Letter from Washington: Some Skepticism

by Eli Lehrer on January 25, 2011

photo by VinothChandar/Flickr, used under a Creative Commons license

The House Republican Study Committee has issued a generally good set of budget recommendations for programs to eliminate. I’m all for it even though, like any political document, it deserves some skepticism. (I’ve written skeptically about it at FrumForum.)

There’s plenty of waste, however, that the RSC hasn’t bothered to touch. Here are four things Congress should look at:

  1. The Army Corps of Engineers:  The Army Corps does a middling to poor job maintaining the levees and shipping canals we have. At minimum, it doesn’t need to be building any more of these things until the current infrastructure is in good shape. This could save billions.
  2. The National Flood Insurance Program: Privatized correctly, NFIP could probably produce a modest net gain for the Treasury. There’s no reason not to do it.
  3. Ethanol and Other “Renewable” Subsidies: Ethanol, ironically, is one of the more promising new sources of energy—if its derived from sugar cane and imported from Brazil and other places cane can grow. The current subsidy and tariff regime for ethanol, however, assures that it will never be anything other than a curiosity backed by the government. Other renewable energy subsides aren’t quite as bad—some might even speed up the adoption of worthy technologies—but energy should sink or swim with the market rather than the mandates of government regulators.
  4. Duplicative Housing Programs: The RSC, rightly, makes a proposal that consolidates lots of different student loan and education programs. The federal government has a similar confusion of housing programs—mostly called “Section VIII vouchers”—they could benefit from a similar consolidation.


Later this week, Heartland is hosting a conference in Texas along with our friends from PIA. Our keynote speaker in North Carolina Insurance Commissioner Wayne Goodwin and, in a state that’s trending Democratic, Goodwin (a Democrat) shows that commonsense free market principles can do a lot of good. I’ll be very interested in listen to his speech and see what he has to say about the progress he’s made.

Social Security started, briefly, as an insurance program and remained as such for only a few years. Although it’s not quite a pyramid scheme (a pyramid scheme will collapse because it can’t compel participation; Social Security can compel participation), the current system isn’t a very good deal for most Americans.

The one serious current Republican proposal for reforming it—Rep. Paul Ryan’s Roadmap—is a good start in some ways but, in my judgment, not a true free-market solution. The plan, basically, cuts benefits in a variety of ways and then hopes to make it up by letting people invest some savings in a semi-private account that the government would insure never to decline in value below the initial principle. These accounts, in my judgment, are a huge new liability that could easily explode with enormous negative consequences for the economy.

A private account plan, it seems to me, will work best if it’s an “add on” that’s an addition to the current system rather than a carve out that reduces what goes into the current system.  This doesn’t mean that we should necessarily raise social security taxes but it does mean that the social security payroll tax should be distinct from anything that’s added onto it.

Until next week,

Eli Lehrer, Vice President, Washington, D.C. Operations

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