Reason Magazine - Topics > Government Spending

Alaska-Size Chutzpah

jsullum@reason.com (Jacob Sullum) — Wed, 14 May 2008 15:15:00 EDT

Congress Daily reports that Alaska Sen. Ted Stevens, the ranking Republican on the Senate Commerce Committee, grilled Transportation Security Administrator Kip Hawley yesterday over his agency's plans for a 50-cent increase in airline passenger fees to pay for baggage screening equipment:

[Stevens was] adamant in opposing the 50-cent-per-flight fee increase, claiming that his constituents have to fly more intrastate than other Americans because of the size and difficult terrain of Alaska and are seeing none of the security improvements. "I don't know why we have to pay intrastate charges for security we don't get," he said.

And exactly what value would most Americans have gotten from the "bridges to nowhere" that Stevens notoriously championed a few years ago? With a price tag of $453 million, they would have cost every man, woman, and child in the country $1.50, three times the proposed TSA fee that riles Stevens. (Alaska ultimately got the money without explicit earmarks; one of the bridge projects has been canceled, while the other may yet proceed.) Even without those projects, Alaska excels at fleecing U.S. taxpayers, pulling in $1.84 for every dollar it sends to Washington, D.C., according to the Tax Foundation's numbers for 2005, when it ranked third by that measure, thanks largely to Stevens' tireless pork pulling.

The Bipartisan Folly of Farm Subsidies

jsullum@reason.com (Jacob Sullum) — Wed, 14 May 2008 07:00:00 EDT

"We need to stand up to the special interests, bring Republicans and Democrats together, and pass the farm bill immediately," Barack Obama declared last November. It was a weird thing to say, since the farm bill, which subsidizes an arbitrarily chosen section of the economy at the expense of taxpayers and consumers in general, is special-interest legislation by definition.

The latest version, which President Bush has promised to veto, includes tax breaks for racehorse owners, "marketing aid" for fruit and vegetable growers, research funding for organic farmers, enhanced price supports for domestic sugar producers, increased subsidies for dairy farmers, a $170 million earmark for the salmon industry, and billions of dollars in automatic payments and "permanent disaster assistance" for corn, wheat, cotton, rice, and soybean growers. Take that, special interests!

Less than a month ago, the Associated Press reported that "it's not a good year for a farm bill," what with surging food prices, record farm income, a tight federal budget, and a resistant president unconcerned about getting re-elected. But in the logrolling culture of Washington, the solution to wasteful, unjustified spending is more wasteful, unjustified spending.

"This is truly bipartisan legislation," says Rep. Bob Goodlatte (R-Va.), the senior Republican on the House Agriculture Committee. "There was give-and-take on all sides."

Mostly take. In response to fruit and vegetable farmers who have long complained about payments for other crops, the five-year, $300 billion bill expands existing subsidies while paying off the produce growers. In response to food price inflation, the bill continues the price supports and ethanol subsidies that contribute to it while boosting spending on food stamps. It even manages to combine two kinds of farm folly in one program, requiring the government to protect domestic sugar producers by buying imported sugar and selling it at a loss to ethanol refiners.

The bill's supporters are bragging about a new rule that would bar payments to individual farmers earning more than $750,000 a year and couples earning more than $1.5 million. That modest change is expected to affect about 2,000 subsidy recipients, less than 1 percent of the total. But it highlights the extent to which agricultural subsidies are a welfare program for rich people.

Last summer Obama's presidential campaign boasted that the Illinois senator "expressed his support" for "reducing the number of multimillionaires who are eligible for farm bill subsidies." While that sounds better than Hillary Clinton's wholehearted endorsement of the farm bill, which the New York senator says will "help revitalize rural America" and "provide a safety net for our family farms," it's a pretty sad state of affairs when self-styled reformers aspire merely to reduce taxpayer-funded payments to multimillionaires.

Not all farmers are rich, but as a group they are better off than the people footing the bill for their subsidies, with a median income of $55,000 in 2006, compared to the national median of $48,000, and median wealth about five times the national median. Heritage Foundation analyst Brian Riedl notes that most subsidies "go to large commercial farms, which report an average income of $200,000 and a net worth of nearly $2 million."

Riedl estimates that farm subsidies cost Americans $25 billion a year in taxes and another $12 billion in higher food prices. According to a Cato Institute study, the opportunity cost of agricultural support during the last two decades (i.e., the amount we'd have if the money had been invested instead of squandered) is more than $1.7 trillion.

John McCain is the only one of the three remaining major-party presidential candidates who takes a stand against this regressive, market-distorting, trade-disrupting scam. The Arizona senator, who has long opposed agricultural subsidies, recently told voters (in Iowa, no less) that if he were president he'd veto the farm bill because "the subsidies are unnecessary."

By and large, though, Obama is right that farm subsidies "bring Republicans and Democrats together." It's the sort of unity that causes one to lose hope.

The War-Spending Debate You Won't Hear This Week

matt.welch@reason.com (Matt Welch) — Wed, 07 May 2008 15:44:00 EDT

The Iraq War is being paid for via the most fiscally irresponsible method in modern American history -- a series of "emergency" supplemental bills, outside the normal vetting of the budgeting process, several years after any of the costs could at all be described as being unplanned "emergencies." You knew all this, because you read Veronique de Rugy's groundbreaking May cover story about how congressional Republicans ripped the lid off of all previous restraints on a system that is as easy to abuse as the phrase "support our troops."

This week we are experiencing the ugly results -- Democrats are cramming into the latest $195 billion emergency supplemental bill $11 billion in unemployment benefits, among other non-defense items. That likely pales in comparison to the cost of unvetted weaponry goodies that the Department of Defense is shoving into the package; meanwhile, President Bush has also thrown in extraneous crap, such as $770 million for international food aid.

If the federal government was playing by rules that were in effect as recently as 2000, emergency expenditures would mostly be offset by cuts elsewhere in the budget, war funding would have been enveloped into the normal defense-budgeting process by no later than 2005, and -- this bit is underappreciated -- we might actually know the real-world price tag of the war, because budgeteers would have made at least a half-assed attempt at filing war-related expenditures under the same category, instead of willfully blurring the lines.

Instead of any of that, politicians this week, including the major-party presidential candidates, will argue about withdrawal timetables that'll never become law, then eventually agree to spend another couple hundred billion dollars without anything resembling oversight or basic fiduciary responsibility. And if Democrats aren't making even the slightest noises about reforming this system now, it's hard to imagine them suddenly getting religion only after increasing their majorities in Congress and re-taking the White House.

The Coming Recession

Mon, 05 May 2008 12:05:00 EDT

As this issue of reason goes to press, the dollar is at a record low against the euro, oil is more than $100 a barrel, consumer prices are up 4 percent from a year ago, and Federal Reserve Chairman Ben Bernanke is cutting interest rates so often that the guys at the office have taken to calling him Edward Scissorhands. The subprime mortgage fallout has yet to finish wreaking its havoc, Bear Stearns is holding on by the skin of its teeth, and the government’s bucket may not be big enough for all the bailouts under way. Gloomy faces dominate CNBC and the Fox Business Channel, muttering long-forgotten terms like inflation and recession.

President George W. Bush, by contrast, is relatively cheery, conceding that we are in “challenging times” but arguing that “our financial institutions are strong” and the capital markets “functioning efficiently and effectively.” “In the long run,” Bush said in a March 17 White House address, “our economy is going to be fine.” And some statistics back up the sunny view: Unemployment is still at a low 5.1 percent, and productivity remains high.

Presidential hopefuls are offering a variety of explanations and possible solutions for what 42 percent of voters say is the most important issue to them, according to a recent CNN poll. At a March 20 rally, Sen. Barack Obama (D-Ill.) suggested the problem was a combination of “special interests” and war: “At a time when we’re on the brink of recession, when neighborhoods have ‘For Sale’ signs outside every home, and working families are struggling to keep up with rising costs, ordinary Americans are paying a price for this war.” Sen. Hillary Clinton (D-N.Y.) took a different tack: The “economic crisis is, at its core, a housing crisis,” she said in a major Philadelphia address on March 24, but she cited other factors as well, including Bush’s “brain dead energy policy.” Sen. John McCain (R-Ariz.) won the Republican nomination without really talking much about the economy.

How will we know when it’s fair to speak the dreaded r-word? In general, a recession is defined as a decline in a country’s gross domestic product for two or more successive quarters. In the United States, an official pronouncement is required from the professional doom diagnosticians on the business-cycle dating committee of the National Bureau of Economic Research, who often take other aspects of an ailing economy into account. GDP growth slowed dramatically at the end of 2007 and is projected to be zero in the second quarter of 2008, so we look to be well on our way.

As oil prices continued to climb and housing prices continued to slide, Reason assembled a panel of economists and other market watchers to help make sense of the headlines, point some fingers, figure out how we got where we are, and offer advice about how to get out with our wallets intact.

Blame the Fed
Gerald P. O’Driscoll Jr.
The U.S. economy is in the midst of an old-style credit crunch brought on by a combination of bad policies and incredibly lax underwriting standards at financial institutions. The biggest policy failure was the decision by Alan Greenspan’s Federal Reserve to hold interest rates too low for too long. That led to a tsunami of credit that inundated the economy with cheap money. Mortgage lenders in particular were flush with funds and searched for deals wherever they could be found. Heretofore unqualified borrowers suddenly “qualified” as underwriting standards relaxed and then disappeared.

Egged on by statements from Chairman Greenspan, market participants came to believe the era of low interest rates would last indefinitely. But the era did come to an end as the Fed was forced to begin raising interest rates. Faced with the prospect of paying higher rates on their mortgages in the future, borrowers began defaulting. First home prices stopped rising, and then home prices began dropping—precipitously in some overheated housing markets. Now we are approximately six months into a new cycle of lower interest rates, but with no end in sight to the crunch.

