Suchergebnisse

A wise economist of the center left recently suggested to me that the Biden administration faces a trilemma: They would like to (1) increase spending on programs they consider important, (2) not raise taxes on those making less than $400,000 a year, and (3) put fiscal policy on a sustainable path. But the stark reality is that they can have only 2 out of the 3.The President's just released budget chooses to forgo fiscal sustainability. As the Committee for a Responsible Federal Budget notes, even under the unlikely scenario that the President gets everything he wants through Congress and his economic projection turns out to be correct, "debt would hit a new record by 2027, rising from 98 percent of GDP at the end of 2023 to 106 percent by 2027 and 110 percent by 2033."

Even as the state faces a sizeable budget deficit, job growth and low unemployment suggest a resilient state economy. Still, two areas of concern in the labor market data are worth monitoring.

There are a lot of moving parts to the MMT program. I want to focus on one of these parts today: the relation between monetary and fiscal policy.
One thing I find appealing about MMT scholars is their attention to monetary history and
institutional details. I've learned a lot from them in this regard.
But as is often the case with details, one has to worry about whether they help
shed light on a specific question of interest, or whether they sometimes let us not see
the forest for the trees. And in terms of the broader picture, since I grew up
in that branch of macroeconomics that tries to take money, banking, and debt
seriously (i.e., not standard NK theory), I sometimes have a hard time understanding what all the fuss is
about. Much of standard monetary theory (SMT) seems perfectly consistent with
some of the ideas I seen discussed in MMT proponents; see, for example, The Failure to Inflate Japan. 

  

This post is devoted to better
understanding a contribution by Eric Tymoigne. Eric is one of the people I go
to whenever I want to learn more about MMT (if you're interested in MMT, you
should follow him on Twitter @tymoignee). In this post, I discuss his
article "Modern Monetary Theory, and Interrelations Between the Treasury
and Central Bank: The Case of the United States." (JEI 2014). Passages quoted from his paper are highlighted in blue. The working
paper version of the paper can be found here. Eric has kindly agreed to respond to my comments and let me post our conversation. We had to some editing, hopefully this did not disrupt the flow too much. In any case, I hope you find it interesting. And, as always, feel free to join in on the conversation in the comments section below. -- DA



============================================================================



DA: Eric, let's start with the opening paragraph:



One of the main contributions of modern money theory (MMT) has been
to explain why monetarily sovereign governments have a very flexible policy
space. Not only can they issue their own currency to spend and to service their
public debt denominated in their own unit of account, but also any self-imposed
constraint on budgetary operations can be easily bypassed. 



I'm
curious to know what the contribution is here relative to standard monetary
theory (SMT). In SMT, the government can also issue its own currency to spend
and to service the public debt denominated in its own unit of account. So this
degree of "flexibility" is already accounted for. As for
"self-imposed constraints on budgetary operations," SMT takes several
approaches to this issue, depending on the purpose of the analysis. One
approach is to take these constraints as given and then to study their
implications. But it is also common to consolidate the central bank, treasury
and government into a single authority, which implies no self-imposed
constraints on budgetary operations. 


Perhaps what is meant is that MMT shows how existing self-imposed constraints
on budgetary operations can be (or are) bypassed in reality.  This leads
us to question, however, concerning what those self-imposed constraints are doing there in
the first place. Are they there by design and, if so, why? Or are they there by
accident (and, if so, how in the world did this happen)?



ET: Yes
consolidation is not unique to MMT as we have said repeatedly. Not only is it
used quite commonly in the economic literature, but also it is a common
rhetorical tool in economic talks, discourse, etc.

























 

DA: Right, so everyone understands this (at least, they should)--it's perfectly consistent with standard monetary theory. So far, so good.



ET: Most
economists, politicians and the public don't understand this or its
implications. They will interpret the above as saying that it is obvious that
the government can create money but it is not a normal way to proceed and it is
inflationary. MMT just pushes consolidation to its logical conclusions and
shows that institutional details do back those conclusions. In a consolidated
framework, the federal government can only implement spending by creating
money, this is not abnormal and it is not inflationary by itself. There is no
other way to find the necessary dollars to spend. Here is what consolidation means in terms of balance sheets:



For the federal government, taxes destroy currency
(L1 falls) and claims on non-fed sectors falls (A1 falls) (an alternative
offsetting operation is net worth of government rises). When US spends, it
credits accounts (L1 rises). Similarly, bond issuance does not lead to a gain
of any asset for the government; all it does is replace a non-interest earning government
liability (monetary base) with an interest-earning government liability (Treasury
securities).



DA: I am not going to argue against your accounting. As for bond-issuance, in
SMT, an open-market operation is modeled as a swap of zero-interest reserves
for interest-bearing treasuries. The interest on treasuries is explained by
their relative illiquidity (another self-imposed constraint). The economic
consequences of such a swap depends on a host of factors, which I'm sure you're
familiar with. 



ET: Sure, in
addition, self-imposed financial constraints (e.g. debt ceiling, no direct
financing by the Fed, no monetary power for treasury) have been put in place at
various times with the argument that they impose discipline in public finances.
MMT argues, these financial constraints are not necessary and are bypassed
routinely through Treasury-Central Bank coordination.



DA: Sure, the standard view is that these
self-imposed constraints are designed to impose discipline in public finance.
The proposition that these financial constraints are or are not necessary, however, must be
based on a set of assumptions that may or may not be satisfied in reality. (The
fact that these constraints may be bypassed through Treasury-Central Bank
coordination does not seem relevant to me -- the conflict emphasized by SMT is
between an "independent" central bank and the legislative authority
(e.g., the Fed and Congress, not the Fed and Treasury). I'm not sure why a new
theory is needed here. We know, for example, that if the legislative branch of
government fully trusts itself (and future elected representatives) to behave
in a fiscally responsible manner, the notion of an "independent"
central bank (and other self-imposed constraints) makes little sense. 



ET: Remember
that MMT emphasizes the irrelevance of financial/nominal constraints for
monetarily sovereign governments (bond vigilantes, risk of insolvency of social
security, etc.). One can do that by using the consolidated government (taxes
don't finance, bonds don't finance, government spends by crediting accounts,
etc.) or by using the unconsolidated government (the central bank helps the Treasury,
the Treasury helps the central bank). The second method conforms to actual
federal government operations but it is much less easy to use rhetorically and it
waters down the core point: government finances are never a financial issue as
long as monetary sovereignty applies.

Given that point, as you note, financial constraints are not only
irrelevant, but also disruptive and used for political games. MMT wants to make
government financial operations as smooth and flexible as possible. Once
society has decided how, and to what degree, government should be involved in
solving socioeconomic problems, finding the money should not be an issue when
monetary sovereignty prevails. That means demystifying
and eliminating financial barriers to government operations so the political
debate can focus on solving real issues (environment issues, socio-economic
issues, etc.). Fearmongering about the public debt and fiscal deficits makes for
poor political debates and policy prescriptions.



There is a view, expressed by Paul Samuelson, that if
we tell policymakers and the public that there are no financial limits to
government spending, policymakers will spend like mad; therefore, economists
need to lie to policymakers and the public (and themselves). This is nonsense.
We ought to discuss policy choices not on the basis of Noble Lies but rather on
the basis of sound and informed premises. Economists needs to make sure that
policymakers focus on resource constraints.



In addition, political constraints on government should be geared
toward improving the transparency and participatory aspects of government (e.g.
limit role of big money in elections, limit wastes, etc.). We already have a
government that passes a budget (it needs to do so for transparency and
accountability purposes), we already have an auditing process, and we already
have some (limited) democratic process, so aim at improving these aspects. MMT
proponents are not naive, we know that some politicians are self-interested, we
know that policy implementation may lead to mistakes, we know people may try to
game the system ("free riders"); however we trust that a transparent and
democratic government can (and does) get through these issues. MMT does not see
financial constraints as helping in any ways, rather they inhibit the
democratic process.



Of course, MMT proponents also have a policy agenda (Job guarantee,
financial regulation based on Minsky, etc.) because we do not see market
mechanisms as self-promoting full employment, price stability and financial
stability. As such, as you said, MMT proponents favor alternative means to
achieve these goals through direct government intervention. We don't see the
central bank as an effective means to promote price stability. The central bank
should focus on financial stability through interest-rate stabilization and
financial regulation (an area where the Fed has not performed well).



Finally, yes independence
of the central bank is seen as a big deal but MMT disagrees for two reasons.
First, MMT emphasizes the lack of effectiveness of monetary policy in managing
the business cycle and, second, and probably more importantly, MMT notes that
central-bank independence in terms of interest-rate setting and goal settings
does not mean independence from the financial needs of the Treasury.



DA: I think it's fair to say most people want to see government
operations run smoothly, and would welcome a sober debate over the issues at
hand without the fear-mongering that some like to promote. The broad objective seems the same--the debate is more over implementation--how monetary and fiscal policy is to be coordinated--given human frailties. 



Having said this, I think you go too far by asserting that
"government finances are never an issue as long as monetary sovereignty
applies." Of course, technical default on nominal debt is not an issue (we
all understand this). But SMT also recognizes the importance of economic default
on nominal debt. True, a government can always print money to satisfy its
nominal debt obligation, but if money printing dilutes the purchasing power of
money, this is a de facto default. 



