Education and the Constitution

via: cato

Does the Wall Street Journal think the Constitution is suspended on the weekends? Two weeks ago on Saturday, April 15, the Journal claimed on its front page that “the Constitution guarantees a public-school K-12 education for every child in the U.S.” Then this past Saturday, April 29, the Journal’s usually reliable editorial page deplored the “states’ rampant noncompliance with the 2002 No Child Left Behind Act” and the “lax enforcement of NCLB” by Education Secretary Margaret Spellings.

In both cases the Journal seems to have forgotten that the U.S. Constitution grants no authority over education to the federal government. Education is not mentioned in the Constitution of the United States, and for good reason. The Founders wanted most aspects of life managed by those who were closest to them, either by state or local government or by families, businesses, and other elements of civil society. Certainly, they saw no role for the federal government in education.

Once upon a time, not so very many years ago, Congress understood that. The History of the Formation of the Union under the Constitution, published by the United States Constitution Sesquicentennial Commission, under the direction of the president, the vice president, and the Speaker of the House in 1943, contained this exchange in a section titled “Questions and Answers Pertaining to the Constitution”:

Q. Where, in the Constitution, is there mention of education?

A. There is none; education is a matter reserved for the states.

Not only is the Constitution absolutely silent on the subject of education, but the U.S. Supreme Court has also refused to recognize any right to a taxpayer-funded education. As Timothy Sandefur, author of Cato’s forthcoming book Cornerstone of Liberty: Property Rights in 21^st-Century America, points out, in San Antonio Independent School Distict v. Rodriguez (1973), the Court specifically declared that education, though important, “is not among the rights afforded explicit protection under our Federal Constitution. Nor do we find any basis for saying it is implicitly so protected.” Nine years later, in Plyler v. Doe, the Court held that if a state chooses to give such an education to citizens, it must also offer it to the children of illegal aliens. But it has consistently recognized that taxpayer-funded education is a privilege, and not a right.

And as I wrote in the Cato Handbook for Congress a few years ago, the argument against federal involvement in education

is not based simply on a commitment to the original Constitution, as important as that is. It also reflects an understanding of why the Founders were right to reserve most subjects to state, local, or private endeavor. The Founders feared the concentration of power. They believed that the best way to protect individual freedom and civil society was to limit and divide power. Thus it was much better to have decisions made independently by 13–or 50–states, each able to innovate and to observe and copy successful innovations in other states, than to have one decision made for the entire country. As the country gets bigger and more complex, and especially as government amasses more power, the advantages of decentralization and divided power become even greater.

And that’s why it was a mistake to further centralize the control of our local schools in the No Child Left Behind Act. And why our friends at the Wall Street Journal, who are usually committed to the virtues of federalism and decentralization, should be applauding the several states’ resistance to federal intrusion, not calling for a crackdown.

The Optimum Government

If you knew economic growth and new job creation begin to slow when total government spending is larger than about 25 percent of the economy, and you knew total government spending in the United States is about 36 percent of gross domestic product (GDP), would you propose policies to make government larger or smaller to create more jobs and boost economic growth?

Over the last few decades, many economists have done studies on the “optimum” size of government. A new study just completed shows the optimum size of government is less than 25 percent of GDP.

Optimum is defined as that point just before government becomes so large as to reduce the rate of economic growth and job creation. Governments are created to protect people and property. A government too small to establish the rule of law and protect people and their property from both foreign and domestic enemies is less than optimal.

The American Founding Fathers also believed government had public health functions (as contrasted with spending on private health), such as draining swamps where malaria-infected mosquitos thrived; and some public works functions (e.g. building and maintaining roads, and ensuring basic education – but not necessarily state-operated schools).

The American Founding Fathers also understood that government could easily become too large, which would diminish the liberties of the people and discourage them from engaging in productive activity. The socialist utopians were in denial of the basics of human nature, which scholars like Adam Smith and the American Founders well understood.

