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Wednesday, December 14, 2005


What is GAO and Who is David Walker?

I listened to a past program or rerun on C-Span, which actually took place on March 20, 2005. It involved the interview of David Walker who is Comptroller General of the United States. Prior to this I never gave much attention to the U.S. comptroller or of the GAO or Government Accountability Office. Little did I know, that they serve the longest term of any U.S. position, which is 15yrs.

When Walker was asked by his host Brian Lamb, “Why do we need the GAO?”
Walker responded, “We need the GAO in order to try to help the Congress discharge its constitutional responsibilities to assure the performance and help – pardon me (ph) – improve performance and assure accountability of government for the benefit of the American people, to help it discharge its oversight responsibilities, its authorization responsibilities and its appropriations responsibilities. So, we are the watchdog for the Congress. And I think our primary client is the Congress, but our beneficial client is the American people.”

The GAO seems to be a fairly good agency, which is often called the "congressional watchdog" because it investigates how the federal government spends taxpayer dollars. It gathers information to determine how well executive branch agencies are doing their jobs. Its investigations answer such basic questions as whether government programs are meeting their objectives or providing good service to the public. Ultimately, GAO ensures that government is accountable to the American people.

GAO supports congressional oversight by:
· evaluating how well government policies and programs are working;
· auditing agency operations to determine whether federal funds are being spent efficiently, effectively, and appropriately;
· investigating allegations of illegal and improper activities; and
· issuing legal decisions and opinions

As I mentioned, the GAO seems like a very good agency, which offers some very useful information to Congress, but what good is it if all they do is provide it and it is never utilized. Congress doesn’t seem to be taking the GAO’s advice, if you take a look at the Social Security and Medicare program (to name a few). It does give Congress some accountability but it also puts a lot of pressure on Congress because the information is available to the media and special interest groups. The media and special interest groups can utilize this information to inform the American people on how well the elected officials in Congress are listening to the GAO’s advice. I think it is good that we have “congressional watchdogs” but what good is a dog that just watches and is not allowed to "bite", to ensure reform of some current programs. It is probably the people who need to do the biting by electing officials who stand behind their promises.

Links: <http://www.gao.gov/> and <http://www.qanda.org/Transcript/?ProgramID=1014>

Monday, December 05, 2005


Economics and Government: O'Reilly's Price Theory Again

"You should remember that earlier this semester we talked about Bill O'Reilly's analysis of gas price increases following Katrina. You may also have noticed that our fearless leaders in Congress are still talking about 'windfall profits,' while the prices you are paying for a gallon of gasoline have fallen significantly of late. Well, apparently O'Reilly is still holding to his earlier analysis."
Read the rest.

Saturday, December 03, 2005


Baseball & Economic Development

Here's a local economic development story to take a look at:
"The city and MLB worked to finalize the terms of the lease yesterday, but it was not completely done. It is unclear whether the council will approve it when it votes. Many council members have threatened to vote against the lease if it does not contain additional financial commitments from baseball, and some members said they will reject it because they favor building the ballpark near RFK Stadium, where it could be less expensive.

City officials, including Mr. Williams, insisted yesterday the RFK site is not necessarily cheaper because it would have a smaller impact on economic development in the area and because the city already has sunk more than $100 million into the South Capitol Street site. MLB officials said they would consider the RFK site only if Mr. Williams asked for it. The city is doing an updated cost estimate for the RFK site and expects the results shortly."
I think there are a few things to note:

1. Apparently some on council say they think a site near the existing RFK Stadium would be less expensive. I suspect this isn't what they really think. I suspect they think if located at RFK their constituents will benefit (and that they will have greater chances of re-election).

2. Note the reference to cheaper and smaller economic impact in the second paragraph. This seems confused to me. From an economic point of view, we would probably say that emphasis on being less expensive is a bit misplaced. The real interest should be which location for the facility would mean the community enjoyed greater net benefits. Smaller cost, other things constant, would mean greater net benefits. But greater benefit, other things constant, also means greater net benefits. Economics advises that the facility should be located at the site that means greatest net benefits.

