Devil in the Details

Gingrich vs. Free Trade

House Speaker Newt Gingrich deserves creativity points for coming up with a new reason to oppose the minimum wage. Not only will it kill jobs, the Speaker told the Washington Post, but it could give Mexico a competitive advantage in some industries. It's a curious argument coming from a man who, when campaigning for NAFTA, argued that Mexico's lower wages would not give it a competitive advantage. Perhaps what he really meant was that Mexico would not gain an advantage as long as American wages continued to fall.


Mandate Madness

Of the initial Republican Contract proposals, few had greater bipartisan support than the measure to limit the federal government's ability to impose upon the states "unfunded mandates," or any requirements that don't come with funding to cover their costs. Not only did most Democratic members of Congress and the president endorse the idea, but so did nearly all opinion makers. "It would simply require explicit majority votes in both houses to impose [unfunded mandates]. That can't be a bad idea," editorialized the Washington Post. The New York Times echoed, "Forcing Congress to reach a higher level of accountability cannot be a bad idea."

Can't it? While the new law does not ban unfunded mandates outright, it places in their path procedural hurdles that are not faced by other bills, reflecting the now-dominant view that unfunded mandates are somehow illegitimate.

Unfunded mandates simply require states to meet certain national standards. For instance, the federal government requires states to hold elections but it does not pay for them. It also forces states to pay their employees the minimum wage but doesn't subsidize their salaries. In fact, the unfunded mandate that sparked this revolt the Motor Voter Law had the vigorous support of many people who later endorsed the unfunded mandates legislation. The main effect of this reform will not be to open up the legislative process but to install a built-in anti-regulatory bias in congressional rules.

The real danger comes from another overlooked provision: a requirement that the Congressional Budget Office (CBO) estimate the costs not only of mandates on state governments but also on regulations affecting private industry. What s the problem with Congress knowing how much a regulation will cost before voting on it? First, CBO is the first to admit that it usually cannot calculate such costs with any accuracy. The estimates depend heavily on the ideological assumptions undergirding them and with the Republicans selecting the new CBO head, it's a safe bet they will tend to err on the high side. Second, the new rules minimize the value of unquantifiable benefits. How do you calculate the financial value of clean air, or civil rights?

Finally, in the past CBO has been used to score only major initiatives, such as the budget or health care reform. Multiplying its workload will tie Congress up perpetually waiting for complex cost estimates, as well as overwhelm CBO with work at a time when the Republican Congress is slashing the agency's modest budget.

As the past two years have shown, established interests and their allies already have plenty of ways of killing off new regulation. Putting new weapons in their hands can't be a good idea.

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Welfare for Banks, Again

Remember direct lending? Originally promoted by Bush domestic policy advisor Charles Kolb, the idea was to replace the inordinately complex and costly system of guaranteed student loans, by which the federal government assumed the interest payments and credit risk for college loans. The guaranteed loan program cost the federal government $6 billion in interest subsidies to banks in order to guarantee $15 billion in loans in 1992. That s why in 1993 the Clinton administration embraced direct lending, which is expected to simplify the college loan process for students and save billions by eliminating subsidies to private lenders. After lending-industry lobbyists waged an epic struggle, Congress passed a compromise that would phase in direct lending over five years.

Now direct lending is under attack again. Congressman Bill Goodling, Republican of Pennsylvania and chairman of the House Committee on Economic and Educational Opportunities, disparages the effectiveness of direct lending. He praises the old guaranteed loan program which was excoriated by the General Accounting Office for its inefficiency and astronomical default rates as "one of the most successful" public-private sector partnerships. But just in case the college financial aid administrators who implement the programs don't agree with this assessment, he has submitted a bill that would cap the quota of schools that may participate in direct lending at 40 percent.

Is this a philosophical difference about the size of government, as Goodling and his allies have tried to portray it? Not quite. "A direct loan program will mean replacing the role currently played by many banks, guarantee agencies, and secondary markets with a much more competitive approach," wrote several Bush and Reagan administration Republicans in 1993. "We hope that as Congress considers direct loans it will look beyond the misleading information that is being spread by representatives of those entities who have a direct financial stake in preserving the status quo."

The irony is that the guaranteed lending program many Republicans are fighting to restore represents big government at its worst: costly, bureaucratic, and dauntingly burdensome to those it tries to serve while funneling billions to businesses that the market doesn't support. Observes Joe Flader, staff aid to Tom Petri of Wisconsin, one of the few Republicans on Goodling's committee who has spoken out for direct lending, "Republicans don t have one shred of credibility as budget cutters if they re not willing to oppose this kind of corporate welfare."


Gunning for Support

A recent National Rifle Association direct mailing solicits participation in a poll to show that its members are not to blame for violent crime. An excerpt:

"With your answers to the 1995 NRA TAG POLL, I'll have the ammo I need to STOP BATF harassment, KILL the gun and ammo taxes, KILL 'needs' based licensing, KILL the arsenal licenses, KILL gun owner fingerprinting and KILL gun bans." [Capitals in original] Get some ammo and KILL, KILL, KILL! No doubt the NRA is testing its members' devotion to nonviolence.



Where Did He Get That Economics Degree?

Senator Phil Gramm has a plan to end welfare. Instead of moving to "some made-up government job," he told a group of Massachusetts Republicans, welfare recipients should find work in the private sector. How does he propose to do this when inner cities face chronic job shortages? Exempt welfare recipients from the minimum wage, and use government subsidies to make up the difference. It doesn't seem to bother Gramm, a former economics professor, that this would cause many businesses to immediately fire their minimum-wage workers and hire former welfare recipients. An even greater problem is that employers would have no incentive to pay former welfare recipients the minimum wage, or, for that matter, any wage at all, if the government was willing to pick up the tab instead. Theoretically, with a labor cost of zero, it would be cheaper to hire a former welfare recipient to stand in the corner and hold coats than to buy a coat rack. But that's OK, just as long as it's not a made-up government job.


-- Jonathan Chait

You also might want to check out Gingrich's Revolutionary Parallels.

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