MyGovCost News & Blog

For many Americans, the days following Christmas are often filled with trips to the mall, where they exchange the gifts they got for those they would rather have received.

It’s no different for U.S. politicians.

For example, President-elect Donald Trump has big plans to boost the U.S. government’s spending on the nation’s infrastructure, which is something he really wants, but paying for it is going to be a big problem. Politico‘s Lauren Gardner describes what’s being talked about behind the scenes in Washington D.C. in advance of Trump’s upcoming inauguration on January 20, 2017.

It was supposed to be a big, beautiful infrastructure bill. But President-elect Donald Trump’s pitch for a $1 trillion upgrade of the nation’s roads, bridges, tunnels and airports is already running into potholes as it meets reality in Washington.

The overwhelming sticking point, as always, is how to pay for it.

Trump’s advisers are so far floating the same kinds of financing schemes that Congress has batted around for years with little success, including proposals to lure private investors or reap a revenue windfall through an overhaul of the tax code. Key lawmakers say they’re in the dark on how Trump’s plan would work — with some conservatives simply hoping that his call for massive tax breaks will provide an economic jolt that makes the hard spending decisions easier.

With Washington D.C. being the political swamp that it is, it is a sure bet that no matter what financing schemes are considered, the U.S. government will end up spending far more than it will collect in taxes to pay for it, which means big increases in the federal government’s borrowing and the national debt. In fact, one of the actions that the U.S. Congress will need to take early in 2017 will involve increasing the national debt ceiling by enough to account for its planned new spending, which presumably would include a lot of President-elect Trump’s infrastructure initiative.

This is where it would be really nice if there were an exchange for politicians, where they could trade something they have but don’t want for something they actually want more.

There may be a way to make that work in 2017.

Over the last eight years, the U.S. government has racked up nearly a trillion dollars of national debt to support outgoing President Obama’s decision to get the federal government into the business of making student loans on a big scale. Meanwhile, it is already well established that incoming President-elect Trump would really rather have a trillion dollars worth of new infrastructure in the U.S., but is going to have trouble funding it.

Normally, U.S. politicians would just run up the national debt more, but what if the U.S. government’s student loan business was sold off to financial institutions in the private sector to clear space within the existing national debt limit to accommodate the new spending on infrastructure projects?

By packaging the U.S. government’s student loan assets together with its related liabilities, the massive amount of money that the U.S. government has had to borrow specifically for the purpose of being in the business of originating student loans in the last eight years, the U.S. government could potentially erase nearly a trillion dollars of the national debt off its books by selling its student loan business.

Having that cleared that much space in its national debt liabilities, the U.S. government would then be able to substitute new borrowing to fund more productive investments with better returns for American taxpayers in the nation’s infrastructure than what it was getting through its money losing student loan business.

Best of all, should the new amount of spending to be dedicated to infrastructure be less than the amount of national debt liabilities cleared off the U.S. Treasury Department’s books by the sale of the government’s Federal Direct Student Loan business, the national debt burden of American households would be lessened.

If you could make that kind of deal, where you can get something you would really rather have in exchange for something you really don’t want or need, why wouldn’t you do it?

“Is it the ‘how’ or the ‘when’ that matters in fiscal adjustments?”

That’s the title of a new paper by a team of five economists that really answers a different question: What is the best way for a government to reduce its budgetary red ink, when the alternatives are to raise taxes, cut spending, or do some combination of both?

To answer that question, the paper’s authors examined data from 16 countries from 1981 through 2014, taking into account the unique economic conditions that applied for each country. Dan Mitchell summarizes the results of their analysis:

The economists crunched the numbers and found that tax increases impose considerable damage, whereas spending cuts cause very little harm to short-run performance.

We find that the composition of fiscal adjustments is more important than the state of the cycle in determining their effect on output. Fiscal adjustments based upon spending cuts are much less costly in terms of short run output losses – such losses are in fact on average close to zero – than those based upon tax increases which are associated with large and prolonged recessions regardless of whether the adjustment starts in a recession or not…. what matters for the short run output cost of fiscal consolidations is the composition of the adjustment. Tax-based adjustments are costly in terms of output losses. Expenditure-based ones have on average very low costs.

