Establishment reporters don’t seem to think that anything good happens in society without a stream of federal money attached to it. That sort of tunnel vision was on display in a recent Washington Post story about the Appalachian Regional Commission (ARC). And it was on display again in the Post today in a story about the National Endowment for the Arts (NEA).

The story discusses NEA projects in Indiana, a state presumably chosen for the same reason that the prior story focused on the ARC and Kentucky: the Post wants to sow dissension in a part of the country that voted for Trump.

NEA-Indiana projects described by the Post include $3,000 for a tunnel made of twisted branches and $10,000 for a sound project that “takes place in multiple spaces and includes a hangout where visitors can listen to records, have a coffee or beer, and will eventually include a low-powered FM radio station.” Numerous NEA grants seem to trickle through state and local governments before being dispensed to local artists and nonprofits, thus creating jobs for paper pushers along the way.

The story warns that the NEA is “under attack.” President Trump “has proposed eliminating the agency altogether.” What a heathen! In Indiana, “artists and nonprofit leaders in small towns or underserved communities fear that lawmakers don’t understand how much they depend on the millions of arts dollars distributed each year outside booming metropolises.”

The NEA’s annual budget is $150 million. Indiana has two percent of the U.S. population, so I would guess that it receives about two percent of NEA funding, or $3 million a year.

If NEA spending in Indiana is important, couldn’t Indiana governments and philanthropists support it? State and local governments in Indiana currently spend $43 billion a year from their own revenue sources. Couldn’t they carve out just $3 million—or 0.007 percent—of that to support local quilters, hoop net makers, puppeteers, and other Indiana craftspeople?

For further reading on the NEA, see here.

President Trump’s Office of Management and Budget (OMB) has released a “Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce.” The 14-page memo from OMB director Mick Mulvaney creates a process for executive branch leaders to produce a detailed plan to cut the government. The final plan will be included in the fiscal year 2019 budget a year from now.

The core of the process is that the president is requiring federal agencies to prepare Agency Reform Plans by this September, with draft plans due June 30. Agencies must come up with downsizing “proposals in four categories: eliminate activities, restructure or merge, improve organizational efficiency and effectiveness, and workforce management.” Agencies “should focus on fundamental scoping questions (i.e. analyzing whether activities should or should not be performed by the agency).”

Some of the factors that agencies should consider when doing their “fundamental scoping” are whether activities are nonessential, whether they violate federalism, and whether they would flunk a cost-benefit test. Agencies should propose eliminating activities that do not pass muster on these and other criteria.

Director Mulvaney is trying to get federal bureaucracies to reconsider all of their activities in a bottom-up manner. The downsizing process he has launched will include actions that the president and agencies can take administratively, and reforms that will need legislation passed by Congress.

Aside from pushing agencies to identify savings, the OMB will work over the next year to propose and implement crosscutting reforms that affect all agencies. One theme in the memo is the need to cut the federal civilian workforce. The memo encourages agencies to implement near-term cuts and to develop plans to reduce workforces over the next four years. The memo is right that “technology may have changed or eliminated the need for some positions.”

The memo provides a good framework for pursuing federal downsizing. Some agencies will probably drag their heels and try to include just minor-league reforms in their plans. But the OMB will be overseeing the development of the plans, and will hound agencies to think big. It will also be important for the administration to fill top positions in agencies with leaders who have a zeal for cutting.

Support from congressional Republicans is also needed. The reform effort will be undermined if members simply whine and grumble when the administration suggests trims to their favored programs. When Trump’s “skinny budget” was released in March, the response of Senate Majority Leader Mitch McConnell was to announce that he would not allow cuts to an obscure $120 million pork barrel program that favors his state. But if the party leader selfishly rejects such a tiny cut, how does he expect any other member to accept cuts to any of the programs they favor?

If the Trump-Mulvaney budget reform effort is to be successful, we are going to need congressional leaders to act as actual leaders. And that means putting the broad public interest in spending control ahead of narrow parochial interests.

Mick Mulvaney’s press briefing on the new plan is here. 

For comments on previous OMB reform actions, see here, here, here, and here.

The recipe for growth and prosperity isn’t very complicated.

Adam Smith provided a very simple formula back in the 1700s.