At least two other factors stoked the crisis. First, many exotic financial products were issued whose value was tied in one way or another to home prices and the value of the securities into which home mortgages were bundled, such as collateralized mortgage obligations. The pricing of these financial products was the product of complex economic models, not the outcome of market transactions. As the value of the underlying homes and mortgages declined, pricing of the financial exotica became nearly impossible. As we learned in the collapse of Long Term Capital Management, these pricing models fail precisely when their accuracy is most important—in times of financial turbulence. The inability to price the financial products has exacerbated losses among the firms holding them.

There is a wonderful parallel here to the collapse of the Soviet Union. As the great Austrian economist Ludwig von Mises argued almost 100 years ago, central planning inevitably fails because there are no market prices to allocate resources. Market prices can only be the outcome of actual market transactions among buyers and sellers. Planners used mathematical formulas to value resources, especially capital. Now Wall Street wizards have imported Soviet thinking to allocate financial capital. Is it any wonder that it failed?

The second factor contributing to the housing market collapse was the federal government’s commitment to “affordable housing.” Lenders, especially Fannie Mae and Freddie Mac, were pressured into promoting housing to low-income groups that could not qualify for normal loans. That policy is predicated on the belief that there is an underserved group of people who, but for economic discrimination or some other market failure, would be homeowners. That social goal and the credit-driven desire for more deals merged into mortgages made without adequate collateral.

We learned two lessons from the drive to make home ownership available to the heretofore underserved. First, many of these were not homeowners because they could not afford a home. Only under the temporary “hothouse” conditions in mortgage markets did they seem to qualify. Second, people who have no equity in their homes cannot meaningfully be said to be owners. When times turn tough, they will walk away. They were effectively renters, not homeowners.

The crisis will end when housing markets hit bottom and the prices of mortgage securities stabilize. Banks also need to unwind their positions in exotic financial derivatives.

The Fed needs to understand it is facing a capital crisis, not a liquidity crisis. The very low interest rates on safe assets show there is ample liquidity in financial markets. The Fed should not supply capital. That is the job of markets, and they are doing it.

Gerald P. O’Driscoll Jr., formerly a vice president and economic adviser at the Federal Reserve Bank of Dallas, is a senior fellow at the Cato Institute.

No Hoofing to Hooverville
Megan McArdle
Just one thing puzzles me about the race to the White House: Why would anyone want to get there? I know that being crowned prettiest girl at the prom is the great lasting rejoinder to everyone who made fun of you in middle school, but given the economic condition of the country, the next four years seem like a rotten time to reign.

Ignore the econopundits making comparisons to the 1930s. While the parallels are striking, we are missing the key ingredient in the onset of the Great Depression: tight Fed policy that caused the money supply to shrink by 25 percent. You can put away that bindle and push the apple cart back in the garage.

But if we’re not exactly hoofing it to Hooverville, we nonetheless face one hell of a rough patch. Record high oil prices, surpassing even the momentous spikes of the 1970s, have brought with them another piece of ’70s memorabilia: stagflation. Federal Reserve bankers are faced with an extremely unpalatable choice. They can tighten up the money supply to combat inflation, at the cost of making the probable recession even deeper. Or they can hang loose and watch inflation march upward while the economy does God knows what. With the credit markets broken, the Fed may end up losing its hard-won credibility as an inflation fighter while producing only marginal benefits to growth.

The president has no control over any of this, but that won’t stop people from blaming him anyway. He will also almost certainly have to come up with some regulatory scheme for increasing transparency and accountability in the vast new financial markets that have been created by the securitization of loans during the last 30 years. It will be a tough order to give investors better information without strangling valuable financial innovation.

But by far his biggest quandary will be the budget. Obama (who I assume will be the Democratic nominee) wants a big new health care entitlement; John McCain wants even more tax cuts. Both will be frustrated by adverse budget math. The economic slowdown is going to cut into tax revenues, and most economists agree that a recession is not a good time to raise taxes—nay, not even on “the rich.” Meanwhile, the baby boomers are about to start retiring, turning Social Security, Medicare, and Medicaid into the sucking chest wound of the federal budget. Assurances that the trust fund won’t run out until 2042 notwithstanding, the president will have to start coping with Medicare deficits as soon as next year, and a falling Social Security surplus soon thereafter. All this will be compounded by the slowdown in GDP growth made inevitable by declining labor force participation and service-intensive elder care.

Any future president should be panicking. That doesn’t mean the rest of us should. At the end of the day, America has the most flexible and resilient economy in the world. We’ll pull through somehow, although a lot of us won’t be very happy in the process. But least happy of all will be the president—the bum we get to throw out when things don’t go our way.

Megan McArdle blogs about economics at The Atlantic.

First, Do No (More) Harm
Ron Paul
This nation is facing an economic crisis the likes of which have not been seen in several generations. It is crucial that we take to heart the lesson that should have been learned after the Great Depression, which is that the central bank should do nothing.

I have been writing and speaking for years about the dangers of the Federal Reserve, but the importance of the actions of the Fed in laying the groundwork for the downturn in the business cycle pales in comparison to the damage done by actions the Fed takes once the downturn arrives. At the first sign of crisis, even with growing inflation, the Fed began to further inflate, lowering interest rates, stepping up open market operations, and injecting liquidity. World markets, already jittery, see these steps as affirmations of their worst fears and react accordingly by selling assets denominated in smoke-and-mirrors fiat currency and fleeing to the solid value of gold, oil, and commodities.

Every action the Fed takes sends a signal that the U.S. dollar will continue to be inflated and therefore debased, which is why the correct action is no action at all. Lower interest rates and liquidity injections are viewed with alarm by foreign markets, while higher interest rates and money tightening are anathema to many domestic investors. The Fed is between a rock and a hard place, and its insistence on inflating the money supply to manage the brittle economy will likely be our undoing.

Until we realize that the Federal Reserve system itself is flawed, and until we recognize that no one economic maestro or committee of economic experts can set prices and plan the economy, this nation will continue to flounder about in an economic malaise. Ending that may take a much more serious downturn than anything we’ve seen yet. It is beyond doubt that our economy is in recession, and the only rational response is for the government to allow malinvested resources to liquidate so that we can return to a stable economy.

While the Fed should take a hands-off approach, Congress should aggressively cut taxes and spending and repeal regulations that stifle economic growth, such as the Sarbanes-Oxley Act. This country has enormous economic potential, an industrious work force, and an enviable history of innovation and entrepreneurship. If the government would learn from its past mistakes and abstain from further interference, we could get back on a solid footing and grow to our full potential.

My fear is that the Fed will continue with its policy of inflation and Congress will be pressured to continue to stimulate the economy with government spending, probably extending to even more outright taxpayer-funded bailouts of financial institutions, subprime mortgages, and government-sponsored enterprises that are “too big to fail.” These debt-funded efforts reward the recklessness of some institutions at the expense of the productive sectors of our economy. Until the federal government acts to extricate itself from intervention in the markets, economic activity will be hindered and true recovery will not take place.

Rep. Ron Paul (R-Texas) is a nine-term congressman and a candidate for the Republican presidential nomination.

The Vicious Ethanol Cycle
Robert Bryce
I see three big dangers to the global economy: the ongoing fallout from the mortgage mess, rising energy prices, and rising food prices. That last item is the most maddening, because surging food prices are largely the result of the ethanol scam.

As U.S. ethanol distilleries vacuum up ever increasing quantities of corn, and corn takes up an ever larger percentage of arable land, prices for all types of food are skyrocketing. During the last two years, corn prices have more than doubled and soybean prices have nearly tripled. In 2007 food prices in the U.S. increased by nearly 5 percent. Bill Lapp, of the Omaha-based research firm Advanced Economic Solutions, told The Boston Globe in March that he expects food prices to increase at an annual rate of 7.5 percent for the next five years.

Because of mandates requiring gasoline producers to mix ethanol with their fuel, 20 percent of the U.S. corn crop in 2006—about 2.1 billion bushels—was diverted into ethanol production. By 2009, according to the National Corn Growers Association, about one-third of the expected crop—some 4 billion bushels—will be used to make motor fuel. And those projections were made in April 2007, eight months before Congress passed the Energy Independence and Security Act of 2007, which requires the consumption of 36 billion gallons of ethanol by 2020, a fivefold increase over current levels.

The far-reaching economic impact of ethanol mandates is already being felt. In early 2007, tens of thousands of people marched in the streets of Mexico City to protest the rising cost of tortillas, an increase that Mexico’s secretary of economy, Eduardo Sojo, blamed on American corn ethanol production. In March of this year, Pilgrim’s Pride, the world’s largest poultry processor, shuttered a plant in Siler City, North Carolina, and fired 1,100 workers. Company CEO Clint Rivers laid the blame squarely on the ethanol mandates, predicting that “there is much more to come” in the way of food price increases. “We’re spending our tax dollars to raise the price of our food to subsidize the ethanol industry,” he said.

Congressional meddling in the energy market has created what Lester Brown, the president of the Earth Policy Institute, calls an “epic competition” between “the world’s supermarkets and its service stations.” Therein lies the perversity of ethanol mandates: As the global economy heads for rougher times, food prices are soaring. And those prices will increase anxiety among consumers, who will further reduce their discretionary spending. Congress has created a negative feedback loop that will reverberate for years to come.

Robert Bryce is the managing editor of Energy Tribune. His latest book is Gusher of Lies: The Dangerous Delusions of “Energy Independence” (PublicAffairs).

War Is the Health of the Civilian State
Robert Higgs
Adam Smith famously observed that there is “a great deal of ruin in a nation”—that is, nations can take a lot of abuse. Let’s hope he was right, because the George W. Bush administration has taken a great many actions during the past seven years that contribute to economic ruin.

Much of the White House’s faulty economic policy can be traced to its wars in Afghanistan and Iraq, especially the latter because it has been larger, costlier, and more diverting. I use the word diverting deliberately to emphasize that the government’s military adventures in southwest Asia have served to draw the public’s attention away from economic measures that otherwise would have attracted more notice and hence more resistance.

One reason war is always associated with especially rapid growth in the size, scope, and power of the state is that it focuses people’s attention on what is seen as the most urgent matter, so they simply don’t notice what the government is doing in other areas. Another reason is that during wartime many people increase their broad support for the government and are less inclined to challenge its actions even when those actions have little or nothing to do with the war.

