Cato Op-Eds

Subscribe to Cato Op-Eds feed
Individual Liberty, Free Markets, and Peace
Updated: 27 min 30 sec ago

Afghanistan: Obama’s War

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?

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

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

Federal Employment by Department

Tue, 06/03/2014 - 12:49

Chris Edwards

We’ve learned about what a huge and dysfunctional agency Veterans Affairs is in recent weeks. I had not realized that the agency added 100,000 workers in just the past seven years.

How large is the VA compared to the rest of the federal bureaucracy? OPM publishes historical data here for the major departments, which I’ve summarized in the two figures below covering 1950 to 2012.

Figure 1: Splits total federal civilian (non-uniformed) employment into defense and nondefense. For nondefense, you can see the modest retrenchments under Reagan and Clinton, and you can see the expansions under Bush 1, Bush 2, and Obama.

Figure 2: Shows the breakdown by department, aside from defense. Veterans (blue line) is by far the largest nondefense department, with 69 percent more employees that second place Homeland Security (red line). One alarming trend is the rapid growth in Justice Department employment (black line), which has doubled since the late-1980s to 117,000 workers.

Data notes: For some departments created since 1950, such as Homeland, it looks like OPM extrapolated the time series backwards based on the original component agencies of the new department. For Transportation on the other hand, it looks like OPM represented employment as zero before it was created. I did one tweak to the OPM data, which was moving TSA from Transportation to DHS for 2002. 

Categories: Policy Institutes

Washington Should Stop Reassuring the Dependent Europeans

Tue, 06/03/2014 - 12:37

Doug Bandow

The president flew to Europe.  He planned to “soothe European friends,” declared the New York Times.  He aimed “to stress U.S. commitment” to the continent, said the Washington Post.

That’s certainly what the Europeans want to hear.  But they want “something concrete” rather than just “empty words,” explained Bohdan Szklarski of the University of Warsaw.  For most Europeans, especially in the east, that means the U.S. putting more boots on the ground.  Opined Heather Conley of the Center for Strategic and International Studies, reinforcement of the eastern border is required, “and potentially we’ll have to reinforce it for a very long time.”

Why?

The Baltic States are screaming for enhanced military protection.  Yet Estonia devotes just two percent of its GDP to defense.  Latvia spends .9 percent of its GDP on the military.  Lithuania commits .8 percent of its GDP on defense.

Poland may be the country most insistent about the necessity of American troops on along its border with Russia.  To its credit, Poland has been increasing military outlays, but it still falls short of NATO’s two percent objective.  Warsaw spent 1.8 percent last year. 

Only Great Britain and Greece joined Estonia in hitting the two percent benchmark.  France and Turkey fall short.  Germany comes in at 1.3 percent.  Overall NATO hit 1.6 percent last year.  America was 4.1 percent. 

Per capita military spending is even more striking.  My Cato Institute colleague Chris Preble figured that to be $1896 for Americans.  And $399 for Europeans.  A disparity of nearly five to one.

Unfortunately, President Barack Obama doesn’t appear to recognize the dependency problem.  At West Point he merely indicated that “we are now working with NATO allies” to reassure the Eastern Europeans.  “We”? 

Poland expects to hit 1.95 percent of GDP this year.  Latvia and Lithuania promised to up outlays to meet the two percent standard—in a few years.  No one else is talking about big spending increases.  Absent is any commitment to move European troops to NATO’s eastern borders.

Nothing will change as long as Washington uses the defense budget as a form of international welfare.  The more the president “reassures” U.S. allies, the less likely they are to do anything serious on behalf of their own defense.

In fact, the administration has been sending the wrong message throughout the Ukrainian crisis.  In early March the administration began taking what Secretary of State John Kerry termed “concrete steps to reassure our NATO allies.”  Its efforts apparently worked.  In April the Washington Post proclaimed:  “NATO Reassurances Ease Fears in Baltics.” 

Alas, the impact since apparently faded.  So the president has gone back to Europe to try again.

Instead, Washington should unsettle its friends and allies.  As I point out in my new article on American Spectator online:  “The U.S. government’s chief responsibility is to protect America—its people, territory, constitutional liberties, and prosperity.  On rare occasions that requires defending allied states, as during the Cold War.  But alliances should serve American security objectives.  Defense guarantees should not be distributed for the asking, like candy at Halloween.”

President Obama should tell the Europeans that Washington will be phasing out its security guarantees.  There will still be many issues upon which the U.S. and Europe should cooperate.  But his priority should be to reassure the American people that he will put their interests before those of countries reluctant to help themselves.

Categories: Policy Institutes

Washington Backs Egypt’s New Dictator

Tue, 06/03/2014 - 12:32

Ted Galen Carpenter

As expected, the presidential election in Egypt confirmed Abdel Fattah el-Sisi as the country’s new leader.  It was not exactly the model of a free and fair election.  Not only had el-Sisi, as the leader of the coup that ousted President Mohamed Morsi, been Egypt’s de facto ruler for months, but his military colleagues (and their weaponry) were firmly behind his presidential candidacy.  Security forces had killed hundreds of Muslim Brotherhood members, Morsi’s political base, and jailed thousands of others, including Morsi himself.  Subservient Egyptian judicial tribunals imposed death sentences on more than eight hundred regime opponents, following trials that did not meet even the most meager standards of due process, in just the past two months. 

Western observers, including a Cato colleague, noted the pervasive censorship in the weeks leading up to the election.  Government-run media outlets maintained a steady barrage of images vilifying Morsi and hailing el-Sisi as the savior of the nation.  The images in the so-called private outlets (the ones that the junta had not shut down) provided images and editorial commentary nearly indistinguishable from the official government publications.

