The Ever-Present Direct Government Payment Solution

Yesterday I saw an article that I think capsulizes what has gone wrong with the direction of our country.  The article reported that Senator Elizabeth Warren, that darling of the progressives, wants to send every senior citizen in the country a check for $580.

Why?  These days, I’m not sure that there actually needs to be a reason for a politician to propose a direct government payment to some constituency or another, but the stated reason is that Senator Warren believes the payment is needed because the cost of living for Social Security recipients increased last year.  Social Security benefit payments already are indexed to inflation, of course, but this year the formula that calculates the cost of living indicated there should be no increase.  So why do we need to make a $580 payment?

Photo credit Tim Pierce 

Well, Senator Warren contends that “Congress’s formula is volatile and does a poor job of reflecting what older Americans actually spend.”  She apparently has more perfect insight into the true spending habits of seniors.  She notes that part of the reason why the index didn’t increase this year is that gas prices fell and argues that seniors don’t drive as much as other Americans.  If there’s an empirical basis for that conclusion, I haven’t seen it, and working stiffs who walk to work, or take public transportation, might properly be skeptical of that claim.  But in any case it makes no sense as a policy matter:  in past years, when gas prices have surged, the existing formula has yielded increases to Social Security payments.  So if seniors, in fact, drive less than other Americans, then in prior years they got a windfall when their benefit payments increased to reflect higher gas costs that they weren’t paying.  In short, even if the cost of living formula is improperly weighted as to gas prices given senior spending habits, the advantages and disadvantages even out.

How did Senator Warren come up with the proposal to send Social Security recipients a check for $580, or about 3.9 percent of their current benefits?  According to the article linked above, it’s not by using the alternative inflation calculation Democrats propose for seniors, which would produce a 0.6 percent increase in benefits.  No, according to Senator Warren 3.9 percent represents the average increase of compensation for CEOs last year.  It’s not clear how that 3.9 percent number was calculated and which CEOs were included in any analysis that was done — was it limited to CEOs of America’s largest public companies, for example, or did it include the CEOs or proprietors of every business in the country? — but in any case there is no correlation between “CEO compensation” and Social Security benefit levels.  You might as well determine Social Security payment increases by looking to changes in the salaries of NBA players, or law school professors, or federal bureaucrats, or the presidents of unions.

So why choose CEOs?  Because people like Senator Warren consider them to be the evil greedheads in our society.  They make lots of money and run impersonal corporations — so they must be evil by definition.  Of course, the CEOs of public companies have enormous management responsibilities, their salaries are set by boards of directors whose members can be removed by shareholder vote and paid by the corporations themselves, and they often get sacked if their company is struggling.  But those realities don’t matter.  Senator Warren’s proposal will allow some people to argue that Congress favors CEOs over senior citizens.  And, of course, there are a lot more senior citizens than CEOs.

This is what we’ve come down to:  politicians like Senator Elizabeth Warren will do just about anything to rationalize the government cutting checks to directly pay off a chunk of the population and build her resume as a populist icon.  She’s not alone, of course, which is why we have a federal government that runs jaw-dropping annual deficits of hundreds of billions of dollars despite taking in record levels of tax revenue.

I’m afraid that the system is broken.

In Defense, Recognizing “Fiscal Reality”; In Domestic Spending, Not So Much

Yesterday Defense Secretary Chuck Hagel unveiled plans to reduce the size of the U.S. military. The plans were motivated, Hagel said, by the need to recognize “the reality of the magnitude of our fiscal challenges.”

Hagel’s plan includes cutting the size of active duty forces, changing pay structures, benefits, and housing allowances, eliminating certain weapons programs, and potentially closing military bases. Obviously, the proposals will need to be carefully considered to ensure that we are fair to the women and men who have served so capably in our military, but I have no problem with the concept of reducing the footprint of our military and modifying its focus. The world has changed since our forces were actively fighting in Iraq and Afghanistan; those changes inevitably will affect our defense planning. If bases or weapons programs are no longer needed, they should be ended, and our focus should be concentrated on the weapons programs and forces we truly need to respond to the threats posed by the current, fractured, dangerous world.

I am struck, however, by the difference between our approach to defense spending and our approach to other parts of the federal budget. The “reality of the magnitude of our fiscal challenges” obviously doesn’t exist just with respect to the military budget, it exists with respect to every dollar spent by the federal government. Where is the careful evaluation of whether other federal programs are no longer needed, as the Pentagon apparently has decided with respect to the U-2 spy plane? If we are willing to cut 80,000 active duty personnel from the military rolls — about 15 percent — why should we hesitate to cut a similar percentage from the non-military federal government payroll? If we are willing to close military bases, why shouldn’t we end federal programs, like those that fund advertisements to use your seat belt, that have long since served their purpose? Of course, there has been no such reevaluation of the true need for the morass of seemingly permanent federal programs and federal employees in the non-defense area.

