Sunday, June 06, 2010

MN-02 : Does Harvard Study Prove Kline Right About Earmarks ?

A case study in logic, goes something like this :

John Kline is a human being.
Women are human beings.
Therefore, John Kline is a woman.

If you accept that logic, then consider this ...

John Kline opposes earmarks since they “are based on a member's seniority, committee assignment or party affiliation.”
A Harvard study states that obtaining a chairmanship on a “powerful congressional committee” actually damages corporations within the states that receive these federal dollars.
Therefore, John Kline’s opposition to earmarks benefits Minnesota.

In both examples, the logic is faulty.

Yet, that is the assessment suggested in a recent Letter to the Editor proclaiming that “A new Harvard Business School study shows how John Kline’s “no earmark” policy benefits Minnesota.”

I am not sure if the writer read the Do Powerful Politicians Cause Corporate Downsizing?
report, but its basic question was “Does public sector spending complement or crowd out private sector economic activity?
John Kline is not mentioned ... nor is his "no earmark" policy ... in fact Minnesota is barely a sidenote.

The report analyzed over 42 years of earmarks and various changes of committee chairman and determined that corporations in those states invested less in their business than they may have otherwise.
But what does that mean ?
Well, the report states … “a key feature of our data is that firm-level figures reflect capex, R&D, payout, employment, and sales growth aggregated across all operations of the firm, including divisions located in other states. … To the extent that portfolio capital has greater mobility across states than across countries, the impact of fiscal stimulus may be weaker at the state level than the national level.”
Further, the report states : “This suggests the crowding out of private investment is particularly pronounced in industries operating at a high level of capacity where competition for additional factors of production including facilities and specialized capital is expected to be strong.
My interpretation : if labor and resources are constrained in one state, a company may increase in another state … thus the corporation may grow in total, but not necessarily in the state that received federal funds. Hence one of the reasons why the military industrial complex has operations in virtually every state … when “labor gets tight”, they can re-align.

The report concludes : “Our results demonstrate that the average firm retrenches in the face of government spending shocks, but it is certainly possible (and perhaps likely) that some individual firms do in fact benefit from these spending shocks.

The report uses as an example that Alabama had not had a chairman of a powerful committee until Senator Richard Shelby (R-AL) came into power. For example, Shelby’s $15 million earmarks went specifically to the construction of housing and facilities for lower income families … the result was that another Alabama company that produced prefabricated homes saw a decline in activity.
Now, is that bad ?
Do you want mobile homes in your community or brick and mortar homes … plus the mobile home business has had significant changes in profitability and demand caused by a number of other factors (most notably interest rates), so it is difficult to know what the demand in Alabama would have been without Shelby’s earmark.

What the report really confirmed is something that has been widely reported – the largest of recipients of earmarks are Hawaii, Alaska, Mississippi, West Virginia, and Alabama: All states which had powerful congressional chairmen over the sample period.

Thus the problem is not earmarks, but that certain individuals look first and foremost to their state and not to the overall country.

It’s the people that are the problem … not necessarily the earmark process. Yes, so Richard Shelby (R-AL) is a problem … there are many examples that taxpayers should be concerned. Senate appropriator Daniel Inouye (D-Hawaii). then-Senate Appropriations Committee Ranking Member Ted Stevens (R-Alaska), Senate Agriculture Appropriations Subcommittee Ranking Member Thad Cochran (R-Miss.), and Robert Byrd (D-WV) have created imbalances.
But if I think of long-serving Senators that could impact this situation, I think of Ted Kennedy and John Kerry, Democrats representing Massachusetts and John McCain and John Kyl, Republicans representing Arizona. In terms of earmark dollars, Massachusetts comes in at 27 yet based on population it should be 13 ( in effect a negative 14) while Arizona is #25 in terms of earmark dollars and #21 in population (a negative 4) … so there are examples of Senators that are not abusing the system. FYI : Minnesota is #37 in earmark dollars while #20 in terms of population ( and coming in second to Indiana as having the worst relationship.)

Returning back to the LTE writer’s assessment, NO, Mr. Kline’s “no earmark” policy DOES NOT benefit Minnesota … if Alabama is not building mobile homes, that does not mean that Minnesota is.
What it does mean is that certain states are getting more federal investment than we are.

The real question is : Is there a better way to ensure that the dollars are invested for the greatest need and purpose ?

John Kline’s “no earmark” policy does not address that … in some ways, the analogy would be that Honor Students are punished when other students abuse the system … the report clearly shows that Minnesota is not abusing the system, yet our dollars are helping other states.

There are some better approaches.
When will the Republicans put some serious fiscal conservatives like Jeff Flake (R-AZ) on the Appropriations Committee ? He has been repeatedly rejected by GOP leadership yet that would be the first step in stopping wasteful government spending.
How about rotating committee assignments, so that no one holds a committee chairmanship for longer than two years ?
How about a maximum amount that any Senator or Representative can request ?
How about getting Senate Republicans to reach agreement with House Republicans on what their earmark policy will be ? Who will control Senators Shelby, Cochran, et al ?
How about Enhanced Rescission Authority legislation ?

Or, something that Mr. Kline could do without the Republican Party approval … following the Tim Walz Transparency process … request input from constituents … give a hard review … and then report back what you will recommend.

But doing nothing, is just that … Mr. Kline your “no earmark” policy does nothing.

All that said, Mr. Kline has opposed earmarks that benefit Minnesota, yet he has been a strong supporter of earmarks that the Pentagon does not want … C-17 cargo plane, F-22 fighter, F-18 fighter, or even alternate engine for the Joint Strike Fighter.

In the end, let’s ask Mr. Kline : How will your crusade change the process ?

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