Today’s Policy Update: The Federal Deficit Is Shrinking Rapidly, Does That Matter?

by Andrew Smith

Unskilled workers are getting less and less of a return on work.

Myles Udland has an article in Business Insider that features the following chart:

This chart speaks to a part of the “inequality” debate that has serious implications for our society: the possibility of labor-market outcomes for unskilled workers deteriorating to the point that they flee from the world of work entirely, creating a permanent underclass.

The U.S. budget deficit is shrinking rapidly.

In the Wall Street Journal, Josh Mitchell looks into the state of the U.S. budget.

The U.S. budget deficit is falling sharply this year amid higher tax revenues and an improving economy. The federal government’s deficit from October through June totaled $366 billion, down 28% -from the same period a year earlier, the U.S. Treasury Department said Friday. The federal fiscal year began Oct. 1. The year-to-date deficit was the smallest since 2008, when the U.S. economy was in recession. The deficit hit its latest peak in 2009 but has since shrunk, due to a combination of a slowly improving economy, higher taxes and government spending cuts.

This reversal from the large deficits of just a few years should remind conservatives of what they might have forgotten in the heat of recent budget debates: When it comes to keeping the country solvent, recent deficits are somewhat insignificant compared to the massive future fiscal imbalance looming. Large deficits are going to be run during recessions, and international markets seemingly haven’t lost faith in our ability to repay our debts — but our long-term problems remain.

There are lots of alternatives to the gas tax, as state legislators know.

For the Washington Post, Niraj Chokshi has posted an interview with Oregon Republican state senator Bruce Starr about the alternatives to the gas tax pioneered in their state. (Congress is currently confrnted with the fact that the federal gas tax is now too low to support the current level of federal highway spending.) Starr told Chokshi:

We have a menu of options that folks can choose from.

One of them is really rudimentary. It’s a flat fee where they can just pay a flat amount and that’s it. They wouldn’t pay any per-mile road charge. Now that flat fee’s going to be pretty high because we don’t know how much people are actually going to drive if they use that.

The next step would be a low-tech kind of model where there’s no GPS component to it. So that would mean that you would potentially be charged for miles that you drove outside of the state of Oregon, but you would still be charged on a per-mile basis.

As we’ve discussed before, moving from a gas tax to a mileage-based user-fee system would have many benefits — it would mean a more stable tax base for infrastructure and market mechanisms that can reduce congestion. It might seem like an idea that looks better on a blackboard than it will in practice, but the Oregon experience proves that it can be successful and that a GPS system can avoid privacy concerns.

Corporate cronyism pays — but just for executives.

Russell Sobel and Rachel Grafe-Anderson have published a new study with the Mercatus Center on the effects of large lobbying operations.

The summary of our findings is that, despite such increased involvement by government in the marketplace, and greatly expanded political activities of firms, we find little evidence to support the idea that political activity undertaken by corporations leads to improved performance for firms and their shareholders at both the industry and firm level. We do however find a robust and significant positive relationship between political activity and executive compensation. Therefore, while industry and firm-level performance are not robustly related to “cronyism,” executive compensation is—suggesting that any benefits gained from corporate political activity are largely captured by firm executives.

In what would seem to be a classic principal–agent problem, this finding lends more ammo to the libertarian populists who seek to make taking on crony capitalism a bigger focus for the Right.

If large lobbying operations are nothing more than a pay day for executives, the entire process isn’t just an unjust practice that distorts the market — it’s a waste of resources for almost 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.