Hardly anyone was surprised that real military spending (measured in accordance with the government’s own narrow definition) increased by almost 60 percent between 2000 and 2007, compared to real GDP growth of 18 percent during that time. Note, however, that the government’s real nondefense outlays increased concurrently by more than 24 percent—an increase one-third greater than that of GDP. When people let down their guard in “supporting the troops,” they permit the government to make greater headway in its ceaseless quest to enlarge spending in a wide range of areas, many of them strictly civilian in nature.

The administration has partially concealed the burden of its spending binge by resorting to deficit finance. Federal debt held by the public increased by 49 percent between the end of fiscal 2000 and the end of fiscal 2007—a 24 percent increase after adjusting for inflation. To facilitate this surge in public borrowing, the Federal Reserve engineered a 40 percent increase in the monetary base, easing credit conditions in the commercial banking sector. The real estate bubble (now bursting) and the substantial depreciation of the dollar’s international exchange value are but two of the consequences of these reckless, war-spawned fiscal and monetary policies.

In view of the plunging stock market, my guess is that the current recession—in which many of the easy-credit-induced malinvestments of the past seven years are being liquidated by means of write-offs, loan defaults, bankruptcies, and other asset forfeitures—has much further to run. If you like the present worsening economic situation, write the president and your congressional representatives a letter and thank them for their war and their related economic spoliation.

Robert Higgs, a senior fellow in political economy at the Independent Institute, is author of Crisis and Leviathan: Critical Episodes in the Growth of American Government (Oxford University Press) and many other books.

Stagflation or Depression?
Robert E. Wright
The current U.S. economic outlook is as bleak as it was in 1974 or even 1930. Will the economy wither? Or will it just wilt a little before blossoming in a bath of Fed-supplied liquidity? Nobody knows for sure, but I fear the former. Here’s why:

Our educational system does a poor job of teaching people how to think independently. It always has, but until recently that wasn’t a big problem. Today’s globalized economy, however, demands ever larger numbers of engineers, doctors, scientists, and sundry creative types. We probably won’t create enough independent thinkers until we have school choice at the primary, secondary, and tertiary levels.

Thankfully, entrepreneurs abound. They’ve pulled us out of the economic fire in the past and could do so again. But they are more hamstrung than ever with high, uncertain, and often capricious taxes and regulations that do not appear to be going away anytime soon.

Something stinks in our financial system. Six different mortgage securitization schemes blew up between the Civil War and World War II for exactly the same reason that subprime mortgages tanked last year: very poorly designed incentives for mortgage originators. Why don’t financiers and their regulators pay more attention to America’s rich financial heritage? Their modeling is more sophisticated than ever, but their economic reasoning is not.

The national debt is so high ($9.4 trillion, or almost $31,000 per person) that the government must largely rely on monetary stimulus rather than more salubrious fiscal measures, such as permanently cutting taxes. Too much easing by the Fed could lead to 1970s-like inflation and further financial havoc.

Urged on in part by the example set by their profligate leaders, Americans wallow in a huge pile of private debt as well. A high level of individual leverage has become a permanent fixture of the nation’s landscape. Americans owe so much that to keep growing, financial institutions have to push the margin of safety by making loans on ever thinner collateral and ever weaker covenants. If the economy slows significantly, many more poor-quality loans will hit the proverbial fan. The ensuing mess will stink and take a long time to clean up.

Even if the Federal Reserve manages to save the economy this time, these problems may continue to fester, breeding the next economic catastrophe. Perhaps, though, even greater levels of incompetence in other countries will break our fall.

Robert E. Wright is the author of One Nation Under Debt: Hamilton, Jefferson and the History of What We Owe (McGraw-Hill) and a curator for the Museum of American Finance. He teaches business, economic, and financial history at New York University’s Stern School of Business.

The Only Thing to Fear Is Fear-Driven Government ‘Control’
Donald J. Boudreaux
New York Times columnist Gail Collins was underwhelmed by the president’s folksy course-things-ain’t-great-now-but-we-Americans-with-our-rebate-checks-and-incessant-complaining-about-congressional-earmarks-are-gonna-be-just-fine address to the Economic Club of New York on March 14. She complained that “in times of crisis you would like to at least believe your leader has the capacity to pretend he’s in control.”

This is the attitude that scares me. I worry not a whit that the subprime crisis or falling share prices will cause long-term economic woe. As unnerving as the current downturn might be today, people in competitive markets always find ways of regaining their economic footing tomorrow. Investors recalibrate their expectations and entrepreneurs redirect their energies to take better advantage of the changing economic landscape. Workers’ pay and consumers’ standard of living, after blipping briefly downward, resume their upward trend.

“Nonsense!” a chorus yells. “What about the Great Depression? Or the 1970s?” The experiences of these decades are indeed relevant. They are, however, precisely why the clamor for putting someone “in control” of this crisis is so frightening.

Contrary to the conventional wisdom, whose strength of empirical support rivals that for the flat-earth hypothesis (“It seems so obvious!”), the massive move toward centralized control of the economy during the administrations of both Herbert Hoover and Franklin Roosevelt did not “rescue” Americans from economic hardship. All that FDR’s soaring rhetoric and army of officials manning newly created alphabet-soup agencies managed to do was to prolong an economic downturn into America’s deepest and longest depression—one that showed no reliable signs of ending until after Roosevelt met his maker. As the economic historian Robert Higgs documents in his 2006 book Depression, War, and Cold War, investors were terrified by the very real risk during the 1930s that government would extend its control over the economy even beyond what it achieved with its New Deal programs.

The 1970s weren’t as bad as the 1930s. Most important, there was no serious talk during the ’70s of nationalizing industries or socializing investment decisions. International trade was expanding rather than being suffocated by a disco-era Smoot-Hawley tariff. Still, wage and price controls were in vogue (and in effect), Congress and Richard Nixon were keen on command-and-control regulations, and Fed chairmen Arthur Burns’ and G. William Miller’s control over the money supply was injuriously inflationary. Shot through with so many interventions giving government more “control,” the economy slipped into an infamous malaise.

My only fear, therefore, is fear itself—fear that deludes people into believing that giving government greater control is the key to earthly salvation. As I write these words, the Fed’s aggressive moves to bail out Bear Stearns and prevent other necessary market corrections—along with increasing public support for protectionism, anti-immigrant nativism, and environmental hysteria—send shivers down my spine. The threat of a long-term crisis is only as real as is the likelihood that government will try to exert more control.

Donald J. Boudreaux is a professor of economics at George Mason University.

McCain on Mortgage Bailouts

gillespie@reason.com (Nick Gillespie) — Fri, 11 Apr 2008 07:34:00 EDT

Sen. John McCain (R-Ariz.) has gone from knowing nothing about the economy to becoming a free-enterprise guy to sounding like an interventionist. Reports the LA Times:

McCain, in a campaign stop at a windows business in Brooklyn, said, "There is nothing more important than keeping alive the American dream to own your home, and priority No. 1 is to keep well-meaning, deserving homeowners who are facing foreclosure in their homes."

Well, you know what's coming next: McCain has announced a mostly detail-free plan to unburden deserving folks (of course!) of "a burdensome mortgage for a manageable loan that reflects the market value of their home." His plan, details to come sometime next week, will cost less than Hillary Clinton's or Barack Obama's, won't be a bailout for speculators or banks, blah blah blah.

That sort of turn is totally predictable. What's truly strange in the Times piece is this bit from New York City Mayor Mike Bloomberg, who was campaigning for McCain:

Bloomberg...recalled a visit several years ago to McCain's retreat outside Sedona, Ariz. He joked that the home and surrounding property were "relatively small" to be called a ranch and recalled that McCain's trademark ribs, which he grills himself, "were slightly on the well-done side." But Bloomberg said he "loved them anyways."

Question: How would McCain know if Boomer was campaigning against him?

Whole LAT piece here.

Reason Foundation's Mike Flynn on mortgage and big-bank bailouts here.

reason Editor in Chief Matt Welch wrote the book on McCain. Buy Myth of a Maverick now!

The Trillion-Dollar War

info@reason.com (Veronique de Rugy) — Mon, 07 Apr 2008 12:00:00 EDT

At the end of December, Congress approved $70 billion in bridge funding—a down payment to cover the gap between the beginning of the fiscal year and the passage of the actual appropriation bill—to keep financing the wars in Afghanistan and Iraq. Legislators at the time were still chewing on the rest of President George W. Bush’s request for a fiscal year 2008 war budget of $196 billion. Should that funding be appropriated—and if recent history is any guide, it certainly will—then the total price tag for America’s present wars will rise to at least $822 billion, approximately 80 percent of which will be spent on Iraq. That surpasses the cost of the Vietnam War ($670 billion in inflation-adjusted dollars). And the Iraq portion dwarfs the $50 billion to $60 billion cost predicted at the outset of the war by Mitch Daniels, then director of the Office of Management and Budget.

These runaway costs do not include a single dollar from the Pentagon’s annual operating budget, which in 2008 reached a whopping $481 billion. If the war were being accounted for based on a rational, transparent budget process instead of an opaque and politicized shell game, Americans would be painfully aware that we are now in the seventh year of what the nonpartisan Congressional Budget Office has called a $1 trillion war.

How much money is $1 trillion? Enough to pay for the entire 1976 federal budget, adjusted for inflation. Enough to write a check for $37,500 to every Iraqi man, woman, and child. Enough to buy 169,492 Black Hawk helicopters, or 455 stealth bombers. Enough, in nominal terms, to pay for the entire federal government from 1789 to 1957. And it’s 10 times more than what specialists predict it would take to eradicate malaria once and for all.

To distract people from the real price tag of a two-front war, the president and Congress have used an unprecedented and fiscally irresponsible budgetary trick: a series of “emergency” supplemental spending bills totaling hundreds of billions of dollars. This scheme has allowed them not only to hide the costs of the conflicts but also to avoid painful budget choices while funneling billions of dollars in unvetted goodies to favored interest groups.

