"Stimulus" Bill Would Gut Welfare Reform

Buried deep in the so-called “stimulus” bill is an appalling sneak attack on one of the most important positive legacies of the previous Democratic president. As a National Review Online headline calls it, the provision amounts to “Ending Welfare Reform as We Knew It.”

At the Heritage Foundation website, Robert E. Rector and Katherine Bradley explain:

Under the old AFDC (Aid to Families with Dependent Children) program, states were given more federal funds if their welfare caseloads were increased, and funds were cut whenever the state caseload fell. This structure created a strong incentive for states to swell the welfare rolls. Prior to reform, one child in seven was receiving AFDC benefits.

When welfare reform replaced the old AFDC system with TANF (Temporary Assistance to Needy Families), this perverse financial incentive to increase dependence was eliminated. Each state was given a flat funding level that did not vary whether the state increased or decreased its caseload. In addition, states were given the goal of reducing welfare dependence (or at least of requiring welfare recipients to prepare for employment).

The House and Senate stimulus bills will overturn the fiscal foundation of welfare reform and restore an AFDC-style funding system. For the first time since 1996, the federal government would begin paying states bonuses to increase their welfare caseloads. Indeed, the new welfare system created by the stimulus bills is actually worse than the old AFDC program because it rewards the states more heavily to increase their caseloads. Under the stimulus bills, the federal government will pay 80 percent of cost for each new family that a state enrolls in welfare; this matching rate is far higher than it was under AFDC.

It is clear that–in both the House and Senate stimulus bills–the original goal of helping families move to employment and self-sufficiency and off long-term dependence on government assistance has instead been replaced with the perverse incentive of adding more families to the welfare rolls. The House bill provides $4 billion per year to reward states to increase their TANF caseloads; the Senate bill follows the same policy but allocates less money.

On August 22, 1996, President Bill Clinton signed the Responsibility and Work Opportunity Reconciliation Act, which imposed work requirements, provided job training and education, limited the length of time an individual could spend on welfare — and perhaps most importantly, changed the funding mechanism to eliminate the “perverse incentives” described above. This fulfilled the vow Clinton made in his first inaugural speech, to “end welfare as we know it.”

I’ve grown more conservative since the days when I voted for Clinton twice, but even during his presidency I admired him for his two most conservative accomplishments — welfare reform and NAFTA. Now the first of those stands to be undone, and the “stimulus” bill also undermines the spirit of NAFTA, requiring that all iron and steel used for construction under the bill must be produced in America.

I’m not so penurious as to want to abolish welfare altogether. I just think it should be, as Clinton described it, a temporary “hand up,” not a permanent “hand out.” Welfare should not become a multigenerational way of life. I don’t think there’s anything unreasonable about requiring that any adult welfare recipient who is physically able to work should be working or training for work as a condition of participation.

Some have argued that welfare reform has hurt poor children and that the provisions should be liberalized. Fine; let’s have that debate. But don’t sneak the change into a provision buried 600 pages deep in a 1,600 page “stimulus” bill. There is nothing stimulating about giving the states a financial incentive to add more people to the welfare rolls.

Dr. Doom Is Still Prescribing, and Says Stimulus Is the Wrong Medicine

Remember Peter Schiff, who was subjected to ridicule for years for predicting that the housing prices and stocks were in a bubble that would eventually collapse? Well, I sure hope someone can convince me that he’s wrong this time. (Hat tip: Conservative Command)

He’s ratcheting up the dire rhetoric even more than President Obama is. But while I’ve been saying that the need for a stimulus is not so urgent that we can’t take some care in how we spend the money, Schiff says the stimulus will actually make things worse. Much worse. An excerpt from the seven-minute video:

This thing [the financial crisis] is just getting started. Remember that what’s imploding is the entire phony American economy, where Americans borrow money and spend it. What’s happened right now is that the government is now taking on that mantle, the government is borrowing and spending, because Americans are too broke to do it, but what we’re doing is making the problem worse.

