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Posts Tagged ‘Government Spending’

The annual budget for our bloated and sclerotic federal government consumes about $4 trillion of America’s economic output, yet President Trump so far has not proposed to reduce that overall spending burden by even one penny.

A few programs are targeted for cuts, to be sure, but I explained last week, that “taxpayers won’t reap the benefits since those savings will be spent elsewhere, mostly for a bigger Pentagon budget.” More worrisome, I also pointed out that his budget proposal is “silent on the very important issues of tax reform and entitlement reform.”

All things considered, you would think that statists, special interest groups, and other denizens of the D.C. swamp would be happy with Trump’s timid budget.

Not exactly. There’s so much wailing and screaming about “savage” and “draconian” budget cuts, you would think the ghost of Ronald Reagan is haunting Washington.

Much of this whining is kabuki theater and political posturing as various beneficiaries (including the bureaucrats, lobbyists, contractors, and other insiders) make lots of noise as part of their never-ending campaigns to get ever-larger slices of the budget pie.

And nothing demonstrates the vapidity of this process more than the imbroglio over the Meals on Wheels program. Based on news reports, the immediate assumption is that Trump’s budget is going to starve needy seniors by ending delivery of meals.

Here’s how CNN characterized the proposal.

The preliminary outline for President Donald Trump’s 2018 budget could slash some funding for a program that provides meals for older, impoverished Americans.

“Slash”? That sounds ominous. Sounds like a cut of 40 percent, 50 percent, or 60 percent!

And a flack for Meals on Wheels added her two cents, painting a picture of doom and despair for hungry seniors.

…spokeswoman Jenny Bertolette said, “It is difficult to imagine a scenario in which they will not be significantly and negatively impacted if the President’s budget were enacted.”

Oh no, “significantly and negatively impacted” sounds brutal. How many tens of thousands of seniors will starve?

Only near the bottom of the story do we learn that this is all nonsense. All that Trump proposed, as part of his plan to shift some spending from the domestic budget to the defense budget, is to shut down a pork-riddled and scandal-plagued program at the Department of Housing Development. However, because a tiny fraction of community development block grants get used for Meals on Wheels, interest groups and leftist journalists decided to concoct a story about hungry old people.

In reality, the national office (appropriately) gets almost all its money from private donations and almost all the subsidies to the local branches are from a separate program.

About 3% of the budget for Meals on Wheels’ national office comes from government grants (84% comes from individual contributions and grants from corporations and foundations)… The Older Americans Act, as a function of the US Department of Health and Human Services, …covers 35% of the costs for the visits, safety checks and meals that the local agencies dole out to 2.4 million senior citizens, Bertolette said.

In other words, CNN engaged in what is now known as fake news, publishing a story designed to advance an agenda rather than to inform readers.

My colleague Walter Olson wrote a very apt summary for National Review.

The story that Trump’s budget would kill the Meals on Wheels program was too good to check. But it was false. …it wouldn’t have taken long for reporters to find and provide some needed context to the relationship between federal block grant programs, specifically Community Development Block Grants (CDBG), and the popular Meals on Wheels program. …From Thursday’s conversation in the press, it was easy to assume that block grant programs — CDBG and similar block grants for community services and social services — are the main source of federal funding for Meals on Wheels. Not so.

And if you want some accurate journalism, the editorial page of Investor’s Business Daily has a superb explanation.

What Trump’s budget does propose is cutting is the corruption-prone Community Development Block Grant program, run out of Housing and Urban Development. Some, but not all, state and local governments use a tiny portion of that grant money, at their own discretion, to “augment funding for Meals on Wheels,” according to the statement. …So what’s really going on? As Meals on Wheels America explained, some Community Development Block Grant money does end up going to some of the local Meals on Wheels programs. But it’s a small amount. HUD’s own website shows that just 1% of CDBG grant money goes to the broad category of “senior services.” And 0.17% goes to “food banks.” …All of this information was easily available to anyone reporting on this story, or anyone commenting on it, which would have prevented the false claims about the Meals on Wheels program from spreading in the first place. But why bother reporting facts when you can make up a story…?

The IBD editorial then shifted to what should be the real lesson from this make-believe controversy

…this fake budget-cutting story ended up revealing how programs like Meals on Wheels can survive without federal help. As soon as the story started to spread, donations began pouring into Meals on Wheels. In two days, the charity got more than $100,000 in donations — 50 times more than they’d normally receive. Clearly, individuals are ready, willing and eager to support this program once they perceive a need. Isn’t this how charity is supposed to work, with people donating their own time, money and resources to causes they feel are important, rather than sitting back and expecting the federal government to do it for them?

At the risk of being flippant, Libertarian Jesus would approve that message.

But to be more serious, IBD raises an important point that deserves some attention. Some Republicans think the appropriate response to CNN‘s demagoguery is to point out that Meals on Wheels gets the overwhelming share of its federal subsidies from the Older Americans Act rather than CDBG.

In reality, the correct lesson is that the federal government shouldn’t be subsidizing Meals on Wheels. Or any redistribution program that purports to help people on the state and local level.

