led onslaught. “Everyone is going to make their case for government support for their projects,” said one GOP lobbyist.

…The California High-Speed Rail Authority has hired Ogilvy Government Relations’ Drew Maloney, a former aide to DeLay, to work on retaining federal grants for high-speed rail.

…Williams & Jensen has registered to lobby for AARP to work on senior-citizen issues and President Obama’s deficit commission report. Prominent Republican lobbyist Steve Hart is among those working for the group, which wants to make sure the new healthcare law is not repealed.

…The National Association of Children’s Hospitals (NACH) has hired former Rep. Deborah Pryce (R-Ohio) of Clark Lytle & Geduldig to lobby for the reauthorization of the Children’s Hospitals Graduate Medical Education program, which uses $317.5 million in federal funding a year.

Some of my Republican friends sometimes respond by asserting that Democrats are worse, but I grade on a curve. Democrats seek to make government bigger because they believe in statism. So it’s not terribly surprising or philosophically inconsistent for them to become lobbyists and get rich pushing to expand the burden of government (though some Democrats lobby for things that are not completely consistent with a left-wig agenda, such as special tax breaks or defense contracts, so it’s not a black-and-white divide).

Republicans, however, tell voters that they believe in small government and individual liberty. So when GOP politicians and staffers decide to get rich by lobbying for bigger government, that is more disgusting.

Doing the wrong thing is bad. But doing the wrong they when you know it is wrong is even worse.

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One of my presentations at CPAC addressed America’s long-term entitlement crisis. I was part of a panel organized by the National Taxpayers Union, and I discussed how to solve the long-run fiscal problems caused by Social Security, Medicare, and Medicaid.

The lighting and focus leave something to be desired, but hopefully my message is crisp and clear.

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After dozens of posts about overpaid government employees, I’m sick of writing about the topic. But what’s happening in Wisconsin is critically important in the fight for long-run fiscal sanity, so I’m reluctantly wading back into this fight. Simply stated, bureaucrats have figured out how to manipulate the system and they are bankrupting state and local governments.

Chris Christie is the first governor in a long time to stand up to these thugs and now the new chief executive of Wisconsin, Scott Walker, has joined the fight. But unlike Christie, who must deal with a hostile state legislature, Governor Walker has a GOP-controlled Assembly and Senate. As such, he has a chance to take much bigger steps in the right direction.

The unions realize that their special privileges may disappear and they are engaged in a vicious fight to block reform. Other groups that get money and/or political support from the unions also are joining the battle against Wisconsin’s taxpayers. John Fund of the Wall Street Journal provides the key details.

Mr. Walker’s proposals are hardly revolutionary. Facing a $137 million budget deficit, he has decided to try to avoid laying off 5,500 state workers by proposing that they contribute 5.8% of their income towards their pensions and 12.6% towards health insurance. That’s roughly the national average for public pension payments, and it is less than half the national average of what government workers contribute to health care. Mr. Walker also wants to limit the power of public-employee unions to negotiate contracts and work rules—something that 24 states already limit or ban.

…Democratic reactions to these proposals have been over the top. In addition to the thousands of protesters who descended on the Capitol building on Thursday to intimidate legislators, so many teachers called in sick on Friday that school districts in Milwaukee, Madison and Janesville had to close.

…Why are national liberal groups treating Wisconsin as if it were their last stand? Partly for reasons of symbolism. Historically, Wisconsin “embraced the organized labor movement more heartily than any other [state],” notes liberal activist Abe Sauer.

…Labor historian Fred Siegel offers further reasons why unions are manning the barricades. Mr. Walker would require that public-employee unions be recertified annually by a majority vote of all their members, not merely by a majority of those that choose to cast ballots. In addition, he would end the government’s practice of automatically deducting union dues from employee paychecks. For Wisconsin teachers, union dues total between $700 and $1,000 a year. “Ending dues deductions breaks the political cycle in which government collects dues, gives them to the unions, who then use the dues to back their favorite candidates and also lobby for bigger government and more pay and benefits,” Mr. Siegel told me.

Just in case you’re wondering why unions are being so intransigent, Instpundit has a link to a website explaining that state bureaucrats get twice as much compensation as the tax-paying serfs in Wisconsin’s private sector. I can’t vouch for the specific numbers, but I’m sure the gap in the state is enormous, as is the case all across the nation. This video explains.

Let me close with a caveat. There surely are thousands of Wisconsin government employees who disagree with the thuggish tactics and absurd demands of the union bosses. My criticisms obviously don’t apply to those folks, but I would ask them to stand up and be counted. Write op-eds and letters-to-the-editor. Attend today’s Tea Party rally. The union bosses are using your money to do bad things, but you can use your time to do the right thing.

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There will be several pivotal fiscal policy battles this year and the fight over the debt limit may be the most crucial.

This is a “must-pass” piece of legislation, so it will be a rare opportunity for fiscal conservatives in the House to impose some much-needed spending restraint.

But it’s also a high-stakes game. If Obama (or Reid) refuse to accept the fiscal reforms approved by the House and there is a stalemate, the federal government ultimately would lose its ability to borrow from private credit markets. And while that notion has some appeal for many of us, it almost certainly would require more fiscal discipline than the political system is willing to accept (i.e., actual deep cuts rather than just restraining the growth of spending).

In a bit of reckless demagoguery, the Treasury Secretary even says it would mean default – which could cause instability in financial markets.

To preclude that possibility, Senator Toomey of Pennsylvania has a proposal to protect the “full faith and credit” of the United States by requiring the federal government to make interest payments a top priority. Writing for Bloomberg, I opine about the Senator’s proposal.

…the federal government is expected to collect more than $2.1 trillion of tax revenue this year, while interest payments on the publicly held debt will only be about $200 billion. So even without an increase in the debt limit, the Treasury Department will have more than enough revenue to cover its interest obligations and avoid a default.

That being said, financial markets are sometimes spooked by uncertainty. And since Treasury Secretary Timothy Geithner began making some irresponsible statements about the risks of default, there is growing interest in legislation by Senator Pat Toomey, a Republican of Pennsylvania, to alleviate the market’s fears.

Quite simply, Toomey’s bill would require the federal government to fulfill obligations to bondholders before making any other disbursements.

…If the Toomey legislation is adopted, fiscal reformers will have a powerful weapon at their disposal. Secure in the knowledge that default no longer is a possibility, they can be much tougher in their negotiations with the politicians who favor the status quo.

This explains the attacks against the Toomey plan. Some even argue that the law requires the government to pay Chinese bondholders (gasp!) before it pays Social Security recipients.

This is demagoguery. The federal government will collect more than enough revenue to finance the majority of budgeted outlays. Social Security checks will be disbursed, unless the Treasury secretary decides otherwise.

In any event, the attack is rather hollow since it’s almost always made by people who say that default would be a cataclysmic event. What they really mean, it seems, is that deficits, debt and default are bad, and only higher taxes are the solution.

That’s what this debate is all about. We have a fiscal crisis caused by too much spending, not too little taxes. Restraining the size and scope of government is contrary to the interests of the iron quadrangle of politicians, interest groups, lobbyists and bureaucrats who benefit from ever- expanding government.

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