In a 2011General Accounting Office study, the authors found unnecessary duplication in 81 areas of the federal government. For example, there were 53 programs to assist entrepreneurs, 15 programs to support unmanned aircraft, and 55 programs to fund freight transportation projects.
How much did unified government, whereby the Congress (both the House and Senate) and the White House are controlled by same party contribute to the redundancy of programs and excessive federal spending growth as gener-ally believed? In 1943 in the middle of World War II, federal spending as a percent of the U.S. economy, or gross domestic product (GDP), was 26.5 percent. By 1948, the federal spending to GDP ratio had de-clined to a low of only 14.4 percent. However, the ratio soared to a post WWII high of 25.5 percent in 2010.
Since 1943, divided government, or what is often termed gridlock, resulted in federal spending as a percent of GDP growing by 0.11 percentage points per year while having the same party dominating both Congress and the White House produced an expansion of 0.16 percentage points per year. Thus, gridlock did tend to restrain the growth in federal spending.
Furthermore during this 69-year period (1943 to 2012), when Democrats controlled Congress and the White House (12 two-year Congressional periods), federal spending as a percent of GDP grew by an average of 0.16 percentage points per year. When Republicans controlled both Congress and the White House (3 two-year periods), federal spending as a percent of GDP expanded by a lower average of 0.10 percentage points per year. Since the end of WWII, the greatest expansion in federal spending as a percent of GDP occurred between 2008, when federal spending as a share of GDP was 21.8 percent, and 2010 when the percent advanced to 25.5 percent, or an annual growth of 1.7 percentage points per year.
Contrary to the hypothesis, this was a period of divided government with the Republicans in control of the House, and the Democrats in charge of the White House and the Senate. Ernie Goss.
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Thursday, March 08, 2012
Friday, February 10, 2012
Hold the Schadenfreude, Please
In case you missed my column yesterday in the Omaha World Herald, here is a link:
http://www.omaha.com/article/20120209/NEWS0802/706019896
This essay focuses on the need for serious attention from the political ruling class to a plan to address our fiscal situation, lest we become like Greece. The Obama plan so far is based on tapping into voter Schadenfreude (delight in the downfall of others) regarding the rich, but it otherwise fails to provide any serious effort to address our fiscal crisis. Using 2009 Statistics of Income data, it shows that there is just not enough tax-preferred capital income to make a meaningful dent in our annual deficits, even if we confiscate all of that income. Wage income -- and I might have added, income from partnerships and S corporations that is predominantly wage income -- provides the real engine for tax revenues. Keep that in mind lest you are tempted to support a "raise taxes" approach to financing our government.
EAM
http://www.omaha.com/article/20120209/NEWS0802/706019896
This essay focuses on the need for serious attention from the political ruling class to a plan to address our fiscal situation, lest we become like Greece. The Obama plan so far is based on tapping into voter Schadenfreude (delight in the downfall of others) regarding the rich, but it otherwise fails to provide any serious effort to address our fiscal crisis. Using 2009 Statistics of Income data, it shows that there is just not enough tax-preferred capital income to make a meaningful dent in our annual deficits, even if we confiscate all of that income. Wage income -- and I might have added, income from partnerships and S corporations that is predominantly wage income -- provides the real engine for tax revenues. Keep that in mind lest you are tempted to support a "raise taxes" approach to financing our government.
EAM
Monday, February 06, 2012
Federal Subsidies Fuel College Costs: Up 5 Times the Rate of Inflation
Funds mostly for non-academics
Since 1981, U.S. Bureau of Labor Statistics data show that college tuition and fees have soared by 714.3 percent while all other items consumed by the average household increased by a more moderate 141.0 percent.
Reacting to this shocking trend, President Obama, in his State of the Union address, threatened higher educational institutes with sanctions if they continued to raise tuition at this alarming rate. But recent actions by the President only worsen the problem. Since 2009, the federal government has increased federal financial assistance to college students by almost 20 percent thus permitting colleges to grow their tuition and fees even more with taxpayers picking up the tab.
Moreover the President recently outlined his plan to boost taxpayer support, or subsidization, of higher education even more by: 1) Allowing borrowers to cap their student loan payments at 10 percent of discretionary income and waiving any loan balance remaining after 20 years. 2) Doubling the number of work-study jobs available, 3) Implementing the American Opportunity Tax Credit which provides up to $10,000 for four years of college. 4) Asking Congress to subsidize record low student loan interest rates.
Data show that colleges have used federal government support to underwrite a disproportionate growth in funds for non-academic spending. For example, despite rapidly rising federal support, colleges have increased the share of courses taught by part-time faculty from 34 percent in 1981 to 49 percent in 2009. Furthermore, colleges raised average faculty salaries by a scant 2.7 percent per year over the past six years. During this same time period, the growth rate in outlays for student services (e.g. athletics, counseling) was almost double that of expenditures for instruction. Research has shown that there is a strong correlation over time between federal support for higher education and rapidly rising tuitions. Similar to housing, the federal government is putting air in another bubble—this time it is higher education. Ernie Goss.
