Why Did Western Nations Continue to Prosper in the 20th Century even though Fiscal Burdens Increased?
Daniel J. Mitchell
In the pre-World War I era, the fiscal burden of government was very modest in North America and Western Europe. Total government spending consumed only about 10 percent of economic output, most nations were free from the plague of the income tax, and the value-added tax hadn’t even been invented.
Today, by contrast, every major nation has an onerous income tax and the VAT is ubiquitous. Those punitive tax systems exist largely because—on average—the burden of government spending now consumes more than 40 percent of GDP.
To be blunt, fiscal policy has moved dramatically in the wrong direction over the past 100-plus years. And thanks to demographic change and poorly designed entitlement programs, things are going to get much worse, according to Bank of International Settlements, Organization for Economic Cooperation and Development, and International Monetary Fund projections.
While those numbers, both past and future, are a bit depressing, they also present a challenge to advocates of small government. If taxes and spending are bad for growth, why did the United States (and other nations in the Western world) enjoy considerable prosperity all through the 20th century? I sometimes get asked that question after speeches or panel discussions on fiscal policy. In some cases, the person making the inquiry is genuinely curious. In other cases, it’s a leftist asking a “gotcha” question.
I’ve generally had two responses.
1. The private economy can withstand a lot of bad policy, but there is a tipping point at which big government leads to massive societal damage. Or, to cite a specific example, the European fiscal crisis shows that the chickens have finally come home to roost.
2. Bad fiscal policy has been offset by good reforms in other areas. I explain that there are five major policy factors that determine economic performance and I assert that bad developments in fiscal policy have been offset by improvements in trade policy, regulatory policy, monetary policy, and rule of law/property rights.
I think the first response is reasonably effective. It’s hard for statists to deny that big government has created a fiscal and economic nightmare in many European nations.
But I’ve never been satisfied with the second response because I haven’t had the necessary data to prove my assertion.
However, thanks to Professor Leandro Prados de la Escosura in Madrid, that’s no longer the case. He’s put together some fascinating data measuring economic freedom in North America and Western Europe from 1850 to the present. Since he doesn’t include fiscal policy, we can see the degree to which there have been improvements in other areas that might offset the rising burden of taxes and spending.
Below is one of his charts, which shows the growth of economic freedom over time. For obvious reasons, he doesn’t include the periods surrounding World War I and World War II, but those gaps don’t make much of a difference. You can clearly see that nonfiscal economic freedom has improved significantly over the past 150-plus years. Most of the improvement took place in two stages, before 1910 and after 1980.
It’s worth noting that things got much worse during the 1930s, so it appears the developed world suffered from the same bad policies that Hoover and FDR were imposing in the United States.
Below is another chart, which highlights various periods and shows which policies were moving in the right direction or wrong direction. As you can see, the West enjoyed the biggest improvements between 1850 and 1880, and after 1980 (let’s give thanks to Reagan and Thatcher).
There also were modest improvements in 1880-1910 and 1950-1960. But there was a big drop in freedom between the World War I and World War II, and you can see policy stagnation in the 1960s and 1970s.
By the way, I wonder what we would see if we had data from 2007-2014. Based on the statist policies of Bush and Obama, as well as bad policy in other major nations such as France and Japan, it’s quite likely that the line would be heading in the wrong direction. But I’m digressing. Let’s get back to the main topic.
The moral of the story is that we’ve been lucky. Bad fiscal policy has been offset by better policy in other areas. We’re suffering from bigger government, but at least we’ve moved in the direction of free markets. That said, we may now be in an era when bad fiscal policy augments bad policy in other areas.
For further information, this video explains the components of economic success:Free Markets and Small Government Produce Prosperity
The New York Times has produced a useful video about the “super-predator” scare from the 1990s. At that time, we were already waging a drug war, so we were advised to build more prisons–and so we did. Then regrets.
You can watch the video here.
As it happens, we are also finding more scrutiny of neoconservative ideas at the movies. A new documentary film directed by Errol Morris looks at former Secretary of Defense, Donald Rumsfeld and the Iraq war. Here is the film trailer:
The Unknown Known Official Trailer #1 (2014) - Donald Rumsfeld Documentary HD
Ted Galen Carpenter
One of the more notable results of Russia’s invasion and annexation of Crimea is how unenthusiastic the Chinese government has been about that development. In a piece at China-U.S. Focus, I describe Beijing’s reaction as one of “nervous ambivalence.”
Moscow’s policy regarding Crimea sets extremely dangerous precedents from China’s standpoint. Amputating the province of a neighboring state through military occupation and a subsequent referendum to give the “secession” a façade of legitimacy, triggered multiple alarm bells in Beijing. Russia’s Crimea annexation violated China’s repeatedly stated position emphasizing respect for the territorial integrity of all states as a key principle of international behavior. Beijing’s emphasis on that principle is hardly surprising, given its own territorial issues involving Tibet, Xinjiang, and Taiwan. The last thing Chinese leaders want to encourage is a precedent whereby one or more of those entities might seek secession with the assistance of a hostile foreign power or combination of powers.