Under such circumstances, the outcome was as predictable as the Crimean “referendum” that ratified Russia’s takeover.  El-Sisi won with nearly 93 percent of the vote.  The only flaw in this orchestrated farce was a low voter turnout, the one permissible way to protest Egypt’s slide back into dictatorship.  But while the Obama administration repeatedly and harshly criticized the electoral charade in Crimea, U.S. officials portrayed the Egyptian election as progress toward democracy.  There was a time when U.S. leaders routinely castigated bogus elections in communist countries that produced wildly lopsided majorities for the incumbent regime.  No such criticism was forthcoming in this case, just as Washington didn’t denounce the earlier balloting for the new Egyptian constitution that produced a 98 percent favorable vote. 

The Obama administration’s hypocrisy is certain to deepen the already alarming cynicism throughout the Muslim world about U.S. policy.  One need not shed tears for Morsi and the Muslim Brotherhood, who embodied ugly theocratic values and practices.  But basic decency should have dictated a policy of U.S. neutrality regarding Egypt’s political convulsions.  Instead, Washington is moving to embrace the new “friendly tyrant,” just as a succession of administrations embraced the corrupt, thuggish Hosni Mubarak for three decades.  As I note in a recent article in Gulan, Washington has even agreed to deliver 10 Apache attack helicopters to Cairo.  Repressive regimes have never been reluctant to use such high-tech military aircraft to intimidate or slaughter anti-regime forces.  It was utterly inappropriate for the Obama administration to approve such a delivery to the Egyptian junta, and one can anticipate the anti-U.S. reaction of el-Sisi’s opponents if they see those aircraft flying over Tahrir Square the next time there are anti-government demonstrations.

U.S. officials may engage in an abundance of wishful thinking or outright sophistry, but the evidence confirms that el-Sisi intends to be as much a dictator as Mubarak ever was.  Not only has he created a cult of personality typical of Third World tyrants, replete with giant photographs of the supreme leader posted throughout urban areas, but he shows a pettiness that may even exceed Mubarak’s practices.  As the New York Times reported, el-Sisi has promised to remedy Egypt’s fuel shortages by installing energy-efficient light bulbs in every home, even if he has to send a government employee to carry out each installation.  “I’m not leaving a chance for people to act on their own,” el-Sisi stated in a television interview.  “My program will be mandatory.”  Al Gore and other environmental zealots might approve, but no one who truly values individual liberty should do so.

Yet this is the ruler that Washington has embraced as a new strategic and political partner.  It should not be the U.S. mission to impose democracy throughout the world, but neither should this country be the enabler of sleazy dictatorships.  We made that error far too often during the Cold War, and it appears that some policymakers have learned nothing from that experience.

 

Categories: Policy Institutes

Kevin Sabet's "Seven Myths" About Marijuana

Mon, 06/02/2014 - 21:59

Jeffrey Miron

Kevin Sabet is a former Senior Policy Advisor to then White House Drug Czar Gil Kerlikowske. In this interview with the Heritage Foundation, Sabet discussses his recent book, Reefer Sanity: Seven Great Myths about Marijuana. Let’s examine Sabet’s “Seven Myths.”

Myth #1. I can’t become addicted to marijuana.

That might be a myth, but who cares? Addiction is not, per se, a problem for society or an indvidual; just think about how many people are addicted to caffeine.

Myth #2. Today’s marijuana is the same old Woodstock weed my parents used.

True.  Potency is now higher.  But who cares? If a given puff has more THC, users can get high while inhaling less. That does not mean people get more stoned.  

Myth #3. Smoking marijuana once in a while won’t harm me as a teen.

No statistically valid study finds negative health effects from occaissional use.  See here for an excellent debunking of science that claims otherwise.

Myth #4. Marijuana is not tobacco - it won’t harm my lungs.

Little evidence finds that marijuana smoking harms the lungs. Most users do not puff all day, every day.

But even if marijuana does harm the lungs, this is an argument for legalization.  When marijuana is legal, users can more readily find high potency marijuana, which, as noted above, means less inhalation. Legalization also faciliates ingestion methods other than smoking (e.g., vaporization, edibles), which reduces risks to the lungs.

Myth #5. I can’t die from marijuana use.

The number of documented deaths from marijuana use is infinitessimal.  Does Sabet want to ban Ibuprofen? Swimming pools? Peanuts? Penicillin?

Myth #6. Marijuana is medicine.

Why does it matter whether marijuana is medicine?  True, some prohibition opponents base their case on marijuana’s reputed medicinal value, but the case for legalization is strong regardless.  Bombay Sapphire martini’s are not “medicine,” but they make me feel better at the end of the day (and I’m glad they are legal).

Myth #7. Marijuana will make me a more focused and better driver.

Give me a break. Perhaps a few zealots have made this claim, but virtually all legalizers agree that people should not drive under the influence of marijuana.

Bottom Line: Sabet’s seven myths are spin, pure and simple.

 

Categories: Policy Institutes

VA Scandal: Crisis of Big Government

Mon, 06/02/2014 - 13:42

Chris Edwards

Peggy Noonan’s op-ed on the weekend was titled “The VA Scandal Is a Crisis of Leadership.” Noonan discusses how President Obama “doesn’t do the plodding, unshowy, unromantic work of making government work.” Obama is not a good manager, and so scandals like the current one are to be expected.

I enjoy Noonan’s articles and her observations on Obama’s style are right on target, but her view about why the VA scandal happened is off the mark. The president does seem to spend his time giving speeches, strategizing politics, and playing golf rather than rolling up his shirt sleeves and fixing programs. He does seem to be “a show horse, not a workhorse,” as Noonan says. But that’s not why the VA scandal happened.

The VA situation is appalling, but it has common elements with scandals that happen under every president. Those elements include bureaucrats behaving selfishly, politicians promising reforms and not following through, federal workforce dysfunction, and the failed central planning of a complex industry. The VA scandal happened because the government is a giant monopoly with none of the built-in checks of the marketplace. Federal politicians themselves are not a check because they are too distracted and the government is far too large for them to keep track of.

Noonan says, “the president is an executive, and executives manage.” Really? He could efficiently manage the entire $3.5 trillion government and its 2.1 million workers and 2,200 programs? I doubt it. I think we could vote in the head of PWC as the next president, and we would still have scandal after scandal in Washington.

