Minor Thoughts from me to you

It appears as though Senator Paul is attempting to flex some political muscle.

Kentucky Republican Sen. Rand Paul is running ads against Democratic senators who voted to continue foreign aid to Egypt, Pakistan and Libya.

The first two targets are Sen. Joe Manchin of West Virginia and Sen. Bill Nelson in Florida. Ads in other battleground states may be forthcoming.

After a September wave of anti-American violence in the region, including the murder of the U.S. ambassador to Libya, Paul forced a vote on a measure that would have suspended foreign aid to the three countries mentioned in the ads.

The bill was defeated 81 to 10, with no Democrats voting in favor.

Senator Paul may not need to defeat either Senator Manchin or Senator Nelson in order to succeed in gaining political power. If he can dent their poll numbers enough, it may gain him some extra cooperation in the next Congress.

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Veronique de Rugy sheds some light on the farm bill. Here's a small taste.

here is a little reminder of what is in the farm bill, how big it is, and other details relevant to this discussion:

The farm bill is massive; it would spend almost $1 trillion over the next decade.

For the most part, farmers are doing very well. As Drew White at Heritage reminds us, in spite of and partially thanks to this year’s drought, net farm income is estimated to set a new record of $122.2 billion in 2012.

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The Federal Reserve Bank’s recent QE3 announcement that they will be buying $40 billion in mortgage-backed securities a month for an indefinite period of time is an excellent example of regulatory capture. Under Chairman Bernanke, the Fed has successfully pushed to increase its regulatory role over the financial industry, and Stigler’s capture theory would predict that the Fed, as a financial regulator, would act to benefit the financial industry it regulates.

In recent posts on The Beacon I have argued that the Fed’s purchases of these securities is unprecedented, that it is an example of crony capitalism, and now am arguing that it is an example of the regulatory capture that Stigler described. Just like the government’s purchase of Chevy Volts, the Fed is creating demand for a product (morgtage-backed securities) that is in weak demand, for the benefit of the industry it regulates.

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Michael Totten on foreign aid and the Arab world. I endorse this message wholeheartedly.

Egypt has nothing Americans need, not even oil.

Libya, on the other hand, doesn't only deserve American help. It needs American help.

The country is on a knife's edge. The central government doesn't control all of its territory, nor does it have a monopoly on the use of force, as a healthy and stable government should. Patches of Libya are under the thumbs of ideological and tribal militias.

Libya is in a transition phase. The country will cohere under a strong central government or come apart. If it comes apart, al Qaeda could break off a piece, as it did in Mali in April. The last thing the West needs right now is an oil-rich terrorist nest a short boat ride from Italy.

Popular sentiment in Libya toward the U.S. and the West in general is the opposite of sentiment in Egypt and pretty much everywhere else in the Arab world. That shouldn't surprise us. Gadhafi fed his cowering subjects a steady diet of anti-Americanism for decades, but most Libyans hated him. They hated him so much they hardly even bothered to protest once the Arab Spring started. They just picked up their rifles and aimed to shoot him out of his palace. They knew Americans hated him, too. He was a common enemy. It matters, and it matters a lot. Libya's relative pro-Americanism is similar at least in that way to Eastern Europe's.

It may not last. Libyans could end up joining the Arab world's anti-American mainstream. For now, though, they're standing apart from all that. They need American help against the militias, and they're worth the risk. The alternative is worse by far than anything we're seeing in Cairo.

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This is an interesting study, from the Tax Foundation.

The record growth in the percentage of Americans who pay no federal income taxes because of the generosity of the credits and deductions in the tax code has received much attention recently.

We find that the growth of nonpayers is strongly associated with increases in transfer payments and the national debt. Indeed, the twenty-year growth in nonpayers is associated with more than $213 billion in increased transfer spending and a 14 percentage point increase in the debt-to-GDP ratio in 2010 alone. These findings imply that when voters perceive the cost of government to be cheaper than it really is, they demand ever more government benefits because they either don’t feel the cost directly or believe that others will be paying those costs.

