In 2008 the U.S. Chamber of Commerce supported TARP, the $800 billion Wall Street bailout. Early in 2009 the Chamber supported President Obama’s $800 billion “stimulus” bill. Then four months later it announced its creation of the “Campaign for Free Enterprise.” As I pointed out at the time, it would have been nice if the Chamber had discovered the virtues of free enterprise when it mattered.
Now the Chamber’s got a new campaign that seems incongruous for a “free enterprise” organization. It has endorsed the primary opponent of Rep. Justin Amash (R-MI), the most pro-free-enterprise and most libertarian member of Congress. You don’t have to take my word for that. The Club for Growth rates Amash 100 percent. The National Taxpayers Union rates him second among 435 members of Congress in fiscal conservatism. He scored 100 percent on the Freedomworks Scorecard.
So why would the Chamber of Commerce oppose him? I looked at big business opposition to Amash and several other libertarian-leaning legislators last month:
In Michigan business leaders are funding financial consultant Brian Ellis’s primary challenge to Rep. Justin Amash. Since his election in the 2010 tea party wave, Amash has emerged as the most libertarian member of the House of Representatives. He’s second to McClintock on the National Taxpayers Union spending-vote ratings. He organized a bipartisan effort to rein in the National Security Agency that came within a few votes of passing the House. He heads the House Liberty Caucus. Amash told the New York Times, “I follow a set of principles, I follow the Constitution. And that’s what I base my votes on. Limited government, economic freedom and individual liberty.”
So why wouldn’t Grand Rapids business leaders be proud to have such a widely admired young representative? They say they want a congressman who will work with others to “get things done.” Andrew Johnston, the political director of the Grand Rapids Chamber of Commerce, told the Wall Street Journal, “There is frustration among those who think his rigidity makes it difficult to move forward on legislation.” He promised that Ellis “will have access to funds that will be helpful to his campaign.”
It’s not just local businessmen. Washington lobbyists are rallying around Ellis. He’s also put $400,000 of his own money into his campaign—in the form of loans, which can be paid back out of more lobbyists’ contributions if he wins the race.
In an interview with the Weekly Standard, Ellis strikingly dismissed Amash’s principled, constitutional stand: “He’s got his explanations for why he’s voted, but I don’t really care. I’m a businessman, I look at the bottom line. If something is unconstitutional, we have a court system that looks at that.”
Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.
Amash does have the support of Freedomworks, Club for Growth, and some local business leaders such as several members of Amway’s DeVos and Van Andel families. And polls show him 20 points ahead of Ellis. But Rep. Eric Cantor had a poll putting him 30 points ahead of David Brat before he unexpectedly lost, and Ellis’s self-funding now amounts to $800,000. So Amash can’t take anything for granted.
Of course, the Export-Import Bank is now a hot issue in Congress. Amash opposes it; the Chamber vigorously supports it. So it looks like it may be tough to support free markets, oppose bailouts and corporate welfare, and receive the support of the nation’s largest business organization.
Michael F. Cannon
The U.S. Court of Appeals for the D.C. Circuit could issue a ruling today in Halbig v. Burwell, one of four lawsuits challenging an Internal Revenue Service rule that effectively implements the Patient Protection and Affordable Care Act’s exchange subsidies where the statute does not permit: in exchanges that were not “established by the State” – i.e., federal exchanges.
Tim Jost, Norman Ornstein, Avalere Health, the Urban Institute, the Robert Wood Johnson Foundation, and others who support the Obama administration’s position (we cannot say they support PPACA) predict much disruption if the courts rule against the administration.
In 2011, the Obama administration issued an IRS rule in which it unilaterally decided to tax, borrow, and spend billions of dollars. Treasury and IRS officials apparently knew they did not have statutory authority to do it. They did it anyway.
The impact of that IRS rule has been enormous. Insurers chose to participate in the PPACA’s Exchanges who otherwise would not have. Employers have reconfigured their health insurance benefits, eliminated jobs, and/or cut hours for perhaps millions of employees, including teaching assistants and restaurant workers, to comply with a mandate from which they are, by law, exempt. Millions of Americans are already paying penalties under, or have purchased coverage to comply with, an individual mandate from which they are, by law, exempt. Nearly 5 million Americans agreed to enroll in Exchange coverage with the promise of subsidies the Obama administration has no authority to offer to them, that could vanish with one court ruling or by regulatory fiat. With every unauthorized subsidy that flows from the IRS to private insurance companies, the federal debt rises above the level authorized by law, imposing an unauthorized tax burden on current and future generations.