These findings are remarkable. Even I’m willing to accept that spending cuts may be painful in the short run (not because of Keynesian reasons, but simply because resources don’t instantaneously get reallocated to more productive uses).

So if the economists who wrote this comprehensive study find that there is very little short-run dislocation associated with spending cuts, that’s powerful evidence.

And when you then consider all the data and research showing the positive long-run effects of smaller government, this certainly suggests that the top fiscal priority should be shrinking the size and scope of government.

Shrinking the government through significant spending cuts is a promise that many politicians make, but few ever try to keep. Too often, the promise is broken because the politicians prove to be unwilling to face up to the loud cries and political influence of the few who benefit the most from the continuation of high government expenditures: special interests who are often also the politicians’ biggest campaign contributors.

Nevertheless, if politicians need to stop burdening the people with excessive national debt, the latest economic research indicates that cutting government spending should be the preferred path to putting their country’s fiscal house in order.

Maybe it is the season to be jolly, but California taxpayers are still getting over their sticker shock on higher property tax bills, and the extension of steep income-tax hikes that were supposed to be “temporary.” Governor Jerry Brown, a born-again tax hiker, promoted that extension and has also been playing the sinecure Santa by handing out lucrative board positions to positions to political retreads. These developments prompt a meditation on the government’s process of give and take.

Government cannot give anybody anything it does not take from somebody else. Politicians aim to “redistribute wealth,” the same thing thieves do, and thieves, like politicians, pay close attention to “ability to pay.” As Frederic Bastiat noted in The Law, “See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

Politicians also imagine that a tax cut amounts to a gift from the government. Actually, to allow a worker to keep more of what she or he has earned is not to “give” them anything. Workers should be aware that government already gets their money before they do, in the form of withholding from their paychecks. This World War II policy was also supposed to be temporary but the pillage people kept it in place. Government still gets the money first, and what a worker receives back in April is not a gift but his or her own money.

As a matter of basic rights, nobody should get workers’ money before the workers themselves. Any politician serious about reform should drop withholding, junk the current tax code, and simplify the system so everybody pays the same rate. That might not make bureaucrats jolly, but it is the right thing to do.

California politicians, led by Jerry Brown, cry “bah humbug” to all that. In the nation’s least tax-friendly state, the ruling class prefers to celebrate government’s fathomless greed. As Jon Coupal explains, “No matter how high taxes are increased, it’s never enough for public officials and bureaucrats who live off taxpayer funded paychecks.” Happy holidays everybody!

The National Institutes of Health boasts a 2017 budget of $33.1 billion, up $825 million from 2016. In the coming year, the massive federal agency will support 36,440 research grants, an increase of 600 from 2016. As Claudia Buck notes in the Sacramento Bee, the NIH will give $2.3 million to University of California at Davis to study how exercise works inside the human body, part of a $170 million nationwide study.

UC Davis will be working with “more than 1,500 rats over six years, putting them through the human equivalent of endurance exercise, such as treadmill running, for eight to 12 weeks. Later, the rats will be euthanized so researchers can dissect and analyze their muscles, tissues, blood and organs to gauge the effects of exercise.” Studies will also be conducted on human subjects, “minus the organ dissection.” UC Davis physiologist Sue Bodine claims the study could eventually help doctors prescribe specific types of exercise, both to help people stay healthy and to prevent or treat diseases, such as diabetes or Alzheimer’s.

On the other hand, the study could also be an example of the federal gravy train funding waste. As Claudia Buck proclaims at the outset of her story: “We all know exercise is good for us.” So six years of putting 1500 rats through the treadmill is more about the redistribution of money than medical science. For its part, UC Davis knows how to throw money around.