Our results indicate that the dire fiscal straits we are now in, and which much of Europe is struggling with as well, can only be responsibly addressed through a more balanced tax burden. In particular, so long as income taxes fund the largest part of government spending, exempting half the population from income taxes is not a sustainable fiscal model. Debt accumulation and eventual default await those democracies that fail to connect a majority of voters to the cost of government spending.

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Before Rep. Paul Ryan had a chance to sell his budget ideas to the American people, the Wisconsin Republican first had to persuade his own party.

The initial version of his "Roadmap for America's Future," in summer 2008, was treated as an afterthought by party leaders, and some were openly hostile. Fearful of political backlash, just eight Republicans signed up for his conservative wish list: rewrite the tax code, scrap employer-based health care, rework Medicare and Social Security.

Today, many of Mr. Ryan's ideas have become the de facto Republican Party platform.

The Wall Street Journal paints a nice profile of Paul Ryan's work, over the past 4 years, to sell his budget plan. There are those that argue that the plan doesn't go nearly far enough. I agree. I also think that his plan is on the bleeding edge of what's politically possible. It's impossible to pass an overnight overhaul of anything in American politics. But this is a good (and very ambitious) first step.

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It is really unfortunate that President Bush’s 2003 tax cuts were not followed by serious spending cuts. I do believe that well-designed tax cuts have a very positive impact on the economy. However, no tax cuts can compensate for the damage caused by the dramatic increase in spending that we experienced during the Bush years (a 60 percent increase in spending above inflation over eight years, compared to Clinton’s 12.5 percent; two Keynesian stimuli in 2001 and 2008; bailouts; and more.)

And if spending is mainly responsible for our current deficit, it should play a large role in addressing the problem — there aren’t many other ways to go about it.

Truth. Veronique de Rugy also mentions that the Washington Post’s Glenn Kessler gave President Obama four Pinocchios for his claim that he was only responsible for 10% of the deficit. According to the data, President Obama was responsible for nearly 40% of the budget deficit. "It was President Bush's fault" is an excuse that's wearing very thin.

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A group of Tea Party activists has spent the last several months getting public input (including an open website vote) on ways to cut the federal budget. They recently unveiled a draft version of their plan.

It's quite ambitious. The group spends the first 9 pages of the document laying out the history of the project and the principles it was organized by. Then they dive into the specifics of the budget proposal.

I like their methodology and I think it shows that the Tea Party is capable of generating serious proposals, that it's not a know-nothing, knee-jerk reactionary movement.

Now we are ready to spell out the specifics of our plan. Before we do, we want to highlight some of its big-picture benefits. Here’s how the Tea Party Budget dramatically changes Washington:

1. Balances the budget in 2015, and keeps it balanced. Almost all of the proposed reforms take place in the first year, 2012, rather than after a phase-in, because it’s legally impossible to bind future Congresses. The best way to ensure reforms never happen is to postpone them till “tomorrow.”
2. Reduces total federal outlays by about 15 percent in the first year. This may sound like a deep cut, until we recall that spending went up by 19 percent in 2009.
3. Shrinks the government by 30 percent, relative to current law. Outlays shrink from today’s 24 percent of GDP to a more affordable 16 percent of GDP.
4. Reduces gross debt from 99 percent of GDP to 75 percent of GDP.
5. Reduces the publicly held portion of the debt from 68 percent of GDP to 47 percent of GDP. Reducing the debt is extremely important, because it’s the key to ensuring lower future interest rates and more robust economic growth.

Warning: the link goes to a PDF file.

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This is why I worry about government spending levels. Wisconsin either needs to cut spending or raise taxes (or both) an average of $1522 more per household, per year. For the next 30 years.

Wisconsin voters know they are struggling. They sense that unchecked growth of local and state governments will grind them down even more. Government as usual was not an option.

But they need to know how bad things really are.

For example, without major reforms, the public pensions officially accounted at 100 percent funded actually need $1,563 more from the average household every year for 30 years just to pay benefits already promised, according to an updated study for the National Bureau of Economic Research by Robert Novy-Marx and Joshua Rauh.

