Policy Institutes

Morris Adelman, RIP

Cato Op-Eds - Mon, 06/09/2014 - 13:56

Peter Van Doren

According to the New York Times Morris Adelman, professor emeritus of economics at M.I.T. died on May 8 at the age of 96.  His work, including Genie Out of the Bottle (M.I.T. Press 1995), informed the papers and articles on energy policy published by the Cato Institute over the last 30 years.  A good summary of his views can be found in this article in Regulation from 2004.

His writing was refreshingly honest and is worth quoting at some length.

…conventional wisdom (there is that term again) is that Middle Eastern nations wield an “oil weapon” that they can use to punish the United States or any other nation.  In support of this belief, many people point to the 1973 “oil embargo” against the United States by Arab members of OPEC (except Iraq — Saddam Hussein profited by it). Secretary of State Henry Kissinger cruised around the Middle East many times to negotiate an “end” to it. Ten years later, he explained that the significance of the “embargo” was psychological, not economic. Recently, the London Economist quoted approvingly what I said in July 1973: If an embargo was declared, it would have no effect because diversion would nullify it. And so it was.

The embargo against the United States never happened, and could not happen. The miserable, mile-long lines outside of U.S. gasoline stations resulted from domestic price controls and allocations, not from any embargo. We ought not blame the Arabs for what we did to ourselves.”

“The real moral is this: It does not matter how much oil is produced domestically and how much is imported. Presidents may declare that there is an “urgent need” to cut imports and boost “energy independence” — no one ever lost political support by seeing evil and blaming foreigners. The facts are less dramatic.

Categories: Policy Institutes

Linear Thinking and the Rahn Curve: Responding to a Critic

Cato Op-Eds - Mon, 06/09/2014 - 12:22

Daniel J. Mitchell

There’s an old saying that there’s no such thing as bad publicity.

That may be true if you’re in Hollywood and visibility is a key to long-run earnings.

But in the world of public policy, you don’t want to be a punching bag. And that describes my role in a book excerpt just published by Salon.

Jordan Ellenberg, a mathematics professor at the University of Wisconsin, has decided that I’m a “linear” thinker.

Here are some excerpts from the article, starting with his perception of my view on the appropriate size of government, presumably culled from this blog post.

Daniel J. Mitchell of the libertarian Cato Institute posted a blog entry with the provocative title: “Why Is Obama Trying to Make America More Like Sweden when Swedes Are Trying to Be Less Like Sweden?” Good question! When you put it that way, it does seem pretty perverse.  …Here’s what the world looks like to the Cato Institute… Don’t worry about exactly how we’re quantifying these things. The point is just this: according to the chart, the more Swedish you are, the worse off your country is. The Swedes, no fools, have figured this out and are launching their northwestward climb toward free-market prosperity.

I confess that he presents a clever and amusing caricature of my views.

My ideal world of small government and free markets would be a Libertopia, whereas total statism could be characterized as the Black Pit of Socialism.

But Ellenberg’s goal isn’t to merely describe my philosophical yearnings and policy positions. He wants to discredit my viewpoint.

So he suggests an alternative way of looking at the world.

Let me draw the same picture from the point of view of people whose economic views are closer to President Obama’s… This picture gives very different advice about how Swedish we should be. Where do we find peak prosperity? At a point more Swedish than America, but less Swedish than Sweden. If this picture is right, it makes perfect sense for Obama to beef up our welfare state while the Swedes trim theirs down.

He elaborates, emphasizing the importance of nonlinear thinking.

The difference between the two pictures is the difference between linearity and nonlinearity… The Cato curve is a line; the non-Cato curve, the one with the hump in the middle, is not. …thinking nonlinearly is crucial, because not all curves are lines. A moment of reflection will tell you that the real curves of economics look like the second picture, not the first. They’re nonlinear. Mitchell’s reasoning is an example of false linearity—he’s assuming, without coming right out and saying so, that the course of prosperity is described by the line segment in the first picture, in which case Sweden stripping down its social infrastructure means we should do the same. …you know the linear picture is wrong. Some principle more complicated than “More government bad, less government good” is in effect. …Nonlinear thinking means which way you should go depends on where you already are.

Ellenberg then points out, citing the Laffer Curve, that “the folks at Cato used to understand” the importance of nonlinear analysis.

The irony is that economic conservatives like the folks at Cato used to understand this better than anybody. That second picture I drew up there? …I am not the first person to draw it. It’s called the Laffer curve, and it’s played a central role in Republican economics for almost forty years… if the government vacuums up every cent of the wage you’re paid to show up and teach school, or sell hardware, or middle-manage, why bother doing it? Over on the right edge of the graph, people don’t work at all. Or, if they work, they do so in informal economic niches where the tax collector’s hand can’t reach. The government’s revenue is zero… the curve recording the relationship between tax rate and government revenue cannot be a straight line.

So what’s the bottom line? Am I a linear buffoon, as Ellenberg suggests?

Well, it’s possible I’m a buffoon in some regards, but it’s not correct to pigeonhole me as a simple-minded linear thinker. At least not if the debate is about the proper size of government.

I make this self-serving claim for the simple reason that I’m a big proponents of the Rahn Curve, which is …drum roll please… a nonlinear way of looking at the relationship between the size of government and economic performance. And just in case you think I’m prevaricating, here’s a depiction of the Rahn Curve that was excerpted from my video on that specific topic.

Moreover, if you click on Rahn Curve category of my blog, you’ll find about 20 posts on the topic. And if you type “Rahn Curve” in the search box, you’ll find about twice as many mentions.

So why didn’t Ellenberg notice any of this research?

Beats the heck out of me. Perhaps he made a linear assumption about a supposed lack of nonlinear thinking among libertarians.

In any event, here’s my video on the Rahn Curve so you can judge for yourself.