On a related issue, SMT asks "what are the limits to
seigniorage?" The fact that a government can print money does not give it
the power to command resources without constraint. People can (and do) find
substitutes for government money (they may also substitute out of taxed activities
into non-taxed activities). SMT treats the limits to seigniorage as a financial constraint.
Maybe MMT has a different label for this constraint? Perhaps it is related to
what I hear MMT proponents call an "inflation constraint." Maybe
one way to reconcile MMT with SMT on this score is by recognizing that SMT
usually assumes (sometimes incorrectly) that the inflation constraint is always
binding. If this is the case, a monetarily-sovereign government does have
a financial constraint, even according to MMT. 



ET: Yes, ability to create a
currency does not mean ability to command resources because there may not be a
demand for the currency. That is where tax liabilities and other dues owed to
the government become important (cf. the chartalist theory of money, a
component of MMT). That's also why taxes, monetary creation and bond issuance
are not conceptualized by MMT as alternative financing means but rather as
complementary. The government imposes a tax liability, spends by issuing the
currency necessary to pay the tax liability, then taxes and issues bonds. Spending may be inflationary
indeed and so there is an inflation constraint; but it is not a financial constraint,
it is a resource constraint.



About the "printing" of money
by government, inflation and economic default. Regarding the first two, there
is no evidence of an automatic relation between money and inflation. In a
consolidated view, government always spends by monetary creation but controls
the impact on inflation via taxes and the impact on interest rates via bond
issuance. In an unconsolidated view, the central bank routinely finances and
refinances the Treasury by helping some of the auction bidders and by
participating in the auction.

Finally, regarding economic
default, governments routinely "default" in that sense with no problems. I
don't see that as a relevant concept unless someone can show that economic
default raises interest rates or generates rising inflation (it does not); here
again, there is no automatic link between inflation and interest rates. That
link depends on how the central bank reacts; if it does not then market
participants don't either.



DA: Let me return to the manner in which the Fed/Treasury/Congress
are consolidated (or not) in SMT and why this matters, in your view. In some
SMT treatments, Congress decides spending and taxes, which implies a primary
deficit. It's up to the Treasury to finance that deficit, with the Fed playing
a supporting role (by determining interest rate and issuing reserves for
treasury debt). What's wrong with this approach?

   

ET: That goes in the
right direction with an understanding that the government really has no control
over its fiscal position. All this, which relates to the implementation of
monetary sovereignty, helps understand why the financial crowding out is not
operative, why monetary financing is not by definition inflationary, why i >
g is normal. It helps explain why the hysterical rhetoric surrounding the
public debt and deficits in nonsense. I recently wrote a piece for Challenge Magazine on that topic. Surpluses are celebrated, governments implement
austerity during a recession to "live within our means", Social Security needs
to be fixed to avoid bankrupting it, governments need to save more, etc. All of this is incorrect.



DA: I'm not sure why you claim SMT leads to the idea of i > g.
The case i < g is perfectly consistent with SMT (see Blanchard's 2019 AEA
Presidential address, and also my posts here and here). The
correct criticism (I think) is that mainstream economists have assumed i > g
as being the empirically relevant case (it is not).



ET: That is what I meant. MMT links that to monetary sovereignty.



DA: I think that's correct. I should like to add that mainstream economists (apart from a small set of
monetary theorists) have not appreciated the role of high-grade sovereign debt
as an exchange medium in wholesale financial markets and as a global store of value, which in my view likely explains a lot of the "missing inflation." But as for
"surpluses being celebrated," you are now talking about individual
viewpoints and not SMT per se. There were plenty of calls out there
for countercyclical fiscal policy based on standard macroeconomic principles.
But I do agree virtually all mainstream economists are (perhaps overly)
concerned about "long-run fiscal sustainability." The view is that at
the end of the day, stuff has to be paid for -- and that having the ability to
print money, while granting an extra degree of flexibility, does not get around
this basic fact. 



DA: I'd like to ask you about this statement you make:



In (the unconsolidated) case, the Treasury collects taxes and
issues securities before it can spend. However, federal taxes and bond
offerings also serve another highly important function that is overlooked in
standard monetary economics. Specifically, federal taxes and bond offerings
result in a drainage of funds from the banking system, and MMT carefully
analyzes the implication of this fact. From that analysis, MMT argues that
federal taxes and bond offerings are best conceptualized as devices that
maintain price and interest-rate stability, respectively (of course, the tax
structure also has some important role to play in terms of influencing
incentives and income distribution; something not disputed by MMT). 



DA: Well, yes, taxes serve both as a revenue device
(permitting the government to gain control over resources that would otherwise
be in control of the private sector) and as a way to control inflation. I'm not
sure about the idea of the Treasury offering bonds for the purpose of achieving
interest-rate stability (though this may happen to some extent when the
treasury determines which maturity to offer). I don't think this is the way
things work in the U.S. today.



ET: Taxes and issuance of
treasuries drain reserves and so raise the overnight rate. Hence, on a daily
basis, a fiscal surplus raises the overnight rate and a fiscal deficit lowers
it. There has been significant Treasury-Fed coordination to smooth the impact
of taxes (and treasury spending) on the money market.



DA: Fine, but so what? We all understand
"coordination" between Fed and Treasury exists at the operational
level. 



ET: I think you are too kind to other
economists and policymakers. On taxes as price-stabilizing factors, there is
indeed some similarities here. On the role of treasuries for interest-rate
stability, it does work like this today. It may not be obvious because of the
current emphasis on treasuries as Treasury's budgetary tools, but Treasury has issued securities for
other purposes than its budgetary needs. In the US, this occurred most recently during the 2008
crisis (SFP bills). In Australia, in the early 2000s, the Treasury issued
securities while running surpluses in order to promote financial stability.



DA: But even if this is not the way things actually work
(in my view, it's the Fed that stabilizes interest rates, possibly through OMOs
involving U.S. Treasuries), I'm not sure what point is being made. I think we
can all agree that monetary and fiscal policy can be thought of as being
consolidated in some manner. What would be good to know is how a specific MMT
consolidation matters (relative to other specifications) for a specific set of
questions being addressed. There is nothing in the abstract or introduction of
this paper that suggests an answer to this question.  

ET: The point being made is that in a consolidated
government, tax and bond issuance lose the financial purpose
they have for the Treasury but keep their price and interest-stability purposes.





DA: In standard monetary theory, tax and bond issuance keeps
its funding purposes for the government and at the same time can be used to
influence the price-level (inflation) and interest rates. Is this wrong? I
don't think so. At some level, taxes (a vacuum cleaner sucking up money from
the private sector) must have some implications for the ability of government
to exert command over real resources in the economy. What we label this ability
(whether "funding" or ''finance" or whatever, seems
inconsequential). 



ET: Ok here comes the crucial difference between financial
and real sides of the economy. In financial terms, taxes do not increase the
capacity of the government to spend, i.e. the government does not earn any
money from taxing; taxes destroy the currency. In financial terms, there is no
reason to fear a fiscal deficit; deficits are the norm, are sustainable and
help other sectors grow their financial net wealth. As such, it is not because a
government wants to spend more that it must tax more or lower spending
somewhere else. That is the PAYGO mentality. This mentality makes policymakers
think of spending and taxing in terms of how they impact the fiscal balance
instead of their impact on employment, inflation, incentives, etc. While
deficits may have negative consequences, they are not automatic. If
one takes a look at the evidence, deficits have no automatic negative impacts
on interest rates, tax rates, public-debt sustainability, or inflation.



In real terms, the necessity to increase tax rates to prevent
inflation, and so move more resources to the government, depends on the state
of the economy and the permanency of the increase in government spending relative to
the size of the economy. In an underemployed economy, the government
can spend more without raising tax rates. In a fully employed economy, shifting
resources to the government without generating inflation does require raising
tax rate and/or putting in place other measures such as rationing, price
controls, and delayed private-income payment. Here Keynes's "How to Pay for the
War" provides the roadmap. Standard economics is full-employment economics so
opportunity costs are always present. MMT follows Kalecki, Keynes and the work
of their followers (have a look at Lavoie's "Foundations of Post
Keynesian Economic Analysis") and note that capitalist
economies are usually underemployment and economic growth is demand driven. Put
in a picture, the economy is usually at point a.









Put succinctly, the real constraint is conditionally relevant, the
financial constraint is irrelevant if monetary sovereignty prevails. That is
the proper way to frame the policy debates and to advise policymakers; don't
worry about the money, worry about how spending impacts the economy.



ET: Moving to another topic, consolidation of the government brings to the forefront
forces that are operating in the current system but that are buried under
institutional complications. Namely that a fiscal deficit lowers interest rates
and treasuries issuance brings them back up, that spending must come before
taxing and treasuries issuance, that monetary financing of the government is
not intrinsically unsound and does not mean that tax and treasuries issuance
don't have to be implemented. 



DA: The statement that "deficit lower
interest rates" needs considerable qualification. Among other things, it
depends on the monetary policy reaction function. As for the claim that
spending *must* come before taxes, this is not a universally valid statement
(even if it may be true in some circumstances. But even more importantly, who
cares? Mainstream theory does not suggest that monetary financing is
intrinsically unsound (seigniorage is fine, if it respects inflation ceiling).
As for money, taxes and bonds not being alternative "funding"
sources, I worry that this semantics. You can call X a "funding"
source or not -- it's just a label. The real question is: what are the
macroeconomic implications of X? 