And when the bubble finally bursts on the bond market… if the dollar rolls over, which it should, if it begins to fall, ultimately it’s going to collapse, that’s going to knock the rug out from everything the government is doing.

Because when the bond bubble bursts, now the government needs a bailout, the government is broke, and that’s when this crisis is really going to go into a whole new gear.

I think the economy is pretty resilient, but I can’t dismiss Dr. Doom’s predictions out of hand. One blogger recently got a lot of attention by detailing numerous ways “Peter Schiff was wrong” about last year, and Schiff has responded in detail. I don’t know which one to believe. Schiff may have been wrong about some specifics of the crisis, but he was correct in saying a crisis was building. Now everyone acknowledges that we’re in a crisis, perhaps he’s pushing his argument too hard. But in any event, it seems like one more reason to move cautiously on the stimulus.

Obama, Geithner Try to Calibrate Our Anxiety Level

Above all else, one thing was crystal clear after President Obama’s prime-time news conference last night: The President doesn’t read this blog. (What, you thought I was gonna talk about the economy?)

Despite my admonition yesterday to Stop Saying “Depression”, Obama used the D word twice, once in his opening remarks and once in response to a question. I’m not the only skeptic — the very first question he received challenged him about his apocalyptic language:

Thank you, Mr. President. Earlier today in Indiana, you said something striking. You said that this nation could end up in a crisis without action that we would be unable to reverse. Can you talk about what you know or what you’re hearing that would lead you to say that our recession might be permanent, when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that? No, no, no, no — I think that what I’ve said is what other economists have said across the political spectrum, which is that if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.

Treasury Secretary Tim Geithner took his turn at bat this morning, and he had a narrow line to walk. He’s proposing to invest a lot more money in many of the same big banks that have already gotten a lot of capital from the taxpayers. In David Brooks’s column in yesterday’s New York Times, Geithner seemed positively soothing in comparison to his boss, saying there have been worse crises in the past:

“People are enormously uncertain about the depth of the recession,” Geithner says. “They’re enormously uncertain” about how their assets will perform in this environment. But this is not like the savings-and-loan crisis of the ’80s and ’90s, or like Sweden, where banks themselves were dead, he said, adding that we’re trying to repair “a system that is largely alive and will largely survive but is still burdened by systemic market failure, systemic uncertainty.”

Today he triangulated a bit. I don’t see a transcript yet, but in his prepared remarks, Geithner had this to say:

“This is a challenge more complex than any our financial system has ever faced, requiring new systems and persistent attention to solve. But the President, the Treasury and the entire Administration are committed to see it through because we know how directly the future of our economy depends on it.”

Not the worst crisis ever, just the most complex. Given all the derivatives and exotic financial instruments that have been created in recent years, I tend to agree. (Geithner no doubt will be relieved to hear that.)

Two other things jumped out at me from Obama’s news conference. The President said a couple of times that there were no earmarks in the Senate bill, which came as a surprise to me. The AP reports that he was relying on a narrow definition of the term “earmark.” (Hat tip: Mark Hemingway.)

OBAMA: “I know that there are a lot of folks out there who’ve been saying, ‘Oh, this is pork, and this is money that’s going to be wasted,’ and et cetera, et cetera. Understand, this bill does not have a single earmark in it, which is unprecedented for a bill of this size. … There aren’t individual pork projects that members of Congress are putting into this bill.”

THE FACTS: There are no “earmarks,” as they are usually defined, inserted by lawmakers in the bill. Still, some of the projects bear the prime characteristics of pork – tailored to benefit specific interests or to have thinly disguised links to local projects.

For example, the latest version contains $2 billion for a clean-coal power plant with specifications matching one in Mattoon, Ill., $10 million for urban canals, $2 billion for manufacturing advanced batteries for hybrid cars, and $255 million for a polar icebreaker and other “priority procurements” by the Coast Guard.