For folks who prefer a more quantitative approach, Economic Freedom of the World uses dozens of variables to rank nations based on key indices such as rule of law, size of government, regulatory burden, trade openness, and stable money.

One of the heartening lessons from this research is that countries don’t need perfect policy. So long as there is simply “breathing room” for the private sector, growth is possible. Just look at China, for instance, where hundreds of millions of people have been lifted from destitution thanks to a modest bit of economic liberalization.

Indeed, it’s remarkable how good policy (if sustained over several decades) can generate very positive results.

That’s the main message in this new video from the Center for Freedom and Prosperity.

The first part of the video, narrated by Abir Doumit, reviews success stories from around the world, including Hong Kong, Singapore, Chile, Estonia, Taiwan, Ireland, South Korea, and Botswana.

Pay particular attention to the charts showing how per-capita economic output has grown over time in these jurisdictions compared to other nations. That’s the real test of what works.

The second part of the video exposes the scandalous actions of international bureaucracies, which are urging higher fiscal burdens in developing nations

even though no poor nation has ever become a rich nation with bigger government. Never.

Yet bureaucracies such as the United Nations, the International Monetary Fund, and the Organization for Economic Cooperation and Development are explicitly pushing for higher taxes in poor nations based on the anti-empirical notion that bigger government is a strategy for growth.

I’m not joking.

As Ms. Doumit remarks in the video, these bureaucracies never offer a shred of evidence for this bizarre hypothesis.

And what’s especially frustrating is that the big nations of the western world (i.e., the ones that control the international bureaucracies) all became rich when government was very small.

And while the bureaucracies never provide any data or evidence, the Center for Freedom and Prosperity’s video is chock full of substantive information. Consider, for instance, this chart showing that there was almost no redistribution spending in the western world as late as 1930.

Unfortunately, the burden of government spending in western nations has metastasized starting in the 1930s. Total outlays now consume enormous amounts of economic output and counterproductive redistribution spending is now the biggest part of national budgets.

But at least western nations became rich first and then made the mistake of adopting bad fiscal policy (fortunately offset by improvements in other areas such as trade liberalization).

The international bureaucracies are trying to convince poor nations, which already suffer from bad policy, that they can succeed by imposing additional bad fiscal policy and then magically hope that growth will materialize.

And having just spent last week observing two conferences on tax and development at the United Nations in New York City, I can assure you that this is what they really think.

Puerto Rico came to Congress last year because it desperately needed some sort of help: after a decade of deficit financing, it is now $72 billion in the hole. It owes much of that money to traditional individual investors and savers across the United States, who have lent it money over the last decade, and even more to current and future pensioners.

The law that Speaker Ryan pushed through Congress, PROMESA, was meant to be that help. It provided the island’s government with breathing room to get its fiscal act together and authorized an Oversight Board to oversee its finances and–crucially–give it the political cover to make difficult decisions and negotiate with its many creditors.

Unfortunately, neither the government nor the Oversight Board have followed the law and, as a result, it looks destined to fall short of meeting its goals of restoring fiscal responsibility on the island and returning Puerto Rico to the capital markets.

To date, neither the Board nor the Puerto Rican government has had discussions with its creditors on the either the development of the fiscal plan or any process for debt negotiations. Instead, their activities have culminated in the Oversight Board certifying a fiscal plan from the Commonwealth that falls short of–or outright ignores–requirements in PROMESA. The plan does relatively little to reform what’s broken in the Puerto Rico government, including wayward spending and bloated pension system, and instead achieves short-run fiscal solvency via significant haircuts for the creditors that, in violation of the statute, do not comport with the lawful or constitutional priority of Puerto Rico’s obligations.

In response, a group of creditors that owns over $13 billion of the island’s debt recently sent a letter to the members of the island’s Oversight Board asking it to reject the government’s fiscal plan. The signees are a diverse group, including general obligation bondholders, COFINA bondholders, a bond insurer, and others who do not always share the same perspective. However, they all agree that the plan is so flawed it cannot be considered a serious starting place for debt negotiations. Key among their objections is that the fiscal plan clearly violates PROMESA by both ignoring the law’s explicit call that it “respect the lawful priorities or lawful liens” that exist. The plan does this both by making debt subordinate to every single other government expense and by muddying the clear seniority of the various different creditor groups.