As we noted, UC Davis pepper sprayed protesting students and paid a settlement of $1 million, more than half of it going to consultants. Chancellor Linda Katehi spent $407,000 to shore up her image on the Internet. She kept three family members on the payroll and promoted one to “assistant vice chancellor.” Katehi resigned in August but as Sacramento Bee reporter Diana Lambert notes, she “will take advantage of a University of California perk that allows campus leaders to receive chancellor-level pay with few responsibilities for one year.” Katehi will continue to receive her salary of $424,360 plus retirement and health benefits, but she will not have to teach any classes.

This record of waste and unaccountability proved no obstacle to a $2.3 million NIH grant for a useless study. We already know exercise is good for us. Medical waste is bad for taxpayers.

Governor Jerry Brown wants to drill two massive tunnels under the Sacramento-San Joaquin Delta and calls this project “a fundamental necessity of California’s current and future prosperity.” Now Ellen Hanak, director of the Public Policy Institute of California’s Water Policy Center, and PPIC fellows Brian Gray and Jeffrey Mount want the state to drill only one tunnel. This “grand compromise,” they say, will manage water effectively, protect endangered species, preserve water quality, and “greatly reduce the project’s cost.” Alas, the PPIC crew fails to provide figures for the total cost of a single tunnel.

As we noted, according to Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific, the tunnels are a financial bust. According to his estimate, they will provide “only 23 cents of benefits for each dollar of cost.” Construction costs, estimated at $16 billion, “are still more than 2.5 times larger than benefits.” Therefore the project “is not economically justified under both the base and optimistic scenarios.”

If Hanak et al. believe one tunnel would cut the costs in half, to about $8 billion, they don’t say so. As it happens, projects of this magnitude tend to encounter costly problems. Seattle’s $3.14 billion Highway 99 viaduct, for example, remains plagued with delays and cost overruns. As Mike Lindblom explains in the Seattle Times, “Its final costs remain an open question.” The original estimate of Boston’s seven-mile Big Dig was $2.4 billion, but it wound up costing $14.8 billion, with final costs in the range of $21 billion by the time the final bond is paid off in 2038.

With government everything always costs more and takes longer. The new span of the Bay Bridge, for example, was $5 billion over cost, years late, and still plagued with safety issues. In government tunnel vision, however, there is always money for everything. One Delta tunnel or two, this is a legacy project for a reactionary recurring governor who is talking about launching satellites. Long after this big spender leaves office, California taxpayers, and their children, will be stuck with the costs.

In one month, Donald Trump will be sworn in as the 45th President of the United States of America. Shortly after he assumes office, it is widely expected that he will pursue a massive fiscal stimulus for government spending, similar in many respects to what President Obama did in his first month after being sworn in.

Since almost the entire economic legacy of Barack Obama’s presidency was set in its first month, when the American Recovery and Reinvestment Act (ARRA) was signed into law on February 17, 2009, it would be a good idea to consider what we learned from that experience.

The Obama administration proclaimed that the $830 billion measure would spark a Great Recovery to follow the Great Recession, generating enough economic growth through government spending to keep the nation’s unemployment rate from rising above 8 percent, as it would provide a long-lasting stimulous through higher GDP growth rates.

It didn’t work out that way. Writing at the Wall Street Journal on the fifth anniversary of its passage, James Freeman described the true legacy of President Obama’s stimulus program:

Five years ago today, President Barack Obama signed the American Recovery and Reinvestment Act into law. The $830 billion spending blowout was sold by the White House as a way to keep unemployment from rising above 8%. But the stimulus would fail on its own terms. 2009 marked the first of four straight years when unemployment averaged more than 8%. And of course the unemployment rate would have been even worse in those years and still today if so many people had not quit the labor force, driving labor-participation rates to 1970s levels….