Obama told his Elkhart audience that Indiana will benefit from work on “roads like U.S. 31 here in Indiana that Hoosiers count on.” He added: “And I know that a new overpass downtown would make a big difference for businesses and families right here in Elkhart.”

Also, in a blogospheric brush with greatness, it turns out Jonah Goldberg and I had similar conversations with our wives during the news conference. Goldberg wrote today:

I griped about that “create or save” line to my wife over and over again last night. It’s a new line, by the way (and it sounds like a prompt in a Microsoft word processing program). Until recently, Obama had said he wanted to create 3 million jobs (which is about the normal amount of jobs any recovery would generate, I believe). Now he says he wants to create or save 4 million jobs. Aside from the point that it will be hard to measure “saved jobs,” why is he stopping there. Let’s say there are 100 million jobs in America. Doesn’t he want to save all — or nearly all — of them? Why not say his plan will create or save 100 million jobs?

Here’s how anal I am: I looked it up. The latest Department of Labor jobs report indicates that there are more than 145 million jobs in the civilian labor force. Doubtless Obama will be able to claim having saved the vast majority of them. So I’m actually improving on Jonah’s observation here, and I came up with it independently.

But enough about me, let’s talk about you. Do you think I’m too self-absorbed?

(Photos: Getty Images, via CNN)

Slow Down on the Stimulus, and Stop Saying “Depression”

Not even close.

My nomination for understated headline of the year goes to today’s Washington Post: “If Spending Is Swift, Oversight May Suffer.”

Gee, ya think?

The $827 billion stimulus legislation under debate in Congress includes provisions aimed at ensuring oversight of the massive infusion of contracts, state grants and other measures. At the urging of the administration, those provisions call for transparency, bid competition, and new auditing resources and oversight boards.

But under the terms of the stimulus proposals, a depleted contracting workforce would be asked to spend more money more rapidly than ever before, while also improving competition and oversight. …

“We don’t have the means to make sure we don’t blow through billions of dollars and give it to the wrong people,” said Keith Ashdown, chief investigator at the nonpartisan Taxpayers for Common Sense. “We’re on track to lose billions, if not tens of billions, to waste, fraud and abuse.”

OK, you might say, but maybe that’s the risk we have to take, if we really are faced with a “catastrophe,” as the President has said. If this crisis is “as deep and dire as any since the days of the Great Depression,” as Obama wrote in an op-ed last week, maybe throwing money at it now now now now now is the least-bad option we have.

Let’s all take a breath. In the words of the headline over Cato Institute Senior Fellow Alan Reynolds column in today’s New York Post: “It’s a Recession, not a Catastrophe.” As he documents in the table above, by many measures the recessions of 1981-82 and 1973-75 were considerably worse than what we are in now.

An average of 55 forecasters in the Jan. 15 Wall Street Journal survey expect real GDP to fall by another percentage point (a 2.1 percent drop in total) before recovering in the third quarter. If they’re right, this would be just the third deepest postwar recession by that broad measure.

Measured by unemployment, on the other hand, this might well be the second deepest recession. The current unemployment rate of 7.6 percent is quite unlikely to reach the postwar record of 10.8 percent. But the Journal forecasters expect the jobless rate to top out at 8.9 percent after the recession is technically over – making this very close to becoming the second worst recession in terms of job loss.

In other words, there’s really no excuse for Obama or anybody else using the term “Great Depression” in any discussion of the current economic situation. Unemployment in the Great Depression topped out at 25% in 1933 — making it a completely different category of event. We’re looking at unemployment that might get to be as bad as the early 70s. Meanwhile, the inflation of that era is a distant memory and mortgage rates are dramatically lower.

I favored the autumn bank rescue as a necessary evil — the credit markets really were frozen, the economy really was in danger of freezing up, time really was of the essence. I don’t see anything like the same urgency here. Remember also that in the bank rescue, the government wasn’t spending hundreds of billions of dollars, it was investing. Risky investing, to be sure, but there’s at least a theoretical chance that the taxpayers come out whole. But money spent wastefully is gone for good.