Noonan worked in the Reagan administration, and so she remembers the 1980’s HUD scandal. The shenanigans, waste, and bad behavior under Reagan’s HUD secretary Sam Pierce over eight years were jaw-dropping. HUD under Pierce was a cronyism factory for the secretary’s buddies and Republican donors. Tad DeHaven discusses the abuses in this essay.

Perhaps Ronald Reagan should have been a better manager. But he understood that the problem in Washington is far deeper than just a need to run things better, as many of his famous comments reveal:

Government is not a solution to our problem, government is the problem.”

No government ever voluntarily reduces itself in size. So governments’ programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”

The nine most terrifying words in the English language are: I’m from the government and I’m here to help.”

Categories: Policy Institutes

Chief Justice Roberts Again Rewrites Law, Avoids Duty to Hold Government's Feet to the Constitutional Fire

Mon, 06/02/2014 - 12:12

Ilya Shapiro

In today’s ruling in Bond v. United States, the Supreme Court was obviously right to reverse as federal overreaching the conviction of a woman who used certain chemicals to attack her husband’s paramour. This was a “purely local crime,” and the decision to prosecute Carol Anne Bond for it under a law that implements the international Chemical Weapons Convention was an abuse of federal power.

But in deciding the case so narrowly, creatively reinterpreting an expansive federal statute instead of reaching the constitutional issue at the heart of this bizarre case, the Court’s majority abdicated its duty to check the other branches of government. Bond was a case about the scope of the treaty power—can Congress do something pursuant to a treaty that it can’t otherwise do?—and yet the majority opinion avoided that discussion altogether in the name of a faux judicial minimalism. That’s not surprising given that its author is Chief Justice Roberts, who goes out of his way to avoid hard calls whenever possible. (Sometimes the practical result is still the right one, as here, sometimes it’s disastrously not, as in NFIB v. Sebelius, the Obamacare case, and sometimes even Roberts finds it impossible to avoid the Court’s constitutional duty, as in Citizens United and Shelby County.)

It was thus left to Justice Scalia, joined by Justices Thomas and Alito, to do the hard work—to make those balls-and-strikes calls that Roberts promised at his confirmation hearing—and repudiate Missouri v. Holland, the 1920 case that’s been understood to mean that the federal government can indeed expand its own power by agreeing to do so with a foreign treaty partner. (Scalia’s opinion tracks Cato’s amicus brief closely, and cites my colleague Nicholas Quinn Rosenkranz’s groundbreaking work in this area.)

One other takeaway here is that the Obama administration has yet again lost unanimously at the Supreme Court, adding to its record number of goose eggs—particularly in cases involving preposterous assertions of federal power. Here Chief Justice Roberts provides the apt langiappe: “The global need to prevent chemical warfare does not require the federal government to reach into the kitchen cupboard, or to treat a local assault with a chemical irritant as the deployment of a chemical weapon.”

Categories: Policy Institutes

Veterans Need Choice in Choosing Health Care

Mon, 06/02/2014 - 10:04

Doug Bandow

Medical care for veterans has become Washington’s latest scandal du jour.  Those injured while serving their country deserve prompt, quality medical attention. 

Everyone agrees that forcing veterans to wait, and possibly die waiting, for medical care is outrageous.  But what to do?

Caring for veterans isn’t cheap.  Promiscuous war-making over the last decade has generated an influx of patients, many with debilitating injuries. This year VA is expected to spend roughly $151 billion. 

The government has a solemn duty to care for those injured in war.  Yet VA estimated that it has a case-processing backlog of 344,000.  On average it takes vets 160 days to become eligible for benefits. 

After being declared eligible vets had to wait an average of 115 days for a primary care appointment at the VA’s Phoenix facility.  As many as 40 vets may have died waiting.

The IG found such practices to be “systemic.”  In numerous communities VA employees apparently manipulated data and falsified reports to hide patient deaths as well as delays. 

However, the more basic problem is rationing care to meet budget targets.  The agency is short hundreds of primary care physicians.  The pharmaceutical formulary has roughly one-third of the drugs available to Medicare patients.  Available psychiatric services have declined in recent years.

Unfortunately, better management alone cannot fix the agency’s problems.  In 1994 former Rep. Robert E. Bauman wrote:  “the VA is the quintessential government bureaucracy—administratively officious, laden with red tape and meddlesome regulatory minutia destructive of both quality care and staff conduct.”  Quality obviously suffered. 

The Clinton administration put Kenneth Kizer in charge of the department and he made dramatic improvements.  But his success didn’t last.  After leaving Kizer complained that “The culture of the VA has become rather toxic, intolerant of dissenting view and contradictory opinions.  They have lost their commitment to transparency.”

Even today the VA doesn’t do everything badly.  But access is fundamental. 

Complained Hal Scherz, a doctor who served in VA hospitals in San Antonio and San Diego:  “patients were seen in clinics that were understaffed and overscheduled.  Appointments for X-rays and other tests had to be scheduled months in advance, and longer for surgery.” 

Veterans’ organizations such as Veterans of Foreign Wars traditionally backed a specialized system for vets.  However, many veterans’ health problems are not unusual.  Indeed, the longest waits today are for primary care.  Moreover, there is no reason that only VA facilities can serve patients suffering from combat trauma. 

The federal government should separate the functions of guaranteeing from providing vet access to health care.  As I pointed out in my column on Forbes online:  “Uncle Sam has a sacred obligation to ensure that they receive treatment on their return.  That does not, however, mean the VA must build the hospitals, hire the doctors, and provide the services.”

Government should put money into veterans’ hands to purchase insurance tailored to their special needs.  Existing VA facilities could either be privatized or focused on combat-related ailments common to vets. 

This would be no jump into the unknown.  Specific services are outsourced locally when they are unavailable at a VA facility.  Moreover, only 16 percent of vets rely on the system as their principle caregiver. 

Sen. John McCain, a Vietnam vet, argued:  “Let’s let our veterans choose the health care that they need and want the most and not have to be bound to just going to the VA.”  House Veterans Affairs Chairman Jeff Miller suggested that the VA at least allow vets who have to wait for more than 30 days to go outside for care at government expense.