Nevertheless, countless socialist schemes to enlarge the size of government have been sold to naive people. After two centuries of experimentation and the unnecessary loss of hundreds of millions of human lives, most of mankind now understands that pure socialism leads to tyranny and economic stagnation. Continue reading . . .

Barack Obama’s Keynesian Mistake

Federal policymakers are moving ahead with a huge $800-billion stimulus plan to return the U.S. economy to growth. Will it work? Decades of macroeconomic research suggest that it won’t. Indeed, the revival of old-fashioned Keynesianism to fight the recession seems to stem more from political expediency than modern economic theory or historical experience.

The idea of using fiscal policy to boost the economy during a downturn was championed by John Maynard Keynes in the 1930s. Keynes argued that market economies can get stuck in a deep rut and that only large infusions of government stimulus can revive growth. He posited that high unemployment in the Great Depression was due to “sticky wages” and other market problems that prevented the return of full-employment equilibrium. Interestingly, Keynes did not offer any evidence that sticky wages were a serious problem, and later research indicated that wages actually fell substantially during the 1930s. Instead, one needs to look at a range of government interventions to explain why the downturn lasted so long.

Despite the flaws in Keynes’ analysis, his prescription of fiscal stimulus to increase aggregate demand during recessions became widely accepted. Governments came to believe that by manipulating spending or temporary tax breaks they could scientifically manage the economy and smooth out business cycles. Many economists thought that there was a trade-off between inflation and unemployment that could be exploited by skilled policymakers. If unemployment was rising, the government could stimulate aggregate demand to reduce it, but with the side-effect of somewhat higher inflation.

Keynesians thought that fiscal stimulus would work by counteracting the problem of sticky wages. Workers would be fooled into accepting lower real wages as price levels rose. Rising nominal wages would spur added work efforts and increased hiring by businesses. However, later analysis revealed that the government can’t routinely fool private markets, because people have foresight and they are generally rational. Keynes erred in ignoring the actual microeconomic behaviour of individuals and businesses. Continue reading . . .

New Cato Policy Report Dissects the Financial Crisis

Atop every policymaker’s agenda is the ongoing financial crisis. Is the United States heading for a recession? If so, how bad will it be? What should policymakers do about it? What shouldn’t they do? The latest Cato Policy Report tackles these issues.

• Full Issue (PDF, 2.8M )
• “The Return of Big Government?,” by David Boaz [PDF] [HTML]
• “Lessons from the Subprime Crisis,” [PDF] [HTML]
• “Economists Debate Roots of Financial Crisis,” [PDF] [HTML]

Mr. President, We Disagree

“There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.”
— President-Elect Barack Obama, January 9 , 2009

With all due respect Mr. President, that is not true.

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth. See the complete ad from The Cato Institute

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Found on The Cato Institute

We Can’t Spend Our Way out of This Quagmire

The cause of the economic crisis was not the collapse of the secondary mortgage market, policies aimed at increasing home ownership or the rise of exotic financial instruments. These factors affected the nature of the crisis, but the ultimate cause was the bursting of a real estate bubble made possible by excessive money growth.

Abundant money and lower interest rates spur buying, pushing up prices. Since the supply of housing is relatively inflexible, housing prices rise quickly. Beginning in 2001, rising house prices and a rallying stock market increased homeowners’ perceived net worth. People believed they didn’t have to save as much for retirement or for their children’s college education. And they could borrow more against their increased home equity, allowing them to buy more goods, services, stocks and real estate. Credit-fueled spending reinforced the rising prices of everything, but especially real estate and stocks.

But the increase in real estate prices and the increased spending it supported were a fantasy. The economy’s ability to produce real goods and services is determined by the amount of plant and equipment, the number of workers, the supply of raw materials, and so on. We inevitably moved into a period of general inflation, so the Fed eventually had to reign in its easy money policy. Borrowing became more expensive, so people scaled back their spending or began selling assets to sustain it. Either response puts downward pressure on the prices of real estate and stocks, so prices that everyone counted on to rise forever began falling. The bear stampede was on.

