Tag Archives: budget cuts

Why It’s Harder Than It Looks

I was listening to NPR as I was driving to work this morning, and heard a (pretty typical) news item that seems to me a perfect example of the perils of public policy–or why, as I continually tell my students, “it’s more complicated than it seems.”

The U.S. Defense Department has cut funding for an engine¬† being developed by Rolls Royce and G.E. Robert Gates, Defense Secretary, has called the project a waste of taxpayer money. But some 400+ Indiana jobs are directly tied to the continued development of that engine, and–predictably–scrapping it has generated opposition from both Andre Carson and Mike Pence.

I have no information that would allow me to comment on the merits of this project, but it is a textbook example of the problem we face cutting public budgets. Even apparent “no brainers”–attempts to cut programs that are self-evidently unnecessary or wasteful–run headlong into the reality that the cuts will cost some people jobs or money. Those people vote. They make campaign contributions. Thus the protests from Carson and Pence.

Pence’s objections are particularly illuminating: he has been a reliable opponent of government spending, even spending that most of us would consider appropriate. He talks incessantly about the need to make the “hard” decisions. But when those decisions affect his constituents or donors, his tune changes considerably.

Pence is not alone. We have legislatures filled with folks who want to make the “hard decisions”–so long as those hard decisions don’t require them to make any sacrifices or take any electoral risks.

Wealth and Power

For the last few years, there’s been a good deal of debate over the growing gap between the rich and everyone else.

We’ve all seen the numbers: the top 1% of Americans own 43% of all the nation’s wealth, and the next 4% owns another 29%. Meanwhile, 80% of Americans share only 7% of the nation’s total wealth.

That bare fact is troubling enough–disparities of this magnitude typically generate resentment and often lead to significant social disruptions–but the reasons for that gap are even more worrisome. The truth of the matter is that money buys access and power. Poor folks don’t have lobbyists, they don’t make significant political contributions. To use academic jargon, the poor lack “voice.” Meanwhile, the rich have megaphones.

Look at the proposals to cut the deficit–a deficit caused primarily by two ill-considered wars (wars that “coincidentally” enriched a number of major corporations) coupled with massive tax cuts for the wealthy. Programs at risk include things like early childhood education, low-income housing programs, community health centers, family planning and job training–all programs that assist poor Americans. It’s estimated that cuts to these programs will “save” 44 billion dollars (save is in quotes because most of these are short-term savings with significant long-term costs). Meanwhile, the recent extension of the Bush tax cuts to the richest 2% of Americans cost the treasury 42 billion a year. Changes to the estate tax–dubbed the “death tax” by opponents–cost another 11.5 billion.

Let me be very clear: I accept the argument that confiscatory tax rates dampen innovation and entrepreneurship. And I not only accept, but heartily endorse market economics. I’m a capitalist and make no apologies for that. But American tax rates are at their lowest levels in fifty years, and one would have to be delusional to believe that returning the top rate to 39%–the rate during the Clinton administration–would discourage investment. What is even clearer is that we have abandoned markets in favor of crony capitalism. Large employers and the wealthy have used their clout to game the system; they have effectively bought tax and other advantages that have had the effect of protecting them from the very market forces they so piously invoke.¬† Instead of a genuinely free market, where businesses compete on a level playing field, we have an economic oligarchy–an Animal Farm where some are much more equal than others.

This state of affairs is bad for the economy in the long term. It is worse for social stability and democratic institutions.