During his campaigns and during his presidency, President Obama has talked a good game about fiscal prudence, but the actual evidence of his commitment to rational federal spending and deficit control has been lacking. Now his Defense Secretary has recognized the “reality of the magnitude of our fiscal challenges” and has used that reality to justify proposed reductions to the arm of the federal government that protects us from peril. If President Obama doesn’t use the “reality of the magnitude of our fiscal challenges” to make similarly significant reductions in domestic spending, he will lose whatever remaining credibility he may possess on budget control issues.

You can’t cut the jobs of soldiers and sailors, but continue to spend like a drunken sailor on every federal program we’ve inherited from the New Deal onward.

A House Divided On President Clinton’s Speech

The Webner House was a house divided last night after President Clinton’s speech to the Democratic National Convention.  It’s been a while since we’ve seen President Clinton giving a speech on the national stage, but he hasn’t changed much.  He still has that crinkly voice, the habit of starting every second sentence with “Now” or “Look” or “This is important,” and the finger-wagging and finger-pointing.  He still exudes a kind of roguish folksiness.

Kish thought President Clinton knocked it out of the park with his vigorous defense of President Obama’s performance and critique of the Republicans.  I thought the speech was too long and too unfocused, flitting from topic to topic on hummingbird’s wings without establishing any kind of theme, and not very convincing besides.

Consider President Clinton’s point on gas costs.  He said we should be grateful that the Obama Administration has issued regulations that will require cars to be twice as fuel-efficient in the future, saying that means we’ll be paying half as much for gas because we’ll be driving cars that need only half as much gas.  The problem with that argument is that the federal government has been issuing fuel-efficiency regulations for years, yet our costs increase because the rising price of gasoline outstrips any fuel-efficiency savings.  Is any American paying less for gas these days than they did, say, in 1994?  And, of course, President Clinton only focused on the cost of gas, and not the cost of the car.  How much will it cost to buy a car that meets the new standards? How many people will be able to afford them, and how many of the cars — like the Chevy Volt — will need to be sold with a government subsidy to even approach the range of affordability?

I also was struck by President Clinton’s point that the big difference between his tenure and now could be summarized in one word:  arithmetic.  He argued that Republican proposals don’t add up.  The use of “arithmetic” is interesting because a popular t-shirt in Republican circles these days is a play on the famous 2008 Obama “hope” poster; it features a silk screen of Paul Ryan with the word “Math.”  Republicans argue that it is President Obama’s budget proposals that violate basic principles of mathematics and are based on phony “savings” and overly optimistic assumptions about economic growth.  Is President Obama well-suited to attack Republican arithmetic when he has presided over a series of years that have produced trillion-dollar deficits, and his own budgets forecast enormous deficits for the foreseeable future?

Finally, President Clinton argued that no President, including Clinton himself, could have fixed the problems President Obama inherited in only four years.  The fundamental premise in that argument, of course, is that President Obama hasn’t repaired the damage in four years.  Even if you accept that conditions when President Obama took office were historically unprecedented, the problem is that President Obama, Vice President Biden, and other members of the Administration confidently predicted that the problems would be fixed and that the economy would be roaring ahead at this point.  Obviously, that hasn’t happened.  Some Americans may pause to wonder why we should reelect someone who hasn’t delivered on his assurances and now is saying that the job was tougher than he led us to believe.

Time to Put Matthew Lesko Out Of Business

If you’ve watched TV at odd hours, you’ve seen Matthew Lesko.  He is the hyped-up guy wearing a suit covered with question marks who hawks books about how to get government money so that you can realize your dream of becoming a French chef.   One of his books is called Free Money For Everybody.  His webpage includes testimonials about how people used the information in his books to finance activities through money they obtain from government agencies.  One testimonial is from a New Jersey folk singer who used Lesko’s information to get federal and state money to fund his performance of historical songs in schools.  Another is from a New York dairy farming family that got $12,000 from a local government to put in a gravel walkway for their cows.

No doubt Lesko is a savvy businessman who has done a good job of identifying governmental programs that hand out cash and making information about those programs available to everyone who will plunk down the money to buy one of his books.  However, the title of his book Free Money For Everybody aptly captures a real problem with modern America.  There really can’t be “free money for everybody,” of course, and the money that is being shelled out for gravel cow paths and historical folk singing is most certainly not “free” — it is being borrowed from governmental creditors, at a price.

One area of this kind of governmental largesse is job-training programs.  Those programs are politically attractive to support, because no one wants to be viewed as opposing efforts to help displaced workers learn new skills.  A recent report, however, has shown that those programs are largely ineffective and are riddled with waste.  At the federal level, there are 47 job- and employment-training programs administered by nine different federal agencies, as well as another 51 federal programs that have some form of job-training focus.  In short, there inevitably is duplication and inefficiency.  The report notes that these programs cost $18 billion annually and are, almost without exception, ineffective in helping unemployed workers find jobs.  Moreover, the report recounts examples of waste, fraud, and mismanagement in how the federal funds are spent.

Both President Obama and House Republicans have said they want to cut spending and make government run more like a business.  One way to do that is to end the notion that there is “free money for everybody” by terminating federal programs that shell out money for purposes and projects that really aren’t essential.  In this era of huge deficits, the time has come to put Matthew Lesko out of business.