ET: Let me emphasize where I agree. Yes, evidence
shows the central role of monetary policy for the direction of interest rates,
fiscal policy is at best a very small driver. And yes, one ought to focus on
the real implications of government spending and we ought to forget about the financial implications. A fiscal
deficit is not unsustainable nor abnormal; deficits are the stylized fact of
government finances and are financially sustainable if monetary sovereignty is
present. So don't try to frame the policy debate and set policy in terms of
household finances, bankruptcy, fixing the deficit, etc.

To conclude I see three reasons why the "taxes/bonds don't
finance the government" rhetoric is helpful:



1- It is strictly true for the federal government (i.e.
consolidation).



2- it brings to the forefront some lesser-known aspects of taxes
and treasuries issuance: impacts on money market, role of central bank in
fiscal policy, role of treasury in monetary policy.



3- It changes the narrative in terms of policy and political
economy: government does not rely on the rich to finance itself, taxes should
be set to remove the "bads" not to finance the government (e.g. one
should not set tax rates on pollution with the goal of balancing the budget but
with the goal of curbing pollution to whatever is considered appropriate, that
may lead to much higher tax rates than what is needed to balance the budget),
PAYGO is insane, one should focus on the real outcomes of government policies
not the budgetary outcomes.



DA:

1. I think this is semantics.

2. Not sure how it helps in this regard.

3. I think all of these positions are defensible without the
statement "taxes/bonds don't finance the government", so
if this is the ultimate goal (and I think it should be), perhaps we should set
aside semantic debates and focus on the real issues at hand. 



ET: 1 is not semantic. I know you have in mind taxes as a
means to leave resources to the government. MMT makes a clear difference
between financial (ability to find the money) and resources constraint (ability
to get the goods and services) as explained above. The financial
constraint is highly relevant for non-monetarily sovereign governments so it
should be noted and clearly separated from the real constraint. Too many
policy discussions and decisions by policymakers operating under monetary
sovereignty are based on an inexistent inability to find money and the imagined dear financial
consequences of budgeting fiscal deficits. 2 helps to understand how monetary
sovereignty is implemented in practice. On 3, yes focus on the real issues.



DA: We agree on 3! Thank you for an interesting discussion,
Eric. There's so much more to talk about, but let's leave that for another day. 



ET: You are welcome and thank you too!

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Governments around the world are facing increasing constraints on their resources, but they must provide better public services. At the same time, there are increasing concerns about mismanagement of funds, lack of transparency, and prevalence of corruption. As part of the efforts to tackle these challenges, the World Bank is supporting countries in modernizing their public financial management (PFM) and implementing financial management information systems (FMIS).

A recently released World Bank Operational Guidance Note provides policymakers with operational guidance on how to ensure that FMIS projects better achieve the desired improvements in PFM outcomes while contributing to good governance. It draws on an extensive body of diagnostic and analytical work and more importantly, the lessons learned from FMIS implementation in more than 80 countries over the last 30 years.

Given its extensive coverage of the three phases of FMIS projects, i.e. the diagnostic, systems development life cycle, and coverage and utilization phases, the Note can be used by policymakers and practitioners to develop their strategies for any stage of FMIS implementation. It includes detailed guidance on how to avoid mistakes in procurement and contract management. It also discusses the potential use of disruptive technologies to maximize returns on existing investments.

Here are some key messages:

An adequate diagnosis of all aspects of budget management – not just accounting and reporting – is fundamental. This review should be undertaken to identify the needs that the system is intended to address before procuring and implementing a new FMIS.

The policy and institutional framework under which FMIS will operate is very important. The effectiveness of an FMIS as a budget management tool depends on its technical robustness as well as the policy and institutional environment, including a comprehensive single treasury account and the accompanying banking arrangements for government funds. It also depends on an appropriate budget classification structure and financial regulations that ensure budgetary compliance. According to the 2016 World Development Report on Digital Dividends, FMIS also needs analog complements to make them effective and protect against downside risks.

Strong government commitment must be sustained throughout the process. This can be fostered through well-designed project management structures, complemented with adequate considerations for training and change management.

System design should be cognizant of larger budget management issues and follow functional and business process requirements of government. System designs that follow predominantly technical considerations will be less effective in solving budget management problems. System implementation strategies should strategically take a phased approach rather than simultaneously implementing a wide set of functionalities that may overstretch client capacity. A modular approach can be more cost-effective, and could prioritize budget execution and reporting to achieve significant progress on budgetary control and cash management.

Transaction processing through FMIS needs to be comprehensive to ensure credible and complete information for financial operations and management reporting. The benefits from an FMIS pertain only to transactions processed through it.

It is important to understand the transaction ecosystem. While ultimately all transactions should be processed through FMIS, first targeting high-value transactions in system deployment will strengthen fiscal discipline. The following principles could help achieve ample coverage (and expenditure control):

All transactions generated at the central Ministry of Finance such as fiscal transfers, subsidies, and debt service payments, should be processed through FMIS;
All payroll and civil service pension payments calculated by a central system should be processed through FMIS (these would likely constitute some 30-40% of the total budget);
All payments from line ministries or spending units above the transaction threshold should be processed through FMIS
While low-value payments should also be processed through FMIS, they can be disbursed through innovative FinTech products such as mobile money or smart cards.

Accountability and budget compliance are necessary for FMIS to be effective in managing public expenditures. This requires significant political commitment to overcome resistance from vested interests.

Governments can take advantage of disruptive technologies and FMIS innovations. There are tremendous opportunities to deploy technologies such as cloud computing, big data, and machine learning, and robotic process automation to improve budget management. When adopting disruptive technologies, it is important to follow good GovTech principles, such as: a citizen-centric approach, and whole-of-government approach rather than ministry-specific solutions.









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Ed Olowo-Okere
Senior Advisor in the Equitable Growth, Finance, and Institutions (EFI) Vice Presidency at the World Bank.
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Dr Mitrajeet D.MARAYE


September 11, 2020

That appears to be an excellent tool to improve on good governance in the affairs of government and what is more important is total transparency. It is most important for governments to implement a clear legal requirement to ensure "effective FREEDOM OF INFORMATION". Unfortunately in many developing countries opacity in the affairs of governments and state owned enterprises is a major source of corruption throughout the system.

On its surface a bill
before the Louisiana Legislature that might aid higher education, HB 862, if
not changed would backfire, if not undermine, in deliverance of quality tertiary
education.

The bill, by Democrat state Rep. Jason Hughes,
would grant institutions the ability to establish and raise fees and differential
tuition, the former across the board and the latter for more expensive and/or
high-demand programs. These could increase up to ten percent annually. This
would relax the constitutional
standard that legislative supermajorities only could raise these.

The strategy here rightly emphasizes that raising
revenues for higher education must come from its consumers. While Louisiana
higher education isn't where it was a quarter-century ago when it had about the
lowest tuition in the country and consequentially an enormous relative taxpayer
subsidy to public colleges, the corrective measures that begun about 15 years
ago to right the imbalance faltered in recent years. At present, the state still
ranks
only 30th among its brethren in average senior-level tuition charged
– which overstates because around 28 percent of
in-state undergraduates
enjoy Taylor Opportunity Program for Scholars awards that pay for tuition and
varying amounts of fees.

Meanwhile, taxpayers continue disproportionately to
shoulder the funding burden, exacerbated by trends over the past few years. Taxpayer
support for higher education in Louisiana rose 14th highest among
the states since 2019, and in terms of proportionality to personal income the
state now ranks 24th. Part of that is because of TOPS, which
comprises the bulk of the $365 million scheduled for spending this fiscal year
which in financial aid terms ranks the state in raw numbers 16th
most spent, ahead of several states with much higher populations.

That noted, two flaws doom the bill in its
original form. The more minor of the two comes from its failure to ask anything
in return for this increased authority granted to management boards. That was
the premise behind the GRAD
Act in 2010 and its several modifications throughout the decade. Essentially,
the Legislature granted various autonomies, including the ability to raise tuition
and fees certain percentages, if on an annual basis certain performance targets
were met.

Somewhat
inconsistent standards over the years muddied the waters somewhat, as well
as reduced financial incentives due to budgetary constraints, but in the end it
achieved partial success
in keeping and graduating students and creating efficiencies in operations. Nudging
Louisiana higher education in those directions, especially given its history of
notorious inefficiency exemplified by its overbuilt nature that offsets the
undesirable practice of leaving pricing in the hands of the Legislature, is
something alterations towards similar pricing autonomy should employ.

But the real problem stems from the bill's exporting
increases onto taxpayers already doing more than their fair share in subsidizing
higher education. Graduate stipends covering tuition and TOPS awards increases
to match will become costs born by the citizenry. To make it acceptable, the bill
needs amending to exclude differential tuition from TOPS coverage.

Without these changes, the bill detracts from sound
public policy regarding higher education and, unless changed in that fashion,
legislators should reject it.

What a few candidates for Louisiana governor, as
well as state politicians and the public must understand, is that any
perception that the state's chief executive has a lot of power that needs
clipping really means curbing the formal powers of all of state government.

Because it is a stubborn fiction that Louisiana's
governor has a vast set of powers granted him by the Constitution. Instead, as
the latest if a bit dated (2009)
version of a long-running assessment of relative gubernatorial powers among the
50 states reveals, the Bayou State's chief executive at best comes in among the
middle of the pack. Among other things, term limits, widely dispersed executive
powers with many out of his hands entirely, limited budgetary authority, and an
elected judiciary circumscribe his ability to make policy in an extensive and unconstrained
fashion.

