Policy Institutes

Obama Lonely at U.N. Climate Fest

Cato Op-Eds - Tue, 09/23/2014 - 16:27

Patrick J. Michaels

People should learn from their mistakes. The last time President Obama took it upon himself to “lead” a U.N. climate fest was at Copenhagen in December, 2009, which, from the point of view of my greener friends, was a notorious failure. 

Today, he’s back, this time at Ban Ki-moon’s U.N. “climate summit,” but not a lot of his global peers are going to be there. Prime Ministers from China, India, Canada, Australia and Germany have all decided to stay home. 

Together, they emit almost three times what the U.S. does, which means we are going it alone in New York.  Any policy we agree to is  meaningless.  According to the EPAs “Model for the Assessment of Greenhouse-gas Induced Climate Change” (yes, it is MAGICC), if we emitted not another molecule of carbon dioxide between tomorrow and January 1, 2100, the amount of warming that would be prevented is a mere 0.14°C, an amount too small to reliably measure. That’s probably an overestimate, too, as the EPA appears to have overestimated 21st century warming.

EPA assumes  that the “sensitivity” of surface temperature to a carbon dioxide doubling is 3°C, an amount very likely far too great, compared to what is being observed.  Or, perhaps, compared to what is not being observed, as global surface temperatures have held constant for 17+ years now (actually 19, according to Cato scholar and eco-statistician Ross McKitrick), according to the surface annual temperature history that climate scientists cite the most. So the “saved” warming from any policy is likely to be even less than what MAGICC says.

You’re not going to hear that from the President. As happened at the 2009 Copenhagen disaster, the President and the Secretary-General will declare a roaring success.

In Copenhagen, that meant that all participants had to submit specific action plans to reduce emissions within two months.  But, a bit more than a month before the deadline, the U.N.’s climate commissioner, Yvo deBoer, announced that they really didn’t have to. Then he resigned.

There’s still no new international agreement to replace the failed Kyoto Protocol. But, last month, the President got people pretty worked up when he proposed a new, U.N.-sponsored agreement (a treaty—or a modification of an existing one—by any other name) on climate change that he didn’t think would require ratification by a two-thirds vote of the Senate, counter to what is explicitly stated in Article II, Section 2, Clause 2 of our constitution:

[The President] shall have Power, by and with Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur… 

Not only is the president going to be quite lonely at the U.N., he could be setting the country up for a huge constitutional conflagration.

It’s not going to happen on his watch, though. Any agreement that he signs on to won’t likely take effect until at least 2016.  Even under the most rosy Democrat-wave election that year (one is likely to happen, given the demographics of the Senate crowd that is up for re-election), there’s no way 67 are going to vote to ratify a treaty that differentially harms the U.S. while China and India keep increasing their emissions dramatically.

Of course we’re going to hear the rhetoric, repeated again today, that the U.S. has to “lead by example.”  Well, Mr. President, with those big emitters and the developing world saying “no way,” no one is going to follow.  In 2012, the last year for which we have reliable data, the U.S. contributed 14% of global carbon dioxide emissions. Together, the five big no-shows emitted almost three times as much as us, and their fraction can only grow as both China and India are determined to develop their economies.

If we were really going to lead by example we would show the world how our free economy has resulted in investments in clean, big power sources like shale gas. The developing world is currently lacking in large sources of dense energy. If we’re going “lead by example,” maybe that example should be that governments should get out of the way of economic development and cleaner energy will follow. 

Categories: Policy Institutes

Do the Benefits of Mandatory Disclosures Outweigh the Costs?

Cato Op-Eds - Tue, 09/23/2014 - 15:58

Matthew Feeney

Current regulations, which require companies that issue stocks and bonds to publicly disclose information to investors, allegedly assist those investors in determining the appropriate price for securities as well as detecting fraud. But mandatory disclosures impose heavy costs on issuers of debt and stock. Do the benefits outweigh the costs?

In the forthcoming issue of Regulation Elisabeth De Fontenay, an associate professor at Duke University Law School, answers that question by examining a natural experiment in corporate debt markets.

Corporate bonds are treated as securities and subject to mandatory information disclosure under SEC regulations. In contrast corporate loans are not subject to SEC disclosure regulations because historically such loans were held to maturity by the issuing bank. But over the last 15 years corporate loans have become functionally equivalent to bonds especially at the “high-risk high-return end of the spectrum.” They are underwritten by many investors and securitized and traded in secondary markets.

If regulation produces net benefits for investors, then they would purchase only corporate bonds rather than syndicated loans. But “the market not subject to mandatory disclosure is not only thriving, it is surging past its regulated counterpart.”  

How is this possible? De Fontenay explains that in secondary loan markets, investors obtain all the information they need through contract. And that information is more relevant to investor needs than the information mandated by regulation.

Categories: Policy Institutes

Travel Card Abuse in the Department of Transportation

Cato Op-Eds - Tue, 09/23/2014 - 15:08

Nicole Kaeding

Department of Transportation (DOT) employees are abusing their government travel cards, according to a new report from the agency’s Inspector General. The report suggests that DOT officials missed $183,000 in unallowable cash advances and $2.1 million in unauthorized purchases on government travel cards.

The report details numerous examples of abuse such as:

  • A Federal Aviation Administration (FAA) cardholder traveled to Houston, Texas, for 3 days and withdrew a $301 cash advance on the last day of the trip at an automated teller machine located 40 miles from his residence.
  • Between October 2011 and June 2012, an FAA cardholder collected seven cash advances totaling $719 while not on Government travel. On one occasion, this employee obtained a $104 cash advance on a race day at an Alabama Superspeedway…
  • Between February and August 2012, another FAA cardholder collected five cash advances totaling over $1,400 while not on Government travel…
  • An FAA employee who was not on Government travel visited a casino in Shawnee, OK, and collected three cash advances totaling $492 from his Government-issued travel card.
  • A former OIG employee collected two cash advances totaling $488, more than 2 years after separating from the Agency. DOT’s Financial Management Travel Card Management Policy requires that travel card accounts be closed when an employee leaves the department.

DOT is not the only agency with this issue. Last year, the Treasury Department announced misuse of cards within the Internal Revenue Service. Treasury found “more than 1,000” employees who abused their travel cards in fiscal year 2010 and 2011.

