WASTE, FRAUD, AND FEDERALISM by Dan Mitchell


Waste, Fraud, and Federalism

Today we’re going to mix two things that seem disconnected.

Our first topic is federalism, which is the sensible principle that deciding things at the local level, or even state level, is better than being ruled by faraway politicians and a big, centralized bureaucracy.

You can still get awful policies from local politicians and state politicians, of course, but at least it is easier to monitor their actions, remove them from power, or move away if necessary.

A big reason I’m a fan of federalism because it creates competition among governments. For instance, I cheer when businesses, investors, and entrepreneurs escape from high-tax states like California and New York and move to zero-income tax states such as Florida and Texas.

When programs are centralized in Washington, by contrast, you simply add another layer of bureaucracy and expense.

But it’s not just a money issue. When Washington is in charge, you get a one-size-fits-all approach. That means there’s no room for innovation and diversity, which makes it much less likely that policy makers can learn what works and what doesn’t work.

Our second topic involves a story about record-setting levels of waste in California.

In a column published by Reason, Steven Greenhut describes how the unemployment insurance program in the Golden State has experienced jaw-dropping levels of fraud.

This is one of the most infuriating scandals ever to plague our state. The department, which is responsible for paying out unemployment insurance claims, has been incapable of paying legitimate claims even as it has paid as much as $31 billion in fraudulent ones, often to inmates.…Here’s a desk-pounder from CBS Los Angeles: “A Fresno girl who just celebrated her first birthday is collecting $167 per week in unemployment benefits after a claim was filed on her behalf stating that she was an unemployed actor.” The Southern California News Group reported last month that one man “is suspected of using the identities of 23 inmates and others to obtain more than $3 million in state unemployment benefits.” Approximately 10 percent of the paid claims have been fraudulent, with another 17 percent under suspicion. This will be “the largest fraud investigation in the history of America,” according to one expert.

I suspect that we’ll discover that most of the suspicious payments also were fraudulent, which means one-fourth of the money went to crooks.

Meanwhile, the same bureaucrats who blindly sent out checks to the wrong people also managed to ignore inquiries from the right people.

The department’s call center only answered 1 percent of calls that Californians had made to check on their claim status.

Amazingly, the Biden Administration has decided that the person in charge of all this waste and fraud should be rewarded.

Julie Su, the state labor secretary who was responsible for the department, may receive a big promotion…to serve as President Joe Biden’s pick for deputy secretary of the federal department of labor.

I fully agree with Mr. Greenhut’s concluding observation.

Welcome to…government, where no good deed goes unpunished and no level of incompetence goes unrewarded.

At this point, you may be wondering about the connection between our two topics.

To show how they are related, I’ll ask this rhetorical question: Why aren’t people in California upset about losing at least $31 billion to fraud, especially since the entire state budget is about $134 billion?

The answer is that they’re not wasting their own money!

The vast majority of the pandemic-related unemployment funds were provided by Washington, most notably (1) extended benefits under existing UI, (2) pandemic expansion of UI to cover people not normally eligible for UI, and (3) bonus payments.

So we shouldn’t be surprised that California bureaucrats didn’t care how much of the money was lost to fraud. As Milton Friedman wisely pointed out, there’s no incentive to be responsible when spending other people’s money on other people.

Now I’ll ask another rhetorical question: What would have happened if California was in charge of not only spending the money, but also was in charge of raising the money?

I’m sure there would have been plenty of waste and fraud, but even profligate California officials would have figured out it wasn’t a good idea to squander $31 billion of their own money.

After all, consider the case of Vermont, which quickly retreated from a proposal for single-payer health care once they realized the implications if they paid for it themselves.

The bottom line is you get better outcomes when there’s genuine decentralization. Simply stated, politicians have to be at least semi-responsible when they have to raise the money that they spend. It’s called accountability.

Which is why even the left-leaning OECD and left-leaning IMFhave produced research confirming superior results with real federalism.

P.S. Switzerland is a great example of genuine federalism, whereas our system in the United States has been substantially eroded.

P.P.S. Big chunks of the federal budget should be wiped out and transferred back to state and local governments, including redistributionhealth caretransportation, and education.