The IRS rule has had a sweeping impact on the political process as well. It denied states—denied voters—the use of a policy lever Congress granted to them: the ability to veto the PPACA’s subsidies, employer mandate, and individual mandate. In effect, the rule disenfranchised voters in the 36 states that exercised those vetoes. Had the administration followed the law, those 36 vetoes would have led to changes in the PPACA, and possibly changes in Congress. Instead, the IRS rule altered the outcome of congressional votes and, likely, of congressional elections. Americans voted in 2012 as if there were not a gaping hole in the PPACA that would expose its full cost and destabilize its regulatory scheme. The IRS rule is still influencing congressional elections today. Potential candidates are deciding whether to enter the 2014 congressional races as if that gaping hole does not exist; as if the law Congress enacted were more popular and successful than it actually is…
The purpose of Halbig is to end the massive economic and political disruption caused by the president’s decision to ignore the clear statutory language he is sworn to uphold.
How do you plan for the unpredictable? That’s the question facing the more than 400 metropolitan planning organizations (MPOs) that have been tasked by Congress to write 20-year transportation plans for their regions. Self-driving cars will be on the market in the next 10 years, are likely to become a dominant form of travel in 20 years, and most people think they will have huge but often unknowable transformative effects on our cities and urban areas. Yet not a single regional transportation plan has tried to account for, and few have even mentioned the possibility of, self-driving cars.
Instead, many of those plans propose obsolete technologies such as streetcars, light rail, and subways. Those technologies made sense when they were invented a hundred or so years ago, but today they are just a waste of money. One reason why planners look to the past for solutions is that they can’t accurately foresee the future. So they pretend that, by building ancient modes of transportation, they will have the same effects on cities that they had when they were first introduced.
If the future is unpredictable, self-driving cars make it doubly or quadruply so. Consider these unknowns:
- How long will it take before self-driving cars dominate the roads?
- Will people who own self-driving cars change their residential locations because they won’t mind traveling twice as far to work?
- Will employers move so they can take advantage of self-driving trucks and increased employee mobility?
- Will car-sharing reduce the demand for parking?
- Will carpooling reduce the amount of vehicle miles traveled (VMT), or will the increased number of people who can “drive” self-driving cars increase VMT?
- Will people use their cars as “robotic assistants,” going out with zero occupants to pick up groceries, drop off laundry, or do other tasks that don’t require much supervision?
- Will self-driving cars reduce the need for more roads because they increase road capacities, or will the increase in driving offset this benefit?
- Will self-driving cars provide the mythical “first and last miles” needed by transit riders, or will they completely replace urban transit?
Planners from the MPOs in Seattle and Atlanta asked participants at the recent Autonomous Vehicle Symposium to help them incorporate self-driving cars in their regional transportation models. Yet the consensus was that no one has any idea about the answers to the questions I aksed above. The only prediction that people could come close to agreeing on was that self-driving cars will increase miles of driving as people take advantage of greater mobility more than they increase carpooling.
Self-driving cars are not a black swan amidst the flock of knowns about urban planning; they are a whole flock of black swans, any one of which could completely sink even the most accurate predictions about all the others.
Some of the planners believed they could make guesses about the effects of self-driving cars and use them to make “sensitivity runs” to estimate the possible magnitude of the effects of self-driving cars on cities. But even if they made such runs, they would have no idea which runs will come close to reality.
“There are no models in planning practices that can predict the emergence of new modes and forms of mobility,” admitted one planner. “Our models haven’t even got the Internet yet. They haven’t got the cell phone. They’re not going to have autonomous cars.” Another agreed: “ITS [intelligent transportation systems] is 25 years old, but our models still don’t account for it.”
We are about to introduce a new technology that will completely transform our society in unpredictable ways, and many of those transformations will start changing travel behaviors and land-use patterns well before 20 years are up. The fact that the plans are revised every five years doesn’t help because many of those plans include costly investments in projects that take decades to complete. Even if new information reveals that those investments are no longer appropriate, once begun the political pressure to complete the projects will likely be too great for future officials to resist.
This means it’s not enough to simply rewrite transportation planning models. We need to rewrite the entire process of urban planning, following four principles:
- Instead of writing 20-year plans that pretend to know what a city will need in the distant future, planners should only write short-term plans that solve today’s problems without foreclosing options for the future.