It’s time to put on the brakes. Pare the stimulus bill way back, limiting the spending to projects that really will provide a short-term stimulus, and don’t use the crisis to sneak through a decade’s worth of pork. And President Obama, if you really want to demonstrate leadership this evening in your first prime-time news conference, take a cue from Alan Reynolds:

The president needs to be a calming voice right now, a source of strength. It’s not helpful for him to be warning of a “catastrophe” and making vague, untenable allusions to the Great Depression. … [R]ecovery will require more perspective and patience than we’ve been seeing from the White House lately, because time really does heal many economic wounds.

(Depression-era photo: The Market Oracle. Table: NY Post)

Global Warming and the Anthropogenic Financial Crisis

When listening to President Obama’s dire predictions of “catastrophe” if a stimulus bill is not passed now now now now now, is anyone else reminded of the global warming debate?

Even most skeptics about what Taranto calls “global warmism” would concede that there are valid reasons to want to reduce the use of fossil fuels and the resultant greenhouse gases. The debate arises over what measures should be taken, and how urgently. (Now now now now now!)

Similarly, there seems to be widespread consensus that the economy is in terrible shape, and that an increase in economic activity would help. The debate arises over how best to stimulate the economy, and how urgently.

In both cases, proponents of “doing something” now now now now now maintain that there is no time to worry about the possible side effects. But I firmly believe that when everyone around you is clamoring for immediate dramatic action, that’s exactly the right time to take a deep breath and think hard about the consequences. A few years from now the specifics of the stimulus package will be a lot more important than whether the bill was passed in February or March.

The one thing that seems clear to me is that if we are going to make a multi-hundred-billion-dollar effort to stimulate the economy, it should be done through a combination of a) tax cuts for lower-income people (pushing stimulus activity down to the individual level, among people who are likely to spend) and b) accelerating government spending that is destined to occur anyway.

That, of course, is not what the Democrats are planning. Here’s Krauthammer, on the “fierce urgency of pork” behind the “legislative abomination” that is the stimulus bill (emphasis added):

It’s not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It’s not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It’s the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus — and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress’s own budget office says won’t be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Krauthammer was writing about the House version of the bill, but I’ve seen little reason to believe that the Senate compromise reached last night is any better.

Meanwhile, Harvard economist and former Chairman of the Council of Economic Advisors Greg Mankiw describes “My Preferred Fiscal Stimulus“:

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.

Note that by allowing governors (and I think you’d have to include state legislators) to determine whether to substitute spending for tax cuts, Mankiw’s proposal would mean that any decision about whether to build schools in Milwaukee would be made in Milwaukee, or at least in Wisconsin. And by gradually increasing the gasoline tax to offset the immediate payroll tax cut, the proposal would even… wait for it… help counteract global warming.

Iraqis Vote to Stabilize Their Country

Incomplete election returns from Iraq are very heartening. In addition to being almost completely peaceful — with security provided solely by Iraqi forces, with Americans on standby — the results appear to have strengthened the secular government of Shiite Prime Minister Nouri al-Maliki. The various Sunni factions, which largely boycotted the 2005 elections, appear to have won representation proportionate to their numbers, giving them a stake in the government.

From an op-ed in the Wall Street Journal (emphasis added):

The big loser in this election was Iran. Iranian agents spent a lot of money trying to influence the outcome of the elections in the south, and they largely failed. Iran’s favored parties did poorly. The Iranians had hoped to persuade Iraqi voters to punish Mr. Maliki for signing the security agreement with the United States. Instead, these elections proved to be a powerful vote of confidence for the prime minister and his policies, including that agreement.