Shortly after the passage of the Recovery Act in 2009, Vice President Joseph Biden urged local politicians not to spend the money on “stupid things.” They ignored his advice, and so did Mr. Biden. The federal government poured billions into the government and education sectors, where unemployment was low, but spent only about 10% on promised infrastructure, though the unemployment rate in construction was running in double digits. And some of the individual projects funded by the law were truly appalling. $783,000 was spent on a study of why young people consume malt liquor and marijuana. $92,000 went to the Army Corps of Engineers for costumes for mascots like Bobber the Water Safety Dog. $219,000 funded a study of college “hookups.”…

In aggregate, the spending helped drive federal outlays from less than $3 trillion in 2008 to $3.5 trillion in 2009, where federal spending has roughly remained ever since.

The legacy is a slow-growth economy: Growth over the last 18 quarters has averaged just 2.4% — pretty shoddy compared to better than 4% growth during the Reagan recovery in the 1980s and almost 4% in the 1990s recovery.

In 2012, ReasonTV conducted a case study of how President Obama’s stimulus package worked in the Washington, D.C., suburb of Silver Spring, Maryland.

The United States was not the only nation to attempt to use a government-spending stimulus program to boost economic growth during the period of the Great Recession, which was a worldwide event. The Centre for Independent Studies’ Robert Carling recently commented on a paper released by Australia’s Treasury Department on the apparent effectiveness of that country’s government stimulus programs from the same period:

A Treasury-released paper critiquing Australia’s fiscal stimulus during the global financial crisis of 2008-09 shows the flaws in the stimulus model, according to the Centre for Independent Studies (CIS).

“The paper by budget expert Professor Tony Makin highlights the limited effectiveness and longer term costs of Australia’s unnecessarily large stimulus in 2008 and 2009,” CIS Senior Fellow Robert Carling said.

“Professor Makin argues that Australia escaped the worst of the Global Financial Crisis because of our robust banking system, reduced interest rates, a lower exchange rate, demand for minerals, and a flexible economy, not because of the stimulus.

“In addition, Professor Makin argues the stimulus caused problems by preventing interest rates and the exchange rate from falling by more.

Instead of boosting Australia’s economy as it intended, the Australian government’s stimulus spending unnecessarily created additional headwinds for it.

Those aren’t the only parallels to the U.S. experience. Reflecting on the Australian government’s $43 billion (Australian dollars) stimulus in response to the Global Financial Crisis (GFC) for ABC News in 2011, Australian economist Steven Kates found it provided no positive contribution to Australia’s economy.

That ultimately we have come out of the GFC relatively better placed than others should be welcome but cannot be attributed to the stimulus which has left us worse off than if nothing had been done at all. That the Treasury and others badly and wrongly overstated the seriousness of the downturn that would eventually occur has added to the belief that something positive was done to save the Australian economy from what could have been much worse. The reality was that Australia was never heading for the slowdown Treasury foresaw and its panicked overreaction and subsequent over-the-top stimulus expenditure have served Australia very badly indeed.

And of this you may be sure. If recessionary conditions overcome Australia any time in the foreseeable future there will be no stimulus measures taken this time round. Whatever the Government may say, even it now knows better than to do the same thing again.

It is doubtful than any politician anywhere will ever truly learn that lesson. We’ll soon find out if President-elect Donald Trump is genuinely different by whether or not his incoming administration applies the lessons learned from the failures of “economic stimulus spending” by governments virtually everywhere in the world during the past eight years.

Back in the day, Jerry Brown earned the nickname “Governor Moonbeam” for proposing that California launch its own communications satellite. “I didn’t get that moniker for nothing,” Brown recently proclaimed, adding, “if Trump turns off the satellites, California will launch its own damn satellite.” The governor did not indicate what this satellite might cost, but as his building plan for the capital shows, it is likely to be much higher than he can imagine.

“California risks embarking on a flawed and potentially costly Sacramento-area state office building strategy,” notes Jim Miller in the Sacramento Bee. The $3 billion plan calls for the renovation or replacement of 11 state buildings. The state legislative analyst finds the project short on detail and warns that the governor’s June budget agreement limits controls over how the money gets spent. Already it appears that the buildings, as Miller explains, “will turn out to be more expensive than earlier estimates.” That will come as no surprise to embattled California taxpayers.