The Rahn Curve and the Growth-Maximizing Level of Government

And if you want information on the topic, here’s a video from Canada and here’s a video from the United Kingdom.

P.S. I would argue that both the United States and Sweden are on the downward-sloping portion of the Rahn Curve, which is sort of what Ellenberg displays on his first graph. Had he been more thorough in his research, though, he would have discovered that I think growth is maximized when the public sector consumes about 10 percent of GDP.

P.P.S. Ellenberg’s second chart puts the U.S. and Sweden at the same level of prosperity. Indeed, it looks like Sweden is a bit higher. That’s certainly not what we see in the international data on living standards. Moreover, Ellenberg may want to apply some nonlinear thinking to the data showing that Swedes in America earn a lot more than Swedes still living in Sweden.

Categories: Policy Institutes

Is Uber Really Worth $18 Billion?

Cato Op-Eds - Mon, 06/09/2014 - 11:50

Matthew Feeney

Last Friday it was reported that Uber, the transport technology company that links passengers to drivers with its smartphone app, had raised $1.2 billion in a funding round valuing it at $18.2 billion.

The valuation means that Uber is worth roughly the same as Hertz Global Holdings Inc. and Avis Budget Group Inc. combined. As The Wall Street Journalnoted, “Only Facebook Inc. in 2011 raised capital at a higher valuation from private investors — an investment from Goldman Sachs valued the social network at $50 billion—according to VentureSource data.”

The reaction to the news has been mixed. In The Guardian, James Bell, who described the valuation as a “fantasy,” wrote the following in the wake of the news of Uber’s valuation:

… when you buy a tech stock at a huge multiple – and Uber’s revenues have been (generously) estimated at around $200m a year, which makes $18bn a borderline-insane 90x valuation – you’re making a bet that its profits down the line will be vastly larger than they are today. In fact, you’re betting that they will be almost unimaginably larger.

There is absolutely no reason to believe this is true. Uber has rivals in every market it’s in – both established players fighting off the insurgents, and Uber-like rivals with similar software products. Uber and all its rivals are dueling one another for taxis – lowering fares and their percentage takes, even offering lunch or $500 bonuses to drivers.

The Wall Street Journal’s Christopher Mims has described the valuation as “nuts,” and wrote that the “moat” protecting Uber from competition is “incredibly shallow,” arguing that drivers are driven by price rather than loyalty to Uber. Mims went on to say that the market Uber works in will remain easy to enter despite any of its attempts to deal with competition:

I say ride-sharing is “frictionless” because in its price war with Lyft, both companies are forced to constantly lower prices, and riders — especially those whom the company presumes will give up their cars — are naturally price sensitive. Even if Uber uses its funds to try to crush competition such as Lyft, the Lyft model is simpler than Uber’s and built on recruiting everyday folks, not professional drivers. It isn’t hard to enter this market.

Mims also argued that even if Uber captures 50 percent of the global taxi market in five years it would still be worth less than $18.2 billion.

However, over at Vox, Matthew Yglesias correctly points out that Uber and its competitors could greatly increase the size of the market for paid rides, which seems to be what Uber CEO Travis Kalanick has in mind. In a recent interview with The Wall Street Journal Kalanick said that Uber’s vision is, “Basically make car ownership a thing of the past.”

In Forbes, Mark Rogowsky writes that Mims is wrong to treat Uber as a replacement for taxis:

So long as you look at Uber as a taxi replacement, you’ll see it as something less than it’s already becoming in its early markets: A transportation app. In San Francisco, for years the taxi commission didn’t want to issue more medallions for additional cabs because there was ostensibly no real demand for them (As of last year, the city had 1,600 taxi medallions). Yet just 4 years after Uber’s launch, there are often well over 1,000 rideshare vehicles on the road during peak times.

Rogowsky’s article highlights two important points to consider when thinking about Uber and its competitors: 1) Unsurprisingly, bodies like San Francisco’s taxi commission are evidently not very good at estimating the demand for rides, and 2) while Uber is competing with traditional taxis it would be a mistake to think of it as a taxi replacement rather than a technology company that makes it easier for passengers to find drivers, be they professional chauffeurs or car owners trying to make some extra money on the side.

What makes the huge valuation especially remarkable is that Uber and its competitors are facing numerous regulatory challenges, some of which I wrote about last week. Yet despite these challenges, investors see an opportunity in Uber. Speaking to Reuters a spokeswoman for Summit Partners, one of the investors in the funding round, said, “Uber is one of the most rapidly growing companies ever, and we believe there are opportunities for continued tremendous growth.”

Categories: Policy Institutes

How Walmart Improves the Lives of Everybody, Especially the Poor

Cato Op-Eds - Mon, 06/09/2014 - 11:03

Stephanie Rugolo

I recently had the pleasure of visiting northwest Arkansas. If you have the chance, go—not only to experience the beauty of the Ozarks, but to see the world’s only Walmart convenience store. This store offers groceries, a gas station, and a counter for a local business, Bentonville Butcher & Deli. The difference between Walmart convenience stores and other convenience stores: Walmart prices (read: excitingly low). Those low prices mean that the more these stores spread, the more lives will improve.

I realize that there are ongoing arguments about whether Walmart improves or reduces people’s welfare. For instance, some argue that Walmart reduces the number of jobs in locations where they open, while others find that Walmart creates more jobs overall. Some believe that when Walmart enters a town, competitors are forced to lower worker income or close. Others claim that the benefits of lower prices may result in higher real wages, even in the retail sector. Some write that Walmart costs taxpayers huge sums as their employees receive federal support. Others insist that these programs are operating as intended: boosting employment among low income families who would otherwise be jobless.