There’s a constitutional argument against federal involvement. There’s a fiscal argument against federal involvement. There’s a diversity argument against federal involvement. And there’s a demographic argument against federal involvement.

But there’s also a common-sense argument against federal involvement. And that gives me an excuse to introduce my Third Theorem of Government. Simply stated, it’s a recipe for waste to launder money through Washington.

P.S. For those interested, here is the First Theorem of Government and here is the Second Theorem of Government.

P.P.S. I started today’s column by noting that Trump hasn’t proposed “even one penny” of lower spending. That’s disappointing, of course, but the news is not all bad. The President has  endorsed the Obamacare reform legislation in the House of Representatives, and while that legislation does not solve the real problem in our nation’s health sector, at least it does lower the burden of taxes and spending.

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I’ve looked at some of the grim fiscal implications of demographic changes the United States and Europe.

Now let’s look at what’s happening in Asia.

The International Monetary Fund has a recent study that looks at shortfalls in government-run pension schemes and various policies that could address the long-run imbalances in the region. Here are the main points from the abstract.

Asian economies are aging fast, with significant implications for their pension system finances. While some countries already have high dependency ratios (Japan), others are expected to experience a sharp increase in the next couple of decades (China, Korea, Singapore). …This has…implications. …pension system deficits can increase very quickly, limiting room for policy action and hampering fiscal sustainability. …This paper explores how incorporating Automatic Adjustment Mechanisms (AAMs)—rules ensuring that certain characteristics of a pension system respond to demographic, macroeconomic and financial developments, in a predetermined fashion and without the need for additional intervention— can be part of pension reforms in Asia.

More succinctly, AAMs are built-in rules that automatically make changes to government pension systems based on various criteria.

Incidentally, we already have AAMs in the United States. Annual Social Security cost of living adjustments (COLAs) and increases in the wage base cap are examples of automatic changes that occur on a regular basis. And such policies exist in many other nations.

But those are AAMs that generally are designed to give more money to beneficiaries. The IMF study is talking about AAMs that are designed to deal with looming shortfalls caused by demographic changes. In other words, AAMs that result in seniors getting lower-than-promised benefits in the future. Here’s how the IMF study describes this development.

More recently, AAMs have come to the forefront to help address financial sustainability concerns of public pension systems. Social insurance pension systems are dominated by defined benefit schemes, pay-as-you-go financed, with liabilities explicitly underwritten by the government. …these systems, under their previous contribution and benefit rules, are unprepared for population aging and need to implement parametric reform or structural reforms in order to reduce the level or growth rate of their unfunded pension liabilities. …Automatic adjustments can theoretically make the reform process politically less painful and more likely to succeed.

Here’s a chart from the study that underscores the need for some sort of reform. It shows the age-dependency ratio on the left and the projected increase in the burden of pension spending on the right.

I’m surprised that the future burden of pension spending in Japan will only be slightly higher than it is today.

And I’m shocked by the awful long-run outlook in Mongolia (the bad numbers for China are New Zealand are also noteworthy, though not as surprising).

To address these grim numbers, the study considers various AAMs that might make government systems fiscally sustainable.

Especially automatic increases in the retirement age based on life expectancy.

One attractive option is to link statutory retirement ages—which seem relatively low in the region—to longevity or other sustainability indicators. This would at the very least help ameliorate the impact of life expectancy improvements in the finances of public pension systems. … While some countries have already raised the retirement age over time (Japan, Korea), pension systems in Asia do not yet feature automatic links between retirement age and life expectancy. …The case studies for Korea and China (section IV) suggest that automatic indexation of retirement age to life expectancy can indeed help reduce the pension system’s financial imbalances.

Here’s a table showing the AAMs that already exist.

Notice that the United States is on this list with an “ex-post trigger” based on “current deficits.”

This is because when the make-believe Trust Fund runs out of IOUs in the 2030s, there’s an automatic reduction in benefits. For what it’s worth, I fully expect future politicians to simply pass a law stating that promised benefits get paid regardless.

It’s also worth noting that Germany and Canada have “ex-ante triggers” for “contribution rates.” I’m assuming that means automatic tax hikes, which is a horrid idea. Heck, even the study acknowledges a problem with that approach.

…raising contribution rates can have important effects on the labor market and growth, it would be important to prioritize other adjustments.

From my perspective, the main – albeit unintended – lesson from the IMF study is that private retirement accounts are the best approach. These defined contribution (DC) systems avoid all the problems associated with pay-as-you-go, tax-and-transfer regimes, generally known as defined benefit (DB) systems.

The larger role played by defined contribution schemes in Asia reduce the scope for using AAMs for financial sustainability purposes. Many Asian economies (Hong Kong, Singapore, Australia, Malaysia and Indonesia) have defined contribution systems, …under which system sustainability is typically inherent.

Here are the types of pension systems in Asia, with Australia and New Zealand added to the mix..