These types of employee ripoffs are not limited to travel cards. A 2008 report from the Government Accountability Office (GAO) found 41 percent of transactions on government purchasing cards violated “basic internal control standards.” Agencies were unable to provide appropriate documentation for 48 percent of large purchases that GAO studied. GAO found: “the Department of the Army could not adequately account for 256 items … each of which cost nearly $100,000.” One employee was able to withdraw $642,000 from her purchasing card over six years before being caught and sent to prison.

Purchasing and travel cards can be efficient in reducing overhead and streamlining processes, but agencies should ensure that proper audit controls are met so that more taxpayer funding is not wasted. Our bloated federal government purchases about $570 billion worth of supplies and equipment each year, so reform in this area is essential.

Categories: Policy Institutes

Targeting the Constitution

Cato Op-Eds - Tue, 09/23/2014 - 11:57

Nicholas Quinn Rosenkranz

[Cross-posted from The Volokh Conspiracy]

It is now well known that the IRS targeted tea party organizations. What is less well known, but perhaps even more scandalous, is that the IRS also targeted those who would educate their fellow citizens about the United States Constitution.

According to the inspector general’s report (pp. 30 & 38), this particular IRS targeting commenced on Jan. 25, 2012 — the beginning of the election year for President Obama’s second campaign. On that date: “the BOLO [‘be on the lookout’] criteria were again updated.” The revised criteria included “political action type organizations involved in … educating on the Constitution and Bill of Rights.”

Grass-roots organizations around the country, such as the Linchpins of Liberty (Tennessee), the Spirit of Freedom Institute (Wyoming), and the Constitutional Organization of Liberty (Pennsylvania), allege that they were singled out for special scrutiny at least in part for their work in constitutional education. There may have been many more.

The tea party is viewed with general suspicion in some quarters, and it is not difficult, alas, to imagine the mindset of the officials who decided to target tea party organizations for special scrutiny. But federal officers swear an oath to “support and defend the Constitution of the United States against all enemies, foreign and domestic.” It is chilling to think that these same officials who are suspicious of the tea party are equally suspicious of the Constitution itself.

What is most corrosive about this IRS tripwire is that it is triggered by a particular point of view; it is not, as First Amendment scholars say, viewpoint-neutral. It does not include obfuscating or denigrating the Constitution; only those “involved in … educating on the Constitution” are captured by this criterion. This viewpoint targeting potentially skews every national debate about politics or government. And the skew in not strictly liberal; indeed, it should trouble liberals as much as conservatives. The ultimate checks on executive power are to be found in the United States Constitution. Insidiously, then, suppressing those “involved in … educating on the Constitution” actually skews national debate in favor of unchecked executive power.

For example, this IRS tripwire would not be triggered by arguing that the NSA should collect the phone records of every American citizen. But it would be triggered by teaching that the Fourth Amendment forbids “unreasonable searches and seizures.” This tripwire would not be triggered by arguing that the president should unilaterally suspend politically inconvenient provisions of federal law, like ObamaCare. But it would be triggered by teaching that, under Article II, section 3, the president “shall take care that the laws be faithfully executed.” This tripwire would not be triggered by arguing that the president should appoint NLRB members unilaterally. But it would be triggered by teaching that, under Article II, section 2, such appointments require “the Advice and Consent of the Senate.” This tripwire would not be triggered by arguing that the president should target and kill U.S. citizens abroad. But it would be triggered by teaching that, per the Fifth Amendment, no person shall “be deprived of life … without due process of law.” This tripwire would not be triggered by arguing that the president should declare war unilaterally. But it would be triggered by teaching that, under Article I, section 8, “Congress shall have Power … To declare War.” In short, the IRS was “on the lookout,” not for those who preach unlimited executive power, but for those who would teach about constitutional constraints.

Even more to the point, perhaps, this IRS tripwire would not be triggered by arguing that the IRS should discriminate against the tea party. But it would be triggered by teaching that such discrimination constitutes unfaithful execution of the tax laws. And thus, alas, there is a perverse logic to targeting constitutional educators alongside tea party organizations. Political discrimination in the administration of the tax laws is not merely “outrageous,” as President Obama has said; it is an assault on our constitutional structure itself. For an official who has chosen to go down this road and target the tea party, there is an Orwellian logic to targeting constitutional educators as well. After all, they are the ones who might shed light on this very point.

This is a new low for American government — targeting those who would teach others about its founding document. Forty years ago, President Richard Nixon went to great lengths to try to conceal the facts of his constitutional violations, but it never occurred to him to conceal the meaning of the Constitution itself, by targeting its teachers. Politicians have always been tempted to try to censor their political adversaries; but none has been so bold as to try to suppress constitutional education directly. Presidents have always sought to push against the constitutional limits of their power; but never have they targeted those who merely teach about such limits. In short, never before has the federal government singled out for special scrutiny those who would teach their fellow citizens about our magnificent Constitution. This is the new innovation of Obama’s IRS.

“We the People” do not yet know who first decided to target “political action type organizations involved in … educating on the Constitution and Bill of Rights.” But there is at least one person who does know. Ironically, though, Lois Lerner, former director of the Exempt Organizations Division of the IRS, is making full use of her own constitutional education: “I have been advised by my counsel to assert my constitutional right not to testify …. One of the basic functions of the Fifth Amendment is to protect innocent individuals, and that is the protection I’m invoking today.”

Five years ago, President Obama, our constitutional law professor-in-chief, presented his first, ringing Constitution Day proclamation: “To succeed, the democracy established in our Constitution requires the active participation of its citizenry. Each of us has a responsibility to learn about our Constitution and teach younger generations about its contents and history.” Quite so. Perhaps this year, Obama could explain why his IRS would target those who answered this call.

Categories: Policy Institutes

The Great Debate Over Hobby Lobby

Cato Op-Eds - Tue, 09/23/2014 - 09:09

Ilya Shapiro

The Supreme Court’s 5-4 ruling granting certain for-profit companies religious exemptions from Obamacare’s contraceptive mandate has of course generated a flurry of debates between conservatives and liberals (with libertarians siding with the right not to be forced by the government to violate your conscience). But what about within the camp that supported the decision in Hobby Lobby? Was there some conservative vs. libertarian split?

