The debt hawks are to economics as the creationists are to biology.

The November 2010 issue of reason.com contains an article titled, “How to Slash the State: 14 ways to dismantle a monstrous government, one program at a time”

It’s a thoughtful article, but only if you believe the federal government should be smaller, the federal deficit should be lower and taxpayers pay for federal spending. Unfortunately, there is no evidence to support any of these three beliefs. In fact, all the evidence points to the need for ever increasing federal deficit spending, i.e. money creation. (A growing economy requires a growing supply of money.) Also, in a monetarily sovereign nation, taxes do not pay for federal spending (though taxes do pay for state and local spending, as the states, counties and cities are not monetarily sovereign).

Further, some of the “dismantling” they suggest is more like shifting, because some of the suggestions merely push expenses from the federal government (which has unlimited money) to state and local governments (which are having great difficulty paying their bills) – a terrible idea.

Nevertheless, here are the ideas, with my comments.

1. Overhaul Medicaid
“stop the matching grant funding process, in which states receive federal money for each Medicaid dollar they spend” or “scrap the program entirely in favor of a temporary assistance program that doesn’t create long-term dependency.”

The first part of the suggestion shifts more burden to the struggling states, which are not monetarily sovereign, and so cannot create unlimited money. The second part of the suggestion goes under the heading, “These Medicaid recipients aren’t really poor; they are lazy. If we stop giving them help, they’ll go to work.” That simply is nuts.

2. Bring the Troops Home
“. . . a swift and total deoccupation . . . probably would save “$50 billion to $70 billion in fiscal 2011 and perhaps $80 billion to $100 billion a year in 2012 and beyond.”

I’d like to see the troops come home, but not for financial reasons. I have no idea why we’re in Afghanistan, but saving money is a foolish way to manage a war. It kills soldiers.

3. Erase Federal Education Spending
“. . . the federal education budget is full of cuttable programs. If eliminating the entire Department of Education is politically impossible, then the programs with the most tenuous relationships to raising student achievement need to be the first to go.”

This falls under the “make government more efficient” heading. Sure, who can argue with that, but again, it’s not a money thing. It’s an effectiveness thing.

4. Slash State Budgets
“ . . . lawmakers have been living way beyond their means for far too long.”

Not sure what this has to do with the federal government, but I love it. Any specific ideas?

5. End Defined-Benefit Pensions
“ . . . public servants of the future should be put into 401(k) plans like the rest of us, with responsibility to contribute to and manage their own retirement nest eggs.”

This would mean federal employees would receive less money, which would be anti-growth. I agree however, for state and local government employees, as the state and local governments spend taxpayer money.

6. Declare Defeat in the Drug War
“To enforce drug prohibition, state and federal agencies spend more than $40 billion and make 1.7 million arrests every year. This effort wastes resources that could be used to fight predatory crime. . . While imprisoned (as half a million of them currently are), drug offenders cannot earn money or care for their families, which boosts child welfare costs.”

I agree, but again not for money reasons. Prohibition didn’t work in the 1920′s. I can’t imagine why the public and the politicians think it will work, today. Prohibition caused crime in the 1920′s. It causes crime, today. The war on drugs is a perfect example of how the government and the public are incapable of learning from experience.

7. Cancel the Federal Communications Commission
“. . . just about everything the FCC does is either onerous, constitutionally dubious, ineffective, or all three.. . . its role as broadcast censor . . . The best alternative is a world in which spectrum is freely tradable private property rather than a government-managed resource, interference is treated as a tort, and no one worries about whether their next on-air word will result in a seven-figure fine—in other words, a world with no FCC at all.”

The FCC’s role as public scold is useless – actually harmful. The Internet has eliminated the prohibition against swear words, as today one easily can find the most pornographic videos. Fining CBS for Janet Jackson’s 1 second breast reveal, while every sexual act imaginable is available on the Internet, is just plain silly. But, the limited public bandwidth has to be managed to prevent monopolies.

