Budget and Deficit

Q. Why did you vote for Donald Trump instead of Ted Cruz?

A. The whole establishment is corrupt. The whole Republican Party is corrupt. I’m done with them. Donald Trump isn’t beholden to anybody—not the establishment, not the lobbyists, not the crony capitalists. He will look out for the people and do what’s right for America, not what’s right for Wall Street. He can do it all by himself.

Q. Why do you conclude the Republican Party is corrupt? They agree with you on almost every issue.

A. They said they were going to get rid of Obamacare but they didn’t. They said they were going to fix immigration but they didn’t. They let Obama get away with executive orders, and they didn’t investigate Benghazi or the IRS or Hillary’s email scandals. They signed a budget deal with Obama instead of cutting spending. They all suck.

Q. Actually, they DID investigate Benghazi, and the IRS, and Hillary’s email scandals (though they wisely deferred to the FBI on that one). They voted to overturn all or portions of Obamacare like 60 times.  And the budget deal held spending below Obama’s budget AND locked in the Bush tax cuts PERMANENTLY.

A. Yeah, but what came of it? NOTHING! We voted them in and they didn’t get a thing done. I’m through with all of them. They betrayed us.

Q. You do understand that, to pass laws, House Republicans had to get the agreement of the Senate, which was in Democrat hands for the first part of the Obama administration, and of course they had to get Obama’s signature. You can’t change the law without getting the President’s signature. You know that, right?

A. They should have forced change from Congress. They should have shut the whole place down until the Senate and Obama were forced to overturn Obamacare, cut spending, and throw Hillary in jail. They should have refused to pass the spending bills and just shut the whole thing down until we got our way.

Q. You do realize that the only person in Washington who actually followed that plan was Ted Cruz, right? Ted Cruz is the guy who tried to shut down the government. And you just voted against him. You voted against the only person who actually agreed with you on the issues and the strategy.

A. Um . . . 

The House of Representatives has just taken a major step toward reducing the U.S. trade deficit: ending the crude oil export ban. 

In 1975, when gas lines were long and voters’ tempers were high, Congress passed legislation prohibiting U.S. crude oil exports. The country had seemed to peak its oil production a few years earlier and was on a gradual crude oil production decline, and Congress wanted the country to keep every drop it produced. 

Last night's State of the Union address, which even many among the Talking Left seemed to agree was a pointless execise, struck me as an exercise in misdirection.

The President started off talking about teachers spending extra time with students, autoworkers working hard, farmers, doctors, fathers and mothers and soldiers. The theme seemed to be "the real state of our union is in our hearts," and it was an attempt to divert attention away from real, empirical measurements of how well we're doing, which is pretty awful.

Consider:

One thing a lot of people seem to be missing is that this past week's new, stubborn determination on the part of elected Republicans in the House to follow their own strategy calculation and to not cave in to outside pressure groups is a direct result of the disastrous experience House Republicans had the last time they caved into pressure from these groups in the effort to shutdown the government in order to fail at defunding Obamacare.

Leadership knew there was no chance that effort would succeed. It didn't take much smarts to game that out. But a sufficient number of members were intimidated by a small number of outside groups and felt they had no choice but to go down that road and crash into that wall.

Predictably the effort failed, not for lack of principles or courage, but because of obvious political reality that anyone with any sense already knew ahead of time. Elected members got burned by caving in to unwise and flawed strategic pressure from the outside groups.

The strategic mistake here was a small number of outside groups taking a predictably flawed strategic position and then intimidating elected officials into following that flawed strategy. It was a mistake, and the repercussion is that their influence going forward is diminished.

Okay, so the good guys lost this battle. On to the next one.

With “this battle,” of course, I’m referring to the government shutdown over . . . what was it over again? Defunding Obamacare? Delaying the individual mandate? It seems like it was over three or four things before it was . . . over.

Look, you don’t win every battle. This one, we lost. We tried to take a hill, and we failed. You pick yourself up, you address your wounds, you assimilate the lessons, and you move on.

Some argued that we should not have charged this hill—that we knew there was little to no chance of success, and that we should not lead our troops into a battle without at least a decent chance of winning. Others argued that the fight was a noble one, the cause a just one, and that it should be taken on regardless of the chances of success, which turned out to be a kamikaze strategy. Regardless, it was a debate over strategy and tactics, not principle. A tactic or two was tried, they failed, and now we hopefully learn from it and move on without shooting too many of our own in the process. Because they’ll be needed for the next battle.

The latest “wisdom” about the government shutdown is that the impasse is making the U.S. a laughing stock around the world. If there is any country laughing at the U.S., it’s either a hypocrite or it hasn’t looked at its own financial situation—or that of many other countries. 

The Dallas Fed put out a very interesting paper (PDF) in July in which they try to quantify the damage done by the 2007-09 financial crisis. Don’t go looking to this paper to find anything about the “cause” or “roots” of the crisis, or how to get out of it, or whether the right policies were followed, etc. No, they’re just trying to quantify the costs to the economy, which is valid and interesting in itself.

They come up with some astonishingly large numbers. Without going into enormous detail here (you can read the paper yourself if you have an appetite for enormous detail), they find that the cost of the financial crisis is at least 40-90% of a full year’s (2007) economic output for the United States. I say “at least” because, after they have figured in a few other factors they believe are valid, they conclude that “what the U.S. gave up as a result of the crisis is likely greater than the value of one year’s output.”

That’s between $6 trillion and $14 trillion lost, or the equivalent of $50,000 to $120,000 for every U.S. household. Now it seems big.

Associated Press reporter Martha Mendoza writes how a promised satellite patent office for tech giant Silicon Valley—the top region in the world producing patents—is being denied thanks to sequestration cuts, despite the fact that patent offices are funded through patent fees, not taxpayer dollars.

So IPI went out on a limb on the sequester. We wrote a paper praising the sequester and explaining that the sequester represented the mildest down payment on the kind of spending restraint that is necessary if we have any hope of setting our fiscal house in order. We created charts to explain just how small the sequester restraints were. We blogged and gave speeches and did TV and went on the radio to sell the sequester. We got coverage in print media. We did our part--we more than did our part.

And we were right.

Check out Steve Moore's piece in today's Wall Street Journal.

The $150 billion budget decline of 4% is the first time federal expenditures have fallen for two consecutive years since the end of the Korean War.

We’re not fans of the Obama 2013 budget, as you can probably guess. And it’s going nowhere, thankfully.  But it’s instructive to see the impact of the Obama administration’s budget vision as to how it would affect the creative and innovative industries.

On the Positive Side

There’s not much.

• The Intellectual Property Owners Association reports that the budget will allow USPTO to keep all of its user fees. We agree with this, and we’ve written about the problem of fee diversion in the past. This is actually an area where we found ourselves disagreeing with our usual ally, Rep. Paul Ryan.
• Additional funding for cybersecurity should, if successful, help reduce the threat of theft of intellectual property from American companies by overseas IP predators, most notably China. Some government agency estimates suggest that U.S. companies have lost more than $400 billion in intellectual property theft to cyberespionage.

Here are a couple of charts that hopefully will provide some perspective on the relative insignificance of the sequester cuts. First chart shows total federal spending for the next ten years. The blue bars are how much the federal government will continue to spend, and how much spending will continue to grow, even with the sequester cuts. All the other colors represent the sequester cuts. They're hard to see because they are INSIGNIFICANT.