The Heritage Insider: Disconnect on defense, federal spending is rising, Keynesianism is alive at CBO, and more

Updated daily, InsiderOnline (insideronline.org) is a compilation of publication abstracts, how-to essays, events, news, and analysis from around the conservative movement. The current edition of The INSIDER quarterly magazine is also on the site.

March 21, 2015

Latest Studies
56 new items, including a Washington Policy Center report debunking the myths of cap-and-trade supporters, and a Capital Research Center report on Left-wing nonprofits supporting Operation Choke Point

Notes on the Week
Disconnect on defense, federal spending is rising, Keynesianism is alive at CBO, and more

To Do
Learn how to be part of the conservative solution

Latest Studies

Budget & Taxation
• Do Minnesotans Move to Escape the Estate Tax? – Center of the American Experiment
• 2015 Federal Budget in Pictures – The Heritage Foundation
• Florida’s Public Sector Labor Unions – James Madison Institute
• Hidden and In Plain Sight: Florida Local Governments and Retirement Benefits – James Madison Institute
• Reforming the Florida Retirement System – James Madison Institute
• Masspensions.com Update on Public Retirement Systems – Pioneer Institute for Public Policy Research
• Analysis of the California Public Employees’ Pension Reform Act of 2013 – Reason Foundation
• Reverse Robin Hoods: Public Worker Pensions Rob the Young and Poor to Pay the Old and Rich – Reason Foundation
• The Good, The Bad and The Ugly of the Rubio-Lee Tax Reform Proposal – Reason Foundation
• Estate and Inheritance Taxes Around the World – Tax Foundation
• HB 2150, To Reform the Business and Occupation Tax to Promote Fairness and Administrative Simplicity – Washington Policy Center
• Proposed Capital Gains Tax Is Likely an Unconstitutional Income Tax and Would Be an Unreliable Revenue Source – Washington Policy Center

Crime, Justice & the Law
• Race Baiting and Ferguson – Hoover Institution
• No Place for a Child: Children in the Adult Criminal Justice System – James Madison Institute
• Poverty and Progress in New York III: Crime and Welfare Enrollment One Year Into the De Blasio Administration – Manhattan Institute
• Clay v. United States: When Executives Receive Jail Time for Ordinary Business Decisions – Washington Legal Foundation

Economic and Political Thought
• Are We Becoming Morally Smarter? The Connection Between Increasing IQs, Decreasing Violence, and Economic Liberalism – Reason Foundation

Economic Growth
• Is Slow Growth the New Normal for Canada? – Fraser Institute
• Building an Opportunity Economy: The State of Small Business and Entrepreneurship – The Heritage Foundation
• The EU Jobs Myth – Institute of Economic Affairs
• The Price Effects of Intra-Brand Competition in the Automobile Industry: An Economic Analysis – Phoenix Center for Advanced Legal and Economic Public Policy Studies

Education
• D.C. Students Benefit from Mix of Charter and Traditional Schools – Education Next
• The New Orleans Case for All-Charter School Districts – Education Next
• Report Card on Alberta’s Elementary Schools 2015 – Fraser Institute

Elections, Transparency, & Accountability
• Improving the Effectiveness and Efficiency of Texas Government – Texas Public Policy Foundation

Family, Culture & Community
• How Can Schools Address America’s Marriage Crisis? – Education Next

Foreign Policy/International Affairs
• Jordanian Salafism and the Jihad in Syria – Hudson Institute
• Ukraine Deal Could Buy U.S. Time to Formulate Effective Russia Policy – Hudson Institute
• An Illusory Opening to Cuba: Why Florida Shouldn’t Walk Through the Breach – James Madison Institute

Health Care
• Not Just a Birth Certificate: How States Use Birth Certificates to Collect Data, Conduct Research and Warehouse Electronic Health Information – Citizens’ Council for Health Freedom
• Leaving Canada for Medical Care, 2015 – Fraser Institute
• Medicaid Expansion: A Lesson in Unreliability – James Madison Institute

