ConservativeHome's Big Ideas blog

Ed Glaeser: Yes, we need a balanced budget amendment, but to do that, let's be honest about how the feds borrow to help states

Ryan Streeter
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I missed Ed Glaeser's column this week on the merits of a balanced budget. Ed is one of the most interesting economists in America today, and so it's always worth listening to him when he weighs in on policy matters.

After pointing out that both parties have helped make the case for a balanced budget by showing so much fiscal promiscuity over the past few decades, Glaeser makes this interesting observation:

Another reason to favor more federal fiscal restraint is that we could use a better balance between state and federal spending. Over the past 50 years, the federal government has become heavily involved in financing infrastructure, even when those projects overwhelmingly serve in-state users and could be funded with user fees. Why is it so obvious that the federal government has a role in funding rail between Tampa and Orlando, or a big tunnel in Boston?

Washington’s prominence is explained primarily by the federal government’s ability to borrow, and not by any inherent edge it has in infrastructure development. Federalizing expenditures breaks the connection between the projects’ funders and the projects’ users. Any instance when we’re spending other people’s money is an invitation for waste.

This relationship between state needs and lobbying and the federal government's borrowing addiction needs to be explored more. It's an important point.

As far as the amendment goes, Ed rightly says that a balanced budget amendment is both needed and difficult to craft. He suggests that in order to make it through wars and recessions, the budget should be balanced on business cycles, not calendar years. That strikes me as the right approach, but also very hard to do.

So who's actually going to pay off all this new debt Congress just voted for? Meet the Debt Paying Generation

Bill Beach and Dustin Siggins have been working for awhile to wake people up to the reality of life for the Debt Paying Generation - the rising group of young workers who will spend most of working lives contributing a greater share of their taxes to paying off debt than any previous generation.

They have a McClatchey op-ed today worth reading in full.

A few snippets:

The CBO said the initial phase of the Boehner compromise would take the debt per worker in 2021 from about $161,631 to about $156,324 - clearly, laughably inadequate.

The longer that Americans bury their collective heads in the sand, the more extreme solutions will have to be.

When it really comes down to it, the budget debate can be reduced to the following points:

1. Reform our immoral and inefficient tax code, perhaps by replacing it with a flat expenditure tax, such as Heritage proposed.

2. Cut spending.

3. Shrink the size of government employee rolls...More than 30 million people are employed by tax dollars (that's one tenth the U.S. population)

Ding dong, the Keynesian witch is dead: here's why

These words from AEI's Kevin Hassett in today's WSJ are worth highlighting:

Every stimulus effort has not two but three stages.

1. When the stimulus is imposed, there is some positive short-run increase in GDP.
2. When the stimulus is removed, there is an approximately equal and opposite reduction in GDP.
3. But after that, the stimulus must be paid for with higher taxes or ongoing borrowing—causing a further reduction in GDP.

Thus the total impact of the Keynesian policy is negative over its life. This fact is visible even in the fine print of Congressional Budget Office analyses so often cited by stimulus apologists, such as its 2009 finding that the Obama stimulus would reduce output in the long run. (numeration added)

What this means for us, then, is this:

In the lengthy, slow‐slog out of a financial crisis, the stimulus hangover arrives before the recovery has taken off. Temporary stimulus therefore hurts the economy when it is removed and again when it is paid for. The hangover is virtually guaranteed to arrive at a moment when it can push us back into recession.

The two options he says we should pursue are perhaps not surprising but that doesn't make them any less important:

The first is tax reform that broadens the tax base, lowers rates, and reduces taxes on capital income. Over a decade, fundamental tax reform can deliver enduring benefits large enough to offset the residual negative effects of the financial crisis.

Second is entitlement reform. Given the massive imbalances that exist today, consumers likely have little faith that current programs will remain in place throughout their lifetimes. Accordingly, cuts to entitlements that phase in gradually will likely have little impact on consumers' perceived lifetime wealth, as the benefit cuts are already factored into their thinking. If so, government can reduce promised benefits without causing consumption to go down. Such a reduction would restore market confidence and create the budget space to ensure successful tax reform.

