Normally, that’s a very slow process, in which tolerance of bad behavior by government employees increases gradually over time, until one day the corruption becomes fully dominant and can avoid any scrutiny or consequences for those who engaged in or knowingly tolerated the unethical conduct.
An obscure federal watchdog overseeing the Architect of the Capitol (AOC) revoked his office’s authority to conduct criminal investigations, told agency managers to conduct their own investigations and stopped issuing audits on major projects, according to a new Government Accountability Office (GAO) report.
After AOC Inspector General Kevin Mulshine took control of the 10-person IG office with a $1.8 million budget in September 2013, tasked with holding capitol construction and groundskeeping accountable to the taxpaying public, he rendered his own office’s presence so irrelevant that it only saved taxpayers $7,620 in fiscal year 2015.
“The OIG’s lack of adequate audit planning, lack of criminal investigators, and reliance on AOC program offices to conduct investigation of alleged wrongdoing have contributed to a significant decline in its audit and investigative reports and reported monetary accomplishments,” GAO said. “As a result, AOC management and the Congress may not be fully and currently informed about potential problems and deficiencies relating to the administration of programs and operations of AOC.”
By inhibiting his own investigators’ ability to investigate potential misconduct or wasteful spending, Mulshine, who was appointed by President Obama to be the Architect of the Capitol’s Inspector General, has directly contributed to the effective institutionalization of corruption within the government office he was assigned to oversee.
To be sure, the Architect of the Capitol is a very small part of the federal government. But if you ever wondered about the origins of major government failures like the Department of Veterans Affairs’ wait-list scandal or the Environmental Protection Agency’s toxic contamination of a river—in which hardly any bureaucrats are held accountable and fired or prosecuted for their misconduct—such breaches can perhaps be directly traced to the purposeful blinding of the government’s watchdogs and their inability to impose accountability on badly behaving bureaucrats.
As we noted, Emily Bazar of the Center for Health Reporting did a fine job outlining how Covered California, a wholly owned subsidiary of Obamacare, was responsible for “countless glitches and widespread consumer misery.” The $454 million Covered California computer system, for example, proved dysfunctional and insecure. Covered California bosses blamed it for canceling Californians’ policies, even as others found it impossible to cancel their Obamacare deal when they became eligible for Medicare. Covered California also tormented consumers with mixed messages about eligibility for tax credits. Bazar also did her best to help Californians avoid the sticker shock of skyrocketing premiums.
In her most recent report, Bazar explains, “between October 2015 and May of this year, about 2,000 pregnant women were automatically dropped from their Covered California plans and placed into Medi-Cal, even though they had the right to stay with the state insurance exchange. Some women lost their established doctors or missed prenatal appointments.” This happened because, “the Covered California computer system wasn’t programmed to give them the choice, and some pregnant women in that situation were moved immediately into Medi-Cal.” This “snafu” prompted 16 members of California’s congressional delegation, “to call on Covered California to quickly fix the problem.” And Bazar shows how they jumped into action.
“Covered California has fixed its computer system to prevent pregnant women in a certain income range from being transferred into Medi-Cal without their knowledge or consent.” That’s the $454 million computer system that Covered California bosses blamed for other miseries. Now it’s good to go, and check out Bazar’s take on the timing: “The fix comes nearly a year after the problem began.” That is, nearly a year after 2,000 pregnant women lost their established doctors and missed prenatal appointments. Nearly a year is longer than a pregnancy. How’s that for performance and accountability.
Meanwhile, Obamacare premiums are still rising in California, but not as high as other states. If you don’t like your deal, you pretty much have to keep it. Under Obamacare, you don’t get to choose what you want; you get only what the government wants you to have. The “widespread consumer misery” is inherent in the system.
Janet Reno, Attorney General during the Clinton Administration, has passed away at 78.
California Insurance Commissioner David Jones recalls Reno as “an extraordinary public servant” who was “incredibly accessible to the public.” According to Commissioner Jones, Janet Reno called attorneys “to make sure she was getting all the facts” and her guiding principle was to “do the right thing.” Her record suggests otherwise.