FEDERALISM!!!P.P.P.S. To see what Hayek and Mises wrote about federalism, click here.

Stimulus II: A Sequel America Can’t Afford

Milton Friedman – Stimulus and Inflation

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Daniel J. Mitchell on Obama’s Economic Stimulus Plan

Dan Mitchell discusses Ineffectiveness of Stimulus Spending

April 15, 2021

Office of Barack and Michelle Obama
P.O. Box 91000
Washington, DC 20066

Dear President Obama,

I wrote you over 700 letters while you were President and I mailed them to the White House and also published them on my blog http://www.thedailyhatch.org .I received several letters back from your staff and I wanted to thank you for those letters. 

There are several issues raised in your book that I would like to discuss with you such as the minimum wage law, the liberal press, the cause of 2007 financial meltdown, and especially your pro-choice (what I call pro-abortion) view which I strongly object to on both religious and scientific grounds, Two of the most impressive things in your book were your dedication to both the National Prayer Breakfast (which spoke at 8 times and your many visits to the sides of wounded warriors!!

I have been reading your autobiography A PROMISED LAND and I have been enjoying it. 

Let me make a few comments on it, and here is the first quote of yours I want to comment on:

Page 244

We proposed that nearly $800 billion be divided into three buckets of roughly equal size. In bucket one, emergency payments like supplementary unemployment insurance and direct aid to states to slow further mass layoffs of teachers, police officers, and other public workers. In bucket two, tax cuts targeted at the middle class, as well as various business tax breaks that gave companies a big incentive to invest in new plants or equipment now instead of later. Both the emergency payments and the tax cuts had the advantage of being easy to administer; we could quickly get money out the door and into the pockets of consumers and businesses. Tax cuts also had the added benefit of potentially attracting Republican support.
     The third bucket, on the other hand, contained initiatives that were harder to design and would take longer to implement but might have a bigger long-term impact: not just traditional infrastructure spending like road construction and sewer repair but also high-speed rail, solar and wind power installation, broadband lines for underserved rural areas, and incentives for states to reform their education systems—all intended not only to put people to work but to make America more competitive.
     Considering how many unmet needs there were in communities all across the country, I was surprised by how much work it took for our team to find worthy projects of sufficient scale for the Recovery Act to fund. Some promising ideas we rejected because they would take too long to stand up or required a huge new bureaucracy to manage. Others missed the cut because they wouldn’t boost demand sufficiently. Mindful of accusations that I planned to use the economic crisis as an excuse for an orgy of wasteful liberal boondoggles (and because I in fact wanted to prevent Congress from engaging in wasteful boondoggles, liberal or otherwise), we put in place a series of good-government safeguards: a competitive application process for state and local governments seeking funding; strict audit and reporting requirements; and, in a move we knew would draw howls from Capitol Hill, a firm policy of no “earmarks”—to use the innocuous name for a time-honored practice in which members of Congress insert various pet projects (many dubious) into must-pass legislatio
n.

PAGE 257

I stepped up to speak. It was my first time at a House Republicans gathering, and it was hard not to be struck by the room’s uniformity: row after row of mostly middle-aged white men, with a dozen or so women and maybe two or three Hispanics and Asians. Most sat stone-faced as I briefly made the case for stimulus—citing the latest data on the economy’s meltdown, the need for quick action, the fact that our package contained tax cuts Republicans had long promoted, and our commitment to long-term deficit reduction once the crisis had passed. The audience did perk up when I opened the floor for a series of questions (or, more accurately, talking points pretending to be questions), all of which I cheerfully responded to as if my answers mattered.

I think running up the deficit is not constructive and justifying it by trumping to stimulate the economy is foolhardy!!!


Keynesian Economics in a Cartoon

I’ve written extensively about the flaws of Keynesian economics, and I’ve even narrated a video on the flaws of Keynesian theory.

But this clever Lisa Benson cartoon may be more effective than anything I’ve ever done.

If you like cartoons that teach economics, check out this gem. It’s not on Keynesianism, but it’s very good.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733 everettehatcher@gmail.com

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