While those issues are still debated, one thing is clear: When we have access to cheaper goods, our quality of life improves because we can buy more with the same amount of money. This is especially true for the poor who spend a higher percentage of income on household goods and food. For them, daily savings on these items are necessary for survival. Shopping at Walmart leaves them with more money, which they can use to feed their families, pay for additional tutoring for their children, or work less as they can afford more leisure time. In that way, few forces have improved the lives of Americans, particularly poor Americans, as much as Walmart.

Categories: Policy Institutes

Cut Saturday Mail to Fund Highways?

Cato Op-Eds - Mon, 06/09/2014 - 08:57

Randal O'Toole

The Highway Trust Fund will be out of money in a few months, mainly because Congress insists on spending more than it takes in. To avert this supposed crisis, Republican leaders are proposing to cut Saturday deliveries of mail and use the savings to replenish the trust fund.

There’s actually a tiny grain of Constitutional sense behind this proposal. The original legal justification for federal involvement in highways, back when members of Congress actually cared about such things, was that the Constitution authorizes Congress “to establish Post Offices and post Roads.” If the “post roads” aren’t paying for themselves, then who better to pay for them than the post offices?

In this sense, the Republican proposal is slightly more rational than President Obama’s proposal to use the increased revenues from a corporate income tax reform that will eliminate loopholes but reduce corporate tax rates. The administration predicts reducing rates will reduce corporate tax obligations in the long run but closing loopholes will increase revenues in the short run (interesting how Obama is promising corporations lower taxes after he is out of office in exchange for higher taxes when he is still in office). Obama wants to use some of those increased revenues to supplement the Highway Trust Fund.

More than offsetting the tiny Constitutional sense of the Republican proposal is that it will take ten years of Postal Service cuts in order to cover one year’s worth of red ink from the Highway Trust Fund. In other words, the plan is far from sustainable and will simply lead to another transportation cliff in a year or so.

The reason we see these nonsensical plans is that Congress likes to pretend it has a rule that increased expenditures in one part of the federal budget must be offset by savings somewhere else. In fact, Congress has freely ignored this rule in the past–no one asked where the revenue to pay for the wars in Iraq or Afghanistan would come from–but the rule is there, so anyone proposing to replenish the trust fund must find something to offset that cost.

“The Saturday delivery change makes a lot of sense on its own,” observes the Washington Post. “So does corporate tax reform. But continuing to jury-rig the highway budget with unrelated ‘offsets’ does not.” The Post implores Congress to “develop some backbone” and “make the obvious policy choices,” which to the Post means increasing gas taxes.

But, as I’ve noted elsewhere, even increasing the gas tax is, at best, a medium-term fix. Inflation combined with more fuel-efficient cars steadily eats away at the value of this tax, which also provides little revenue for local roads and does nothing about fixing congestion, the nation’s swept-under-the-asphalt $200-billion problem. Instead, higher gas taxes will simply enable Congressional pork-outs on inane projects such as streetcars and other high-cost, low-capacity transit lines.

Instead of increasing gas taxes, my modest proposal is for Congress to stop spending more than it collects in gas taxes and other transportation revenues. Congress managed to build the Interstate Highway System, widely considered to be the largest and one of the most successful public works projects in history, entirely out of highway user fees without once ever letting the Highway Trust Fund run out of money. It did so by funding construction out of user fees on a strict, pay-as-you-go basis, which meant that if costs were underestimated, construction simply took longer rather than be rewarded with taxpayer-funded bailouts.

It was only in the 1990s, when up to 20 percent of gas taxes were being diverted to transit and Congress was earmarking the heck out of the hexennial transportation bills, that Congress decided that what it spent was too important to be limited by such things as, you know, revenues. It was one thing when we were building the Interstate Highway System, which cost less than $2 million per lane mile (in today’s dollars) yet carries 20 percent of all passenger travel and 15 percent of all freight in America. It was quite another thing when Congressman Porko’s pet $20 million pedestrian bridge or Senator Spendo’s pet $100-million-per-mile light-rail line might be delayed by revenue shortfalls.

Since Congress first mandated that funds be spent regardless of revenues, Congress has had to spend $55 billion in general funds bailing out the trust fund. As it happens, this is roughly the amount of federal gas taxes that are diverted to transit every ten years.

That these kinds of proposals have any credibility at all is due to the apparent weakening of the Tea Party in recent elections. After 2010, when the Tea Party had won numerous seats in Congress, House Speaker John Boehner and then-House Transportation Committee Chair John Mica fell all over themselves to produce a fiscally conservative bill that was, unfortunately, rejected by so-called “transit Republicans” who didn’t want to see cuts in federal transit spending. Now that the Tea Party’s apparent influence is waning, established Republicans are once again willing to take a principled stand in favor of pork-barrel spending.

Personally, I think the best thing would be for Congress to go off the transportation cliff. As pointed out by transportation expert Ken Orski, the states increasingly regard the feds as an unreliable partner in transportation funding, and nearly half have developed alternatives ways of financing highways. It is time for members of Congress who think the whole country would grind to a halt without their careful control and spending to learn that, at least with regards to transportation, we are actually better off without them.

Categories: Policy Institutes

Top Catholics Take Aim at Libertarianism

Cato Op-Eds - Mon, 06/09/2014 - 08:54

Andrew J. Coulson

The Washington Post reports that the leaders of the world’s most hierarchical, centralized faith don’t much care for the philosophy most closely aligned with individual liberty. Huh. What gives the Post that idea? Well, the cardinal sometimes referred to as the “vice-pope” just headlined a conference in DC titled “Erroneous Autonomy: The Catholic Case against Libertarianism.” In heaping scorn on those who celebrate free minds and free markets, the conference attendees accused libertarianism of being responsible for “selfies” and of being anti-poor.

And can you blame them? Think of all those notorious selfies by prominent libertarians.