For what it’s worth, I would put Australia in the “defined contribution” grouping. Yes, there is still a government age pension that serves as a safety net, but there also are safety nets in Singapore and Hong Kong as well.

But I’m nitpicking.

Here’s another table from the study showing that it’s much simpler to deal with “DC” systems compared with “DB” systems. About the only reforms that are ever needed revolve around the question of how much private savings should be required.

By the way, even though the information in the IMF study shows the superiority of DC plans, that’s only an implicit message.

To the extent the bureaucracy has an explicit message, it’s mostly about indexing the retirement age to changes in life expectancy.

That’s probably better than doing nothing, but there’s an unaddressed problem with that approach. It forces people to spend more years working and paying into systems, and then leaves them fewer years to collect benefits in retirement.

That idea periodically gets floated in the United States. Here’s some of what I wrote in 2011.

Think of this as the pay-for-a-steak-and-get-a-hamburger plan. Social Security already is a bad deal for workers, forcing them to pay a lot of money in exchange for relatively meager retirement benefits.

I made a related observation about this approach back in 2012.

…it focuses on the government’s finances and overlooks the implications for households. It is possible, at least on paper, to “save” Social Security by cutting benefits and raising taxes. But such “reforms” force people to pay more and get less – even though Social Security already is a very bad deal, particularly for younger workers.

The bottom line is that the implicit message should be explicit. Other nations should copy jurisdictions such as Chile, Australia, and Hong Kong by shifting to personal retirement accounts

P.S. Speaking of which, here’s the case for U.S. reform, as captured by cartoons. And you can enjoy other Social Security cartoons here, here, and here, along with a Social Security joke if you appreciate grim humor.

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Donald Trump’s Budget Blueprint doesn’t thrill me, largely because it’s silent on the very important issues of tax reform and entitlement reform.

All that he’s proposing is to rearrange the allocation of annually appropriated spending (the so-called discretionary outlays).

Here’s a chart from a summary prepared by the Committee for a Responsible Federal Budget. As you can see, the federal Leviathan does not shrink in size.

It’s possible, of course, to applaud this shift from domestic discretionary to defense discretionary. Or to criticize the reallocation. But nobody can pretend the net result is smaller government.

My view, for what it’s worth, is that we should accept all the domestic reductions but not boost the defense budget (the U.S. already has a very large military budget compared to potential adversaries).

And speaking of domestic reductions, the main focus of today’s column is to highlight one of my favorite program terminations in Trump’s plan (yesterday’s example was the National Endowment for the Arts). The President has proposed to eliminate all taxpayer handouts for the Corporation for Public Broadcasting (CPB), which is the entity that subsidizes National Public Radio (NPR) and the Public Broadcasting Service (PBS).

This is music to my ears. As I wrote more than six years ago,

Even if we had a giant budget surplus, federal subsidies for the Corporation for Public Broadcasting would be misguided and improper. In an environment where excessive federal spending is strangling growth and threatening the nation’s solvency, the argument to defund PBS and NPR is even stronger…the fact that PBS and NPR have a statist bias is another argument for getting rid of taxpayer subsidies, but that’s barely a blip on my radar screen. It wouldn’t matter if government TV and radio was genuinely fair and balanced. Taxpayers should not subsidize broadcasting of any kind, period.

This should be a slam-dunk issue for congressional Republicans. Even milquetoast GOPers like Mitt Romney have said it’s time for NPR and PBS to be self-supporting.

But the best analysis, as usual, comes from the Cato Institute. Here are some excerpts from a study written by my colleague Trevor Burrus.

Assailed from all sides with allegations of bias, charges of political influence, and threats to defund their operations, public broadcasters have responded with everything from outright denial to personnel changes, but never have they squarely faced the fundamental problem: government-funded media companies are inherently problematic and impossible to reconcile with either the First Amendment or a government of constitutionally limited powers. The Constitution does not give Congress the power to create media companies, and we should heed the Founders’ wisdom on this matter. …before the Corporation for Public Broadcasting was created, nonprofit, noncommercial media stations enjoyed a vibrant existence, remaining free to criticize current policies and exhibit whatever bias they wished. Yet today…, public broadcasting suffers the main downside of public funding—political influence and control—yet enjoys little of the upside—a significant taxpayer contribution that would relieve it of the need to seek corporate underwriting and listener donations. But the limited taxpayer funding also shows that defunding can be relatively painless. Public broadcasting not only can survive on its own, it can thrive—and be free.

And Cato’s David Boaz adds another important point, which is that government-subsidized broadcasting is another odious example (Export-Import Bank, agriculture subsidies, TARP bailout, etc) of how government coercion is used to provide goodies to upper-income people at the expense of those with more modest levels of income.

Public broadcasting subsidizes the rich. A PBS survey shows that its viewers are 44 percent more likely than the average American to make more than $150,000 a year, 57 percent more likely to own a vacation home, and 177 percent more likely to have investments worth more than $150,000. Why should middle-class taxpayers be subsidizing the news and entertainment of the rich?

By the way, these numbers are more than 10 years old, so more recent data surely would show that an ever greater share of fans are part of an economic elite that easily can afford to privately finance PBS programming.

