When Mr. Obama talks about reducing the deficit, it's almost comical. The changes he proposes are so minuscule in terms of their effect on the budget that it's as if he is saying he can throw a rock to the moon. This country's deficit is spectacularly beyond his control. Only really painful surgery -- drastic, draconian cuts in Social Security and in Medicare, and wildly higher taxes on upper income people -- will come even close to fixing the problem.
Step back for a minute from the day to day policy fights and consider how an economy can grow faster. One way is to get people to work harder or longer. The government can contribute here with policies that reward work and investment, such as lower taxes.
A second route to faster growth is innovation, which means inventions or new processes that increase productivity. Government can help with money for basic research, but private investment, human ingenuity and luck are the main drivers.
The third way is through the more efficient use of capital, both human and monetary. These resources are scarce in any economy, and growth will be fastest if they are allowed to find their highest return. If resources are allocated to less productive uses or create asset bubbles due to bad policy, then overall growth will be slower than it should be.
In our view, this third point has been the largest but least appreciated problem in the U.S. economy in recent years. First the Federal Reserve's subsidy for credit and other policies pushed resources into the financial industry, and especially into real estate. When that bubble burst, triggering the 2008 financial panic and recession, the U.S. responded over two years with a huge expansion of the federal government.
So is this just a public relations gambit designed to win back independents and assuage business concerns to ensure money and votes in 2012?
Of course it is. The real question is will there be any follow-through?
A careful reading of Obama's words suggests he's still stuck in a central-planning mindset. Obama introduces each new appointee as someone who knows how to "grow the economy" and create jobs. The president has been pressing his economic team to come up with job-creating ideas "that excite me," according to Peter Baker's cover story in the New York Times Magazine on Sunday.
Obama doesn't need any more advisers to tell him the U.S.'s 35 percent corporate tax rate, among the highest in the world, puts the nation at a competitive disadvantage. Or that taxing overseas profits when they're repatriated to the U.S. doesn't encourage businesses to bring that money home and invest here.
Bureaucratic Suicide
On the regulatory front, Obama's intention to submit all federal rules and regulations to a cost-benefit analysis sounds nice, but what bureaucrat has ever declared himself redundant and written himself out of a job?
It reminds me of a joke about the tourist who goes to visit the Agriculture Department. As he's walking down a long, empty hallway, he hears the sound of crying coming from an office. The tourist peaks his head in and asks the employee, sobbing at his desk, "What's the matter?"
"My farmer died," the employee replied.
In the 1700s, the U.S. was an agrarian nation with 90 percent of workers engaged in farming, according to Veronique de Rugy, senior research fellow at George Mason University's Mercatus Center in Arlington, Virginia. Today the U.S. economy has highly productive agribusinesses employing less than 2 percent of all (legal) workers. Yet "the federal government continues to subsidize agriculture," de Rugy said. "Spending for the Department of Agriculture in real terms went from $95 billion in 2000 to $142 billion in 2010."
The Republican "Pledge to America" promised to cut "at least $100 billion in the first year alone," notwithstanding "exceptions for seniors, veterans and our troops." This was never a serious proposal, given that defense, entitlements and other mandatory spending consume about four-fifths of the budget. But it was a nice round number that sounded good.
Apparently it was music to the ears of some of the small-government Republicans -- perhaps they should be called no-government Republicans -- in the House majority, because they are pressing the leadership to make good on this reckless promise. According to The Washington Post, affected agencies would suffer a 30 percent cut in funding over the next seven months.
Do Americans really want the effectiveness of, say, food safety inspection to be eroded by 30 percent? What about air traffic control? I didn't think so.
As to this last, who can believe food safety is insignificant enough to allow the government to run it? I for one think food safety is VERY IMPORTANT, far too important for a bunch of government buffoons to be in charge of it.
No comments:
Post a Comment