Immigration
• Countering Executive Amnesty, Part 1: The President’s Nullification of Immigration Law – Center for Immigration Studies
• The Declining Fertility of Immigrants and Natives – Center for Immigration Studies
• Visa Waiver Program Improves Security – The Heritage Foundation

Labor
• The NLRB Targets the American Dream: Unions Seek to Erase the Distinction Between Mom-and-Pop Businesses and Giant Corporations – Capital Research Center
• Purchasing Power and the Right to Work – Rio Grande Foundation
• Paid Leave Would Cost Non-Union Employers Over $1.5 Billion Annually – Washington Policy Center

Monetary Policy/Financial Regulation
• No Shame on the Left: Herb and Marion Sandler Have Concealed Their Role in the Housing Crisis with Large Gifts to Left-Wing Causes – Capital Research Center
• Operation Choke Point: Multiple Federal Bureaucracies Harass Legitimate Businesses in Order to Please the Left – Capital Research Center
• Financial Market Utilities: One More Dangerous Concept in Dodd-Frank – The Heritage Foundation

National Security
• 10 Objectives for the FY 2016 National Defense Authorization Act – The Heritage Foundation

Natural Resources, Energy, Environment, & Science
• Administration Policy Closes Majority of Public Lands to Energy Exploration – American Action Forum
• Obama’s Climate Trick – Capital Research Center
• The War on Wildlife Trade – PERC – The Property and Environment Research Center
• Five Myths of Cap-and-Trade – Washington Policy Center

Philanthropy
• La Raza’s Growing Influence – Capital Research Center
• The Sunlight Foundation: Another Left-Wing Pressure Group With Dubious Claims to Nonpartisanship – Capital Research Center

Regulation & Deregulation
• Property Insurance Reform: Let’s Leverage Our Good Fortune – James Madison Institute
• A Warning Letter on FDA’s Expansive Interpretation of Its Facilities-Inspection Authority – Washington Legal Foundation

The Constitution/Civil Liberties
• The Heritage Guide to the Constitution, Second Edition: What Has Changed Over the Past Decade, and What Lies Ahead? – The Heritage Foundation

Transportation/Infrastructure
• Review of the Purple Line – Maryland Public Policy Institute
• The Economics of Land-Use Regulations – PERC – The Property and Environment Research Center
• Wrong Track: Reprioritizing our Transportation Needs – Yankee Institute for Public Policy

Welfare
• Rebuilding the Ladder to Self-Sufficiency: Workfare and Welfare Reform – Pioneer Institute for Public Policy Research

 

 

Notes on the Week

Disconnect on defense: Republicans want the President to do more to confront foreign threats, but they don’t seem willing to provide the means, observes Robert Kagan: 

Congress is debating the federal budget, and part of that debate concerns defense spending. Until recently, the Republican leadership in both houses favored maintaining “sequester” spending levels, which would force further sharp cuts to an already ravaged defense budget. A House Budget Committee proposal this week sought to use increases in emergency contingency funding to smooth this over, but the hard spending caps would remain in place this year and in future years. At those budget levels, as successive secretaries of defense and service chiefs have warned, the United States’ ability to defend its interests would be gravely in doubt.

Meanwhile Obama, whom Republicans like to castigate as weak, is actually proposing an increase in the defense budget, to $561 billion — or $38 billion above the sequester caps. In a statement to the Senate Armed Service Committee this month, Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff, said the president’s request is “what we need to remain . . . at the bottom edge of manageable risk to our national defense. . . . [T]here is no slack. There is no margin left for error, nor for a response to strategic surprise.” In other words, the president’s request is itself inadequate, but it’s still higher than what Republicans propose. Apparently, Republican congressional leaders are willing to have the U.S. armed forces operate below what our top man in uniform calls “the bottom edge of manageable risk to our national defense.” [Washington Post, March 19]

And as Romina Boccia and Paul Winfree explain, using the Overseas Contingency Operations fund to evade budget caps does not inspire confidence that lawmakers are really committed to funding the defense we need:

The fiscal year 2016 budget will allow for $90 billion in the Overseas Contingency Operations (OCO) fund for defense, an increase of 40 percent from last year. Exploiting the Overseas Contingency Operations loophole to get around the Budget Control Act’s spending cap avoids the politically difficult but very important choices to prioritize defense spending responsibly.

