Tuesday, March 5, 2013

Time to Move on from Sequester to Bigger and More Important Battles

For quite some time, Conservatives have been trying to convey the message that limiting the harmful effects of big government and cutting spending in the abstract are not necessarily the same thing.  There’s no doubt we should cut spending wherever we have the opportunity to do so, and in the case of the sequester, we should obviously pocket the change.  In fact, that is the entire point.  We already won on the issue; it’s time to move on and fight Obamacare in the sequester – something that really matters to the average person – instead of continuing to fight a battle we’ve already won.

Let’s remember that the sequester will not eliminate a single major program nor will it shut down a single federal agency.  Will it cut non-baseline spending for one or two years (before reverting to baseline cuts in the out years)?  Yes – primarily with regards to defense spending.  But will we actually eliminate any of the harmful programs or agencies that directly cost people their jobs and raise the cost of living?  Absolutely not!

An EPA with an operating budget of $8.1 billion instead of $8.4 billion will still have the ability to promulgate every last regulation that kills jobs, destroys hundreds of billions in private wealth, and raises the cost of major goods and services.

Whether the National Labor Relations Board (NLRB) spends $290 million or $280 million will not affect its ability to destroy private sector jobs.

And yes, whether the HHS budget is $78 billion or $75 billion, it will still be able to promulgate the healthcare takeover laws (they just released 700 pages of rules), implement the exchanges, and expand Medicaid….unless we specifically prohibit funding those programs in the CR.  Ditto for the IRS with regards to the enforcement of the individual mandate.

President Barack Obama didn’t invent the troubles America now faces—not our debt problem, not our welfare state—but he did accelerate nearly every one of them. It’s not only that the president’s progressive politics have battered economic dynamism, hamstrung capitalism, and discredited the importance of meritocracy; it’s that, in the Obama era, the relationship between the average American citizen and his government has been transformed forever into something unhealthy.

President Obama's most recent prescription for economic growth—more government stimulus spending, new social programs, higher taxes on upper-income earners, subsidies for some industries and increased regulation for all of them—is likely to have the same anemic results as in his first administration.

Recall: The $825 billion stimulus program did little economic good at a cost of hundreds of thousands of dollars per job, even based on the administration's own inflated job estimates. Cash for Clunkers cost $3 billion merely to shift car sales forward a few months. The PPIP (Public-Private Investment Program for Legacy Assets) to buy toxic assets from the banks to speed lending generated just 3% of the $1 trillion that the program planners anticipated.

And now? Mr. Obama proposes universal preschool ($25 billion per year), "Fix it First" repairs to roads and bridges, plus an infrastructure bank ($50 billion), "Project Rebuild," refurbishing private properties in cities ($15 billion), endless green-energy subsidies, and a big hike in the minimum wage. The president and Senate Democrats also demand that half the spending cuts under sequestration be replaced with higher taxes.

These proposals are ill-considered. The evidence sadly suggests the initial improvement in children's cognitive skills from "Head Start" quickly evaporates. Higher minimum wages increase unemployment among low-skilled workers. A dozen recent studies in peer-reviewed journals, including one by the president's former chief economic adviser Christina Romer, document the negative effects of higher taxes on the economy.

As for adventures in industrial policy, former Obama economic adviser Larry Summers wrote a memo in 2009 about the impending $527 million loan guarantee to Solyndra and other recipients of government largess. "The government is a crappy v.c. [venture capitalist]," he wrote, in what is also the best postmortem. In 2010, Harvard economist Edward Glaeser concluded in the New York Times that infrastructure is poor stimulus because "It is impossible to spend quickly and wisely." Federal infrastructure spending should be dealt with in regular appropriations.

Will more spending today stimulate the economy? Standard Keynesian models that claim a quick boost from higher government spending show the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep this hypothetical positive effect going. Japan tried that to little effect, starting in the 1990s. It now has the highest debt-to-GDP ratio among the countries of the Organization for Economic Cooperation and Development—and that debt is a prime cause, as well as effect, of Japan's enduring stagnation.

In any case, the demand by Mr. Obama and Senate Democrats that any dollar of spending cuts in budget agreements this spring (to fund the government for the rest of the fiscal year and when the debt limit again approaches) be matched by an additional dollar of tax hikes is economically unbalanced in the extreme. Those who are attempting to gradually slow the growth of federal spending while minimizing tax hikes have sound economics on their side.

Resources & Links

Mr. Boskin, a professor of economics at Stanford University and senior fellow at the Hoover Institution, chaired the Council of Economic Advisers under President George H.W. Bush.

No comments:

Post a Comment