And, really, you have to admit they have a point on that second accusation as well. Consider that when innovation, commerce, and entrepreneurship were unleashed on a mass scale during the Industrial Revolution, poverty went into a sustained decline for the first time in the 200,000 year history of humanity. In just the last fifteen or twenty years, the poverty rate worldwide has been cut in half. And the absolute number of people living in extreme poverty has been falling since 1980. The economics preferred by libertarians–the economics of freedom–has been quite hard on poverty. I mean, if this keeps up, in another few generations, there will hardly be any poor left.

Categories: Policy Institutes

Political Connections and SEC Enforcement

Cato Op-Eds - Mon, 06/09/2014 - 08:53

Jeffrey Miron

One problem with regulation is that regulators often have substantial latitude to choose the stringency and targets of their enforcement efforts.  This opens the door for businesses and politicians to influence that enforcement.

A recent paper by Maria Correia of the London Business School finds exactly this effect at the SEC.  Correia writes:

I examine whether firms and executives with long-term political connections through contributions and lobbying incur lower costs from the enforcement actions by the Securities and Exchange Commission (SEC). I find that politically connected firms on average are less likely to be involved in SEC enforcement actions and face lower penalties if they are prosecuted by the SEC. Contributions to politicians in a strong position to put pressure on the SEC are more effective than others at reducing the probability of enforcement and penalties imposed by an enforcement action. Moreover, the amounts paid to lobbyists with prior employment links to the SEC, and the amounts spent on lobbying the SEC directly, are more effective than other lobbying expenditures at reducing enforcement costs faced by firms.

So SEC enforcement does not necessarilly target the firms whose behavior is “worst” but instead firms whose political connections are weakest.

Categories: Policy Institutes

Virginia DMV Orders Uber and Lyft to Cease and Desist

Cato Op-Eds - Fri, 06/06/2014 - 14:48

Matthew Feeney

Yesterday the Virginia Department of Motor Vehicles issued cease and desist letters to Uber and Lyft, claiming that the companies, which connect passengers to drivers via smartphone apps, are in violation of Virginia law. In the letters, DMV Commissioner Richard Holcomb wrote that Lyft and Uber’s ride-sharing operations “are not ridesharing arrangments as defined in Virginia law” because drivers receive compensation for their services.

The Arlington County Police Department will be assisting in enforcing existing legislation, although a spokesman said “it will not be a primary focus of our operations.”

In the wake of the cease-and-desist letters, Uber’s East Coast Regional General Manager Rachel Holt said,“We’re still operating as usual throughout D.C., Maryland and Virginia,” and Lyft said in a statement, “We’ve reviewed state transportation codes and believe we are following the applicable rules. We’ll continue normal operations as we work to make policy progress.”

The Virginia DMV has previously fined Uber and Lyft ($26,000 and $9,000 respectively), however the recent letters say that the DMV will issue civil penalties of up to $1,000 per violation to individual drivers caught breaking Virginia regulations.

The DMV letters are only the latest regulatory and legal hurdle that Uber and Lyft face. I have previously written on this blog about some of those challenges, which are taking place across the country.

Rather than hinder the growth of innovative livery companies that are taking advantage of new technology, lawmakers in Virginia and elsewhere across the country should consider repealing current taxi regulations that restrict innovation, strengthen established market players, and stifle competition.

Uber and Lyft are popular for a reason: they provide a reliable and desired service at prices customers have indicated that they are willing to pay. In a fair and level playing field with fewer regulations, their competitors would have to rely on improving their own services rather than on market-distorting legislation.

I discussed these issues with Caleb Brown on today’s Cato Daily Podcast that you can listen to here:

Categories: Policy Institutes

Feds Hire, then Prosecute, Tree Trimmer

Cato Op-Eds - Fri, 06/06/2014 - 12:39

Tim Lynch

First the federal government wanted the trees to be trimmed in order to control the birds that nested there. Now the federal government wants to prosecute the tree-trimmer because his trimming affected the birds that nested there. Go figure.

Categories: Policy Institutes

Pareto on Piketty

Cato Op-Eds - Fri, 06/06/2014 - 11:14

Alan Reynolds

“The man in whose power it might be to find out the means of alleviating the sufferings of the poor would have done a far greater deed than the one who contents himself solely with knowing the exact numbers of poor and wealthy people in society.”

—Vilfredo Pareto, “The New Theories of Economics,” Journal of Political Economy 5: 485–502 (1896–97).

Categories: Policy Institutes

June's Cato Unbound: The Snowden Files, One Year Later

Cato Op-Eds - Fri, 06/06/2014 - 10:03

Jason Kuznicki

This month at Cato Unbound, we’re discussing Edward Snowden’s NSA revelations.

We mostly know the story, but it bears repeating: One year ago this week, Glenn Greenwald wrote a news story that would change the world forever. In it, we learned that the National Security Agency had been secretly collecting enormous amounts of telephone metadata on what were presumably ordinary American citizens. The agency had done so without a warrant and without suspicion of any indiviudal person. The revelation changed forever how Americans think about national security, privacy, and civil liberties in the digital age.

More revelations soon followed. Among many others, these included NSA surveillance of web activitymobile phone location data, and the content of email and text messages. The NSA also conducted many highly embarrassing acts of surveillance against allied or benign world leaders, including German Chancellor Angela Merkel and the conclave that recently elected Pope FrancisIt had subverted commonly used encryption systems. It had co-opted numerous tech companies in its plans. Its leaders had repeatedly lied to, or at the very least misled, the U.S. Congress

How far should surveillance go? What has been the value of the information gained? What have we given up in the process? What are the risks, should malign actors ever get their hands on the controls of the system?

We are able to ask these questions today because of one individual: Edward Snowden, a systems administrator for the NSA who chose to make public the information to which he had access. We have no choice now but to debate it. That’s simply what democracies do whenever such momentous information becomes public.