Once a small blip among federal outlays, emergency supplementals have exploded since 2002, when the Republican Congress let a key legislative restriction on their use expire. In May 2007, President Bush signed into law the biggest supplemental bill in history, $120 billion, to fund military operations in Iraq and Afghanistan ($100 billion) and pay for hurricane recovery and agricultural disaster relief at home. This came just five months after Congress approved another $70 billion emergency request for the wars. By contrast, the average annual amount of emergency supplemental spending in the 1990s—a decade that saw interventions in Iraq, Somalia, Haiti, Bosnia, and Kosovo—was just $13.8 billion (see Figure 1).

Supplemental spending does more harm than merely obfuscating the costs of military conflict. It effectively removes the upper limit on the White House’s war budget. It allows the Pentagon to seek and receive much more funding for mundane operations than it could receive via the normal budget process. And its comparative lack of oversight encourages Congress to shovel out pork to Gulf Coast shrimp harvesters, Hawaiian highway builders, Florida orange growers, and other recipients who have nothing to do with fighting terrorism. As Bush prepares to exit office, this out-of-control spending stands to become one of his most lasting and nefarious legacies.

Bush’s Supplemental Shell Game
President Bush has never included a comprehensive war spending request in his annual February budget. Instead, he has submitted emergency war requests to Capitol Hill, usually sometime in the spring, weeks after the defense appropriation subcommittees begin picking through the Pentagon budget.

Last year, for instance, the president submitted a defense budget request of $481 billion for fiscal year 2008. Operations in Iraq and Afghanistan were covered in an entirely separate $142 billion emergency supplemental request. In October the administration increased that request to $196 billion, leaving Congress to face a dilemma that has become all too familiar since 2001: quickly approve billions of dollars in supplemental war funding without knowing where the money is going or face browbeating accusations of not supporting the troops. In the end, after little discussion, Congress passed its $70 billion down payment.

Although there are no official limits on the amount or type of spending that can be designated as an emergency appropriation, historically there has been an understanding that emergencies are sudden, unforeseen, temporary conditions posing a threat to life, property, or national security. In September 2005, for instance, after Hurricane Katrina smashed the Gulf Coast, the president quickly requested and Congress readily approved a $52 billion emergency bill.

The costs of the war may be necessary and temporary, but they are by no means sudden or unforeseen. The war in Afghanistan started in October 2001, and the war in Iraq commenced in March 2003. Furthermore, the easy-to-predict salaries and benefits of Army National Guard personnel and reservists called to active duty amount to some of the largest expenditures in the supplemental bills.

“The Bush administration’s use of so-called ‘emergency’ supplemental funding to pay for Afghanistan and Iraq is truly unprecedented,” says Travis Sharp, a military policy analyst at the Center for Arms Control and Non-Proliferation, a nonpartisan research organization specializing in international security and arms control issues. Historically, while emergency supplementals were the most frequent means of financing the initial stages of World War II, Korea, Vietnam, and the first Gulf War, past administrations and Congresses funded subsequent military operations in regular appropriation bills as soon as even the crudest of cost projections could be made, according to a June 2006 Congressional Research Service study.

In 1951, for instance, 72 percent of the kick-off cost for the Korean War —$33 billion in today’s dollars—went through supplemental appropriations, while $13 billion came from regular appropriations. But by year two, Congress appropriated 98 percent of the war’s funding through the regular defense budget. By 1953 the president no longer requested any funding outside of the regular defense budget.

The decade-long Vietnam War followed a similar pattern. In the first year of the war, Congress provided all of the funding in emergency supplemental bills. The second year, the administration requested a little less than 50 percent of the war funding within regular defense appropriations. By the fourth year, all of the war funding went through the regular defense budget process. This despite the fact that troop levels were in flux, military strategies were changing regularly, and the duration of the conflict could not be foreseen. In the 1990s, the Republican-led Congress showed a kind of discipline it would completely forget during the Bush presidency, directing President Bill Clinton in fiscal year 1996 to fund all ongoing military operations, including the enforcement of no-fly zones over Iraq, from the regular defense budget rather than supplementals. From then on, Clinton sought funding for Bosnia and other conflicts entirely through the regular appropriations process.

In the 1980s, throughout President Ronald Reagan’s military buildup, no Cold War spending was allocated through supplementals (see Figure 2). And once you account for the offsetting contributions from American allies during and after the first Gulf War ($35 billion out of the total $42 billion price tag), it is clear that until recently very little U.S. military spending was treated as an emergency.

What a difference with today’s wars. Five years into the Iraq conflict and seven years into Afghanistan, the administration and Congress have buried all of the explicit funding—totaling more than the spending on either the Korea or Vietnam wars when adjusted for inflation—in emergency supplementals.

What changed? Aside from internal fiscal discipline, the single biggest procedural shift came in 2002, when the Congress let lapse a law that had required budget cuts to “offset” emergency expenditures.

Who benefited? The Pentagon, the political party that ran Washington in the early 2000s, and their friends.

“The Bush administration is clearly capable of projecting costs in Iraq,” says Travis Sharp, “and has simply ignored historical precedent.”

The Size of the Con
This year the Department of Defense once again failed to include the cost of war in its record-breaking $515 billion defense budget for fiscal year 2009. Instead, it included a placeholder for yet another $70 billion emergency war supplemental—which, conveniently for the administration, does not get counted in deficit projections.

Pressed by Democrats during the annual defense budget hearings in February, Defense Secretary Robert M. Gates confirmed that the $70 billion was only a small fraction of the total expected war cost for the year. Pressed further, Gates estimated that military operations in Iraq and Afghanistan would cost at least $170 billion in 2009.

He immediately added, “I have no confidence in that figure.”

From the beginning, the administration has argued that supplemental bills have the advantage of being prepared closer to the time when the funds will be used, allowing for a more accurate assessment of needs and quicker access to money. It also notes that making the spending separate prevents it from becoming a permanent feature of the defense budget. In other words, the administration argues, using supplemental bills is the fiscally responsible thing to do.

A more likely explanation has little to do with military strategy or budgetary concerns, and everything to do with the fact that “emergency” spending has very beneficial features for big spenders in Washington.

In 1990, under bipartisan congressional pressure to reduce the size of the deficit, President George H.W. Bush signed the Budget Enforcement Act (BEA), which exempted emergency bills from other rules of the era designed to restrain spending. The BEA allowed the government to exclude emergency spending from the deficit projections required in the annual budget. To prevent lawmakers from abusing that loophole, the law required that Congress offset supplemental spending with rescissions—that is, by permanently withholding already appropriated funds.

For a while, this plan worked well, at least by today’s standards. According to a 2005 Congressional Research Service report, between 1981 and 2002 Congress offset an average of 40 percent of supplemental appropriations with rescissions. And those emergencies weren’t for war; during the recession- and inflation-plagued early 1980s, supplementals were used to fund mandatory outlays for unemployment compensation. In the early 1990s, the purpose shifted to natural disaster relief.

But Congress let the BEA expire in 2002. Since then, supplemental appropriations exceeding budget caps have no longer triggered automatic cuts elsewhere. Today the only legislative limit on emergency spending is a congressional prerogative to raise a point of order to protest the “emergency” designation. This happens rarely if ever.

The floodgates are now open. According to data compiled by the Congressional Research Service, inflation-adjusted supplemental spending has increased nearly fivefold in less than three decades, from $36 billion in fiscal year 1980 to $160 billion in 2007, boosting its share of the overall budget authority from 3 percent to 7 percent. And these numbers don’t even catch all of the federal government’s “emergency” spending measures, because some are attached to regular appropriations, such as the December 2007 omnibus bill containing the $70 billion bridge fund.

But for a true measure of the increase, we ought to look at supplemental spending as a share of total new discretionary spending. And there, the trend lines are striking (see Figure 3). Except for a sharp spike in 1991 to fund the first Gulf War (which was largely offset later), emergency appropriations remained a very small share of new discretionary spending through most of the 1990s, staying below 3 percent. Compare that to 2007, when Congress appropriated over 18.3 percent of all discretionary spending through the supplemental process.

This profligacy is par for the course with President Bush. Since fiscal year 2001, the Bush White House has expanded federal spending by 66 percent, in nominal terms, enacting extremely expensive and pork-swollen bills covering agriculture, highway, energy, and prescription drugs while doubling the same federal education budget that Republicans once sought to eliminate.

Regular military appropriations, too, have more than doubled under Bush. According to the Office of Management and Budget, the $481 billion defense request for fiscal year 2008 is 66 percent higher than the budget Bush inherited from Clinton in 2001. If you add to that amount the $196 billion of requested emergency war funding, the Pentagon’s budget is, in inflation-adjusted dollars, larger today than at any point since the end of World War II.

Even that staggering amount strikes Winslow Wheeler, director of the Strauss Military Reform Project at the nonpartisan Center for Defense Information, as incomplete. Wheeler argues that an inclusive definition of the defense budget should also include the $18 billion requested for nuclear weapon costs by the Department of Energy and another $6 billion for miscellaneous defense costs borne by other agencies, such as the General Service Administration, plus funding for the National Defense Stockpile, the Selective Service, some Coast Guard, and the International FBI. Together, that would make a grand total of $700 billion for 2008.

The real number may be higher still, when factoring in the billions of dollars in other federal programs that are spent as a direct result of maintaining the military. According to Christopher Hellman, a defense analyst at the Center for Arms Control and Non-Proliferation, you could include $43 billion spent on homeland security activities outside of the Pentagon (mainly through the Departments of Homeland Security, Health and Human Services, and Justice), $88 billion for the Department of Veterans Affairs, a portion of the estimated $40 billion intelligence budget, and some of the $9 billion spent annually on foreign military aid, plus expenditures on international peacekeeping, nonproliferation, antiterrorism, demining, military space programs, employees’ and retirees’ compensation and benefits at the Pentagon, veterans’ benefits, military pensions, and, finally, a conservative $100 billion estimate for the share of the country’s annual interest payment on the national debt that is directly attributable to past military spending. That gives us a grand total of nearly $1 trillion—that’s 12 zeros—in national security spending for 2008 alone.