In April, 1993, Reno gave the go-ahead for the deployment of two Abrams M1A tanks, powerful weapons of war, against the compound of the Branch Davidian cult in Waco, Texas. Seventy-six people perished in the ensuing inferno, including 23 children. As Anthony Gregory noted on the tenth anniversary, the raid “had government malice written all over it,” with tanks, artillery and CS gas pumped into the compound and the FBI firing machine guns at escapees. None of the arguments for the deadly raid stands up, and Reno maintained a pattern of militancy against civilians.
On Thanksgiving day, 1999, Florida fishermen found the five-year-old Elian Gonzalez clinging to an inner tube after his mother and 11 others had drowned in an attempt to escape Cuba. Attorney General Reno, supposedly an advocate of children, wanted to return the child to the Stalinist police state that thousands of Cubans had fled. She deployed INS agents in full military gear to seized the child at gunpoint from the home of a relative. For Deroy Murdock, the episode epitomized “a federal police state that has goose-stepped from Ruby Ridge to Waco and now to Little Havana.” Murdoch invoked liberal Harvard law professor Lawrence Tribe, who wrote: “Ms. Reno’s decision to take the law as well as the child into her own hands seems worse than a political blunder. Even if well intended, her decision strikes at the heart of constitutional government and shakes the safeguards of liberty.”
That’s how this “extraordinary public servant” should be remembered. When life and liberty was on the line, she disregarded the facts and did the wrong thing. Commissioner Jones claims Reno had “no regrets” in the Gonzalez case. He should know; as his official bio explains, Jones “served in the Clinton Administration for three years as Special Assistant and Counsel to U.S. Attorney General Janet Reno.”
“There is no native criminal class except Congress,” said Mark Twain. A look at California might change his mind. As Taryn Luna notes in the Sacramento Bee, the state political ethics watchdog wants a $57,000 fine against state Senator Tony Mendoza, who allegedly “broke campaign-finance laws to keep money out of the hands of the Calderon family in Mendoza’s final days as chairman of the California Latino Legislative Caucus.”
Last month, former state senator Ron Calderon was sentenced Friday to 3 1/2 years in federal prison for accepting bribes to support legislation. Calderon took $12,000 worth of trips to Las Vegas, arranged for his daughter to be paid $3,000 a month for performing no work, and accepted $5,000 for his son’s college tuition. His son also bagged $10,000 for three summers in which he performed little work. In return, Calderon helped a hospital owner maintain a health-fraud scheme. Ron Calderon’s brother Tom laundered the bribes through his political consulting firm and in September Tom Calderon was sentenced to a year in federal custody. (For an extensive chronology of the cases see “The Calderon Corruption Saga” in the Sacramento Bee.) The corruption, however, does not stop with the Calderon family.
In February, state Senator Leland Yee was sentenced to five years in prison for accepting campaign contributions in exchange for favors. The FBI’s racketeering investigation also bagged former San Francisco school board president Keith Jackson, a Yee fundraiser. Jackson set up the bribery scheme, took payoffs to traffic in drugs and guns, and arrange a murder for hire. U.S. District Judge Charles Breyer called Jackson a “one-person crime wave” and sentenced him to nine years in prison. State Senator Rod Wright’s felony convictions on perjury and voter fraud landed him in jail, but the corruption extends to powerful unelected government bodies.
California Coastal Commissioner Mark Nathanson served five years in prison for bribery, and the longtime Commission boss Peter Douglas was on record that more criminality was going on. The more government, the more corruption. California leads the way.
CNBC recently featured an op-ed by Peter Tanous, in which the noted author and investment advisor warns of a potential economic catastrophe that none of the 2016 election’s presidential candidates is seriously addressing.
The nation’s dire predicament, Tanous argues, is a direct result of how the extraordinary runup of the national debt during the past eight years will severely restrict how the federal government can spend money as interest rates increase from their historic, near-zero lows.