Thus, when
at a recent gubernatorial candidate forum Republicans state Rep. Richard Nelson, Treasurer John Schroder, and former gubernatorial
chief of staff Stephen Waguespack all
said they would try to circumscribe the power of the office, they traded on a
canard. Nelson and Waguespack mentioned the state's fiscal system that places
too much emphasis on centralized revenue sources and redistribution to local
governments, while Schroder targeted a related issue, the governor's ability to
veto state capital outlay funds to local governments as an enticement for legislator
cooperation with his agenda.

But these aren't examples of specific formal powers
only possessed by the governor. In the former instance, that indicts the entire
fiscal system and power relations among the different branches of government
and between its levels. For the latter case, that addresses checks and balances
formally written into the Constitution.

All the mythology about the Louisiana governor's
power has sprung up because the cult of personalistic politics and organizations
surrounding them acted as glue holding together, rather than having work independently
and potentially against each other, or checks and balances. Assigning so much
faith to leaders and conveying that power through machine politics historically
has been a defining feature of state politics since Reconstruction, and peaked
about a century ago.

Yet this has eroded immensely since, and particularly
in the past quarter century. The explosion of access to information and news,
partially as a result of rising education levels but mainly from the information
revolution magnified by the Internet, and this advance in educational attainment
with greater knowledge also has encouraged more ideological thinking among
voters. Now, it's not enough to be a good old boy preaching social conservatism
and generic liberal class warfare in a news environment that increasingly
interjects national issues into state and local politics; instead, voters want to
know where the money goes, why so much gets taken, who the favored constituencies
are to get it, and otherwise what special interests receive what privileges.

With a more independent electorate, governors have
lost the ability the exert authority over legislators. The greatest legacy of
departing Democrat Gov. John Bel Edwards
will be by his clinging so fiercely to the old way that he largely will have delegitimized
it, set against a legislative majority and other state executive officers elected
under the new norms. With a largely failed agenda over eight years – few of his
priorities became policy with the exception of growing government (and that
mainly because the Legislature the year before his election foolishly
authorized the governor to expand Medicaid) – because of legislative resistance
and from other quarters as well, such as GOP Atty. Gen. Jeff Landry (another gubernatorial
candidate) defeating him often in court and the Board of Elementary and Secondary
Education mostly refusing to reverse accountability measures, among other
things, this established a future model of constrained gubernatorial power
exertion when other institutions fight back rather than go along and get along.

Pushback likely will increase. For example, referring
to Schroder's complaint, legislators simply can start overriding line-item
vetoes, having under Edwards instituted an expectation that veto sessions will
occur – or with better regular session planning, can overturn vetoes then. And
one lingering source of gubernatorial power, appointment powers to the myriad
of boards in state government, has devalued in recent years as sources of campaign
cash become more varied and more tied to ideology rather than transactional
benefits.

Of course, reducing state government power by, for
example, deregulating many occupational qualifications that would render many
boards unneeded, points to the actual method of decreasing gubernatorial power:
reduce the power of state government in general and the governor's will follow.
Historically, governors have been "powerful" mainly through informal means because
other parts of government allowed them to be so. It's not a powerful governor
that should concern Louisianans, it's a powerful government that takes too much
and redistributes too much and dictates too much well beyond a need to protect individuals
vulnerable not from their own actions. Decentralization of and disempowering the
state is what needs desperately to change.

The White House is steering the United States into a budgetary ditch it may not be able to get out of.The Biden administration is supersizing the defense industry to meet foreign arms obligations instead of making tradeoffs essential to any effective budget. Its new National Defense Industrial Strategy lays out a plan to "catalyze generational change" of the defense industrial base and to "meet the strategic moment" — one rhetorically dominated by competition with China, but punctuated by U.S. support for Ukraine's fight against Russia and Israel's military campaign in Gaza.Instead of reevaluating its maximalist national security strategy, the Biden administration is doubling down. It is proposing a generation of investment to expand an arms industry that, overall, fails to meet cost, schedule, and performance standards. And if its strategy is any indication, the administration has no vision for how to eventually reduce U.S. military industrial capacity.When the Cold War ended, the national security budget shrank. Then-Secretary of Defense Les Aspin and deputy William Perry convened industry leaders to encourage their consolidation in a meeting that later became known as the "Last Supper." Arms makers were to join forces or go out of business. So they ended up downsizing from over 50 prime contractors to just five. And while contractors needed to pare down their industrial capacity, unchecked consolidation created the monopolistic defense sector we have now — one that depends heavily on government contracts and enjoys significant freedom to set prices.In the decades since, contractors have leveraged their growing economic power to pave inroads on Capitol Hill. They have solidified their economic influence to stave off the political potential for future national security cuts, regardless of their performance or the geopolitical environment.Growing the military industrial base over the course of a generation would only further empower arms makers in our economy, deepening the ditch the United States has dug itself into for decades by continually increasing national security spending — and by doling about half of it out to contractors. The U.S. spends more on national security than the next 10 countries combined, outpacing China alone by over 30%.Ironically, the administration acknowledges in the strategy that "America's economic security and national security are mutually reinforcing," stating that "the nation's military strength depends in part on our overall economic strength." The strategy further states that optimizing the nation's defense needs typically requires tradeoffs between "cost, speed, and scale." It doesn't mention quality of industrial output — arguably the biggest tradeoff the U.S. government has made in military procurement.Consider, for instance, the B-2 bomber, the F-35 fighter jet, the Littoral Combat Ship, the V-22 Osprey, and many other examples of acquisition failures that have spanned decades. More recently, the Government Accountability Office has reported that while the number of major defense acquisition programs has fallen, both costs and average delivery time have risen.So what is the military really getting from more and more national security spending? Less for more: Fewer weapons than it asked for, usually late and over budget, and, much of the time, dysfunctional. Acquisition failures are a major reason the Congressional Budget Office projects that operations and maintenance spending will significantly exceed the rate of inflation for the next decade — a considerable budgeting issue for a military that seemingly has no plans to reduce either its force structure or its industrial capacity. Quite the opposite, in fact.Biden's new National Defense Industrial Strategy specifically states there is a need for the U.S. to "move aggressively toward innovative, next-generation capabilities while continuing to upgrade and produce, in significant volumes, conventional weapons systems already in the force." Ironically, the military has spent over two decades developing the F-35, next-generation technology that the Pentagon still hasn't greenlit for full-rate production.Throwing more money at an industrial base comprised of businesses too big to fail won't increase the quantity or quality of its output. But that's exactly what the strategy urges. One of the priorities is to "institutionalize supply chain resilience." It's an important goal, but one the administration proposes the Pentagon tackle, in part by investing in "spare production capacity," what the strategy defines as "excess capacity a company or organization maintains beyond its current production needs."But building factories to sit empty is not supply chain resilience. It's wasting money on unnecessary infrastructure, creating a profit motive for arms makers to make more weapons. And for an industry constantly sounding the alarm about the need for consistent "demand signals" from Congress, the Pentagon's plans to invest a generation of U.S. taxpayer money in "spare production capacity" sounds a lot like throwing the demand-supply principle out the window. In that case, the U.S. might as well consider nationalizing the defense industry, which already lacks competition and relies almost entirely on the government. Why not eliminate the profit motive? It's not like making money drives contractors to produce quality products on time or within budget.Besides supply chain resilience, another priority laid out in this strategy is "flexible acquisition." The stated goal is to reduce costs and development times while increasing scalability. In pursuit of that goal, the administration proposes "a flexible requirements process" for multiyear contracts, and the expansion of multiyear contracting writ large. It reasons that as priorities shift in an "evolving threat environment," so too should contractors' deliverables. But pairing flexible requirements with an increasing number of multiyear contracts is a recipe for disaster.Before Russia attacked Ukraine, multiyear contracts were relatively rare — limited to major aircraft and ships. The Congressional Research Service notes that estimated savings on these programs have historically fallen within the range of 5% — 10%. But those are estimates, and they may not apply to other munitions now produced under multiyear contracts. The report also confirms that actual savings are "difficult to observe," in part because the Pentagon does not track the cost performance of multiyear contracts.Just because multiyear contracting is more common doesn't mean it's cheaper. And while the Pentagon argues that multiyear contracts give contractors the so-called demand signal they need to ramp up production, contractors don't usually spend their extra money on identifying efficiencies or making capital investments to increase output at a lower cost — and the Pentagon isn't checking.The strategy also proposes "aggressive expansion of production capacity." It notes that during peacetime, weapons acquisition tends to focus on "greater efficiency, cost effectiveness, transparency, and accountability." Taking caution not to assert that the United States is in wartime, the strategy contrasts peacetime acquisition policy with "today's threat environment," calling for "crisis period acquisition policy" that revitalizes the industrial base and shifts focus from efficiency and effectiveness to ensuring that military contractors are "better resourced." But contractors don't have a resource problem, and "crisis acquisition policy" puts the United States on a "permanent war footing."Lawmakers must challenge the administration's maximalist national security strategy by interrogating its push to expand military industrial capacity so drastically. It's critical that they do, not only because the U.S. is limited in what it can produce and provide to other countries but also because arms industry greed is boundless — and without off-ramps or constraints, the U.S. government may find in 20 or 30 years that it's in a ditch it can't get out of.

