May 18, 2007
From the desk of Jane Galt:No pork, no shoes, no service
Matthew Yglesias, who very kindly redirected the two users we have in common to this site, points out that Porkbusters will not solve our budget problems:
This kind of thing is why people are always reaching for the name “Ramesh Ponnuru” when asked to name conservative pundits worth reading. As Scott Lemieux says “this is the central purpose of the Porkbusters campaign: to make difficult choices magically disappear, especially where the Iraq War is concerned.” As Ponnuru points out, the world simply doesn’t work like that. Conservatives either want to cut some major programs with substantial constituencies, or else they don’t really want to cut spending — pork is neither here nor there in big picture budgetary terms.
Too true, I’m afraid; the really big ticket budget items are entitlements, defense, and interest on the national debt . . . which is why we need Social Security Reform Now! Oh, yes, my little chickadees, I’ll be here all week. Don’t forget to tip your waiters.
But seriously, while this is true on some level, isn’t porkbusters still a good idea? There are other reasons to want to cut pork, besides being worried about the budget deficit. Pork may well have a big dragging effect on the economy by the distortions it introduces. And more than that, it’s morally distasteful that senators and congressmen spend so much time–time we pay them for–trying to grab fistfuls of cash out of the public trough before the other pigs can get at it. The people pushing porkbusters may not succeed in paying for the Iraq war, but surely they’re still doing God’s work?
Porkbusters is a worthy project, but it's mostly unrelated to the budget. The earmarks everyone gets excited about are insignificant in dollar terms compared to the federal budget. Social Security, Medicare, and Medicaid add up to more than 40% of the budget. Throw in debt service and you over 50%. Thrown in defense spending and you are pushing 3/4 of the entire federal budget.
The other little-remarked upon fact is that earmarks simply direct how to spend apprpriated funds. Eliminating an earmark just means that someone in the administration gets to decide how those funds are spent. In fact it was the Clinton administration's use of grant awards as partisan opportunities to support Democratic candidates for office that spurred Republican congressional leadership to encourage earmarking.
Even though it is budgetarily insignificant - earmarking has had a negative effect on Washington. The relationship between Congressmen, lobbyists, and special interests back home feeds the sense of corruption as does the mostly out-of-public-eyes process through which earmarks are placed into committee reports. Earmarking has also given inordinate institutional power to appropriators.
I think it is also possible to argue that earmarking is a way to generate support for a program that might otherwise be repealed. I'd need some convinvincing, however, that any significant programs would be repealed but for earmarking.
“interest on the national debt”
Why? From an economic perspective, I have difficulty seeing the point of worrying about the interest on the national debt, per se.
Surely the interest on the national debt is merely the way of appropriately measuring the time value of money. By borrowing the money, we have the money now instead of later. In order to reduce the interest, one would have to pay back the debt. That would mean forgoing spending or raising taxes in a dollar amount whose present value is, mirabile dictu, equal to the value of paying it back in the future plus paying the interest all those years. Indeed, the interest rates that the government receives are lower than any other interest rates, certainly lower than could be received in the private sector. Thus the government’s discount rate is different than that of its citizens, and hence it would make sense in certain situations for a government to borrow if its citizens would borrow otherwise otherwise.
The interest on the national debt merely measures that any debt now has to be paid back in the future via taxes or reduced spending, subject to normal discounting. The problem is not the interest, no. The problem is the inefficiencies; the deadweight loss of the taxes imposed now or in the future, the deadweight losses of various government spending, the deadweight losses of regulatory capture, and the inefficiencies caused by money spent on lobbying and the like. (And other things where the broken windows fallacy applies.)
And thus, raising taxes now to pay off the interest is no good, if the taxes raised incur a large amount of deadweight loss. It does us no good to pay them nominally. It does us good to change our tax structure so that taxes are efficient, or make spending more efficient. (Such as by removing perverse incentives built into Social Security and Medicare.) But there is no gain from paying off the debt now in exactly the same manner as we’d pay them off in the future.
Now, the amount of the interest on the debt is useful to know, insofar as it marks the size of the debt (and how much be repaid), and is a useful proxy for the likely amount of deadweight loss incurred paying it off if taxes are raised. But focusing on the interest in the same way as one focuses on the actual inefficiencies results in double-counting in most cases.
The title of this post offers a near-irresistable opportunity for jokes.
To put my point another way, imagine that, excluding the interest, there was no deficit. Then the debt would go up by precisely the interest. But in real terms, it would stay the same.
For that reason, just as Social Security obligations should, economically, be counted as debt and new obligations counted as a deficit, interest on the debt should not be counted in the deficit. Of course, the former exceeds the latter, so it doesn't make a difference on the sign of the necessary correction to the government figures.
"The earmarks everyone gets excited about are insignificant in dollar terms compared to the federal budget.
A billion here, a billion there, it's not like we are talking real money.
"If you watch your nickels and dimes, your dollars will take care of themselves" -- works even better for governments.
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