The National Center for Policy Analysis
(NCPA is a nonprofit, nonpartisan public policy research organization whose goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector.)
DALLAS, Texas -- Back to budget deficits
by Bruce Bartlett
On Aug. 27, the Congressional Budget Office released new budget projections showing larger deficits over the next few years than previously estimated. The deficits are also larger than those earlier forecast by the White House Office of Management and Budget.
As I predicted, Democrats immediately attacked the Bush administration for cooking the books. Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee, in a burst of creativity, accused the White House of using "Enron-type accounting." How original! I bet no one else has ever thought of using Enron as an example of flawed accounting. His cleverness just knocks me over.
Conrad went on to indict the administration for having "no plan" to deal with the budget. His charge would have had a great deal more credibility, however, if Conrad himself had a plan, which he does not. In fact, the chairman of the Senate Budget Committee only has one thing to do each year, which is to come up with a budget resolution. But Conrad didn't. The Senate now operates without any budget control, which is a key reason why deficits are reemerging. Makes one wonder why we even have a budget committee.
It's hard to take too seriously criticism about having no plan from someone incapable of performing the basic function of his job. Yet that is what Conrad is doing.
Congressman John Spratt, D-S.C., ranking minority member of the House Budget Committee, tried to help the hapless Conrad by suggesting the idea of a budget summit. Boy, what an original concept! Why didn't someone think of this before?
Of course, the idea of a budget summit is a transparently pathetic effort by Democrats to sucker George Bush into making the same mistake his father made back in 1990. The elder Bush was pushed into budget negotiations with congressional Democrats by his disloyal budget director, Dick Darman. He talked the first President Bush into abandoning his solemn pledge not to raise taxes, just so Darman could get a deal and look good. As a result, he virtually guaranteed his boss's defeat in 1992.
The elder Bush should have known better. A study by the Tax Foundation in 1990 showed that the net effect of all the budget negotiations of the 1980s was to increase taxes AND deficits. Deficits increased in almost all budget summit years. The reason is that Democrats always demanded increases in domestic spending to compensate them for raising taxes and promising to cut spending at some later date. The result was a surge in spending after each summit.
Of course, Democrat pledges to restrain spending were utterly insincere. That is why the only meaningful part of the deficit reduction packages was the tax increase. As Ronald Reagan often noted, he was promised $3 of spending cuts for every $1 of tax increase in the 1982 budget deal.
"Unfortunately, although the taxes went into effect, Congress never cut spending by even a penny," he later lamented.
This result is consistent with academic research, which shows that higher taxes nearly always lead to higher spending, not lower deficits. The only thing that leads to real reductions in spending is tax cuts. As Nobel Prize winning economist Milton Friedman put it, "The only effective way to restrain government spending is by limiting government's explicit tax revenue."
Even some liberals have come around to this way of thinking. Writing on Slate.com, Mickey Kaus recently argued that the Bush tax cut has aided spending restraint, "because congressional (and executive branch) spenders now know that the money is not there to spend." He also notes, contrary to conventional wisdom, that it is far easier politically to raise taxes than cut spending.
Fortunately, George W. Bush is not likely to be fooled by Democrat tricks. Also, unlike his father, he is blessed with a loyal staff that will not try to talk him into doing something he knows is wrong. (I feel sorry for the staffer who tries.) Therefore, there is no chance of a budget summit, nor any legislated tax increase. Indeed, it appears that Bush is going to press for even more tax cuts when Congress reconvenes.
Democrats foolishly believe that they can win in November running against deficits and tax cuts. Republicans hope they do. They know too well that this never worked for them. And with inflation and interest rates at historically low rates, it is hard to see what Democrats can offer voters in the way of tangible benefits in terms of even lower rates.
Deficits are not a problem. As a share of the economy, they are very modest. Raising taxes or rescinding tax cuts -- which are the same thing -- would only fuel additional spending and do nothing to reduce deficits or aid the economy.
(Bruce Bartlett is a senior fellow at the National Center for Policy Analysis.)
Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
WASHINGTON -- Powell in Africa
-- Bill Fletcher, executive director of TransAfrica.
"Bush not being at the Earth Summit in South Africa is extremely symbolic. It is a reflection of the arrogance of this administration and its unilateralism. The summit is perhaps most noteworthy for the events of the popular organizations and NGOs (non-governmental organizations) which are trying to address the growing disparity of wealth and the failure of the global North to deal with environmental degradation. I hope that (U.S. Secretary of State Colin) Powell is hearing this, though it would have been better for Bush to hear it himself. Powell is also scheduled to go to Angola. I wish he were going to offer meaningful reconstruction assistance for the recently ended civil war, which was ignited by U.S. intervention in 1975. Unfortunately, the reason Powell is going there probably has to do with oil; as the administration gears up for this illegitimate war with Iraq, it wants to secure other sources of oil. ... Reports that the current African drought and the last African drought may be directly related to industrial air pollution on the part of the global North demonstrate how interconnected this planet is and the fact that we, in the global North, cannot go about acting as if our actions have no global consequences. This drought has directly affected the gravity of the famine, as has the misdirection that some Southern African countries have received from economic advisors in the global North."