U.S. soldiers face a quality-of-living crisis as the Pentagon's recruitment woes persist, according to top-ranking enlisted officers from across the U.S. military.
"We've had a break in trust with our American people," said Master Chief James Honea, the top enlisted adviser to Navy leadership, in a Wednesday congressional hearing. "We have to do much better at taking care" of our service members, Honea said, adding that he doesn't want the military to "reach a breaking point" where more people decide to leave the military.
Officers and members of Congress highlighted poorly maintained barracks, food insecurity, sexual violence, and limited access to healthcare and childcare as key problems facing U.S. soldiers today. Economic problems are particularly acute among military families, who often struggle to find jobs for civilian spouses and proper food and healthcare for their children.
"It's time for our actions to match up with our words, as far as putting families above everything else," said Rep. Tony Gonzales (R-Texas).
The hearing gives insight into why the military is struggling to recruit soldiers even as Pentagon bigwigs prepare for a potential war with China in the coming years. According to a newly released Blue Star Families survey, only 32% of active-duty military families would recommend service to others — a 23-point drop since 2016.
While the reasons for this are diverse, a few numbers stand out. One in six active-duty military families reported food insecurity in 2023, and that jumps up to one in four among the families of enlisted soldiers. Military families also reported longer wait times for accessing healthcare than their civilian counterparts, and 8% of active-duty soldiers said they "seriously considered suicide in the past year," as compared to 5% among U.S. adults as a whole, according to the Blue Star Families survey.
Housing is another problematic area for recruitment and retention. Despite record-high military spending, some enlisted soldiers are living in poorly maintained barracks that have mold, brown tap water, and serious safety issues, according to a recent report by the Government Accountability Office. The report, which also noted a $137 billion backlog of barracks maintenance costs, sparked condemnation from members of Congress.
"This is unacceptable," tweeted Rep. Sara Jacobs (D-Calif.). "Our service members & their families already sacrifice so much to keep us safe and the least we can do is ensure they have quality housing."
The problems with barracks are "not defendable," said Sergeant Major Carlos Ruiz, the Marine Corps' top enlisted officer. The Marine Corps is working to add air conditioning to all bases in hotter climates, Ruiz told Congress, adding that the service has refurbished 30 barracks in the past five years. Leaders from across the military said they hope to bring on full-time managers and repair crews to get living facilities back into shape.
Notably, the Biden administration's proposed budget for next year contains funding to help remedy some quality-of-life issues, including expanded food assistance programs, suicide and sexual assault prevention efforts, and a 4.5% raise for soldiers. But the request falls short when it comes to funding for refurbishing barracks and improving facilities on bases.
Given the gap in funding, the Marine Corps has gone around the White House to request an additional $642 million from Congress for barracks restoration and other "quality of life" improvements for service members. This request came through the controversial but congressionally mandated "wish list" policy, under which all services and combatant commands must tell lawmakers which goodies they want on top of the president's budget.
Watchdogs have long argued that these wish lists are a backdoor way to force Congress to boost the Pentagon's total funding. "Far too often, they'll put lower priority things in the base budget, and then put higher priority items in the unfunded priorities list saying, 'hey, we really need this,'" Dan Grazier of the Project on Government Oversight told RS last year.
But this game of hide-the-ball may be more complicated this time around given that next year's spending will be constrained by budgetary caps imposed as part of a 2023 deal to lift the debt ceiling. President Joe Biden's military budget request is tailored to fit within its $895 billion cap for next year, leaving little room for funding other proposals.Officers lamented that so-called urgent needs — like funding for expanded military operations in the Middle East to contain the Gaza war — tend to beat out requests for quality-of-life improvements for front-line service members. "I don't think these things should be in competition with one another," said Honea.

All
the fretting about a $100 million last-minute reduction that only increases Louisiana
Department of Health spending by $146 million for next fiscal year, as
Republican state Sen. Sharon
Hewitt suggests, is unwarranted and no corrective should be in the offing.

This week, a couple of Senate panels met unanticipatedly
in the aftermath of the regular session's close to sort out the line item in
the general appropriations bill HB 1
triggering this, an insertion which caught by surprise legislators and Democrat
Gov. John Bel Edwards.
The latter warbled about how he would do everything he could, including casting
a line item veto on it, to prevent the roughly half-percent decrease it pared,
while a number of state senators listened with furrowed brows as allegedly how,
when considering leveraged federal funds involved, this really meant an over
$700 million loss in budget authority.

Of course, that figure was scare
tactics reminiscent of what Edwards threatened would happen in 2016 when trying
to muscle through a sales tax increase still haunting the state, that without taking
more from the citizenry people with disabilities would be left to beg on street
corners, grandparents would be kicked out of nursing homes, and, by the way,
college football would cease. Unfortunately, many, including Republicans who
should have known better, bought it hook, line, and sinker, then and now.

Not Hewitt this time, who noted, "I don't believe
we are accurate enough in our ability to forecast to be wringing our hands over
$100 million." She's right, given the wide variance expected in Medicaid
disenrollment costs and the impact of disenrollment that could have the
former that could be adjusted to go lower and the latter almost certainly underestimated
in money saved from getting ineligible people off the books, as well as the considering
the consistent overshooting in the last couple years of forecasts of nursing
dollars paid out on waiver services because of a nursing shortage caused by overreaction
to the Wuhan coronavirus pandemic that jacked
market rates sky high, leaving fewer nurses wanting to work for waiver
clients – an imbalance the department can't correct because by
law it continuously must shovel more money to overutilized nursing homes.

Naturally, Edwards takes any chance to grab dollars
from the people where he can in trying to redistribute these to suit his ideological
and power-building needs, so his first instinct will be to cast a line item
veto of the curbed $100 million – but then he'll have to find other items to
strike to match. That may not be so easy.

He could veto bills that have tax breaks or additional
costs or paying off judgments, but he already has signed a number of these into
law or many don't add or subtract much or don't take effect until after this
budget year. In fact, the two biggest items out there still needing disposition
ironically are authored by GOP state Rep. Tanner Magee,
who helped lead the charge to bust the state's spending cap, totaling $41.5
million. Adding in all others, including of his political allies, gets barely over
half the needed sum.

That means he has to cut $50-100 million in line items
in HB 1, but that also isn't easy because those zero out entire programs. For
example, it has only $31 million or so total in local expenditures. Transfers
are allowed, but only within the same department, so that wouldn't help in this
instance. And a preamble statement already forces a $95 million cut
government-wide.

But the easiest, and in policy terms wisest, course
would be to make the cuts within the department. The most salutary and obvious
would be to lop off Medicaid expansion. The last
published figures – which with disenrollment wouldn't be much more than
what will come next year – showed it cost Louisianans $451 million, servicing
a population where a third to half of recipients already had insurance and
others had access to plenty of other government benefits leaving them with an
ability to pay for health insurance, if only they would choose to do so. But
being that fiscal albatross is Edwards' pride and joy, don't look for this solution
not only to the problem but also to enable the increasing of waiver nursing
rates and leaving some change for future budgetary downdrafts estimated to
slice revenues by nearly $1.5 billion over the next three years.

Instead, expect a combination of all of the above –
excising the $100 million deduction line item, kayoing a few bills, issuing a
few HB 1 line item vetoes, and expecting some efficiencies in health care
spending. That combination will conclude as another lost opportunity to bring
more sanity to state spending and empowerment to its people.

All of the Board of Elementary and Secondary
Education, the Republican Gov. Jeff Landry
Administration, and the Louisiana House of Representatives not only have acted
prudently with education spending this year, but they also laid the foundation
for improved educational delivery.

HB 1 by GOP
state Rep. Jack
McFarland, the operating budget, passed unanimously. It actually didn't change
much from last year's, with marginal changes in a few areas of policy where few
expenditures changes proportionally more than trivially from the previous year,
and with almost every exception being relatively small absolute amounts. That
was good in that next year a temporary 0.45 percent sales tax, on the books
since 2016, finally will disappear, meaning now was not the time for significantly
greater spending.

The area with the biggest change was elementary
and secondary education, which will see an overall decrease in spending, but
that is due to vanishing federal pandemic-related funds as well as (for the
moment) reduced Recovery School District demands. Those aside, the actual amount
falls about $25 million from last year, even though the Minimum Foundation
Program goes $71 million higher. That happens because while the student count
is about a half percent lower and the base $4,015 per pupil amount remains the
same, the per pupil amount for mandated costs, or an inflationary factor for insurance,
fuel, and pensions, jumped from $100 (last set in 2009) to $122, and supplemental
additions in attracting and retaining teachers and class offerings also moved
higher. The three single areas moving the highest were accelerated tutoring ($30
million), differential compensation ($25 million), and mandated costs ($14.3
million).

The MFP formula, constitutionally, comes from BESE
and must be passed or rejected by the Legislature without change. If rejected, as
occurred last year, the formula used reverts to that use in the previous year (which
itself may be a formula from a previous year, depending upon the last time the
Legislature adopted it).

Last year's carried a $2,000 pay raise for educators
and $1,000 for other employees as well as $25 million in differential pay. But ultimately
the Legislature failed to act on that in favor of a separate line item that
technically made all of this good just for this fiscal year. Ironically, given
what was to come, the rejection of the 2023 MFP came in part as a result of
opposition to the differential pay increase as a permanent feature, as well as disgruntlement
over rejection of a financing mechanism that would pay down pension liabilities
while allowing for pay raises that would not have been uniform but dependent on
local education agency decisions.