What makes his case particularly alarming is that he uses the Congressional Budget Office’s baseline scenario, which given the major candidates’ fiscal proposals, represents a best-case scenario:
The math is simple. The non-partisan Congressional Budget Office forecasts that debt held by the public will rise to $16.5 trillion in 2020. Now you may have your own views on that, since some will make a good case it will be higher. Indeed, if you look at the economic plans of both presidential candidates, most scoring exercises indicate that both will produce higher deficits. For our exercise though, let’s stick with the CBO estimate. We are postulating that the interest rate on our national debt may well return to the long-term, 25-year average of 5 percent.
Now take the CBO estimate of debt held by the public of $16.5 trillion in 2020, a 5 percent average interest on that amount comes to annual debt service of $829 billion, a staggering amount.
Let’s put it in perspective:
Individual income taxes in 2016 produced $1.6 trillion in revenue.
- Under this 2020 scenario, one-half of all personal income taxes would go to servicing the national debt.
- Debt service in 2020 would dwarf our military spending of $585 billion in 2016.
- Debt service would consume nearly two thirds of Social Security obligations.
Note: We are using 2016 numbers for comparison. It is likely that all these numbers will be higher in 2020 but the proportions will likely be similar or worse.
These numbers are staggering, all the more so because the assumptions we use are eminently reasonable and predictable. This trend is the consequence of our failure to pay enough attention to the national debt and the effect of rising interest rates. Who will tell the American people that in a couple of years, over half their income tax payments will go to pay interest on the debt to Japan, China and all the others who buy American bonds? Who will tell the American people that that the debt service we pay will be far greater than our expenditures for the military?
From the time that Barack Obama was sworn into office as the U.S. President on January 20, 2009, to the time the next president is sworn into office in January 2017, the total public debt outstanding will have nearly doubled. Since it started at $10.6 trillion, to call that a massively huge run-up in debt is something of an understatement.
When as a nation we borrow money to finance our federal debt, what matters most is not how much we borrow, but what we do with the money we have borrowed. (Recall Milton Friedman’s admonitions that “spending is taxation.” All money spent must eventually be paid for by taxes, either directly or indirectly, even if it’s financed initially by debt.) Debt that is used to finance productive investments can pay for itself by boosting incomes and creating new jobs (e.g., infrastructure, research). But debt that is used to finance consumption is money that is squandered—Greece comes to mind as a good example of what not to do with borrowed money.
By that measure, we have squandered a huge portion of the money we’ve borrowed in the past 8+ years. For example: Since the end of 2007, transfer payments have increased by $3.76 trillion, rising from 12% of GDP to now 15% of GDP. This is money that was taken from one person and given to another, with no regard as to whether the beneficiary has contributed anything to the economy. Call it “unproductive spending” if you will. And as I noted some years ago, only 8% of the nearly $1 trillion in “stimulus” spending under Obama was spent on transportation and infrastructure. Not a dime went to increase anyone’s incentive to work harder or invest more.
We’ve been spending lots of money in an unproductive fashion, and that helps explain why this has been the weakest recovery ever. As bad as things are, however, this is not necessarily the end of the world. We can reverse course, and with a lot of growth we can reverse the increase in our debt burden, which is what happened in the post-war period. Unfortunately, Hillary will almost certainly attempt to double-down on the failed spending and taxation policies of the Obama administration. Only Trump is talking about pro-growth policies, with the notable exception of his complete lack of understanding of the dynamics of trade.
That sounds about right.
Claudia Buck of the Sacramento Bee attempts to explain “Why Covered California’s rate hikes are lower than the rest of the U.S.” The rate increases for California’s Obamacare division have gone up double digits for the first time, 13.2 percent compared to the national average of 25 percent. Covered California boss Peter Lee expects that next year’s hikes will be “down to single digits.” This year eleven carriers offer policies and Californians will have, count ‘em, “at least two to choose from.”