Public retiree health-care funding is more than $2.3 billion short, according to the Pew “Widening Gap” study, and the state only paid 45 percent of the last payment due. Somebody is going to have to make up the difference.

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I like the way Jerry Pournelle puts this.

Sandra Fluke’s solution is to demand that taxpayers pay for her contraceptive pills and devices. She can’t afford to have sex because of the risk of pregnancy, and it is up to us to provide her with the wherewithal for contraception. She hasn’t spoken about protection from STD’s but I think it safe to assume she believes we ought to pay for her insurance for treatment of those when they fail. Of course there are contraception means that are also somewhat effective against STD’s, and they are considerably cheaper than the ones Sandra Fluke demands; but apparently the choice of what we pay for is not up to us. Sandra Fluke has a right to indulge in sex when and however she wants, and to the means of contraception that she wants, and it is up to the taxpayers to pay for it.

The real question here is simple: how do you acquire the obligation to pay for Sandra Fluke’s birth control devices and pills? But in the great flap over her virtue that question seems to have been lost.

We need to go back to it. Even if insuring Sandra Fluke’s health is an obligation that the rest of us must assume, when did contraception pills become health insurance? What illness are we preventing? Must we then insure her against being eaten by sharks when she insists on swimming in shark infested waters? Can her life insurance include provisions that she will not be covered if she goes hiking on the Iranian border? Must we pay for any activity that might result in death, dismemberment, pregnancy, etc.?

Leave alone the freedom of religion issue of requiring a Jesuit college to provide contraception. Where did the government get the right to require that we the people pay for anyone’s contraception? How did we acquire that obligation and can we not find some way to be shut of it?

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Don Boudreaux writes a letter to the Washington Post, in re Sandra Fluke. I approve this message.

A truly civilized person doesn’t demand that other people pick up the bill for her contraception.  A truly civilized person – especially one who can afford to be a full-time student at a prestigious law school – would refuse any invitation to publicly play the role of a victim wronged by being told to pay for her own pills or condoms.  A truly civilized person does not hold in contempt other people for their resistance to being forced to subsidize his or her ‘lifestyle choices’ (whatever those choices might be).

When someone violates standards of civility – as Ms. Fluke has done by self-righteously (and, frankly, also rather incredibly) insisting that she and her fellow students are grievously harmed by the prospect of having to pay for their own contraception – she should not be surprised when other people violate such standards in response.

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Veronique de Rugy talks about the immense size of our deficit and the impossibility of paying it off by raising taxes on "the rich".

This is where the middle class comes in. Politicians know the real potential for tax revenue lies with the middle class. Middle-income Americans far outnumber the rich and, at least for now, are taxed at relatively low rates. But even if we tapped the middle class, we’d have to raise tax rates by a staggering amount.

To balance the budget, we’d have to triple tax rates on every household earning over $100,000. Alternatively, we could merely double tax rates, but we’d have to do it on every household earning over $75,000. Not only are there not enough rich households to tax, there are barely enough middle-income households.

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George Will offers a strong defense of campaign funding and points out that spending doesn't buy elections.

The Post, dismayed about super PACs, reports “a rarefied group of millionaires and billionaires acting as kingmakers in the GOP contest, often helping to decide, with a simple transfer of money, which candidate might survive another day.” Kingmakers? Where’s the king?

If kingmaking refers to, say, Sheldon Adelson, the Las Vegas casino owner, keeping Newt Gingrich’s candidacy afloat with large infusions to the super PAC supporting Gingrich, then kingmaking isn’t what it used to be.

He also defends the constitutionality of campaign funding.

... The court’s unremarkable logic was that individuals do not forfeit their First Amendment speech rights when they come together in corporate entities or unions to speak collectively. What is the constitutional basis for saying otherwise?

... Actually, Citizens United has nothing to do with Adelson and others who are spending their own money, not any corporation’s. People have done this throughout the nation’s life, and doing so was affirmed as a constitutional right in the court’s 1976 Buckley v. Valeo decision.

And he defends the right of relative outsiders to influence the political process.

Critics of super PACs — critics who were remarkably reticent in 2004 when George Soros was lavishing his own money on liberal advocacy — often refer to them as “outside groups,” much as Southern sheriffs used to denounce civil rights workers as “outside agitators.”