Well, as it happens, one of the icons of the libertarian legal movement, my former professor Richard Epstein, contributed an article to the most recent volume of the Cato Supreme Court Review. He concluded that Justice Samuel Alito’s majority opinion reached the right result for the wrong reason, that the Court should’ve rejected the mandate because the government didn’t have a compelling interest to advance not because it didn’t use the least-restrictive means to advance it. 

Epstein wasn’t able to attend our Constitution Day symposium, however, so Ed Whelan – president of the conservative Ethics & Public Policy Center and noted legal contributor to National Review Online – took Epstein’s place in discussing Hobby Lobby. Whelan took issue with Epstein’s approach; during the panel [see starting at 35:00] his comments about the Review article were akin to Justice Antonin Scalia’s “blistering concurrences” this term, agreeing with little other than the final judgment.

So this sounds ripe for the libertarian-versus-conservative trope, right? Maybe Epstein focused on liberty and Whelan on religion? Actually not really; (most of) their dispute is more about principle with pragmatism.

Whelan’s main line of attack, which he wrote up for NRO’s Bench Memos blog, is that Epstein failed to take into account the need to get five votes for an ultimate ruling. “The short answer to Epstein’s argument that Alito should have ruled on this basis is that Alito doesn’t have four colleagues who are Richard Epstein.”

Epstein replied – which reply Whelan graciously had posted on NRO, along with the rest of their debate – that they were “operating on different levels.” “Whelan’s short answer is no answer at all. For all I know, Justice Alito could not have garnered even his own vote for the position I espouse.” Epstein argued for the “necessity for normative analysis.”

Whelan retorted that they were both analyzing the “intellectual and tactical” perspectives of the ruling:

Do I think that Epstein’s “normative case” is “wrong or correct”? That depends on what Epstein means by the question. If he is asking whether I think it is (to use his phrase) “an extravagant abuse of state power” to “force a religious group to act against its conscience by supplying standardized products that are available in competitive markets,” my answer is a definite yes… .

But if Epstein is asking whether I think that the term compelling governmental interest in the Religious Freedom Restoration Act should be construed according to libertarian principles, I’ll have to express my doubts. Under an original public-meaning approach to statutory interpretation, the relevant inquiry is whether the public meaning of compelling governmental interest at the time that RFRA was enacted would support Epstein’s position. I’m not aware of any showing that it would.

So here at last we do have some engagement on the same (normative) field of play. Epstein did have one final point to clarify, however, saying that 

Whelan’s reading cuts the salami too fine. Justice Alito observes that it is open to “the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.” He then adds “We therefore conclude that this system constitutes an alternative that achieves all of the Government’s aims while providing greater respect for religious liberty” (emphasis added). In my view, this method is not just a viable alternative, but an ideal method which could apply across the board, including the Wheaton College application [which involved a nonprofit religious employer]. Indeed, what would a better accommodation look like? …

It is therefore a far cleaner resolution to rule in favor of Wheaton College on the merits by making it clear, as I have argued, that the state did not satisfy the compelling-interest standard. The fact that Whelan and I can disagree over the correct reading of the Alito opinion shows at the very least the elusive interpretation of a question that need not have been addressed in the first place.

Epstein has one ultimate sur-reply to that, which ends, amusingly: “How odd that Sotomayor seems to fare better with Epstein than she did with Justice Breyer (who didn’t dissent in Wheaton College).”

I find things to agree with in both writers’ presentation, and I commend this series of writings to anyone who wants to “unpack” (as the academics say) some of the rich debate on Hobby Lobby even among the ruling’s supporters.

Incidentally, I have a book coming out about the case in November; co-authored with David Gans of the Constitutional Accountability Center, we debate the titular question, Religious Liberties for Corporations? Look for it in November.

Categories: Policy Institutes

How Common Are School Shootings?

Cato Op-Eds - Mon, 09/22/2014 - 16:47

Jason Bedrick

Schools are stocking up on M16s and modified grenade launchers and holding drills involving shooting blanks in middle and high school hallways, but is the risk really worth the expense and possibility of preemptively traumatizing children?

Groups like Michael Bloomberg’s Everytown for Gun Safety argue that our nation’s schools are dangerous, claiming that there have been 74 school shootings since the Sandy Hook massacre in December 2012 in an infographic that went viral earlier this summer. But a closer look at their numbers revealed that they artificially inflated the statistic by including suicides, accidents, incidents related to criminal activity (e.g. - drug dealing or robbery), and incidences that took place outside of school hours or were unconnected to members of any school community. Moreover, half of those incidences took place on college campuses. Since Sandy Hook, actual number of K-12 school shootings in which the shooter intended to commit mass murder has been ten—a far cry from the “one school shooting per week” that President Obama claimed back in June.

Surely even one such incident is too high, but with nearly 106,000 public and private schools in the U.S., there were shootings at only 0.009% of schools since December 2012. According to the National Center for Education Statstics’ 2013 “Indicators of School Crime and Safety” report, from the 1992-93 school year until the 2010-11 school year, there were between 11 and 34 homicides of youths ages 5-18 at schools each year (including attacks with weapons other than firearms), with an average of about 23 homicides per year. Comparing that to NCES’s enrollment statistics, about 0.000044% of public and private K-12 students were killed at school per year between 1992-93 and 2010-11. That’s about one out of every 2,273,000 students per year. By contrast, the odds of being hit by lightning in a given year is one out of 700,000 according to National Geographic

School Year K-12 Student Homicides  Fall Enrollment (thousands)  % Homicides 1992-93 34  48,500 0.000070% 1993-94 29  49,113 0.000059% 1994-95 28  49,898 0.000056% 1995-96 32  50,759 0.000063% 1996-97 28  51,544 0.000054% 1997-98 34  52,071 0.000065% 1998-99 33  52,526 0.000063% 1999-00 14  52,875 0.000026% 2000-01 14  53,373 0.000026% 2001-02 16  53,992 0.000030% 2002-03 18  54,403 0.000033% 2003-04 23  54,639 0.000042% 2004-05 22  54,928 0.000040% 2005-06 21  55,224 0.000038% 2006-07 32  55,524 0.000058% 2007-08 21  55,762 0.000038% 2008-09 17  55,966 0.000030% 2009-10 19  56,186 0.000034% 2010-11 11  56,480 0.000019%              Maximum:  0.000070%      Minimum:  0.000019%      Average:  0.000044%

It makes sense for schools to take precautions and have contingency plans, but they should keep a sense of perspective. School shootings, especially the mass casualty incidences like Sandy Hook, are exceedingly rare. Schools should dispense with the M16s, grenade launchers, and armored vehicles.