By the way, there already has been some self-privatization, as John Stossel reports in his Reason column

New York ran a photo of Big Bird, or rather a protester dressed as Big Bird, wearing a sign saying “Keep your mitts off me!” What New York doesn’t say is that the picture is three years old, and Big Bird’s employer, “Sesame Street,” no longer gets government funds. We confronted the article writer, Eric Levitz. He said, “Big Bird has long functioned as a symbol of public broadcasting … Still, considering Sesame Street‘s switch to HBO, I concede that some could have been misled.” You bet. Big Bird doesn’t need government help. Sesame Street is so rich that it paid one of its performers more than $800,000.

Last but not least, here’s a video from Reason that looks at how government-run broadcasting is driven by the interests of the stations rather than consumers.

P.S. Big Bird apparently wasn’t a big fan of Barack Obama, at least according to this bit of satire.

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President Trump has released his budget blueprint. From a big picture perspective, the size of government won’t change. He’s kicking the can down the road on entitlements, which is obviously disappointing for people who can add and subtract. He does cut some domestic programs, but taxpayers won’t reap the benefits since those savings will be spent elsewhere, mostly for a bigger Pentagon budget.

But I’m going to be optimistic today (the glass isn’t 9/10ths empty, it’s 1/10th full). Let’s look at the good parts of his budget.

First, some background. Redistribution is bad public policy since it simultaneously encourages inactivity and dependency among recipients and discourages activity and initiative by taxpayers.

That’s the standard argument against conventional handouts such as welfare, food stamps, Medicaid, EITC, and housing subsidies. The plethora of such programs in Washington is bad news for both taxpayers and poor people.

But there’s another type of redistribution that’s far worse, and that’s when politicians use the coercive power of government to take money from lower-income people in order to provide goodies for upper-income people.

This is why I am so unrelentingly hostile to programs like the Export-Import Bank, agriculture subsidies, so-called disaster relief, green-energy scams like Solyndra, and Fannie Mae/Freddie Mac subsidies.

Indeed, I even developed a “Bleeding Heart Rule” back in 2012 to describe how such giveaways are morally reprehensible.

Now let’s add another program to the list.

The National Endowment of the Arts is a federal program that subsidizes art, with upper-income people reaping the vast majority of the benefits.

That’s the bad news. The good news is that President Trump is proposing to defund this elitist bureaucracy.

Before explaining why the program should be abolished, let’s look at the case for federal involvement. This is how the NEA describes its mission.

The National Endowment for the Arts is an independent federal agency that funds, promotes, and strengthens the creative capacity of our communities by providing all Americans with diverse opportunities for arts participation.

That sounds noble. But are we really supposed to believe that our communities won’t have any creative capacity without some handouts from the federal government to museums and other politically connected organizations that primarily serve rich people?

And for those of us who have this old-fashioned notion that the federal government should be constrained by the Constitution, it’s also worth noting that art subsidies are not one of the enumerated powers in Article 1, Section 8.

Here is the pro-NEA argument from a column in the New York Times.

Sadly, it has become clear that the N.E.A. is, once again, under threat of being abolished… The N.E.A.’s budget is comparatively minuscule — $148 million last year, or 0.004 percent of the total federal budget — while the arts sector it supports employs millions of Americans and generates billions each year in revenue and tax dollars. …the N.E.A., founded in 1965, serves three critical functions: It promotes the arts; it distributes and stimulates funding; and it administers a program that minimizes the costs of insuring arts exhibitions through indemnity agreements backed by the government. …The grants, of course, receive the most attention, if not as much as they deserve. Thousands are distributed in all 50 states, reaching every congressional district, urban and rural, rich and poor. …They support live theater for schools; music, dance and jazz festivals; poetry and literary events; arts programs for war veterans; and, of course, museum exhibitions.

This actually makes my point. The NEA spends $148 million per year, which is just a tiny fraction of what is spent by the private sector.

In other words, we had museums, plays, music festivals, and art programs before the NEA was created and all of those activities will exist if the NEA is abolished.

All that will change is that politicians and bureaucrats won’t be doling out special grants to select institutions and insiders that have figured out how the manipulate the system.

The column also has some absurd hyperbole.

I fear that this current call to abolish the N.E.A. is the beginning of a new assault on artistic activity. Arts and cultural programming challenges, provokes and entertains; it enhances our lives. Eliminating the N.E.A. would in essence eliminate investment by the American government in the curiosity and intelligence of its citizens.

The author actually wants readers to conclude that a failure to subsidize is somehow akin to an assault on artistic creativity. Oh, and don’t forget that our curiosity and intelligence somehow will suffer.

Here’s a story about an interest group that wants to keep the gravy train on the tracks.

The heads of five Boston arts museums are pushing back against feared Trump administration cuts to the National Endowment for the Arts and the National Endowment for the Humanities. The museums’ directors say in an open letter that the agencies…help foster knowledge of the arts, create cultural exchanges, generate jobs and tourism, and educate young people. They say NEA and NEH funding has been instrumental at each of the Boston museums.

