Thomas Jefferson

"Believing with you that religion is a matter which lies solely between man and his God, that he owes account to none other for his faith or his worship, that the legislative powers of government reach actions only, and not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should 'make no law respecting an establishment of religion, or prohibiting the free exercise thereof,' thus building a wall of separation between church and State."

-Thomas Jefferson, letter to Danbury Baptist Association, CT., Jan. 1, 1802

Second Amendment Fridays

"The very atmosphere of firearms anywhere and everywhere restrains evil interference - they deserve a place of honor with all that's good. "

George Washington

Michelle Obama's European Vacation

State Budget & Debt

Susan Gaztañaga, Libertarian for Governor of Maryland

Balancing the State Budget and Reducing the State Debt


The problem.
The Maryland state budget for 2011 is over 32 billion dollars. In 2010, the Department of Legislative Services (DLS) estimates a deficit of $1.318 billion, rising to $1.487 billion next year. The deficits will fall to the $800 million-$1 billion range after that. In total, between 2010 and 2014, DLS expects the state to suffer a combined $5.718 billion budget deficit under current revenue and spending projections. And those numbers include revenues from slots. (Source: Maryland Politics Watch). The state debt is over a billion dollars. (Source: 2010 Commission on State Debt Report).

What I will do.
1.     As a symbolic first step in restoring the tradition of true public service, I will reinvest $90,000 of the Governor’s $150,000 yearly salary every year towards reducing the State debt.
2.     As a short range measure, Doug and I will look at ways to consolidate functions among the 92 large and small agencies of the Maryland State Government. Internal services such as human resources management, information technology, budget and finance, contracts and procurement, communications/public relations, audit, and legal counsel could be shared, at least among agencies with similar missions (e.g., Education and Higher Education, Agriculture and the Environment, etc.).
3.     Ultimately, government programs and subsidies to nongovernmental organizations will have to be cut back. I will review every function or service of the state government, asking one question: “Could these services be better delivered by private enterprise on a fee-for-service basis?” The elimination of publicly funded services will occur in tandem with tax cuts, so that Maryland tax payers will have the means to obtain the goods and services they need and want from providers of their choice. This approach will have the added benefit of creating real jobs and stimulating the economy. Doug and I are not beholden to any corporate or union interests, and are therefore free to make and implement the common sense decisions that our Democrat and Republican opponents dare not make.
4.     Other principles of fiscal responsibility:

• Whenever a new bond issue appears on the ballot for approval it must state the total cost to the tax payer including all interest payments.
• All budget shortfalls will require budget cuts and can’t be financed by tax increases.

Q&A: What's wrong with "stimulus" spending?

Date: Mon, 08/16/2010
Author: Mark Grannis

One of my best teachers admonishes me to do more than preach to the choir. Specifically, while many people already deplore the Bush-Obama bailouts and stimulus bills, there are others (including Paul Krugman and many of his readers) who still believe, or at least hope, that aggressive overspending will restore the economy to vigor. What can I say to stimulus supporters to change their minds?

I can’t do justice to such a big question in a blog post; for that the reader must consult the works of the many economists who do not share Professor Krugman’s view of the world. Some of them, like F.A. Hayek and Milton Friedman, also have Nobels to their credit. They don’t happen to write in the New York Times, which is a shame for all of us. But if you haven’t read their views somewhere, you should seek them out. Here, here, and here are three good places to start.

I’ll emphasize just two points here: First, we have evidence that stimulus policies are not working and have not worked in the past. And second, if we consult our own experience of what makes us spend or invest or hire, we see that heavy government involvement in the economy not only fails to “stimulate” much economic activity, it actually makes us less likely to take the kinds of actions that are necessary in order to get the economy back on track.

We’ve been allegedly “stimulating the economy” nonstop since 2002, through massive deficit spending and an unprecedented amount of easy money from the Federal Reserve which kept interest rates low despite the red ink. But the first overt “stimulus” bill that I recall in the current downturn was President Bush’s $168 billion version in February 2008. This, you’ll recall, was the program by which we borrowed money in order to mail ourselves checks and take ourselves out to dinner.

Next, skipping over a few smaller bailouts, we had the Bush administration’s bank bailout bill of October 2008. For that, we authorized another $700 billion. In addition, many in Congress resisted a $700 billion bank bailout but signed on after it was linked to a $150 billion tax cut that passed at the same time.