Mr. Lee does not discuss problems outlined by Emily Bazar of the Center for Health Reporting. For example, the $454 million Covered California computer system proved dysfunctional, but Covered California bosses blamed it when Californians’ policies were canceled when they reported changes in their income, changing their eligibility for tax credits. On the other hand, those turning 65 and going on Medicare found it find it practically impossible to cancel their Covered California deal. As Bazar reported, others who dutifully applied got letters saying they did not qualify for tax credits. Four people in one household received four different eligibility decisions in the same notice.
Emily Bazar concluded that Covered California may have helped “multitudes” apply for health insurance but “it also is responsible for countless glitches and widespread consumer misery.” As we recently noted, while these problems continued, the state auditor also slammed Covered California for widespread cronyism.
In her latest column, “Five Ways to Reduce Your Obamacare Sticker Shock,” Emily Bazar warns that “minimizing damage won’t be painless.” If Californians opt for a bronze plan, “be sure you can afford the high out-of-pocket costs that come with it.” If Californians don’t like their Obamacare plan and don’t want to keep it, Bazar recalls Obamacare’s punitive side. Next year, the basic penalty for not having health insurance will be “$695 per adult (half of that for kids) or 2.5 percent of your adjusted household income, whichever is greater,” and that “means a lot of money.” It’s all part of the misery inherent in the Obamacare system, what Bill Clinton called “the craziest thing in the world.”
As David Frum notes in The Atlantic, over the past 18 months 90 percent of American colleges and universities have hired “chief diversity officers,” part of an “already thriving industry” long apparent in California. As Heather MacDonald observed, though facing state and federal funding cuts in 2012, the University of California San Diego hired its first vice chancellor for equity, diversity and inclusion, at a starting salary of $250,000. In 2010 UC San Francisco appointed its first vice chancellor of diversity and outreach, with a starting salary of $270,000. “Each of these new posts,” MacDonald wrote, “is wildly redundant as armies of diversity functionaries already lard UC’s bloated bureaucracy.” To understand why the diversity industry is a waste of money, taxpayers need to dial back two decades.
On November 5, 1996, Californians voted 54 to 46 percent to approve Proposition 209, the California Civil Rights Initiative: “The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.” Public colleges and universities remained highly diverse and inclusive, as they were before. Bureaucrats could still take affirmative action to help needy students, but they could no longer discriminate against some groups to impose the politically correct dogma that all institutions must reflect the ethnic proportions of the population. This dogma, not part of state law or the Constitution, ignores personal differences, effort, and choice, and the reality that statistical disparities are the rule, not the exception.
After the ban on preferences took effect, as Thomas Sowell noted in Intellectuals and Race, blacks and Hispanics with degrees in science, technology, math, and engineering rose 51 percent, and the number of doctorates earned by such students rose 25 percent. That happened without input from University of California’s surging army of diversity bureaucrats, who don’t teach. So like David Frum, taxpayers might wonder, “what do these administrators do?” They waste money, lard up an already bloated bureaucracy, and make higher education increasingly expensive.
On Tuesday, November 8, 2016, Americans face a dismal choice between what many believe to be the two worst presidential candidates ever nominated in the same election by the major political parties during their lifetimes.
Faced with such lousy choices, voters might want to consider ways in which they can use their vote in 2016 to minimize the future damage, particularly with respect to the nation’s fiscal policies, where the national debt will soon exceed 20 trillion dollars, having nearly doubled during the past eight years.
To that end, there is strong evidence from President Obama’s time in office suggesting that dividing control of the government, between the party that controls the White House and the party that controls the Senate and House of Representatives, can keep a lid on the growth of the national debt.
In the first two years of President Obama’s time in office, the Democratic Party controlled the White House, the House of Representatives, and the Senate. During that time, the growth of the national debt skyrocketed, growing at a steady rate from $10.6 trillion to $14 trillion in just two years, despite the end of the Great Recession less than six months after President Obama was sworn into office.