My immediate reaction is that there are lots of rich people and well-heeled companies in Boston. Surely NEA handouts can be replaced if these museum directors are remotely competent.

I’ll also take a wild guess that the directors of these five museums earn an average of more than $500,000 per year. Perhaps it’s not right for them to be using tax dollars to be part of the top 1 percent. Heck, trimming their own salaries might be an easy place for them to get some cost savings.

But enough from me. Let’s look at what some others have written about the NEA.  Let’s start with George Will’s assessment.

…attempting to abolish the NEA is a fight worth having, never mind the certain futility of the fight. …Government breeds advocacy groups that lobby it to do what it wants to do anyway — expand what it is doing. The myriad entities with financial interests in preserving the NEA cloyingly call themselves the “arts community,” a clever branding that other grasping factions should emulate… The “arts community” has its pitter-patter down pat. The rhetorical cotton candy — sugary, jargon-clotted arts gush — asserts that the arts nurture “civically valuable dispositions” and a sense of “community and connectedness.” And, of course, “diversity” and “self-esteem.” Americans supposedly suffer from a scarcity of both. …the NEA’s effects are regressive, funding programs that are…“generally enjoyed by people of higher income levels, making them a wealth transfer from poorer to wealthier.” …Americans’ voluntary contributions to arts organizations (“arts/culture/humanities” institutions reaped $17 billion in 2015) dwarf the NEA’s subventions, which would be replaced if those who actually use the organizations — many of them supported by state- and local-government arts councils — are as enthusiastic about them as they claim to be. The idea that the arts will wither away if the NEA goes away is risible.

Now let’s hear from members of the “arts community” who understand that art doesn’t require handouts.

We’ll start with Patrick Courrielche, who wrote in the Wall Street Journal about the need to free the arts from federal dependence.

The NEA, created in 1965, has become politically tainted and ill-equipped to handle today’s challenges. Mr. Trump and Congress should ax it as soon as possible. …For the American arts to flourish—and for art to reach all Americans—artists must be able to make a living from their efforts.

And a theater director from Brooklyn explains in the Federalist why the art world will be better off without the NEA.

…as Trump prepares to spike the ball and end the game by axing the NEA, there is reason to be optimistic that this decision will be very good for the arts in America. …Arts institutions, which receive the bulwark of NEA funding, are failing badly at reaching new audiences, and losing ground. This is a direct result of the perverse market incentives our nonprofit arts system creates… As the artistic director of an unsubsidized theater company in New York City for more than a decade, I had to compete in a closed marketplace, where wealthy gatekeepers and the government rather than ticket sales pay the bills. …The industry receives more free money than it did a decade ago, and has fewer attendees. That is a broken system by any estimation. …Taking away free government money for the arts won’t make art disappear. After all, art is older than government. It will force artists and arts organizations to finally come to terms with their market realities. Audiences are better than experts at deciding what art is good or important. If a piece of art is so good that nobody to wants to pay for it, maybe it isn’t all that good. …In the American tradition, vaudeville, jazz, standup comedy, and many other art forms were created and grew within the free market, free from government assistance. Under this system there was a tremendous appetite for high art among Americans… President Trump is wise to get the government out of the art game, and all of us will be better off for his decision.

Here’s another artist, writing for PJ Media, about the benefits of ending federal handouts.

For over a decade as a theatre artist, my salary was made possible by taxpayers funding the arts. …In hindsight, and after much reflection and a better understanding of economics, I am truly sorry, and ask the taxpayer to forgive my thievery. However, spilled milk can’t be put back into the bottle. That doesn’t mean that we have to keep spilling the milk, though. It’s way past time to defund and shutter the National Endowment for the Arts. … The NEA and their supporters will trot out research about how many dollars are added to local economies due to things like theatres, symphonies, and museums. Of course, as almost every person with at least half a semester of Economics under their belt is screaming, the NEA’s argument embraces the broken window fallacy. The economic stimulus felt and supposedly generated by the arts community comes at the expense of other markets. …The National Endowment for the Arts model artificially props up mostly unwanted markets by using tax dollars that get funneled through inefficient and wasteful bureaucracies. …What it does to the arts is create a marketplace that supports bad art. …Don’t misunderstand, I love art. Like, a lot. And I’m willing to pay for it, as are many other patrons of the arts. If the National Endowment for the Arts were to be defunded and shuttered, it would help clear the deck of bad art that people aren’t willing to pay the real cost for. …art does enhance life, but having your life enhanced at the expense of others is not a right. People don’t have a right to other people’s money just so they can watch a play or visit a museum. …It’s time for the National Endowment for the Art to be defunded and shuttered.

Amen.

Since I started today’s column with optimism, I’ll be balanced and end with pessimism. I very much doubt that Congress will defund the NEA bureaucracy.

In part, this is a classic example of “public choice.” The recipients of the handouts have strong incentives to mobilize and lobby to keep their goodies. Taxpayers, by contrast, mostly will be disengaged because their share of the cost is trivial.