A Brief Response

We’ve had some good back-and-forth discussions on the blog lately about political issues, from UJ and some commenters, including my friend Doug.  I like a good, civil discussion as much as the next person; in fact, I wish we had more discussion in this country, not less.  That is why I think the internet and blogs are such terrific developments.  We’d all be better served if more Americans aired their views and respectfully noted their disagreements.

I don’t know where the fellow UJ identified got his information about what Republicans would do if they achieve a majority in Congress.  I certainly don’t support the impeachment of the President and haven’t heard anyone talking about that topic.  I can’t think what he has done that would justify impeachment.  The fact that I (and others) disagree with his approach to the federal budget obviously isn’t an impeachable offense.  I also don’t think anyone is eager to shut down the federal government.  That said, however, I do think there are many people, including Republicans, who think we would be better served by significantly cutting spending and repealing the “health care reform” legislation that was enacted earlier this year.

In my view, the biggest issue we face is our federal debt.  Today the Congressional Budget Office released an interesting and very troubling report about the level of our debt and the likely effects of the debt if we don’t do something about it — now.  I expect that we all agree that something needs to be done about the deficit and the federal debt.  The question is, what?

The CBO report outlines the two obvious options — raise revenues, decrease spending, or some combination of the two.  I have no objection to raising revenue as part of the solution, but I think that personal and corporate income taxes are high enough already.  The top brackets already pay about one-third of their income as federal income taxes; they also pay federal Social Security taxes, state income taxes, property taxes, local income taxes, sales taxes, and other taxes on top of that.  Is it really fair to ask the small business owners and high wage earners to pay even more?

So, how can you raise revenue?  I think user fees are one option; where the federal government provides a service — be it clearing and patrolling inland waterways, operating national parks, insuring bank accounts, or any one of countless other services — it is not unfair to ask the people who benefit specifically from that service to pay for it.  I would be in favor of increasing user fees to better cover the cost of providing those services.  I also think that the federal government needs to do a better job of charging for its assets.  When the rights to use broadband frequencies are sold, for example, let’s make sure that we get the fair market price.  I don’t expect such actions to solve the budget problems, but I do think that every little bit helps.

I think it is obvious that cutting spending is going to have to be the principal means of achieving fiscal discipline.  I previously wrote about the budget for NHTSA and how I thought it could be cut.  It is all a matter of making tough choices in view of our current predicament.  Should the federal government really be funding seat belt awareness and drunk driving prevention programs at this time when spending discipline is so desperately needed?  I’m sure that there are many other small agencies and federal programs that could be cut, too — and that includes programs in the Defense Department.  No federal spending should be off-limits. 

One significant objection I have to the Obama Administration is that it has tried to talk about the need to restrain spending and be more fiscally prudent but has done nothing to pursue that goal.  When I decide how to vote in November, and in 2012, one of the key decision points for me will be to choose the candidate who I think will be most willing to make the hard choices.  I don’t care whether they are Republican, Democrat, or something else — it is time to elect people who will roll up their sleeves and tackle the issue of our government spending.

$50 Billion Here, $50 Billion There . . . .

According to this article in the Washington Post, President Obama is pushing Congress to spend $50 billion in “aid” to state and local governments.  Without the bailout, he says, there will be “massive layoffs of teachers, police and firefighters” and the “still-fragile” economy “recovery” might be hurt.  Congress is resisting this additional gout of government spending.  Indeed, one of the Democratic leaders in the House says there is “spending fatigue” among our elected representatives.  The article suggests that teachers would be the prime beneficiaries of the $50 billion package; earlier President Obama sought $24 billion to help keep 300,000 teachers from being laid off.

How can anyone seriously think that a new $50 billion bailout of states is a good idea?  Unless your reflexive response to every economic challenge is for the federal government to provide bail out funds and add still more to the mounting federal deficit, you have to recognize that providing more money to the states is like plying an alcoholic with more liquor.  The states are having budget problems because their spending habits have been unsustainable.  They need to deal with those problems — as New Jersey’s Governor is trying to do — and not defer the day of reckoning through resort to federal cash.  States must assume responsibility for their own budgets and their own budgetary problems, and if they have to lay off state workers, teachers, and others to do so, then so be it.

Talking about “aid” to the States is silly.  These aren’t foreign countries that need “aid” to deal with poverty, malnutrition, or health issues,  they are rich American states with bloated budgets.  They don’t need aid, they need steadfastness, resolve, and a good dose of belt-tightening.

Pruning Spending In The Garden State

Here’s an interesting report from New Jersey, where a newly elected governor is trying to tackle some of the nation’s worst state budget problems.  The governor, Republican Chris Christie, has concluded that new taxes are not the answer — and no wonder, because the article reports that taxes in New Jersey are the highest in the nation after being raised repeatedly in the recent years. So, the governor is proposing substantial spending cuts, including cuts in the public payroll.  Teachers unions predictably are balking.

We’ll find out the outcome of this budget contest soon, because in New Jersey a new budget has to be approved by June 30.