Joining us at Cato Unbound this month are four individuals with extensive knowledge in the fields of national security and civil liberties: Cato Senior Fellow Julian Sanchez, Brookings Institution Senior Fellow Benjamin Wittes, Georgetown University Professor Carrie F. Cordero, and independent journalist Marcy Wheeler. Each brings a somewhat different perspective on the matters at hand, and we welcome them all to what is sure to be a vigorous debate.

Categories: Policy Institutes

Vultures on K Street

Cato Op-Eds - Fri, 06/06/2014 - 09:59

Walter Olson

Washington, D.C. is chuckling at the news that two vultures–real live vultures, the sort that circle the sky over roadkill–have settled in to nest in the very urban setting of K Street, symbolic home of lobbyists. Washington Post reporter Theresa Vargas spoke to a raptor expert about what it all means: “Unlike hawks that find their food by seeing it, he said vultures use their sense of smell, following the scent of decay to its source.”

That’s a funny line, but as libertarians at nearby Cato could have explained, it contains a bit of an embedded fallacy. In Washington, the ultimate source of decay is not so much the lobbying but the government’s gathering unto itself an endless array of powers enabling it to punish some economic actors and reward others. Some of those sharp-clawed K Street raptors are looking for fresh carrion to drag back to their paying clients, but they wouldn’t find much to do if Congress and the White House weren’t willing to take down the prey for them. Other lobbyists–maybe we could pick some more admired bird to represent them?–work to keep their clients from becoming today’s lunch or tomorrow’s roadkill.

If you want to cut down on Washington’s growing flock of professional vultures, the best strategy is to cut off the carrion supply by shooing the government away from areas of life it shouldn’t be in.

Categories: Policy Institutes

Move DC or Move Out of DC?

Cato Op-Eds - Fri, 06/06/2014 - 08:47

Randal O'Toole

Washington DC has proposed an anti-auto transportation plan that is ironically called “MoveDC” when its real goal is to reduce the mobility of DC residents. The plan calls for reducing auto commuting from 54 percent to no more than 25 percent of all workers in the district, while favoring transit, cycling, and walking.

Click image to download the plan’s executive summary. Click here to download other parts of the plan.

The plan would discourage auto driving by tolling roads entering the district and cordon-pricing. Tolls aren’t necessarily a bad idea: as I explained in this paper, properly designed tolls can relieve congestion and actually increase roadway capacities. But you can count on DC to design them wrong, using them more as a punitive and fundraising tool than as a way to relieve congestion. Cordon pricing is invariably a bad idea, much more of a way for cities to capture dollars from suburban commuters than to influence travel habits.

The plan assumes that the district’s population will increase by 170,000 people over the next 25 years, which is supposed to have some kind of apocalyptic result if all of those people drive as much as people drive today. The district’s official population in 2010 was 602,000 people, a 155,000-person drop from 1970. While Census Bureau estimates say the district’s population is once again growing, it doesn’t seem all that apocalyptic if the population returns to 1970 levels.

The Census Bureau estimates that 54 percent of people employed in the district drove to work, while only 37 percent took transit in 2012. Since part of the MoveDC plan calls for discouraging people outside the district from driving to work in the district, it appears the goal is to cut that 54 percent by more than half. DC’s plan to discourage driving by taxing commuters through cordon pricing is more likely to push jobs into the suburbs than to reach this goal.

Congestion isn’t a serious problem in the district, mainly because the legal height limit prevents Manhattan-like job concentrations. Instead, the main congestion problems are on the highways entering the district. These problems can be solved through congestion tolls, which would encourage some travelers to shift the time they drive. Because road capacities dramatically decline when they become congested, keeping the roads uncongested would effectively double their capacity during rush hour, which ironically could allow even more people to drive to work. DC’s anti-auto planners won’t want to do that, which is why they are likely to focus more on cordon pricing than congestion tolling.

If reducing congestion isn’t the issue, then what is the goal of the anti-auto emphasis? MoveDC says it is “rapidly rising travel costs, and concerns about rising carbon emissions.” People deal with rising travel costs by replacing their cars less frequently and buying more fuel-efficient cars when they do replace them. MoveDC’s solution is to substitute high-cost urban transit for low-cost driving, even though transit actually emits more greenhouse gases per passenger mile than driving.

As I documented in this Cato briefing paper, Americans spend about a trillion dollars a year buying, maintaining, operating, and insuring cars and subsidizing highways, in exchange for which they travel about 4 trillion passenger miles per year for an average total cost of 25 cents per passenger mile (about 24 cents of which is paid by users and 1 cent of which is subsidies). In contrast, Washington’s transit system (for the urban area, not just the district) moved people about 2.5 billion passenger miles in 2012 at a cost of $3 billion, or $1.20 per passenger mile (only 34 cents of which was captured in fares).

Meanwhile, the average car and light truck on the road in 2012 got about 20.7 miles per gallon, meaning (at the average occupancy of about 1.6 people per car) it emitted about 268 grams of carbon dioxide per passenger mile. In contrast, Washington’s transit system emitted an average of 285 grams per passenger mile, partly because nearly all of the electricity used to power the MetroRail system comes from burning fossil fuels.

Moreover, driving is rapidly becoming more fuel efficient. The average car and light truck sold last year got nearly 25 mpg, emitting about 235 grams per passenger mile. By 2040, under the Obama administration’s fuel economy standards, the average car on the road will get about 45 mpg, emitting just 130 grams per passenger mile. The Washington MetroRail system, which is stuck using 1970s technology for the foreseeable future, cannot possibly hope to compete.