Even when using only direct outlays by the Defense Department, 2008 funding was more than 100 percent above 2001. It is unlikely that the president would have been able to achieve such an increase if he had to include the costs of war in his budget requests. Sen. Jon Kyl (R-Ariz.), the chairman of the Republican Policy Committee, spelled out the utility of shell-game finance in an April 12, 2005, report: “Congress should fund operations in Iraq through emergency supplemental appropriations (because funding it through the regular appropriations process would unnecessarily inflate the defense budget).”

Well, yes, exactly. As a Defense News editorial put it in 2005, the White House is “using the supplemental as a thinly veiled political attempt to keep the public from lapsing into sticker shock, and so, losing support for the war.”

At a requested $892 billion and counting—including a new $70 billion emergency war request for fiscal 2009—the Global War on Terror is now the second priciest conflict in U.S. history in inflation-adjusted terms (see Table 1). Only World War II cost more: $3.2 trillion in adjusted 2007
dollars.

And that’s only for the direct cost of the war. As my colleague Tyler Cowen at George Mason University’s Mercatus Center wrote in The Washington Post last November, “these figures don’t quite get at Iraq’s real cost,” because they focus on what we paid for rather than recognizing what we have lost. Among other things, Cowen lists more than 3,800 U.S. soldiers dead and more than 28,000 wounded (many of them severely), more than 1,000 private contractors killed and many more injured, and hundreds of thousands of Iraqi deaths—plus the contributions that all of these people would have made to their families and to humanity at large. A newly released study by the Harvard economist Linda Bilmes puts the combined war costs as high as $3 trillion.

Christmastime for the Pentagon
War supplementals have become the Pentagon’s tool of choice to obtain more funding than it would otherwise receive. Helped by its friends in Congress, the Defense Department keeps finding pretexts to move nonemergency programs, including some wholly unrelated to the war, into emergency supplementals. This frees space under the baseline to stuff in additional spending.

Winslow Wheeler has traced where these “transfer” stunts are readily apparent in the department’s procurement accounts. For example, in the account for “Aircraft Procurement, Army” on page 249 of the regular 2006 Pentagon budget, there is the notation “Transfer to Title IX,” indicating $11.2 million deducted from the president’s regular annual request that was originally intended to purchase “aircraft survivability equipment.” The money is then reinserted on page 477 in Title IX, under the designation of “emergency” spending.

In this one procurement account alone, Wheeler counted 17 such transfers from peacetime budgeting to “emergency” war spending, totaling $654 million, plus another $107 million more in the small print. The best part of the maneuver from the Pentagon’s point of view, Wheeler says, is that the transferred money freed space to buy one F-15E fighter-bomber ($65 million), two Littoral Combat Ships ($440 million), and hundreds of other smaller items. Because similar gimmicks are used in most of the regular budget’s procurement accounts, Pentagon watchers say that the emergency transfers add up to tens of billions of dollars, allowing the Defense Department to boost other parts of its budget by an equal amount.

The practice is so routine and uncontroversial that the military openly admits it. Army Chief of Staff Gen. Peter Schoomaker testified before the Senate in 2005 that the Army preferred to fund 30,000 additional troops through supplementals because if it included the necessary funds in its annual budget request, it “would have to displace other things that are too important to us as we transform—equipment and other readiness issues. So the department has elected to do it with emergency and supplemental funding since we have the options to do so.”

The president’s latest emergency war request included many nonemergency items, some not even related to war. According to a document released by the Senate Budget Committee, $4 billion of the $196 billion officially allocated for the wars has nothing to do with Iraq or Afghanistan, including $500 million for six electronic warfare planes (neither the insurgents in Iraq nor Al Qaeda has an air force or radar) and $400 million for two developmental aircraft that won’t see service until 2013.

This practice is about to get much worse. After years of war, U.S. military equipment is wearing out five times faster than normal. In the next few years, says the Center for Arms Control and Non-Proliferation’s Travis Sharp, we can expect many more high-priced “emergency” Pentagon wish lists for equipment that may or may not be used in the emergencies being funded. “The problem,” Sharp says, “is that the line between war-related spending and normal Department of Defense ‘base’ budget spending is increasingly becoming blurred.” The price tag for equipment replacement is impossible to predict.

The Pentagon recently made such budgetary bait-and-switches even easier by greatly expanding the definition of “war costs” while putting the finishing touches on its fiscal 2007 war supplemental. Now reconstituting or replacing military equipment for the “longer war on terror” is reason enough to designate a military line item as an “emergency.” So any new toy the Pentagon wants can be stuffed in a supplemental bill. No congressional review need be done, and no compensatory sacrifices need be made in the regular budget. Nor are any real explanations needed. Emergency supplementals are not required to contain the “budget justifications” that are attached to all items in non-emergency defense bills.

Adding final insult to injury, the Department of Defense deliberately obscures what exactly is being spent on war. During past conflicts, the Pentagon usually established a separate account to keep track of operation funds. However, no such account exists for the war in Iraq. It’s impossible to tell in 2008 how much the U.S. is spending on defense and where the money is going.

On Capitol Hill, Everybody Wins!
The Pentagon is not the only shill in the supplemental shell game. Everyone in Washington is addicted to the fiction of the “emergency” loophole. These bills have become a magnet for pork and other projects that would have a much tougher time getting funded on their own merits. Because no member wants to vote against emergency aid money to support the troops, and because most supplemental spending does not count against House and Senate budget limits, Congress has used the legislation to get around the Bush administration’s recent rhetoric about limiting the growth of spending unrelated to defense or homeland security. An increasing number of nonemergency, nondefense programs have found their way into emergency war bills, increasing overall government spending without the usual consequences.

Brian Riedl, a budget analyst at the conservative Heritage Foundation, explains: “The common usage of defense supplemental bills has increased non-defense spending as well. Lawmakers now try to shift budget-resolution funds from defense to domestic programs, knowing that these defense funds can be replenished by adding to the next supplemental bill.” For instance, in May 2006, House Appropriations Chairman Jerry Lewis (R-Calif.) asked that $6 billion from proposed defense increases be shifted to erase almost $4 billion worth of cuts in domestic programs.

The best example of Congress’s propensity to stuff supplemental bills with pork items can be found in the most recent supplemental, signed by the president in June 2007, which contained $24 billion in nonemergency spending. That included $120 million for the shrimp and menhaden fishing industries, $283 million for the Milk Income Loss Contract program, $60 million for salmon fisheries, $100 million for California citrus growers, $50 million for asbestos mitigation at the U.S. Capitol Plant, $1 billion for avian flu, and $1 billion for the National Aeronautics and Space Administration.

The Real Emergency
These earmarks obviously should not fall under the rubric of emergency spending, but then neither should have most of the $120 billion bill. More than two years after Hurricanes Katrina and Rita devastated the Gulf Coast, Congress should be able to fund federal relief through the regular appropriations process. In fact, Congress should be able to fund most hurricane relief through the regular appropriations process, given that the hurricane season is a predictable annual event.
Defense spending may be important, but it does not defy the laws of economics or the rules of good governance. It is ludicrous to believe that every increase in the military budget is a good increase.

Yet despite spending more than ever, and more sloppily than ever, on defense, the White House, the Pentagon, and some big military spenders among Washington’s think tank intelligentsia would like us to believe that the bloated Pentagon budget is frail and in desperate need of more cash. They are more capable of saying this with a straight face because for years now so many costs of war have been hidden in supplemental bills.

The best way to allocate defense resources most effectively is to force a tradeoff between priority items and wasteful boondoggles in the regular defense budgeting process. Yet the exact opposite is happening. Instead of having to justify dumping more billions into controversial old weapons programs such as the Air Force’s F-22 stealth fighter, the Marine Corps’ tilt-wing V-22 Osprey, the Navy’s DDG-1000 stealth destroyer and its Virginia-class attack submarine, the Pentagon can simply move those over into the “emergency” file and put off hard choices.

The Democratic Congress could use the immense cost of the Iraq and Afghanistan wars as leverage for some long-overdue waste cutting at the Pentagon. Alternatively, Congress could decide that $1 trillion for defense is worth every penny and instead make some long-overdue compensatory reductions on the domestic side of the budget.

But if the U.S. is to ever make progress toward budgetary sanity, the federal government must stop pretending that war-related costs are somehow separate from the budget of a department whose mission is to fight and win the nation’s wars. That won’t happen until Washington stops pretending that predictable costs are an “emergency.” The emergency at the Pentagon is the way it is deliberately squandering hundreds of billions of dollars a year.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Pork Three Ways

jsullum@reason.com (Jacob Sullum) — Wed, 26 Mar 2008 07:00:00 EDT

On Friday a House Appropriations Committee website was so overwhelmed by legislators' wish lists that it crashed, forcing the committee to extend the deadline for earmark requests until Monday. Most members of Congress seem to think the problem with earmarks is like the problem with the committee's server: not any particular person's demands, just all of them together.

On the face of it, the presumptive Republican presidential nominee, John McCain, and the two remaining contenders for the Democratic nomination, Barack Obama and Hillary Clinton, take a different view: All three supported a one-year moratorium on earmarks that the Senate recently rejected by a wide margin. But only McCain has taken a principled stand against the pet projects that legislators love to slip into spending bills.

"We Republicans came to power in 1994 to change government," McCain told the Riverside, California, Press Enterprise last year, "and the government changed us. That's why we lost the election: We began to value power over principle."

For the Arizona senator, ever-escalating earmarks symbolized how power corrupted the Republicans. It was not just in the most glaring ways, as when Randy Cunningham, the former Republican congressman from San Diego, exchanged defense earmarks for bribes. It was also in the far more common and accepted practice of using earmarks to reward campaign contributors and buy votes.