Unfortunately, U.S. officials are apparently oblivious to opportunities to exploit China’s nervousness. Instead, Washington seems determined to adopt measures that are likely to push Beijing and Moscow together. Obama administration officials have thrown diplomatic temper tantrums because Beijing has joined Moscow in resisting U.S.-led efforts to unseat Syrian leader Bashar al-Assad and impose increasingly harsh economic sanctions on Iran. On one occasion, Susan Rice denounced Chinese and Russian vetoes of a UN resolution on Syria, proclaiming that her country was “disgusted.” She added that those actions were “shameful” and “unforgivable.”
Washington’s position regarding China’s territorial disputes with neighboring states in both the South China and East China seas has been even clumsier and more provocative. The Obama administration has exhibited none-too-subtle, backing of Japan, the Philippines, Vietnam, and other rival claimants. Beyond such specific issues, China shares Russia’s growing worries about Washington’s dominant position in international affairs. Beijing is concerned that the United States and its allies are using their military and economic advantages to encroach upon important interests of China and other major powers in the international system. Secretary of Defense Chuck Hagel’s visit to China has not improved matters. A series of testy exchanges culminated with a pointed warning from Defense Minister Chang Wanquan that efforts to “contain” China will never succeed.
Henry Kissinger once observed that it should be a crucial objective of U.S. foreign policy to make sure that Washington’s relations with Beijing and Moscow are always closer than their relations with each other. U.S. officials are violating that wise approach. It is a dubious strategy to pressure either China or Russia over matters that are not vital to U.S. interests. Both Crimea and the East Asian islands disputes fit that description.
But as unwise as it would be to antagonize either power over such stakes, it would be utter folly to antagonize both of them simultaneously. Yet Washington is now in serious danger of making that blunder. At a minimum, U.S. officials need to carefully think through their priorities and not push China and Russia together into an anti-U.S. alliance.
As my colleague Ilya Shapiro noted last fall in this space, the Cato Institute joined an amicus brief before the Sixth Circuit U.S. Court of Appeals in a case called EEOC v. Kaplan Higher Education. As Ilya summed up the underlying situation:
Following several incidents of employee theft, Kaplan University did what any reasonable employer might do in similar circumstances: it instituted heightened screening procedures for new hires. This process included credit checks to filter out potential employees at greater risk of committing theft. These checks made no mention of any applicant’s race and Kaplan didn’t collect any race information from applicants, thus making the hiring process both race-neutral and race-ignorant. Nevertheless, the Equal Employment Opportunity Commission, which itself uses credit checks in hiring decisions, sued Kaplan under Title VII of the Civil Rights Act, claiming that the use of credit checks has an unlawfully disparate impact on African American applicants.
Because Kaplan doesn’t keep racial data for applicants, the EEOC had to come up with its own data to prove its case. The agency thus created a team of “race raters,” a group of seemingly random people who sorted Kaplan’s job applicants into racial categories based only on the applicant’s name and DMV photo. (You can’t make this stuff up!) Because of the unscientific and unreliable nature of this data, the EEOC was soundly rebuffed in the federal district court in Ohio where it brought its case.
Yesterday, in a slapdown that’s already the talk of the legal community, the Sixth Circuit panel rebuffed the federal agency and roundly backed Cato’s view of the case. The ruling is short and sweet – go read it here – but here are a few prime tidbits for those in a hurry:
In this case the EEOC sued the defendants for using the same type of background check that the EEOC itself uses. …
The district court considered every one of the Daubert factors [on expert witness admissibility] — and found that [EEOC expert Kevin] Murphy’s methodology flunked them all. …
The EEOC’s case goes downhill from there. …
We need not belabor the issue further. The EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.
The outcome is a triumph for Seyfarth Shaw attorney Gerald L. Maatman, Jr. a dean of the employment bar, and all the more impressive because one of the three judges on the opinion is liberal lion Damon Keith, about as sympathetic a judicial ear as the EEOC could normally hope for. It’s a sharp setback for the agency’s dubious “disparate impact” campaign against employer use of credit and criminal records in hiring. And it’s also part of a pattern of rebuffs and defeats the EEOC has been dealt by judges across the country since President Obama turned the agency on a sharp leftward course with his appointments. We’ll have more to say about that pattern in future commentaries.
Former Florida Governor Jeb Bush is considering running for president. One good thing about presidential contenders who have been governors is that they have a measurable track record.
Part of that record is captured by Cato’s biennial “Fiscal Policy Report Card on America’s Governors.” This report issues grades of “A” to “F” to governors based on their taxing and spending policies. Here at Cato we believe in small government, so we award grades of “A” to the governors who cut taxes and spending the most.
Steve Moore and other Cato authors graded Bush four times during his eight years in office. In 2000 Bush received a “B.” In 2002 he scored an “A.” In 2004 he was down to a “B” again. In 2006 he fell to a “C.”
The basic story from the Cato reports is that Jeb Bush was a prolific tax cutter, but he let spending rise quickly toward the end of his tenure. Like George W. Bush, Jeb was good on taxes, but apparently not so good on spending.
Jeb Bush was in office from 1999 to 2007. Florida general fund spending increased from $18.0 billion to $28.2 billion during those eight years, or 57 percent. Total state spending increased from $45.6 billion to $66.1 billion, or 45 percent. (This is NASBO data from here and here). Over those eight years, Florida’s population grew 16 percent and the CPI, which measures inflation, grew 24 percent.
The chart on page 5 of this state budget document shows that total spending was restrained in Bush’s first term, but then rose quite rapidly in his second term. Similarly, the table on page 14 here shows the second-term budget expansion under Bush.