Categories: Policy Institutes

SBA’s Risky Franchise Lending

Cato Op-Eds - Mon, 09/22/2014 - 14:42

Nicole Kaeding

The Small Business Administration’s (SBA) stated mission is to aid small businesses and strengthen the economy. Under its popular 7(a) program, SBA provides private lenders with loan guarantees. In the case of default, SBA steps in to cover up to 85percent of the lender’s losses.

This structure encourages lenders to provide more loans, but also encourages the approval of riskier loans. The lenders are insulated from most of the risks of default.  

A new analysis conducted by the Wall Street Journal confirms that this arrangement induces SBA to provide loans that result in a large number of defaults. Default rates for some franchise companies can be as high as 40 percent. According to the Wall Street Journal:

Quiznos, Cold Stone Creamery, Planet Beach Franchising and Huntington Learning Centers Inc. ranked among the 10 worst franchise brands in terms of Small Business Administration loan defaults.

Franchisees of the 10 brands in the ranking defaulted at more than double the rate for SBA borrowers who invested in all other chains, according to a Wall Street Journal analysis of charge-offs of all SBA-backed franchise loans in the past decade.

Put another way, franchisees of those 10 brands have left taxpayers on the hook for 21% of all franchise-loan charge-offs in the past decade, collectively failing to pay back $121 million in SBA-guaranteed loans from 2004 through 2013.

Thirty percent of the loans provided to Quiznos and Cold Stone Creamery franchises ended in default. The losses from loans to Quiznos franchises totaled $38.4 million during the 2004 to 2013 period, while losses to Cold Stone Creamery amounted to $34.1 million.

This is not the first time that SBA’s franchise lending has been criticized. In a report focused on franchises, SBA’s Inspector General noted in 2013 that SBA “had not implemented a program or process to monitor risk in its portfolio.” The report continues: “SBA did not monitor portfolio segments to identify risk based on default statistics…SBA continued to guarantee loans to high-risk franchises and industries without monitoring risks, and where necessary, implementing controls to mitigate the risks.”

Franchise businesses are an important component of SBA’s activities. In its new analysis, the Wall Street Journal points out that “SBA guaranteed nearly $18 billion in 7(a) loans [in 2013], including $2 billion for franchisees.”

Taxpayers are picking up the costs of these government loan guarantees. SBA charges lenders fees to mitigate the costs of default, but the fee amount seem to be too low. Most recent years, SBA has received a net outlay, or subsidy, from Congress.

What should be done? At the very least, SBA should take its inspector general’s recommendations and review its practices regarding franchise loans to reduce the number of defaults. Ideally as argued on www.downsizingovernment.org, SBA should be closed down.

Categories: Policy Institutes

Secret Service Spending

Cato Op-Eds - Mon, 09/22/2014 - 09:55

Chris Edwards

Another federal agency has screwed up. This time it is the Secret Service, which almost allowed an intruder to make a surprise visit on the Obamas. The Washington Post reports:

The Secret Service on Saturday launched a security review to learn how a man carrying a knife was able to get inside the front door of the White House on Friday night after jumping a fence and sprinting more than 70 yards across the North Lawn.

In response to the failure, Rep. Jason Chaffetz observed that “the Secret Service has a serious management problem.” According to the Post:

The service, which once enjoyed a sterling reputation as an elite law enforcement agency, has struggled with some embarrassing episodes recently and the perception that its leadership is lagging in the best security strategies. In spring 2012, the service faced a humiliating moment when a dozen agents were shipped home from a presidential trip in Cartagena, Colombia, where they were implicated in a night of carousing and boozing with prostitutes.

The latest fence-jumping incident is no laughing matter, but this line from the Post did make me chuckle: “Former agents said they fear the breach may be related to a severe staffing shortage the agency has struggled with in the last year in its Uniform Division.”

Staffing shortage? How is that possible when the Secret Service budget has doubled in real (inflation-adjusted) terms since 1998—from $0.9 billion to more than $1.8 billion? The chart shows the particularly strong growth during the George W. Bush years.  

Categories: Policy Institutes

Education under the New Swedish Order

Cato Op-Eds - Mon, 09/22/2014 - 08:50

Andrew J. Coulson

Just over a week ago, Swedes threw out the relatively pro-market coalition that had goverened the country for the past 8 years, handing power (though not an outright majority) to a new left-of-center coalition. Swedish students’ falling scores on international tests were a key cause of public dissatisfaction, and they have been widely blamed on a nationwide voucher-like school choice program introduced during the early 1990s. But as I point out in an op-ed in yesterday’s Svenska Dagbladet, the facts simply don’t support that narrative. Here’s the English draft of the op-ed:

Sweden’s collapsing performance on international tests was clearly a factor in the recent election, and redressing that slide will be a priority for the new government. A good first step in charting the way forward is to understand what has gone wrong and what has gone right in the past. Unfortunately, the most popular narrative about Swedish education trends is badly mistaken.

Many have blamed Sweden’s falling international test scores on the proliferation of free schools, merely because the decline is thought to have followed their large-scale expansion. This would be a common logical fallacy even if the timing were correct—but it isn’t.

Between 1995 and 2011, Swedish math scores on the Trends in International Mathematics and Science Study (TIMSS) fell by a massive 56 points. But the vast majority of that decline—41 points—had already taken place by 2003. In that year, 96 percent of Swedish students were still enrolled in government schools.

Another international test, the Programme on International Student Assessment (PISA), began in the year 2000 and has the advantage of breaking out the scores for government and private schools. The last PISA test was administered in 2012, by which time government school scores had fallen by 34 points while free school scores had fallen by only 6 points.

Anders Böhlmark and Mikael Lindahl’s long-term nationwide study helps to explain these trends: increased local competition from free schools actually raises the performance of students in both sectors—on both national and international tests. But, since free schools still enroll a small fraction of students nationwide, the benefits of this competition have yet to be felt in many areas.

