Freedom Line Blog

For-profit colleges provide an invaluable tool for everyday Americans to climb the ladder and improve their skills, particularly during a period of high unemployment when every little advantage matters.  That’s one reason why, according to estimates, enrollment at for-profit colleges has increased over 20% even since the recession began.  Despite this, such colleges find themselves in the crosshairs of the Obama Administration, whose Education Department seeks to impose suffocating restrictions on loans to students who wish to attend them.

Stop for a moment and imagine the outcry if the Bush Administration had pursued such targeted restrictions, which hit poorer and minority enrollees disproportionately hard.

Now, however, there’s even more disturbing news.  Senators Tom Coburn (R – Oklahoma) and Richard Burr (R – North Carolina) sent a letter to the Education Department last week citing public documents indicating that it “may have leaked the proposed regulations to parties supporting the Administration’s position and investors who stand to benefit from the failure of the proprietary school sector.”  The Senators’ letter comes on the heels of a lawsuit whose evidence includes emails between Education Department advisers and short-sellers.

The Obama Administration’s mindless attack against these important colleges for working Americans is bad enough, but allegations of corruption and insider trading obviously exacerbate that looming disaster.  We’ll be following these alarming developments in coming days, as should anyone who cares about the American workforce maintaining its edge amid fierce global competition.

Our Liberty Update, CFIF’s weekly e-newsletter, this week includes the commentary “A Balanced Budget Amendment Doesn’t Have to Mean Higher Taxes – CFIF’s ‘One More Vote’ Proposal Doesn’t.” In that column, we note that the White House deficit commission’s fundamental flaw is that it takes for granted 2010 federal spending levels as its baseline:

The overriding problem with the commission’s plan is that it accepts the 2010 fiscal year as its spending base, thereby locking in the alarming spending increases of the Obama-Pelosi-Reid regime.  That includes the failed “stimulus” that attempted to spend our way to prosperity, the bailouts, the pet projects and everything else they’ve heaped into our budget.  Since 2008, federal spending has surged from approximately $25,000 per household to $30,000 per household, and jumped during that two-year span from its historical average of 20% of gross domestic product (GDP) to approximately 25% of GDP.  Richard Rahn points out that, “Federal government spending and revenues in 1968 as a percentage of gross domestic product (GDP) were almost identical to the levels in 2008.”

Unfortunately, it’s actually even worse than that.  The commission also leaves in place ObamaCare, which is already driving up healthcare costs and adding to the deficit (despite promises that it would have the opposite effect).  As James Capretta from National Review Online observes, we shouldn’t be surprised given the commission’s composition:

None of this is all that surprising, given how the commission was formulated.  It’s not really a bipartisan commission at all; it’s an Obama commission.  It was created by the president and stacked with Democratic appointees.  Two-thirds of the 18 members were picked by the president or Democratic congressional leaders. Only six were appointed by Rep. John Boehner and Sen. Mitch McConnell.  The president says the public doesn’t want to “re-litigate” the health care war.  He’s wrong.  As last Tuesday’s exit polls make clear, a strong plurality wants exactly that.  The American people know that the ill-advised law was railroaded through Congress and is a colossal mistake.   The fundamental problem here is that it is not possible build a bipartisan budget framework on a foundation that includes a partisan health-care plan with sweeping implications for future spending levels.

Americans cannot be asked to accept the commission’s findings when they take as a given current spending levels and an ObamaCare atrocity that must be replaced.

Today, the Labor Department announced that the unemployment rate remained at 9.6% for the third consecutive month.  When President Obama signed his nearly $1 trillion “stimulus” in February 2009, the unemployment rate stood at 8.2%.  In the 20 months since that date, the rate has increased to 9.6% despite White House projections that it would top out at 8% fully one year ago.

Once again, a comparison to the Reagan recovery is profoundly instructive.  In the same 20 month span following the effective date of the Reagan tax cuts in January 1983, unemployment plummeted from 10.4% to 7.3%.  Also instructive is the following headline from today’s Wall Street Journal:  “European Central Bank Parts Ways With U.S. on More Stimulus.” It is a sad state of affairs when even the spendthrift Europeans are providing economic guidance to Obama.