- Planning processes should be streamlined so that it no longer takes 10 or more years to plan, design, and build facilities that, a few decades ago, were built in a couple of years.
- Urban areas should avoid infrastructure projects that take decades to complete and would make sense only if people completely changed their lifestyles.
- New transportation facilities should be “generic” in the sense that they can be used by a wide variety of modes and easily adopted for whatever modes become dominant in the future.
If some of these suggestions sound familiar, that’s because I’ve made them before, particularly in my 2007 book The Best-Laid Plans. The future is unpredictable even without self-driving cars, and I’ve had little faith in the ability of long-range plans to cope with those unpredictabilities. But now even the planners are willing to admit that they can’t cope with the unpredictable effects of this new technology. I hope that at least some of them are willing to tell that to Congress, which created the requirement for 20-year plans, that it needs to change the rules.
Steve H. Hanke
I constructed a misery index and ranked 89 countries from most to least miserable based on the available data from the Economist Intelligence Unit. My methodology is a simple sum of inflation, bank lending and unemployment rates, minus year-on-year per capita GDP growth. The table below is a sub-ranking of all former Soviet Union (FSU) states contained in my misery index.
For these FSU states, the main contributing factors to misery are high levels of unemployment and high interest rates.
The low misery index scores in Estonia and Lithuania don’t surprise me as I helped both countries establish sound money with the installation of currency boards in 1992 and 1994, respectively. Latvia, a country Paul Krugman loves to hate, takes the prize for the least miserable of the former Soviet Union countries in this sub-ranking.
President Obama recently asked Congress for authority to treat Central American children in the same way the government treats Mexican children. The Asylum Reform and Border Protection Act (H.R. 5137), introduced today by Reps. Chaffetz (R-UT) and Goodlatte (R-VA), Chairman of the House Judiciary Committee, goes beyond the President’s request. The bill eliminates any sort of review for juvenile victims of trafficking and the requirement that an immediate return of a child be voluntary.
Under current law, Mexican children may be immediately removed if they are:
- Not severe victims of trafficking,
- Not asylum seekers, or
- If they accept voluntary departure, a procedure by which the child admits that he or she has no right to be here and leaves in lieu of formal removal proceedings.
Under the proposed H.R. 5137, all children caught at the border would be subject to expedited removal, a process under which they can be removed without a hearing before a judge if they have no credible fear of persecution (8 USC 1225(b)). This process triggers an automatic 5-year bar on legal reentry (8 USC 1182(a)(9)(A)(i)). Any child caught at the border may be detained until his asylum application is adjudicated. It extends the current arbitrary one year deadline on asylum applications for adults to children.
Unaccompanied children could be detained or released under the bill while waiting for final approval of their asylum application, but the bill redefines “unaccompanied” to mean that once a child has been released to a parent, they no longer qualify for release, which means they would head right back into detention.
Worse, H.R. 5137 raises the initial standard of review for all asylum claims for children. Rather than going before a judge simply by asserting a fear, they would actually have to convince an asylum officer that their claim was “more probable than not” to be factual in order to even to go before a judge. Raising the standard that high for an initial review would bar many legitimate asylum seekers.
Even worse, H.R. 5137 allows children apprehended at the border to be removed without any asylum screening to a “safe third party country” (i.e. Mexico) without an agreement from that country, as is required by current law. If H.R. 5137 becomes law, the U.S. government would immediately start dumping Honduran, El Salvadoran, and Guatemalan children into Mexico.
The crisis along the Southwest border has prompted many Americans to want all unlawful immigrants and children removed. But this bill goes far beyond that desire. H.R. 5137 would remove many foreigners who have legal rights under our current immigration laws. H.R. 5137 would be a disastrous blow to America’s asylum system and send numerous children with legitimate asylum claims back into danger.
One persistent American complaint about the Mexican government’s opposition to immigration laws like Arizona’s SB-1070 is that Mexico’s immigration policy is far more restrictive than that of the United States or anything proposed in Arizona. In 2010, Representative Ted Poe (R-TX) articulately pointed out the Mexican government’s blatant hypocrisy. Brutal Mexican immigration laws were not only bad policy for Mexico but exposed an absurd level of hypocrisy.
