Conservatives and the Deficit

Apparently Matthew Yglesias has uniformly decided for all of us that conservatives do not care about the deficit. Nope. Not one iota. Not one bit. His supporting arguments are a schmorgasborg of straw men, circular reasoning, false dilemmas, and clairvoyance. While I believe his career in mind-reading may be in jeopardy, I will not say that his point is wholly without merit.

The straw man
Yglesias definitively states:

There have been two presidents who were part of the modern conservative
movement, Ronald Reagan and George W Bush, and they both presided over massive
increases in both present and projected deficits.

While I was just learning how to read when Ronald Reagan made his exit from the White House, I can tell you that George W Bush, while a self-proclaimed conservative, was rarely, if ever, claimed by fiscal conservatives as one of their own. Many, if not all of his non-military spending programs were roundly opposed by conservatives in Congress and academia. In fact, many fiscally responsible measures proposed by conservative members of Congress were dead on arrival at the Bush White House. To list him as representative of the "conservative movement" would not be very accurate and serves only to make Yglesias argument more convincing with little attention to facts. In truth, what Yglesias and any other intelligent person should glean from the Bush presidency is that conservatives oppose fiscal irresponsibility from either party, not just their opponents.

False Dilemma
Yglesias states:

The major deficit reduction packages of the modern era, in 1990 and 1993, were
both uniformly opposed by the conservative movement.

While Yglesias provides zero support or clarification of this statement, I am assuming by "conservative movement" he is referring to Republicans in Congress only. I don't think its any stretch to say that "conservatives" and "Republicans" often disagree on matters of policy. One need only visit RedState.com or listen to Erick Erickson to know that. But more importantly, Yglesias seems to be saying that if you opposed these two deficit reduction packages you must be opposed to deficit reduction in any way. This is not the only reasonable alternative. No person will support something at any costs - what is in the package matters. For instance, no deficit hawk proposes the dismantling of the military to bring spending under control, just as liberals would oppose raising tax rates to 100% of income, even though it would help to fund their expansive government programs. There are breaking points and context matters. Yglesias does not acknowledge this.

Circular Reasoning
Yglesias' third and fourth points are in regard to taxes. Yglesias says:

When the deficit was temporarily eliminated in the late-1990's, the mainstream
conservative view was that this showed that the deficit was too low and needed
to be increased via large tax cuts.

Here, his conclusion has become his premise. Since conservatives don't care about the deficit, their motive in supporting tax cuts must have been that the deficit was too low and needed to be increased. Clearly, mine is not a thorougly researched blog post, but unless he has supporting quotes or articles with conservatives making statements to that effect, I cannot concede this point. When the government budget forecast a SURPLUS, conservatives thoughtfully believed that, if the government has extra money laying around, perhaps it is best to return it to the people. Incidentally, it is a well established economic fact that reductions in tax rates do not automatically equal reductions in government revenues, and Yglesias knows that. Once again, he presents only the portion of the facts that make his conclusion seem obvious. The fact is, his conclusion is far from obvious and things are rarely as simple as he presents them.

Yglesias uses Republican presidents when it suits him, then Republican members of Congress when more convenient. Who is it that controls government spending? He ignores the fact that it was a Republican Congress that balanced the budget in the mid-1990's, alongside a Democratic president. I'll have to check my copy of the Constitution but I believe Article I gives Congress the power of the purse.

All of this being said, I do agree that Republicans have done a poor job of supporting deficit reduction and fiscal responsibility over the past decade. I am queasy over neo-conservative support of expansive military operations without fiscal restraint. If he wants to focus his ire on Republicans, I believe that would be responsible and better supported by fact. When it comes to conservatives, it would be more accurate to say that conservatives are most concerned with responsible government spending and keeping taxes as low as possible. It is difficult to argue that a group who cares about revenues and expenses does not care about the bottom line. Such measures are directly correlated. To claim that conservatives uniformly "do not care about the deficit" is like saying a business owner that cares about his prices and watches his expenses does not care about his profits or losses. I think that is a hard case to make and diminishes what I think is an important and valuable discussion.

Cash for Clunkers: A Failure of Big Government

As we are now hearing, the much anticipated "Cash for Clunkers" program is running out of money faster than ever expected. Many are touting this as evidence of the program's incredible success. The truth of the matter is, however, that this program will become an abject failure as it will fail to meet the goals of economic stimulation and demand creation.

To begin with, though President Obama has done his level best to desensitize us to large amounts of government spending, $1 billion is a substantial sum of tax dollars. However, in auto industry terms, it is merely a drop in the bucket and was never enough to stimulate the sector. This is not evidence that it was underfunded, this is evidence that it should never have been undertaken in the first place. The program included enough funding for approximately 250,000 transactions nationwide. Compared to June 2009 auto sales, which were historically low, this program would have increased sales less than 3%. For a billion dollars, that is an unacceptable return on investment.

Here's what the National Highway Traffic Safety Administration says about Cash for Clunkers:

"Manufacturers' and dealers' employment levels are unlikely to be impacted by the Act. The impact of the Act will most likely not be large enough to increase production by manufacturers, and dealers on average will only be selling an additional 12 vehicles (250,000 estimated number of vehicles sold during the program divided by 19,700 dealers as of early 2009) during the course of the program."

The program was only available to individuals interested in purchasing a new car. The problem with that is most people who drive "clunkers" as their primary vehicle do it out of need. They do it because they cannot afford a new vehicle. These consumers buy used cars. By eliminating used car purchases from the program, Congress eliminated the only chance they had of actually stimulating demand.