But it gets worse. The NEA also is very clever. A Senator once told me that it was difficult to vote against the bureaucracy because the “arts community” cleverly placed the wives of major donors on local arts councils. That made it difficult to vote against the NEA, though this Senator did say that making this tough vote would be worthwhile. Yes, there would be some short-term grousing by interest groups (and donor wives) if the agency actually was shut down, but that would quickly dissipate as people saw the arts were able to survive and thrive without sucking at the federal teat.

For the sake of the nation, let’s hope most lawmakers think this way.

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The story of the private sector is that competition generates ever-more output in ways that bring ever-higher living standards to ever-greater numbers of people.

By contrast, the story of the government is inefficiency and waste as interest groups figure out how to grab ever-larger amounts of unmerited goodies, often while doing less and less.

In some cases, where government is doing bad things (stealing property, subsidizing big corporations, fleecing poor people, etc), I actually favor inefficiency.

Sadly, the government seems to be most inefficient in areas where we all hope for good results. Education is a powerful (and sad) example.

A story in the LA Weekly is a perfect illustration of this phenomenon.

A little more than a decade ago, something unexpected happened. The district’s enrollment, which peaked in 2004 at just under 750,000, began to drop. …Today, LAUSD’s enrollment is around 514,000, a number that the district estimates will fall below half a million by 2018.

Anyone want to guess whether this means less spending?

Of course not.

L.A. Unified’s costs have not gone down. They’ve gone up. This year’s $7.59 billion budget is half a billion dollars more than last year’s. …Today, the district has more than 60,000 employees, fewer than half of whom are teachers. …LAUSD’s administrative staff had grown 22 percent over the previous five years. Over that same period of time, the number of teachers had dropped by 9 percent.

If these trends continue, maybe we’ll get an example of “peak bureaucracy,” with a giant workforce that does absolutely nothing!

Based on his famous chart, the late Andrew Coulson probably wouldn’t be too surprised by that outcome.

There’s also lots of waste and inefficiency when Uncle Sam gets involved. With great fanfare, President Obama spent buckets of money to supposedly boost government schools. The results were predictably bad.

It was such a failure than even a story in the Washington Post admitted the money was wasted (in other words, there wasn’t enough lipstick to make the pig look attractive).

One of the Obama administration’s signature efforts in education, which pumped billions of federal dollars into overhauling the nation’s worst schools, failed to produce meaningful results, according to a federal analysis. Test scores, graduation rates and college enrollment were no different in schools that received money through the School Improvement Grants program — the largest federal investment ever targeted to failing schools — than in schools that did not. …The School Improvement Grants program…received an enormous boost under Obama. The administration funneled $7 billion into the program between 2010 and 2015… Arne Duncan, Obama’s education secretary from 2009 to 2016, said his aim was to turn around 1,000 schools every year for five years. ..The school turnaround effort, he told The Washington Post days before he left office in 2016, was arguably the administration’s “biggest bet.”

It was a “bet,” but he used our money. And he lost. Or, to be more accurate, taxpayers lost. And children lost.

Some education experts say that the administration closed its eyes to mounting evidence about the program’s problems in its own interim evaluations, which were released in the years after the first big infusion of cash. …Smarick said he had never seen such a huge investment produce zero results. …Results from the School Improvement Grants have shored up previous research showing that pouring money into dysfunctional schools and systems does not work.

Indeed, I’ve seen this movie before. Many times. Bush’s no-bureaucrat-left-behind initiative flopped. Obama’s latest initiative flopped. Common Core also failed. Various schemes at the state level to dump more money into government schools also lead to failure. Local initiative to spend more don’t lead to good results, either.

Gee, it’s almost as if a social scientist (or anybody with a greater-than-room-temperature IQ) could draw a logical conclusion from these repeated failures.

And, to be fair, some folks on the left have begun to wake up. Consider this recent study by Jonathan Rothwell, published by Brookings, which has some very sobering findings.

…the productivity of the education sector depends on the relationship between how much it generates in value—learning, in this case—relative to its costs. Unfortunately, productivity is way down. …This weak performance is even more disturbing given that the U.S. spends more on education, on a per student basis, than almost any other country. So what’s going wrong? …In primary and secondary public education, where price increases have been less dramatic, there has been a decline in bureaucratic efficiency. The number of students for every district-level administrator fell from 519 in 1980 to 365 in 2012. Principals and assistant principals managed 382 students in 1980 but only 294 in 2012.

The conclusion is stark.

Declining education productivity disproportionately harms the poor. …unlike their affluent peers, low-income parents lack the resources to overcome weak quality by home-schooling their children or hiring private tutors. Over the last 30 to 40 years, the United States has invested heavily in education, with little to show for it. The result is a society with more inequality and less economic growth; a high price.

Incidentally, even private money is largely wasted when it goes into government schools. Facebook’s founder famously donated $100 million to Newark’s schools back in 2010.

So how did that work out? As a Washington Post columnist explained, the funds that went to government schools was basically money down the toilet.