Here’s the dirty little secret of sustainability plans like MoveDC: Planners aren’t trying to save the planet by moving people to more sustainable forms of transportation, they are trying to save the planet by reducing people’s travel. Someone with a car may travel more than 10,000 miles a year, but take away their car and put them on the best transit system in the world and they’ll probably travel less than 5,000 miles a year. The result is a dramatic reduction in people’s mobility.

Planners say mobility is less important than accessibility, meaning if they put a grocery store, dentist, and coffee shop in the same building or across the street from the building you live in, you won’t need to drive to consume those services. But the great thing about the automobile is that it doesn’t just give us access to a grocery store, it gives us access to a wide range of grocery stores, forcing them to compete on price, quality, and selection. That competition disappears when most are limited to shopping at stores within walking distance.

Moreover, packing more people and services into smaller areas drives up the price of land, making housing unaffordable and increasing the costs of providing groceries and other services. To avoid the high cost of housing, we’ll have to live in smaller homes, another hidden planning goal. Multifamily housing actually uses more energy per square foot than single-family homes, but planners make up for that by getting people to live in 1,000-square-foot apartments instead of 2,000-square-foot homes.

Less mobility, smaller homes, higher consumer prices: that’s the sustainable future we can look forward to thanks to plans like MoveDC. Americans probably won’t accept that, so it might be more appropriate to name it “Move Out of DC.”

Categories: Policy Institutes

Federal Firing Rate by Department

Cato Op-Eds - Fri, 06/06/2014 - 08:38

Chris Edwards

The VA scandal has prompted a debate about whether it should be easier to fire federal workers. I’ve argued that the firing rate for poor performance should be increased.

However, there can be no debate that the current firing rate is very low. In 2013 just 9,244 workers out of a civilian federal workforce of 1.87 million were fired for poor performance or misconduct, according to OPM data underlying this Govexec.com article by Eric Katz. That is a rate of just 0.49 percent, or 1 in 200 a year. Most federal firings are for misconduct, with a smaller share for poor performance.

The Govexec.com analysis found that firing rates by type of employee vary dramatically. Blue collar and lower GS levels (1-10) are many times more likely to be fired than higher GS levels (11-15) and those in the Senior Executive Service (SES). The GS 11-15 firing rate was just 0.14 percent, while the SES rate was just 0.09 percent. Just 7 out 7,940 SES employees got fired in 2013. What would Piketty say about that?

Govexec.com charted the firing rates by department, but part of the differences stemmed from the type of workforce each department has. So, instead, let’s focus on just the largest group of civilian workers in the government—the GS 11-15 group—and see how firing rates vary. These differences may tell us more about how employment cultures differ between departments.

Govexec.com kindly provided me their firing-by-department data sourced from the OPM. I combined that information with data from these OPM tables on total GS 11-15 employment by department.

The chart shows the results. Annual firing rates vary from a low of 0.07 percent in Transportation to high of 0.22 percent in Labor. In Transportation, just 9 out of 12,389 GS 11-15 workers were fired in 2013. In HUD it was just 7 out of 7,703. In Education it was 6 out of 3,477.

VA has one of the highest firing rates for this class of worker at 0.18 percent. But that’s still just 1 in 555 workers in 2013.

Categories: Policy Institutes

Deterring China Isn't Hard

Cato Op-Eds - Wed, 06/04/2014 - 17:46

Benjamin H. Friedman

My op-ed today in China US Focus gives five reasons why the United States and its Asian allies will deter Chinese military aggression for the foreseeable future. The argument responds to commentators who worry that U.S. military spending cuts or passivity elsewhere have damaged our credibility to defend Asian allies and thus encouraged China to use its growing military for conquest.

The bulk of the article concerns the particulars of U.S. military superiority in Asia, and why recent Pentagon cuts don’t much lessen it. One conclusion is that deterring war is easier than you generally hear.

Washington’s foreign policy elites have a narcissistic take on deterrence; they see it teetering with every foreign policy decision that troubles them. But East Asia’s stability remains robust—insensitive to the annual fights in Congress—because war remains a losing prospect for all major powers.

This is a good place to put that conclusion in historical context. Technology and economics have shifted the cost-benefit calculus of conquest, making it generally counterproductive. That is an explanation for the steep decline in interstate warfare. Cold War nuclear history, as I discussed in a recent co-authored report, supports that point. The balance of terror—mutual deterrence—between the United States and the Soviet Union was not delicate. Arms control agreements and shifting nuclear weapons plans barely affected stability. As John Mueller argues, conventional deterrence, reinforced by the memory of the world wars, was instrumental in keeping the peace. Nuclear weapons were largely overkill.

So the pundits now bellowing about the credibility lost because of crossed red lines or Crimea are using a theory of deterrence that lacks historical basis. Deterrence is especially robust in Asia, where water or mountains separate most major rivals, aiding defense of the status quo. Even a total withdrawal of U.S. forces and defense commitments from East Asia wouldn’t create a dangerous imbalance of power there.

Sadly, withdrawal faces high political hurtles today. For now, probably the best we can hope for is that all the beltway consternation about eroding credibility will accidently reduce free-riding: As I put it in the op-ed:

If allies take U.S. commentary about insufficient pivots and failed red lines too seriously, they may worry enough to pay more for their own defense and give U.S. taxpayers a break. Letting them sweat a bit is in the U.S. interest.

For more on these themes, come see Barry Posen discuss his book on U.S. military strategy next week at Cato.

Categories: Policy Institutes

Police Misconduct -- The Worst Case in May

Cato Op-Eds - Wed, 06/04/2014 - 13:24

Tim Lynch

Over at Cato’s Police Misconduct web site, we have selected the worst case for May.  It was the Georgia police officers who threw a flashbang grenade into an infant’s crib after ramming the door open to look for a drug dealer.  The officers were executing a no-knock warrant when they threw the flashbang grenade through the cracked door without looking or knowing who was inside the room.  The grenade (sometimes the government uses the euphemism “distraction device”) landed on the 19-month-old’s pillow and exploded, causing severe burns to his face and chest.  The child and his relatives, who were also sleeping in the converted garage room, were temporary visitors in the home because theirs had recently burned down.  The person the police were looking for was not there.