The budget should fund defense spending at the appropriate level based on America’s national security strategy and military capability requirements in the base budget and offset the spending increase for defense with smart cuts in domestic discretionary spending and structural reforms to entitlement programs. While the House budget follows this approach over the decade by increasing defense spending and phasing out Overseas Contingency Operations by 2022 with offsetting savings in domestic spending, fiscal year 2016 will have the greatest impact on budget policy—and here the budget falls short. [Daily Signal, March 17]

Stating that last point more directly: There is no such thing as a 10-year budget. A budget plan that says future Congresses will end the fiscal gimmick of the OCO is a budget plan that continues the OCO.

 

Federal spending is rising. Under current policies, federal spending per household will continue rising and reach $34,632 by 2023. 

For more charts on government finances, see The Heritage Foundation’s new compendium, 2015 Federal Budget in Pictures.

A reminder from Milton Friedman:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income. [Fox News Interview with Friedman in 2004, as quoted in “Friedman’s Four Ways,” by Ron Ross, American Spectator, October 5, 2011]

 

Keynesianism is alive at the Congressional Budget Office. While the broad outlines of the Republican budget plans—eliminating the deficit by 2024 while bringing federal spending down to about 18 percent of GDP—suggest a return to slightly more responsible budgeting, the plans don’t contain a lot of detail yet. There is one detail, however, that is bothersome, as Dan Mitchell explains: 

[T]he House and Senate proposals both indirectly embrace very bad economic analysis by the Congressional Budget Office.

Here’s some language that was included with the House plan (the Senate proposal has similar verbiage).

CBO’s analysis…estimates that reducing budget deficits, thereby bending the curve on debt levels, would be a net positive for economic growth. …The analysis concludes that deficit reduction creates long-term economic benefits because it increases the pool of national savings and boosts investment, thereby raising economic growth and job creation.

But here’s the giant problem. The CBO would say – and has said – the same thing about budget plans with giant tax increases.

To elaborate, CBO has a very bizarre view of how fiscal policy impacts the economy. The bureaucrats think that deficits are very important for long-run economic performance, while also believing that the overall burden of government spending and the punitive structure of the tax code are relatively unimportant.

And this leads them to make bizarre claims about tax increases being good for growth.

Moreover, the bureaucrats not only think deficits are the dominant driver of long-run growth, they also use Keynesian analysis when measuring the impact of fiscal policy on short-run growth. Just in case you think I’m exaggerating, or somehow mischaracterizing CBO’s position, check out page 12 of the Senate GOP plan and page 37 of the House GOP plan. You’ll see the “macroeconomic” effects of the plans cause higher deficits in 2016 and 2017, based on the silly theory that lower levels of government spending will harm short-run growth.

So hopefully you can understand why GOPers, for the sake of intellectual credibility, should not be citing bad analysis from the CBO.

But even more important, they should stop CBO from producing bad analysis is the future. The Republicans did recently replace a Democrat-appointed CBO Director, so it will be interesting to see whether their new appointee has a better understanding of how fiscal policy works. [International Liberty, March 19]

 

Cities continue to pour public money into sports stadiums. If they’re such good investments, why do they need public money? 

 

The Obama administration is not, as advertised, the most transparent administration ever. “The Obama administration,” writes the Associated Press’s Ted Bridis, “set a record again for censoring government files or outright denying access to them last year under the U.S. Freedom of Information Act.” [Philly.com, March 18] 

Marlo Lewis highlights some findings from the AP’s analysis:

• The government took longer to turn over files when it provided any, said more regularly that it couldn’t find documents and refused a record number of times to turn over files quickly that might be especially newsworthy.

• It also acknowledged in nearly 1 in 3 cases that its initial decisions to withhold or censor records were improper under the law – but only when it was challenged.