Over at Cato’s Police Misconduct web site, we have identified the worst case for the month of March. It was the case of the soon-to-be-former Philadelphia police officer, Kevin Corcoran. Mr. Corcoran was driving the wrong way down a one-way street near a group of individuals when one of them pointed out that the officer had made an illegal turn. The officer got out and aggressively approached the individuals, who readied their cell phone cameras to capture the incident. The footage (warning: graphic language) shows Corcoran accosting one of the persons filming, an Iraq war veteran, and shouting “Don’t fucking touch me!” before slapping the vet’s phone out of his hand, throwing him up against his police vehicle, arresting him, and driving off. Another of the cameras showed the vet with his hands up in a defensive posture, retreating from the officer. When the vet asked why he had been arrested, Corcoran said it was for public intoxication. Corcoran later cooled-off and, after finding out the individual was a veteran, let him go without charges.
Civil suits over Corcoran’s abuse of authority have been settled out of court in the past, but thanks to the quick cameras of the individuals he encountered here, Corcoran faces charges of false imprisonment, obstructing the administration of law, and official oppression—along with a suspension with intent to dismiss. This incident shows the importance of the right to film police behavior.
Readers help us to track police misconduct stories from around the country–so if you see an item in the news from your community, please take a moment and send it our way using this form.
Patrick J. Michaels and Paul C. "Chip" Knappenberger
Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”
As we mentioned in our last post, the federal Office of Management and Budget (OMB) is in the process of reviewing how the Obama administration calculates and uses the social cost of carbon (SCC). The SCC is a loosey-goosey computer model result that attempts to determine the present value of future damages that result from climate change caused by pernicious economic activity. Basically, it can be gamed to give any result you want.
We have filed a series of comments with the OMB outlining what is wrong with the current federal determination of the SCC used as the excuse for more carbon dioxide restrictions. There is so much wrong with the feds’ SCC, that we concluded that rather than just update it, the OMB ought to just chuck the whole concept of the social cost of carbon out the window and quickly close and lock it.
We have discussed many of the problems with the SCC before, and in our last post we described how the feds have turned the idea of a “social cost” on its head. In this installment, we describe a particularly egregious fault that exists in at least one of the prominent models used by the federal government to determine the SCC: The projections of future sea-level rise (a leading driver of future climate change-related damages) from the model are much higher than even the worst-case mainstream scientific thinking on the matter. This necessarily results in an SCC determination that is higher than the best science could possibly allow.
The text below, describing our finding, is adapted from our most recent set of comments to the OMB.
The Dynamic Integrated Climate-Economy (DICE) model, developed by Yale economist William Nordhaus (2010a), is what is termed an “integrated assessment model” or, IAM. An IAM is computer model which combines economics, climate change and feedbacks between the two to project how future societies are impacted by projected climate change and ultimately to determine the social cost of carbon (i.e., how much future damage, in today’s monetary terms, occurs for each unit emission of carbon (dioxide)).
In examining the climate change output from the DICE model, we found that it projects a degree of future sea level rise that far exceeds mainstream projections and are unsupported by the best available science. The sea level rise projections from more than half of the future scenarios examined exceed even the highest end of the projected sea level rise by the year 2300 as reported in the Fifth Assessment Report (AR5) of the UN’s Intergovernmental Panel on Climate Change (see Figure 1).
Figure 1. Projections of sea level rise from the DICE model (the arithmetic average of the 10,000 Monte Carlo runs from each scenario) for the five scenarios examined by the federal interagency working group (colored lines) compared with the range of sea level rise projections for the year 2300 given in the IPCC AR5 (represented by the vertical blue bar). (DICE data provided by Kevin Dayaratna and David Kreutzer of the Heritage Foundation)
Interestingly, Nordhaus (2010b) recognizes that the DICE sea level rise projections are outside the mainstream climate view as expressed by the IPCC:
“The RICE [DICE] model projection is in the middle of the pack of alternative specifications of the different Rahmstorf specifications. Table 1 shows the RICE, base Rahmstorf, and average Rahmstorf. Note that in all cases, these are significantly above the IPCC projections in AR4.” [emphasis added]
The justification given for the high sea-level rise projections in the DICE model (Nordhaus, 2010) is that they well-match the results of a “semi-empirical” methodology employed by Rahmstorf (2007) and Vermeer and Rahmstorf (2009).
However, as we have pointed out, recent science has proven the “semi-empirical” approach to projecting future sea level rise unreliable. For example, Gregory et al. (2012) examined the assumption used in the “semi-empirical” methods and found them to be unsubstantiated. Gregory et al (2012) specifically refer to the results of Rahmstorf (2007) and Vermeer and Rahmstorf (2009):
The implication of our closure of the [global mean sea level rise, GMSLR] budget is that a relationship between global climate change and the rate of GMSLR is weak or absent in the past. The lack of a strong relationship is consistent with the evidence from the tide-gauge datasets, whose authors find acceleration of GMSLR during the 20th century to be either insignificant or small. It also calls into question the basis of the semi-empirical methods for projecting GMSLR, which depend on calibrating a relationship between global climate change or radiative forcing and the rate of GMSLR from observational data (Rahmstorf, 2007; Vermeer and Rahmstorf, 2009; Jevrejeva et al., 2010).
In light of these findings, the justification for the very high sea-level rise projections produced by the DICE model is not acceptable.