In 2001, the Federal Reserve began expanding the money supply. Year-over-year growth rose briefly above 10 percent and remained above 8 percent into the second half of 2003. The effect on interest rates was immediate; the Fed funds rate that began 2001 at 6.25 percent ended that same year at 1.75 percent. It fell further in 2002 and 2003, reaching a record low of 1 percent in mid-2003. But if the Fed hadn’t increased the money supply from 2002 to 2006, increased demand for credit resulting from deficit spending and the increased demand for real estate would have pushed up interest rates. This would have discouraged borrowing. Rising interest rates would have thwarted the process by which an increase in borrowing by the government and by the public artificially inflates asset prices, begetting even more borrowing.

Most economists, government officials and politicians continue to believe the standard Keynesian explanation for recessions: Recessions are caused by consumers and firms becoming “spooked” for no meaningful reason, so consumption and investment spending falls below normal levels. This reduces demand for goods and services, which reduces employment, which reduces spending even further, and so on. Since the level of spending before the “spooking” was presumed to be sustainable, the solution to the problem is simple: Increase spending to where it had been during the boom.

In reality, excessive money growth drove asset prices up and drove interest rates down, making people feel richer than they really were and lowering the cost of borrowing money to facilitate more spending. Since the level of spending before the period of excessive money growth was just sustainable, the resulting level of consumption and business investment spending was unsustainable. The solution is to allow asset prices to fall to levels that accurately reflect what our economy can produce. This will make it clear to people that they are not as rich as they thought two years ago and thereby return spending to sustainable levels.

Still, virtually everyone agrees that we need to further stimulate the economy even though current attempts to solve our crisis by increasing spending is exactly the wrong thing to do. No one wants to bear the political cost for appearing to be uncaring by favoring a policy of “doing nothing.” Out of political cowardice, the federal government is attempting to produce a solution that is penny-wise and pound foolish. You can’t solve an excessive spending problem by spending more. We are making the crisis worse.

We have been down this road before. Most recessions start with the bursting of bubbles that grew large because of excessive money growth. But again and again, we presume a Keynesian cause and a Keynesian cure.

Our recent stock market and housing market crashes can prove to be the start of a sound and rapid recovery — if we will have the courage to let it be so.

Found on The Cato Institute

Feel like a Chump?

You work hard, take care of your family, and pay all the taxes the government says you owe as is typical of honest, upright citizens.

But what happens to your tax money? It is now going to “bail out” firms that pay their senior executives millions of dollars a year. Congress also intends to spend your tax dollars on an $825 billion “stimulus program” filled with many dubious projects and plain old-fashioned “pork.” Many good economists who have looked at the details of the stimulus package believe it has much more “de-stimulus” than stimulus in it and will make the American economy worse off rather than better off.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth
More by Richard W. Rahn

While you may have thought you are required by law to pay taxes on all your income, you learn the “important” folks in Washington seem to think paying taxes is optional. Chairman Charles Rangel of the House Ways and Means Committee responsible for writing tax legislation has admitted he did not pay the required income taxes on some of his private income (Caribbean rental properties, etc.); and the proposed Secretary of the Treasury, Tim Geithner, did not pay the required income tax on part of his income from the International Monetary Fund, where he worked for several years.

It gets worse. Senate Majority Harry Reid, Nevada Democrat, has repeatedly said paying taxes is “voluntary” (see YouTube video) and that Mr. Geithner’s failure to pay taxes was merely a “hiccup.” Continue reading . . .

School Choice Saves Money and Children

State governments are facing declining tax revenues and increasing budgetary demands. So lawmakers should take note of a state report from Florida released today that concludes Florida is saving millions of dollars with school choice.

School choice is the only policy that means huge returns for state governments, school districts, taxpayers, and children all at the same time.