Liberal Keynesians have had almost two years to prove the validity of their economic agenda.  It has failed, their rationalizations have grown stale, and their desperate efforts to resist corrective action will only prolong the nation’s misery.

A group calling itself the “Progressive Change Campaign Committee,” which sounds so 2008 and even employs the same font and shade of blue as Obama’s “Organizing for America” page, is attempting to portray a false consensus in favor of new federal Internet regulation.

The group trumpets its success in getting 95 Democratic House and Senate candidates to sign a pledge favoring Internet regulation via so-called “Net Neutrality.”  But notice an interesting thing about those 95 candidates.  Namely, not a single one is in a race labeled “Solid Democrat,” “Likely Democrat” or even “Lean Democrat” by the Cook Political Report.  Not one.  Of the 95, 79 are in races labeled “Solid Republican,” with 11 in either “Likely Republican” or “Lean Republican,” and only five in races even labeled “Toss Up” by Cook.

In other words, this pledge is a “Hail Mary” by desperate candidates and Internet regulation advocates.  It also reflects the fact that significant majorities of Americans surveyed oppose new Internet regulation by the federal government.  The last thing the Internet needs right now is for the federal government to turn it into the tech version of ObamaCare, and voters shouldn’t be deceived by this sort of silly season antic.

Today, the U.S. Commerce Department reported disappointing 2.0% gross domestic product (GDP) growth for the third quarter of 2010.  Not only is that number below the expected 2.2% rate, it’s also below the rate needed to substantively reduce our 9.6% unemployment rate.  This now means that GDP growth rates for the five quarters of our current “recovery” have been 1.6%, 5.0%, 3.7%, 1.7% and now 2.0%.

Here’s how that compares to the Reagan recovery, which focused instead on cutting taxes and reducing government regulation.  In the five quarters following implementation of the Reagan tax cuts in January 1983, we posted remarkable growth rates of 5.1%, 9.3%, 8.1%, 8.5% and 8.0%.

So remind us again:  Who is the one blinded to “facts and science,” Mr. President?

Nobody should cheer bad economic news, but neither should anyone deny reality or ignore the clear consequences of toxic public policy.

Some 19 months after Barack Obama signed a nearly $1 trillion “stimulus” bill into law, the Labor Department this morning announced that unemployment remains elevated at 9.6%, and the nation lost 95,000 jobs in September.  This following Obama’s and Joe Biden’s promises of a “recovery summer.” Obama and his apologists may trot out the teleprompters and once again claim that the private sector gain of 64,000 jobs (offset by losses in other sectors to arrive at the negative 95,000 total) shows that “we’re moving in the right direction.”

No, we’re not.  Even that paltry 64,000 is down almost 30,000 from the August private sector gain of 93,000, all at a time when his “stimulus” would supposedly have the economy accelerating, not decelerating.  Further, the Labor Department announcement stated that 15,000 more jobs were lost in July and August than previously estimated, along with a 366,000 downward revision in jobs during the 12 months through March.  The bottom line:  since Obama signed the “stimulus,” unemployment has steadily risen from 8.2% to 9.6%.

By way of comparison, in the 19 months following the arrival of Ronald Reagan’s tax cuts in January 1983, unemployment plummeted from 10.4% to 7.3%.  The facts speak for themselves.

Arthur Laffer brought us the famed Laffer Curve, which plotted how higher tax rates can paradoxically reduce incoming revenues by inhibiting economic growth.

In today’s Wall Street Journal, Laffer adds to his legacy by showing how state income taxes lead to lower economic growth, personal income and population growth.  The impetus for Laffer’s analysis is ballot Initiative 1098 in the state of Washington, which would impose a new 5% income tax on individuals earning over $200,000 or couples over $400,000 per year.  An additional 4% would be heaped upon individuals earning over $500,000 or couples earning over $1 million.  Laffer crunches the real-world economic numbers, which clearly demonstrate that this is a destructive idea.  He shows that the nine states without a personal income tax enjoy 26.5% higher economic growth, 13.1% higher personal income growth and 9.4% higher population growth than the nine staes with the highest personal income tax rates. The highest-tax states also suffer 22% lower tax revenue growth and underperform in standard of living.