More fundamentally, Republicans betrayed their commitment to fiscal restraint (not to mention their responsibility to uphold the Constitution) by spending federal tax dollars on local matters. As McCain puts it on his campaign website, earmarks "divert taxpayer dollars to special interest pet projects with little or no national value." He warns that "every dollar irresponsibly spent by Congress is a dollar diverted from pressing national priorities."

I don't necessarily agree with McCain's national priorities or his notion of fiscal responsibility, which includes an open-ended commitment to an ill-considered and increasingly expensive war in Iraq. But at least he makes the point that the federal government was not created so that taxpayers in New Jersey could pay for bridges in Alaska or sweet potato research in Mississippi.

"Pork barrel spending," McCain says, "is an insult to taxpayers, a waste of public resources, and an abdication of our leaders' responsibility to be good and honorable stewards of the public treasury, for the benefit of all Americans, not just a few." He says he wants to end, not mend, earmarks, and in the meantime he declines to seek them for his own state.

By contrast, Obama seems to think the main problem with earmarks is a lack of visibility. To his credit, the Illinois senator co-sponsored (along with McCain) legislation that has made information about earmarks more readily available than ever before. He says earmark spending should be reduced, suggesting much of it is inappropriate.

Yet Obama, who is in his first term, also complains that earmarks are distributed based on seniority rather than "merit," and he worries that obtaining funding is too difficult for cities and nonprofit groups. One man's pork is another's job-generating, life-enhancing boon. Obama surely thinks all his earmark requests, which last year included money for theaters, museums, and hospitals in Chicago, are perfectly justified.

That goes quadruple for Hillary Clinton. According to Taxpayers for Common Sense, Clinton placed 10th in the Senate pork pulling competition last year, obtaining a total of $342 million in earmarks, almost four times Obama's haul. In the 2008 defense authorization bill, the New York senator received $148 million in earmarks, more than anyone except the chairman of the Senate Armed Services Committee. Her earmark total from 2002 to 2006 was $2.2 billion.

But according to Clinton, these expenditures, including money for "local artist space" in Buffalo, firefighting equipment in Oswego, "clean fuel buses" in Syracuse, the Historic Seneca Knitting Mill in Rochester, and the Eleanor Roosevelt Center in Val-Kill, are not earmarks. They are "Investments in New York," and she is "very proud" of every one.

Rhymes With "Male Lout"

matt.welch@reason.com (Matt Welch) — Mon, 24 Mar 2008 09:25:00 EDT

Be very afraid of some of the "solutions" being proferred to the subprime-triggered credit crunch:

The Fed, the Bank of England and the European Central Bank are exploring the feasibility of using taxpayers' money to shore up the mortgage-backed securities market, the Financial Times reported on March 22 [...]
The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

Ya think? Meanwhile, the Washington Post today asked each major presidential campaign their big ideas for Solving the Economy. Some excerpts:

Barack Obama's Austan Goolsbe:

Obama supports efforts to create a new FHA Housing Security Program to provide significant incentives and guarantees for lenders to buy out mortgages that exceed the value of homes and convert them into stable 30-year fixed-rate mortgages that homeowners can afford. This is a responsible plan designed to help responsible homeowners without rewarding borrowers or investors who helped create the problem by gambling recklessly or committing fraud, and it asks both sides to contribute to the solution.
Obama would couple this plan with a direct interest-rate subsidy for low- and middle-income borrowers patterned on the mortgage interest deduction now predominantly used by high-income itemizers, as well as with comprehensive credit counseling, additional aid for loan workouts and reform of the bankruptcy code.

John McCain's Douglas Holtz-Eakin:

McCain will not play election-year politics with the mortgage crisis. In evaluating any proposal, he will apply four principles: (1) No taxpayer dollars should bail out real estate speculators or financial market participants who failed to do due diligence in assessing credit risks. (2) Any financial assistance should be accompanied by reforms that ensure that we never face this problem again. (3) Too little equity -- small down payments by home buyers and too little capital at our financial institutions -- was a source of the housing and credit problem that must be reversed. (4) Where government assistance is merited, lenders and homeowners should make financial sacrifices to qualify.
The financial markets are suffering the after-effects of the bursting of a housing bubble. As with the technology bubble of the late 1990s, much of the difficulty has been created by speculators looking for quick profits and by investors and bankers who ignored basic rules of risk management in an attempt to cash in while times were good. John McCain will not dip into pockets on Main Street to reward these people with a bailout.

Hillary Clinton's Gene Sperling:

Clinton called on regulators to take preemptive action -- including a foreclosure timeout, strengthening the Federal Housing Administration's capacities to respond to a crisis and cracking down on predatory lending practices with plain-language disclosure requirements. She has since called for a plan to encourage the restructuring of viable mortgages through a voluntary agreement to freeze interest rates on subprime adjustable-rate mortgages and a 90-day foreclosure moratorium. She immediately supported the legislation introduced by Rep. Barney Frank and Sen. Chris Dodd seeking a more systemic effort to unlock and restructure mortgages, and she continues to consult experts over the most effective method for doing so. [...]
On Thursday, Clinton proposed a second stimulus package, focused on helping at-risk homeowners and communities. Across the nation, concentrated foreclosures and vacant buildings are leading to downward spirals; they threaten to bring crime and blight into once-viable neighborhoods. In early January, Clinton called for a $30 billion Emergency Housing Fund to give localities broad tools to head off this threat, including the latitude to buy and rent out or resell such vacant properties. Today, even Fed Chairman Ben Bernanke is calling for policies to confront the community harm traced to "clusters of foreclosures." If we can provide a $30 billion lifeline for Bear Stearns, can't we afford $30 billion to prevent Main Streets from turning into mean streets?

Discuss.

The Pork Flowed Like Champagne

kmw@reason.com (Katherine Mangu-Ward) — Thu, 20 Mar 2008 15:05:00 EDT

Legislators stampeded the new House appropriations website yesterday with their requests for earmarks, causing it to crash. Roll Call was there. While I'd favor a first-come, first served, it's-not-my-fault- you-missed- the-deadline,- pal approach, the House Appropriations Committee has decided to extend the deadline for submissions until next week:

In a sure sign that earmarks remain as popular as ever, an overload of pork requests clogged the House Appropriations Committee’s Web site Wednesday, forcing an extension to the request deadline to next week.
The committee extended its deadline for earmark requests until 11:59 p.m. on March 24 after a “massive influx of requests” caused “unavoidable access and processing delays,” wrote Rob Nabors, staff director for the committee, in a memo to Member offices.

More pork, more pork, more pork. And some kangaroo.

Via The Weekly Standard

Obama: The More Things Change...

bdoherty@reason.com (Brian Doherty) — Mon, 25 Feb 2008 09:06:00 EST

D.C. Examiner columnist Melanie Scarborough goes to the man's website to figure out his plans for America. Some high-spendin' samples:

» “Obama will make college affordable for all Americans.”
» “Obama will quadruple Early Head Start and increase Head Start funding. Obama will also provide affordable and high-quality child care to ease the burden on working families.
» “Obama will double funding for after-school programs.
» “Obama will provide job training, substance abuse and mental health counseling to ex-offenders, so that they are successfully re-integrated into society.
» “Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners.
» “Obama will create an Affordable Housing Trust Fund to develop affordable housing in mixed-income neighborhoods.
» “Obama will create 20 Promise Neighborhoods in areas that have high levels of poverty and crime and low levels of student academic achievement … which provide a full network of services, including early childhood education, youth violence prevention efforts and after-school activities, to an entire neighborhood from birth to college.
» “He will provide at least $2 billion to expand services to Iraqi refugees in neighboring countries, and ensure that Iraqis inside their own country can find a safe haven.
» “Obama will double our foreign assistance to $50 billion.”

......Obama plans to meddle in minutiae, such as radio programming in Topeka (“An Obama presidency will promote greater coverage of local issues and better responsiveness by broadcasters to the communities they serve”)...

Aloha, Regulatory State!

gillespie@reason.com (Nick Gillespie) — Wed, 13 Feb 2008 16:18:00 EST

Arnold Kling of TCSDaily and the Cato Institute sees nothing but darkness come November:

In November, the United States may take its strongest lurch to the left since 1933. The Republicans easily could lose 10 seats in the Senate. The relative turnout numbers in the Democratic and Republican primaries are consistent with a landslide victory for either Hillary Clinton or Barack Obama.
Assume that this scenario plays out, and that the Democrats sweep into office behind either the nation's most aggressive nanny or its most liberal senator (or both). What sort of consequences can we expect?...
Many Americans will welcome the regulatory state. Many others will accommodate it. Only a minority of us will oppose it. Somewhere down the road, as people see the indignity of the many intrusions and the adversity of the consequences, I hope that there will be a backlash. Otherwise, if the era of mandates emerges as I fear it will, then the engine of capitalism in America may run out of the fuel of competition.

Whole thing here.

I'm not questioning what he's saying--and certainly I'm as down on the regulatory state as Dr. Congressman Ron Paul is down with the Constitution.

But here's a real question, informed by the past decade-plus of GOP control of Congress and/or the White House: Would it really be worse than what we've seen under Bush and the Republicans or Bush and the Democrats?

I'm almost ready to believe some variation of the Nixon Going to China argument that the Dems would feel more constrained in being Big Gummint idiots than, say, George W. Bush and Tom DeLay ever did precisely because that's what everyone expects of them. Would, say, Bill Clinton have gotten away with creating a massive new entitlement? He tried and failed, right, with a Dem Congress, too. And god knows Clinton intervened militarily in a very promiscuous manner, but when it comes to foreign quagmires, there's the former Yugoslavia and then there's the former (future?) Iraq...

Leaving Wayne's World

jwalker@reason.com (Jesse Walker) — Wed, 13 Feb 2008 10:11:00 EST

With 98 percent of the votes counted, it looks like Maryland Rep. Wayne Gilchrest, one of a small handful of antiwar Republicans in Congress, has been defeated by the Cockeysville conservative Andy Harris. (Gilchrest's other major challenger, E.J. "Rupert" Pipkin, finished third.) Harris had been endorsed by the anti-tax, anti-spending Club for Growth because of his "consistent track record of fighting for limited government and pro-growth policies." Unfortunately, Harris' "consistent track record" includes his support for an unnecessary war that has already cost over $1 trillion. I have plenty of problems with the incumbent's economic record, but on the most important issue related to fiscal conservatism in the last 10 years, Gilchrest has been right and Harris has been wrong.