Then we had the massive spending spree that the Obama administration packaged as the American Reinvestment and Recovery Act, for which we borrowed another $787 billion. And since then, smaller mini-binges for automakers, appliance manufacturers, etc. (A comprehensive listing is here.)

What have we stimulated? Unemployment is higher today than it was before we did any of this, and most economists are not expecting things to get much better anytime soon.

These results corroborate the experience we had with stimulus policies during the Great Depression. President Hoover tried everything to stimulate the economy from 1929 to 1932, but nothing worked. Even the unprecedented stimulus policies of FDR’s New Deal didn’t do the job. Not until after World War II – when government spending fell precipitously in 1945-47—did our economy get healthy again.

Even Japan’s experience with stimulative fiscal policy gives us reason to doubt its effectiveness. As a group of 300 economists stated in a joint letter they signed in opposition to the first major Obama stimulus bill, “More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's 'lost decade' in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.”

But stimulus defenders, particularly those belonging to the Keynesian school, can make the (untestable) claim that things would have been worse without the stimulus spending; or that the reason earlier stimulus attempts failed was that they weren’t big enough. That’s pure ideology, but it’s not impossible, so let’s turn to a couple of important theoretical reasons for questioning the Keynesians’ story.

People who aren’t actually engaged in business often look at the economy as a collection of aggregate statistics like GDP and the unemployment rate. Those aggregate statistics don’t affect real-world economic behavior like spending or hiring. Think: Do you make your purchasing decisions based on GDP or the unemployment rate? Or do you consult your personal circumstances? One of the central insights of libertarian economists is that no matter how many people’s actions you’re trying to examine, every single person in the group will act “at the micro level,” that is, based on his or her own desires, resources, opportunities, and alternatives. We can’t change what economic actors are doing just by goosing government statistics with extra spending.

New productive activity, like starting a business and hiring some people, occurs only when individuals can predict a good return on their investment. So imagine that you’re a recently unemployed chef, and you’re wondering whether to wait things out or use your savings to open a new restaurant. You know there’s a lot of competition, but you’re confident your food will be tastier than theirs. You also know that some people won’t want to pay what you want to charge, but you realize you don’t need to win every customer in order to succeed financially. Looking only at your potential customers and your potential competitors, you’re convinced it’s a good idea.

But there are other risks you can’t evaluate as easily. You understand your taxes may go up at the end of this year, and your profit margins were already pretty tight to begin with. You may even get hit with a soda tax. You know your health insurance costs are going up, even if you don’t understand when or how. You keep seeing horrifying charts of what the Federal Reserve is doing to the money supply, and you worry that once a recovery actually comes, inflation may make your costs rise uncontrollably. And you keep hearing that government might regulate the transfat content of the food you serve. Because these things are all controlled by government rather than by you or your customers or your employees, they’re not only outside your control, they’re beyond your power to predict. So you sit tight, because of what economists call “regime uncertainty.”

In this environment, it could hardly matter less to you whether the government is or is not spending, say, another $26 billion to plug holes in municipal government budgets. You don’t know how much of that money will come to your community, or what your municipal government will do with it, or what will happen next year if the funding isn’t renewed by the next Congress. If the success of your restaurant depends on that, it’s not a risk you’re willing to take. It’s a safe bet that lots of people will always like good food at a fair price, because they always have. But there’s just no telling what Congress might do—particularly a Congress dumb enough to borrow money to destroy cars. (View a nice video on "cash for clunkers" here.)

The government could try to stimulate the opening of restaurants with a new-restaurant-owner tax credit, and that might stimulate you. But it might not, because you’re not going to open the restaurant at all if it’s only profitable in year one when the government is subsidizing it. And in any event, the restaurant stimulus bill isn’t going to create any more certainty for your neighbor who is wondering whether to hire another salesperson at his bookstore. On the contrary, the more the government meddles, the less attractive most private investments become.

Stimulus spending is not entirely without effect, of course. If you happen to run a business that supplies what the government is buying, you’ll profit handsomely. (Our recent fiscal and monetary policies have been very good for banks, for example.) But the people who take in all the hot money aren't as dumb as Congress seems to be hoping. They know the sudden increase in the demand for their services is artificial, and they know the government can’t keep spending this way forever. So they’re unlikely to change their behavior very much based on something they expect to be a one-time windfall. They’re more likely to salt the money away for the rainy day they have every reason to expect soon. And that's one reason why banks, who are supposed to be in the business of lending money, have not been lending money.