Pray tell: Super PACs are outside of what? Is the political process a private club with the parties and candidates controlling membership?

It might be more wholesome for the speech-financing money that is flowing to super PACs to go instead to the parties and candidates’ campaigns. But the very liberals who are horrified by super PACs (other than Barack Obama’s) have celebrated the laws that place unreasonable restrictions on such giving.

The whole thing is worth reading and pondering.

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The Democratic Senate has not adopted a budget in three years. This is not only flagrantly irresponsible, it is a violation of federal law. Outgoing Budget Committee Chairman Kent Conrad, who is retiring at the end of the year, apparently felt pangs of conscience, because he decided it was finally time for his committee to mark up a budget. He announced that the committee would do so, starting tomorrow.

A standard markup process begins with the committee chairman laying out a proposal, with the chairman and the ranking minority member giving opening statements. This is followed by an amendment process, in which amendments to the proposed legislation (here, the budget resolution) are offered and voted on. The markup process concludes with a committee vote on the bill or resolution as amended. In this case, Conrad assured ranking Republican Jeff Sessions that amendments would be allowed, and as recently as a few hours ago, Conrad’s and Sessions’s staffs were working out details of the amendment process.

Then, earlier this afternoon, Conrad gave a press conference in which he made the stunning announcement that there will be no budget markup after all. Instead, he will present a budget to the Budget Committee tomorrow. There will be no amendments and there will be no votes; not, at least, until after the election. Apparently Conrad had been proceeding on his own initiative, and at the 11th hour Harry Reid–supported by members of his caucus who do not want to have to go on record in favor of any budget–shut down the process.

Even though Republicans are more than happy to vote "on the record about" budgets, never fear. It's Republican obstructionism and a "do nothing" Republican Congress that's keeping Washington paralyzed.

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David Autor of MIT talks with EconTalk host Russ Roberts about the Social Security Disability Insurance (SSDI) program. SSDI has grown dramatically in recent years and now costs about $200 billion a year. Autor explains how the program works, why the growth has been so dramatic, and the consequences for the stability of the program in the future. This is an illuminated look at the interaction between politics and economics and reveals an activity of government that is relatively ignored today but will not be able to be ignored in the future.

Some interesting facts.

• Disability insurance includes both a monthly cash payment as well as access to Medicare.
• The disability rolls have more than doubled in in the last 13 years, from 1.2 million people to 2.9 million people.
• Divided by the number of U.S. households, we're spending more than $1500 per U.S. household, on disability insurance.
• By law, the program is biased on favor of people making disability claims. It's comparatively easy to get disability and very, very hard to prove that someone either no longer needs disability or that they made a fraudulent claim in the first place.
• Law firms helping people get disability are entitled to 25% of the disability back benefits. Each year, the Social Security Administration pays out more than $1 billion to these law firms.
• In 1984, SSDI consumed 5% of all Social Security revenues. In 2004, SSDI consumed 10% of all Social Security revenues. It now consumes all of the dedicated SSDI revenue and is cutting into the general Social Security revenue. At the current rate of expenditure, the SSDI trust fund will be exhausted within 5 years.

It looks like SSDI is something that we need to start thinking about reforming as well, as it grows increasingly more expensive to maintain.

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Arnold Kling offers some perceptive words Congressional budgeting and campaign rhetoric.

Because the budget is so far from being sustainable, budget rhetoric needs to be re-interpreted.

When their side refuses to cut spending because it would be "cruel," they are ensuring that future spending cuts will be even crueler.

When our side refuses to raise taxes, we are ensuring that future tax increases will be higher.

Until the baseline is a sustainable budget, the rhetoric will be the opposite of reality.

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Eric S. Raymond gives his explanation for why he loves the unlovable: Walmart.

I do not love the ambience of Walmarts; by my standards they’re loud, cheerless, and tacky – and that describes a lot of their merchandise and their shoppers, too.