Maybe we need an UNbalanced budget amendment rather than a balanced budget amendment

An interesting idea from Alex Tabbarok:

The unbalanced budget amendment is a requirement that in good times the government must run a budget surplus. The virtues of such a rule are that it allows for counter-cylical fiscal policy during a recession. Indeed, it reduces the cost of counter-cyclical fiscal policy because it guarantees a reserve fund for just such emergencies. The unBBA is thus a type of automatic stabilizer of the kind I have argued for before (e.g. here).

As for the politics of it:

Notice that while making counter-cyclical fiscal policy easier the unBBA would tend to create budget balance as surpluses in good times were spent in bad times. Thus over a period of time the unBBA has similar results to a BBA. By requiring surpluses (and thus taxes) to be high(er) in good times,however, rather in bad times the unBBA has a lower cost and a better chance of being passed than the BBA.

I'm not sure everyone's who's signed the taxpayer protection pledge would be persuaded to hike taxes in good times...

A long term strategy for the future of NASA

Natalie Gonnella
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As NASA retires the US shuttle initiative after 30 years of space flight, Col. Walter Cunningham and Rep. Pete Olson this weekend on Politico weigh in on the growing discontent over the future of the US space program.

Critical of both the Obama administration's space policy and the rising uncertainty over the benefits of American space exploration, Cunningham and Olson offer an innovative strategy for the future of the program, calling for both the integration of private participation and commercial markets, as well as a wider commitment to more meaningful operations.  With Atlantis concluding the final shuttle mission on Friday, here's a quick look at their key ideas for the future of US space exploration:

By establishing a long-term strategy, with specific policies, led and endorsed by Congress, we can again make NASA and the human space program credible and beneficial. To this end, we must:

• Spell out a coherent HSF mission, goal and timeline for the next 20 years. Manned missions to the Moon, and then Mars, should be part of this timeline
• Return to the earlier NASA model of success: Adopt best practices to reform contracting, foster better communication between centers, eliminate activities not essential for space exploration and clear away bureaucracy.
• Assess the near-term potential and costs for commercial space companies to support both cargo and manned LEO missions to better understand the potential investment required by private investors, and the degree it may free NASA resources to focus on the deep-space mission
• Make a quick decision on a heavy launch system and the necessary related technologies;

In their new homes, Atlantis and her sister orbiters are likely to inspire little in the next generation of Americans if there is nothing for our children to aspire to. Let us hope that Atlantas’ return to Earth will be the harbinger of a new era of U.S. human space flight and American exceptionalism.

The full op-ed by Col. Cunningham and Rep. Olson is available to view here.

Being poor in America isn't all it's cracked up to be

Robert Rector is senior research fellow in the Domestic Policy Studies Department of The Heritage Foundation (heritage.org) and co-author of the report “Air Conditioning, Cable TV, and an Xbox: What is Poverty in the United States Today?” Sarah Torre is a research assistant in Heritage’s Richard and Helen DeVos Center for Religion and Civil Society.

In the midst of a sputtering economic recovery, many Americans understandably cringe at media reports on high unemployment numbers, cued with footage of long lines at emergency food kitchens and homeless shelters.
 
Government statistics on the number of people living below the official poverty line seem to correspond with the nightly news’ dismal portrayal of America’s fight against poverty.
 
Almost every year for the past two decades, the U.S. Census Bureau has reported that more than 35 million Americans were living in “poverty.” Last year, the Census Bureau reported that 43.5 million persons, one in seven Americans, were poor.
 
But do news stories on the poor and government number-crunching accurately reflect the state of poverty in the United States? What is poverty in America? What does it really mean to be “poor” here?
 
For most Americans, the word “poverty” suggests destitution: an inability to provide a family with reasonable shelter, nutritious food and clothing. Yet, if poverty means significant material hardships, relatively few of the tens of millions identified as being “in poverty” by the Census Bureau could be characterized as poor.
 
