Lots of action in DC, but disappointing results

How goes the battle for smaller, more focused, less costly government? Frankly, conservatives are struggling to avert further losses, albeit buoyed by hopes for better days after the 2016 elections. Our advice would to spend less time hoping and more time crafting new strategies. Discussion follows: fiscal problem – US economy – regulatory proliferation – change at the top.

1. FISCAL PROBLEM - Total federal debt has risen by $8 trillion (75%) since the president took office in January 2009, or by a cumulative $13 trillion (228%) since his predecessor took the oath of office in 2001. Debt under Obama up $8,000,000,000,000, Terence Jeffrey, cnsnews.com, 11/25/15.

Will matters improve in the future? Congress passed a budget resolution this year (for the first time since
2009), which projected a balanced budget in fiscal year 2024 (many of the current members of Congress will no longer be in office by then). It was hardly an ambitious course correction, in our opinion, but not a single Democrat voted for it. The budget process grinds on, 5/4/15.

The president and his party kept demanding more discretionary spending – not in selected areas but across the board - and the Democratic minority blocked (filibustered) appropriation bills in the Senate. Another budget showdown looms,
8/17/15.

Rather than be blamed for a government shutdown, Republicans agreed to a budget deal that increased spending for fiscal years 2016-18 by a total of about $85 billion and ensured that the spending caps left on the books for later years would lack credibility. The GOP received no significant concessions in return, i.e., the transaction was basically a surrender. Power of the purse, use it or lose it,
11/9/15.

SAFE believes there are many opportunities to reduce spending by eliminating wasteful government spending, and we have persistently advocated targeted spending cuts instead of budget caps. Post election update: Deficits and debt,
11/24/14. There seems to be limited enthusiasm on either side of the aisle, however, for the type of spending cuts that we have suggested. Spending (budget discipline)

•Eliminate government handouts such as agricultural subsidies, “corporate welfare,” and tax credits for favored industries.

•Where federal programs have overlapping missions, as is often the case, pick the best programs and terminate the rest.

•End federal grant programs, bequeathing the functions involved to state & local governments or the private sector.


With government benefits plus interest representing a growing portion (currently about 2/3) of total outlays, however, there will be no way to keep the budget balanced longer term without restructuring benefit programs and/or imposing huge tax increases that could tank the economy. SAFE has offered specific suggestions for restructuring
Social Security, reforming the tax system, and designing a better healthcare system.

Every spending program has supporters, and it’s only human to hope someone else will get stuck with the bill. Playing the role of budgetary killjoy does not seem to be a good way to get elected, therefore, and it’s also ineffective for policy advocates.

Consider how David Walker et al. barnstormed the country in 2007-2008, attempting to foster public awareness of the dire long-term consequences of ignoring the fiscal problem. This message was well delivered and received many plaudits, but it had little practical effect. Two cheers for the Fiscal Wake-Up Tour,
11/5/07.

Moral: try convincing people that their lives (never mind the fate of the country) will be better if the government plays a more limited role in the economy (and therefore spends less money). In other words, accentuate the benefits of fiscal prudence instead of harping on the perils of deficits and debt.
SAFE Strategies

Free enterprise creates a more robust economy, improving the chances of Americans to prosper through their own efforts, while government direction of the economy has the opposite effect. For example, student loan programs have driven up college costs, the “cash for clunkers” program inflated prices for used cars, and government-run healthcare programs will lead to deteriorating service in order to make ends meet.

From the government’s perspective, a robust economy offers similar advantages – rising revenue without tax increases and less need for welfare spending. The steady advance of technology should provide a favorable environment for economic growth if the government doesn’t get in the way by trying to regulate the Internet, etc.

2. US ECONOMY – Although the “great recession” of 2007-2009 is long past, the economic recovery has been anemic. Growth in real (inflation adjusted) GDP for the past several years is shown below. Bureau of Economic Analysis news release, 11/24/15 (download tables).

Screen Shot 2015-11-29 at 2.30.48 PM

The jobless rate has been cut in half (to 5%), but this apparent improvement is largely due to workers dropping out of the labor force. The workforce participation rate is down to 62.4%, the lowest level since the 1970s. Bureau of Labor Statistics news release, 11/6/15.

The following chart shows how the workforce participation rate rose starting around 1970 as more women entered the work force, only to reverse course around 2000 as the employment picture grew less favorable. Labor force participation rate falls to lowest level since 1978, Sam Ro, businessinsider.com,
5/2/14.

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Economic weakness has persisted despite a double dose of stimulus. In addition to the aforesaid deficit spending, the Federal Reserve has held short-term interest rates at near zero levels since 2008 and acquired trillions of dollars in bonds to depress longer-term rates. Fed mulls shift in monetary policy,
9/7/15.

The Fed postponed a quarter point (0.25%) interest rate increase in September, but most observers are expecting it in December as a first step in phasing in a return to normal interest rate levels over, say, two years. There is continuing concern about the effects of rising US interest rates, however, as other central banks resort to increased monetary stimulus due to a deteriorating global economy. Risks of global financial crash has increased, warns IMF, Phillip Inman, theguardian.com,
10/7/15.