Because that rejection was a blessing in disguise
that didn't lock in the $198 million in raises plus the $25 million for future
formulas. Instead, recognizing then that revenue roll-off to come demanded increasing
budgetary flexibility, BESE – the composition of which changed dramatically as
a result of fall elections – this year produced a formula that included the
differential pay but not the raises. Landry responded by offering $127 million more
outside the formula in his budget submission and the House upped the ante to
$166 million more (although that left a $24 million hole to be dealt with as
the process plays out). This means instructional spending in essence advances $110
million, after backfilling the original $127 million from the general fund.

It would mean, if given across the board, for
teachers a stipend of around $1,675 each for next year. Except the House
included language that would allow local education agencies to treat the extra
as differential compensation that allows districts to determine its distribution.
The formula specifies four ways in which this may work, three of which don't
kick up controversy typically have been where much of differential compensation
funds have gone, such as attracting teachers in high need environments.

It's the other use where the bulk of the that has politics-as-usual
unions, leftist politicians, and their lickspittles in the media and interest
groups in an uproar: Stipends for Highly Effective Teachers. In other words,
districts now have considerable sums by which to introduce or expand merit pay,
if they so choose. They could choose to spend no money this way and some or all
on other differential pay options, or to give, as established interests want,
it out on as raises on an equal basis.

Pay for performance, however, would be an option
and one deservedly available for the first time in bulk for far-sighted districts.
The question of merit pay researchers have poured over for decades with the bulk
of research converging on it has a positive
impact on outcomes if teamed with other structural reforms best
implemented at the district level. The current HB 1 language does precisely
this, combined with the MFP formula HCR 21 that
also has passed the House.

This potential boost for merit pay as a significant
feature in at least some Louisiana districts – presuming this stays in the
budget all the way through crossing Landry's desk – should encourage BESE at
the least to hold off any permanent pay raises for at least a couple of years
and the Legislature to keep the annual stipend, which would make for good sense
as well with budget uncertainties ahead. This could act as a pilot study that
could guide incorporating this into the MFP after some years down the road.

It's an exciting possibility to help improve
Louisiana's woeful, if improving, educational outcomes, and if things remain
the same throughout the legislative process finally made available with state
dollars for significant application.

A Pentagon reform panel almost entirely comprised of industry insiders has suggested that the department scrap its budgeting system.
In its place, the group unsurprisingly proposed that the Defense Department implement a new system that the panel considers better suited to "embrace changes" so that the Pentagon can "respond effectively to emerging threats" and leverage technological advancements.
Congress created the Commission on Planning, Programming, Budgeting, and Execution Reform to evaluate and improve the Pentagon's notoriously cumbersome acquisition and budgeting processes. After two years of study, the panel concluded that China's rise and rapid technological innovation worldwide require a complete transformation of the Pentagon's approach to defense resourcing. But revamping the budgeting process alone won't address the root causes of Pentagon dysfunction.
The Pentagon is more focused on spending money (quickly and more efficiently) than it is on rationalizing spending decisions with coherent strategic thinking. Competition among military services makes matters all the worse. In Pentagon jargon, the military struggles with "jointness" — the idea that the military operates better as a whole, rather than the sum of its parts. But jointness requires a lot of thoughtful planning, collaboration, and strategic trade offs on the part of Pentagon leadership. Not everything is a strategic need and priority, and it's Pentagon leadership's responsibility to make those determinations.
The reform panel acknowledged the Pentagon's haphazard spending habits, but it didn't critically evaluate U.S. strategic thinking in any of its forms: the National Security Strategy, the Defense Strategy, the Military Strategy, or the classified Defense Planning Guidance — the latter of which is supposed to clarify the Pentagon's "goals, priorities, and objectives" within fiscal constraints and on an annual basis. A critical assessment of U.S. military posture and the thinking behind it was beyond the scope of the panel's work. Congress tasked the group with assessing how strategy informs budgetary decisions at the Pentagon, with the ultimate goal of improving the department's ability to operationalize U.S. strategies through more efficient acquisition and budgeting.
To that end, the reform panel conducted hundreds of interviews with Pentagon staff, congressional personnel, industry representatives, academics, and federal researchers. It found that the Pentagon's rank and file staff lack clarity on the Pentagon's strategic priorities and objectives. National strategies are too high-level to inform resource allocation on a programmatic level, and the defense secretary's Defense Planning Guidance is similarly ambiguous. The reform panel wrote that it's "often a lengthy prose, consensus-driven document that does not make hard choices and lacks explicit linkages to prioritized goals, timeframes, risk assessments, and resource allocations." As a result, lower-level Pentagon staff are forced to make decisions far above their pay-grade.
Lack of clarity from Pentagon leadership burns out staff and leads to "lower quality" and "inconsistent" decisions, as well as an overreliance on civilian and contractor staff to conduct strategic analysis. The reform panel made a number of recommendations intended to improve the Defense Planning Guidance and increase the Pentagon's capacity for strategic analysis of the department's objectives and priority missions, force size and structure, resource availability and more.
The panel correctly identified many issues with Pentagon budgeting, like insufficient capacity for strategic analysis and difficulty incorporating joint needs into the budgeting process. In total, the panel made 28 recommendations to address these challenges by overhauling Pentagon acquisition and budgeting processes, with particular emphasis on fostering innovation and adaptability to "effectively respond to evolving threats" as well as "unanticipated events." But ultimately, the panel's recommendations are designed to better execute what are often flawed strategic decisions grounded in "yes, and" thinking.
The panel's final report comes at a time when Congress and the administration are struggling to balance America's ever growing security commitments (not all obligations) with its substantial, but ultimately finite resources. And while the panel's report will likely have profound (and variable) impacts on defense policy for years to come, it shouldn't just grease the wheels of a machine destined to fail.
America's war machine cannot go on forever. If the United States is concerned about great power competition, the White House should reconsider enduring global dominance. It promotes an ever growing national security budget — which, no matter how you dress it up or smooth it over — is not the jobs-producer Congress and the administration make it out to be. About half of annual military spending goes to corporations that profit off the United States meddling where it shouldn't, for as long as possible. If economic resiliency is the foundation of military strength, we probably shouldn't put so many eggs in arms makers' baskets.
Strategically, sinking more and more money into an unaccountable Pentagon with a lengthy track record of wasting taxpayer money on weapons that don't work (or that the military doesn't even need) only hurts military readiness — and thus, America's ability to protect itself and support allies when it counts. The pursuit of enduring global dominance serves corporations more than anything else.So while some of the reform panel's recommendations may ameliorate enduring challenges in the Pentagon's acquisition and budgeting processes, the panel's impact is limited by U.S. strategic thinking. Recommendations aside, one can hope that the panel's findings alone will prompt a serious reconsideration of America's strategic decisions — from funding a state committing plausible genocide to allocating more resources on preparing for a war with China than on preventing one. You can revamp the acquisition and budgeting process time and again, but if the inputs are the same, the output will be too.

Marc Joffe


After rapid growth in 2021 and early 2022, federal and state income tax revenue collections have stalled, and, in some cases, declined. This may be a temporary soft patch arising from Federal Reserve tightening or a longer‐​term phenomenon. For governments with high‐​income tax dependency, the durability of this downturn will be an issue hovering over their next budget cycle.
The latest Monthly Treasury Statement shows personal income tax revenue running well below prior year levels and budgetary forecasts. Together with higher‐​than‐​expected debt service costs, these weak income tax collections are driving the federal deficit well above expected levels.
The effect on states varies. While several states collect minimal or even no personal income tax, Census Bureau figures show that nine states obtained most of their tax revenue from this source in 2021. Among these are the big blue states of California and New York as well as other states with varying political orientations including Georgia and Utah. The state most dependent on income taxation is Oregon, which derived 63 percent of its tax revenue from that single source in 2021.
Thus far, New York State's challenges have been most apparent. For the first three months of its current fiscal year—April, May, and June—income tax collections were down 32.8 percent from the same three‐​month period in 2022.
Because New York has a highly progressive income tax system, collections depend on a relatively small number of taxpayers. The top state tax rate is 10.9 percent, but for New York City residents marginal tax rates peak at 14.776 percent. Preliminary revenue data for 2021 indicates that 1.5 percent of income tax filers accounted for 43.5 percent of total state personal income tax revenues.
Those in the highest tax brackets tend to have volatile incomes from capital gains (or losses), cash bonuses, and equity‐​based compensation. Stock market weakness in 2022 crimped these income sources. That could also be a cause for optimism because the stock market has been rebounding in recent months.
But New York is vulnerable to another issue with high‐​bracket taxpayers: their propensity to relocate. The State Comptroller reports that 1.9 percent of taxpayers reporting income of over $1 million left New York State in 2021 and that outmigration among this category of taxpayers has continued since, albeit at a slower rate.
The main beneficiary of outmigration from New York is Florida, which has seen rapid in‐​migration often attributed to its business‐​friendly regulatory environment and lack of a state income tax. But recent Census data show that Miami, a city that had been attracting New Yorkers, lost population between 2019 and 2022. This finding led Paul Krugman to conclude that "the buzz around finance moving to Miami seems to have died down." Krugman goes on to note, however, that it is Miami's rising home prices that appear to be driving residents out (mostly to other parts of Florida). A higher median home price is unlikely to be much of a deterrent to high‐​income individuals looking to relocate from New York. It is also worth noting that West Palm Beach, which has been attracting New York‐​based hedge fund managers, continues to grow.
Another state that has seen declining income tax receipts is California, where marginal rates top out at 13.3 percent. June 2023 income tax collections of $9.6 billion fell far shy of the $13.5 billion the state received in June 2022. While May collections were relatively flat, April saw a 71 percent drop in collections, although that was mostly due to the postponement of the 2022 tax year filing deadline to October due to floods.
Like New York, California has been suffering outmigration, but a recent Bloomberg article cited by Krugman questions whether it is the rich who are leaving. Bloomberg cites state data that shows a 116,000 increase in the number of taxpayers reporting over $1 million of annual income between 2019 and 2021. But it is likely that most of this increase is due to existing residents reporting higher income due to the stock market boom of 2021. We will need to see data for subsequent years to determine whether California is retaining, let alone attracting, high‐​income taxpayers using this metric.
By contrast, IRS migration data show that California that net outmigration cost California $29 billion of taxable income in 2021, although it is not clear how much of that amount is related to high‐​income taxpayers.
Earlier, I mentioned that Georgia and Utah, two more fiscally conservative states are also highly dependent on income tax revenues. But, unlike New York and California, these states do not have highly progressive income tax rates. Utah has a flat 4.85 percent rate while Georgia has graduated rates of up to 5.75 percent but is now migrating to a flat rate of 5.49 percent.
Unlike New York and California, these states had net inflows of taxable revenue in 2021. But they may not be doing so well in 2023. An analysis of Georgia' monthly revenue reports suggests a 25.4 percent decline in income tax revenue for 2023's second calendar quarter versus the prior year, which is only marginally better than New York State's results. Utah does not provide monthly figures but for the full fiscal year ended June 30, personal income tax collections declined 5.3 percent.
So, it appears that relatively low‐ and flat‐​income tax rates do not fully shield against the revenue volatility that comes with levying a personal income tax. While the best policy is to eliminate state income taxes, those states that retain them should monitor revenues carefully and use reserves to cushion the impact of fluctuations.

