Archive for July 7th, 2011

There’s lots of talk in Washington about spending cuts, with almost everybody saying that there needs to be at least $2 trillion of cuts in exchange for hiking the debt limit. Since the federal budget is about $3.8 trillion and is riddled with waste, fraud, and abuse, this sounds like great news.

But, as you can imagine, things are never what they seem in Babylon on the Potomac. As I’ve repeatedly noted, a spending cut means something different for politicians than it does for those of us in the real world. The political elite claim they are cutting spending anytime they don’t increase spending as fast as previously planned.

You think I’m joking?!? I wish. Take a couple of minutes to watch this new video from the Cato Institute and you’ll understand how politicians are playing us for fools.

Rather than getting sidetracked by empty rhetoric, here’s the best way to understand what’s really happening in Washington. Apply this simple 5-step process when a “deal” is announced.

    1. Find out what spending is this year.

    2. Find out what spending will be next year.

    3. Find the projected spending levels in subsequent years.

    4. Measure how fast spending is projected to grow (or, if there is a miracle, how much it will decline) and compare to estimated inflation.

    5. Then discount everything by 50 percent since promised spending cuts (oops, I mean reductions in previously planned increases) tend to evaporate.

When you follow these five steps, you’ll probably want to go to step 6, which is to inquire about the cost of property in Costa Rica or some other place to which you can escape when America collapses into a Greek-style fiscal crisis.

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It gets my blood boiling that the crowd in Washington is talking about raising our taxes when the budget is so riddled with excess spending. Here are two stories that illustrate the waste, fraud, and abuse that is pervasive in the federal budget.

Our first example is about unemployment benefits fraud. I’ve noted on several occasions (including this very amusing cartoon) that the main problem with unemployment benefits is that they lure people into long-term joblessness and dependency. That gets me angry in my role as an economist. As a taxpayer, though, I get upset that 10 percent of the funds (that’s just what the government admits, so the real figure surely is higher) are squandered because of fraud. Here’s some info from an AP report.

A nationwide crackdown is coming for people fraudulently drawing unemployment payments — those who were never eligible and workers who keep getting checks after they return to work — a $17 billion benefits swindle last year alone, say federal officials. …As much as 30 percent of the wrong payments in 2010 went to people who had returned to the workforce but continued to claim benefits, according to Dale Ziegler, deputy administrator for the Office of Unemployment Insurance at the U.S. Department of Labor.

Our second example comes from a news report in West Virginia, and it deals with the weatherization program (one of the flagship components of Obama’s failed stimulus scheme). You won’t be surprised to learn the program has been a farce.

Federal audits are turning up misspent taxpayer dollars in a $5 billion stimulus program aimed at lowering the utility bills of disabled, poor and older Americans by making their homes more energy-efficient. In West Virginia, which received $38 million in weatherization funds, some of the money went for lobbying, to consultants who did little work and to recipients with connections to state officials who are doling out the funds, the Energy Department’s inspector general found. In one case, West Virginia paid $25,000 to a lawyer for writing two sentences stating that weatherization contracts had been reviewed, reportedly after four hours’ work at a state office, according to a report analyzing how the federal stimulus money was used. A $20,000 consulting fee was paid to the former director of the state’s weatherization program after he left the job in May 2009 even though there were no specific work requirements set for the consulting contract. …more than half of weatherized homes that were re-inspected needed to be redone because of faulty work, the report said. Meanwhile, $2,500 was spent on lobbying in Washington – even though such use is expressly forbidden – to “get the word out” that there wasn’t enough funding to administer stimulus programs, it said.

These stories aren’t even the tip of the iceberg. They are a few tiny crystals in one snowflake sitting on the top of the tip of the iceberg. The politicians want more revenue so they can maintain this corrupt scam.

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