3. There is a reference to having sunk $100 million on one of the sites already. Sounds like a sunk cost to an economist, and that means the number $100 million should be seen as irrelevant to the best decision to make moving from now and into the future. Unfortunately, the reference here to the relevance of a sunk cost is an illustration of a common economic mistake made in debates of the best public policy to choose.

4. Consider the reference to the economic impact at one site versus another site. The idea is to pick which site provides the greatest economic impact. Unfortunately, economic impact is not the same as net (social) economic benefit. Instead the reference is to estimates of jobs, spending, and taxes. The idea here illustrates a common mistake in economic development discussions. The economic impact on jobs, spending, and taxes invariably consider only government spending money to build the facility. Of course the money to build the facility comes from somewhere. The estimates of economic impact never show estimates of jobs, spending, and taxes that would have been "generated" if the money spent on the project had been left in taxpayer pockets. Interest in economic impact is simply bad economics, and is very likely to lead to public policy that contributes to relative economic decline rather than to true economic development. Of course, good economic analysis would emphasize the question of whether we have a source of market failure. If we had a source of market failure, then we might well have reason to think a good choice of public policy would enhance economic development of the community. But, without a source of market failure, we have to expect government's choices will not be efficient and hence will not contribute to the community's economic development.

Thursday, December 01, 2005


Supreme Court's Abortion Case

The Supreme Court heard the first abortion case in 5 years on Wednesday. The topic of this particular case is to whether or not it should be a requirement for doctors to notify a teenager's parent before preforming an abortion. This topic is a repetitive one, as it has been the main topic for many abortion cases in the past. The issue of a patients right to privacy, regardless of the patients age. After reading this article I am very interested to read the outcome of the case. Will the Supreme Court site police power as they enjoy doing it so much? How will they justify the use of police power in an abortion case? The article also mentions "health exception." Could this be turned into a public health case and therefore the court will rule in favor of protecting public health? Based on the other cases from the class, this one sounds like it is shaping up to be a wrong opinion by the court based on a stretch of what is in the Constitution.


Economics and Government: It Just Doesn't Work That Way

An addendum to an earlier post.


Corporate Welfare

Agriculture is one of the most interfered-with industries on earth. Across the world, government subsidies wreak havoc with farm economies. Though we haven’t made much progress in eliminating the payments, this concept is increasingly understood by Americans. Many people believe that the low income of farm families justifies farm subsidies. But in reality most of the subsidies go to large farms and big agricultural businesses. Recently President Bush said that the U.S. would eradicate its farm subsidies “as other countries do the same.” I would like to know what is preventing him in the first place. Eliminating these subsidies would save tax payers money, lower the cost of food, encourage international trade and lower global poverty, as well as promote increased domestic production. What’s less appreciated is that subsidies also cause environmental problems. By encouraging the cultivation of unneeded marginal land, overuse of scarce environmental resources, and increased use of chemicals, farm subsidies harm the land as well as consumers.

The government spends $9.3 billion dollars a year on farm subsidies. Apart from the apparent burden on tax payers, it hurts Americans in a number of other ways too. The Organization of Economic Cooperation and Development estimated that in 2004 government subsidies cost the country $46 billion dollars a year through direct taxation coupled with the high domestic food prices brought on through the tariff quotas that kept lower priced foreign food out. Cutting these subsidies would save a lot of tax payer’s money, like 9.3 billion a year, and would lower domestic food prices, especially helping lower income families that spend a higher portion of their budget on food. By abolishing these subsidies we would rely more on foreign produced food. We would then be able to save $46 billion dollars a year through cheaper food from international trade along with the money we would save in taxes. Also, many farmers from poor countries would be able to raise their incomes, and this would be a significant step to ease tension between third world countries and the U.S.


Lastly, by supporting prices above the market-clearing level, governments encourage farmers to expand production. Agricultural subsidies that stimulate larger production further increase the tax burden to consumers, and impede international trade. In some cases the government actually pays farmers to not produce their maximum through deficiency payments. This program encourages farmers to intensify production and to plow up more land, often highly erodible, to qualify for larger government deficiency payments. These practices would be reduced, along with the use pesticides and chemicals, if subsidies were eliminated.

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