Wednesday, February 06, 2013

Where to cut spending? Start here

Almost every federal program has a vocal cheering section, which makes it difficult to cut anything

President Barack Obama and Congress bravely led the country back from the fiscal cliff – by putting the government squarely on a path toward another series of fiscal stare-downs beginning in March. Oddly absent from this continual game of kick-the-can are concrete ideas – from either party – for getting a handle on the spending side of the ledger.

The Senate hasn't passed a budget in three years. The president proposes no spending cuts. House Republicans, despite their fondness for the refrain "We have a spending problem, not a revenue problem," find themselves speechless when asked what, exactly, they would cut.

Is there a suggestion box? If there were, here are just a few big expenses we could afford to do without.

* Farm subsidies. The Department of Agriculture doles out $10 billion to $30 billion in cash subsidies to farmers and owners of farmland each year (depending on crop prices, disaster outlays and other factors). More than 90 percent of agriculture subsidies go to farmers of just five crops: wheat, corn, soybeans, rice and cotton. Most farms collect no subsidies. Farmers' income has been booming lately, making this a particularly good time to end the subsidies.

* Head Start. Oh, no! Everyone loves Head Start. It helps poor kids. Who could be against that? But on the Friday before Christmas, the administration released a large-scale study of Head Start's effectiveness. Its conclusion: "[B]y the end of third grade, there were very few impacts found ... in any of the four domains of cognitive, social-emotional, health and parenting practices. The few impacts that were found did not show a clear pattern of favorable or unfavorable impacts for children." Head Start costs $8 billion a year, and about $200 billion since its inception. Multiple official studies have shown its ineffectiveness.

* Afghanistan. Americans are tired of America's longest war. It's costing more than $100 billion a year. Instead of vague plans to reduce the number of troops next year or thereafter, let's make the decision to end the war, bring the troops home, and save that money.

* U.S. Embassy in Iraq. The world's largest and most expensive embassy is the American embassy in Baghdad. Housing some 17,000 people, it will cost about $3.5 billion a year to operate. As we approach the 10th anniversary of our invasion of Iraq, it's time to extricate ourselves from running that distant country.

* Urban transit. Local mass-transit systems should be the responsibility of state and local governments. Why are taxpayers from around the country paying for the subway and light-rail systems of Chicago, San Francisco, Boston, New York and other cities? In this as in other areas, federal subsidies make it easier for local politicians to approve spending that isn't cost-efficient. We could save $5 billion to $15 billion a year by ending national subsidies for local subways.

Almost every federal program has a vocal cheering section, which is why it's so difficult to cut anything from the budget. But in an age of fiscal crisis, these are among the line items that should be squarely in the cross hairs; they have been clearly demonstrated to be bloated and ineffective, and cutting them would save hundreds of billions of dollars.

More is needed, of course. Transfer payments to individuals – dubbed "entitlements" to make them more difficult to cut – have doubled in real terms in the past 20 years and now account for 60 percent of the federal budget. In inflation-adjusted dollars, the Pentagon's base budget over the past five years averaged $529 billion, greater than the average budget during Ronald Reagan's Cold War-era defense buildup – and that doesn't even include tens of billions in supplemental appropriations to fund our wars.

In the long run we have to think more carefully about what government does. Do we want a government that spends 25 percent of GDP? Should the U.S. military act as the world's policeman? Do taxpayers need to provide retirement and health-care benefits for middle-class and even wealthy retirees? Could private Social Security benefits and Health Savings Accounts employ standard economic incentives to make people better off than the current Social Security and Medicare programs?

Those are hard questions the country will be forced to confront down the line. But the next "fiscal cliff"-like farce is almost upon us already. To rescue some measure of credibility, politicians should at least have the courage to embrace a few cuts that make obvious, objective sense based on the evidence.



Unemployment increases yet again

On Friday, the unemployment rate increased for the second month in a row to 7.9 percent as 126,000 more Americans reported that they were unemployed in January than in December.