Given the strong relationship between sea-level rise and future damage built into the DICE model, there can be no doubt that the SCC estimates from the DICE model are higher than the best science can allow and consequently, should not be accepted by the OMB as a reliable estimate of the social cost of carbon.
We did not investigate the sea-level rise projections from the other two IAMs employed in the federal SCC determination, but such an analysis must be carried out prior to extending any confidence in the values of the SCC resulting from those models—confidence that we demonstrate cannot be assigned to the DICE determinations of the social cost of carbon.
Gregory, J., et al., 2012. Twentieth-century global-mean sea-level rise: is the whole greater than the sum of the parts? Journal of Climate, 26, 4476-4499, doi:10.1175/JCLI-D-12-00319
Nordhaus, W. 2010a. Economic aspects of global warming in a post-Copenhagen environment. Proceedings of the National Academy of Sciences 107(26): 11721-11726.
Nordhaus, W., 2010b. Projections of Sea Level Rise (SLR), http://www.econ.yale.edu/~nordhaus/homepage/documents/SLR_021910.pdf
Here’s a law-school hypothetical for you: Suppose a gang-banger is pulled over for having expired tags on his car. He has no driver’s license, and records show that he has repeatedly driven without a license. The protocol in such situations is to impound the car to prevent him from driving unlicensed again, and the impoundment search reveals that he has guns hidden in the car. He is arrested, patted down, and his possessions seized to secure officer safety during his transportation and booking.
Now suppose that police officers take the gang-banger’s car out of the impound yard and drive it around looking for his confederates and for more evidence against him. Can they use the car for this purpose?
If you’re like most people, you probably think the answer is: “No.” But can you say why?
In two cell-phone-seizure cases headed for Supreme Court argument this month, Ilya Shapiro and I have argued for a sharp delineation of the property right that government agents seize when they arrest a suspect and take control of his things. They may rightly seize possession of an article, but they may not therefore put that item to whatever use they please.
The first paragraph above describes the facts in Riley v. California, on which we briefed the Court last month. Government agents did not use Riley’s car to further investigate him, but they twice used his cell phone to gather more evidence of his wrongful behavior.
Though they had properly seized the physical phone, they did not get a warrant to search the phone’s contents, and we think that violates the Fourth Amendment. Phones today carry huge amounts of information that are equivalent to the papers, postal mail, books, drawings, and portraits of the founding era, which the Fourth Amendment was designed to protect.
The second case we filed in today. It’s called United States v. Wurie, and it’s a similar case, in which arresting officers seized an arrestee’s flip-phone. After it received calls identified on the exterior display screen as coming from “my house,” they opened his phone and looked to see what the number was so they could learn the address and take their investigation there. We argue that they were entitled to observe and take cognizance of the information the phone put in plain view, but having seized the phone didn’t entitle them to use the phone for further investigation without a warrant—even though it seemed to provide easy access to interesting evidence.
They didn’t get a warrant to search at Wurie’s house either. They took his keys, which they had also seized upon his arrest, and used them to open the door to the vestibule of his duplex apartment, then test the lock on a second floor residence. The keys unlocked the door of the first-floor apartment, behind which was a woman and her baby.
Possession of those keys didn’t entitle government agents to go use them on the doors of two houses, even to turn the locks and confirm or deny their suspicions about Wurie’s residency.
The use of the keys is not an issue in the case, but it helps illustrate the difference between possession and use. When an item is taken from an arrestee in the interest of officer safety and preventing destruction of evidence, this does not entitle law enforcement officer’s to use it any way they please. Government agent’s use of Wurie’s cell phone to investigate him was an additional seizure beyond the taking of possession that happened when he was arrested. It should have required a warrant because of the volume of personal and private information—digital papers and effects—that cell phones access and store.
It may be easier to argue that cell phones shouldn’t be searched without a warrant because that violates a “reasonable expectation of privacy”—and it probably does—but that has not proven to be a constitutional test that courts can reliably administer. It is as likely to produce bad results as good ones because it puts judges in the role of making sweeping statements about societal values rather than determining the facts and law in individual cases.
If we can convince the Court to flex some atrophied property muscles and recognize the difference between taking possession of a thing and making use of it, this could be the basis of stronger Fourth Amendment law, in which the courts apply the terms of the law to the facts of cases rather than pronouncing rules based on soaring, untethered doctrine like the “reasonable expectation of privacy” test.
We’re only at hump day but this week has already seen the filing of a new anti-school choice lawsuit, the dismissal of another, the potential resolution of a third, and the adoption of a new school choice program. [UPDATE: Plus the passage of a second school choice program. See below.]
Alabama: Yesterday, a federal judge dismissed the Southern Poverty Law Center’s ridiculous lawsuit against Alabama’s scholarship tax credit program which essentially claimed that the program unconstitutionally violated the Equal Protection clause since it did not solve all the problems facing education in Alabama. The SPLC argued that the law creates two classes of citizens: those who can afford decent schooling and those who cannot. In fact, those classes already exist, but the law moves some students from the latter category into the former, as the judge wisely recognized:
“The requested remedy is arguably mean: Withdraw benefits from those students who can afford to escape non-failing schools. The only remedy requested thus far would leave the plaintiffs in exactly the same situation to which they are currently subject, but with the company of their better-situated classmates. The equal protection requested is, in effect, equally bad treatment,” the judge said.
The scholarship program still faces a lawsuit from Alabama’s teachers union.