As Laffer neatly summarizes, “Each and every state that introduced an income tax saw its share of total U.S. output decline.”  He can’t stop states from descending into economic self-destruction, but he provides a great service by providing this warning beacon.

Throughout the ObamaCare debate, President Obama promised that, “If you like your healthcare plan, you can keep your healthcare plan.”  Nearly every single day, however, it seems that yet another healthcare plan becomes a casualty of ObamaCare.

Last week, McDonald’s made headlines when it revealed that a low-cost “mini-med” healthcare plan for 30,000 employees may now be “economically prohibitive” due to ObamaCare.  Now, we receive news that 3M will discontinue a group healthcare plan for retirees not old enough to receive Medicare by 2015.  The reason?  “Health care reform has made it more difficult for employers like 3M to provide a plan that will remain competitive.”

The White House continues to wage a Soviet-style campaign against private enterprises that dare deliver the inconvenient news that ObamaCare is already destroying the healthcare marketplace, but killing messenger after messenger won’t change simple reality.

According to a report entitled “The Impact of Regulatory Costs on Small Firms” just produced by Nicole V. Crain and W. Mark Crain for the Small Business Administration, the annual cost of federal regulations alone has reached $1.75 trillion.  That excludes the annual cost of taxes.  And that was as of 2008.

Combined, taxes and regulatory costs consumed a staggering 35% of America’s income in 2008, or $37,962 per household .  Alarmingly, that was the number before such new fiascoes as ObamaCare, “stimuli” and bailouts increased the burden.  Small businesses create most new jobs in America, but the authors highlight that regulatory costs hit them disproportionately hard relative to larger businesses (due primarily to economies of scale in dealing with regulatory compliance costs).  The authors found that businesses with fewer than 20 employees incur regulatory costs 42% greater than firms of between 20 and 499 employees, and 36% greater than firms with over 500 employees.  Per employee, small businesses face $10,585 in compliance costs versus $7,454 per employee for medium-sized firms, and $7,755 for larger firms.

As government gets bigger and bigger, the regulatory compliance costs only get more and more oppressive.  We needn’t search far to understand why the economy isn’t recovering and businesses aren’t hiring.

Conservative reaction to the House Republicans’ “Pledge to America” varies.  Whatever one’s views toward the plan, however, it did omit an item high on conservatives’ agenda:  a proposed Constitutional balanced budget amendment.  Enter CFIF’s “One More Vote,” which refers to the fact that Congress fell just one vote short in the 1990s of passing a balanced budget amendment and sending it to the states for ratification.  Our “One More Vote” initiative, which readers are urged to sign, would not only require a balanced budget, but prevent that from becoming a convenient excuse to raise taxes by requiring a 60% supermajority to create or increase taxes, or to raise the nation’s debt ceiling.

Party change won’t be enough this time around.  With “One More Vote,” we can collectively create something more lasting for America’s future generations.

Few things represent American ingenuity more than the incandescent light bulb.  Painstakingly created by Thomas Edison in the late 19th century, it also represents the more universal concepts of hard work, persistence, creativity and the life-improving contributions of private entrepreneurs.

But Edison’s marvel is being relegated to anachronism status in our brave new world of hyper-regulatory big government.

This week in Winchester, Virginia, General Electric ceased operations at its last incandescent lightbulb factory.  Under new nanny-state energy regulations, incandescent lightbulbs will be prohibited and replaced by compact florescent bulbs whose unflattering light makes for an ugly, sinister symbol of the nitpicking green movement.  Most of those florescent bulbs are manufactured overseas, by the way, but that’s also of little concern to righteous green crusaders.

Question:  Anyone else get that sneaking suspicion that famed energy hypocrite Al Gore is hastily stockpiling incandescent bulbs at his various compounds as we speak?

Over and over again, President Obama and other defenders of trickle-up stimulus labeled 2009’s “Cash for Clunkers” a positive example of federal spending and market manipulation.  Obama himself eagerly called it an “overwhelming success,” and Nancy Pelosi curiously professed that it “has been successful beyond our wildest dreams.”

Economists’ verdict?  Not so much.