As a new paper from The Heritage Foundation demonstrates, the overwhelming majority of the poor are well-housed, have an adequate and reasonably steady supply of food, and can meet their other basic needs, including medical care.
 
Poor families certainly struggle to make ends meet, but in most cases, they are struggling to pay for air conditioning and the cable TV bill as well as to put food on the table.
 
According to the federal government’s own survey data, in 2005, the average household defined as poor by the Census Bureau lived in a house or apartment equipped with air conditioning and cable TV. For entertainment, the household had two color televisions, a DVD player and a VCR. If there were children in the home (especially boys), the family had a game system, such as an Xbox or PlayStation.
In the kitchen, the household had a microwave, refrigerator, and an oven and stove. Other household conveniences included a clothes washer, clothes dryer, ceiling fans, a cordless phone and a coffee maker.
 
Despite the common perception that poor households suffer from bare cupboards and empty stomachs, by their own report, most poor families are not hungry. The average intake of protein, vitamins and minerals by poor children is indistinguishable from children in the upper middle class. The major dietary problem facing poor Americans is eating too much, not too little. The majority of poor adults, like most Americans, are overweight.
 
The home of the average poor family was in good repair and not overcrowded. In fact, the typical poor American had more living space than the average European. The average poor family also reports it was able to obtain medical care when needed.
 
The reality that the vast majority of poor people have access to adequate housing, food and medical care does not detract from the very real pain of those families who experience significant material hardships.
 
Fortunately, though, those families are a distinct minority among the poor. For example, at any single point in time during the recession year of  2009, around one in 70 poor persons was homeless and one in five experienced temporary food shortages at various times.
Those who are temporarily short on food or are homeless will find no comfort in the fact that their condition is relatively infrequent. The distress and fear for the future the family experiences is real and devastating.  Public policy must deal with that distress.
 
Regrettably, misleading Census Bureau numbers and misrepresentative media reporting distort the real state of “poverty” in America and distract policymakers from addressing the needs of those in real deprivation. Over the long term, exaggeration has the potential to promote a substantial misallocation of limited resources for a government facing massive future deficits.
 
Sensationalism and misinformation obscure the nature, extent and causes of real material deprivation. This hampers the development of well-targeted, effective programs to reduce the problem for those who are truly in need.
 
Taking cues from government studies and media reports, policymakers have continued to expand an unsustainable welfare state that focuses solely on material need and fosters dependence on the system. But welfare checks and government handouts never will address the social breakdown –fatherlessness, broken marriages, addiction – that so often leads to material need.
 
Public policy instead should reflect the importance of foundational relationships such as marriage, family, community and work. Public policy should seek ways to promote self-sufficiency and true human flourishing.
 
Effective anti-poverty policy must be based on an accurate understanding of Americans’ actual living conditions and address the root causes of true deprivation, the new Heritage paper concludes. Only by accurately assessing the problem can we begin to effectively address the needs of the truly poor.

From tax reform to trade agreements, Sen. Rob Portman offers seven 'easy' steps for economic growth

Natalie Gonnella
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Amid Washington's ongoing debt drama and June's dismal unemployment numbers, in his latest op-ed freshman Senator Rob Portman is challenging his congressional colleagues to get serious about economic recovery, outlining seven 'easy' ideas to boost private sector investment and job growth in America.

From tax reform to pending free trade agreements, here's a look at Senator Portman's common sense solutions for economic stability:

1. Energy independence: Washington should adopt a pro-growth national energy policy. Let’s attack our addiction to foreign oil with conviction. The plan must include using less energy through smart conservation and finding more energy by aggressively and responsibly developing our own resources. Washington shouldn’t pick winners and losers, but should remove government barriers that raise costs and threaten jobs.
2. Tax reform: Let’s start the process immediately to reform the tax code, something economists across the spectrum agree will create economic growth and jobs. Eliminating preferences and lowering tax rates will enhance our competitiveness, lead to a more efficient allocation of resources and ensure a tax code that’s fair for everyone, not just those who can manipulate it.
3. Cut the red tape: Let’s go beyond the rhetoric and enact common-sense cost-benefit analysis that separates the necessary regulations from those that kill jobs without justification, and insist that agencies use the least burdensome alternative.
4. Pass pending free trade agreements: With 95 percent of the world’s consumers living outside the United States, giving our workers, farmers and service providers fair access to those markets should be an urgent national priority.  
5. Reform and modernize our job training programs: Part of the answer is an improved education system that prepares our children for the careers of tomorrow, but Congress can also act immediately to help retrain today’s workers by revamping the $18 billion spent annually on federal training programs. Those already in the workforce deserve better than the bureaucratic complexities and red tape of 44 different federal employment and training programs administered by nine different agencies. 
6. Reduce costs, add choices and put consumers in charge: Many of us believe this requires repealing the new healthcare law, which will cost trillions of dollars and kill as many as 800,000 jobs. But in the meantime, let’s reduce the costs of healthcare and add jobs by expanding choices and putting consumers in charge, through expanding health savings accounts, allowing people to purchase health insurance across state lines and reining in frivolous lawsuits and other medical malpractice costs.
7. Cut and cap: Let’s reduce federal spending now and cap the growth of government. Obama was right when he said last week that dealing with our record debt and deficits would give businesses more certainty and lead to job expansion. 

Nine non-military ways to show the Assad regime what the US government thinks of their phony excuses

Natalie Gonnella
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Despite the fact that nearly 1500 civilians have been killed in Syria and another 10,500 have fled, the Obama administration has remained conspicuously silent about the ongoing atrocities committed by the Assad government.

But while the White House continues to avoid the issue, at times even playing to the regime's propaganda, a growing number of foreign policy experts are urging immediate action.

One of those people is Richard Grenell, the longest serving US spokesman to the UN, who in in an op-ed last week in The Huffington Post outlined nine non-military actions that the US can immediately undertake to both isolate Assad and show support to those behind the opposition movement.

As the security crackdown in Syria continues, here's a look at Grenell's suggestions:

1. Order US Ambassador to Syria Robert Ford home immediately, and shut down the Embassy.
2. Publicly call upon Assad to resign and ask other countries to do the same
3. Call upon the Europeans and others to pull their Ambassadors from Damascus too.
4. Restrict the movement of the Syrian Ambassador to Washington and the Syrian Ambassador to the UN to a small radius around their offices.
5. Ask European capitals to restrict the movement of Syrian Ambassadors in their countries too.
6. Force the UN resolution on Syria to a vote and dare the Russians to veto it.
7. Move USAid employees into southern Turkey to care for the Syrian refugees arriving daily.
8. Schedule an Al Jazeera TV interview with President Obama to explain our actions and why Assad must go. 
9. Demand the IAEA inspect Al Kibar and offer an immediate UN resolution authorizing it.

Grenell's original op-ed is available to read here.

Economic growth and growing families go together: a lesson from the latest Census

Ryan Streeter
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Here's an indicator of growth that we don't hear much about but which is very important: the growth in the population of 5-17 year olds.

Joel Kotkin and Wendell Cox have crunched Census data and given us a useful guide to where in America families are going, which is often where the economic growth is the most promising. They write:

So if there are proportionately fewer traditional households, do families still matter in determining how places and regions grow?

The answer is yes. Using Census data, with the help of demographer Wendell Cox, we determined the regions in the U.S. with the biggest increases in children ages 5 to 17. These family hot spots, which include Raleigh, N.C. (No. 1), Austin, Texas (No. 3) and Charlotte, S.C. (No. 4), are also some of the country’s biggest job generators. Many rank highly in the fastest-growing cities in the U.S. And seven of the ten leading regions for kids also have the fastest-growing foreign-born populations.

The three big megacities - New York, LA, and Chicago - have all lost youngsters.