Georgia: Anti-school choice activists filed a lawsuit against Georgia’s scholarship tax credit program, alleging that it violates the state constitution’s ban on granting public funds to religious institutions. The lawsuit is longer and more complicated than similar suits in other states, and portions requesting that the government enforce certain accountability measures (e.g. - making sure that only eligible students are receiving scholarships) may actually have merit. However, the central claim that a private individual’s money becomes the government’s even before reaching the tax collector’s hand has been forcefully rejected by the U.S. Supreme Court and other state supreme courts with similar constitutional language.
Kansas: In the best school choice news of the week, as a part of its school finance legislation, Kansas lawmakers included both a scholarship tax credit program for low-income students and a personal-use tax credit. The former would grant corporations tax credits worth 70% of their donations to scholarship organizations that aid students from families earning up to 185% of the federal poverty line. The program is capped at $10 million. The personal-use tax credit grants $1,000 per child in tax credits against the family’s property tax liability up to $2,500 in total for any family without any students attending a government school.
Louisiana: A federal judge has mostly sided with the U.S. Department of Justice in its lawsuit demanding that Louisiana fork over data about students participating in the state’s school voucher program, including their race and the racial breakdown of both the government schools they are leaving and the private schools they want to attend. The DOJ wanted that data so that it can challenge individual vouchers if a student’s departure would leave a district “too white” or “too black” (no word yet on whether the DOJ will challenge families whose decision to move out of the district has the exact same impact). However, the judge required the state to provide the data to the DOJ only 10 days before issuing vouchers rather than 45 days beforehand, as the DOJ had requested. A study sponsored by the state of Louisiana determined that the voucher program has had a positive impact on racial integration.
Lawsuits against scholarship tax credit programs in New Hampshire, North Carolina, and Oklahoma are still pending. Parents for Educational Freedom in North Carolina released the following video announcing their efforts to fight the lawsuit:PEFNC President Darrell Allison on “One of 4500” Campaign
Alaska: Last night, Alaska’s House of Representatives passed a scholarship tax credit program. The bill still has to go to the state senate and the governor.
Andrew J. Coulson
According to Politico,
Innovation has been slow to reach classrooms across America in part because the federal government spends very little to support basic research on education technology, a senior White House official said Tuesday.
Does the presence or absence of federal research spending really determine an industry’s rate of technological progress? Was federal spending a driving force in the leap from cathode ray tubes to flat panel displays? Was it responsible for the birth of the “brick” cell phone of 1984 and its astonishing progress from a pricy dumb radio to an inexpensive supercomputer/GPS device/entertainment center? Is federal research spending the reason desktop laser printers went from a $15,000 (inflation-adjusted) plaything of the rich to a $100 commodity?
No. Not really.
If anything, the rate of technological progress across fields seems negatively correlated with federal spending—and indeed with government spending at all levels. As illustrated in my recent study of State Education Trends, education has suffered a massive productivity collapse over the past 40 years. Perhaps not coincidentally, it is the only field in this country dominated by a government-funded, state-run monopoly.
Steve H. Hanke
President Francois Hollande has put in place a new French government led by Prime Minister Manual Valls. This maneuver has all the hallmarks of shuffling the deck chairs on the Titanic. Yes, one has the chilling feeling that accidents are waiting to happen.
President Hollande’s new lineup is loaded with contradictions. That’s not a good sign.
Just take Prime Minister Valls’ assertion that, when it comes to economics, he is a clone of Bill Clinton. For anyone familiar with the facts, this claim is bizarre, if not delusional.
When it comes to France’s fiscal stance, the Valls’ government is fighting austerity tooth and nail. Indeed, the Socialist government is seeking greater leeway from the European Commission (read: Germany) over targets for reducing France’s stubborn budget deficit. With French government expenditures accounting for a whopping 56.6 percent of GDP, it’s truly astounding that the government is reluctant to engage in a bit of belt tightening.
This brings us back to Valls’ self-promotion – namely, to compare himself to Bill Clinton. For a reality check, a review of the fiscal records of U.S. presidents is most edifying. Let’s take a look at Clinton:
The Clinton presidency was marked by the most dramatic decline in the federal government’s share of the U.S. economy since 1952, Harry Truman’s last full year in office. The Clinton administration reduced the relative size of government by 3.9 percentage points. Since 1952, no other president has even come close. At the end of his second term, President Clinton’s big squeeze left the size of government, as a percent of GDP, at 18.2 percent.
What is noteworthy is that the squeeze was not only in defense spending, but also in non-defense expenditures. Indeed, the non-defense squeeze accounted for 2.2 percentage points of Clinton’s total 3.9 percentage point reduction in the relative size of the federal government. Since 1952, the only other president who has been able to reduce non-defense expenditures was Ronald Reagan.
During his presidency, Clinton squeezed and squeezed hard, and his rhetoric matched his actions. Recall that in his 1996 State of the Union address, he declared that “the era of big government is over.”
When it comes to fiscal rhetoric and record, it’s hard to imagine that Manuel Valls – even in his wildest dreams – will be able to match Bill Clinton, the king of the fiscal squeeze.
My colleague Peter Van Doren posted here yesterday about a new National Highway Traffic Safety Administration (NHTSA) rule which mandates that “all cars and light trucks sold in the United States in 2018 have rearview cameras installed.” I’m going to leave the analysis of the domestic regulatory aspects of this issue to experts like Peter. I just wanted to comment briefly on some of the international aspects.