Many 8th District voters know exactly what I’m talking about. A lot of us have done very well as a result of the increasing concentration of power and money in Washington. But it’s bad for the country, and ultimately nothing that is bad for the country can possibly be good for the Washington suburbs. Not in the long run, anyway. And with our national debt above $13 trillion mark, our unfunded future debts above $45 trillion, and both numbers rising briskly, the “long run” may be shorter than we think.

We have to shrink government,whether we want to or not.

Over the last ten years, Democrats and Republicans alike, in Congress and in the White House, have borrowed and spent us into the worst economic conditions in living memory. The government only admits to an unemployment rate of just under 10%, but surveys and better private estimates show that about 20% of us who want full-time work can't find it. The unprecedented amount of paper money we're pumping into the economy is not actually creating jobs or generating wealth.

That's bad enough, but a recent study from the Bank of International Settlements gave us the really bad news: Our total national debt and our future entitlement liabilities, taken together, are so large that we will be in danger of national default (like Greece) unless we take drastic action immediately. How drastic? The BIS estimates that in order to achieve the very modest goal of taking our total debts back to 2007 levels over a 20-year period, we would need to move from a deficit equal to 7.1% of GDP, to a surplus of 2.4 % of GDP, and keep the budget that way for 20 years. That would require almost $1.4 trillion per year in deficit reduction, starting now. That's some serious budget-cutting.

Unfortunately, our elected officials are not yet having a serious conversation (at least not in public) about how we're going to cut spending consistent with our national priorities. Here are some conversation starters:

End the Bush/Obama bailout and stimulus policies. We should never have gone down that road, and no one should be surprised that these policies didn't work; after all, if it were possible to get richer by going deeper and deeper into debt, we wouldn't have experienced a downturn to begin with. Now that we know the policy is a flop, we need to swear off any so-called "stimulus" programs -- no more "cash for clunkers," "cash for caulkers," or cash for any other fill-in-the-blank interest group. We also need to restore some necessary fear of failure on Wall Street by repudiating the "Too Big to Fail" doctrine and declaring that the era of No Banker Left Behind is over.
Get rid of corporate welfare and other gimmicky tax credits. These tax credits proliferate under Democrats and Republicans alike because they're easy to hide in our sprawling 5.5-mllion-word tax code, and people don't usually pay a price at re-election time for giving away tax breaks. But the fact is that Congress routinely uses the tax code not just for the legitimate purpose of raising revenue, but for the less admirable purpose of throwing bones to politically connected interest groups. One recent estimate says these "tax expenditures" amount to about $1 trillion per year.
Scrub the budget with Article I in mind. We need a federal government that stays within the limits of the dozen or so powers that are granted in Article I of the Constitution. Toward that end, we should demand that Congress specify in each spending bill precisely which part of the Constitution gives Congress the authority to act in that area. A few hints: Bank bailouts and investments in failing automakers are not in Article I. Neither are free colonoscopies or free prescription drugs.
Eliminate, transfer, or privatize programs we don't need. Farm subsidies are a great example of this. They were originally conceived as a way to help farmers survive low food prices, at a time when farmers typically had lower incomes than non-farmers. Now, however, farmers are on average wealthier than non-farmers, and in 2003 55% of the subsidies went to just 6% of the recipients. Yet we still spend $30 billion per year on these subsidies. The Cato Institute figures we can save $108 billion per year in the Department of Agriculture alone. Cato has some other great ideas for savings as well.
Sunset everything. Here's the good news: If you were starting from scratch and your job was to think of enough important government functions to cost $3.8 trillion dollars per year, you would almost certainly fail. You couldn't possibly dream up that much government, let alone that much necessary government. Thus, the budget problem is not that there is not enough money to fund the things we need; it's that there is so much money sloshing around in Congress that our representatives have not been very diligent about insisting on a strong showing of need each and every time a program is reauthorized.
Refocus defense spending on defense. We've gone too long thinking that fiscal policy and foreign policy are entirely separate issues. The fact is that we cannot afford our worldwide empire. I say much more about reorienting our military commitments elsewhere, but suffice it to say here that the amount we need to spend on defense is much less than the amount we currently spend.

Mark Grannis
Libertarian for Congress, Maryland District 8