But it wasn’t until after the election of 2010, which brought Republican party majorities to the House and Senate, dividing control of the U.S. government between the two major parties, that the dangerously fast growth of the national debt was finally slowed. Law professor Ilya Somin wrote back in August 2011 on that achievement:
The debt deal passed today does not go as far in cutting spending as I would like. But it does nonetheless enact substantial cuts without any tax increases, with a significant likelihood of more cuts in the future. If the bipartisan commission created by the new legislation fails to come up with a spending cut plan or Congress fails to enact the plan, there will be additional automatic cuts in both civilian and military spending.
If nothing else, the deal provides additional evidence in support of the proposition that divided government reduces the growth of the state, and makes deregulation and spending cuts more likely. Certainly, it is inconceivable that any such deal would have been made had the Democrats retained control of Congress in 2010. One can argue that the Republicans would have enacted bigger cuts had they controlled the Senate and the White House as well as the House of Representatives. But it should not be forgotten that the GOP presided over massive increases in spending and regulation when they controlled all three under George W. Bush. The government-restraining effects of divided government are demonstrated not only by the last decade, but by previous historical experience.
That kind of result would not appear to be a fluke, as it has certainly been demonstrated during the last six years. Without that change, had the Democrats controlled Congress after 2010, we would have seen the total public debt outstanding of the U.S. government breach the $20 trillion level back in 2014.
Instead, it will have taken just over two years longer for it to pass that grim milestone.
If that does not sound like a great success, that’s because it isn’t. But compared to the path the nation had been on, it is a better alternative. The real challenges won’t be addressed until we fix the real problems of politics, which will mean bringing forward candidates who are recognized for their genuine sincerity and candidness, rather than by their crafty and cunning selfishness, to borrow a turn of phrase from a former President who both believed in fiscal responsibility and delivered it.
That Hillary Clinton and Donald Trump are ignoring the United States government’s debt problem as they campaign for the presidency is the consensus of former Federal Reserve Chair Paul Volcker and former Commerce Department Secretary Peter Peterson, who recently co-authored an op-ed in the New York Times. They describe their dismay with both candidates:
Together, the two of us have 179 years of life experience and 13 grandchildren. We have served presidents of both parties. We have seen more campaign seasons than we care to count—but none as strange as this one.
Insults, invective and pandering have been poor substitutes for serious debate about the direction in which this country is going—or should be going. And a sound and sustainable fiscal structure is a key ingredient of any viable economic policy....
Unfortunately, despite a brief discussion during the final presidential debate, neither candidate has put forward a convincing plan to restrain the growth of the national debt in the decades to come.
Throughout the campaign, Donald J. Trump has called for a combination of deep tax cuts that appear to far exceed proposed spending reductions, at the clear risk of substantially increasing the ratio of debt to G.D.P. Hillary Clinton has set out more balanced and detailed proposals, but they would still fail to stabilize and reduce our debt burden.
The Mercatus Center’s Veronique de Rugy shares Volcker’s and Peterson’s dismay at the candidates’ lack of coherent fiscal policy. She writes on Hillary Clinton’s fiscal promises following the third and final presidential debate of the 2016 election:
On the issue of the size of government, the debt, and deficits, I again found that neither candidate is serious—and a few claims made last night were actually quite laughable.
Take Clinton. She claimed that her high-taxes, high-spending plan would not add a penny to the national debt. But nothing could be further from the truth. Public debt stands at 77 percent of GDP (gross debt is over a 100 percent). Her plan would increase the national debt by $9 trillion, from $14 trillion today to more than $23 trillion in a decade (or 86 percent of GDP) according to an analysis by the Committee for a Responsible Federal Budget. And that doesn’t even take under consideration her new and expansive child-tax credit.