Business as usual is not an acceptable response to the latest VA scandal.  We should transform how the government cares for those who performed the toughest service of all.

Categories: Policy Institutes

An Appalling Lack of Truthfulness at the EPA

Mon, 06/02/2014 - 06:37

Patrick J. Michaels and Paul C. "Chip" Knappenberger

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

In preparation for President Obama’s unveiling, today, of the U.S. Environmental Protection Agency’s new proposed regulations to limit carbon dioxide emissions from existing power plants, the EPA has released its updated “Climate Change Indicators in the United States.” As you may have guessed, the report claims manmade climate change is upon us and it is bad.

Last summer, the president announced his Climate Action Plan aimed at mitigating future climate change by executive fiat—in other words, avoiding Congress and public opinion—and simply commanding from on high that U.S. carbon  emissions be reduced (never mind that they were already declining, or that any U.S. reductions, no matter how large, would have no meaningful effect on the future course of the climate).

Since then, the administration and the scientists it pays to study global warming have been rolling out report after report pointing to the horrors that have already occurred (like the record-long time since a Category 3 hurricane crossed a U.S. beach?), and how things will certainly get much worse from human-caused global warming if we don’t act now to head it off—that is, stop burning coal to produce electricity.

First was a report from the scientists’ lobby for government funding, the American Association for the Advancement of Science (AAAS), then came the federal National Climate Assessment report, and now the latest from the EPA—just in time for the president to cite in his remarks.

All along we have been saying that these reports are not scientific, but instead are purely political, documents. That became quite clear in last week’s congressional hearing testimony by Daniel B. Botkin, who once believed global warming was a terrible problem, but has since taken the opposite position.

Perhaps there is no finer example of the politicization of “science” than what the “Indicators” report the EPA just handed us.

The figure below is a portion of a screen capture from the “Heat-Related Deaths” section of the EPA’s new “Climate Change Indicators” website. It is labeled “Deaths Classified as ‘Heat-Related’ in the United States, 1979–2010.”

We don’t know anyone who could look at this chart and not be left with the strong impression that heat-related deaths in the United States are on the rise—apparently confirming  the president’s concern about climate change and underscoring his desire to do something about it. 

 

But notice the asterisk at the bottom of the box. Here’s the text associated with it:

Between 1998 and 1999, the World Health Organization revised the international codes used to classify causes of death. As a result, data from earlier than 1999 cannot easily be compared with data from 1999 and later.

In other words, you shouldn’t plot pre- and post-1999 data on the same chart because the data are not comparable, lest you mislead the uninitiated reader. The EPA ignores its own warning and instead plots the two sets of not-easily-compared data side by side on the same chart, ensuring that they are compared!

Such an analysis would probably grade out as an F in an undergraduate paper, but perhaps the EPA is suffering from a bit of “Noble Cause Corruption.” After all, they are trying to save us from certain death.

The proper way to view the EPA chart is to put your hand over the data points on the right-hand side of the chart (1999 and onwards) and then over the data points on the left-hand side of the chart (pre-1999 data). In doing so, you’ll see that during both periods the rate of heat-related mortality does not rise.

For those who want a clearer image of the truth when it comes to the effect of global warming on trends in heat-related mortality across the United States, see the figure below, taken from a brand new study by Jennifer Bobb from the Harvard School for Public Health and colleagues. The graph shows the number of heat-related deaths (for every thousand overall deaths) that result from the daily temperature being 10°F above normal, from 1987 to 2005. The trend is strongly downward—in other words, fewer deaths are associated with heat. 

Temporal trends, from 1987 to 2005, in the excess number of deaths (per 1,000 deaths) attributable to each 10°F increase in the same day’s summer temperature, nationally in the United States (excerpted from Bobb et al., 2014).

Or as Bobb and colleagues put it:

This study provides strong evidence that acute (e.g., same-day) heat-related mortality risk has declined over time in the US, even in more recent years. This evidence complements findings from US studies using earlier data from the 1960s through mid-1990s on community-specific mortality rates, as well as European studies that found temporal declines in heat-related mortality risk, and supports the hypothesis that the population is continually adapting to heat. [citations removed]

Not only is the risk from extreme heat declining, but so too are the actual numbers of people dying from extreme heat both in the United States and abroad (when properly standardized for demographic changes and population growth).

This is opposite from what the EPA chart leads you to believe.

The only way for the EPA to be so out of touch with the prevailing science is to be so on purpose.

We can’t help but to think that purpose will be revealed today.

Reference:

Bobb, J.F., R.D. Peng, M.L. Bell, and F. Dominici, 2014. Heat-related mortality and adaptation in the United States, Environmental Health Perspectiveshttp://dx.doi.org/10.1289/ehp.1307392

Categories: Policy Institutes

Globalization Eradicates Poverty

Fri, 05/30/2014 - 15:44

Stephanie Rugolo

The Malaysia Chronicle and The Economist recently reported on how globalization is improving the lives of Chinese villagers. Consider this example:

Taobao is an online retailer like Amazon. There are few qualifications to open an online store with Taobao. Chinese villagers, having little more than their cheap labor to offer, sell handicrafts on the website. The villagers get paid for their work and amass greater opportunities in return, while money and prosperity flow into their previously sleepy villages.

Globalization is making Chinese villagers richer, contrary to critics who claim that globalization generates poverty.   Interconnected, free markets generate wealth and pull people out of poverty. This occurs as the connective technologies of globalization (like the Internet) increase competition. That benefits consumers who can buy more, increasingly inexpensive products to better their quality of life. That also creates innovation and employment, as is the case for Chinese villagers.

For more on the relationship between human progress and economic freedom, visit HumanProgress.org

Categories: Policy Institutes

The Ever Expanding Role of Trade Agreements: Human Rights

Fri, 05/30/2014 - 11:45

Simon Lester

For years, I’ve been fighting what feels like a rearguard battle to keep free trade agreements focused on free trade. It can be a real struggle. Labor issues, environmental issues, and intellectual property are all solidly part of U.S. trade policy. Next up might be human rights.

