The American Legion Magazine | 11.1.10
By Alan W. Dowd
With unemployment hovering near 10 percent, the stock market thousands off its October 2007 high (when the Dow crested the 14,160 mark), and about 15 percent of homeowners either facing foreclosure or at least a month behind on their mortgage,[i] “growth” is not a word that comes to mind when surveying 2010 America—with one notable exception.
The U.S. government is growing at rates not seen in 70 years. In fact, federal spending mushroomed from $2.98 trillion in 2008 to $3.52 trillion in 2009 to $3.72 trillion by the end of 2010[ii]—an increase of 25 percent in two years.
In short, “the era of big government,” thought to be over in the 1990s, is back with a vengeance.
Bailouts accounted for some of the spending binge, but most was fuelled by the $787-billion stimulus package, which actually swelled to $862 billion due to unforeseen expenditures for unemployment compensation and food stamps.
Dubbed the American Recovery and Reinvestment Act (ARRA), the stimulus was staggering in its size and scope. Even the statist New York Times called it “the most expansive unleashing of the government’s fiscal firepower in the face of a recession since World War II.”
It would be wrong to say that the ARRA promised a little of everything, because it actually promised a lot of everything: $87 billion to help states with Medicaid costs, $53 billion for education and training, $39 billion for energy programs, $35.9 billion for roads and bridges, $15 billion for Social Security beneficiaries (in the form of $250 checks), $8 billion for high-speed rail, $7.2 billion to expand Internet access, $5 billion for weatherization, $1.5 billion to prevent homelessness, tens of billions more for construction bonds and food-stamp payments, and the list goes on.
Is all this money being put to good use? No. But don’t take my word for it. As Vice President Joe Biden warned last year, “Some of this money is going to be wasted…Some people are being scammed already.”
“Some people” are the taxpayers, as Sen. Tom Coburn (R-Okla.) and Sen. John McCain (R-Ariz.) detailed in a pair of reports on stimulus spending: Some 10,000 of the aforementioned $250 Social Security checks were sent to dead people; a city in Montana earmarked some of its stimulus money for tennis courts; Florida committed some of its stimulus haul to building a tunnel for turtles; a region in Oklahoma received stimulus funds to build a guardrail for a lake that doesn’t exist; a Georgia Tech professor used stimulus cash to study “improvised music”; a Utah high school bought 1,600 Apple iPods with stimulus money; the California Academy of Sciences used stimulus funds to study ants—in Africa; and some federal agencies used stimulus funds to hire PR firms to promote the stimulus.[iii]
In a similar vein, most projects funded by ARRA dollars are emblazoned with signage that reads: “Project Funded by the American Recovery and Reinvestment Act.” The cost of these signs ranges from $400 to $8,000.[iv]
To be sure, the cost of these planned programs and unplanned blunders is tiny relative to the 12-figure stimulus package, but this snapshot reflects bigger problems with big-government spending. A wasted billion here, a scammed million there, starts to add up.
Even so, some of the extraordinary spending measures may have been necessary.
Economists Alan Blinder and Mark Zandi argue that the Troubled Assets Relief Program (TARP), automaker bailouts and other government interventions in 2008 and 2009 “probably averted what could have been called Great Depression 2.0.”[v]
A report from the TARP inspector general concludes that, thanks to TARP resources, “Aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008.” Moreover, several banks on the verge of collapse repaid their TARP loans far ahead of schedule.[vi]
Likewise, propping up GM and Chrysler had its merits. An Economic Policy Institute study concluded, “The bankruptcy of one or more of the U.S. automakers and a collapse of the domestic auto assembly industry could eliminate up to 3.3 million U.S. jobs,” with every state affected.[vii]
The Congressional Budget Office (CBO) estimates that the stimulus package “increased the number of people employed by between 1.2 million and 2.8 million.”[viii]
Of course, 2.8 million jobs for $862 billion is not a very good return on investment.
The negligible impact, at least on the jobs front, of the ARRA should come as no surprise. As the Congressional Research Service has reported, stimulus legislation doesn’t usually stimulate the economy. In fact, government stimulus packages often become law after the recession they are intended to counter has ended. For example, stimulus legislation was enacted in April and July 1958 to deal with a recession that ended in April 1958; in May 1961 and September 1962 to deal with a recession that ended in February 1961; and in August 1971 to deal with a recession that ended in November 1970. The pattern was repeated in the 1980s, 1990s and 2000s.[ix]
In other words, government has a mixed record during difficult economic times. But that doesn’t stop policymakers from getting involved. In fact, we the people expect the government to act in times of crisis, and government action usually translates into spending.