Romina Boccia


There's a well‐​defined budget process that members of Congress are supposed to follow each year to debate how much the federal government will spend and how much money the government will collect in taxes or borrow from credit markets. That's not happening. "Protecting America's Economic Security," the fiscal year 2024 budget plan introduced by Republican Study Committee chairman Kevin Hern (R‑OK) and its Budget and Spending Task Force chairman Ben Cline (R‑VA), proposes several reforms to revive and improve the federal budget process.
Here are five ideas in the RSC budget worth considering:
Adopt a Balanced Budget Amendment or Similar Statutory Spending Limits. "The RSC Budget supports the adoption of a federal Balanced Budget Amendment (BBA), and other long‐​term fiscal controls, to limit tax collection and balance the budget," write the proposals' authors. Taxpayers benefit from fiscal rules that bind legislators. Well‐​designed fiscal rules limit the propensity of government to expand and protect future taxpayers from harmful debt. The current approach of ever‐​expanding debt and growing deficit spending is highly unsustainable and unfair toward younger generations.
As detailed by my Cato colleague Chris Edwards, balanced budgets used to be the norm for more than 100 years of federal history. Not anymore: "From 1791 to 1930, federal politicians balanced the budget 68 percent of the years, but since 1931 they have balanced it only 13 percent of the years. Furthermore, deficits have become larger over time relative to the size of the economy." To address rising spending and debt head‐​on, I am a fan of Kurt Couchman's unified budget idea paired with a Swiss‐​style debt brake to establish and enforce rules toward sustainable federal budgeting.
Account for Interest Costs. "This budget would adopt Rep. Michael Cloud's (R‑TX) bill, the Cost Estimates Improvement Act, to require the CBO to include the projected debt service costs in its legislative cost estimates," write the RSC proposals' authors. Including interest costs in legislative cost estimates would improve accuracy in congressional scorekeeping and should be a bipartisan priority. Cost estimates confront Congress with the fiscal impact of proposed legislation prior to the passage of a bill. Cost estimates also aid in the enforcement of budgetary rules and targets. With interest costs now making up one of the fastest‐​growing budget categories, it is especially important that Congress fully account for interest in legislative cost estimates.
Reform Emergency Spending. "The RSC Budget would… require legislation containing emergency spending to be accompanied by a statement explaining why an emergency designation is necessary and require a three‐​fifths majority vote to approve such legislation. Moreover, emergency funding should be timely and targeted. Thus, the RSC Budget would create a separate point of order against emergency spending legislation that would produce outlays beyond two fiscal years." I commend the RSC for proposing to make it more difficult to abuse emergency spending to prop up other spending. The RSC should go a step further and require Congress to account and pay for emergency spending with lower discretionary spending limits and mandatory spending reductions in future years. I explain this emergency accounting concept in greater detail in my latest Cato policy brief, titled "A Better Budget Control Act."
Stop Unauthorized Spending. In 2022 alone, Congress spent $461 billion on federal programs whose authorizations had expired. More than half of this spending went to programs that expired more than 10 years ago. Congress wastes money on myriad programs that aren't even authorized. Unauthorized appropriations should be a prime target for cuts. Rep. Cathy McMorris Rodgers (R‑WA) champions legislation with the goal of ending unauthorized appropriations. The Unauthorized Spending Accountability Act (H.R.2056) would sunset unauthorized spending and create a commission to review all discretionary programs. The RSC budget endorses this approach.
Reveal Spending and Gimmicks in Appropriations. "The RSC Budget would require CBO [the Congressional Budget Office] to release a report estimating the fiscal impact of appropriations bills as well as information on changes in mandatory programs contained in appropriations bills, to each member of Congress and to the public," write the proposals' authors. Changes in mandatory programs are a recurring budget gimmick in congressional appropriations. Most CHIMPs provide no real savings. Instead, they facilitate increases in discretionary spending without running afoul of current spending limits. It's a start for the RSC to require CBO to reveal the size and scope of CHIMPS to the public as Congress is debating appropriations bills. Even better would be prohibiting the use of fake savings to prop up discretionary spending.
A Costly Budget Process Failure
The so‐​called federal budget process has disintegrated over the years. Congress regularly misses key budget deadlines and fails to live up to its fiscal responsibilities. Case in point: neither the House nor Senate have introduced budget resolutions this year. As reported by Peter Cohn in CQ‐​Roll Call: "Lawmakers have adopted a budget resolution before the April 15 deadline just four times in four decades."
The consequences of Congress' failure to budget responsibly are severe. Congressional fiscal neglect results in a less effective, more expensive government that wastes taxpayer dollars, drag down economic growth, and burdens current and future generations with increasingly unsustainable debt. The RSC budget contains some worthwhile ideas to revive congressional budgeting and enhance accountability and transparency for taxpayers. Unless members of Congress are willing to push these proposals when up against action‐​forcing fiscal deadlines such as the debt limit or the end of the fiscal year, it's unlikely that they'll be adopted.

When under pressure, people revert to their true
natures. And insofar as political leadership goes, in the final session of the
2020-24 term of the Louisiana what we saw from the Legislature leadership was
ugly, hopefully the last gasp of a mentality that has left Louisiana in tatters.

In the House of Representatives, Republicans
Speaker Clay
Schexnayder and Pro Tem Tanner Magee
have come under much fire for their handling of the session. It all crystallized
in the last week of the session, when they muscled through a resolution
allowing state government to spend, as opposed to banking, about 10 percent
more of transitory revenue generation, and in the final half-hour of the
session, when most of the spending bills were presented for members' approval
with hardly any of them knowing any details about what they were asked on which
to vote.

This failure of leadership occurred at two levels,
beginning with their unwise squandering of dollars ahead of a bleaker revenue picture.
The Revenue
Estimating Conference foresees fiscal year taxes, licenses, and fees
falling from $15.277 billion in fiscal year 2024 to $15.103 billion in FY 2025,
$14.666 billion in FY 2026, then a bump upwards to $14.936 billion in FY 2027 –
a drop of over a billion bucks from FY 2023 just wrapping up. Given that new
commitments (at least in intention) of around $320 million annually were doled
out for education alone starting in 2024, maintaining this total level of
spending will be difficult.

This leads to consideration whether this
budget isn't some kind of poison pill left to the next governor and
Legislature. Frontrunner GOP Atty. Gen. Jeff Landry has made no secret of
wanting to rein in government, and neither is hidden the distaste that Schexnayder
and Republican Sen. Pres. Page
Cortez have for Landry and those legislators sympathetic to Landry's
right-sizing goal, who certainly would gain considerable power in the Legislature
with Landry in office.

Of course, one goal with the bloated budget was to
allow its backers to puff their chests out with pride in to leave in the history
books or as a resume-builder for future elections the fact that they "gave"
stuff to the people (as if one can be made a gift of your own resources; it's
not legislators' money, it's the people's) – a legacy of Louisiana's liberal
populism where politicians seeks to hoard as much money as they can then distribute
it as a way that makes themselves seem indispensable to the wellbeing of the
polity. But another motive also was using it as a tool of payback against those
with a different vision.

It's all right to have competing visions, where
the Schexnayders and Magees of the world take the grasshopper version of
blowing it all now in the face of a certain looming winter, and the fiscal
conservatives who voted against the enabling resolution to do this adhere to
the ant version of saving to deal with that future. Realize as well a good portion
of the excess spending authority went to non-priority items, mainly
transportation infrastructure, while $237 million went towards more critical things
such as stabilizing property insurance markets and coastal protection – which could
have been afforded without busting the cap. There absolutely was no need to
spend so much at this time.