After Representative Poe’s comments, the Mexican government passed a Migratory Act in 2011 that went into effect on November 1, 2012. This law replaced the General Law of Population that created the oppressive Mexican immigration laws Rep. Poe and others rightly critiqued. The Migratory Act made a number of significant changes:
- Guarantees the equal treatment of migrants and Mexican nationals under Mexican law, entitling them to due process,
- Establishes “family unity and the best interests of children and adolescents as the principal criteria for the admission and stay of foreigners for temporary or permanent Mexican residency, alongside labor and humanitarian causes,”
- Establishes offices for protection of migrants’ human rights and the investigation of crimes purportedly committed against migrants, including those committed by immigration officials,
- Simplifies entrance and residence requirements,
- Establishes a point system for those who apply for residence,
- Creates a 3 day regional visitors visa for people from neighboring countries,
- Streamlines the visa application process.
Other legal changes to Mexican laws in 2008 reduced the punishment for illegal entry from up to ten years in prison to a maximum fine of 5000 pesos. The Mexican government also introduced temporary visas, valid for up to a year, for agricultural laborers from Guatemala and Belize working in Mexico’s southern states. In 2010, undocumented migrants were guaranteed the right to report human rights violations and receive medical treatment without prosecution.
Mexican Immigration Laws, Central American Free-Movement Zones, and the Increase in Central American Immigration
One unintended consequence of Mexico’s more liberalized immigration laws, partly in response to legitimate American criticism, is that now the migration of people from Central America to the United States through Mexico is much cheaper than it used to be. The biggest hurdle for Central American migrants used to be the militarized Southern Mexican border and the abuse by corrupt police, which the Migratory Act of 2011 mitigates.
Mexico isn’t the only country that changed its immigration and border control policies in recent years. In June 2006, El Salvador, Honduras, Guatemala, and Nicaragua signed the Central America-4 (CA-4) Border Control Agreement that created a common passport and obliterated border controls and movement restrictions between those four nations. The removal of political barriers to movement has decreased the costs of migrating northward toward the United States.
Liberalized Mexican and Central American immigration laws and border controls likely play a role in lowering the cost of migrating to the United States. Ironically, American complaints that partly spurred Mexican immigration policy changes are likely a contributing factor of the recent increase in Central American migration.
I’m sad to report that Venezuelan journalist and Cato adjunct scholar Carlos Ball passed away last week. He was 75. Carlos was a champion of liberty and a long-time friend to so many of us in the freedom movement in the Americas. His life was a testimony to the power of ideas, and he lived it true to his classical-liberal convictions.
Carlos was a co-founder of CEDICE, the market-liberal think tank in Caracas that celebrated its 30th anniversary this year and with whom Cato has worked closely for many years (and that has been severely harassed by the Chavista regime). In the 1980s, Carlos was the editor of El Diario de Caracas, an important daily that was critical of government policies. It was when Carlos represented Venezuelan journalists at an Inter-American Press Association conference in 1987 in San Antonio, Texas and denounced then-President Lusinchi’s attacks on freedom of the press, that Lusinchi demanded that Carlos be fired from the newspaper, conditioning the renewal of the license of the popular television station RCTV—part of the same media company—on that outcome. Carlos was let go from the paper, he was criminally charged by the government, and was told by the judge presiding his case that “I have orders from above.” It was at that time that Carlos left Venezuela, moving to Florida where he would live the rest of his life. RCTV received a 20-year license. It was the expiration of that license in 2007—that Hugo Chavez refused to renew, thus shutting down the television station—that triggered the massive student uprising against the government that year. (As a result, Chavez lost a constitutional referendum and temporarily slowed down his accumulation of power.)
The idea that Venezuela was doomed to repeat such experiences and that the country would only lose more freedoms if economic freedom was not also respected was a long-time theme in Carlos’s writings. In that regard, he was among a very small group of Venezuelan intellectuals who decades ago warned against the ideology of socialism predominant in the political system and much of Venezuelan society. Indeed, he very correctly viewed Hugo Chavez’s regime as a logical, though more extreme, extension of what had come before. “Chavez,” he wrote, “has intensified, accelerated and exacerbated corruption, the concentration of power, the violation of property rights” and the power of the bureaucracy in people’s lives. In a 1992 essay, Carlos wrote that the “fatal date” for his country was January 1976, when President Perez nationalized the petroleum industry. That “meant a radical change; for the first time since the death of General Gomez , political and economic power was again concentrated in the same hands: in those of the head of state.”
He would later write: “Without that concentration of wealth in political hands, Chavez would never have been able to Cubanize Venezuela because it was the economic power of oil that allowed the government to crush the individual liberties of the Venezuelans.” How right he was.