To make matters worse, the number of Americans reporting that they are unemployed has increased by more than 330,000 people or roughly the equivalent of the entire population of Cincinnati, Ohio since Obama was reelected in November.

How’s that for getting Americans back to work?

As Americans for Limited Government President Bill Wilson put it, “It is even more instructive that Obama has abandoned all pretense of caring about creating conditions where private sector job creation can occur, as this past week he let his so-called Jobs Council expire into the dust bin of history.”

Wilson concluded, “Congressional leaders need to step up and use the budget process to strike down job destroying regulations, defund rogue agencies like the Environmental Protection Agency (EPA), and immediately cut the budget to return our nation to the economic hope and prosperity we enjoyed prior to the dramatic explosion of the size and scope of government that we have experienced over the past five years.”

The Obama administration is heading into its fifth year of attempting to fix the economy and get Americans back working again. From employing bogus tactics only meant to make Americans think he was doing “something” to fix the problem like convening a jobs council to cramming thousands of regulations down the throats of American businesses, the Obama administration has signaled that it is hostile to private sector job creation time and again.

Even more troubling is that there is no end to the havoc that Obama and his cronies in Washington are wreaking on the economy in sight.

Republicans in the House of Representatives have the ability to freeze all action in Washington, D.C. and force Obama to pay attention. They have the power to defund organizations like the EPA that are killing job creation. They can stop the National Labor Relations Board (NLRB) from acting as Big Labor’s government backed advocate against business owners.

It’s time they began using this authority instead of promising to on the campaign trail every other year. The economy isn’t getting better any time soon. House Republicans have nothing to lose and much to gain by effectively using the power they possess to stop the regulatory juggernaut that Obama has unleashed.

If they cannot do that, what use are they? Unemployed Americans will soon be looking beyond Republicans and Democrats for solutions.



ObamaCare's Broken Promises

Every one of the main claims made for the law is turning out to be false.

As the federal government moves forward to implement President Obama's Affordable Care Act, the Department of Health and Human Services is slated to spend millions of dollars promoting the unpopular legislation. In the face of this publicity blitz, it is worth remembering that the law was originally sold largely on four grounds—all of which have become increasingly implausible.

*  Lower health-care costs. One key talking point for ObamaCare was that it would reduce the cost of insurance, especially for non-group insurance. The president, citing the work of several health-policy experts, claimed that improved care coordination, investments in information technology, and more efficient marketing through exchanges would save the typical family $2,500 per year.

That was then. Now, even advocates for the law acknowledge that premiums are going up. In analyses conducted for the states of Wisconsin, Minnesota and Colorado, Jonathan Gruber of MIT forecasts that premiums in the non-group market will rise by 19% to 30% due to the law. Other estimates are even higher. The actuarial firm Milliman predicts that non-group premiums in Ohio will rise by 55%-85%. Maine, Oregon and Nevada have sponsored their own studies, all of which reach essentially the same conclusion.

Some champions of the law argue that this misses the point, because once the law's new subsidies are taken into account, the net price of insurance will be lower. This argument is misleading. It fails to consider that the money for the subsidies has to come from somewhere. Although debt-financed transfer payments may make insurance look cheaper, they do not change its true social cost.

*  Smaller deficits. Increases in the estimated impact of the law on private insurance premiums, along with increases in the estimated cost of health care more generally, have led the Congressional Budget Office to increase its estimate of the budget cost of the law's coverage expansion. In 2010, CBO estimated the cost per year of expanding coverage at $154 billion; by 2012, the estimated cost grew to $186 billion. Yet CBO still scores the law as reducing the deficit.

How can this be? The positive budget score turns on the fact that the estimated revenues to pay for the law have risen along with its costs. The single largest source of these revenues? Money taken from Medicare in the form of lower Medicare payment rates, mostly in the law's out-years. Since the law's passage, however, Congress and the president have undone various scheduled Medicare cuts—including some prescribed by the law itself.