It is a story of the earnest young billionaire whose conviction that the key to fixing schools is paying the best teachers well collided with the reality of seniority protections not only written into teacher contracts but also embedded in state law.

But there is a bit of good news. Some of the money helped enable charter schools.

there is a more optimistic way to interpret the Newark experience, much of which has to do with the success of the city’s fast-growing charter schools. …The reasons are obvious. Unencumbered by bureaucracy and legacy labor costs, charters can devote far more resources to students, providing the kind of wraparound services that students like Beyah need. An analysis by Advocates for Children of New Jersey noted “a substantial and persistent achievement gap” between students at charter and traditional public schools: “For example, while 71 percent of charter school students in Newark passed third-grade language arts tests in 2013-14 — higher than the state average of 66 percent — only 41 percent of students in Newark traditional public schools passed those tests.”

The Wall Street Journal also opined about this topic.

‘What happened with the $100 million that Newark’s schools got from Facebook’s Mark Zuckerberg?” asks a recent headline. “Not much” is the short answer. …The Facebook founder negotiated his gift with New Jersey Gov. Chris Christie and then-Mayor Cory Booker in 2010, and it flowed into Newark’s public-school system shortly thereafter. The bulk of the funds supported consultants and the salaries and pensions of teachers and administrators, so the donation only reinforced the bureaucratic and political ills that have long plagued public education in the Garden State.

The editorial explains that this isn’t the first time a wealthy philanthropist squandered money on government schools.

In 1993, philanthropist Walter Annenberg sought to improve education by awarding $500 million to America’s public schools. …But the $1.1 billion in spending that resulted, thanks to matching grants, accomplished little. An assessment by the Consortium on Chicago School Research on the schools that received funds reached a dismal conclusion: “Findings from large-scale survey analyses, longitudinal field research, and student achievement test score analyses reveal that . . . there is little evidence of an overall Annenberg school improvement effect.” The report did not explain why the campaign failed, but the reason is fairly obvious: The funds wound up in the hands of the unions, administrators and political figures who created the problems in the first place.

Fortunately, not all rich people believe in wasting money. Some of them actually want to help kids succeed.

In 1998, John Walton and Ted Forstmann each gave $50 million to fund scholarships for low-income children to attend private schools. More than 140,000 students have attended schools with graduation and college matriculation rates that exceed 90% instead of going to the failing schools in their neighborhoods. Earlier this summer, hedge-fund manager John Paulson pledged $8.5 million to the Success Academy charter-school network, where 93% of students are proficient in math, compared with 35% of their traditional public-school peers. His gift will allow more such schools to open. The financier Stephen Schwarzman and his wife, Christine, a former attorney, donated $40 million to help endow the Inner-City Scholarship Fund, which provides financial aid to needy children attending Catholic schools in the Archdiocese of New York.

Which is a good segue into the real lesson for today about the type of reforms that actually could boost education.

I’ve shared in the past very strong evidence about how school choice delivers better education results.

Which is what everyone should expect since competition is superior to monopoly.

Well, as explained in another Wall street Journal editorial, it also generates superior results at lower cost. Especially when you factor in the long-run benefits.

…a study shows that Milwaukee’s landmark voucher program will save taxpayers hundreds of millions of dollars. …the Wisconsin Institute for Law and Liberty, a nonprofit that advocates for limited government and education reform, decided to look at the relative cost and benefits of choice schools. And, what do you know, it found that students participating in Milwaukee’s voucher program will provide the city, state and students nearly $500 million in economic benefits through 2035 thanks to higher graduation and lower crime rates. …More education translates into higher incomes, more tax revenue and a lower likelihood of reliance on government welfare or other payments. Meanwhile, greater economic opportunity also prevents young adults from turning to crime.

Wow. It’s not just that it costs less to educate children in private schools. There’s also a big long-run payoff from having more productive (and law-abiding) citizens.

That’s a real multiplier effect, unlike the nonsense we get from Keynesian stimulus schemes.

P.S. School choice doesn’t automatically mean every child will be an educational success, but evidence from SwedenChile, and the Netherlands shows good results after breaking up state-run education monopolies.

And there’s growing evidence that it also works in the limited cases where it exists in the United States.

P.P.S. Or we can just stick with the status quo, which involves spending more money, per student, than any other nation while getting dismal results.

P.P.P.S. This is a depressing post, so let’s close with a bit of humor showing the evolution of math lessons in government schools.

P.P.P.P.S. If you want some unintentional humor, the New York Times thinks that education spending has been reduced.

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The United States is going to become another Greece, and it’s largely because of poorly designed entitlement programs. As the old saying goes, demography is destiny.

Let’s look at just one piece of that puzzle. James Capretta of the American Enterprise Institute has a very sobering summary of how Medicaid has metastasized into one of the largest and fastest-growing entitlement programs.

You should read the entire article, but if you’re pressed for time, I’m going to share two grim charts that tell you what you need to know.

First, we have a look at how the burden of Medicaid spending, measured as a share of national output, has increased over time.