Of course, none of this is to suggest that there are no bad private schools. There has never been an education system in history capable of producing only good schools. The best that can be hoped for is that unsuccessful schools close while good schools expand. And that is precisely what has been happening in Sweden.                                           

Much has been made of the failure of JB Education, which attracted too few students to remain financially viable, and was forced to shut down. This was regrettable for everyone directly concerned, in the short run. In the long run, it is better than any realistic alternative. In most countries, including the United States, atrocious government-run schools are able to continue operating indefinitely because they face no meaningful competition—the poor parents they most often serve simply cannot afford any alternative. These schools are numerous enough that a term has been coined to describe them: “dropout factories.” Swedish families are lucky that they can far more easily escape such schools.

Not only does the Swedish system pressure failing schools to close, it encourages good ones to expand. International English Schools is one of the highest-performing school networks in the country, even after controlling for the parental level of education and immigrant background of its students. It is also one of the fastest growing, now operating 25 schools serving nearly 18,000 students. IES has plans to continue growing so long as demand for its services remains unmet. But if IES’s emphasis on academics and civil classroom behavior seems too traditional for some families, there are many other options to choose from. Another large and successful network is Kunskapsskolan, which allows students to proceed through the curriculum at their own pace, combining tremendous student autonomy with weekly one-on-one meetings with teachers.

But not all good private schools grow. Specifically, non-profit schools tend not to build large networks, no matter how good they are. As a result, thousands of students who might benefit from their services never get the chance to do so. The only good schools that consistently “scale-up” in response to rising demand are those operated as for-profit enterprises. This is not a coincidence. Building a network is both risky and expensive. The profit-and-loss system provides both the resources and the incentives that allow and encourage successful enterprises to grow.  

Sweden is fortunate to have harnessed that system to spur the growth of its high performing schools. Chile does the same thing, and has become not only the highest-performing nation in Latin America but also one of the fastest-improving countries in the entire world on international tests. If Sweden wishes to become a fast-improving nation educationally, the evidence strongly supports preserving the entrepreneurial freedoms and incentives that promote the growth of successful education networks.

Categories: Policy Institutes

The Constitutional Dimension of Your Morning Commute

Cato Op-Eds - Mon, 09/22/2014 - 08:48

Ilya Shapiro

Over the last few years, D.C.-area drivers may have noticed the continual increases in toll fares on the Dulles Toll Road, the highway going through the Northern Virginia suburbs past Dulles Airport.  Indeed, since 2005, the toll for the typical round-trip commuter has more than quadrupled from $1.50 to $7.00, with more increases coming. These extra toll dollars haven’t been going for upkeep or expansion of the highway, however, but instead have been funding the over-budget and under-performing construction of the Metro’s Silver Line extension.

While originally slated to fund only 25% of that cost, commuters are now looking at paying more than half of the $5.6 billion (and counting) total cost, with years of construction still to come. The entity in charge of the construction project (and of gouging the toll road’s commuters) is the Metropolitan Washington Airports Authority, a public body established to govern Dulles and Reagan National airports at the behest of the Department of Transportation. But who’s actually in charge of the MWAA, and to whom can beleaguered commuters turn for relief? Although created by an interstate compact between D.C. and Virginia, the MWAA was granted all of its authority by an act of Congress, and the highways and airports that it oversees are federal property.

In many ways, the MWAA acts like a federal agency—in nearly all ways, in fact, except one important aspect: oversight. If federal assets and lawmaking power are being delegated to the MWAA, then there must be a means for the executive branch to “take care that the laws be faithfully executed.” The MWAA, however, is governed by a board of individuals whom the president has no meaningful ability to appoint, oversee, or control. This means that the MWAA has no political accountability for its decisions.

Having no other meaningful recourse, a group of Dulles Toll Road users sued the MWAA, arguing that its decrees violate the separation of powers. (Full disclosure: my wife and I just bought a house in Falls Church and will likely be using the road every now and again, though not on my commute to Cato.) The federal district and appeals courts—two of them, in an unusual development whereby the Federal Circuit transferred the case to the Fourth Circuit—decided that the MWAA’s nature as a state-created entity required the case to be dismissed. Moreover—get this—because the MWAA has no meaningful executive-branch control, there is no separation-of-powers issue. (This despite the federal government’s appearance as an amicus to argue that the MWAA exercises federal power and is subject to separation-of-powers scrutiny.)

Undeterred, the plaintiffs have petitioned the Supreme Court to hear their case. Cato has joined the American Highway Users Alliance and the Recreation Vehicle Industry Association on a brief supporting their petition. We argue that the Court should take the case because (1) there is a critical violation of the separation of powers, (2) there are already manifest harms resulting precisely from that violation, and (3) the federal government sees and treats the MWAA as a federal agency—but one without any meaningful accountability whatsoever.

It isn’t every day that a separation-of-powers case is as squarely presented as it is here, where commuters are being railroaded, so to speak, by a runaway agency whose conductor is absent. The executive branch has to take the blame not only for the MWAA’s policies, but its corruption, incompetence, and mismanagement.

The Supreme Court will decide whether to take Corr v. Metro. Washington Airports Authority later this fall.

Categories: Policy Institutes

Bipartisan Agreement against the Taxpayers

Cato Op-Eds - Sat, 09/20/2014 - 10:08

David Boaz

The Washington Post reports on strong disagreements in consecutive appearances by Virginia Senate candidates Mark Warner and Ed Gillespie. Obamacare, terrorism, lobbying, partisanship – lots of arguments. But take heart, the Post advises us: “Despite the positioning, both candidates agreed on a few topics.” As usual, as I’ve written before, when you hear about bipartisanship, watch your wallet. Here’s what Warner and Gillespie agree on:

For example, they each called federal sequestration cuts devastating to the Northern Virginia economy.

Gillespie said Warner was in support of sequestration, while Warner blamed Republicans for allowing the automatic spending cuts to go through after Congress failed last year to resolve the debt-ceiling crisis.

“Sequestration is stupidity on steroids,” Warner said, promising to look for places to cut spending in other areas. “You have to take on entitlement reform and tax reform.”

Both also agreed that there is an urgent need to improve Virginia’s transportation infrastructure, though Gillespie said the solution lies in bringing in more revenue through deep-sea oil drilling and Warner argued for privatizing portions of transportation improvements.