For their trouble, most of the fiscal
conservatives had Schexnayder yank
their capital projects from the supplemental bill after the successful vote
to violate the cap. This turned into a tag team effort when liberal big spender
Democrat Gov. John
Bel Edwards subsequently used
his line item vetoes on those in the regular capital outlay bill.

The grasshopper view is a flawed vision and in and
of itself may disqualify those who follow it from being entrusted with elective
office. It's why Louisiana has lurched from fiscal crisis to fiscal crisis
historically while remaining relatively overtaxed, which manifested in the Edwards
era – who backed Schexnayder for Speaker and with whom has cooperated in
keeping bloated government – as declining
population and stagnant job and wage growth contrary to most other states.

But truly reprehensibly about these people is their
avoidance of taking responsibility for this and trying to blame others for their
failures. This excuse-making stems not just from bad policy-making, but from
bad leadership as an extension of trying to explain away policy mistakes.
Remarks by both Schexnayder and Magee after the session attempted to address widespread
complaints about budget priorities and the zero transparency involved in its
promulgation that hardly
was distinguishable from budgeting in the heyday of the Soviet Union.

In a radio interview, Magee (like
Cortez before him) adopted the spousal abuser role by blaming the victims
in causing the budgetary chaos, saying "You have a group of lawmakers who are
more interested in making headlines about obstructing government than they are
about doing the people's work." Note the breath-taking arrogance of this remark:
equating a desire to spend less as "obstructing … the people's work" and attempting
to cancel legitimation of opposition to his big-spending agenda, as well as the
avoidance of responsibility for his cabal's cutting $100 million out of health
care in the operating budget and $136 million out of Jimmie Davis Bridge
funding in the capital outlay budget.

In media remarks, Schexnayder attempted even more
vigorously to distance himself from accusations of failure to budget responsibly
and transparently. Also assuming the spousal abuser role by calling those who
voted against raising the cap "a small group of blockers, instead of helpers" –
similar to Magee voicing a sentiment that trying to keep government spending
under control was illegitimate – he mischaracterized outside assessments of the
budget in trying to defend his actions as the chief budget architect (and who
sat on the conference committees that approved removing dissenters' projects,
as did Magee, and the bridge money). "Someone sent me PAR
[Public Affairs Research Council] and CABL[Council
for a Better Louisiana]'s evaluations of the budget. The budget is a good
budget; a good, conservative budget that moves our state forward. That has
excellent projects in it."

PAR did say the operating, capital, and supplemental
bills had "many state priorities and positive developments," but also noted that
those "were overshadowed by the messy way lawmakers handled the spending of
taxpayer dollars" and "lawmakers wasted tens of millions on favored projects
for their districts that don't represent state priorities. They continued
unnecessary giveaways through tax break programs with uncertainty about their
long-term impact on the state treasury. And they stripped hundreds of millions
of dollars from the state health department with no idea what the impact might
be on services to the poor, elderly and people with developmental disabilities."

CABL noted that "lawmakers did enact spending
bills that make many wise investments in the future of Louisiana" where for the
"most part it spends non-recurring revenue on one-time expenses, mostly
infrastructure projects." But it also declared "there needs to be more time and
transparency when making decisions over such huge sums of money" and "It also
remains to be seen what the fiscal impact of this session's spending will mean
in a couple of years when some current taxes are removed from the State General
Fund."

Regarding these and other critiques of how the
process was handled, Schexnayder followed the playbook by saying this could
have been avoided if only the fiscal conservatives hadn't dissented. But that's
a failure of leadership in that only at the last minute relatively speaking did
Schexnayder convince enough of them to back a breach – by promising to retain
the majority of dollars to pay down unfunded pensions and use much of the authorized
excess on one-time expenses – and then he had an entire day after to clear up everything.
Maybe if he hadn't spent so much time trying to find ways to punish dissenters
he might not have produced such shoddy results.

And his laughable assertion that dissenters
deliberately disengaged themselves from the process so they didn't know about
contents is absurd on its face since he went out of his way to punish them, a
style of leadership that doesn't invite participation of your opponents. Nor does
it address similar complaints from others who voted to bust the cap.

These attitudes and behaviors by Schexnayder and Magee,
as representations of legislative leadership and policy-making, reveal
everything that is wrong with Louisiana and why it has fallen so far behind
other states by squandering its resources. Making mistakes and blaming others, neither
wisely nor warily, only continues a long history state politicians of doing the same. As for the
future as they and others who think like them seek elective office, voters
should know Schexnayder and Magee are the problem and having nothing to do with
the solution.

On February 15, the U.S. government signed a Memorandum of Understanding with the government of Somalia to construct up to five military bases for the Somali National Army in the name of bolstering the army's capabilities in the ongoing fight against the militant group al-Shabaab. This is a troubling development that not only risks further militarizing Somalia and perpetuating endless war, but comes with the potential of exacerbating geopolitical rivalries at the expense of the needs and interests of ordinary Somalis. According to statements by U.S. officials, the bases are intended for the Danab ("Lightning") Brigade, a U.S.-sponsored Special Ops Force that was established in 2014. Funding for Danab initially came from the U.S. State Department, which contracted the private security firm Bancroft Global to train and advise the unit. More recently, Danab has received funding, equipment, and training from the Department of Defense. U.S. support is made possible by the 127e program, a U.S. budgetary authority that allows the Pentagon to bypass congressional oversight by allowing U.S. special operations forces to use foreign military units as surrogates in counterterrorism missions. The Intercept has documented similar 127e operations in multiple African countries, primarily in locations that the U.S. government does not recognize as combat zones, but in which AFRICOM troops are present on the ground.But this MoU is about much more than the U.S. government's proclaimed commitment to help Somalia defeat al-Shabaab. It is a clear indication of the growing geopolitical significance of the Horn of Africa, and comes at a time of mounting concerns (mostly attempts by Yemen's Houthis to disrupt global shipping in solidarity with Palestinians in Gaza) about securing the flow of international commerce via the Red Sea. It also coincides with a growing awareness that rising tensions in the Middle East could force the U.S. out of Iraq.The U.S. government's plan to train Somali security forces at newly-established military bases in five different parts of the country (Baidoa, Dhusamareb, Jowhar, Kismayo, and Mogadishu) is a back-door strategy not only to expand the U.S. military's presence in Somalia, but to position itself more assertively vis-à-vis other powers in the region. Indeed, the 127e program is not the only policy that allows for the training and equipping of foreign forces as proxies: section 1202 of the 2018 National Defense Authorization Act further expands the ability of the U.S. to wage war via surrogate forces in places where it has not formally declared war, with the broader objective of countering the influence of adversaries like China and Russia. While much ink has been spilled attempting to analyze great power competition on the continent, we have yet to adequately scrutinize the growing influence of middle powers like Turkey, Saudi Arabia, the United Arab Emirates, and Qatar who are each attempting to negotiate their own sphere of influence, and whose involvement in the Horn points to uncertain, if not waning, U.S. power. Turkey maintains its largest foreign military presence in Mogadishu, has trained Somali security forces, and more recently has worked closely with the Somali government in conducting drone strikes against Al-Shabaab. Further underlining deepening Turkish engagement in the country, Somalia and Turkey signed defense and economic agreements earlier this month. Qatar and the United Arab Emirates have trained, and continue to train, local security forces as part of a broader strategy to secure access to regional markets and to assert their control over vital shipping lanes in the Red Sea.With the drawdown of the African Union sponsored "peacekeeping" mission — previously known as AMISOM but renamed ATMIS in 2022 — analysts have expressed apprehension about the expansive nature of foreign actor involvement in Somalia and the risk of Cold War-style competition fueling instability. Indeed, the foreign-sponsored training of multiple "elite" contingents of the Somali National Army (Danab, Waran, Gashaan) has prompted internal divisions within the security establishment in Somalia as it raises chain of command issues and questions about the loyalty of these units. As Colin D. Robinson and Jahara Matisek, both regional and military experts, have said, "The only thing worse is that various Somali units become more loyal and dependent on their foreign patron, short-circuiting the political logic of having security forces that look more like hired proxies than locally organized for self-defense. This may contribute to the growing perception of Somalia becoming a hyper-competitive arena; a republic of militias if you will."Equally significant is the recently announced Memorandum of Understanding between Ethiopia and Somaliland, a separatist region in northwestern Somalia. According to the terms of this yet-to-be signed agreement, in exchange for Somaliland granting 20km of much coveted sea access for the Ethiopian Navy for a period of 50 years, Ethiopia would formally recognize the Republic of Somaliland as an independent nation. The MoU has elicited a wave of anger among Somalis who view Ethiopia as meddling in their internal affairs — and it is precisely this history of meddling that has in the past contributed to al-Shabaab's support base as it positions itself as the defender of Somali nationalism and autonomy. While the U.S. State Department called for respect for Somalia's sovereignty and territorial integrity and urged dialogue in response to the Ethiopia-Somaliland MoU in the name of de-escalating tensions in the region, the February 15 announcement that the U.S. intends to ramp up its involvement in Somalia is hardly an indication of a neutral stance. Rather, it is an indication of U.S. positioning in an increasingly militarized jockeying by foreign powers in this strategic but troubled country and region. In Mogadishu, many Somalis are welcoming the U.S. announcement, perhaps in some cases hoping for job opportunities, and in others viewing the U.S. military support and presence as a potential buffer against Ethiopia. But if the past several decades of U.S. mis-adventures in Somalia are any indication, expanding U.S. involvement risks perpetuating rather than minimizing further conflict.