Since 1981, U.S. Bureau of Labor Statistics data show that college tuition and fees have soared by 714.3 percent while all other items consumed by the average household increased by a more moderate 141.0 percent.
Reacting to this shocking trend, President Obama, in his State of the Union address, threatened higher educational institutes with sanctions if they continued to raise tuition at this alarming rate. But recent actions by the President only worsen the problem. Since 2009, the federal government has increased federal financial assistance to college students by almost 20 percent thus permitting colleges to grow their tuition and fees even more with taxpayers picking up the tab.
Moreover the President recently outlined his plan to boost taxpayer support, or subsidization, of higher education even more by: 1) Allowing borrowers to cap their student loan payments at 10 percent of discretionary income and waiving any loan balance remaining after 20 years. 2) Doubling the number of work-study jobs available, 3) Implementing the American Opportunity Tax Credit which provides up to $10,000 for four years of college. 4) Asking Congress to subsidize record low student loan interest rates.
Data show that colleges have used federal government support to underwrite a disproportionate growth in funds for non-academic spending. For example, despite rapidly rising federal support, colleges have increased the share of courses taught by part-time faculty from 34 percent in 1981 to 49 percent in 2009. Furthermore, colleges raised average faculty salaries by a scant 2.7 percent per year over the past six years. During this same time period, the growth rate in outlays for student services (e.g. athletics, counseling) was almost double that of expenditures for instruction. Research has shown that there is a strong correlation over time between federal support for higher education and rapidly rising tuitions. Similar to housing, the federal government is putting air in another bubble—this time it is higher education. Ernie Goss.
Saturday, January 14, 2012
Is the U.S. the Next Greece? No California Is!
A Greek, an Italian and a Spaniard spend the evening drinking in a London pub. Who pays the tab? Answer: the American. This satire adds a bit of humor to a disturbing trend whereby the U.S. taxpayer bails out not only "too big to fail" U.S. businesses but then bankrolls overspending European economies via the U.S. Federal Reserve (Fed).
Gerald O’Driscoll, a former vice president and economic advisor at the Dallas Fed, and a current senior fellow at the Cato Institute recently argued that the Fed’s temporary U.S. dollar liquidity swap arrangement with the European Central Bank (ECB) is “essentially a transfer of U.S. dollars to banks in Europe.”
Unlike the Fed, Euro-zone national banks cannot mask or reduce debt problems by simply printing more currency. Only the Fed’s counterpart, the European Central Bank, (ECB) can flood the market with more Euros to ease the debt burdens of the 17 nations. But the ECB’s only mandate is to maintain price stability thereby precluding massive currency infusions. Instead, each of the 17 nations, much like U.S. states, can only shrink debt burdens by cutting spending, defaulting on sovereign debt, or raising taxes.
Thus, the United States, with assistance from the Fed, is not on the path of Greece but California and Illinois are. The U.S. debt burden can and will be diminished by the Fed flooding the market with dollar purchases of U.S. Treasury bonds. This action, of course, adds to inflationary pressures in the U.S. along with pushing interest rates higher.
However with the current U.S. debt at $15 trillion even this Fed action must be accompanied by higher federal taxes, federal reduced spending, or both. The day of U.S. debt reckoning is likely to come sooner rather than later, just as it has for the Eurozone.
Ernie Goss.
Gerald O’Driscoll, a former vice president and economic advisor at the Dallas Fed, and a current senior fellow at the Cato Institute recently argued that the Fed’s temporary U.S. dollar liquidity swap arrangement with the European Central Bank (ECB) is “essentially a transfer of U.S. dollars to banks in Europe.”
Unlike the Fed, Euro-zone national banks cannot mask or reduce debt problems by simply printing more currency. Only the Fed’s counterpart, the European Central Bank, (ECB) can flood the market with more Euros to ease the debt burdens of the 17 nations. But the ECB’s only mandate is to maintain price stability thereby precluding massive currency infusions. Instead, each of the 17 nations, much like U.S. states, can only shrink debt burdens by cutting spending, defaulting on sovereign debt, or raising taxes.
Thus, the United States, with assistance from the Fed, is not on the path of Greece but California and Illinois are. The U.S. debt burden can and will be diminished by the Fed flooding the market with dollar purchases of U.S. Treasury bonds. This action, of course, adds to inflationary pressures in the U.S. along with pushing interest rates higher.
However with the current U.S. debt at $15 trillion even this Fed action must be accompanied by higher federal taxes, federal reduced spending, or both. The day of U.S. debt reckoning is likely to come sooner rather than later, just as it has for the Eurozone.
Ernie Goss.