• Its backlog of unanswered requests at year’s end grew remarkably by 55 percent to more than 200,000. It also cut by 375, or about 9 percent, the number of full-time employees across government paid to look for records. That was the fewest number of employees working on the issue in five years. [GlobalWarming.org, March 18]

 

Change the players or change the rules? The reality that legislators are often rewarded and rarely punished politically for supporting federal spending programs has led many observers to assert there is a pro-spending bias in the making of federal budget policy. Peter Boettke put the problem this way: 

The bias in democratic decision making is to concentrate benefits in the short run on the well-informed and organized interest groups, and to disperse the costs in the long run on the unorganized and ill informed. In this way, good politics is not necessarily good economics.” [“Why Does Government Overspend: Because It Has Too Much Power,” by Peter Boettke, The Insider, Summer 2013]

The political incentives to spend are so powerful that would be reformers are often corrupted, too, as the recently departed Stan Evans observed: “The trouble with conservatives is that too many of them come to Washington thinking they are going to drain the swamp, only to discover that Washington makes a great hot tub.”

Is there a more reliable solution than electing new candidates promising to do the right thing? New research by the International Monetary Fund supports the contention that changing the rules governing the making of fiscal policy is the key to getting less profligate government. Specifically, the researchers found that countries with expenditure limitation rules written into law spend less than countries without such limits. IMF researchers looked at 33 national expenditure rules between 1985 and 2013. They found “that the introduction of expenditure rules is indeed followed by smaller governments both in advanced and emerging countries.” They also found that governments with expenditure limitation rules tend to do a better job of prioritizing the most valuable public investments.

The IMF found that rules setting out expenditure caps are more likely to be followed than rules aimed at limiting deficits:

Countries have complied with expenditure rules for more than two-third of the time. […] [E]xpenditure rules have a better compliance record than budget balance and debt rules. […] The higher compliance rate with expenditure rules is consistent with the fact that these rules are easy to monitor and that they immediately map into an enforceable mechanism—the annual budget itself. Besides, expenditure rules are most directly connected to instruments that the policymakers effectively control. By contrast, the budget balance, and even more so public debt, is more exposed to shocks, both positive and negative, out of the government’s control.

One of the desirable features of expenditure rules compared to other rules is that they are not only binding in bad but also in good economic times. The compliance rate in good economic times, defined as years with a negative change in the output gap, is at 72 percent almost the same as in bad economic times at 68 percent. [Internal citations omitted.]

The researchers also observe that the design of the rules matter: They found countries are more likely to adhere to spending caps expressed in nominal figures than caps expressed as percentages of GDP or calculated in reference to inflation:

The government controls these nominal expenditures directly. In contrast, the government does not have full control over expenditure targets if these are defined in relationship to GDP or inflation. […] Nominal expenditure growth rules compared to GDP and real expenditure growth rules have a poor performance record for two reasons. First, the government can aim to comply with the rule, but fail due to unexpected economic shocks. […]

Second, the government has a lower incentive to comply with rules specified in relation to other macroeconomic factors because independent institutions, legislators or the general public cannot hold the government directly accountable for non-compliance. In several countries, the rule was so vaguely specified that even independent institutions had problems to check compliance. [“Expenditure Rules: Effective Tools for Sound Fiscal Policy?” by Till Cordes, Tidiane Kinda, Priscilla Muthoora, and Anke Weber,” International Monetary Fund, February 2015; h/t Dan Mitchell at International Liberty, March 16]

 

A few more cheers for M. Stanton Evans, journalist, teacher, and truth teller: 

(DVDs of this event are available free of charge. To order one, please email speaker@heritage.org and supply the appropriate mailing address information.)