3. REGULATORY PROLIFERATION – Given all the fiscal and monetary stimulus that has been provided in recent years, why hasn’t the economy (or at least inflation) taken off like a rocket? The answer, we believe, is that the effect of these measures has been counteracted by regulatory burdens imposed on the private sector. Although not precisely quantifiable, the costs are believed to total some $2 trillion per year and the burden keeps mounting as new regulations are issued. Fed mulls shift in monetary policy, 9/7/15.

Take a current annual budget deficit of roundly $0.5T, subtract the estimated cost of regulations, and the indicated net effect would be a governmental withdrawal of $1.5T from the economy every year. No wonder massive monetary stimulus has been seen as necessary to keep the economy sputtering along despite the risks involved.

The top regulatory goal currently is forced reductions in carbon emissions, supposedly to save the planet from global warming. Implementation of these regulations would lead to major energy cost increases for businesses and residential consumers. The administration is pushing for international agreements that would make it difficult to reverse the Clean Power Plan and other regulations decreed by the EPA (without approval of Congress). An international conference on climate change is beginning in Paris today, and it will continue through December 11. Much ado about global warming,
10/26/15.

Health and Human Services, the IRS, etc have issued reams of regulations in connection with the implementation of GovCare. Nevertheless, indications are that the new system will collapse unless substantial subsidies for healthcare insurance companies are provided to cover the losses they have been incurring. As exchanges falter, team Obamacare fights for an insurance bailout, Timothy Carney, Washington Examiner,
11/24/15.

Federal financial agencies (including the newly created Consumer Financial Protection Bureau) were granted vast new powers by the Dodd-Frank Act. In addition to its overall monitoring of the monetary system, for example, the Federal Reserve is now responsible for overseeing the internal operations of individual banks and financial institutions. Fed Chair Janet Yellen spelled out some of the mind boggling details in her recent testimony before the House Committee on Financial Services,
11/4/15.

Many other agencies are issuing regulations as the administration races to implement projects on its to do list before the president leaves office. Obama quietly releases plans for 2,224 regs ahead of turkey day, Michael Bastasch, Daily Caller,
11/23/15.

Some new rules lack support on Capitol Hill, and it might seem Congress could readily block them, but as the following example shows this may be easier said than done.

Two resolutions were introduced in the Senate under the Congressional Review Act and passed by a 52-46 margin. (For whatever reason, the resolutions were not filibustered.) The first resolution disapproved the Clean Power Plan in principle; the second provided that the CPP “shall have no force and effect.” US Senate votes to block EPA’s Clean Power Plan, Barbara Hollingsworth, cnsnews.com, 11/18/15.

The House is expected to vote on the CPP resolutions this week. If the second (substantive) resolution is passed, it will be sent to the president and vetoed, so the entire exercise is purely symbolic. The only realistic chance to block the CPP before 2017 is in the courts, and several legal challenges are pending. House has big energy plans while Obama’s in Paris, Kyle Feldscher, Washington Examiner,
11/27/15.

Going forward, Congress needs to take back the power that it has delegated to 300+ agencies to promulgate sweeping regulations pursuant to broadly stated legislative guidelines. Otherwise, unelected bureaucrats will continue to exercise much of the legislative power that was entrusted to Congress by the Constitution. Here’s an old plan for reining in the regulators, which still seems generally sound. Regulatory common sense requires eternal vigilance,
11/22/10.

Another idea would be to require affirmative congressional approval for major new regulations instead of simply providing procedures for expressing congressional disapproval (subject to presidential vetoes) as the Congressional Review Act does.

Re the sweeping powers of the Federal Reserve, the House has passed H.R. 3189, the Federal Oversight Reform and Modernization [FORM] Act. This bill would provide for greater transparency of the Fed’s monetary policy decisions, subject the central bank to audits, and impose procedural safeguards on its issuance of regulations. House approves GOP-led bill to boost Fed oversight, AP, foxnews.com,
11/19/15.

The Form Act is not likely to go far in the Senate (a veto has been threatened), but it seems like a step in the right direction. We would also suggest elimination of the Fed’s dual mandate (monetary stability
and full employment) so as to make clear that the central bank is not expected to serve as an orchestra leader for the entire economy.

4. CHANGE AT THE TOP – We don’t endorse the “if Congress doesn’t act, I will” approach of the current president, but presidential leadership is crucial to keep the federal government working properly. With two houses and a total of 535 members, Congress is well equipped to serve as a review board, but it doesn’t do a good job of formulating coherent policies in the first instance let alone overseeing their execution.

Hopefully, the next president will be more supportive of smaller, more focused, less costly government than most recent presidents. It would be a mistake, however, to expect any of the candidates to miraculously solve the problems that have been discussed in this entry – the seeds for most of these problems were sown long before 2009.

In addition to paying attention to what the candidates say about the issues and trying to elect the best candidate available, therefore, Americans should stay engaged after the elections and let their views be known if whoever is at the helm starts going astray. SAFE plans to continue its efforts along these lines, and we would welcome your support.

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