In particular, what if other governments decide to regulate in this area as well and they all do it differently? That would mean significant costs for car makers, as they would have to tailor their cars to meet the requirements of different governments. Note that the U.S. regulation doesn’t just say, “cars must have a rear-view camera.” Rather, it gets very detailed:
The final rule amends a current standard by expanding the area behind a vehicle that must be visible to the driver when the vehicle is shifted into reverse. That field of view must include a 10-foot by 20-foot zone directly behind the vehicle. The system used must meet other requirements as well, including the size of the image displayed for the driver.
In contrast to a market solution, which provides flexibility as to what will be offered, the regulatory approach has very specific requirements.
As far as I have been able to find out, the United States is the first to regulate here, but others are likely to follow. When the EU or Japan turn to the issue, for example, will they develop regulations that are incompatible with the U.S. approach? Will there be a proliferation of conflicting regulations?
In theory, it’s easy to avoid these problems. Smart regulators would recognize that their foreign counterparts’ regulations are equally effective. But in other areas of automobile regulation, we haven’t seen enough of this cooperation. The rear-view camera issue provides an opportunity for regulators from different countries to work together to avoid making regulation even more costly than it already is.
Russia’s brazen annexation of Crimea has generated a flood of proposals to reinvigorate NATO. Doing so would make America less secure.
For most of its history, the United States avoided what George Washington termed “entangling alliances.” In World War II and the Cold War, the United States aided friendly states to prevent hostile powers from dominating Eurasia.
The collapse of communism eliminated the prospect of any nation controlling Europe and Asia. But NATO developed new roles to stay in business, expanding into a region highly sensitive to Russia.
The invasion of Crimea has triggered a cascade of demands for NATO, mostly meaning America, to act. President Barack Obama responded: “Today NATO planes patrol the skies over the Baltics, and we’ve reinforced our presence in Poland, and we’re prepared to do more.”
The Eastern Europeans desired much more. An unnamed former Latvian minister told the Economist: “We would like to see a few American squadrons here, boots on the round, maybe even an aircraft carrier.” A gaggle of American policy advocates agreed.
Moreover, Secretary General Anders Fogh Rasmussen said alliance members would “intensify our military cooperation with Ukraine,” including assisting in modernizing its military. A number of analysts would make Ukraine an ally in everything but name.
For instance, wrote Kurt Volker of the McCain Institute, NATO should “[d]etermine that any further assaults on Ukraine’s territorial integrity beyond Crimea represent a direct threat to NATO security and … will be met with a NATO response.” Charles Krauthammer suggested creating “a thin tripwire of NATO trainer/advisers” to “establish a ring of protection at least around the core of western Ukraine.”
AEI’s Thomas Donnelly proposed “putting one brigade astride each of the two main roads” connecting Crimea to the Ukrainian mainland, “backed by U.S. aircraft.” Robert Spalding of the Council on Foreign Relations advocated deploying F-22 fighters along “with an American promise to defend Ukrainian skies from attack.”
Senators John McCain and Lindsey Graham urged increasing “cooperation with, and support for, Ukraine, Georgia, Moldova, and other non-NATO partners.” John Bolton suggested putting “both Georgia and Ukraine on a clear path to NATO membership.”
Of course, more must be spent on the military. Ilan Berman of the American Foreign Policy Council complained that “The past half-decade has seen the U.S. defense budget fall victim to the budgetary axe.”
Yet America’s military spending is up 37 percent over the last two decades, while collective expenditures by NATO’s other 27 members are down by 3.4 percent. Overall, the Europeans spend 1.6 percent of GDP on the military, compared to America’s 4.4 percent. Today most NATO members, including the Eastern Europeans–with the exception of Poland–continue to cut outlays.
Of course, U.S. officials insist that Europe should do more. But the Europeans have no reason to change so long as Washington guarantees their security.
Despite Europe’s anemic military efforts, it still far outranges Russia. And with a collective GDP more than eight times that of Russia, the Europeans could do far more if they desired.
The basic problem, noted Stephen Walt, is that “president after president simply assumed the pledges they were making would never have to be honored.” Obviously, an American threat to go to war may deter. But history is replete with alliances that failed to prevent conflict and became transmission belts of war instead.
In fact, in 2008 Georgia appeared to believe that Washington would back it against Russia. Offering military support to Ukraine could have a similar effect.
Washington should bar further NATO expansion. Over the longer term the United States should turn responsibility for Europe’s defense back to Europe.
As I point out in my latest Forbes column: “Americans should sympathize with the Ukrainian people, who have been ill-served by their own government as well as victimized by Moscow.But that does not warrant extending military support or security guarantees to Kiev. Doing so would defeat the original purpose of the alliance: enhancing U.S. security.”
Today Washington could best protect itself outside of the transatlantic alliance.
Peter Van Doren
Last week the National Highway Traffic Safety Administration (NHTSA) completed rulemaking that mandated that all cars and light trucks sold in the US in 2018 have rearview cameras installed.
In 2008 Congress enacted legislation that mandated that the NHTSA issue a rule to enhance rear view visibility for drivers by 2011. Normally, such a delay would be held up as an example of bureaucratic ineptitude and waste. But in this case, NHTSA was responding to its own analysis that determined (p. 143) that driver error is the major determinant of the effectiveness of backup assist technologies including cameras.