The officers involved expressed regret, and said that they had no idea there was a child present and that if they had, they would have done things differently.  The police chief said the incident is going to make them “double question” next time.  Hmm.  First, why would anyone not already “double question” before blindly tossing a grenade into a room?  Second, is the indication that a child is present really the only reason not to go full-Rambo on a house where human beings live?  Think about it.  Even if the police had solid proof that an adult was selling marijuana, meth, or cocaine from his home, is a flash bang grenade on his pillow a legit police tactic?  A legit risk?

Cases like this one not only underscore the brutal collateral damage of the drug war, but also the lack of adequate oversight over police raids like this one.   Yes, there will be a lawsuit, but that’s an insufficient response.

Check out the Cato raid map for more police raids that went awry.

Categories: Policy Institutes

The Latest Travails of Rideshare Companies

Cato Op-Eds - Wed, 06/04/2014 - 12:50

Matthew Feeney

Last week Uber CEO Travis Kalanick said that the technology company, which connects riders to drivers through its app, could enjoy a “record-breaking” valuation thanks to its latest attempt to raise money.

Yesterday, Bloomberg reported that Fidelity Investments “is competing to lead Uber Technologies Inc.’s new financing in a round that could value the ride-sharing service at about $17 billion.”

Bloomberg’s reporting went on to note that if valued at $17 billion, Uber would be more valuable than the car rental service Hertz and the technology and appliances retailer Best Buy.

The news of Uber’s possible $17 billion valuation comes in the wake of news highlighting how the company has run afoul of regulators and taxi drivers across the world.

Earlier this year in Illinois, both the state House of Representatives and Senate passed HB 4075 and HB 5331 by veto-proof margins. If signed by Gov. Pat Quinn, the bills would require that the rideshare service drivers pass a background check, have commercial liability insurance of at least $350,000, and be required to obtain a chauffeur’s license if they carry passengers for more than 18 hours a week. These chauffeurs’ licenses are not easy to get in Chicago, the only city in Illinois where rideshare companies operate. They require any driver to complete a chauffeur training course, pass a written test, and demonstrate proficiency in English. The manager of government affairs at Lyft, another company that offers a rideshare service, has claimed that the 18 hour per week regulation would affect the 63 percent of drivers who use Lyft in Chicago. Chicago lawmakers recently passed an ordinance regulating ridesharing, a move welcomed by Uber and Lyft, although the legislation will have to be brought into compliance with HB 4075 if it is signed into law.

Uber and Lyft are facing a legal battle over the Americans with Disabilities Act in Texas. Two Houston women and lead plaintiff Dan J. Ramos of San Antonio are suing both Uber and Lyft claiming that the companies are required to accommodate wheelchair-bound passengers. Elsewhere in Texas, Uber recently followed Lyft’s example and started operating in Austin despite an official ban.

Last week it was reported that Uber is planning to appeal rideshare regulation proposals in Maryland. Uber stated that it would leave Maryland if the Maryland Public Service Commission went ahead with its plan to regulate Uber and other rideshare companies like taxi operators. Taxi operators in Maryland have claimed that rideshare companies have an unfair advantage over traditional taxis.

In Australia, Queensland followed New South Wales in cracking down on Uber, requiring that Uber drivers be at least 24 years old and drive a vehicle made after 2005 with at least four doors. In London, the city’s transportation agency, Transport for London, has asked for a High Court ruling on whether Uber is operating legally by using GPS to calculate fares as opposed to meters attached to vehicles. The Licensed Taxi Drivers Association is planning to cause “severe congestion and traffic chaos” over the issue next week.

Uber’s $17 billion valuation looks all the more remarkable in the face of all this opposition from competitors and regulators. The market is signaling that Uber’s services are highly valued by consumers. What remains to be seen is how frequently politicians will side with consumers – or whether, instead, they will use the power of government to shield entrenched incumbents from innovative competition.

Categories: Policy Institutes

Afghanistan: Obama’s War

Cato Op-Eds - Tue, 06/03/2014 - 16:27

Steve H. Hanke

Last week, when President Obama made his trip to Bagram Air Base in Afghanistan, he claimed that “America’s war in Afghanistan will come to a responsible end.” This turned out to be the greatest applause line of his speech. With his assertion, Obama, in effect, declared himself the hero of the Afghan war – the one who put an end to that nightmare. But what Obama failed to mention was that it was his war, and that nothing but unattractive scenarios lie ahead for that war-torn state. Indeed, Afghanistan might just continue to hold down its ranking as the most violent country in the Global Peace Index.

This gloomy prognosis would not have surprised Thomas Jefferson. Yes, Jefferson’s words point to a fundamental truth, “Governments constantly choose between telling lies and fighting wars, with the end result always being the same. One will always lead to the other.”

Graciana del Castillo, one of the world’s leading experts on failed states, has just written a most edifying book on the Afghan war (Guilty Party: The International Community in Afghanistan. Xlibris, 2014). Del Castillo’s book allows us to finally understand just what a fiasco the Afghan war has been.

Why is Afghanistan, as Bob Woodward correctly termed it, Obama’s war? Del Castillo’s sharp pencil work shows that during the period 2002-2013, $650 billion have been appropriated for the Afghan war effort, and a whopping $487.5 billion of that (or 75%) took place after President Obama took office (see accompanying chart).