-- Njoki Njoroge Njehu, director of the 50 Years Is Enough Network, Njehu has just returned from the U.N. World Summit on Sustainable Development, or Earth Summit, in
Johannesburg, South Africa. She is among the participants today in a news conference organized by the Mobilization For Global Justice in Washington, looking ahead to the International Monetary Fund and World Bank meetings at the end of September in Washington and planned protests at that time.
"Institutions like the IMF, World Bank and WTO (World Trade Organization) have taken over the WSSD process ... What is clear from Johannesburg is that civil society is not waiting on governments or international agencies to help them survive corporate globalization ..."
-- Salih Booker, executive director of Africa Action
"In the decade that has passed since the Earth Summit in Rio de Janeiro in 1992, pledges made then have largely been abandoned, and environmental degradation and poverty have deepened in Africa and around the world. Development assistance from the wealthy to the developing world has also declined during this period ... In an attempt to stem criticism of President Bush's failure to attend the WSSD, Secretary Powell will be announcing a supposedly new $4 billion proposal on aid to Africa, to support disease control programs, clean water and sanitation projects, and environmental conservation.
However, far from illustrating a U.S. commitment to Africa, this announcement is largely a hoax. Up to half of this money has already been approved or announced earlier, while the balance is based upon projections of future hypothetical appropriations, spread over several years. This is the administration's form of Enron/Arthur Andersen-style accounting."
The Pacific Research Institute
(PRI promotes individual freedom and personal responsibility as the cornerstones of a civil society, best achieved through a free-market economy, limited government, and private initiative. PRI researches and analyzes critical issues facing California and the nation, and crafts strategies for policy reform.)
SAN FRANCISCO -- Defining victory in Iraq and beyond
The Bush administration is trying to win support at home and abroad for a strike against Iraq to remove (Iraqi President) Saddam Hussein. Disagreements center on how the administration should define victory in Iraq and how it should "win the peace." History and economics provide the answers.
The only true victory in war is to conquer the enemy, occupy the country, and rebuild its institutions. Anything short of that, as we learned in Afghanistan in 1989, Iraq in 1991, and Somalia in 1993, will not ensure an outcome favorable to freedom-loving people and will be seen as appeasement by our enemies, encouraging further violence.
It is hard to imagine how the tragedy of Sept. 11 could have been worse. Yet, a single chemical, biological, or nuclear attack could kill millions. The United States and its allies have a moral obligation and legal authority -- "anticipatory self-defense" in international law -- to prevent this catastrophe by seizing states that threaten mass destruction before they become stronger.
But in the wake of a military victory in Iraq and elsewhere, what is the next step? The answer is to cultivate economic freedom, the tonic for terrorism.
It is no accident that the seven countries on the State Department's list of terrorist nations -- Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria -- are at the bottom of the barrel in terms of economic freedom. They rank between 145 and 155 of 161 countries in the Heritage Foundation/Wall Street Journal 2002 Index of Economic Freedom.
Studies find that cross-country differences in economic freedom and physical-capital investment explain 40 percent of the variation in economic growth rates during the past 20 years. Lack of economic freedom, therefore, translates directly into poverty and despair -- ideal breeding grounds for terrorists. The same is true for the 22 Arab League nations. Contrary to conventional wisdom, they are not wealthy.
A blunt, new U.N. report on human development in Arab countries, prepared by 50 Arab scholars, finds that in 1999 the entire Arab world had a gross domestic product less than Spain: $531 billion compared with $595 billion. Over the past 20 years, its growth in per-capita income was the lowest in the world except for sub-Saharan Africa.
Of the 280 million people in the Arab world, 65 million adults are illiterate -- two-thirds women -- and 10 million children don't attend school. Investment in research and development is less than one-seventh the world average. The number of books translated since 1000 A.D. is about 100,000, roughly the number that Spain translates in one year.
Arab isolation in trade, technology, and thought has produced poverty, ignorance, and frustration, especially among its young people. This is a formula for disaster, creating a pool of disheartened people who are open to the simplistic, intolerant, and often destructive answers that religious extremists offer -- disguised as education in the madrassa "colleges."
The long-term solution to terrorism requires building social institutions that produce wealth and opportunity for ordinary people, thereby eradicating terrorism at its roots. The model is Japan and West Germany following World War II, not Iraq after the Gulf War. The process will be slow and involve explicit constitutional decisions, often starting with the resolution of historic disputes within wholly synthetic nation-states. Consider Iraq, although the model can be applied to other regions as well.
Kurdish separatists occupy the north, Shiite Muslims are in the south, and Sunni Arabs govern from Baghdad. A factional disease requires a federalist cure. Short of redrawing the map, which might be appropriate in some cases, the cycle of ethnic conflict can only be stopped by constitutional means.
A federal system of government that shifts most political decision making away from the center to regions having a high degree of autonomy, combined with a representative, civilian legislature empowered to resolve tightly defined questions of national policy, particularly the use of military force, offers a time-tested way of accommodating the varied interests of ethnically diverse populations. National constitutions must also create independent judiciaries that enforce commercial laws encouraging entrepreneurship and trade.
As the anniversary of Sept. 11 looms, the Bush administration must show that it has learned the lessons of history and understands the role that sound economics must play. Creating institutions that provide economic freedom to ordinary people is the only effective means of improving living standards, fostering political and civil freedom, and preventing terrorism around the world.
(Lawrence J. McQuillan is director of the Center for Entrepreneurship at the California-based Pacific Research Institute.)
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