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A Miracle Happened Last Week in Washington: Congress Failed to Mulct the Citizenry

June 24, 2013 in Economics

By Doug Bandow

Doug Bandow

A miracle happened in Washington last week. Legislators failed in their attempt to mulct the public.

Congress is debating the so-called Federal Agricultural Reform and Risk Management Act. More commonly known as the Farm Bill, it is a looting expedition, roughly 80 percent general welfare (Food Stamps, officially called the Supplemental Nutrition Assistance Program) and 20 percent farm welfare (agricultural price supports).

Although Washington is drowning in red ink, Republicans and Democrats disagree only over minor details. The Democratic Senate approved a $955 billion package. The House Republican leadership pushed a $940 billion measure.

Rep. Collin Peterson (D-Minn.), the ranking member of the Agriculture Committee, opined that “It is a compromise between commodities and regions, and urban and rural members.” While “I didn’t get everything I wanted,” he allowed, “in most areas of the bill, if I were chairman I wouldn’t do anything different.”

The 2008 Farm Bill was expected to cost $640 billion over ten years. So in five years the price of the agricultural dole has jumped 50 percent. Take inflation into account and the real increase was still 40 percent.

However, because the Congressional Budget Office said existing law would cost $973 billion over the next ten years, House Republicans claimed to be “saving” $33 billion even while spending $300 billion more. Only in Washington!

A half century ago Congress tied general welfare to farm welfare for two reasons. First, to increase demand, and thus prices, for food. Second, to create a classic log roll: both urban and rural legislators got something for their constituents.

Legislators are surprisingly honest about their strategy. Sen. Thad Cochrane (R-Miss.) explained that “the declining rural population translated into fewer rural representatives in the House and fewer votes for the Farm Bill.” Thus, Food Stamps were included “purely from a political perspective. It helps get the Farm Bill passed.” The Washington Post observed: “the Farm Bill has epitomized bipartisanship and coalition-building at its worst: an unholy alliance of urban and rural lawmakers of both parties who supported each other’s interests—nutrition program and producer subsidies, respectively—without having to justify either one on its independent merits.”

Of course, federal money really isn’t free. House Agriculture Committee Chairman Frank Lucas (R-Ok) complained about the government “tying strings to how farmers farm.” Why, “we have a social tool here that’s used to direct how farmers use their lives and conduct their business.” But that’s a price of suckling on the federal teat.

Since the Farm Bill is considered “must pass,” it also tends to become …read more

Source: OP-EDS

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The US in the Red: How Are We Doing?

June 24, 2013 in Economics

By Jagadeesh Gokhale

Jagadeesh Gokhale

Recent upbeat reports about the labor market, housing, and the general economy appear to have sapped lawmakers’ energies from attempting a grand bargain on tax and entitlement reforms. But ignoring structural imbalances in the federal budget that are causing inexorable growth in the nation’s indebtedness threatens large tax burdens on younger and future generations, seriously compromising their economic freedoms.

Brief redux: The economic surge toward the end of the 1990s signaled an improved budget outlook and provoked massive public spending increases, tax cuts, and the Medicare prescription drug program. But the surge proved short-lived and those policies worsened the nation’s fiscal outlook. Post-2008 recession, the debt outlook continues to worsen significantly.

The window of opportunity to reform entitlement programs, and federal tax and spending policies generally is still open.”

Media coverage of the national debt is almost exclusively about the overt, or visible, national debt, which the U.S. Public Debt Bureau places at just under $17 trillion. The Congressional Budget Office and the Administration’s Office of Management and Budget also focus heavily on the gross national debt and subcategories such as debt held by the public and debt subject to the statutory borrowing limit.

Focus on such narrow debt measure is driven by the need to periodically increase the federal debt limit and enable the government to honor all debt service contracts and

current spending authorizations. But it restricts our attention to the immediate term and distracts from larger and more important concerns about structural imbalances in federal budget policies. A broader evaluation shows that, nascent economic recovery notwithstanding, current budget policies are part and parcel of a vortex of socioeconomic and political forces that are inexorably driving us toward a giant fiscal disaster.

The past is passé: When making budget policies, the $17 trillion of explicit federal debt—the result of past policies and outcomes—should not receive as much importance as prospective debt accumulation under today’s budget policies. And, unlike standard practice, prospective debt accumulation should be evaluated over horizons that are much longer than 10 years. Lawmakers might not have allowed all of those debt funded giveaways during the early 2000s had they based decisions on broader and longer term budget metrics.

A Samall Fraction

The official federal debt of $17 trillion is only a small fraction of the government’s true indebtedness: It includes only outstanding U.S. Treasury securities on which contractual future payments are due. But the government “owes” future payments …read more

Source: OP-EDS