It's far from certain that Harris will be able to defeat Democrat Frank Kratovil. The Dems will pour money into taking the district now that their sometime-ally Gilchrest is out of the picture; and Harris, who lives on the western side of the Chesapeake, will have a hard time attracting votes from the Eastern Shore.

The country faces an ugly choice this November: Either elect a Republican president and reaffirm the Bush foreign policy, or elect a Democrat and put both the White House and Congress in the hands of the same party. If the First District of Maryland turns against one of Washington's few antiwar Republicans and then hands his seat to a Democrat, it will have somehow managed to embrace the worst of both worlds.

Elsewhere in Reason: Dave Weigel interviewed Gilchrest last May, and he looked at the congressman's primary fight yesterday.

A 10-Year Energy Plan?

rbailey@reason.com (Ronald Bailey) — Tue, 05 Feb 2008 15:00:00 EST

In November, I commended techno-optimistic environmentalists Michael Shellenberger and Ted Nordhaus for pointing out the intellectual exhaustion of traditional ideological environmentalism. Shellenberger and Nordhaus outlined their scathing critique of special-interest environmentalism in their new book, Break Through: From the Death of Environmentalism to the Politics of Possibility (2007). They pointed out that environmentalism's doomsday predictions and limits-to-growth policy recommendations are political dead ends.

In a world in which billions of people remain mired in poverty and lack access to modern sources of energy, a positive environmental program stressing technological innovation and economic growth is far more politically viable. However, Shellenberger and Nordhaus argue that the threat of potentially catastrophic man-made climate change can only be addressed by massive government research and development initiatives that aim to create low-carbon energy supplies. How massive? To the tune of $300 billion per year over the next 10 years.

Now in a new New Republic article Shellenberger and Nordhaus are calling out "conservatives" for not supporting such initiatives. They note:

At the libertarian reason magazine, Ronald Bailey endorsed our critique of nature-centered environmentalism--which sees regulation as the best solution--but then concluded, "Shellenberger's and Nordhaus' naïve trust in wise government bureaucrats guiding technological innovation is problematic, to say the least." For conservatives to be taken seriously, they'll need to ditch their knee-jerk opposition to government intervention in the economy and recognize that government has long played a critical role in investing in transformational technologies.

Conservative? No. Opposition, yes. Knee-jerk, hardly. What transformational technologies do Shellenberger and Nordhaus claim that the federal government has brought about? They point to the railways in the 19th century, the Manhattan Project during World War II, the Interstate highway system in 20th century, the Apollo moon shots, and the Internet. Most of the technologies they cite were subsidized by government for military reasons, not for reasons of technological or commercial development, much less out of concern for the environment.

In 1862, Congress justified passing the Pacific Railroad Act as a way to forestall a secessionist movement in California during the Civil War. The government subsidized the Union Pacific and Central Pacific railroads at $16,000 per mile over an easy grade and up to $48,000 in the mountains. In addition, the government offered substantial land grants along the right-of-way. Despite these government subsidies, both companies were bankrupt in the early 1870s.

As an example of how government subsidies distort incentives, both railroad construction crews worked past each other building an extra 200 miles of parallel rail ~~lines~~ grades (and some parallel tracks) instead of linking up so their companies could earn more subsidy payments and land grants. The fact that government subsidies were not necessary for building a transcontinental railroad was proved when James J. Hill built the highly profitable Great Northern Railway from Minnesota to Seattle completely without them or land grants.

The Manhattan Project was launched because President Franklin Roosevelt feared that the Nazis were developing their own atomic weaponry. The project was a great success in developing the technologies needed to produce atomic bombs. In the 1950s, President Dwight Eisenhower promoted the "Atoms for Peace" program which aimed to develop civilian uses for nuclear technologies. Under the Power Demonstration Reactor Program, private/public partnerships to build power-generating nuclear reactors began. In 1957, the first nuclear large-scale power reactor began operation at Shippingport, Pa. Two years later, the first nuclear power station built completely without government funding was fired up in Illinois. Today, 109 nuclear power plants produce about 16 percent of all the electricity used in the United States. On the other hand, no new nuclear power plants have been ordered in the last 30 years. Since 1972, orders for 117 nuclear plants have been cancelled. The growth of nuclear power stopped because of regulation, not technical issues. It may yet turn out to be a great commercial success and part of the answer to abating greenhouse gas emissions, but only if regulatory issues are resolved.

Even the Interstate highway system was justified on national defense grounds. As a young military officer, Eisenhower had led an army convoy of 300 men from Washington, D.C. to the West Coast in 1919. The convoy took 62 days to cross the country. He was also impressed by the German Autobahn system. So in 1956, Eisenhower championed the National Interstate and Defense Highways Act. The Interstate highway system was originally estimated to take 12 years and cost $25 billion to construct. It actually took 35 years and cost $114 billion (over $800 billion in current dollars). Building the Interstate system remains the largest public works project ever undertaken in the United States. By most accounts, Interstate highways lowered transportation costs and boosted American productivity. On the other hand, subsidizing highway construction doesn't seem to be a good analogy to subsidizing energy research and development.

The motivation behind the Apollo moon shot program was largely geopolitical. The Soviets had launched the first artificial satellite in 1957 and orbited the first man around the planet in 1961. As a NASA history explains, "First, and probably most important, the Apollo program was successful in accomplishing the political goals for which it had been created. Kennedy had been dealing with a Cold War crisis in 1961 brought on by several separate factors—the Soviet orbiting of Yuri Gagarin and the disastrous Bay of Pigs invasion only two of them—that Apollo was designed to combat." The Apollo program cost $25.4 billion (about $150 billion in current dollars) to land just 12 astronauts on the moon. It is curious that Shellenberger and Nordhaus cite the Apollo program as an example of transformative technologies since it was basically a technological dead end.

Shellenberger and Nordhaus argue, "The fact that some past public investments in energy failed is no more an argument against public investment than the failure of private firms to deliver cheap, clean energy is an argument against markets. It is true that government has made some lousy investments—but it has also made remarkable ones." In fact, with the possible exception of nuclear power, just where are the "remarkable" government-financed energy production breakthroughs? Consider the case of the Synfuels Corporation, which was authorized to spend up to $88 billion dollars on developing energy sources as alternatives to imported oil. It was supposed to be an energy "Manhattan Project" that would produce the equivalent to 500,000 barrels of oil by 1987. Instead, Congress shut it down in 1986. And that's not to mention one failed public/private partnership after another that were supposed to produce automobiles that run on something besides refined petroleum. Just last week, the Bush Administration pulled the plug on its flagship FutureGen demonstration project for capturing and burying carbon dioxide produced by coal-fired electric power plants.

Shellenberger and Nordhaus of course cite the Defense Advanced Research Projects Agency's (DARPA) famous support for communications technology network research that evolved into the Internet. The ARPANET was established as a way to link the defense research community. In the 1980s, the National Science Foundation funded the NSFNET as a way to increase the linkage among a broader community of scholars. The Internet evolved into an open research and commercial environment. That wasn't the way some technosavants preferred things 20 years ago. Remember the Minitel? Minitels were videotext terminals distributed by the millions by the French national telephone company. "The Minitel craze is one case where government intervention, frequently derided as an obstacle to economic change, seems to have helped technological innovation," declared the Washington Post in December, 1986. By 1992, there were 6 million Minitel terminals offering 1,800 information sources. However, the bottom-up Internet handily beat the top-down Minitel. I suspect that the new government-financed energy research would result in technologies more like Minitel and less like the Internet.

Shellenberger and Nordhaus's techno-optimistic environmentalism is still shackled by old style top-down thinking when it comes to technological development. Energy production, especially electricity generation, is one of the least technologically innovative industrial sectors, not least because it is one of the most heavily regulated sectors. The way forward is to encourage bottom up distributed creativity, not top down bureaucratic management. To give them their due, Shellenberger and Nordhaus recognize that throwing government money at energy research and development does not guarantee success. "To be sure, many of these technologies will fail," they write. "But any venture capitalist will tell you that multiple failures are required to reap a single success, and that you can't win if you don't play." The problem with Manhattan or Apollo Projects is that they were "silver bullet" programs aimed at a single technically difficult goal. The problem of developing low-carbon energy is a far more diffuse problem.

Since the problem is diffuse, a far better strategy would be to encourage venture capitalists and other entrepreneurs to finance new low-carbon energy development, rather than a centralized top-down crash research program directed by Department of Energy bureaucrats. One promising technique is to offer substantial prizes for energy production or utilization breakthroughs. A private example of how such prizes might work is the $10 million Automotive X Prize, which aims to promote the development of production-ready vehicles that get 100 miles per gallon of gas. One can imagine big government-financed prizes for various clean energy technologies such as long-lasting powerful rechargeable batteries, super-efficient solar power systems, or bacteria that eat sewage and excrete gasoline. However, the more narrowly the goal of a prize is defined, the more it will constrain the ingenuity of future innovators. In other words, bureaucrats could so narrowly define prizes that they would be engaging in top-down research management by other means.

Shellenberger and Nordhaus are absolutely right in a major way: People simply will not accept limits to growth. So the question is how best to harness human creativity to address the problem of man-made global warming? The simplest and best way to encourage the development of low-carbon energy technologies is to set a price on carbon emissions. Thousands of inventors and entrepreneurs would then have a huge incentive to develop cheap low-carbon energy technologies. The history of government-financed research and development, especially in the area of energy production, is not at all promising. Although Shellenberger and Nordhaus dismiss setting a price on carbon emissions as "a tired old trope," it's a lot less tired than yet another call for a "new Manhattan Project." What's next, an energy policy that's the "moral equivalent of war"?

Ronald Bailey is reason's science correspondent. His most recent book, Liberation Biology: The Scientific and Moral Case for the Biotech Revolution, is available from Prometheus Books.

