Wednesday, April 04, 2007

Answer: April Pop Quiz

Our question was: When the Federal Government is running a budget surplus, how should Congress spend the extra money?

Just to give a short background, budget surpluses are an extreme rarity in American politics. They occur during those exceptional times when increasing tax revenues are coming in so fast that even Congress can’t find new ways to spend them quickly enough. The last time this happened was in the mid to late 90s, when Republicans controlled the House and the Senate and the Democrats controlled the White House. At first, partisan gridlock made it tougher for either branch to binge too much on spending. This was short-lived, however, because by the late 90s Republicans stopped caring and the binge-spending reemerged.

The question itself, like most of the choices, is flawed in that makes a key false assumption: that Congress should spend the money at all. And 3 of the choices are flawed because they assume that Congress would choose to spend the money wisely on either A, B, C.

We saw poll questions like this countless times during the 2000 campaign, when Gore pledged to use the surplus to create a Social Security lockbox, while Bush said it made more sense to give it back to the people by reducing income tax rates, arguing that Congress' relentless appetite for increased spending could only be kept in check by cutting its diet. Below I've critiqued/explained each choice.

Choice A: Use it to invest in education. It's the 21st century and we need to compete with China and India for the math and science jobs of tomorrow. INCORRECT: We spend thousands more per pupil than any other country in the world. The problem with our schools isn’t lack of funds, there’s more than plenty of money to go around. Instead, the reason for public education decline is lack of competition and choice. We'll "compete" (this term is flawed too, because in a positive-sum world of voluntary exchanges where everyone benefits from the resulting increase in the size of the capital stock, countries don't really "compete" with each other) just fine with China and India by keeping our labor markets deregulated and keeping tax rates low.

Choice B: Use it to save Social Security. We need to protect our seniors first and foremost. INCORRECT: The problem with this answer is three-fold: 1) It scares people into thinking Senior citizens are in danger of losing their Social Security checks, which is totally untrue; 2) Congress simply wouldn’t use the money to do this. Instead they’d waste it on pet projects to ensure they get re-elected; and 3) Because, like everything else, Congress constantly mismanages Social Security, it should be privatized so that you yourself can manage it. Why further feed this broken system in the first place?

Choice C: Use it to pay down the interest on the national debt. We should be committed to keeping our fiscal house in order. INCORRECT: This choice is tempting for fiscal conservatives, but again, the problem with this answer is that Congress would never actually use the money to do this. Anyone who honestly thinks 535 egocentric sleazeballs obsessed only with winning re-election would actually use the money to pay down the national debt is living in a dream world.

Choice D: Return it to the the taxpayers. It's not the government's money in the first place; it's the people's money. CORRECT! The only way to ensure the money doesn’t get wasted on broken entitlement programs or extravagant pork projects is to give it back to the people who earned it. Plus, lower tax rates give people more incentives to save, to work, and to invest, thus raising living standards and making America a better to place for business and voluntary exchange to thrive.

Choice E: Give the money to BC. SOMEWHAT CORRECT. We'd have to see if it would go towards the fine arts department or athletic improvements/public school recruits/hiring Urban Meyer. If it's for the latter instead of the former, I'm all for it.

Thanks to those who participated, all 2 of you. Will's answer came in a close second to Stephen's.

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