On national security, Gillespie and Warner agreed on a need to spend more on the U.S. military in the face of the threat posed by the Islamic State. Once again, what the candidates agree on is spending the taxpayers’ money.
Categories: Policy Institutes

Should We Credit Global Warming When Disasters Don’t Happen?

Cato Op-Eds - Fri, 09/19/2014 - 16:53

Paul C. "Chip" Knappenberger

Every time there is some sort of weather disaster somewhere, someone blames it on human-caused global warming. Maybe not directly, but the implication is clear. “While we can’t link individual events to global warming, the increase of this type of event is consistent with our expectations, blah, blah…”

Most recently this came in testimony from White House Science Adviser John Holdren before the Committee on Science, Space, and Technology of the U.S. House of Representatives:

In general, one cannot say with confidence that an individual extreme weather event (or weather-related event)—for example, a heat wave, drought, flood, powerful storm, or large wildfire—was caused by global climate change. Such events usually result from the convergence of multiple factors, and these kinds of events occurred with some frequency before the onset of the discernible, largely human-caused changes in global climate in the late 20th and early 21st centuries. But there is much evidence demonstrating that extreme weather events of many kinds are beginning to be influenced—in magnitude or frequency—by changes in climate.

Holdren then goes to list a bunch of types of extreme weather whose characteristics have changed (remarkably, all becoming worse), adding that:

There are good scientific explanations, moreover, supported by measurements, of the mechanisms by which the overall changes in climate resulting from the human-caused build-up of heat-trapping substances are leading to the observed changes in weather-related extremes.

Holdren’s implication is pretty clear—human-caused global warming is leading to changes in extreme weather. And just for good measure, he added this zinger:

[I]t is reasonable to say that most weather in most places is being influenced in modest to significant ways by the changes in climate that have occurred as a result of human activities.

If this were the case, then there is a lot of good news to be found here, for by and large the weather is pretty good, with rare examples to the contrary.

Take, for instance, what has been all abuzz this week in Washington, D.C.: how great the weather has been. The Washington Post’s Capital Weather Gang, which keeps close tabs on the pulse of D.C. weather, has commented repeatedly on how remarkable and enjoyable it has been. According to Holdren’s logic, we have global warming to thank, and yet I have not seen one news story that links the pleasant weather to human-caused climate change.

Across the country in Tucson, Ariz. (where I reside), the news this week has been dominated by the threat of the passage of the remnants of Hurricane Odile, which were forecast to move into the region from out of the Gulf of California. The predictions were for record-breaking rainfall amounts with the potential for widespread damage from flooding. The outlook stirred up memories of the passage of Tropical Storm Octave in 1983, which resulted in over $500 million (in 1983 dollars) of damage to the region. Thankfully, this did not come to pass. Instead, the heavy rains associated with Odile passed well east of the city, over much more sparsely populated country. Since apparently all weather is influenced by anthropogenic global warming, we have it to thank for averting what could have been a very costly and hugely disruptive situation affecting upwards of a million people.

And speaking of hurricanes, the first major hurricane (category 3 or greater) in almost two years formed in the Atlantic Ocean. But, in encountering conditions arguably consistent with human-caused climate change, Hurricane Edouard quickly weakened and remained far out in the open Atlantic, steering well clear of the U.S. mainland. Major disaster averted. It has now been nearly nine years since the last major hurricane made landfall in the United States, the longest such occurrence going back at least to the year 1900. Thanks, global warming!

I could go on, because there are a lot more cases of non-extreme weather than there are of extreme weather, and as many or more cases to be made for weather catastrophes averted by conditions “consistent with global warming” than caused by it.

So if you want to play the all-weather-is-influenced-by-global-warming game, you are going to lose.

Best bet would be to stick with the science, which for most types of extreme weather events and for most places indicates that a definitive link between event characteristics and human-caused climate change has not been established. Either talk about that situation or leave the attribution issue alone.

Categories: Policy Institutes

San Francisco Taxi Trips Plunge Amid Rise of Rideshare Companies

Cato Op-Eds - Fri, 09/19/2014 - 16:45

Matthew Feeney

According to Kate Toran, the San Francisco transport authority’s Taxis and Accessible Services interim director, companies such as Uber and Lyft, which provide ridesharing services, “have dramatically changed the for-hire transportation industry in San Francisco.”

A few days ago, the San Francisco Examiner reported on a presentation Toran gave to the San Francisco Municipal Transportation Agency (SFMTA) board of directors. The presentation included the slide below:

 

Uber and Lyft are both headquartered in San Francisco and are classified as Transportation Network Companies (TNCs), a designation created by California’s Public Utilities Commission last year.

Uber CEO Travis Kalanick has not hidden his feelings regarding the taxi industry. Earlier this year he said that Uber was in a political campaign against “an ass*** named Taxi.”

Of course, the slide does not show the whole picture. Correlation is not causation, and without data on ridesharing companies’ rides in San Francisco over the same time period, it is impossible to conclude for sure that the ridesharing services provided by companies such as Uber and Lyft are significantly contributing to the taxi decline in San Francisco.

It is notable that the SFMTA has decided to waive some fees—including the driver application fee—for taxis in 2014-2015 in an attempt to attract new drivers and keep current drivers from quitting. Among the many advantages of companies such as Lyft is the low cost of entry for drivers.

According to the San Francisco Examiner, the SFMTA is also contemplating reducing the medallion fee:

Other possible regulatory actions the transit agency has contemplated to make cab driving more financially attractive to drivers include reducing fees for medallions, which allow holders to operate taxis. Other ideas include reducing the fee to transfer medallions by 20 percent, eliminating the $500 ramp taxi medallion use fee, lowering the medallion renewal for transferrable medallion holders and allowing taxi wrap advertising. 

During her presentation, Toran also highlighted the need for the SFMTA to review regulation. From the San Francisco Examiner:

“It’s time for [the] MTA as a regulator to really review the regulations and make sure our regulations have been thoroughly reviewed and that they still make sense,” Toran said. “Our bottom line is public safety, but to the extent that the regulations can be more flexible and more responsive and we have a process to update.”

The presentation mentions taxi apps Curb and Flywheel. It remains to be seen if an increasing number of San Francisco taxis using these apps will halt the dramatic decline in taxi trips, but it is encouraging to see that Toran supports competing with ridesharing apps and reviewing San Francisco’s taxi regulations.