The Office of Program Policy Analysis & Government Accountability found that taxpayers saved about $39 million, close to 50 cents for ever dollar donated through Florida’s education tax credit program last year. The report concludes much more could be saved if politicians expand the program and give families more choice.

Florida’s education tax credit program allows businesses to take dollar-for-dollar tax credits on money they donate to scholarship organizations that help kids attend private schools. Instead of sending a portion of their tax bill to the state, businesses can choose to support alternative education options for needy children and save taxpayers a bundle as well.   Continue reading . . .

Sen. Coburn Releases ‘Worst Waste of the Year’ Report

This morning, Sen. Tom Coburn (R-Okla.) issued a report detailing some of the more wasteful uses of taxpayer money by the federal government in 2008. (Read the report here.) By the time I was done reading, I felt physically nauseated. Any taxpayer with the slightest bit of concern as to how Washington blows money will likely feel the same. I won’t go through the numerous examples in the report, but I do have to admit that the $15,000 in HUD Community Development Block Grants for a voice mail service for the homeless left this already cynical budget observer dumbfounded.

I was pleased to see that the report does an ample job of tying in the obvious examples of waste with the big-picture spending problem in Washington. It notes that outrageous spending is occurring “despite the fact that by the end of the fiscal year the federal government spent nearly $3 trillion, but racked up a $455 billion budget deficit — the largest in the nation’s history. If the surpluses from Social Security and Medicare are not included, the true federal deficit was $639 billion. The current national debt stands at more than $10.6 trillion, which must be repaid with interest.”

More ominously:

Driving a substantial portion of the federal budget each year is the government’s social insurance programs: Medicare, Medicaid and Social Security. Estimates prepared by the Government Accountability Office (GAO) — the investigative arm of Congress — show that the projected cost to the government of paying for these programs in the future will be at least $52.7 trillion. More simply, every American currently owes at least $410,000 to pay for the commitments made by the government in these areas, though that figure is on the rise.

Frighteningly, the responsibility for heading off this looming fiscal disaster is in the hands of people who tossed $100,000 of taxpayer dollars at a study of American and Chinese video game habits.

The report’s cover has a picture of Santa Claus with dollars in his hand. It immediately reminded me of one of Chris Edwards‘ favorite books: Congress as Santa Claus, which was written by constitutional scholar Charles Warren in 1932. Toward the end, Warren cites a paragraph from a book comparing ancient Rome with the U.S. that’s worth reflecting upon:

Little by little, the State let itself be persuaded to do for each of its cities what it had done for Rome…. With a view to easing the misery of the urban proletariat, it took public works in hand in every direction, regardless of their utility. It distributed victuals free or at half price…. But all these schemes cost money…. The intensification of the evil was met by an increase in the dose of the very remedy which aggravated it — useless expenditure in the cities, ruinous taxes on agriculture. Matters went from worse to worse, until the system reached the limit of its elasticity, and the whole social fabric collapsed in a colossal catastrophe.  This is precisely the mistake which modern civilization must learn to avoid.

Found on Cato Institute

Investment: Government and Private

There is much excitement about a federal “stimulus” plan focusing on state and local infrastructure spending. At first blush, it seems like a pro-growth idea to get unemployed construction workers off the couch and onto the job site building new government highways, bridges, and the like.

However, national income data from the Bureau of Economic Analysis puts some perspective on such government investment ideas. (See Tables 1.1.5 and 3.17)

The government isn’t the only entity that builds “infrastructure.” New semiconductor plants, refineries, and electricity transmission wires are private infrastructure, which is every bit as important to economic growth as government highways. Indeed, U.S. private infrastructure investment is 4.6 times larger than all federal, state, and local investment combined.

The figure shows that gross private domestic investment was $2.1 trillion in 2007. That compared to $340 billion of gross investment for state and local governments and just $123 billion for the federal government. And note that most ($82 billion) of the federal investment was for military hardware, and thus did nothing for our standard of living in the sense of creating consumable products. Continue reading . .