Saturday, October 1, 2005

It’s an ill wind that doesn’t blow somebody some good. That apparently applies to hurricanes. A recent Washington headline was, “Lobbies line up for relief riches.”

Of course they do. This is no surprise to those in the District of Corruption, where the worst government failures invariably become the best excuses for handing out billions more to special interests.

In a remarkable 1972 book, “Redistribution to the Rich and the Poor,” Kenneth Boulding and Martin Pfaff demonstrate political power is often used “as an exploitive device leading to the transfer of income from the poor to the middle class, or from the middle class to the wealthy.”

In an equally insightful 1989 book, “To Promote the General Welfare,” Richard Wagner explains “the creation and operation of public programs is guided less by wishes and high motives than by interests and strong motives.”

If we can keep our eyes wide open during strong political winds, the hurricanes might actually awaken more people to the sober realization that government “solutions” are most often obscenely overpriced, ineffective and corrupt.

This disaster, however, was so disastrous the government actually had to confess federal policies were an obstacle to effective solutions. The White House therefore moved to suspend the Jones Act, allowing foreign tankers to move fuel to wherever it was needed. It also moved to suspend the Davis-Bacon Act, allowing contractors to repair damage whether or not they pay the highest prevailing union wages. And it moved to suspend tariffs on lumber and perhaps on sugar.

Relief from such foolish regulations and trade barriers will be good for the Gulf Coast and the country. This is helps the economy in emergencies for the same reason it would help in ordinary times. So, let’s get rid of the Jones Act, the Davis-Bacon Act, and tariffs on lumber and sugar. Such corrupt payoffs to interest groups raise the cost of production and the cost of living, making the rest of us poorer.

Another potentially refreshing breeze from Hurricanes Katrina and Rita is that many legislators finally noticed spending many more billions on one thing requires spending less elsewhere.

Liberals want to slash military spending, while conservatives want to slash domestic spending. They’re both right. But their reason is wrong. Spending cuts are essential but won’t help if we just swap a few tons of pork in highway spending and homeland security for even more pork in the Gulf region.

A strange idea suddenly took hold it would cost $200 billion to repair damage from just one hurricane (Katrina), mostly in just one state (Louisiana), and that federal taxpayers (rather than insurance companies, corporations and state governments) should foot the entire bill.

Kathleen Pender of the San Francisco Chronicle discovered the $200 billion figure came from a political bidding war. Senate Minority Leader Harry Reid of Nevada guessed recovery and relief “will cost up to and could exceed $150 billion.” Not to be outdone, Republican Senate Budget Committee Chairman Judd Gregg of New Hampshire said the cost might reach $200 billion. The numbers were pulled from thin air.

When a disaster is declared, the federal government picks up most of the tab for rebuilding public infrastructure such as roads and bridges. It is perfectly appropriate to borrow for such capital outlays, so long as the return is expected to exceed the interest rate. But this hurricane porkfest far exceeds the cost public infrastructure. A greatly improved New Orleans levee would likely cost no more than $3 billion, for example.

Congress has appropriated $62 billion for Katrina relief, but “only” $13 billion has yet been used. It is not possible to quickly spend tens of billions rationally, which is why lobbyists circle like sharks. Louisiana’s senators recently introduced the “Hurricane Katrina Disaster Relief and Economic Recovery Act,” seeking an additional $250 billion. That bill has nothing to do with hurricane Rita — a problem Louisiana senators may consider a local matter (for Texas).

The San Francisco Chronicle’s Miss Pender reports the Katrina Relief bill includes “$400 million for mental health and substance abuse services for Katrina victims, $600 million to rebuild early childhood programs, $25.5 million for sugar cane research, $11 million to replace lost cattle and $10 million for fisheries … [and] a provision to cover lost Christmas trees.” This smells worse than the New Orleans Superdome.

The rationale for such spending will be (as it always is) that it’s needed to “help the poor.” This is also the favored excuse for pretending there cannot possibly be any room for spending cuts from the domestic budget. Yet excusing runaway spending by claiming it goes to the poor is a flimsy rhetorical fraud. The federal government spends very little on poor people for the obvious reason they have no political clout. Poor people are impossible to organize into an effective political bloc, reluctant to vote and a highly unlikely source of funds for political campaigns or for expensive lawyer-lobbyists.

According to the Congressional Budget Office (CBO), “In 2004, federal outlays for TANF [Temporary Assistance for Needy Families] totaled $18 billion, compared with $24 billion for food stamps, $30 billion for SSI [Supplemental Security Income] benefits for nonelderly recipients, $33 billion for the EITC [Earned Income Tax Credit] and $114 billion for the federal share of Medicaid spending on benefits for nonelderly people.”

When senators dream of spending $250 billion or more in a small area of the country, you can be sure they don’t expect any significant portion will trickle down to poor people. We are talking about the government, not the Salvation Army.

Nondefense spending was 10 to 11 percent of gross domestic product (GDP) in the 1960s, when Lyndon Johnson was rightly accused of spending too much, but has been 16-17 percent since 1975. With one exception (Medicaid), the “war on poverty” had little to do with the explosive increase in nondefense spending. Aside from Medicaid, major means-tested programs for the poor have ranged narrowly from 1 percent to 1.4 percent of GDP since 1971. Medicaid has increased steadily and is now as costly as all other poverty programs combined.

Yet Medicaid, the EITC, SSI, TANF and food stamps add up to about 2.8 percent of GDP — accounting for only about 16 percent of nondefense spending. The other 84 percent of nondefense spending is most definitely not earmarked for the poor. Poverty is the excuse — unearned affluence the motive.

If you want to know who really gets most federal loot, keep a properly cynical eye out for such warnings as, “Lobbies Line Up for Relief Riches.”

Alan Reynolds, a nationally syndicated columnist, is a senior fellow with the Cato Institute and is writing a book on income distribution for Greenwood Press.

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