Categories: Policy Institutes

Getting Government Out of the Mortgage Business, DOJ-Style

Cato Op-Eds - Fri, 09/19/2014 - 16:32

Mark A. Calabria

Yesterday Bloomberg reported that Federal Housing Administration (FHA) purchase loan guarantees “plunged” compared to a year ago. Part of that plunge, of course, was an expected decline in refinance activity. Currently, FHA endorsement activity is almost 80 percent purchase, whereas a year it ago it was just over half for purchase. Looking at trends in purchase endorsements, the decline looks a lot more moderate.

Even so, there has been a modest decline. Many in the banking industry, as expressed to Bloomberg, believe this is because FHA and the U.S. Deparment of Justice have been too tough on lenders, making them take back soured loans and assessing damages. JP Morgan CEO Jamie Dimon recently asked, because of the legal risk, “should we [JP Morgan] be in the FHA business at all?” 

Personally, this sounds like little more than jawboning. As illustrated by FHA’s recent credit reports, lenders are still dumping an awful lot of junk onto FHA. The average credit score is around a 680 FICO, meaning about half of FHA’s recent business is subprime. Beyond that, even subprime borrowers typically face downpayments of only around 5%, and then there’s the high debt levels witnessed. Lenders should be held responsible for making loans of such poor credit quality.

If DOJ fines on poorly performing FHA loans are chasing banks away from FHA, then I say “great.” That’s one of the reasons I helped get FHA new powers against fraud back in 2008 (see Section 2129 of HERA). As Congress is unlikely to ever scale bank the various mortgage subsidies, perhaps our only hope is that DOJ makes those subsidies so unattractive that lenders won’t use them. But then I could also see DOJ sue lenders, under fair-lending, for not using FHA.

Categories: Policy Institutes

President Poroshenko Goes to Washington

Cato Op-Eds - Fri, 09/19/2014 - 13:07

Emma Ashford

Ukrainian President Petro Poroshenko spoke before the U.S. Congress yesterday morning, and afterward met with President Obama at the White House. The visit was overshadowed by other major events of the week—Congress’s vote to authorize arms and training for Syrian rebels, and the Scottish independence referendum—but it was noteworthy that the visit didn’t elicit any U.S. offers of military support for Ukraine.

Poroshenko’s speech to Congress focused heavily on Ukraine’s role as a “strong American partner” and fellow democracy, and argued for greater U.S. involvement in the crisis. He even went so far as to argue that “this is America’s war too,” though he certainly offered no justification for why Ukraine is of key strategic interest for the United States. Between rousing rhetoric, references to John F. Kennedy, and anecdotes about brave Ukrainian warriors, he did ask the United States for three pieces of aid:

First, he asked for weaponry. Poroshenko thanked the United States for the humanitarian aid it has provided to Ukraine, but argued that “we can’t win a war with blankets.” The White House has promised a new $53 million aid package, comprising nonlethal military aid (i.e., blankets and food supplies). In contrast, the Ukrainians are particularly interested in heavy and antitank weapons.

Second, Poroshenko asked Congress for a massive injection of financial aid to support investment, fight corruption, and reform the Ukrainian state.

Finally, and most worrisome, he asked the United States (and NATO) to grant Ukraine a “special, non-allied partner status” for security and defense. It’s unclear exactly what this would entail, but it sounds suspiciously like a plea for NATO protection of Ukraine without full NATO membership.

There is limited interest in Congress to give Poroshenko some of what he is seeking. Sens. Bob Corker (R-TN) and Robert Menendez (D-NJ) have co-sponsored the Ukraine Freedom Support Act of 2014, which would seek to arm Ukrainian troops. But though the bill unanimously passed the Senate Foreign Relations Committee, it is unclear what will become of it as the Senate begins its recess, or whether it would command broader support from Congress.

Arming Ukraine’s government is foolhardy at best. Even if Ukraine were central to U.S. interests, the United States cannot possibly provide enough military aid to allow Ukraine to prevail against the Russian military. Such aid has the potential to escalate the situation and undermine a diplomatic settlement. Giving Ukraine a “special defense status” is an even worse idea, especially if it were to commit NATO to the military defense of Ukraine.

Luckily, the Obama administration seems determined to give Poroshenko a public relations boost—rolling out the red carpet for his visit—and nothing more. President Obama’s remarks praised Poroshenko’s leadership, but promised only to continue to help Ukraine reach a diplomatic settlement with Russia. With the U.S. military already gearing up for action on two different continents, it isn’t surprising that American leaders would choose to avoid escalating another regional conflict. Let’s hope this restraint continues once the other crises are past. 

Categories: Policy Institutes

A Tip o' the Hat to the United Kingdom

Cato Op-Eds - Fri, 09/19/2014 - 11:51

David Boaz

As an eighth-generation Scottish-American, I’m disappointed that my ancestral homeland has chosen not to be A Nation Once Again. But at the Daily Caller I do note one remarkable and positive aspect of the referendum:

The leaders of the United Kingdom allowed this referendum to take place, allowed the Scots to peacefully decide their own fate. Just think how remarkable that is. We Americans weren’t allowed to peacefully leave the United Kingdom….

A few secession efforts in the United States also demonstrate the remarkable nature of the Scottish independence referendum. The San Fernando Valley region wanted to secede from the city of Los Angeles in the 1970s, and eventually a vote on secession was held in 2002. But the entire city of Los Angeles got to vote on whether the Valley could leave, and the effort was defeated. Today there are counties in both California and Colorado that have discussed secession, but in both cases the state law says that the legislature would have to approve. Few central governments look kindly on the loss of any portion of their taxpayers.

And that’s why I offer a tip o’ the hat today to the Parliament and the governments of the United Kingdom. They allowed the people of Scotland to decide their own fate. They did not insist that any secession had to get the approval of the government from which the dissident region wanted to secede. They did campaign hard to persuade Scottish voters to stick with the UK. But they let the Scots decide. May the road rise up to meet them, and may the sun shine warm upon their faces. And may other central governments learn from their example.