As we noted, the Sacramento headquarters of the California State Board of Equalization is known as a “24-story money pit,” with a history of leaks during heavy rains. The state building features mold, burst pipes, falling glass, a bat infestation, and traces of toxic substances. Over two decades bureaucratic bosses have spent some $60 million on the building, but in 2014 the cost to fix everything was another $30 million. None of that would have been necessary if the building had been properly constructed. It wasn’t, because politicians were looking the other way, and there’s no recourse, because politicians allowed the statute of limitations on defective construction to run out in 2002.

Taxpayers might also recall that the new span of the Bay Bridge came in 10 years late, $5 billion over budget, and remains riddled with safety issues such as cracked rods, defective welds, and corrosion. When confronted with the safety problems, California governor Jerry Brown famously replied, “I mean, look, shit happens.” This is the man who supports a bullet train, two massive water tunnels, and wants the state to launch “its own damn satellite.” Whatever the cost, he would surely be okay with it. As Governor Moonbeam says, “I didn’t get that moniker for nothing.”

Last week, USA Today‘s Donovan Slack broke the story of the secret internal ranking system that the U.S. Department of Veterans Affairs (VA) has been using to monitor the performance of the hospitals and medical facilities that it operates across the United States.

WASHINGTON — The Department of Veterans Affairs has for years assigned star ratings for each of its medical centers based on the quality of care and service they provide, but the agency has repeatedly refused to make them public, saying they are meant for internal use only.

USA TODAY has obtained internal documents detailing the ratings, and they show the lowest-performing medical centers are clustered in Texas and Tennessee.

VA hospitals in Dallas, El Paso, Nashville, Memphis and Murfreesboro all received one star out of five for performance as of June 30, the most recent ratings period available.

The most disturbing part of the story, however, was a revelation about the VA hospitals most closely associated with its secret waitlist scandal. (Bear in mind that veterans seeking medical treatment at those facilities were placed on secret lists that hid how long they were waiting to receive treatment, while VA administrators and supervisors used the VA’s official waiting lists to claim bonuses for meeting the VA’s goals for providing speedy service.) Not only were those hospitals ranked lowly at the time the scandal became public, but their performance rankings have not improved despite the Obama administration’s highly public show that it was fixing the VA’s problems.

Some lower-ranking medical centers have remained poor performers despite high-profile crises and years of attention and resources from Washington.

For instance, the Phoenix VA was a one-star medical center in 2014 when news broke that veterans had died awaiting care there while schedulers kept secret wait lists masking how long veterans were waiting for appointments. The revelations triggered a national scandal, hearings on Capitol Hill and the replacement of the VA secretary.

Phoenix remained a one-star facility in the most recent ratings.

Needless to say, veterans groups were strongly disappointed in the Obama administration’s lack of tangible progress. Stars and Stripes‘ Tyler Hlavac reports:

Concerned Veterans for America, a veteran advocacy group that has been critical of the VA, released a statement condemning the findings. CVA Executive Director Mark Lucas said the ratings system underscores continuing problems in the organization and that the VA is not committed to transparency.

“By keeping this rating system secret, the VA was admitting that preserving the illusion of competency matters more to them than actually serving veterans — and the VA fails at both,” Lucas said. “The lengths to which the VA will go to hide its own bad performance should disturb veterans and American taxpayers alike.”

After more than two years of President Obama’s feckless and ineffective management of the veterans health care rationing scandal and his failure to see through needed reforms, the VA is in desperate need of real reform and a management turnaround, starting with major changes in the VA’s leadership throughout its bureaucracy.

