James Pethokoukis

Politics and policy from inside Washington

McConnell reverses on earmark ban

Nov 15, 2010 21:09 UTC

Score another one for the Tea Party:

Senate Minority Leader Mitch McConnell declared Monday that he now supports a GOP ban on earmarks, a stunning reversal that puts the Kentucky Republican in line with the tea-party wing of his party and conservative senators who have long sought to kill off pet projects. “What I’ve concluded is that on the issue of congressional earmarks, as the leader of my party in the Senate, I have to lead first by example,” McConnell said on the Senate floor. “Nearly every day that the Senate’s been in session for the past two years, I have come down to this spot and said that Democrats are ignoring the wishes of the American people. When it comes to earmarks, I won’t be guilty of the same thing.”

McConnell’s backpedal on earmarks is also a remarkable win for Sens. Jim DeMint (R-S.C.) and Tom Coburn (R-Okla.), who had been gaining ground in their effort to force their Republican colleagues to adopt an earmark moratorium.

A complete ban on earmarks would a) save some $16 billion a year, b) make it harder for the big-spenders to bribe/threaten other members to vote for more spending; and c) make life harder for lobbyists. On that last point, getting rid of tax breaks and moving to flat tax would also be a blow on behalf of good government. Here are the biggest earmarkers this year in the Senate and House:



Yep, the rubes got rolled again. Even before the moratorium is adopted, some influential GOP senators are dismissing the ban as political gamesmanship and say they are prepared to defy the moratorium and continue to pursue earmarks.

Lisa Murkowski, James Inhofe, and Thad Cochran are all saying they will ignore the ban. Not surprising at all, since Alaska, Oklahoma, and Mississippi are three of the biggest welfare states in the nation.

Of course, this is all political theater anyway, since earmarks constitute about 1% of the budget.

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Again, America has a spending — not revenue — problem

Nov 15, 2010 19:50 UTC

Jim Glassman of JPMorgan illustrates the problem thusly:


Balance the U.S. budget? I did it in under a minute

Nov 15, 2010 17:20 UTC

So I took a crack at the budget simulator cooked up over at the NYTimes Web site. It starts out with a projected 2015 deficit of $418 billion and a projected 2030 deficit of $1.355 trillion. My goal was to do it through 100 percent spending cuts.


Here is what I did:

1.  Eliminated earmarks  ($14 billion)

2. Cut the pay of civilian workers by 5 percent ($17 billion)

3. Reduced the federal workforce by 10 percent ($15 billion)

4. Reduced nuclear arsenal and space spending  ($38 billion)

5. Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe ($49 billion)

6. Reduce Navy and Air Force fleets ($24 billion)

7.  Cancel or delay some weapons programs ($18 billion)

8. Reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015 ($149 billion)

9. Enact medical malpractice reform ($13 billion)

10. Increase the Medicare eligibility age to 68  ($56 billion)

11. Reduce the tax break for employer-provided health insurance ($157 billion)

12. Cap Medicare growth starting in 2013 ($562 billion)

13. Raise the Social Security retirement age to 70 ($247 billion)

14. Reduce Social Security benefits for those with high incomes ($54 billion)

15. Tighten eligibility for disability ($17 billion)

16. Use an alternate measure for inflation ($82 billion)

In the end, my budget would have a minuscule 2015 deficit of $80 billion and a 2030 surplus of $187 billion. Now I would have preferred an option for deeper domestic spending cuts. The Heritage Foundation has ideas for over $300 billion worth. And I think eliminating hundreds of billions of tax breaks and lowering tax rates across the board would boost growth and revenue. The simulator only lets me use the Bowles-Simpson plan which would lower rates by cutting tax expenditures —  but uses some of the dough for deficit reduction. Plus, the simulator assumes no impact on growth from higher taxes or lower taxes. Also, there is no doubt the Medicare cuts would be rightly labeled as “rationing.”  But Americans really have only two choices, I think: severe government healthcare rationing (since right now healthcare costs are rising much faster than GDP growth) or voucherization.

The simulator also shows how tough it is to balance the budget through tax increases alone. If you went for every tax increased offered, you would still have a slight deficit in 2030. And again, that assumes zero impact on economic growth from a) letting all the Bush tax cuts expire; b) eliminating tax breaks; c) adding a national sales tax, carbon tax and bank tax. That is a fantasy. Letting all the Bush tax cuts expire, for instance, would probably knock 2-3 percentage points from GDP next year.


I think there is a much better way to balance the budget.

1. Outsource all Goverment jobs to China
2. Creat Chinese outsourced Medical Centers at Walmart for all medicare and even consider using Chinese hearbal medicnes for Medicaid.
3. Sell Las Vegas to china in exchange for all the debt we owe them and all previous casino owners can divide up JP Morgan Chase.

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Bernanke probably agrees with the anti-QE2 letter

Nov 15, 2010 15:32 UTC

A bunch of right-of-center investors, economists and journalists (under the banner of the great e21 group) have signed an open letter to Ben Bernanke:

We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We subscribe to your statement in The Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

A few thoughts here:

1. I have no doubt that Bernanke would prefer not to be doing QE2, either. I think his preference, like those who signed the letter, would be for more fiscal action accompanied by a long-range deficit reduction plan. But, seeing that is not likely to happen, he is using what tools he has.

2. In most countries where the central banks are politicized, the pressure is to running the printing presses. In America, it’s just the opposite — at least from conservatives.

3. Is there any chance that Bernanke gets a third-term? Almost certainly not if a Republican wins the presidency in 2012.


The American gov’t and the Obama administration above all need to provide CERTAINTY for American businesspeople. Even if its bad certainty, there must be certainty so businesspeople can start planning and investing again. No one knows how the healthcare bill will ultimately impact business or even if it will ever get implemented. No one knows if or when the gov’t will stop its regulatory binge. When will they finally make a decision on taxes? Other things are beyond the President’s control, like a bottoming of the housing market, but he can still send some signals. Obama seems too fixated on his long-term social(ist) agenda to realize that the country needs some fundamental leadership on a day-to-day basis. Pres. Bush would have by now established a few (decidedly simple) guiding principles, giving the American people something to hold onto, i.e. CERTAINTY. The economic equivalent of “you’re with us or your against us.”

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