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Jim Roberts at the Heritage Foundation hosted a recent panel on economic development featuring Reason‘s Ron Bailey, Africa Fighting Malaria‘s Richard Tren, and me. I discussed themes explored in From Poverty to Prosperity, including the importance of entrepreneurship to economic growth; the need to remove barriers to capital formation; and the need to lower non-tariff barriers to trade (including NGO-backed environmental regulations).

One theme that emerged in the discussion was the way in which the World Bank was bowing to pressure from environmental NGOs when making decisions about supporting energy, health, and agricultural programs in developing countries. You can watch the discussion below.

NB: Tren is the coauthor of an important new history of DDT use, co-authored with my colleague Roger Bate and with Don Roberts, called The Excellent Powder.

Six members of the Financial Crisis Inquiry Commission released their final report today, but four members were unable to support the majority’s conclusions and have issued two dissenting statements. Commissioner Peter Wallison of AEI explains his:

Instead of pursuing a thorough study, the Commission’s majority used its extensive statutory investigative authority to seek only the facts that supported its initial assumptions–that the crisis was caused by “deregulation” or lax regulation, greed and recklessness on Wall Street, predatory lending in the mortgage market, unregulated derivatives, and a financial system addicted to excessive risk taking.

Commissioners Bill Thomas (a visiting fellow at AEI), Keith Hennessey, and Douglas Holtz-Eakin summarize their dissent in the Wall Street Journal here.

At an event in Washington, D.C., this morning, the Financial Crisis Inquiry Commission (FCIC) released its report on the causes of the financial and economic crisis of 2007-2009, noting that the entire episode was avoidable. The event was marked by the absence of the four Republican commissioners, who instead submitted two separate dissents to the report. Criminal activities and possible prosecutions were a theme that the media pressed the commissioners on during the Q&A, especially after Chairman Phil Angelides noted that the FCIC had referred certain individuals to the attorney general or state authorities for investigation. However, the commissioners were unwilling to elaborate further and we will have to wait and see what, if any, prosecutions or policy reforms result from 18 months of the FCIC’s work.

Image by dflorian1980.

Yesterday, the Congressional Budget Office released its updated budget outlook and reiterated a reality about the debt limit that Treasury Secretary Timothy Geithner recently expressed in a letter to Congress—that the debt limit will likely be reached this spring and, if left unaddressed, will become serious in the months thereafter. What to do about this problem has been a popular topic of discussion in Washington. In the Washington Post last week, former Minnesota Governor Tim Pawlenty advocated for entitlement reform as a critical component of tackling the serious fiscal challenge embodied in the debt limit debate.

In another recent op-ed, I offer my own views on the debt limit conundrum and note that the current rules do not measure anything of any economic value; before fighting about what the limit should be, we need to make the debt limit a meaningful metric. Debt limit reform should exclude economically irrelevant intragovernmental borrowing, and instead should apply a limit only to the debt held by the public—the debt that matters. First set the rules correctly, then set the limit appropriately.

For better or worse, this proposal hasn’t yet come under attack from Democrats, but another worthwhile proposal has. In a recent blog post on the Treasury Department’s website, Deputy Secretary Neal Wolin attacks an idea Senator Pat Toomey (R-Pennsylvania) recently proposed in the Wall Street Journal. Senator Toomey recommended that Congress ”require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised.” The senator clearly explains that while reaching the debt limit would certainly be disruptive to the economy, it does not mean that the U.S. government need default on its debt obligations. “Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?”

Wolin calls the proposal “unworkable,” arguing that it would “protect only principal and interest payments, and not other legal obligations of the U.S., from non-payment.” But, in fact, that is exactly the purpose of the proposal, and it is completely workable. Nobody wishes for the scenario whereby the U.S. government cannot meet all of its obligations because the debt limit has been reached. But the reality is that if such were to occur, the Treasury Department would need to make hard decisions about which obligations to honor and which payments not to make. Senator Toomey should be commended, not criticized, for addressing the reality of the difficult choices such an event would require and for proposing to assure our lenders that our debt obligations face no risk. I would hope that the Treasury Department would think more carefully about this proposal and others (mine!) as Congress prepares to address this issue, and I would hope that the administration, instead of blogging false criticisms, try to engage in positive dialogue with Congress on finding a solution so that all financial obligations of the U.S. government can be honored.

Image by Richard Masoner.

For years, politicians and members of the public have decried the so-called “raid” on the Social Security trust fund, in which surpluses generated by Social Security were spent on other programs. For instance, back in 1990, Senator Harry Reid asked, “Are we as a country violating a trust by spending Social Security trust fund monies for some purpose other than for which they were intended? The obvious answer is yes.”

Now, there was nothing illegal about this practice; since Social Security was required by law to invest its surpluses in Treasury securities, that pretty much means the Treasury was required to borrow the money. That said, Senator Reid assured us, as a lawyer, that someone doing this outside of government would be prosecuted.

More importantly, there’s good reason to believe that borrowing from Social Security encouraged the rest of the government to spend more and tax less than it otherwise would have, since the deficits and debt involved were effectively “off the books.” The Social Security trust fund still has meaning in an accounting sense, but it doesn’t represent any true saving in a budget-wide or economy-wide sense.

Personal accounts were proposed as one means of “saving the surplus,” though they ran into problems when it became clear that a lot of people—both in Washington and elsewhere—didn’t particularly want the surplus to be saved. They liked their spending higher and taxes lower. Former Vice President Al Gore proposed the much-derided “lock box” to save the surplus, although even to Social Security specialists it was never quite clear how that would work. Seemingly, the Social Security raid was an unsolvable problem.

But some problems solve themselves. According to the Congressional Budget Office’s most recent projections, released this week, Social Security is running cash deficits and will continue running cash deficits, well, pretty much forever. Last year, both CBO and the Social Security Trustees projected that Social Security, while currently running deficits due to the recession, would return to surpluses again for several years before making a final turn south in 2016. The new projections show deficits every year from 2011 through 2021, totaling $593 billion over that period.

So breathe easy, America, the “raid” on Social Security has finally been stopped. Now we just need to think about repaying the trust fund and making the rest of the program sound. But all we heard from President Obama on that subject in the State of the Union address was the sound of a ball being punted.