Categories: Policy Institutes

State Inspectors Get Run Of California Worksites—At Business Groups' Behest

Cato Op-Eds - Fri, 09/19/2014 - 11:36

Walter Olson

That workman from Craigslist who dropped by to install a set of office cabinets for you “off the books” is now more likely to be headed to jail, no matter how happy you are with the quality of his work, thanks to the California legislature:

Gov. Jerry Brown has signed S.B. 315, described by its sponsor, Sen. Ted Lieu (D-Beverly Hills), as a measure “to help curb California’s underground economy.” The measure would step up penalties and enforcement against persons who advertise for, or perform, repair and construction work with a value of $500 or more, counting parts and material as well as labor. … First offenses are subject to six months in jail and a $5,000 fine, and subsequent offenses are treated yet more harshly.

There’s more. The bill, according to its legislative summary, “would additionally require that the enforcement division, when participating in the activities of the Joint Enforcement Strike Force on the Underground Economy, be granted free access to all places of labor,” at least in business locations. (Yes, “all”; you only thought your property was private.) 

A special touch: the customer who ordered the work will now be legally classed as a “victim of crime” entitled to restitution and other benefits, even if the work was done exactly as ordered, and even if (the law is explicit) the customer was fully aware the job was unlicensed. 

How could the California legislature have unanimously (as it did) passed a measure curtailing property rights by giving more state inspectors access to places of labor against owners’ will? Simple: it was framed as a pro-business measure. Among its backers were the sponsoring Contractors State License Board and such groups as the Air Conditioning and Refrigeration Contractors Association, the electrical contractors, the landscape contractors, the plumbing and heating contractors, and so forth.   

The costs of occupational licensure are many. Not least is that it gives established businesses a stake in making government more powerful and invasive.  

P.S.: Possibly unrelated, or possibly not: California issued massive fines that closed down a small winery whose owners were allowing volunteers to do some work, in violation of state law; a state spokesman said permitting volunteer labor “isn’t fair” to competing wineries with all-professional staff. 

Categories: Policy Institutes

#WhyLiberty: Venezuela

Cato Op-Eds - Fri, 09/19/2014 - 10:05

Caleb O. Brown

Thousands of Venezuelans regularly protest Nicolás Maduro’s government. Juan Carlos Hidalgo, a Policy Analyst on Latin America at the Center for Global Liberty and Prosperity at the Cato Institute, recalls witnessing the struggle for freedom in Caracas.

“Why Liberty” is a short series of personal stories emphasizing the value of liberty. Feel free to make your own video telling your story using #WhyLiberty. And, of course, subscribe to us on YouTube.

Categories: Policy Institutes

Intellectual Property in Trade Agreements

Cato Op-Eds - Fri, 09/19/2014 - 09:57

Simon Lester

Tom Giovanetti of the Institute for Policy Innovation, who spoke at a Cato event we held earlier this year, has a new essay arguing that intellectual property protection should be included in trade agreements. He makes several points, but I’m going to focus on just one.  He states:

[N]umerous studies have found a correlation between higher levels of IP protection and stronger economic growth.

  • According to a 2008 OECD [Organization for Economic Cooperation and Development] study, stronger patent rights in developing countries are a significant determinant of levels of foreign direct investment, and also facilitate higher levels of technology transfer.
  • A 2012 OECD study found that a 1 percent change in the strength of a country’s IP framework is associated with a 2.8 percent increase in foreign direct investment inflows and a 0.7 percent increase in domestic R&D [research and development].
  • And a 2013 study found that R&D spending has grown relative to GDP in developing countries after they adopted the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The study also found that medicines for developing countries had received additional funding, and that the TRIPS agreement had directly contributed to the emergence of native film industries in African countries.

Here’s the problem: If you treat intellectual property as a single concept, and you can either have more or less protection of it, it would be reasonable to conclude that some countries have too little protection and probably need more. But intellectual property covers a lot of ground. To name a few areas, you have copyrights, trademarks, and patents.  You also have the European favorite, “geographical indications.”

If the argument is that having intellectual property protection is better than not having intellectual property protection, in terms of economic growth, that seems like an easy one.  It’s hard to imagine a modern economy working very well without effective trademark enforcement, for example.

But beyond that, things get complicated. How much protection is too much?  The United States is pushing copyright terms that last for the life of the author plus 70 years as part of its trade negotiations. I’ve argued that’s way too long. What is the right amount exactly?  Well, no one seems to be sure, as far as I can tell, but there are plenty of people who say life plus 70 years is excessive.

So, it’s not enough just to say, “we need stronger IP protection in trade agreements.”  If you want to convince anybody, you need to get into the specifics of each kind of protection, and why the stronger level you propose is justified. Otherwise I’m just going to assume you want stronger IP protection of any and all kinds and would go along with the European Union demand that Feta cheese can only be made in Greece.

Categories: Policy Institutes

Bankers Advise Fed to Regulate Bitcoin

Cato Op-Eds - Thu, 09/18/2014 - 16:01

Mark A. Calabria

Four times a year members of the Federal Reserve Board are scheduled to meet with members of the banking industry, as represented by the Fed’s Federal Advisory Council.  This, of course, does not include all the many other occasions that the Fed meets with bankers.  These meetings allow the banking industry to express its views to the Fed on a wide range of issues.  Summarized records of those meetings are released to the public.  In the most recent meeting, bankers raised, among other topics, the issue of Bitcoin. 

While the bankers did not yet view Bitcoin as a viable competitor to their role in the payments system, the bankers did express that Bitcoin “regulation is advisable.”  Those soft-hearted bankers expressed a concern that without adquate consumer protections, users of Bitcoin would be vulnerable to fraud and theft.  Bankers also suggested, presumably out of a concern for national security, that Bitcoin be subject to the same anti-money-laundering procedures, including Know-Your-Consumer, that banks are subjected to.  Bankers explicitly suggested that Bitcoin be subjected to the suspicious activities reports (SARs) that banks must currently file. Personally, this all sounds like an attempt at “raising rivals’ costs” to me.

Interestingly banks also suggested that in “an economy hypothetically dominated by Bitcoin, its finite number (21 million) would prevent the application of traditional monetary policy tools to provide support…” In other words banks are concerned that a Bitcoin world would be one where bank bailouts and assistance were more difficult to achieve.  I guess one man’s bug is another man’s feature.

Categories: Policy Institutes

Pages