Because Congress Doesn't Have Enough To Do, Chapter MMMCCXXXVIII (College Textbook Edition)

gillespie@reason.com (Nick Gillespie) — Fri, 01 Feb 2008 11:45:00 EST

Reader Geoff Nathan passes along some news about a Congress that really has too much time on its hands:

The high cost of textbooks is a widely deliberated problem without a popular solution. Now Congress has moved toward passing a law on the issue.
To ease the burden of textbook prices on students, the House of Representatives' education committee has proposed strict requirements for colleges and publishers in its version of legislation to reauthorize the Higher Education Act, the major law that governs federal student aid. Textbooks are part of the overall cost of higher education and should be included in the renewed law, said Alexa Marrero, a spokeswoman for the Republican members of the committee.
Under the bill, publishers would have to promote custom textbooks and "unbundle" materials like CD's and workbooks that are typically packaged with textbooks, raising the amount students must pay.
The bill also calls for two disclosures, one from publishers and the other from colleges.

More here, from the excellent Chronicle of Higher Education.

We can stipulate that college textbooks cost too much, that publishers are sons of bitches who don't care a goddman stitch about learnin', that colleges and universities are subsidy-sucking sinkholes that don't give a rat's ass about anything other than jacking tuition, that most college students are useless sacks of shit who should be remanded to coal mines where they might actually add something to society...and this is still a total waste of time for Congress.

Though given that our elected officials could be passing the time authorizing bombing runs and new entitlements, maybe it's not that bad really.

Bush Spent His Credibility

jsullum@reason.com (Jacob Sullum) — Wed, 30 Jan 2008 07:56:00 EST

In his 2007 State of the Union speech, right at the moment when the Democrats took over Congress, President Bush came out of the closet as a fiscal conservative. The laughter was still echoing on Monday night, when he ascended the podium for his last State of the Union speech.

Bush nevertheless braved ridicule by reiterating his newfound commitment to pork-free balanced budgets. Even if we take him at his word, nothing he has proposed can undo the damage he did in his first six years.

Bush's approach to earmarks, the centerpiece of his get-tough fiscal strategy, shows his lack of seriousness. He issued an executive order instructing agencies to ignore earmarks that do not appear in the legislative text, and he threatened to veto any spending bill that "does not cut the number and cost of earmarks in half."

But the order does not kick in until fiscal year 2009, so it does not affect any of this year's earmarks—11,737 items totaling $16.9 billion, by the administration's count. More than 90 percent of those earmarks do not have the force of law because they appear in committee reports or other documents outside the spending bills to which they were attached.

Once the executive order takes effect (and assuming the next president does not rescind it), Congress can readily evade it by including language in spending bills that makes earmarks listed in committee reports mandatory. Even without such maneuvers, agencies anxious to maintain good relations with the people who provide their budgets may decide to fund legislators' pet projects.

Like his executive order, the president's veto threat does not apply, even theoretically, until after October 1. Given Congress' usual tardiness in passing appropriations bills, which this year will be compounded by the presidential election, Bush may not have a chance to veto any.

The results of previous veto threats are not encouraging. The Heritage Foundation found that last year's omnibus spending bill exceeded Bush's supposedly nonnegotiable limit by $20 billion, relying on budget tricks to create the illusion of compliance.

Bush's belated, half-hearted attack on earmarks looks even more pathetic set against his fiscal performance when his party controlled the power of the purse. In the first six years of the Bush administration, during which the president did not see fit to veto a single appropriations bill, discretionary spending rose by an average of 5.3 percent a year in real terms, according to the Cato Institute's Stephen Slivinski, outpacing Lyndon Johnson's annual average of 4.6 percent. Budget surpluses turned into deficits, and federal spending as a share of gross domestic product, which fell to 18.4 percent under Bill Clinton, rose above 20 percent again.

Much of the new spending went to defense and homeland security, and anyone who considers the war in Iraq a mistake or looks at the details of how anti-terrorism money is spent would have to agree that a lot of it was wasted. Bush's "compassionate conservative" vision also featured higher outlays in other areas, including education spending, which has increased 18 percent a year since 2001.

The most conspicuous example of Bush's profligacy is the Medicare prescription drug benefit he championed and still cites with pride. Indeed, the worst thing about earmarks, which represent less than 1 percent of total federal spending, may be the way they're used in the logrolling that wins passage of budget-busting monstrosities like this one.

During its first decade, the drug benefit is expected to cost about $70 billion a year, four times all of this year's earmarks put together. Over the long term, it accounts for almost a quarter of Medicare's estimated $34 trillion shortfall.

In a statement issued before the State of the Union speech, the White House worried about "the unsustainable growth in spending for Medicare" and "Medicare's long-term unfunded liability." Given the president's record of fiscal recklessness, that's about as believable as a statement from Cookie Monster condemning gluttony.

Slightly Fewer Logs, Still Rolling

jsullum@reason.com (Jacob Sullum) — Wed, 23 Jan 2008 11:38:00 EST

By the Office of Management and Budget's count, spending bills approved by Congress for fiscal year 2008 included 11,737 earmarks totaling $16.9 billion, down from 13,491 earmarks totaling $18.9 billion in fiscal year 2005. That's a 13 percent drop in the number of earmarks and an 11 percent drop in earmark spending, far short of President Bush's official goal, which was to cut earmarks in half. The Democrats are still doing better in this respect than the Republicans did when they controlled Congress (though not by much), and Bush is in no position to give lectures on fiscal conservatism given his own profligacy. Quibbling over a few billion dollars in earmark spending seems strange for a president who, to pick one example, pushed a Medicare drug benefit that now accounts for almost a quarter of the program's $34 trillion long-term deficit.

Yet to the extent that pet projects help win passage of budget-busting abominations like the Medicare drug benefit, they represent a bigger fiscal problem than the numbers suggest. Earmark promises (and threats) reportedly played an important role in winning Republican votes for the Medicare expansion. Tellingly, The New York Times reports that Bush probably won't issue an executive order instructing agencies to ignore earmarks included in committee reports (as opposed to the legislative text), even though he would be on firm legal ground in doing so, because he does not want to upset members of Congress:

Congressional leaders of both parties, who are scheduled to meet on Tuesday with the president, said Mr. Bush would provoke a huge outcry on Capitol Hill if he ignored those earmarks.
Lawmakers, including the House Republican whip, Roy Blunt of Missouri, have cautioned the White House that a furor over earmarks could upend Mr. Bush's hopes for cooperation with Congress on other issues, including efforts to revive the economy.
Moreover, Republicans shudder at the possibility that a Democratic president might reject all their earmarks.

Earmarks help get things done in Washington, promoting bipartisan cooperation in Congress and cross-branch cooperation with the White House. Of all the reasons to oppose them, this may be the most important.

From Each According to His Ability...

jsullum@reason.com (Jacob Sullum) — Wed, 23 Jan 2008 06:08:00 EST

During this week's Democratic presidential debate, Hillary Clinton said putting together the right kind of stimulus package is "a part of economic justice." The remark reflected a major campaign theme for the New York senator, who has declared she would pursue "a new vision of economic fairness" as president.

That slogan should set off alarm bells for anyone who recognizes that economic outcomes result from myriad individual choices. To impose her vision of economic fairness, Clinton would have to override those choices, compromising freedom in the name of equality.

Clinton's aim is economic equality, not legal equality, and you really can't have both. As the economist and political philosopher F.A. Hayek observed, equal treatment of people with unequal abilities leads to unequal outcomes. In this sense social justice is, if not a "mirage," as Hayek argued, at least in conflict with procedural justice.

So it's not surprising that many of the policies Clinton believes promote economic fairness strike others as decidedly unfair. In 2006, for example, she endorsed a successful Commerce Department petition by Syracuse candle makers to impose a tariff of more than 100 percent on candles imported from China.

"Our manufacturers deserve a level playing field," Clinton explained, "and we owe it to them to make sure that others do not unfairly circumvent our fair trade practices." In Clinton's view, then, fairness demands that all Americans pay more for candles to subsidize manufacturers in her state.

More generally, Clinton advocates "smart" trade rather than free trade, insisting on "strong protections for workers and the environment" that reduce the competitive advantages of foreign producers. She wants "jobs that cannot be shipped overseas," which can be achieved only by interfering with companies' profit-maximizing (and consumer-benefiting) decisions. For her, globalization is not what happens naturally when people are free to exchange goods and services on mutually agreeable terms; it's a process that needs to be "managed properly."

Clinton wants to "curb the excesses of the marketplace," which in her view include not just foreign competition but high salaries for corporate CEOs, risk-based insurance premiums, and foreclosures on the homes of people who fail to make mortgage payments. Intent on implementing her "new economic blueprint," she overlooks the possibility that such practices developed for sound reasons and that arbitrarily limiting or abolishing them might have unintended consequences.

When it comes to fiscal policy, Clinton seems to see herself as a kindergarten teacher "fairly" doling out cupcakes, giving no thought to who baked them in the first place. In a recent New York Times interview she worried that "inequality is growing" and waxed nostalgic for the "confiscatory" tax rates of the post-World War II decades.

Clinton would use higher taxes to pay for universal preschool, universal college, universal health care, and universal high-speed Internet access, among other taxpayer-funded goodies. These she calls "the investments we make in each other," and they are just like investments, except that there is no reliable test of whether they make sense, since the people paying for them have no choice in the matter and are not the ones who stand to benefit.

There's a similar problem with Clinton's proposal to "create millions of new jobs by investing in clean energy" through a $50 billion Strategic Energy Fund. When a politician talks about the jobs government spending will create, it's usually a signal that the spending cannot be defended on its own merits. A Strategic Thumb Twiddling Fund could create millions of new jobs too.

In the Times interview Clinton suggested that as president she would be prepared to ram through her economic program on straight party-line votes. "If you really believe you have to manage the economy," she said, "you have to stake a lot of your presidency on it."

The history of central planners and their failures suggests a different lesson: If you really believe you have to manage the economy, you shouldn't be president.