One gets the sense that amid the mortgage meltdown, bank bailouts, automaker bridge loans, and TARP and stimulus behemoths, the American people became numb to the number of zeroes attached to the price tag for their country’s “recovery.” It was in this context that Congress passed yet another big-ticket item: healthcare reform.
The new healthcare law—the Affordable Care Act—comes with a price tag of an estimated $1 trillion over the next decade and commits the taxpayer to yet another entitlement program. Even in good economic times, even for a country with its fiscal house in order, launching such a large-scale program would be a dicey proposition. But to do so in the midst of the worst economy in 30 years—a year after adding an unprecedented $1.4 trillion in deficit spending to an already-massive national debt—seems downright dangerous.
Moreover, it pays to recall Washington’s poor track record when it comes to out-year projections. The Wall Street Journal reminds us that in 1965, Congress estimated that Medicare would cost $3.1 billion in 1970. The actual cost was $6.8 billion. Two years later, Congress predicted that Medicare would consume just $12 billion in 1990. In fact, it was $110 billion.[x]
This government boom is a bipartisan phenomenon, of course.
President George W. Bush approved $17 billion in automaker bridge loans; created the Medicare Part D program, with a $39-billion annual price tag;[xi] signed a $168-billion stimulus package in early 2008; and midwifed the $700-billion TARP plan in late 2008.
In addition, after 9/11 the Bush administration devoted hundreds of billions in unforeseen expenditures to wars, homeland security and national defense. Defense spending jumped 67 percent during the Bush administration.[xii]
All told, federal outlays swelled from $1.86 trillion in 2001 to $2.98 trillion in 2008.[xiii]
It’s easy to criticize the current administration or the previous one, or both. But those of us who criticize should remember that spending is the shared province of the White House and Congress. The federal budget isn’t handed down by executive fiat. Rather, Congress and the White House determine spending priorities together. And since we the people elect representatives, senators and presidents, we effectively ratify their spending decisions every two or four years.
In other words, we’re the big spenders.
We may deride deficit spending in Washington, but Washington is merely imitating us. Americans hold some $900 billion in credit-card debt, and according to the financial-data clearinghouse Bankrate, four out 10 American families spend more than they earn annually.[xiv]
Likewise, we may say we oppose big government, but we are fond of particular government programs. Indeed, it could be argued that Washington’s spending binge is merely a function of our increasing reliance on the government.
- The new healthcare law may be unpopular today. But in 2009, polls revealed that 75 percent of the country supported universal coverage for “necessary care.”[xv]
- Some 61 million Americans now depend on government for their housing, food and health care, according to a Heritage Foundation study.[xvi]
- That same study reports that the number of Americans on Medicaid, which provides health care for the poor, has more than doubled since 1990.[xvii]
- In 1997, 33 percent of undergraduates borrowed money through the federal student loan program. By 2007, that number was 42 percent.[xviii] And with the recent federal takeover of student loans, that percentage will explode.
- Fully 88 percent of Americans say “Social Security is more important than ever,” according to a National Academy of Social Insurance poll. Eighty percent of people 65 and older have a favorable opinion of Medicare.[xix] And understandably so, given that Medicare has dramatically reduced poverty among senior citizens.
- According to a federal report unearthed by The Atlantic Monthly, “the share of personal income that comes from government-transfer programs” has grown from 5.9 cents of every dollar in 1950 to 17.3 cents in 2009.[xx]
The worry is that this great engine of productivity and free enterprise could be nearing a tipping point where so many people depend on government for so many things that the incentive to produce and create steadily evaporates.
Feeding the Government
Like a self-feeding cycle, a bigger government generates more regulation, and more regulation generates a bigger government.
The healthcare-reform law, for instance, creates 159 new sub-agencies, committees, bureaus and commissions.[xxi] Likewise, the financial overhaul that was passed in mid-2010 creates 243 brand new federal rulemaking authorities, spawning thousands of new pages in the Federal Register.[xxii]
The CBO projects that the IRS will need 17,000 new employees to enforce elements of the healthcare law.[xxiii] All told, according to a Washington Post analysis, between 100,000 and 250,000 new government employees are needed to meet the growing demands of our supersized government.