The European Union has had human rights in its trade agreements for a while now, in the form of a provision that allows the EU to suspend the trade agreement if its partner does not sufficiently protect human rights. Recently, in their trade talks with the EU, both Canada and Japan have raised objections to such a provision, based on the view that they are developed countries that already protect human rights, and thus shouldn’t be subject to the EU’s scrutiny on this issue.

It will be interesting to see how the United States reacts if the EU demands such a provision as part of the Transatlantic Trade and Investment Partnership (TTIP) talks. Many lawmakers and commentators would object, I think. On the other hand, there might also be some U.S. support for the provision. Consider this from the Financial Times:

In a move that will cause concern with some US negotiating partners such as Brunei and Vietnam, [Senator Ron] Wyden says he would also like to see trade agreements address human rights, something advocated by fellow Democrats.

“I think it’s the responsible thing to do and I think it will bring more support for the cause of trade expansion,” Mr Wyden says.

I have a number of objections to the inclusion of human rights in trade agreements. One is that, contrary to what Senator Wyden suggests, including these issues will, in my view, make it much harder to achieve the trade liberalization that is at the core of these agreements. It moves the debate away from the basic issue of how we are better off with free trade, and in the process adds new opponents to such agreements.

Another is that people don’t really agree on what constitutes human rights. Are we talking about the right to free speech or the right to food? There are very different implications from the different conceptions.

I think it’s important to have conversations about rights at the international level. Even if we don’t all agree, we can learn a lot from each other. But as a condition for negotiating free trade agreements, adding in human rights probably just means we are less likely to achieve freer trade.

Categories: Policy Institutes

Walking to School? Yeah, There's a Federal Program for That

Fri, 05/30/2014 - 06:00

David Boaz

The Associated Press reports:

For a growing number of children in Rhode Island, Iowa and other states, the school day starts and ends in the same way — they walk with their classmates and an adult volunteer to and from school. Walking school buses are catching on in school districts nationwide because they are seen as a way to fight childhood obesity, improve attendance rates and ensure that kids get to school safely….

Many programs across the country are funded by the federal Safe Routes to School program, which pays for infrastructure improvements and initiatives to enable children to walk and bike to school.

 

Categories: Policy Institutes

What We Can Expect from the Supreme Court in the Next Month

Thu, 05/29/2014 - 16:03

Ilya Shapiro

As we head into the last month of the Supreme Court term – the Court releases its final, typically highest profile, opinions the last week of June – it’s time to take a deep breath and survey the lay of the land. Here’s what we can expect in coming weeks as the justices rush to get their final opinions out before heading out on their summer vacation/lecture/exile:

  1. Currently scheduled opinion-release days are June 2 (this coming Monday), 9, 16, 23, and 30. I’d expect the Court to cut June 30 – I’m sure some of the justices already have travel planned for that week – and add 3-4 more opinion days the weeks of June 9, 16, or 23. Each week’s extra days are typically announced on the Monday of the given week.
  2. There are 25 cases outstanding, most notably Bond (treaty power, argued in November), Noel Canning (recess appointments, January), McCullen (abortion-clinic buffer zone, January), Harris (forced unionization of home healthcare aides, January), Hobby Lobby/Conestoga Wood Specialties (Obamacare contraceptive mandate, March), Susan B. Anthony List (criminalizing false political speech, April), and Riley/Wurie (cell phone searches, April).

As for how all these cases will turn out, all I can say is that it’s fortunate that I’m not paid for my predictive abilities because I don’t think anyone could make a living doing that. Unlike many Court-watchers, however, I’m happy to go on a limb with my best guesses at what’ll happen:

Bond (Cato’s brief)

This one is likely to come down this coming Monday because it’s the case from the November sitting left (and there are none from October, and only one from December). This one is perhaps the most difficult to gauge of the end-of-termers. The oral argument was all over the place, with the justices not really satisfied with what either Solicitor General Don Verrilli or (Mrs. Bond’s super-lawyer) Paul Clement argued. I don’t think that the government will get a ruling eplaining that a treaty can expand Congress’s powers. The Court is also wary of making sweeping constitutional rulings when it can avoid it, however, so it’s unlikely that Missouri v. Holland will be overruled. The most likely result would be a ruling for Bond on the ground that her prosecution was beyond federal power here. Whether that means Missouri is limited in any way or the ruling effectively applies only to this bizarre case is anybody’s guess. Whatever happens, it’s likely that Chief Justice Roberts will be the lead author because he’s the only one without a majority opinion from the November cases.

Noel Canning (Cato’s brief)

The administration will likely suffer a big, near-unanimous, loss here; the only real question is how broad a rule will the Court announce (the broader, the less unanimous). If I had to bet, I’d say that seven justices will side with the challengers, agreeing with Miguel Estrada, who argued on behalf of amici Republican senators that regardless of the scope of the recess-appointment power, it is the Senate that determines when it’s in recess, not the president. A few justices would likely then join a separate opinion going further, limiting the power to inter-session recesses or to vacancies that arise during recesses. Only Justices Ginsburg and Sotomayor are likely to dissent.

McCullen (Cato’s brief)

The views of Chief Justice Roberts and Justice Kagan seem to be the key ones here; there are clearly four votes to strike down a 35-foot buffer zone and three to uphold it. Kagan seemed taken aback at how large this no-speech, no-entry zone was, encompassing public sidewalks. Roberts seemed to be searching for a practical solution to the problem. But it’s hard to see a Court that in recent terms has struck down laws against funeral protests and violent videogames upholding the law in this context.