But my esthetic and aspirational standards are those of a comparatively wealthy person even in U.S. terms, let alone world terms. To the people who use Walmart and belong there, Walmart is a tremendous boon that stretches their purchasing power, enabling them to have things that don’t suck.

That’s why I love the idea of Walmart, and will defend it against its enemies.

This is my reason too. Even though I rarely shop at Walmart, I'm glad that it exists.

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A. Barton Hinkle examines the Virginia state budget and determines that increased Medicaid spending is the big reason that the state government has had to cut the budget in recent years.

To hear some folks tell it, budget cuts in Virginia over the past three to four years have been so savage it’s a miracle there’s any state government left. We long ago cut out all the fat and hacked through the muscle; now we’re sawing deep into bone. Localities are scared stiff that the state will stiff them come January. And it’s only going to get worse. Gov. Bob McDonnell has had state agencies prepare plans cutting 2 percent, 4 percent, and 6 percent from their budgets. The stories have grown numbingly familiar.

Still: The general fund has grown roughly $1 billion from last fiscal year to this one. That represents about a 6 percent hike. So why is the governor asking agencies to plan for cuts?

… For example: From fiscal 2008 to fiscal 2012, general-fund outlays for the Department of Medical Assistance Services (that’s the one responsible for administering Medicaid and the state’s Children’s Health Insurance Program) have grown 35 percent. General-fund revenue hasn’t grown anything like that, so the difference has to come from the pockets of other programs.

Huh. Maybe we really should talk about reforming Medicaid.

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Education used to make up a bigger share of state spending. When the association first began compiling the report in 1987, elementary and secondary education made up the biggest share of state spending, and higher education the second-biggest share. Medicaid surpassed higher education as the second-biggest state program in 1990, and in 2003 it became largest state program for the first time. Since then it has vied with schools for the biggest share of state spending, but for the past three years it has been in the lead, with an increasing margin.

Maybe it's time to consider reforming Medicaid? Before it eats up state budgets completely? And maybe we could do it without demonizing the one party that's willing to talk about it? (Hello, Congressman Paul Ryan.)

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This is the real work of "rebuilding America's crumbling roads". And the money involved is going to require everyone to pitch in, especially the people who use Wisconsin's roads the most.

All highways wear out over time, despite ongoing maintenance. Over the next 30 years, most of Wisconsin’s Interstate system will exceed its nominal 50-to 60-year design life and will need complete reconstruction. When that point is reached, it makes sense to update designs to current safety and operational standards, as was done recently in the reconstruction of the Marquette interchange. And in corridors where demand is projected to exceed capacity, resulting in heavy congestion, it makes sense to add lanes.

Wisconsin already has a $1 billion per year highway funding gap. The total $26.2 billion cost of this Interstate program is far beyond the ability of current transportation funding sources to handle. Federal and state fuel tax revenues, the largest source of transportation funding, are in long-term decline in real, or inflation-adjusted, terms, and a portion of Wisconsin’s vehicle registration fee revenue is now committed for several decades to paying debt service on transportation revenue bonds issued since2003 to cover funding shortfalls. General obligation bonds, with general fund debt service, were also issued to make up for recent diversion of transportation fund revenue to the state’s general fund. To rebuild the rural Interstate and southeastern freeway system in a timely manner will require an additional source of transportation revenue.

This study explores the feasibility of using toll revenue financing to pay for this $26.2 billion reconstruction and modernization program. Under the principle of value-added tolling, tolls would not be charged on a corridor until it was reconstructed and modernized. All toll revenues would be dedicated to the rural Interstate and southeastern freeway system corridors, as pure user fees. Based on a 30-year program of reconstruction and assuming moderate toll rates comparable to those on other toll road systems, the study estimates that the entire rural Interstate program could be financed by toll revenue bonds. For the southeastern freeway system, one option is to toll only the new lanes, operating them as express toll lanes. Doing so would produce enough revenue to cover about 17% of the cost of the entire freeway system reconstruction. Tolling would be all electronic, with no toll booths or toll plazas to impede traffic. If political support could be garnered to price all lanes on the southeastern freeway system instead, our analysis estimates that the revenues would cover 71% of the cost of reconstruction.

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