Even though young professionals seemingly flock to the big and vibrant cities that many think of as our centers of opportunities, it turns out that once they find the person they want to marry or spend their life with, they head out to more affordable cities with a better selection of jobs.

Looking over the top 20 cities, it's a "who's who" of the cities that dominated the last round of Census winners and which have enjoyed the best economies.

It's worth recalling that the Greek word at the root of "economy" means household. Family, home, and economic opportunity go together.

Interview with Walter Williams: Unemployment among African Americans was lower when discrimination was worse

Walter Williams is a well-known syndicated columnist, prolific author, and professor of economics at George Mason University. His latest book, Race and Economics: How Much Can Be Blamed on Discrimination?, has already stirred up some controversy.

ConservativeHome's Ryan Streeter asked Dr. Williams a few questions about his new book:

RS: Thomas Sowell has called your new book "a demolition derby on paper" because of how you take on fallacies about race in America. One of the fairly shocking findings along these lines is that unemployment among African Americans was lower during periods of greater discrimination than today. Why is that?

Williams: A lot of my research has shown that the unemployment rate among  black workers was much less many years ago than it is now. That is, it was lower when discrimination against blacks was higher. Now, I’m not saying that discrimination wasn’t an issue or problem. It was. The point, rather, is that it doesn’t explain all that a lot of people think it does.

A big factor that does explain why unemployment has risen in the black community was the institution of the minimum wage, followed by its subsequent expansion to cover just about every job out there. Not long after it was created, the minimum wage covered around 50% to 60% of all jobs. Now it covers most.

The effect of the law is to discriminate against low-skilled people. This hits teenagers especially hard. Black teens share the handicaps of teens in general in this regard, but they also have a disproportionate share of other challenges. The result is very high levels of unemployment among younger workers. The unemployment rate for blacks between the ages of 16-24 is 55%, and among whites it is about 27%.

RS: Talk a little more about how the minimum wage law discriminates against low-skilled workers.

Williams:  The law has eliminated a number of good jobs. For example, when I was a young person, you go to the neighborhood theater, and you’d see teen ushers at work. You don’t see those jobs anymore because the minimum wage destroyed them. In the 1940s and 1950s, there was always a young person at a gas station to pump gas and wipe down your car’s windows. That job went away because of the minimum wage, not because motorists suddenly decided they enjoyed getting out of their cars and pumping gas themselves amidst the fumes.

RS: Are there other factors driving unemployment worth mentioning beyond the minimum wage?

Williams: Certainly. One would be unemployment compensation. The size of the subsidy and the duration that one receives it are contributing factors. A number of people will remain unemployed as long as they get the checks, and once the checks run out, they will go looking for a job. The problem is that the longer one is unemployed, the harder it gets to find a job later.

RS: Given our history of failed job training, what can policymakers do today, if anything, to help promote work and employment?

Williams: Policymakers simply need to acknowledge that job training programs, the CETA [Comprehensive Employment and Training Act] programs of the 1970s and the like, have produced disappointing results. The federal government ought, first, to get out of the business of destroying jobs through policies such as the minimum wage, and second, stop spending money on phony programs that don’t work.  Just because academics and elites like these programs is no reason to keep them going.

Government creates problems at all levels. Consider this. What should it take for someone to get in the taxi business and earn, say, $45,000 per year? It’s not a huge investment: a car, insurance, knowledge of the city. But in most cities, you need to have a license to own and operate a taxi. You need the medallion in your car showing you’re a legitimate taxi provider. In May 2010 the getting such a medallion in New York City would have cost you $603,000. This kind of law discriminates against anyone without that kind of money – which is a lot of people. One thing’s for sure, you don’t see many taxis owned by blacks in New York.

In Washington, DC, by contrast, you can get the license for less than $200, and the result is that a lot of taxis are owned by blacks.

The point of all of these factors is this: there are a whole host of reasons that explain high unemployment in the black community. Discrimination does not explain as much as people think it does. Surely there was a lot more discrimination back in the 1940s and 1950s, and yet you can’t deny that unemployment among blacks was quite a bit lower back then.