Harris (Cato’s brief)

This is one of the very rare cases where Justice Scalia is the swing vote. At oral argument, Justices Alito and Kennedy (and, presumably, the silent Thomas) seem ready to overturn the 1977 case (Abood) that has allowed compelled contributions for certain union activities, with Chief Justice Roberts also on the workers’ side for a different reason. The “liberal” justices, meanwhile, were foursquare on the side of the pro-union Illinois law (which has equivalents in about a dozen other states). Scalia’s main concern seemed to be about how to draw the line between union actions meant to better working conditions – such as collective bargaining – versus other public policy-related activities that state governments can’t force individual workers to support. Given that his is the deciding vote, it’s likely that Scalia will end up writing the majority opinion, which gives all of us more reason to anticipate the Court’s ruling.

Hobby Lobby/Conestoga (Cato’s brief)

There should be about seven votes to reach the merits of this controversy; that is, that someone (whether the privately held corporations at issue or their owners) has standing to challenge the HHS rule requiring employers to cover 4 contraceptives (of 20 on the full list) as part of their Obamacare health insurance. On the merits, it’s more likely than not that the challengers will win because the government hasn’t shown that its mandate is the most narrowly tailored way of achieving a compelling interest – which is what it must do to justify imposing a substantial burden of religious exercise under the law at issue, the federal Religious Freedom Restoration Act. While Justice Breyer appeared skeptical of the government’s position at oral argument, he’ll probably still dissent to prevent the ruling from being six men versus three women.

SBA List (Cato’s hilarious brief)

Ohio’s solicitor general, an excellent attorney put in a difficult position, was met with an incredulous bench at oral argument. I don’t think we’ll see a single vote denying the plaintiff advocacy group standing to challenge a ridiculous law that criminalizes making “false statements” about political candidates. I further predict that, on remand, the district court will strike down this law, the appellate Sixth Circuit will summarily affirm that ruling, and we’ll never hear about the case again except in the context of the “best amicus brief ever.”

Riley (Cato’s brief) / Wurie (Cato’s brief)

The defendant with the smartphone (Riley) will win, while the defendant with the “dumb” (flip) phone (Wurie) will lose – not necessarily due to the difference in technology but because the police’s warrantless search was much more intrusive in the former case than in the latter. How the Court will reach those conclusions I can’t begin to estimate, although I’ll say that the justices are extremely wary of pronouncing legal rules that could be rendered obsolete or unworkable as newer technology develops.

Well, there you have it. Tune in starting Monday at 10am to see what happens in the denouement of the Supreme Court’s October Term 2013. Just remember that these predictions are worth about what you’re paying for them.

Categories: Policy Institutes

Occupational Licensing In the New York Times

Thu, 05/29/2014 - 15:02

Peter Van Doren

Yesterday the New York Times published an op-ed by Morris Kleiner making the case for occupational licensing reform. In it, Kleiner argues that there is a bipartisan case for reform, and that the real losers of occupational licensing are consumers. Kleiner notes that occupational licensing has noble aims, to protect the health and safety of the public from those who seek to defraud them. But the actual result provides more protection from competition for those in the professions rather than protection for consumers from low-quality providers.

Thirty percent of the work force requires some kind of occupational license today compared with ten percent in the 1970s. This raises costs to consumers, especially those with low incomes who do not wish to pay for the minimum level of “quality” that licensing boards claim to provide.

Kleiner proposes to replace licensing boards with optional certification programs. All individuals could legally practice in a particular profession, but individuals could choose to undergo certification to signal the quality of their training and service provision. Cheaper, uncertified professionals could provide services to those who are more price sensitive.

Kleiner has spent his career studying the decline of labor unions and the rise of occupational licensure as the U.S. economy has shifted from manufacturing to services. In 2006 Regulation published A License for Protection in which Kleiner describes this shift. I’ve also covered his work on dental hygienist regulation here, and the upcoming Summer issue of Regulation will look at his work on nurse practitioner regulation.

Categories: Policy Institutes

Our Freeloading Allies

Thu, 05/29/2014 - 14:54

Christopher A. Preble

One of the overlooked aspects of President Obama’s speech at West Point yesterday was his call for other countries to step forward, and do more to defend themselves and their interests. He also expected them to contribute “their fair share” in places like Syria.

It might have been overlooked because it was neither new, nor unexpected. Polls consistently show that Americans believe we use our military too frequently, and they are tired of bearing the costs of policing the planet. Meanwhile, the minority who believe that we should be spending more on the military  – 28 percent of Americans, according to a recent Gallup poll – might not feel that same way if they knew how much we spend as compared to the rest of the world, especially our wealthy allies.

This new Cato infographic, prepared with the able assistance of my colleague Travis Evans, might help to put it all in perspective. In addition to showing how much American taxpayers spend, it also shows, indirectly at least, how that spending discourages other countries from spending more to defend themselves.

The average American spends nearly $1,900 each year on the military, based on the latest data available. In fact, Americans spend much more than that, because that figure includes the costs of the Pentagon’s base budget, as well as the costs of the wars, but excludes other national security-related expenditures in the Departments of Veterans Affairs, Homeland Security and Energy. Still, that conservative $1,896 figure is roughly four and a half times more than what the average person in other NATO countries spends on defense. These countries boast a collective GDP of approximately $19 trillion, 18 percent higher than the United States. They obviously can afford to spend more, but they don’t. The disparity between what Americans spend relative to our Asian allies is nearly as stark: South Koreans spend about a third as much, and Americans outspend people in Japan by more than four to one.

The reason why is obvious: people are disinclined to pay for things that others will buy for them. Countries are no different. Uncle Sam has picked up the tab for defending other countries since the earliest days of the Cold War, and that pattern continues to this day.

In practical terms, this means that U.S. alliances constitute a massive wealth transfer from U.S. taxpayers to bloated European welfare states and technologically-advanced Asian nations. In most of these countries, the governments who are relieved of the responsibility of defending their citizens from threats have chosen to spend their money on other things.

Consider, for example, the disparity between what the United States spends on the military as a share of total government spending, and what other countries spend. While the United States spends 16.8 percent of the budget on the military, Japan spends a paltry 2.4 percent. Our NATO allies? The average is 3.45 percent. Even South Korea’s share of military spending is only 11 percent, and they have an erratic, hostile regime on their northern border. By promising to provide for these countries’ security, and by spending hundreds of billions of dollars to back up these promises, we have encouraged them to divert resources away from defense.