Some bondholders are clearly senior. For instance, the island’s constitution promises that the government will use “all available resources” to pay the holders of general obligation bonds before anyone else. That assurance allowed Puerto Rico to borrow that money at a low-interest rate relative to riskier revenue-backed bonds.

Others expect dedicated revenue pledges to be respected. For instance, COFINA bonds, created to offer deficit borrowing capacity beyond the constitutional limit on general obligation debt, are backed by revenue generated by the island’s sales tax. Whether that diversion of resources was legal remains to be seen, but Puerto Rico managed to increase its borrowing capacity by promising these bondholders first dibs on this revenue stream.

Yet, in spite of the clear seniority of these creditors, the governor recently proposed what amounts to a magnanimous side deal with creditors of Puerto Rico’s utility–PREPA–that excludes these and all other creditors, a maneuver that makes little sense and smacks of political favoritism. It will almost certainly prolong negotiations with other creditors and potentially derail the credit markets’ faith and interest in helping Puerto Rico build a future.

The issue of debt priority is not the only infirmity of the plan highlighted by creditors. For starters, top line expenses grow by billions rather than shrink. There is an annual cushion of $600 million for anticipated deficits beyond the plan for the various agencies outside the general fund. It budgets $500 million per annum for infrastructure spending without considering that much of this could be privately financed–although investors may be naturally wary of lending money to any entity on the island, no matter what is promised. And all this is against a forecast of revenue declines unsupported by historical experience or analysis.

Meanwhile, the island’s pension, which is $48 billion in the hole, would not see any significant reductions in benefits or any other changes. In fact, there is little fiscal reform anywhere to be found in the budget: it calls for payroll expenses to increase by $1.5 billion in the next decade, with operational expenses rising by $400 million as well. In no way does this budget present a step towards fiscal solvency. 

Moreover, the plan’s call for bondholders to be compensated only after the island meets its other obligations makes a mockery of PROMESA. The budget calls for just $400 million to be set aside for bondholders in 2018, when $2.3 billion of interest payments will be due.

The island’s new governor, Ricardo Rosselló, has made achieving statehood a primary goal of his administration. However, the political reality is that there’s already little appetite for such a thing amongst the Republican Congress, and his manifest refusal to deal squarely with its fiscal morass only hurts the cause. Even Governor Rosselló admits the island’s government has a sizeable credibility gap. Its continued refusal to share pertinent financial information with Congress more than six months after the passage of PROMESA is only the most recent manifestation of the inherent problem here.

For Puerto Rico to ever have a chance to become a state–and to avoid it becoming a new federal entitlement–it has to fix its fiscal problems and restore its credibility. Its proposed budget does little to reform the economy and promises to keep the island shut out of capital markets for years to come.

Even worse, allowing the Commonwealth and Oversight Board to flout the principles of PROMESA will increase the potential liability at the federal level. Without access to the markets and no respect for private contracts, revenues will decline and the prospects for growth will vanish, and the island’s 3.5 million citizens will continue fleeing to the mainland.

There are already several state governments with woebegone budget problems that may be looking down the road towards some sort of federal bailout. No one has any appetite to add another to the list–not when the Republicans already spent a modicum of political capital to pass PROMESA in the first place. The side deal with PREPA only exacerbated an already bad situation.

For Puerto Rico to ever have a chance to become a state it has to first fix its fiscal problems and resume economic growth. The proposed budget does little to reform the economy and promises to keep the island shut out of capital markets for years to come. 

In a recent Wall Street Journal column defending Obamacare 3.8% surtax on investment income on joint returns above $250,000, Peggy Noonan ends by quoting Tucker Carlson’s Fox News interview with Paul Ryan which questioned the now-suspended health plan’s elimination of that surtax:

“Looking at the last election, was the message of that election really, ‘We need to help investors?’ I mean, the Dow is over 20,000. Are they really the group that needs the help?…“The overview here is that all the wealth, basically, in the last 10 years, has stuck to the top end. That’s one of the reasons we’ve had all the political turmoil, as you know. And so, kind of a hard sell to say ‘Yeah, we’re gonna repeal Obamacare, but we’re gonna send more money to the people who’ve already gotten the richest over the last 10 years.’ I mean, that’s what this does, no? I’m not a leftist, it’s just—that’s true.”

