Waste Not, Want Not

Tom Diemer at Politics Daily:

President Obama’s top budget adviser wants federal agencies to identify “laggard programs” that they can trim as a step toward reducing spending by 5 percent. The idea is to “make it easier” to comply with the president’s plan to freeze some federal outlays for three years beginning with the 2011 federal budget.

But there are caveats and exceptions. Budget Director Peter Orszag said in a speech Tuesday to the Center for American Progress that the proposed cuts would not begin until 2012 and would apply only to non-defense and non-security-related agencies. In other words, the Pentagon and Department of Homeland Security would be immune — so too would be entitlements such as Social Security.

In addition, it appears the 5 percent pinch is not mandatory on the bureaucracy. “We are asking each agency to develop a list of their bottom 5 percent performing discretionary programs, as measured by their impact in furthering the agency’s mission,” Orszag said.

Matthew Yglesias:

A few observations on this:

— The case for cutting or eliminating ineffective programs is always strong.
— That issue is logically independent from the case for reduced overall spending, which is weak in the short term.
— The case for lower-than-projected long-term spending is strong, but this is primarily a matter of health care costs.
— “Defense” and security-related spending can’t be exempt from fiscal scrutiny. Montgomery reports that Defense Secretary Robert Gates “seems to be something of a budget-cutting inspiration for Obama” but the ask here is much bigger in percentage terms that anything Gates has proposed for the Pentagon.
— It’s never a good idea to just look at “spending” without scrutinizing tax expenditures.

Which is all just to say that I believe in what we at CAP call doing what works and not doing what doesn’t work. But I don’t like to see the objective of trimming or eliminating ineffective programs run together with with discussions of fiscal policy as a macroeconomic matter. It’s also worth noting that though the concern in public opinion about wasteful government spending is very real, it’s not clear that the public’s idea of “waste” corresponds very closely to a wonk’s conception of an ineffective program. People tend to like programs that they think benefit them, or people like them, and view other programs as wasteful. What’s more, bad economic times erode faith in public institutions and make people more inclined to see programs as wasteful. That’s really a different issue from the wonk’s worry about programs that don’t work well.

Conn Carroll at Heritage:

This spasm of fiscal responsibility can mean only one thing: the Obama administration is about to go on another wild spending binge. And sure enough Politico reports that while Blue Dogs in the House managed to whittle what was a $200 billion “jobs” bill down to $146 billion last month, the Senate is now larding it back up again with a $24 billion Medicaid bailout and a $23 billion teachers union bailout.

This spend-now/cut-later act has become a staple for the Obama administration. In February 2009, after signing the largest single-year increase in domestic federal spending since World War II, President Obama held a “fiscal responsibility” summit designed to “send a signal that we are serious” about putting the nation on sounder financial footing. Then in June 2009, the day after promising faster deficit spending to stimulate the economy, Obama called on Congress to pass “pay-as-you-go” legislation (PAYGO), a rule Speaker Nancy Pelosi (D-CA) has violated by a mere $1 trillion since she took power in 2006. And then after President Obama signed his trillion-dollar health spending plan, he convened his toothless National Commission on Fiscal Responsibility and Reform.

Kathryn Nix at Heritage:

There’s plenty of waste to go after.  In 2004, Heritage budget expert Brian Riedl listed duplicative programs that could, but have not yet been, eliminated.  These include 343 economic development programs, 130 programs serving the disabled, 130 programs serving at-risk youth…the list goes on.  Riedl explains that “having several agencies perform similar duties is wasteful and confuses program beneficiaries who must navigate each program’s distinct rules and requirements.”  Moreover, duplicity in government programs makes it more difficult for each one to achieve its goal.

Wasteful spending doesn’t stop at program redundancy, either.  In Heritage’s 2010 edition of Federal Spending by the Numbers, Riedl points to plenty of areas where lawmakers could make painless cuts.  For example, Washington spends $25 billion each year to maintain unused or vacant federal properties, and $92 billion on corporate welfare.  Then there’s the less costly but no less absurd $2.6 million that Washington spends to train Chinese prostitutes to drink more responsibly.

In the last five years, Government audits have shown that 22 percent of all federal programs fail to show any positive impact towards their intended objectives yet cost taxpayers $123 billion? Million? annually.

