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Spending Caps and Speed Limits
Two days ago, I explained that spending caps are better than anti-deficit rules. In this clip from the same panel discussion, I talk about how a spending cap should be designed.
The key design issue is how fast spending should increase.
For libertarians and Reaganite conservatives, the goal is to shrink the burden of government. This means a cap that fulfills my Golden Rule of having government grow slower than the private sector.
So if long-run nominal GDP is projected to grow by, say, 5 percent per year, the cap might allow government to grow 2 percent or 3 percent annually.
That’s somewhat like the TABOR rule in Colorado, which limits government to grow no faster than inflation plus population.
For more moderate types, the goal might be to maintain the status quo.
In other words, don’t attempt to shrink government, but also don’t allow government to expand.
Perhaps that would mean a spending cap tied to nominal personal income growth, which might mean allowing spending to grow 4 percent or 5 percent each year.
That sound anemic, but it is definitely better than nothing since it would force lawmakers to somehow prevent the huge future spending increases that will be caused by America’s poorly designed entitlement programs.
But then there’s the issue of how a spending cap gets enforced.
I was cited in a 2020 article about this challenge in Hawaii.
Hawaii’s existing cap is too easily ignored by lawmakers. …So what would a “spending cap with teeth” look like? Mitchell said there are many types of spending caps that could be adopted. Hawaii added a spending cap to its Constitution in 1978,
but it was essentially arbitrary due to an escape clause that allows the Legislature to override the cap with a two-thirds vote. “That escape clause, especially in a state where one party dominates the government, basically means that your spending cap isn’t very effective at all,” said Mitchell. So what would be better? Mitchell is especially fond of the spending cap that Colorado voters adopted in 1992, which Colorado’s Department of the Treasury estimated in 2019 had returned more than $2 billion to state taxpayers since it was implemented. Called the Taxpayer’s Bill of Rights Amendment, it pegs state spending to population growth plus inflation. Colorado’s legislature can still propose a budget that exceeds the spending cap, but “the politicians have to go to the voters and ask for permission, and the voters in almost all cases say no.”
The bottom line is that spending caps are like speed limits in a school zone.
With small children present, the best speed limit might be 20 miles per hour.
By contrast, a speed limit of 45 miles per hour seems unwise. Then again, it would be better than nothing.
And we can’t forget that any speed limit won’t be worth much if there’s no enforcement.
I’ll close by sharing this table, which shows various nations that got very good results with multi-year periods of spending restraint (government growing, on average, by less than 2 percent annually).
P.S. The advantage of a numerical spending cap (such as limiting spending increases to no more than 2 percent annually) is that politicians would have a big incentive to keep inflation under control (meaning Biden’s economic team would not have allowed him to make vapid remarks about inflation during his state of the union address).
Sen. Rand Paul releases annual Festivus Report, which focuses on what he sees as wasteful spending
Paul’s office identified $52,598,515,585 what it sees as wasteful spending
Sen. Rand Paul, R-Ky., kept his annual tradition going this year by releasing his “Festivus Report 2021,” where he airs his grievances about wasteful spending in the federal government, and where the money could have been better spent.
Festivus, of course, was made famous in a December 1997 “Seinfeld” episode called “The Strike.” The fictional holiday occurs on Dec. 23—a day before Christmas Eve—and instead of basking in the glow of family members and candlelight, participants confront each other about annoyances endured during the year. The holiday is marked by an “unadorned aluminum pole.”
Paul’s office identified $52,598,515,585 what it sees as waste, including money spent on “a study of pigeons gambling on slot machines, giving kids junk food, and telling citizens of Vietnam not to burn their trash,” according to a statement.
Senator Rand Paul, a Republican from Kentucky, released his annual Festivus Report on Wednesday. Photographer: Al Drago/Bloomberg via Getty Images
His list reads like a menu with bulleted items next to their price tags. He posted about the $549 million on Afghanistan Air Force planes he said were later sold as scrap, the $2.4 trillion in the construction of buildings in Afghanistan that essentially went unused and the pigeons playing slot machines study that cost $465,339.