Thursday, January 05, 2012
Follow Up to My Prior Post
Continuing on the trend of "More Whiskey, Anyone?", I could not help but notice the headline on today's front page: "Drunk people know the're messing up but just care less." No kidding. That explains a lot, doesn't it!
EAM
EAM
Wednesday, January 04, 2012
In case you missed it ...
In case you missed it, here is a link to an op-ed I penned last week in the Omaha World Herald on the topic of the payroll tax cut legislation enacted at year-end. The article, "Circus of payroll tax cut business as usual for D.C." [Editor's version] was supposed to be entitled, "More Whiskey, Anyone?"
Even though some readers might think giving up coffee for whiskey sounds like a new year's resolution that they could keep, I suggest that Congress ought to put our financial house in order by cutting spending, rather than pandering with gifts to keep them in office. Note in particular the message that Obama unwittingly embraced by gathering responses from the people on returning the payroll tax to its former level: people reduce spending, giving, and investment when their taxes go up. I hope he remembers that lesson, but something tells me otherwise.
Here is the full article:
http://www.omaha.com/article/20111230/NEWS0802/712309995
EAM
Even though some readers might think giving up coffee for whiskey sounds like a new year's resolution that they could keep, I suggest that Congress ought to put our financial house in order by cutting spending, rather than pandering with gifts to keep them in office. Note in particular the message that Obama unwittingly embraced by gathering responses from the people on returning the payroll tax to its former level: people reduce spending, giving, and investment when their taxes go up. I hope he remembers that lesson, but something tells me otherwise.
Here is the full article:
http://www.omaha.com/article/20111230/NEWS0802/712309995
EAM
Sunday, December 11, 2011
Do Right-to-Work States Economically Outperform Other States?
Several months ago, the International Association of Machinists (IAM) brought a complaint before the Na-tional Labor Relations Review Board (NLRB) against Boeing Aircraft contending that the builder of the 787 Dream-liner engaged in unfair labor practices by announcing that, due to past work stoppages in Washington state, Boeing had decided to produce their newest plane in South Carolina, a right-to-work state.
That is, Boeing’s South Carolina workers are not compelled to join a union and/or pay union dues as they are in Washington. The union petitioned the NLRB to close the $750 million South Carolina plant and force Boeing to manufacture the aircraft at their Washington facility.
From a societal point-of-view, how would a decision in favor of the union likely affect U.S. economic growth? Comparing economic growth rates between the 22 right-to-work states and all other states would provide some insight into this matter.
U.S. Bureau of Economic data show that between 1990 and 2010, right-to-work states experienced much higher median economic performance with 1) Employment growth of 25.9 percent for right-to-work states versus 7.9 percent for all other states. 2) Per capita income growth of 117.8 percent vs. 104.3 percent, 3) Population growth of, 29.0 percent vs. 23.6 percent, 4) Manufacturing employment growth of 84.0 percent vs.19.4 percent, 5) Manufacturing wage per worker growth of 108.7 percent vs. 96.1 percent.
Thus on every economic dimension examined, right-to-work states experienced significantly greater economic performance than non-right-to-work states. While certainly not definitive, comparative economic growth rates indicate that an NLRB decision to force Boeing to move production from South Carolina to Washington would have, other factors unchanged, reduced overall U.S. economic growth.
The NLRB last week dropped the complaint against Boeing after the company reached a settlement with the union after Boeing guaranteed the production of the older 737 aircraft in Washington. Extortion works sometimes. Ernie Goss.
That is, Boeing’s South Carolina workers are not compelled to join a union and/or pay union dues as they are in Washington. The union petitioned the NLRB to close the $750 million South Carolina plant and force Boeing to manufacture the aircraft at their Washington facility.
From a societal point-of-view, how would a decision in favor of the union likely affect U.S. economic growth? Comparing economic growth rates between the 22 right-to-work states and all other states would provide some insight into this matter.
U.S. Bureau of Economic data show that between 1990 and 2010, right-to-work states experienced much higher median economic performance with 1) Employment growth of 25.9 percent for right-to-work states versus 7.9 percent for all other states. 2) Per capita income growth of 117.8 percent vs. 104.3 percent, 3) Population growth of, 29.0 percent vs. 23.6 percent, 4) Manufacturing employment growth of 84.0 percent vs.19.4 percent, 5) Manufacturing wage per worker growth of 108.7 percent vs. 96.1 percent.
Thus on every economic dimension examined, right-to-work states experienced significantly greater economic performance than non-right-to-work states. While certainly not definitive, comparative economic growth rates indicate that an NLRB decision to force Boeing to move production from South Carolina to Washington would have, other factors unchanged, reduced overall U.S. economic growth.
The NLRB last week dropped the complaint against Boeing after the company reached a settlement with the union after Boeing guaranteed the production of the older 737 aircraft in Washington. Extortion works sometimes. Ernie Goss.
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