However, this should be seen as just the beginning.  To have a profound impact, more drastic changes will be needed.  This proposal alone would create at most $20 billion in savings, addressing just 2 percent of the federal deficit.  The next step should be deep impact reforms such as repealing the stimulus and the trillion plus health care bill, and enacting major entitlement reform, targeting the unfunded liabilities created by Medicare, Medicaid, and Social Security.

Finally, the White House’s budget cuts wouldn’t require agencies to report on expendable programs until September 13, and effects wouldn’t occur until 2012.  If the White House is serious about cutting spending, they could—and should—start right now.  The Impoundment Control Act of 1974 gives the president the ability to rescind enacted spending by sending a message to Congress with directions, which a Member can then introduce in a bill.  Since 1974, presidents have submitted 1,178 rescissions totaling $76 billion.  Since Republicans expressed their desire for the president to offer a rescission package, an immediate request from the president would be almost sure to come to a vote in the House.

Baby steps towards fiscal responsibility are a positive turn for the administration, but to show the American people they mean business, the White House should also begin cutting spending immediately and pursue reform with larger impact on the federal deficit.

Veronique de Rugy at The Corner:

According to the Post, though, many budget analysts around town are complimentary about the proposal. Well, I guess I am just hard to please, because I think this is a joke. The federal government is spending almost $4 trillion this year. Our deficit is $1.4 trillion. Our debt held by the public is $7.5 trillion. Our long-term entitlement deficits are huge and growing. All of these figures will be larger the next time I blog about them. I don’t have much patience for agencies that need to be given incentives to do what is right. This money isn’t theirs. It’s taxpayers’ money, and the spending needs to stop.

But then again, considering that the Deficit Commission itself needs to be bailed out by the White House, nothing should surprise me anymore. See Daniel Foster on the issue here. And speaking of commissions, my colleague Jerry Brito has a very good study on the BRAC Commission of the late 1980s and early 1990s. It just came out last month and is very informative about the likelihood that today’s Deficit Commission will succeed. A shorter version of his study is here.

Derek Thompson at The Atlantic:

The federal deficit has stretched to $941 billion in the first eight months of Fiscal Year 2010, and politicians are getting nervous that all that red ink is starting to stink. That puts the White House in the awkward position on standing behind more stimulus — which would raise the deficit — while claiming the mantle of fiscal responsibility. How do you pull that off?

Well, you suggest small-ball reforms — or, as some critics contend, gimmicks. First, President Obama has proposed a three-year freeze on non-security discretionary funding, which amounts to about a fifth of the budget. Second, he’s requested the authority to lightly edit spending bills and send them back to Congress for an expedited vote without amendments. Third, he’s asking agencies to make plans to cut 5% of their budget.

These ideas tend draw much mocking from politicians and the commentariat, and maybe it seems a little weird to grow a trillion-dollar deficit and pare it down with limited freezes (like planting a Redwood and pruning it with a nail file). But I see nothing wrong with these ideas. They’re non-binding, forward looking, and potentially useful. Do we think government agencies should never have to identify programs they consider marginally unecessary? Is it pointless to even threaten to rein in earmarks with a light veto power? We should be running a large deficit in 2010, and we should be thinking about small ways to improve our medium-term budget.

Ezra Klein:

The news in Peter Orszag’s speech this morning is that the White House is “asking each agency to develop a list of their bottom 5 percent performing discretionary programs” in order to make cuts more obvious. On the one hand, reducing inefficient spending is good. On the other hand, reducing aggregate spending is not, at the moment, a good idea. This 5 percent isn’t much in the scheme of things, but it’s a buy-in to the idea that deficits are too high right now rather than an effort to convince people that the time for countercyclical spending hasn’t passed.

So that’s not the news in the speech. But it’s also a small part of it. The bulk of the address is about the need to modernize the federal government’s IT infrastructure, and it’s worth reading. Orszag notes, for instance, that “public sector productivity growth matched the private sector’s until about 1987,” at which point it began falling rapidly behind. If you’ve identified this as roughly coinciding with the rise of personal computing and the Internet eras, well, ding-ding-ding.

“At one time,” Orszag says, “a federal worker went to the office and had access to the most cutting-edge computer power and programs. Now, he often has more of both in a device clipped to his belt.” Oh, snap!

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