If one pulls apart that $650 billion price tag, a variety of interesting sleights-of-hand emerge. For example, about $70 billion was disbursed to what is euphemistically termed reconstruction. But, in reality, 60% of this $70 billion (or $42 billion) was actually spent on beefing up the Afghan National Security Forces. And not surprisingly, 75% of the $42 billion spent on national security forces was spent under President Obama’s watchful eye.

To put these outsized numbers into perspective, just consider that the total cost of the Afghan war from 2002-2013 amounts to $7089 per American taxpayer (based on the number of income tax returns). More revealing is the fact that the annual expenditure rate under the Bush administration was already $222 per taxpayer. Then, it exploded to an annual expenditure rate of $1329 per taxpayer under President Obama.

In addition to laying out the phenomenal spending magnitudes on President Obama’s watch, del Castillo demonstrates just how unsustainable all this Afghan spending is. For example, in 2013, the United States financed over $5 billion of the $6.5 billion needed to field the Afghan National Security Forces. This $5 billion of U.S. financing was roughly 10 times more than the Afghan government actually spent from its own revenue sources. In fact, the U.S. funding of Afghan forces was almost three times the total revenue collected by the Afghan government.

To put Afghanistan’s financing gap into perspective, the Afghan government estimates the total fiscal deficiency that they will face over the next decade would amount to a whopping $120 billion. Considering that a July 2013 Washington Post/ABC poll showed that only 28% of Americans say the war in Afghanistan has been worth the cost, it is unlikely that the U.S. would even contemplate continuing to finance the house of cards it has built at anything close to these estimates.

And if this isn’t bad enough, consider that the countryside has been forgotten and neglected during the war years. It is here where 75-80% of the population resides, and produces its livelihood. The rural population has done what is only natural – farm a cash crop. And, the most attractive cash crop in Afghanistan is poppies. Not surprisingly, the poppy plantations have greatly expanded, from 75 thousand hectares in 2002 (near the start of the war), to over 210 thousand in 2013, surpassing the previous peak of 190 thousand hectares in 2007. Just another small example of the collateral damage associated with war and misguided economic policies in Afghanistan.

Categories: Policy Institutes

Highway Bill: Fiscal Reform or Big Government?

Cato Op-Eds - Tue, 06/03/2014 - 16:05

Chris Edwards

If you are interested in financial markets, Cato has an interesting forum tomorrow on bank runs. But if you are more interested in highways and spending, you can catch me at this Heritage forum tomorrow on the Hill.  

Which Way for the Highway Bill: Fiscal Reform or Big Government?

Emily Goff, Heritage Foundation; Chris Edwards, Cato Institute; Ken Orski, Innovation NewsBriefs

Wednesday, June 4th, 2014 at 12:00p.m.

1310 Longworth House Office Building

I’m not sure which lunch forum will have the best sandwiches, but I do know that fiscal reform is the best direction for transportation policy.

Categories: Policy Institutes

Obama’s Reassurances to Europeans Should Dishearten Americans

Cato Op-Eds - Tue, 06/03/2014 - 14:51

Christopher A. Preble

President Obama is in Poland today, a visit that coincides with the 25th anniversary of that country’s liberation from communism. His four-day European tour will include a D-Day remembrance, meetings with G-7 leaders, and a possible encounter with Russian President Vladimir Putin in France, all while the crisis in Ukraine rages on.

Moments after stepping off Air Force One in Warsaw, with F-16s as a backdrop, the president sought to reassure our European allies, stating that America’s commitment to their security was “a cornerstone of our own security and it is sacrosanct.” He detailed the increased support America has provided, including a larger presence in the region, and later announced that he would ask Congress to fund a “European reassurance initiative” to the tune of $1 billion.

This is exactly the wrong approach. American taxpayers have been subsidizing the defense of European allies for too long. And they have reacted as one would expect—by spending less.

In fact, only three NATO countries – Estonia, Greece, and the United Kingdom – spent the NATO-mandated 2 percent of GDP on their defense in 2013, and even those three barely met the threshold. That is compared to the United States, which spent 3.7 percent of its GDP on defense, a figure that excludes national security spending in the Departments of Energy, Homeland Security, and Veterans Affairs.

As this chart prepared by my colleague Travis Evans shows, U.S. spending has risen and fallen over the past 13 years, but spending by NATO countries has consistently declined. And Americans still spend more than in 2002, both as a share of GDP, and in real, inflation-adjusted dollars.

In his speech last week at West Point, President Obama correctly called on U.S. allies to spend more on their own defense. He had done the same thing in March. Bob Gates made headlines in one of his last speeches as Secretary of Defense when he scolded NATO allies for their inadequate defense spending. Such exhortations have consistently failed, and I predicted last week that the president’s latest approach to getting the allies to share more of the burdens would also fail.

I elaborated on why yesterday at War on the Rocks:

Our allies are unlikely to pick up the slack unless the United States pulls back on its promises to defend others from harm, and reshapes its military accordingly.

This has been clear since at least the mid-1960s, when Mancur Olson and Richard Zeckhauser first articulated an economic theory of alliances. Because there is a general tendency for smaller nations to free ride on the security assurances of larger ones, Olson and Zeckhauser predicted that “American attempts to persuade her allies to bear larger shares of the common burden are apt to do nothing more than breed division and resentment.”

MIT’s Barry Posen states the bottom line succinctly in his new book, Restraint: A New Foundation for U.S. Grand Strategy. America’s allies, Posen writes:

Make their defense decisions in the face of extravagant United States promises to defend them. They will not do more unless the United States credibly commits to doing less.

Conversely, Obama’s pledges of more U.S. troops and more U.S. money will discourage the Europeans from doing more. Indeed, the president’s actions in Poland belie his burden-sharing rhetoric at home, and should be deeply disheartening to the people who elected him. Americans want genuine burden sharing, but they are likely to get only the phony kind favored in Washington.

Categories: Policy Institutes

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