In addition, NHTSA concluded that the cost per life saved from installation of the cameras ranged from about 1.5 times, to more than 3 times the 6.1 million dollar value of a statistical life used by the Department of Transportation to evaluate the cost effectiveness of its regulations. NHTSA waited until the possibility of intervention by the courts forced it to issue the rule. The problem in this case is Congress overreacting to rare events rather than the agency.
For more on auto safety regulation, see Kevin McDonald’s piece in Regulation here.
Speaking off the cuff, it’s easy to make a mistake. But for a long time former Florida governor – and trendy presidential possibility – Jeb Bush has been criticizing Common Core opponents for, among other things, saying the Core was heavily pushed by the federal government. His still getting the basics wrong on how Core adoption went down must be called out.
Interviewed at this weekend’s celebration of the 25th anniversary of his father’s presidential election – an event where, perhaps, he actually knew which questions were coming – Bush said the only way one could think the Core was a “federal program” is that the Obama administration offered waivers from the No Child Left Behind Act if states adopted it. (Start around the 7:15 mark.) And even that, he said, basically came down to states having “to accept something [they] already did”: agree to the Core.
Frankly, I’m tired of having to make the same points over and over, and I suspect most people are sick of reading them. Yet, as Gov. Bush makes clear, they need to be repeated once more: Washington coerced Core adoption in numerous ways, and creators of the Core – including the National Governors Association and Council of Chief State School Officers – asked for it!
In 2008 – before there even was an Obama administration – the NGA and CCSSO published Benchmarking for Success, which said the feds should incentivize state use of common standards through funding carrots and regulatory relief. That was eventually repeated on the website of the Common Core State Standards Initiative.
The funding came in the form of Race to the Top, a piece of the 2009 “stimulus” that de facto required states to adopt the Core to compete for a chunk of $4.35 billion. Indeed, most states’ governors and chief school officers promised to adopt the Core before the final version was even published. The feds also selected and paid for national tests to go with the Core. Finally, waivers from the widely hated NCLB were offered after RTTT, cementing adoption in most states by giving only two options to meet “college- and career-ready standards” demands: Either adopt the Core, or have a state college system certify a state’s standards as college and career ready.
Gov. Bush, the facts are clear: The feds bought initial adoption with RTTT, then coerced further adoption through NCLB waivers. And all of that was requested by Core creators before there was a President Obama!
Let’s never have to go over this again!
Fifty years ago, one of the biggest-spending presidents in U.S. history was settling into office after coming to power the prior November. Lyndon Johnson signed into law Medicare, Medicaid, and hundreds of subsidy programs for the states and cities.
Johnson was followed in office by one of the worst presidents of the 20th century in terms of domestic policy. Richard Nixon added and expanded many programs, and he helped to cement in place the array of new federal interventions pioneered by Johnson.
The chart below shows federal spending over the five decades since Johnson. Spending is divided into four components and measured as a share of gross domestic product (GDP).
Blue Line: Entitlement spending soared from the mid-1960s to the early-1980s. Medicare and Medicaid grew rapidly after being created in 1965, and Nixon signed into law numerous large increases in Social Security for current recipients. A month before the 1972 election, Social Security recipients received a letter informing them that Nixon had just signed a law bumping up their benefits by 20 percent. The recent spike in spending stems from increases in Medicare, Medicaid, food stamps, and other programs.
Black Line: Defense spending spiked in the late 1960s due to the Vietnam War. The number of U.S. troops in Vietnam peaked in 1968, then fell steadily after that. The Ronald Reagan and George W. Bush defense build-ups are also visible on the chart.
Red Line: Defense spending fell as a share of GDP in the 1970s, while nondefense discretionary spending rose. Then in the 1980s and 1990s, nondefense spending was restrained under Reagan and Bill Clinton, but then rose under George W. Bush in the 2000s.
Green Line: Bush and Barack Obama have been lucky budgeters because federal interest costs have been low during the past decade, despite the large deficits run by these two presidents. The luck won’t last: under its baseline, CBO projects that interest costs will rise from 1.3 percent of GDP today, to 2.7 percent by 2020, and to 4.1 percent by 2030.
Daniel J. Mitchell
My tireless (and probably annoying) campaign to promote my Golden Rule of spending restraint is bearing fruit.
The good folks at the editorial page of the Wall Street Journal allowed me to explain the fiscal and economic benefits that accrue when nations limit the growth of government.
Here are some excerpts from my column, starting with a proper definition of the problem.
What matters, as Milton Friedman taught us, is the size of government. That’s the measure of how much national income is being redistributed and reallocated by Washington. Spending often is wasteful and counterproductive whether it’s financed by taxes or borrowing.
So how do we deal with this problem?
I’m sure you’ll be totally shocked to discover that I think the answer is spending restraint.
More specifically, governments should be bound by my Golden Rule.
Ensure that government spending, over time, grows more slowly than the private economy. …Even if the federal budget grew 2% each year, about the rate of projected inflation, that would reduce the relative size of government and enable better economic performance by allowing more resources to be allocated by markets rather than government officials.
I list several reasons why Mitchell’s Golden Rule is the only sensible approach to fiscal policy.