Writing for the National Bureau of Economic Research, economists Amir Sufi from the University of Chicago and Atif Mian of the University of California Berkeley report that Cash for Clunkers had no substantive net positive effect:

A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.”

This is Obamanomics and “stimulus” policy in a nutshell:  Billions in spending, but no positive effect.  Future generations forced to pay for it will not be retrospectively amused.

In Friday’s Liberty Update commentary “The ObamaCare Fit Hits the Shan,” we noted how quickly the negative consequences of ObamaCare are arriving in the form of higher health care spending and insurance rates.

Well, Kathleen Sebelius, President Obama’s Health and Human Services Secretary, seems to believe that she can terrify the economic laws of supply and demand into deference.  Attacking private health insurers for doing nothing more than adjusting their bottom lines to meet business realities imposed by ObamaCare mandates, Sebelius ordained:

There will be zero tolerance for this type of misinformation and unjustified rate increases.  We will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections.”

Karen Ignagni, who leads America’s Health Insurance Plans, provided an Economics 101 primer that Sebelius should have received in college by saying, “It’s a basic law of economics that additional benefits incur additional costs, and the impact on premiums depends on the type and amount coverage policyholders had before.”

Simple economics aside, who does Sebelius think she is?  A Soviet-era commissar who can cow American citizens and businesses by thundering such threats?  Ms. Sebelius, you’re about to receive a true lesson in “zero tolerance” when Americans head to the ballots in November.

National Review’s Jonah Goldberg makes a good case that the real analogue to President Barack Obama’s increasingly inept tenure in office is Herbert Hoover.  As political scientist Gordon Lloyd makes clear in his anthology, The Two Faces of Liberalism, Hoover was not the ‘market fundamentalist’ FDR and other liberals like to claim.  He, like Obama, meddled relentlessly in the market causing it to stagnate.  When FDR’s frenetic policymaking was mistaken for good economics, Hoover got the blame while his successor got the credit.

Goldberg sees a similarity in the offing:

For reasons fair and unfair, the Great Depression discredited laissez-faire economics for a generation or more. Hoover, who was hardly the “market fundamentalist” FDR made him out to be, suffered largely from the (bad) luck of the draw, giving Democrats a chance to argue for a new deal of the cards. For reasons fair and unfair, Obama, who inherited a bad recession and made it worse, every day looks more like a modern-day Hoover, whining about his problems, rather than an FDR cheerily getting things done. Inadequate to the task, Obama is discrediting the statism he was elected to restore.

The punch line? When the economy finally rebounds, it might be just in time for Obama’s replacement to get all the credit.

This week, the Congressional Budget Office announced that the nation’s budget deficit has already reached $1.3 trillion, with another month to go in the 2010 fiscal year.  At 9.1% of gross domestic product (GDP), that makes it the second-largest deficit outside the World War II years, second only to last year’s deficit that reached 9.9% of GDP (mainly because GDP was lower in 2009 than 2010).  In a generous act of understatement, the CBO attributed this mind-boggling amount to lower revenues and “elevated spending associated with the economic downturn and the policies implemented in response to it.”  Another round of “stimulus,” anyone?

To put that in perspective, take a look at this straightforward bar graph.  President Bush’s final deficit was approximately $450 billion, which Obama tripled in his first year alone.  Now, Obama’s second deficit continues that unbearable amount.  Furthermore, efforts to scapegoat Bush for Obama’s first deficit fail, because such things as the $800 billion “stimulus” was Obama’s initiative, not Bush’s.

So President Obama brought us a crippling $814 billion “stimulus,” and now his promised “Summer of Recovery” has come and passed.

Undeterred, he nevertheless instructs us that what America needs is another $50 billion, or 1/16th the original stimulus amount, in new highway, airport runway and rail construction.  Obama proclaims that “this will not only create jobs now, but will make our economy run better over the long haul.”  So let us get this straight.  Obama turned the $450 billion deficit that he inherited into consecutive $1.4 trillion and $1.3 trillion deficits for his first two years in office, commenced a regulatory onslaught against the private sector, threatened growth-killing regulations like “Net Neutrality” and union card-check, demonized the business community that creates jobs, signed stifling new burdens like ObamaCare into law and appears ready to oversee the largest tax increase in history this January 1.