Coming to grips with the costs of growing the government, some policymakers have begun exploring what they euphemistically call new revenue streams—otherwise known as taxes. They are considering a “tax surcharge” on high-earning households, the expiration of tax cuts currently on the books and a value-added tax—a national sales tax.
President Barack Obama spoke approvingly, if vaguely, of the VAT earlier this year, describing it as “something that has worked for some countries.”[xxiv]
Congress, however, recently passed a nonbinding measure opposing the VAT as “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.”
Even so, some observers fear that the recommendations of the president’s National Commission on Fiscal Responsibility and Reform will be used as a cover for tax increases.
In their defense, the members of the commission are merely trying to bring the country’s wants and needs in line with its means. The reality is that spending must be cut or taxes increased—or both—to shore up the nation’s fiscal condition.
Given that Washington found a way to grow by 25 percent over the past two years, it makes sense to start with spending cuts. But that means we the people have to recalibrate our expectations of government.
In Democracy in America, Alexis de Tocqueville’s timeless commentary on the people and government of the United States, the closing pages are devoted to his concerns about the rise of a paternalistic state—an “immense and tutelary power, which takes upon itself alone to secure [the people’s] gratifications and to watch over their fate.” Tocqueville observed that “for their happiness such a government willingly labors…provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property and subdivides their inheritances.”
But the tradeoff, as Tocqueville warned, is that government becomes “the sole agent and the only arbiter of that happiness.”
[i] Mortgage Bankers Association, Delinquencies, Foreclosure Starts Fall in Latest MBA National Delinquency Survey, February 19, 2010; Kathleen Howley, “Lenders pursue mortgage payoffs long after homeowners default,” Bloomberg, January 28, 2010.
[ii] Office of Management and Budget, Summary of Receipts, Outlays and Surpluses or Deficits, 1789-2015.
[iii] John McCain and Tom Coburn, “Summertime Blues,” August 2010; Tom Coburn, “100 Stimulus Projects: A Second Opinion,” June 2009.
[iv] COTT MAYEROWITZ and NATHALIE TADENA, "Stimulus Waste? The $3.4 Million Turtle Crossing," ABC News, July 10, 2009, http://abcnews.go.com/print?id=8045022
[v] Ian Katz, "Blinder, Zandi Say U.S. Bailouts Likely Averted a Depression," Bloomberg, July 28, 2010.
[vi] TARP Inspector General, Quarterly Report to Congress, January 30, 2010.
[vii] Robert Scott, “When Giants fall,” EPI Briefing Paper, December 3, 2008.
[viii] CBO, “Estimated impact of the American Recovery and Reinvestment Act on employment and economic output,” June 2, 2010.
[ix] Jane Gravelle, et al., “Economic stimulus: issues and policies,” CRS Report for Congress, July 6, 2009.
[x] Wall Street Journal, "ObamaCare’s Real Price Tag," AUGUST 6, 2009.
[xi] Douglas Holtz-Eakin, Letter to Rep. Bill Thomas, February 9, 2005.
[xii] Jon Ward, “Big government gets bigger,” Washington Times, October 19, 2008
[xiv] Pacific Business News, “U.S. consumer credit debt falls,” January 9, 2009, http://www.bizjournals.com/pacific/stories/2009/01/05/daily65.html; Paul Bannister, “25 fascinating facts about personal debt,” http://www.bankrate.com/brm/news/debt/debtguide2004/debt-trivia1.asp.
[xv] Pew Research, Public Opinion about Health Care, June 2009.
[xvi] William Beach, The 2009 Index of Dependence on Government, March 4, 2010.
[xix] Mark Blumenthal, “Who’s afraid of public insurance?” National Journal, June 29, 2009.
[xx] Thomas Edsall, “An electoral majority for Obama?” The Atlantic Monthly, April 1, 2010.
[xxi] Senate Republican Study Committee, “159 ways the Senate bill is a government takeover of health care,” February 25, 2010.
[xxii] Wall Street Journal, “The Uncertainty Principal,” July 14, 2010.
[xxiii] Vicki Needham, “Republicans assail IRS provision in healthcare bill,” The Hill, March 18, 2010.
[xxiv] Charles Babbington, “Obama suggests value-added tax may be an option,” AP, April 21, 2010.