Back in 2011, when students were peacefully protesting steep tuition hikes, UC Davis cops pepper sprayed them. This abuse resulted in a $1 million settlement, more than half of it going to consultants, who reported to a panel headed by Cruz Reynoso, a Jerry Brown pick California voters booted off the state Supreme Court in 1986. UC Davis did not fire any administrators over the pepper-spray case. Instead they suspended with pay John Pike, the policeman who sprayed the protesters. Pike, whose salary was $119,067, claimed he suffered “psychiatric injury” and UC Davis paid him a workers’ compensation settlement of $38,000. UC Davis chancellor Linda Katehi kept her job but came under fire for spending $407,000 in university funds to shore up her image on the Internet.

It also emerged that Katehi employed three family members on campus, including her daughter-in-law Emily Prieto. In less than three years on Katehi’s watch, Prieto received promotions and raises that boosted her pay by more than $50,000. Then in 2015 UC Davis made Prieto an “assistant vice chancellor,” boosting her pay to $130,000. Katehi also drew fire for accepting a board seat with DeVry University, an independent for-profit school, and for shaky recording of travel expenses. Katehi was on paid administrative leave when she finally resigned in August. She will get a year’s pay and continue as a full-time member of the UC Davis faculty. Now it seems even more goodies may be in store for the ousted chancellor.

As Diana Lambert notes in the Sacramento Bee, “former UC Davis Chancellor Linda P.B. Katehi is in position to lead the school’s Feminist Research Institute,” established in 2015. According to its website, the FRI will explore “how gender, sexuality, race, and other social structures inform the design, execution, and interpretation of research.” In that cause, the FRI “will generate transformative, paradigm-shifting linkages across disciplines by bringing feminist ethics and methodologies to bear on the basic sciences, social sciences, humanities, health sciences, engineering, law, economics, and agriculture and environmental science.” What that might mean remains unclear, but at UC Davis, waste, abuse, nepotism and misconduct can certainly bring rich rewards.

A lot of Americans would probably be very surprised to find out that the U.S. federal government was on the verge of shutting down for the second time during the last four years this past weekend, coming within an hour of doing so.

Instead, the near-“crisis”, which arose because the U.S. Congress needed to pass a spending bill to keep the federal government’s operations going, was barely reported upon by the media.

2013’s shut down had come about as the result of the Republican party’s principled opposition to the implementation of the Patient Protection and Affordable Care Act (PPACA), which is more popularly known as “Obamacare”. Using the leverage of that year’s spending bills, Republican party members of the U.S. Senate attempted to delay the impending implementation of the law that was unethically crammed through the U.S. Congress three years earlier without the support of a single Republican party member of Congress.

By contrast, in December 2016, the almost-shut down of the U.S. government would have come entirely at the hands of the members of the Democratic party in the U.S. Senate. According to the limited reporting of the New York Times, there doesn’t appear to have been much of the way of either principles or positive results involved:

WASHINGTON — Senate Democrats on Friday relented in their flirtation with a government shutdown over a dispute about health care benefits for coal miners, and with less than an hour before the midnight deadline, the Senate approved a measure to fund the government through April.

The party’s willingness to take the nation to the brink of a government shutdown signaled its intention, just weeks after its election drubbing in Rust Belt states, to quickly leverage the sorts of issues that propelled Donald J. Trump to victory.

The House on Thursday passed a short-term spending bill that would keep the government open through late April and extend through that month health care benefits for retired miners who were set to lose them at the end of the year. But Democrats wanted those benefits to last for a year, and slowed down voting on the measure with the threat of rejecting the bill.

“We never intended to shut down the government,” Senator Chuck Schumer, Democrat of New York, the incoming minority leader, said on the Senate floor Friday evening. He added, “I think we’ve made our point.”

Senator Joe Manchin III, Democrat of West Virginia, who led the charge on behalf of the miners, said that at the very least, he and his colleagues had drawn attention to “what coal miners have done for this country.”

It was unclear what Mr. Manchin and other Democrats had gained from the process. There was no legislative compromise, nor any promise of more money for miners in the future.

For its part, the lame duck Obama administration blamed the Republican party for the pending federal government shutdown, despite the reality of the Democratic party’s senate leadership’s role in creating the near-crisis for the apparent purpose of its needs for political posturing.