But according to him, the basis of our economic malaise is…  lack of pavement?

Moments ago, the Department of Labor reported that the nation’s unemployment rate jumped again to 9.6%.

As we reference in today’s Liberty Update commentary, this means that unemployment has now risen from 8.2% to 9.6% since Obama signed his $1 trillion “stimulus” bill in February 2009 (with the promise that unemployment would not exceed 8% under his spending plan).  By contrast, unemployment plummeted from 10.4% to 7.2% during the same timespan following the Reagan tax cuts.

This reconfirms what works:  more individual freedom, lower taxes, lower spending, less government.  It also reconfirms what doesn’t work:  more government control, higher taxes, more spending and more regulation.

In CFIF’s Liberty Update last week, we highlighted how President Obama isn’t so much “pulling us out of the ditch,” but rather setting our nation’s car on fire.  Instead of spending his time claiming credit for our inevitable cyclical rebound, Obama should recognize that his policies of higher spending, taxation, regulation and debt are only subduing it. To illustrate, we contrast the remarkable gross domestic product (GDP) growth during the Reagan recovery delivered by tax cuts, reduced regulation and a stronger dollar versus our current stagnation and possible “double-dip” recession.

Comparing unemployment trends then versus now provides another vivid illustration of the toxic effect of the Obama-Pelosi-Reid economic agenda.  From December 1982 to June 1984 – the first 18 months of the Reagan recovery – U.S. unemployment plummeted rapidly from 10.8% to 7.2%.  In contrast, over 13 months since our current economic rebound commenced in July 2009, U.S. unemployment has stagnated from 9.4% to its current 9.5%.  Of course, it is theoretically possible that unemployment will plummet by three percentage points over the next five months to match the Reagan recovery, but not even Joe Biden is silly enough to predict that.

It’s no mystery how to unleash America’s economic vigor and bring recovery:  less government and more economic freedom.  It’s just a matter of electing leaders who will actually pursue it.

The latest survey of 53 economists by The Wall Street Journal offers a clear message.  Namely, no more government “stimulus,” and extend the soon-to-expire Bush-era tax cuts for everyone, not just those earning under $250,000 annually.

Of 48 polled economists, 30 flatly rejected calls for any form of additional fiscal or monetary “stimulus.”  Only 6 economists encouraged more Obama-Reid-Pelosi style fiscal stimulus, only 5 suggested additional monetary stimulus from the Federal Reserve and just 7 suggested both.  On the issue of taxes, fully 32 of the polled economists called for extending all of the current lower tax rates, in a sharp rebuke to Obamanomics.  Only 3 economists supported an end to the Bush-era tax cuts, and only 11 agreed with Obama and Timothy Geithner in their campaign to raise taxes on those individuals and small businesses reporting income over $250,000.  Unlike Obama and Geithner, economists recognize the destructive effect that raising taxes on individuals and small businesses in the top income segments will have.

As Stephen Stanley of Pierpoint Securities summarized, “the economy needs government to get out of the way.”  Well said.

On this date in 1981, President Ronald Reagan signed the Economic Recovery Tax Act of 1981 at his Rancho del Cielo property in Santa Barbara, California.  Sponsored by Congressman Jack Kemp (R – New York) and Senator William Roth (R – Delaware), the bill amended the Internal Revenue Code in order “to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings.”

Did it ever.

By reducing tax rates and unleashing American dynamism, the U.S. witnessed two consecutive years of remarkable growth.  For the eight quarters spanning 1982 and 1983, we saw gross domestic product (GDP) growth of 5.1%, 9.3%, 8.1%, 8.5%, 8.0%, 7.1%, 3.9% and 3.3%.  Compare that to our current cyclical recovery, in which the Obama-Pelosi-Reid agenda of higher spending, regulation and taxation has subdued our rebound to 1.6%, 5.0%, 3.7% and 2.4% (soon to be revised downward to an estimated 1%).  Obama, Pelosi and Reid like to claim credit for our inevitable cyclical recovery from the last downturn, but the truth is that they’ve only managed to stifle it while adding trillions to our debt.

They should instead take a trip down memory lane and correct course according to the crystal clear Regan example.