Downsizing Blog
Spending Our Way Into More Debt
Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must "spend our way out of this recession."
While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.
- Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”
- More infrastructure spending. This will lead to misallocation of resources since only markets can allocate resources efficiently. Governments allocate capital on the basis of politics instead of economics.
- "Cash for Caulkers." This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf.
- More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.
- More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.
The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve." Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.
Timber Payments and Logrolling
Since 1908, the U.S. Forest Service has paid 25 percent of its gross receipts to the states for spending on roads and schools in the counties where national forests are located. In the Pacific Northwest, receipts started to decline in the late 1980s due to lower timber sales as a result of efforts to protect the spotted owl. In 1993, Congress responded with additional “spotted owl payments” to the affected states. A 2000 law spread these payments to all national forests, but the bulk continued to go to the Pacific Northwest.
When the law was reauthorized last year, members of Congress used it as an opportunity to grab money for their states. According to the Associated Press:
The federal largesse initially focused on a handful of Western states, with Oregon alone receiving nearly $2 billion. Spending of that magnitude, though, sparked a new timber war -- this one among politicians eager to get their hands on some of the logging money. A four-year renewal of the law, passed last year, authorizes an additional $1.6 billion for the program through 2011 and shifts substantial sums to states where the spotted owl never flew. While money initially was based on historic logging levels, now any state with federal forests -- even those with no history of logging -- is eligible for millions in Forest Service dollars. Doling out all that taxpayer money is based less on logging losses than on the powerful reality of political clout.
Of much more important note: New Mexico's two senators served as chairman and ranking Republican on the Senate committee that rewrote the timber payments formula. New Mexico's increase under the new formula was 692 percent… Bingaman defended the changes. ‘Frankly we had to broaden the program in order to get the support to go ahead and do a reauthorization, and that's exactly what we did,’ he said in an interview.
Senate Minority Leader Mitch McConnell, R-Ky., was an early backer of the law and provided political cover for Republicans to support it… Timber harvests in Kentucky's Daniel Boone National Forest have been modest in recent decades -- ranging from $7,600 to $77,000 annually -- but Clay County, Ky., which includes part of the forest, received $338,510 this year from the timber program, a 341 percent increase.
Such reforms would help to address the chaotic nature of current forest management through the federal political process, as illustrated by the spotted owl saga.
Here We Go Again
The survey, conducted through the Census Bureau, found that 25.6 percent of the nation’s households – representing some 60 million adults – are ‘unbanked’ or ‘underbanked’… minorities, particularly African Americans, are disproportionately part of this group. More than half the black households fell into the two categories.
‘Access to an account at a federally insured institution provides households with an important first step toward achieving financial security – the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms,’ FDIC chairman Sheila Bair said in a statement.