The U.S. Constitution stipulates that the federal government should provide for the “common defence.” But the document never talks about providing for the defense of other nations. Some of the defenders of the current arrangement try to convince us that our allies are grateful, and that they know they would be lost without us. Just last week, for example, Secretary of State John Kerry told students at Yale, “I can tell you for certain, most of the rest of the world doesn’t lie awake at night worrying about America’s presence – they worry about what would happen in our absence.”  But what our allies are really grateful for is the free ride.

We could have revisited our alliances after the end of the Cold war. We could have paid more attention to the culture of dependency we created among our allies. Instead we continued to spend vast sums on the military, discouraging others from developing their capabilities, and removing their will to use their militaries in ways that could have advanced both their and our security. Today, our wealthy allies are little more than wards of Uncle Sam’s unending dole, and they will remain militarily irrelevant so long as we continue along our present path.

Sources:

Central Intelligence Agency. “The World Factbook 2013.” Washington, D.C., 2013.

The International Institute for Strategic Studies. The Military Balance 2014. Edited by James Hackett. London: Routledge, 2014.

Categories: Policy Institutes

Piling On: More New Research Shows No Link Between “Polar Vortex” and Global Warming

Thu, 05/29/2014 - 13:27

Paul C. "Chip" Knappenberger and Patrick J. Michaels

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

This is getting embarrassing.

Another scientific paper has just been published that again finds no association between Arctic sea ice loss and extreme cold and wintery conditions across the U.S.—White House Science Advisor John Holdren’s favorite mechanism for tying last winter’s persistent “polar vortex” over the eastern US to anthropogenic global warming (AGW).

We wonder just what it will take for the White House to publicly admit that it was grossly wrong. At the very least, it needs to disavow a widely-disseminated YouTube video featuring Holdren explaining the link between last winter’s polar vortex and human-caused climate change. There is no such link. Of course, this won’t happen, as Holdren was simply engaging in a publicity stunt relying on tenuous science to scare up support for President Obama’s Climate Action Plan.  The President is hell-bent on an endless string of executive actions aimed at manipulating the energy market and reducing our energy choices along the way.

As we reported when the video was first released last January, the science linking human-caused climate change to the southward excursions of the polar vortex was a stretch to begin with. It was then dealt a major blow by a study led by Colorado State climate researcher Elizabeth Barnes that was coincidentally published a few days after Holdren’s YouTube video. Barnes’s found that natural variability dominates the observed record, making it impossible to detect any human-caused global warming signal even if one were to exist in the vortex data (which there is no proof of). Shortly after that, a collection of very prominent climate scientists specializing in research into atmospheric circulation patterns wrote a letter to a prominent journal stating that drawing the type of connection that Holdren did was not scientifically advisable

Spurred by all of this, the Competitive Enterprise Institute (CEI) sent a petition to the White House Office of Science & Technology Policy (OSTP) to force Holdren issue a correction under the terms of the Data Quality Act. According to CEI, “OSTP guidelines require the agency to correct any published information that does not meet ‘basic standards of quality, including objectivity, utility, and integrity.’”

Holdren and the White House have been unmoved.

Now comes this: a brand new study, led by Thomas Ballinger of Kent State University, which directly examined the size and magnitude of the 2014 “polar vortex” event and found it to be not particularly unusual.  Yes, it was a significant event ushering a lot of really cold air southward over the eastern 2/3rds of the U.S. and bringing with it all sorts of winter misery, but it wasn’t historically unusual.  In fact, Ballinger’s team, found, in examining polar vortex behavior across North America since 1948, that the 2014 polar vortex excursion into the lower 48 ranked 6th in southerly extent and 7th in total area. The authors concluded that their analysis “revealed that the spatial features of the January 2014 [polar vortex over the U.S.] were not extreme relative to certain 1948-2013 Januaries.”

Ballinger and colleagues took their analysis one step further and examined the historical record to see if they could find a link between the loss of Arctic sea ice and an increase in polar vortex excursions into the U.S.—Holdren’s favored explanation for tying human actions into their own winter suffering.  Here is what they wrote:

While this [polar vortex] study solely examines January, a regional domain, and uses different data to quantify atmospheric circulation, the results presented here are not congruent with the large-scale flow changes suggested in those latter papers [linking Arctic sea ice loss to polar vortex behavior].

Sorry, John.

So with a large and growing body of scientists and scientific evidence aligning against Holdren’s explanation of things, it is high time for a recognition of this by the White House. But since they are no doubt too focused on pushing their new carbon dioxide emissions regulations to find the time to insure that their justification for the regulations are based in fact, we thought we’d help them out and draft a public announcement for them.  Here is what we have come up with:

From the White House:

We’d like to take this opportunity to correct something that we put forward regarding human-caused climate change and the polar vortex from this past winter.  In actuality, and as a collection of new science has shown, that linkage is much more tenuous that we stated, if it even exists at all. 

Our purpose for releasing that video and associated press material was to take advantage of an extreme weather event that was inconveniencing a large number of Americans. We wanted to use the opportunity to try to scare you into supporting our executive actions aimed at restricting carbon dioxide emissions in an effort to mitigate future climate change.  Admittedly, the science is much weaker than federal pronouncements like these make it out to be. But if we were forthcoming with all the data and the complete story that it told, there would be even less support for the Climate Action Plan than currently exists. And since we’re coming clean about things, we’ll go ahead and admit that we realize the regulations forwarded under the Climate Action Plan, most notably the soon-to-be-announced sweeping carbon dioxide emissions restrictions on existing power plants, will have no measureable impact on the very thing that they aim to achieve—mitigating climate change—unless, by eliminating coal-fired electricity generation, there is a technological miracle that no one can anticipate or forecast.  While waiting, you’ll just have to live with more expensive electricity.

We really aren’t very concerned about this because one of the confident predictions from government scientists is that winters should warm preferentially to summers. So you won’t need as much electricity to heat your house.  If we were right about the polar vortex and very cold temperatures in the East, that would be too bad, but we were wrong. 