Put aside the absurdity that savings from Medicare—the country's largest unfunded liability—can be used to finance a new entitlement. The argument that health reform decreases the deficit is even worse. It depends on Congress and the president not only imposing Medicare cuts that they have proven unwilling to make but also imposing cuts that they have already specifically undone, most notably to Medicare Advantage, a program that helps millions of seniors pay for private health plans.

*  Preservation of existing insurance. After the Supreme Court upheld the constitutionality of health reform in June 2012, President Obama said, "If you're one of the more than 250 million Americans who already have health insurance, you will keep your insurance." This theme ran throughout the selling of ObamaCare: People who have insurance would not have their current arrangements disrupted.

This claim is obviously false. Indeed, disruption of people's existing insurance is one of the law's stated goals. On one hand, the law seeks to increase the generosity of policies that it deems too stingy, by limiting deductibles and mandating coverage that the secretary of Health and Human Services thinks is "essential," whether or not the policyholder can afford it. On the other hand, the law seeks to reduce the generosity of policies that it deems too extravagant, by imposing the "Cadillac tax" on costly insurance plans.

Employer-sponsored insurance has already begun to change. According to the annual Kaiser/HRET Employer Health Benefits Survey, the share of workers in high-deductible plans rose to 19% in 2012 from 13% in 2010.

That's just the intended consequences. One of the law's unintended consequences is that some employers will drop coverage in response to new regulations and the availability of subsidized insurance in the new exchanges. How many is anybody's guess. In 2010, CBO estimated that employer-sponsored coverage would decline by three million people in 2019; by 2012, CBO's estimate had doubled to six million.

*  Increased productivity. In 2009, the president's Council of Economic Advisers concluded that health reform would reduce unemployment, raise labor supply, and improve the functioning of labor markets. According to its reasoning, expanding insurance coverage would reduce absenteeism, disability and mortality, thereby encouraging and enabling work.

This reasoning is flawed. The evidence that a broad coverage expansion would improve health is questionable. Some studies have shown that targeted coverage can improve the health of certain groups. But according to the Robert Wood Johnson Foundation's Economic Research Initiative on the Uninsured, "evidence is lacking that health insurance improves the health of non-elderly adults." More recent work by Richard Kronick, a health-policy adviser to former President Bill Clinton, concludes "there is little evidence to suggest that extending insurance coverage to all adults would have a large effect on the number of deaths in the U.S."

The White House economic analysis also fails to consider the adverse consequences of income-based subsidies on incentives. The support provided by both the Medicaid expansion and the new exchanges phases out as a family's income rises. But, as I and others have pointed out in these pages, income phaseouts create work disincentives like taxes do, because they reduce the net rewards to work. Further, the law imposes taxes on employers who fail to provide sufficiently generous insurance, with exceptions for part-time workers and small firms. On net, it is hard to see how health reform will make labor markets function better.

Some believe that expanding insurance coverage is a moral imperative regardless of its cost. Most supporters of the law, however, use more nuanced arguments that depend on assumptions that are increasingly impossible to defend. If we are ever to have an honest debate about entitlement spending, we will need to distinguish these positions from one another—and see them for what they really are, rather than what we wish they would be.




More Argentine stupidity:  "Argentina announced a two-month price freeze on supermarket products Monday in an effort to stop spiraling inflation. The price freeze applies to every product in all of the nation's largest supermarkets -- a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains."

WA: Bipartisan bills would nullify NDAA “indefinite detention”:  "Washington state lawmakers will consider bipartisan legislation that would block any cooperation with attempts to indefinitely detain U.S. citizens or lawful resident aliens in Washington without due process under sections written into the 2012 National Defense Authorization Act. If passed, the law would also make it a class C felony for any state or federal agent to act under sections 1021 or 1022 of the NDAA."



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