Donald Marron reports on a study that shows how severe the costs of disclosing political activity can be.

But that could never happen here! Our politicians are different!

Right.

President Obama’s former head of the Council of Economic Advisers has taken to the pages of the New York Times to warn us against pursuing “fiscal austerity just now,” particularly not spending cuts.

Christina Romer’s views are Keynesian. She doesn’t use that word, but she is focused on juicing “demand” with optimally-targeted and well-managed government “investments.”

Economics has numerous schools of thought, but Romer’s writing reflects nothing but the most simplistic Keynesian framework. The fact that the huge Keynesian stimulus of recent years that she supported has coincided with the slowest economic recovery since World War II seems to be of little concern to her.

She also doesn’t seem to be interested in how government spending actually works in the real world. She assures us that “government spending on things like basic scientific research, education and infrastructure … helps increase future productivity.”

That view has a veneer of economic authenticity, but it leaves many issues unaddressed:

• Most federal spending is on transfers and consumption, not investment. The debt crisis we face is driven mainly by entitlements, which is consumption spending. Romer’s talk of investment spending is a rhetorical bait-and-switch.
• Romer doesn’t distinguish between average and marginal spending. If some federal investment spending has created positive net returns, that doesn’t mean that additional spending would. Governments already spend massive amounts on education, for example, so the marginal return from added spending is probably very low.
• If the government investments that Romer touts are so valuable, then why hasn’t the government done them already? After all, federal, state, and local governments in this country already spend 41 percent of GDP.
• If science, education, and infrastructure investments have the high returns that Romer seems to think they do, then why does the government need to be involved? Private firms seeking higher profits would be all over such investments.
• Romer mentions that the “social returns” on some investments might be higher than purely private returns. However, that doesn’t mean that the government should automatically intervene. For one thing, the government suffers from all kinds of management failures and other pathologies.
• Romer also ignores that the government imposes substantial deadweight losses on the economy when it commandeers the resources it needs for its “investments.”

So my reading assignment for Romer is www​.Down​siz​ing​Gov​ern​ment​.org so she can get a better understanding of how federal programs actually operate.

And readers interested in all the economics of government spending that Romer doesn’t tell you about can consult Edgar Browning’s excellent book, Stealing From Each Other.

The Washington Post offers today a critical look at independent fundraising and spending in the 2012 campaign.

The article states independent groups are raising money “in response to court decisions that have tossed out many of the old rules governing federal elections, including a century-old ban on political spending by corporations.”

But the century-old ban is on campaign contributions by corporations, and it is intact. Spending on elections was not prohibited to some corporations until much later.

Other spending by corporations, like the money spent by The Washington Post Company to produce the linked story, has never been regulated or prohibited by the federal government.

The article mentions a “shadow campaign” and refers to Watergate. It states “independent groups are poised to spend more money than ever to sway federal elections.” Surely something is amiss here! Or at least the causal reader of the Post might conclude that.

But what is going on? A spokesman for one of the independent groups says they are trying to influence the debt ceiling debate and that as far 2012 goes: “We’re definitely working to shape how the president is perceived, because how he is perceived will have a huge impact on how this issue is resolved.”

It sounds like the group is engaging in political speech on an issue, speech that could have some effect on next year’s election. What is amiss about that? Isn’t the right to engage in such speech a core political right under our Constitution?

The article also argues that independent groups, being independent, may fund speech that may harm a candidate they are trying to help. Candidates, in a sense, have lost some control over their campaigns and their messages.

Of course, absent limits on contributions to candidates and parties, the money going to independent groups might go to…candidates and parties. Liberalizing speech, not suppressing independent groups, might be a good way to prevent groups from airing ads that harm or misrepresent candidates for office. Finally, candidates do have the power to repudiate independent ads.

Expect more news stories like this one over the next 18 months. The cause of campaign finance reform is in desperate straits. Reformers in the media are going to construct a narrative that says: money is destroying democracy in 2012, all because of Citizens United. They hope thereby to set the stage to restore restrictions on campaign finance.

For much of the nation’s history, policymakers recognized that the federal government’s powers were “few and defined,” as James Madison noted. Issues like education and community development were largely left to the states. Unfortunately, the separation of responsibilities between the federal government and states has been eroded to the point that federal funds now account for approximately a third of total state spending. A consequence is that federal aid to the states has fostered bigger government at all levels.

State policymakers are addicted to federal money. The appeal is obvious: they get to take credit for all the wonderful things they do with money that they didn’t have to tax out of their state’s voters. Thus, it has been interesting to observe Republican governors who willfully fed at the federal trough now pontificate on the dangers of Washington’s spending addiction as potential or declared candidates for president.