AUGUST 31, 2021: Taliban fighters wielding American supplied weapons, equipment and uniforms, at the Kabul International Airport. (MARCUS YAM / LOS ANGELES TIMES) (MARCUS YAM / LOS ANGELES TIMES)
Paul’s statement said the average U.S. taxpayer pays about $15,332, which he said means the government wasted the taxes from about 3.4 million Americans.
The statement, which had footnotes to support his claims, said that $52 billion could have been spent on 13,149 miles of 4-lane highway construction across the U.S., 4.5 months of operating Veterans Affairs or giving every person in the world $6.78.
Another Case Study Comparing the Private Sector and Government
I periodically look at issues (social security, education, infrastructure, TSA, etc) to compare the private sector and the public sector.
This new video from John Stossel gives us another example
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The video reminds us that incentives matter.
Normally, the private sector does a better job then government because of competition. More specifically, profit-seeking companies fight for our dollars by offering goods and services based on quality and/or price.
But even when competition isn’t a big factor – such as the operation of a park, we can see how the private sector produces superior outcomes.
The surrounding businesses benefit if there is a clean and safe park. So when they actually got the authority to run the park, they put in place effective policies.
People in government are not opposed to clean and safe parks, of course, but they often make decisions on the basis of political factors (rewarding certain contractors, providing patronage jobs, etc).
The net result is that government involvement is a bad recipe for higher costs and poor performance (click here for another example from New York City).
P.S. The superiority of the private sector is a big reason to reject industrial policy. As shown in this video, we get better resultswhen businesses focus on attracting customers, not attracting subsidies.
Defending Capitalism, Part I
I was a big fan of (and occasional guest on) John Stossel’s TV show, and I’m now a big fan of his videos (see here, here, here, here, here, here, and here).
So it was an honor to appear in his latest video about “Capitalism Myths.”
It’s a two-part series. In this first video, we discussed three myths about free enterprise.
Myth #1 – Capitalists get rich by ‘taking’ money from others.
Since voluntary exchange, by definition, is mutually beneficial, this is a truly absurd argument. Indeed, only the most vapid politicians and pundits suggest otherwise.
The most definitive research in this area came from Professor William Nordhaus of Yale, who estimated that, “innovators are able to capture about 2.2 percent of the total social surplus from innovation.”
Translated from economic jargon, that means the rest of society gets nearly 98 percent of the value created by rich entrepreneurs.
Myth #2 – The rich getting richer, and the poor getting poorer.
This is an issue I’ve repeatedly addressed, showing how poverty was the natural state of humanity until capitalism appeared a few hundred years ago.
Now we are incomprehensibly rich by comparison. At least in market-oriented nations.
Focusing on more-recent data, I’ve shown that living standards have dramatically increased in the post-World War II era.
In the video, John and I also discussed the Census Bureau’s data showing that the middle class is shrinking, but only because more people are becoming rich.
Myth #3 – Monopolies destroyed the free market.
Supporters of government intervention commonly argue that capitalism produces monopolies, meaning big producers capture the market and exploit consumers.
This is a rather puzzling argument since monopolies almost always are the result of government favoritism.
Even if we go back to the days of the so-called Robber Barons, we find that the consumers were only exploited when politicians decided to prohibit competition.
P.S. Next week, the second video will look at four other myths about capitalism.
P.P.S. On a related note, I have a five-part series (Part I, Part II, Part III, and Part IV, and Part V) on “The Case for Capitalism.”
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The climate-change hustle
John Stossel: Through 50 years of reporting on scares, only COVID proved true
I hear that climate change will destroy much of the world.
“There will be irreversible damage to the planet!” warns a CNN anchor.
Joe Biden says he’ll spend $500 billion a year to fight what his website calls an “existential threat to life.”
Really?
I’m a consumer reporter. Over the years, alarmed scientists have passionately warned me about many things they thought were about to kill Americans.
Asbestos in hair dryers, coffee, computer terminals, electric power lines, microwave ovens, cellphones (brain tumors!), electric blankets, herbicides, plastic residue, etc., are causing “America’s cancer epidemic”!
If those things don’t get us, “West Nile Virus will!” Or SARS, Bird Flu, Ebola, flesh-eating bacteria or “killer bees.”
Experts told me millions would die on Jan. 1, 2000, because computers couldn’t handle the switch from 1999. Machines would fail; planes would crash.