Now, maybe she was trying to be clever by arguing that her plan wouldn’t increase the debt more than the current projections by the Congressional Budget Office (CBO). As I mentioned yesterday, CBO projects an increase from 77 percent of debt to GDP today to 86 percent in 2026. However, if she wants to brag about maintaining the status quo, she is fiscally irresponsible at best. Without even taking under consideration that CBO projections are likely too optimistic, CBO also projects that our debt will grow to reach 150 percent of GDP in 30 years. And that number doesn’t include unfunded liabilities, which—depending on the scholars and the methodology—may range from $55 billion to $200 trillion. Ouch. Even without going that far, most economists on the right and the left agree that persistently high and increasing levels of national debt correlate with diminished economic growth. Not to mention that it is really crappy to leave future generations to deal with that mess.
So Clinton’s plan increases the debt a lot, and not surprisingly it also would “reduce GDP by 1 percent over the long-term due to slightly higher marginal tax rates on capital and labor,” according to the Tax Foundation. Under her plan, the ten-year GDP growth will be depressed by 2.6 percent, while capital investment will be depressed by 7 percent and wages will go down by 2.1 percent. No thank you.
The problem is actually considerably worse than De Rugy describes. Since Hillary Clinton’s proposed spending increases are funded by increases in the tax rates that apply to Americans earning over $250,000, whose incomes are the most volatile among all Americans from year to year, if the U.S. economy fell into a recession that causes their incomes to plummet, Clinton’s spending increases would ensure that the U.S. government would suffer an even larger fiscal crisis than it otherwise would because the tax revenue to sustain that extra spending will not be there.
De Rugy also took on Donald Trump’s fiscal proposals:
Unfortunately for us, Donald Trump isn’t any more serious about addressing our debt problem. According to CRFB, his plan would boost the debt to 105 percent of GDP in ten years because revenue would fall quite dramatically. Don’t get me wrong, I don’t have anything against starving the beast, as long as we cut spending at the same time and do not leave future generations paying for it all....
Trump went on to say, “I’m cutting taxes. We’re going to grow the economy. It’s going to grow at a record rate of growth,” and, “Repeal and replace the disaster known as Obamacare.” But as I have said, you can not grow your way our of our debt problem. Also, even though everything he says about Obamacare—the problem of premiums going up, and thereby hurting people and businesses—is correct, repealing Obamacare isn’t enough. Before Obamacare there was—and still is—Medicare. Remember, we spent close to $600 billion on Medicare in 2016.
And then there’s all those other mandatory expenditures that rise year after year without any intervention on the part of the U.S. Congress, including Social Security. De Rugy finds much to fault both Clinton and Trump for not facing up to the source of the nation’s biggest fiscal challenges:
We know Trump doesn’t want to touch Medicare or Social Security. We spent almost $1 trillion on Social Security in 2016. The program has been running a cash-flow deficit since 2010. Its Trust Fund will dry up by 2034 and, when that happens, benefits will be cut by 25 percent. This is not good and doing nothing is not an option. Of course, Clinton is no better on Social Security than Trump is. She want to put money in the Trust Fund by raising taxes on the rich, the same rich, I suppose who will be paying for her free-college-tuition plan. While that may extend the life of the program, it won’t fix anything. And on top of that she wants to increase benefits to low-income earners, without cutting anyone else’s benefits. Her math, as always, doesn’t add up.
Volcker and Peterson call for leadership that hasn’t yet been visible from either candidate:
Delaying action now will make the needed changes only more painful and difficult later on, while also increasing the risk of financial crisis before the reforms are even made. That is why the real debate should begin immediately.
Yet at the final presidential debate, both candidates missed the opportunity to clearly lay out their visions for a fiscally responsible, long-term future for our country. There’s still time to solve this problem. But our next president needs to show leadership in the first months.
Take some advice from two observers who have been around for a while: The long term gets here before you know it.
The clock is already ticking down. President Obama has already made the first cuts to Social Security benefits, including the file-and-suspend enhancement that had been signed into law by President Bill Clinton during his tenure in office, and they didn’t fix the program’s long term funding problems. More such cuts can be expected.
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