The customers that are taking advantage of this program are customers who were planning to trade-in their vehicle anyway as well as customers who do not use the clunker as their primary vehicle. In fact, many customers surveyed have said that they have actually been postponing their purchase to wait for the government money. Many others surveyed have said that they would have traded the vehicle in within the next 1-2 years anyway. This is not a stimulation of the economy. This is transferring demand that already existed; essentially stealing business from future years to inflate, ever so slightly, current business. Taxpayers are subsidizing people who could afford, and were already planning, to purchase a vehicle.

The program puts an undue burden on dealers nationwide. The application process is horrendously complicated and time consuming. It requires dealers to purchase document scanners. It forces them to front large sums of cash to participate as well.

If a customer purchases a car on Monday, that is when the dealership allots the credits (either $3,500 or $4,500) while the dealership gathers the necessary documentation (proof of insurance for the previous 12 months, proof of registration for the same period, a free and clear title, fuel economy comparison, certification of driveability, as well as others.) Once these documents are collected and the transaction is approved by the lender, the dealer must disable the trade-in before applying for the credits from the government. Once the documents have been scanned and submitted, and the online forms filled out (a process that can take over an hour assuming the site doesn't crash which it has every single day since the program began) the submission goes to a status of "under review." This process can take up to 4 days before you receive an answer.

Now and only now does a dealer find out if they will receive money they have already given a customer. If the application is denied, the dealer must figure out why by an electronic code that accompanies the decline message. At this point they may attempt to resubmit and the process begins again. If, however, in this time period, the program has run out of money, the dealer is left holding the bag on the $3,500 or $4,500 given to the customer and is left with a trade-in that has been disabled and cannot be sold. This is bad for small business and displays a fundamental misunderstanding of the burdens of car dealers.

This program has met none of its stated goals and may do more harm to the auto industry than good. It has cost too much money and now may cost more with little to show for it. This, once again, displays all the evidence you need to know that government should stay out of business.

The Texas Economic Model

The Texas legislative session just ended (it convenes only once every 2 years) and the lists of accomplishments are being collected and compiled.

In 2008, Texas created more jobs than the other 49 states combined. In fact, over 50% of the jobs created in 2008 were created in the state of Texas. Texas boasts the most business friendly economy in the country, with low tax rates including absolutely no state income tax.

Texas boasts a completely balanced budget. Under the leadership of governor Rick Perry, who has vetoed more spending than any governor in the country, has just balanced yet another budget. Under Senate Bill 1, signed into law last Friday, Texas will spend 1.6 billion less in general revenue than the previous budget. Thats right, a DECREASE in government spending; the first one since World War II. in addition to this, in a recession, the governor, and Republican-controlled legislature, was able to cut taxes for 40,000 Texas businesses.

Policies like this are why 1000 people move to the state of Texas every single day, and states like California are seeing their businesses filling moving trucks bound for the Lone Star State. I hope our federal lawmakers are paying very close attention.

No Place Left to Hide: Obama’s Unsustainable Promise

We have begun to see the effects of the spending boondoggle that this Administration is creating. Bloomberg reports today that the dollar has fallen to a 4 month low against the euro and shows no signs of a rebound. The weakening dollar is indicative of the falling confidence investors have in the U.S. economy due to the massive amounts of U.S. government debt being issued to finance a liberal agenda and a Federal Reserve that is printing money like its going out of style. The effects of these policies could be disastrous.

More evidence of the problems with the massive amount of debt President Obama is burdening us with: The Financial Times reported recently that investor demand for Treasuries has reached such a low at the latest Treasury auction that the yield differential between mortgage-backed and U.S. Treasury debt fell to its lowest level since 1992, spurred by the sharp rise in U.S. Treasury yields (yield moves in the opposite direction of demand.) As this, the so-called “riskless” rate rises, companies will be forced to offer even larger yields on their corporate debt. As the financing for projects becomes more expensive, companies by and large will postpone or abandon their investments. The sheer volume of Treasury debt will lead to a “crowding out” effect, taking away investors who would normally invest in private enterprise, the effect of which will make access to capital markets more and more difficult for busineses that rely on this capital to continue their operations. With demand for U.S. debt already falling to historically low levels what will we do when demand for our debt continues to drop even more? The government has not even begun to spend most of the stimulus money yet. How long will investors and foreign governments continue to finance our bad decisions?

When that well runs dry, there is only one place left to get the money to finance President Obama’s mistakes: your pocket and mine.

"I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes….you will not see any of your taxes increase one single dime." This is a statement from candidate Obama on September 12, 2008.

This promise will prove, and it some cases has already proven, unsustainable. California has all but given us a window into the future this week, as Carol Platt Liebau discusses. Public policy and special interests have spent California into a wall. They now face one of the direst economic and fiscal disasters in history. Ms. Liebau is prophetic: our federal government is heading down the same set of tracks unless we derail this runaway spending train.

The President’s excuses are wearing thin. Laden with a massive deficit from the previous administration, he continues to blame his predecessor. I will be the first to criticize President Bush’s fiscal irresponsibility as well. Make no mistake though: the time for talking about the past and campaigning against Bush is over. It is time to take ownership. The budget deficit for FY 2009 will be larger than the entire budget for FY 2001. That is undeniably the work of Mr. Obama and his liberal Congress. Think about that for a second – the amount that we are spending exceeds the amount we are taking in by the size of the entire federal budget only eight years ago. The enormity of President Obama’s irresponsibility is dumbfounding. The fiscal deficit he was left with may mean that he must make tough choices – it means we cannot buy everything we want. The debt that he inherited demands a heightened sense of fiscal responsibility; one that he has been demonstrably unwilling to provide. This must be stopped before it gets any worse. My fear, however, is that it is already too late.