A golden rule has several advantages over fiscal proposals based on balanced budgets, deficits or debt control. First, it correctly focuses on the underlying problem of excessive government rather than the symptom of red ink. Second, lawmakers have the power to control the growth of government spending. Deficit targets and balanced-budget requirements put lawmakers at the mercy of economic fluctuations that can cause large and unpredictable swings in tax revenue. Third, spending can still grow by 2% even during a downturn, making the proposal more politically sustainable.
The last point, by the way, is important because it may appeal to reasonable Keynesians. And, in any event, it means the Rule is more politically sustainable.
I then provide lots of examples of nations that enjoyed great success by restraining spending. But rather than regurgitate several paragraphs from the column, here’s a table I prepared that wasn’t included in the column because of space constraints.
It shows the countries that restrained spending and the years that they followed the Golden Rule. Then I include three columns of data. First, I show how fast spending grew during the period, followed by numbers showing what happened to the overall burden of government spending and the change to annual government borrowing.
Last but not least, I deal with the one weakness of Mitchell’s Golden Rule. How do you convince politicians to maintain fiscal discipline over time?
I suggest that Switzerland’s “debt brake” may be a good model.
Can any government maintain the spending restraint required by a fiscal golden rule? Perhaps the best model is Switzerland, where spending has climbed by less than 2% per year ever since a voter-imposed spending cap went into effect early last decade. And because economic output has increased at a faster pace, the Swiss have satisfied the golden rule and enjoyed reductions in the burden of government and consistent budget surpluses.
In other words, don’t bother with balanced budget requirements that might backfire by giving politicians an excuse to raise taxes.
If the problem is properly defined as being too much government, then the only logical answer is to shrink the burden of government spending.
Last but not least, I point out that Congressman Kevin Brady of Texas has legislation, the MAP Act, that is somewhat similar to the Swiss Debt Brake.
We know what works and we know how to get there. The real challenge is convincing politicians to bind their own hands.
Can there be standards in education without the government imposing them?
Too many education policy wonks, including some with a pro-market bent, take it for granted that standards emanate solely from the government. But that does not have to be the case. Indeed, the lack of a government-imposed standard leaves space for competing standards. As a result of market incentives, these standards are likely to be higher, more diverse, more comprehensive, and more responsive to change than the top-down, one-size-fits-all standards that governments tend to impose. I explain why this is so at Education Next today in ”What Education Reformers Can Learn from Kosher Certification.”
Yesterday’s general election in Hungary has given Viktor Orbán’s party, Fidesz, a very comfortable majority in the Hungarian Parliament, while strengthening the openly racist Jobbik party, which earned over 21 percent of the popular vote. Neither of this is good news for Hungarians or for Central Europe as a whole.
In the 1990s, Hungary was among the most successful of transitional economies of Central and Eastern Europe. With a significant exposure to markets in the final years of the Cold War and a political establishment committed to reforms, it was often singled out as an example of how a successful, sustained transition towards market and democracy should look like.
In 2014, the situation could not be more different. Hungary’s economic policies have become increasingly populist and haphazard, as the government has confiscated the assets of private pension funds, undermined the independence of the central bank, and botched the consolidation of the country’s public finances (p. 77). Worse yet, Hungary has seen a growth of nationalist and anti-Semitic sentiments which have not been adequately countered by the country’s political elites. In a recent column, I wrote about Mr. Orbán’s personal responsibility for the disconcerting political and economic developments in Hungary:
Mr. Orbán’s catering to petty nationalism often borders on selective amnesia about certain parts of Hungarian history. Recently the Federation of Hungarian Jewish Communities, the Mazsihisz, announced it would not take part in the Orbán government’s Holocaust commemorations. According to the Mazsihisz, the framing of the ceremonies whitewashes the role that the Hungarian government played and focuses exclusively on the crimes perpetrated by the Germans—despite the fact that Hungary adopted its first anti-Jewish laws as early as 1938.
Mr. Orbán’s tone-deafness when it comes to historical symbols goes hand in hand with a concerted effort to undermine the foundations of liberal democracy and rule of law in Hungary. Since Mr. Orbán came to office four years ago, Fidesz has consolidated its political power and used it to pass controversial legislation tightening media oversight, as well as constitutional changes that curb judicial power and restrict political advertising, among other measures.
I am writing a study on the Federal Emergency Management Agency (FEMA) and looking at the issue of presidential disaster declarations. Under the 1988 Stafford Act, a state governor may request that the president declare a “major disaster” in the state if “the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments.”
The main purpose of declarations is to impose on federal taxpayers the relief and rebuilding costs that would otherwise fall on state and local taxpayers and individuals in the affected area. Federalism is central to disaster planning and response in the United States, and federal aid is only supposed to be for the most severe events. Unfortunately, the relentless political forces that are centralizing power in just about every policy area are also doing so in disaster policy.
Below is a chart of FEMA data showing the number of “major disasters” declared by presidents since 1974, when the current process was put in place. The number of declared disasters has soared as presidents have sought political advantage in handing out more aid. Presidents have been ignoring the plain language of the Stafford Act, which allows for aid only in the most severe situations.
In the chart, I marked with red bars the years that presidents ran for reelection. In those years, presidents have generally declared the most major disasters. That was true of Ronald Reagan in 1984, George H.W. Bush in 1992, and Bill Clinton in 1996. George W. Bush declared the most disasters of his first term in his reelection year of 2004. The two presidents who do not fit the pattern are Jimmy Carter and Barack Obama.