The scientists were well-informed specialists in their fields. They were sincerely alarmed. The more knowledge you have about a threat, the more alarmed you get.
Yet, mass death didn’t happen. COVID-19 has been the only time in my 50 years of reporting that a scare proved true.
Maybe you accepted the phrase I used above: “America’s cancer epidemic.” But there is no cancer epidemic. Cancer rates are down. We simply live long enough to get diseases like cancer. But people think there’s a cancer epidemic.
The opposite is true. As we’ve been exposed to more plastics, pesticides, mysterious chemicals, food additives and new technologies, we live longer than ever!
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That’s why I’m skeptical when I’m told: Climate change is a crisis!
Climate change is real. It’s a problem, but I doubt that it’s “an existential threat.”
Saying that makes alarmists mad.
When Marc Morano says it, activists try to prevent him from speaking.
“They do not want dissent,” says Morano, founder of ClimateDepot.com, a website that rebuts much of what climate activists teach in schools.
“It’s an indoctrination that’s so complete that by the time (kids) get to high school, they’re not even aware that there’s any scientific dissent.”
Morano’s new movie, “Climate Hustle 2,” presents that dissent. My new video this week features his movie.
Morano argues that politicians use fear of global warming to gain power.
“Climate Hustle 2” features Sen. Chuck Schumer shouting: “If we would do more on climate change, we’d have fewer of these hurricanes and other types of storms! Everyone knows that!”
But everyone doesn’t know that. Many scientists refute it. Congress’ own hearings include testimony about how our warmer climate has not caused increases in the number of hurricanes or tornadoes. “Climate Hustle 2” includes many examples like that.
“Why should we believe you?” I ask Morano. “You’re getting money from the fossil fuel industry.” After all, Daily Kos calls him “Evil Personified” and says ExxonMobil funds him.
“Not at all,” he replies. “I’m paid by about 90% individual contributions from around the country. Why would ExxonMobil give me money (when) they want to appear green?”
Morano’s movie frustrates climate activists by pointing out how hypocritical some are.
Actor Leonardo DiCaprio says he lives a “green lifestyle … (using) energy-efficient appliances. I drive a hybrid car.”
Then he flies to Europe to attend a party.
I like watching Morano point out celebrities’ hypocrisy, but think one claim in his movie goes too far.
“Stopping climate change is not about saving the planet,” says narrator Kevin Sorbo. “It’s about climate elites trying to convince us to accept a future where they call all the shots.”
I push back at Morano: “I think they are genuinely concerned, and they want to save us.”
“Their vision of saving us is putting them in charge,” he replies.
And if they’re in charge, he says, they will destroy capitalism.
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State of the Union 2013
Published on Feb 13, 2013
Cato Institute scholars Michael Tanner, Alex Nowrasteh, Julian Sanchez, Simon Lester, John Samples, Pat Michaels, Jagadeesh Gokhale, Michael F. Cannon, Jim Harper, Malou Innocent, Juan Carlos Hidalgo, Ilya Shapiro, Trevor Burrus and Neal McCluskey respond to President Obama’s 2013 State of the Union Address.
Video produced by Caleb O. Brown, Austin Bragg and Lester Romero.
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In the past I have written the White House on several issues such as abortion, medicare, welfare, Greece, healthcare, and what the founding fathers had to say about welfare programs, and have got several responses from the White House concerning issues such as Obamacare, Social Security, welfare, and excessive government spending.
Today I am taking a look at the response of the scholars of the Heritage Foundation and the Cato Institute scholars to the 2013 State of the Union Address.
February 13, 2013 at 8:22 am
State of the…Climate?
Swept into office four years ago based, in part, on promises to slow sea-level rise, President Obama initiated a radical climate agenda. It seems we are seeing a rerun in 2013. It is worth asking what is different four years after his first State of the Union Address?
There have been four more years of no global warming. In 2010, there had been no significant world temperature increase for over a decade. The streak is now 16 years long. We have four years of costly lessons on the waste and inefficiency of green-energy subsidies.
The scientific basis for catastrophic climate change gets weaker and weaker. The economic argument for green subsidies has already collapsed. It is time for the administration to quit using both arguments to justify a regulatory and fiscal power grab.
– David W. Kreutzer, PhD, research fellow in energy economics and climate change, Center for Data Analysis
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