What makes this chart particularly depressing is that Medicaid was never supposed to become a massive entitlement program.

It was basically created so the crowd in Washington could buy a few votes. Yet the moment politicians decided that it was the federal government had a role in subsidizing health care for the indigent, it was just a matter of time before the program was expanded to new groups of potential voters.

And every time the program was expanded, that increased the burden of spending and further undermined market forces in the health sector.

This is why entitlement programs are so injurious to a nation.

But Medicaid isn’t just a problem because of its adverse fiscal and economic impact.

The program also is exacerbating the redistribution culture in the United States as more and more people get trapped in the web of dependency.

Which brings us to our second chart from Capretta’s article. Here’s a look at the share of the population being subsidized by Medicaid.

As a fiscal wonk, I realize I should care more about the budget numbers, but I actually find this second graph more depressing. In my lifetime, we’ve gone from a nation where the federal government had no role in the provision of low-income healthcare, and now nearly one out of every five Americans is on the federal teat.

Even though we’re far richer than we were in the mid-1960s when the program was created, which presumably should have meant less supposed need for federal subsidies.

For further background on the issue, here’s a video I narrated for the Center for Freedom and Prosperity.

I urge you to pay close attention to the discussion that starts at 1:48. I explain that programs with both federal and state spending create perverse incentives for even more spending. This is mostly because politicians in either Washington or state capitals can expand eligibility and take full credit for new handouts while only being responsible for a portion of the costs. But it also happens because the federal match gives states big incentives to manipulate the system to get more transfers.

P.S. All of which explains why I think Medicaid reform should be the first priority when looking at how to fix the entitlements mess, even before Medicare reform and Social Security reform.

P.P.S. I’m not overflowing with optimism that Trump will tackle the issue, but there is a feasible scenario for him fixing the program.

P.P.P.S. Regardless, one would hope all politicians would agree that it’s time to tackle rampant Medicaid fraud.

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I don’t have strong views on global warming. Or climate change, or whatever it’s being called today.

But I’ve generally been skeptical about government action for the simple reason that the people making the most noise are statists who would use any excuse to increase the size and power of government. To be blunt, I simply don’t trust them. In Washington, they’re called watermelons – green on the outside (identifying as environmentalists) but red on the inside (pushing a statist agenda).

But there are some sensible people who think some sort of government involvement is necessary and appropriate.

George Schultz and James Baker, two former Secretaries of State, argue for a new carbon tax in a Wall Street Journal column as part of an agenda that also makes changes to regulation and government spending.

…there is mounting evidence of problems with the atmosphere that are growing too compelling to ignore. …The responsible and conservative response should be to take out an insurance policy. Doing so need not rely on heavy-handed, growth-inhibiting government regulations. Instead, a climate solution should be based on a sound economic analysis that embodies the conservative principles of free markets and limited government. We suggest…creating a gradually increasing carbon tax…, returning the tax proceeds to the American people in the form of dividends. And…rolling back government regulations once such a system is in place.

A multi-author column in the New York Times, including Professors Greg Mankiw and Martin Feldstein from Harvard, also puts for the argument for this plan.

On-again-off-again regulation is a poor way to protect the environment. And by creating needless uncertainty for businesses that are planning long-term capital investments, it is also a poor way to promote robust economic growth. By contrast, an ideal climate policy would reduce carbon emissions, limit regulatory intrusion, promote economic growth, help working-class Americans and prove durable when the political winds change. …Our plan is…the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints. …the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments. …regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan.

They perceive this plan as being very popular.

Environmentalists should like the long-overdue commitment to carbon pricing. Growth advocates should embrace the reduced regulation and increased policy certainty, which would encourage long-term investments, especially in clean technologies. Libertarians should applaud a plan premised on getting the incentives right and government out of the way.

I hate to be the skunk at the party, but I’m a libertarian and I’m not applauding. I explain some of my concerns about the general concept in this interview.

In the plus column, there would be a tax cut and a regulatory rollback. In the minus column, there would be a new tax. So two good ideas and one bad idea, right? Sounds like a good deal in theory, even if you can’t trust politicians in the real world.

However, the plan that’s being promoted by Schultz, Baker, Feldstein, Mankiw, etc, doesn’t have two good ideas and one bad idea. They have the good regulatory reduction and the bad carbon tax, but instead of using the revenue to finance a good tax cut such as eliminating the capital gains tax or getting rid of the corporate income tax, they want to create universal handouts.

They want us to believe that this money, starting at $2,000 for a family of four, would be akin to some sort of tax rebate.

That’s utter nonsense, if not outright prevarication. This is a new redistribution program. Sort of like the “basic income” scheme being promoted by some folks.

And it creates a very worrisome dynamic since people will have an incentive to support ever-higher carbon taxes in order to get ever-larger checks from the government. Heck, the plan being pushed explicitly envisions such an outcome.

I’ve made the economic argument against carbon taxes and the cronyism argument against carbon taxes. Now that we have a real-world proposal, we have the practical argument against carbon taxes.

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