Some links to some good reads on Evans from the past two weeks:

• “M. Stanton Evans, RIP,” by Steven Hayward, Powerline, March 3;
• “Remembering the Unique Conservative Voice of M. Stanton Evans,” by Lee Edwards, Daily Signal, March 3;
• “Stan Evans, Scholar-Comedian of the Conservative Movement, Passes at 80,” by Daniel J. Flynn, Breitbart, March 3;
• “M. Stanton Evans, Who Helped Shape Conservative Movement, Is Dead at 80,” by Adam Clymer, New York Times, March 3;
• “With Stan Evans’ Passing, the Nation Loses a Conservative Pioneer,” Investor’s Business Daily, March 3;
• “M. Stanton Evans, Conservative Icon, Dead at 80,” by Ralph Z. Hallow, Washington Times, March 3;
• “How the Late Stan Evans Changed the World,” by Craig Shirley, Breitbart, March 3;
• “M. Stanton Evans: The Conservative Movement’s Hilarious Happy Warrior,” by John O’Sullivan, National Review, March 4;
• “The Great, Amazing, Incomparable Stan Evans Is Dead,” by Ann Coulter, Townhall, March 4;
• “M. Stanton Evans Led a Revolution,” by Wayne Laugesen, Colorado Springs Gazette, March 5;
• “Stan Evans: Right from the Beginning,” by David Franke, March 5;
• “A Tribute to Stan Evans,” by Becky Norton Dunlop, Washington Times, March 5;
• “Stan Evans, RIP,” by Michael S. Greve, Library of Law and Liberty, March 8;
• “M. Stanton Evans, R.I.P.,” by Roger Pilon, Cato Institute, March 9;
• “Losing a Friend, Gaining an Inspiration,” by Malcolm A. Kline, Accuracy in Academia, March 10;
• “Funeral Homily for Stan Evans,” Vince Rigdon, American Spectator, March 18.

Some links to a few of Evans’s public talks:

• Accepting the Media Research Center’s 2006 “I’m Not a Political Genius but I Play One on TV” Award on behalf of Rosie O’Donnell, March 30, 2006;
• Accepting the American Spectator’s Barbara Olson Award, November 1, 2011;
• Comparing Watergate to the recent scandals at the Internal Revenue Service, at Hillsdale College’s Kirby Center in August 8, 2013

If you haven’t already, you should take some time to read Evans’s books The Theme Is Freedom and Blacklisted by History: The Untold Story of Joe McCarthy and His Fight against America’s Enemies. He wrote many others, but those two especially are must reads. We’ll close this post with this quote from The Theme Is Freedom:

No human being can be treated as divine, or above the law, or entitled to make his will the rule of society’s existence. Nor can the people over whom the rulers wield their power be treated as a herd of atomistic beings, animals, or objects; they are persons created in God’s image, possessed of dignity and reason, and capable of living out their earthly lives in a regime of liberty. Such was the foundation of our political culture, and the provenance of our freedom.

 

To Do: Learn How to Be Part of the Conservative Solution

• Learn how to advance conservative ideas in your community. The Civitas Institute’s 2015 Conservative Leadership Conference will be held March 27 - 28 at the Embassy Suites Raleigh-Durham-RTP in Cary, North Carolina. Carly Fiorina, Jim DeMint, Bob Woodson, and Ann McElhinney are just some of the scheduled speakers.

• Find out just how good the government is at backing losers. The Acton Institute will host Burton Folsom talking about his book, Uncle Sam Can’t Count: A History of Failed Government Investment, from Beaver Pelts to Green Energy. Folsom’s talk will begin at 11:30 a.m. on March 25 at the Acton Institute in Grand Rapids, Michigan.

• Learn whether expanding Medicaid would be good for North Carolina’s economy. J. Scott Moody of State Budget Solutions will give an assessment of how Medicaid under ObamaCare would affect North Carolina. Moody’s talk will begin at noon on March 23 at the John Locke Foundation in Raleigh, North Carolina.

• Assess ObamaCare at year five. At noon on March 23, The Heritage Foundation will host a panel discussion on the fiscal impact of ObamaCare.

• Discover what can be done to end poverty. The Cato Institute will host a half-day conference assessing the war on poverty and whether there are better alternatives to the welfare state. The conference will begin at 8:30 a.m. on March 26, and will be held at the Roone Arledge Auditorium at Columbia University in New York City.

• Learn how Ronald Coase changed economics. The Center for International Private Enterprise will host a two-day conference examining Coase’s work and his influence on economic research today. The conference will begin at 8:45 a.m. on March 27 at the U.S. Chamber of Commerce in Washington, D.C.

 

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