So, next time you hear a federal pronouncement about climate change and extreme weather (likely coming sometime this summer when it gets hot), note that we are largely making it up and that the larger body of science, economics, and statistics, generally doesn’t support our wild assertions.

We’ll let you know when our phone rings.

References:

Ballinger, T., M.J. Allen, and R.V. Rohli, 2014. Spatiotemporal analysis of the January Northern Hemisphere circumpolar vortex over the contiguous United States. Geophysical Research Letters,doi:10.1002/2014GL060285.

Barnes, E., et al., 2014. Exploring recent trends in Northern Hemisphere blocking. Geophysical Research Letters, doi:10.1002/2013GL058745.

 

Categories: Policy Institutes

Government Data Flows Visualized

Thu, 05/29/2014 - 12:36

Jim Harper

Today, I’m at the House Administration Committee’s Legislative Data and Transparency Conference. It’s become the annual confab for learning what the House is doing to improve transparency, for learning what the Senate is not doing to improve transparency, and to mix and mingle with others working on opening Congress’s deliberations to digital access.

In our 2012 study, Grading the Government’s Data Publication Practices, we issued letter grades reflecting the quality of data the government makes available about its own deliberations, managment, and results, covering legislative process and budgeting, appropriating, and spending. The grading was based on criteria set out in an earlier study, Publication Practices for Transparent Government.

Grades are a way of showing the public, opinion leaders, and legislators what’s going on. For most areas, the grading study showed that access to data is relatively poor.

There is no question that people are working hard on things, and the House has consistently put in the most effort over the last few years. (The recently passed DATA Act now requires the administration to make an effort. Oversight and badgering will help ensure that it does.)

My contribution this year is a brief talk in which I’ll present what’s happening with data another way: by presenting a visualization of what’s happening with data flows—pictures!

Water is a good metaphor for data. Ideally, data would emerge at the source, like a spring, drinkable and ready for use. But very often, key information about government is not available as data at all. People have to pump it out of the ground, turning paper or PDF documents into usable data. Sometimes data isn’t in a format that’s truly useful. It’s undrinkable or “polluted.”

A lot of people in a lot of places are working to take data that is not ready for use and make it available. Our own contribution at Cato is the Deepbills project, which adds data to bills that allows computers to more readily access their meaning. Like a little water treatment plant. It’s not the only one.

It’s a big file (5.6 MB), but if you want, you can look through the PowerPoint. (Ignore the “Soup to Nuts” page—that’s a funny, funny joke, in my opinion, aimed at those who attended last year.)

Categories: Policy Institutes

Corporate Taxes: Less Is More

Thu, 05/29/2014 - 11:04

Chris Edwards

Why does the Canadian federal government collect 1.9 percent of GDP in revenues with a 15 percent corporate tax rate, while the U.S. federal government only collects about the same (2.0 percent) with a 35 percent corporate tax rate?

One reason is that a low corporate tax rate induces higher real investment and economic growth, which in turn generates higher government revenues.

Another reason is profit shifting by multinational corporations. Over time, paper profits are steadily shifted out of countries (such as the United States) that have unfavorable tax rates and tax rules. The (now abandoned) plan for American Pfizer to merge into British AstraZeneca to save $1 billion a year on taxes was one illustration of how tax based migration works.

This May 5 story in Tax Notes International (subscription required) provides another illustration from the pharmaceutical industry:

The combined entity resulting from the proposed acquisition of U.S.-based Allergan Inc. by Valeant Pharmaceuticals would have an effective tax rate in the single digits, around 20 percentage points lower than Allergan’s current rate, according to Valeant CEO J. Michael Pearson.

Quebec-based serial acquirer Valeant on April 22 announced an offer of close to $46 billion in cash and stock in its bid for competitor Allergan, the company behind Botox. The acquisition would make Valeant the second largest company in eye health globally, ahead of Johnson & Johnson and behind Alcon.

Valeant has partnered with Allergan’s largest shareholder, Pershing Square Capital Management, led by CEO William Ackman, to solicit support for the deal from Allergan shareholders.

Ackman said he has spent time familiarizing himself with the sustainability of Valeant’s tax structure. “The company has the benefit of being based in Canada; there are some unique attributes of the Canadian tax system,” he said during an April 22 presentation to investors led by Valeant’s management team. High on the list of selling points are tax synergies that would result from the deal. The combined company would have a high single-digit cash tax rate, Pearson said, adding, “and those of you who know us know what we’re able to do there.”

Pearson may have been alluding to tax savings Valeant has achieved in the past using strategic deal structures and intellectual property migration.

Valeant, which began as a New Jersey company with an effective tax rate in the mid-30 percent range, merged with Canadian pharmaceutical company Biovail Corp. in a 2010 inversion that resulted in a combined company domiciled in Canada with offshore IP and a worldwide effective tax rate of about 5 percent. Last year Valeant bought New York-based Bausch & Lomb for around $8.7 billion cash and promptly integrated the U.S. company into Valeant’s decentralized model.

During the April 22 presentation, Valeant CFO Howard Schiller confirmed that the Allergan acquisition plan would be business as usual on the tax front: Allergan would be integrated into Valeant’s corporate structure in much the same way as Bausch & Lomb, with the new company based in Canada.

“We’ll use an installment sale approach to migrate our IP to our Irish subsidiary and, just like in Bausch & Lomb, we expect to get immediate synergies in that regard,” Schiller said, adding, “and we will have a high single-digit tax rate for the foreseeable future.”

The tax projection comes from five- to six-year models and should be welcome news to shareholders of Allergan, which expects an effective tax rate for 2014 of between 26 and 27 percent.

But Valeant is sensitive to those who might see the new effective rate as high, compared with the company’s typical low single-digit rates. “There are things that we’re looking at that we could possibly do to improve that,” Schiller said. “Over time, if we bought assets outside the U.S., which, given our footprint we’re likely to do, that would create opportunities.”

 

Categories: Policy Institutes

Pages