Mr. Carlson used the word “wealth” rather than income. He said, “all the wealth … in the last 10 years, has stuck to the top end.” He surely meant income, however, since the latest wealth estimate from the Survey of Consumer Finance was in 2013, and wealth of the top 1%, like income of the top 1%, clearly fell from 2007 to 2013. Despite “shared prosperity” Clinton campaign chatter, there were no gains to share. John Weicher at the Hudson Institute notes that, “Between 2007 and 2013, the poor became poorer, but so did the rich and the people in between.”

Tucker Carlson is not a leftist and neither is Peggy Noonan. Yet to define what is “true” about income growth over 10 years, they are relying wholeheartedly on the socialist team of French economists Thomas Piketty and Emmanuel Saez. 

When media celebrities disparage the “top end” they do not mean Fox News anchors (who earn millions); they mean the “Top 1%” who earned more than $442,900 in 2015 according to Piketty and Saez. When claiming all the gains over the last 10 years have “stuck to” the top 1%, Carlson appears to have accepted the same source Hillary Clinton abused when she claimed “more than 90 percent of [income] gains have gone to the top 1 percent.” 

What “stuck to the top end,” to use Tucker Carlson’s phrase, is the Top 1% share of gains since 2009. Prior losses are forgotten. The “last 10 years” is simply redefined as starting with 2009, not 2007.

In the latest version of this ruse, Saez says, “Top 1% families … capture[d] 52% of total real income growth per family from 2009–2015.” Of the many deceptions the Piketty-Saez team has inflicted on us over the years, this one may well be the most politically popular and most economically ridiculous. It has fooled many fools. 

What goes unmentioned, is that the Top 1% first “captured” 49% of the losses from 2007 to 2009. Students of New Math might imagine the 52% gain from 2009 to 2015 compensated for the 49% loss from 2007 to 2009, but that deserves an “F” grade (because the 52% gain is calculated from a much smaller base).

The graph shows what actually happened to average pretax incomes of the Top 1%, as estimated by Piketty and Saez.

From 2007 to 2015, average real incomes of the Top 1% fell by 11.9%, even before taxes. 

Top incomes fell much more after taxes because top tax rates were increased from 35% to 39.6% in 2013, the arbitrary and discriminatory 1990 PEP/​Pease limits on exemptions and deductions were restored, and an extra 3.8% Obamacare surtax was inflicted on those supposedly privileged stockholders. 

When conservative media commentators rely on deceptive leftist statistics to make their points, they might as well be leftists.

I sometimes feel like a broken record about entitlement programs. How many times, after all, can I point out that America is on a path to become a decrepit European-style welfare state because of a combination of demographic changes and poorly designed entitlement programs?

But I can’t help myself. I feel like I’m watching a surreal version of Titanic where the captain and crew know in advance that the ship will hit the iceberg,

yet they’re still allowing passengers to board and still planning the same route. And in this dystopian version of the movie, the tickets actually warn the passengers that tragedy will strike, but most of them don’t bother to read the fine print because they are distracted by the promise of fancy buffets and free drinks.

We now have the book version of this grim movie. It’s called The 2017 Long-Term Budget Outlook and it was just released today by the Congressional Budget Office.

If you’re a fiscal policy wonk, it’s an exciting publication. If you’re a normal human being, it’s a turgid collection of depressing data.

But maybe, just maybe, the data is so depressing that both the electorate and politicians will wake up and realize something needs to change.

I’ve selected six charts and images from the new CBO report, all of which highlight America’s grim fiscal future.

The first chart simply shows where we are right now and where we will be in 30 years if policy is left on autopilot. The most important takeaway is that the burden of government spending is going to increase significantly.

Interestingly, even CBO openly acknowledges that rising levels of red ink are caused solely by the fact that spending is projected to increase faster than revenue.

And it’s also worth noting that revenues are going up, even without any additional tax increases.

The bottom part of this chart shows that revenues from the income tax will climb by about 2 percent of GDP. In other words, more than 100 percent of our long-run fiscal mess is due to higher levels of government spending. So it’s absurd to think the solution should involve higher taxes.

This next image digs into the details. We can see that the spending burden is rising because of Social Security and the health entitlements. By the way, the top middle column on “other noninterest spending” shows one thing that is real, which is that defense spending has fallen as a share of GDP since the mid-1960s, and one thing that may not be real, which is that politicians somehow will limit domestic discretionary spending over the next three decades.