8. Uproot Agriculture Subsidies
“They distort markets and spark trade wars. They make food staples artificially expensive, while making high-fructose corn syrup—the bogeyman of crunchy parents, foodies, and obesity activists everywhere—artificially cheap. They give farmers incentives to tamper with land that would otherwise be forest or grassland. They encourage inefficient alternative energy programs by artificially lowering the price of corn ethanol compared to solar, wind, and other biomass options. School lunches are jammed full of agricultural surplus goods, interfering with efforts to improve the nutritional value (and simple appeal) of the meals devoured by the nation’s chubby public schoolers.”

I agree. Any time the federal government subsidizes an industry, it controls that industry. So you have bureaucrats determining what food is best. While those agriculture subsidies are stimulative, in that they add money to the economy, they distort the market.

9. Unplug the Department of Energy
“. . . more than half of the department’s $26 billion budget ($16 billion) was devoted to managing . . . facilities that make and dispose of materials used for nuclear weapons. . . If Congress and the White House must pursue the development of alternative energy via social engineering, a far more effective alternative to allowing DOE bureaucrats to pick technology “winners” would be a tax on conventional energy. The boost in energy prices would at least encourage inventors and entrepreneurs to get to work.”

All taxes hurt the economy. Taxing energy would tax us all, as we all use energy. The federal gasoline tax has accomplished nothing but take money out of the economy. It certainly has not reduced the consumption of gasoline. It has been an economic cost. This falls under the heading: “If something is harmful, do it again, only more so.” Once again, a failure to learn from experience.

10. Dismantle Davis-Bacon
“. . . which requires all workers on federal projects costing more than $2,000 to be paid the “prevailing wage,” which typically means the hourly rate set by local unions. . . . born as a racist reaction to the presence of Southern black construction workers on a Long Island, New York, veterans hospital project.”

I agree. See #8. It’s another example of the federal government distorting the market, this time the labor market.

11. Repeal the Stimulus
“. . . as of early September, 18 months after the stimulus was passed, an estimated $301 billion remained unspent. That money should be banked, not wasted . . . deficit spending has crowded out private investment.”

A demonstration of financial ignorance. There is no way federal money can be “banked.” And there is no way deficit spending can “crowd out” anything. This is a myth. Without deficit spending, we would be in the deepest depression one could imagine. Of all 14 suggestions, this is the most ignorant.

12. Spend Highway Funds on Highways
“ . . . just to maintain the Interstate Highway System at a decent level is $10 billion to $20 billion per year. . . . lesser highways should all be the states’ problem.”

In other words, transfer the cost from the federal government, which can afford it, to the state governments, which can’t. And how does this help the taxpayer?

13. Privatize Public Lands
“Letting the states manage this land instead would take up to $5 billion a year off the federal books. . .One Forest Service contractor in Arizona recently offered to take over six state parks targeted for closure amid budget cuts. The concessionaire would collect the same visitor fees the state charges today while taking the operations and maintenance costs off the state’s books entirely. Further, the company would pay the state an annual “rent” based on a percentage of the fees collected, turning parks into a revenue generator instead of a money eater.”

In the very few cases where a private company could do this, profitably and under federal supervision, it could be a good idea. Now let’s talk about the other 99% of the public lands. Get real.

14. End (or at Least Audit) the Fed

It’s not explained how auditing would cut federal spending. Bernanke warned that opening the Fed’s books would diminish the central bank’s political independence. I believe him. Imagine relying on Congress to make quick economic decisions. These people can’t decide to go to the bathroom without the threat of filibuster. Let’s face it. The most dysfunctional of all federal agencies is Congress.

In summary, most of these suggestions simply are foolish or would not save taxpayers anything. A couple have some value, not because they “save” money, but because they are good governing policy. All are based an the false assumption that federal spending should be reduced.

Think of the economy as a child and money is its food. Today, the child is starving. To make the child healthy, we must feed it. As the child grows, it will need an increasing amount of food. Yes, if you overfeed the child, it will become fat (inflate), but we are a long way from that. The debt hawks want to starve the child, and then always are surprised when it becomes ill.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity