Politics & Policy

2 Sotus

Completely inconsistent messages.

Last night there were two State of the Union addresses, and they offered radically different visions for America’s future. One vision endorsed smaller government, permanent tax cuts, and individual liberty. The other approach offered a much more statist and paternalistic future for America, one where every possible problem, no matter how small, requires federal government action.

These two descriptions refer not to two addresses–one being George W. Bush’s State of Union 2006 address and the other the Democratic response. Rather, these completely inconsistent messages were both part of the president’s address.

Speaking from a free-market script, the president said we need to reform our tax code to move us closer to a simple and fair flat tax and to increase America’s competitiveness. He also urged Congress to make his first-term tax cuts permanent. He proposed to reform Social Security. And in an effort to restore his administration’s fiscal credibility, the president once again called on Congress to support a tough budget that reins in domestic spending by cutting 140 wasteful programs. He proposed to pass a line-item-veto measure and eliminate earmarks. These are welcome words, especially since the White House has a bleak track record on the issue of government spending.

Unfortunately, the president also used a New Deal script for part of his speech. Much of his time was used to propose over two-dozen new or expanded spending initiatives.

For instance, the president endorsed yet another massive intrusion into energy markets through a 22-percent increase in clean energy research and development; he also promoted the construction of new nuclear-power plants and the development of ethanol and of fuel made from the waste of plant crops. But if these technologies had real promise, the private sector would make the investments. There is no reason for taxpayers to subsidize biofuels that are not cost effective. Many studies have shown that they cost more than the current alternative.

Along the same line, the president wants to promote the development of alternative fuel for automobiles. This program will complete a 12-year federal effort to develop a hydrogen-based source of energy for automobile use. Do we need to remind the president that the program that preceded it–namely the Partnership for a New Generation of Vehicles, lavishly funded for eight years under President Clinton–never produced the hybrid car we were promised? However, nonsubsidized hybrid cars produced by foreign automakers Honda and Toyota have been available to U.S. consumers since 2004.

The president also wants to boost federal “investment” in math and education in mathematics, science, and engineering. Why? First there is little correlation between spending and results. Also, surely the president doesn’t believe that America became one of the world’s leaders in technological innovation and scientific advancements because of big-government subsidies. In fact, it is because the U.S. government managed to reasonably refrain itself from interfering too much in these fields that our country is way ahead of countries like Japan and France, which rely on government funding.

So which speech should we believe: The small-government or big-government speech? Do we believe the message of budget restraint from the White House or the calls for spending increases on the president’s favored programs? The track record does not leave much room for optimism. In the last five years, total spending has risen 40 percent–a figure larger than Clinton’s two terms combined. Moreover, real discretionary spending increases in FY2002, FY2003, FY2004, and FY2005 are 4 of the 10 biggest annual increases in the last 40 years.

To his credit, last year the president proposed to cut funding for Amtrak, to rein in Medicaid, and eliminate or reduce 150 programs. However, when Congress came back to him in December with a spending bill accepting only $6 billion out of $16 billion proposed cuts, Bush happily signed the legislation while showering Congress with praises for being fiscally responsible.

So when the president says the administration is really committed to fiscal responsibility, one should not let hope triumph over experience.

Unfortunately, an ambiguous message can only be counterproductive at a time when Republicans are supposedly looking for a solution to the explosion of earmarks in the federal budget and lobbying extravagances. Why should members of Congress–whether Republicans or Democrats–accept any cuts to their programs if the president is not willing to sacrifice his pet interests like science?

The president also called for more government subsidies and tax preferences for health care. The truth is that the sad state of our health-care system is largely because government intervention and subsidies have created a system where consumers pay for only a tiny fraction of their health care–the “third-party payer” problem. And since market forces are not allowed to operate, it should not be surprising that costs are climbing. One need only compare the falling prices and increasing quality of cosmetic surgery and laser eye surgery (procedures where consumers actually pay the real cost) with the gross inefficiencies in the rest of the health-care system to see the damage of government intervention.

Some of the president’s policies, such as health-savings accounts, have some potential to alleviate the “third-party payer” problem, but trying to fix a problem caused by government with a new government program is at most a second-best approach. Why not just try to reduce the existing level of subsidies?

Today it is impossible to square the president’s rhetorical support for free markets and limited government with the long list of programs and new initiatives that he claims to support. If all this sounds familiar, it’s because it is. Bill Clinton was a master of this strategy, declaring one minute that the era of big government was over and then the next minute proposing new government programs for every conceivable problem in society.

Veronique de Rugy is a research fellow at the American Enterprise Institute.

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