This bottom left part of the image also gives the details on built-in growth in revenues from the income tax, further underscoring that we don’t have a problem of inadequate revenue.

Here’s a chart that shows that our main problem is Medicare, Medicaid, and Obamacare.

Last but not least, here’s a graphic that shows the amount of fiscal policy changes that would be needed to either reduce or stabilize government debt.

I think that’s the wrong goal, and that instead the focus should be on reducing or stabilizing the burden of government spending,

but I’m sharing this chart because it shows that spending would have to be lowered by 3.1 percent of GDP to put the nation on a good fiscal path.

Some folks think that might be impossible, but I’ll simply point out that the five-year de facto spending freeze that we achieved from 2009–2014 actually reduced the burden of government spending by a greater amount. In other words, the payoff from genuine spending restraint is enormous.

The bottom line is very simple.

We need to invoke my Golden Rule so that government grows slower than the private sector. In the long run, that will require genuine entitlement reform.

Or we can let America become Greece.

In the political hullabaloo over efforts to shift costs of health care to someone else, the argument for keeping Obamacare’s compulsory insurance and ever-expanding Medicaid enrollment relies naïvely on notoriously comical Congressional Budget Office (CBO) 10-year “projections.” 

CBO claims the initial House Republican plan would eventually cause 3 million to “lose” health insurance simply because they would no longer be fined up to 2.5% of income for not buying a policy designed by and for politicians. This not a loss, but a gain – in freedom of choice.

CBO claims the GOP plan would “lose” another 14 million by not expanding Medicaid enrollment as rapidly as Obamacare hopes to. The federal government pays about 57% of the cost of Medicaid for poor people, but 90–93% (until 2022) to the 31 states that provide Medicaid to those earning up to 138% of the poverty line. That has added 17 million to the Medicaid rolls, and enriched big health insurers and Kaiser Permanente.

Since expanded Medicaid added only 17 million, how could the Republican plan’s modest frugality possibly subtract 14 million? Only because CBO assumes that if nothing changes then more and more states will leap on this stalled bandwagon, thus shoving millions more on Medicaid. This seems politically unlikely (few Republican governors have done so), but also unhealthy. All those new patients on Medicaid may have to drive very far to find an MD who accepts Medicaid. Having a third-rate health insurance card is not “health care.” It’s a card. 

Some of the biggest public policy blunders of recent years resulted from taking CBO’s crystal ball far too seriously. Higher 1991 tax rates on high incomes and luxuries worsened the recession and lost revenue, for example, yet seemed courageous by the low standards of faulty CBO bookkeeping. 

An even better example of CBO dominating policy decisions was the foolishly phased-in and poorly-targeted 2001 Bush tax cuts.

In January 2001, CBO predicted that budget surpluses would add up to $5.6 trillion by 2011. That absurd CBO forecast made their (overestimated) $1.35 trillion 10-year revenue loss from look puny – merely nibbling away at 24% of projected surpluses. Little wonder the 2001 law was a grab-bag of feel-good giveaways (10% tax rate, refundable credits, etc.) thanks in large part to the CBO’s blurred vision of endless surpluses.

Why does this have anything to do with health insurance policy? Because CBO projections for the Affordable Care Act (ACA) have also been embarrassingly wrong. In March 2010 CBO estimated only 21 million would be uninsured by 2016, but the actual number turned out to be 27 million. CBO expected 21 million policies on the Exchanges by 2016, but the actual number turned out to be 12 million. 

By using CBO projections as the baseline, as is being done with the GOP plan, it could be said that Obamacare “lost coverage” for 6 million people in 6 years –compared with 2010 CBO projections.

In short, the CBO has always grossly overestimated the success of Obamacare. And they still do. They appear to underestimate how much larger federal subsidies to Medicaid and the Exchanges “crowd out” other insurance – luring people out of unsubsidized insurance into subsidized insurance, or into seemingly “free” expanded Medicaid in 31 states. 

The CBO’s rosy scenario about the future success of Obamacare exchanges, and about future growth of expanded Medicaid coverage, results in a grossly exaggerated estimate of the number of policies to be “lost” by reducing compulsion, mandates and taxpayer subsidies. Good policy requires more good judgment, not more bad estimates.