Although he ultimately decided against running for president, Indiana Gov. Mitch Daniels has carefully crafted a public image as a voice of reason when it comes to addressing the federal government’s budget problems. When he was flirting with a run for president, Daniels received fawning coverage from various observers for labeling the federal government’s debt the “new red menace.”

One problem with this image is the fact that Gov. Daniels has been a “just another politician” when it comes to grabbing federal dollars. Indeed, Daniels signed an executive order on his first day in office creating a state agency devoted to increasing Indiana’s take from the federal honey pot. As an official with the Indiana state Office of Management and Budget, I can attest that it was the Daniels administration’s policy to find ways to use federal dollars instead of state dollars where possible.

Last week, a local Indianapolis television channel ran an investigation of the state’s Office of Federal Grants and Procurement. Although the agency has cost Indiana taxpayers almost a half-million dollars, the investigation team couldn’t figure out what it has been doing with the money. State legislators that were interviewed didn’t know much about the agency even though they continue to fund it. I admit that I can’t remember dealing with it (other than to be completely disgusted by its existence).

Daniels declined to be interviewed for the story, and instead sent out his deputy chief of staff, Cris Johnston, to take the heat. Johnston’s best defense was that Indiana has improved its ranking when it comes to bringing in federal taxpayer dollars. I suppose that means Daniels’s red menace isn’t such a menace when the federal spigot’s flow is being directed toward his state’s coffers.

I’ll wrap this up by making a suggestion to the journalists out there covering the presidential candidates with a background in state government: did they eschew federal handouts or did they have their hands out? It’s an important question because the next president is going to be facing an epic fiscal mess and we really can’t afford another politician who talks the talk but didn’t walk the walk.

See this Cato essay for more on the importance of fiscal federalism and why the flow of federal funds to the states needs to be shut off.

My column at the Washington Examiner (and Rea​son​.com) this week uses the collapse of the Dominique Strauss-Kahn case to argue against the “perp walk,” which has become a form of pretrial punishment and a way for spotlight-hungry prosecutors to grab attention—whether the ‘perp’ turns out to be guilty or not:

Back in May, when New York law enforcement paraded DSK before the cameras, hands cuffed behind his back, the French were outraged. “Incredibly brutal, violent and cruel,” France’s former justice minister gasped.

Irritating as it might be to admit it, the French have a point. The “perp walk”—in which suspects are ritually displayed to the media, trussed up like a hunter’s kill—has become common practice among prosecutors. But it’s a practice any country devoted to the rule of law should reject.

Of course, DSK isn’t the most sympathetic victim of the perp walk ever, nor, given paramilitary policing and “no knock” raids, is the perp walk the most abusive police/​prosecutorial practice out there. But it’s at best a pointless indignity, and at worst a threat to due process—which is why it should be reined in. For Cato work on police tactics and misconduct, go here; and also see Reason’s recent “criminal justice” issue.

The Wall Street Journal provides a page of charts today illustrating the remarkable weakness of the current U.S. economic recovery. A twin story in the paper provides comments on the recovery from two of the nation’s top macroeconomists:

Taken together many economists agree on how this recovery stacks up: “It is the worst, no question about it,” says Robert Gordon, a Northwestern University professor and a member of the National Bureau of Economic Research’s business cycle dating committee, which is widely considered the official arbiter of the beginning and end of recessions. His colleague, Stanford professor Robert Hall, who runs the committee, says it’s “absolutely right” that this is the worst recovery yet.

Yet this was the recovery that was aided by the largest Keynesian-style big government “stimulus” since World War II. Since 2008, total federal “stimulus” has been $4.6 trillion, as shown in the chart. As a share of GDP, recent deficit spending has been far greater than during all other recessions since the war.

Biggest Keynesian Stimulus + Slowest Recovery = Time to Rethink Keynesian Theory.

That math seems pretty straightforward to most people, but not to one of Obama’s chief economic architects.

That’s the theme of my article in the current issue of National Review:

The budget blueprint crafted by Paul Ryan, passed by the House of Representatives, and voted down by the Senate would essentially give Medicare enrollees a voucher to purchase private coverage, and would change the federal government’s contribution to each state’s Medicaid program from an unlimited “matching” grant to a fixed “block” grant. These reforms deserve to come back from defeat, because the only alternatives for saving Medicare or Medicaid would either dramatically raise tax rates or have the government ration care to the elderly and disabled. What may be less widely appreciated, however, is that the Ryan proposal is our only hope of reducing the crushing levels of fraud in Medicare and Medicaid.

The three most salient characteristics of Medicare and Medicaid fraud are: It’s brazen, it’s ubiquitous, and it’s other people’s money, so nobody cares…

The full article is now available at the Cato website.