The big winner in this election was the concept of a unitary Iraq. An attempt to hold a referendum on establishing an autonomous Basra failed before the election. ISCI, the only Arab party that had favored the creation of an autonomous Shiite region, lost ground throughout that region, including in its own stronghold of Najaf. Iraqis have sent a clear message that they want to live in a single state with a strong central government connected to strong provincial governments, rather than in some sort of artificially federated state.

Iraq has gone from being an impending disaster to a golden opportunity. Helping Iraqi internal politics develop peacefully and across sectarian lines is a critical part of reintegrating Iraq into the Arab world, making the world’s only Shiite-controlled Arab state acceptable to the Sunni regimes that surround it. That reintegration, in turn, offers tantalizing prospects for balancing Iran and stabilizing the heart of the Muslim world. The stakes in Iraq remain very high, but we are finally starting to see the return on our investment.

Thank you, President Bush. The only way to defeat Islamic fascism is to nurture and support peaceful alternatives in the Arab and Muslim worlds. Iraq is a good start.

(Photo: AP)

Honeymoon-Over Watch: Daschle and the Post-Racial Presidency

Tom Daschle withdrew as nominee for Secretary of Health and Human Services yesterday, reportedly to enable him to audition for a better-paying movie gig as Harry Potter’s dad.

The Washington Post reports (emphasis added):

Obama officials had sought a seamless transition, nominating most of his Cabinet at record pace and taking office ready to implement a raft of new policies. His reversal yesterday suggested that speed may have come at a cost, and that Obama, despite the overwhelming popularity he had upon taking office and the major challenges facing the nation, will not be spared from the same kind of scrutiny his predecessors have faced.

MoDo takes the gloves off:

It took Daschle’s resignation to shake the president out of his arrogant attitude that his charmed circle doesn’t have to abide by the lofty standards he lectured the rest of us about for two years.

Dana Milbank wrote, “If this is Obama’s honeymoon, one shudders to think what a lovers’ quarrel would look like. “

Going “meta” for a moment, the honeymoon may be over for the “Honeymoon-Over Watch.” A Google search for Obama honeymoon returns 2,880,000 results, indicating that the metaphor may not be quite as fresh and insightful as I imagined when I turned it into a category on my blog.

I think the end of the honeymoon is a good thing — and not because of any ill will toward Obama. I see it as a sign that Obama is making a transition from being the first African-American president to the much more essential and powerful role of being simply the American president.

For now, it may still be the case that only an Establishment liberal like Maureen Dowd can call Obama “arrogant” without prompting accusations that it’s a code word for “uppity.” We are just a few short months removed from the ludicrous notion that observations about Obama’s “inexperience” constitute some sort of racial code. But as Obama adapts to a role where he can no longer vote “present,” he will have additional opportunities to attract criticism from across the political spectrum. If people grow used to the idea that it’s possible to criticize a black person without being a racist, our society will have made an important step toward racial equality.

(Photo: UPI)

In Iraq, the People Have Spoken — Peacefully

What if they held an election and the terrorists stayed home? From MSNBC:

BAGHDAD – Iraqis held their most peaceful election since the fall of Saddam Hussein on Saturday, and voting for provincial councils ended without a single major attack reported anywhere in the country.

In the NBC Nightly News report of the elections, below, we see how women are beginning to play a more prominent role in Iraqi government and society.

Yesterday’s election occurred 1 year, 9 months and 11 days after the Senate Majority Leader’s shameful attempt to preemptively surrender:

Our new president also opposed the surge, of course, and he won his party’s nomination in part because he alone among the major candidates opposed the war in Iraq from the start. I’m very grateful that he was not the commander in chief in 2007, when the new strategy was put in place. Now that it’s Mr. Obama’s war, I’m heartened by the fact that he kept in place the Defense Secretary who oversaw the change in strategy.

“I congratulate the people of Iraq on holding significant provincial elections today,” Mr Obama said in a statement. “This important step forward should continue the process of Iraqis taking responsibility for their future.” Thanks to President Bush, they have the opportunity to do so.

(Photo at top is from PUK Media, where there are dozens more photos from the voting.)