In 1991, Carlos established AIPE—the Inter-American Economic Press Agency—which syndicated articles of the region’s leading classical liberals in Latin America’s most important newspapers. He also translated and syndicated articles by Milton Friedman, Gary Becker, James Buchanan and other prominent scholars, thus introducing those thinkers too to countless Latin American readers. On Cato’s Spanish-language web site (elcato.org), we were able to create a special Milton Friedman page made up of a collection of Friedman’s articles, mostly from AIPE. Indeed, when we created elcato.org in 1998, AIPE provided much of the material we posted. It also provided a model we would soon adopt of publishing articles in the region that we then posted. By the time Carlos closed AIPE in 2010, he had syndicated 8,788 op-eds from 734 authors. The following year, Stanford University’s Hoover Institution included the complete collection of articles in its prestigious archives.
Venezuela’s long and tragic decline into authoritarianism and economic backwardness has sadly vindicated Carlos’s views. But as became clear to me during a visit a few months ago to Caracas, the eruption of massive, peaceful, student-led protests this year shows a new appreciation of liberty among Venezuelans. As Maria Corina Machado—a leading opposition leader who explicitly advocates economic, political and civil liberties—said at the CEDICE event I attended, the country has clearly changed this year and people are demanding a broad spectrum of liberties as never before. CEDICE is playing an important role in that change and it is part of Carlos Ball’s legacy.
A few months ago, I sent Carlos an article I wrote on Venezuela that appeared in El Comercio (Peru). He responded with enthusiasm and encouragement, signing off “Viva Cato!” I will miss Carlos.
Last month Uber, the San Francisco-based transportation technology company that connects drivers and passengers via its app, raised $1.2 billion in a funding round valuing it at $18.2 billion, making it worth about the same as Hertz Global Holdings Inc. and Avis Budget Group Inc. combined. In a recent Bloomberg interview Bill Maris, the managing partner of Uber investor Google Ventures, said that Uber’s long-term market value could be “$200 billion or more,” about the market value of Toyota.
Maris not only expressed confidence in Uber’s management, he also said that the company could become a large logistics company.
“I am confident in Travis and his team,” Maris told Bloomberg News in an interview at Fortune’s Brainstorm Tech conference in Aspen, Colorado. “His vision is huge and he has showed he can execute,” Maris said of Uber’s co-founder Travis Kalanick.
As Uber disrupts the transportation market around the world, it’s also experimenting with delivery services and could become a huge logistics company with a market value of $200 billion or more, said Maris.
“It’s an incredibly creative team – their growth shows they are clearly onto something,” he said of Uber. But Maris also warned that, like any startup, “it could also go down to zero.”
Uber board member and investor Bill Gurley has said that the company’s market opportunity is between $450 billion and $1.35 trillion per year and that Uber could be considered an alternative to private car ownership. Indeed, Uber CEO Travis Kalanick said in an interview with The Wall Street Journal that the company’s vision is “Basically make car ownership a thing of the past.”
While Uber is certainly innovative it is a long way from making “car ownership a thing of the past” or becoming a large-scale logistics company. That said, it is clear that some investors foresee huge growth in Uber despite the regulatory barriers it has been facing. The technology that allows Uber and other so-called “sharing economy” companies to work is not going anywhere, and when one considers Uber’s growth since it launched in 2009 (it’s now operating in about 150 cities in 41 countries) it is not hard to see why Maris believes the company’s long-term market value could be at least $200 billion.
It doesn’t happen often, so I like to highlight it when it does. Here is Australian trade minister Andrew Robb:
We’ve seen over the last thirty years in Australia that tariffs are down on average 2.7 per cent across the economy. A lot of that was done unilaterally – we didn’t wait for the rest of the world and it’s one of the reasons that we’ve had uninterrupted growth for 23 years, because we are a very open economy. We’ve got to drive it further, we’ve got to be more competitive but so does the rest of the world.
Daniel J. IkensonFirst there were oil and gas export restrictions, then pipeline injunctions, now import restrictions on the steel needed for exploration and extraction. Washington is coming from all angles to kneecap the energy boom sparked by the horizontal drilling and fracking revolutions – a once in a generation supply-side shock, which otherwise promises to attract a flood of foreign investment and serve as a wellspring of economic growth and job creation. The most recent assault on our “All of the Above” energy policy comes via our fantastically self-destructive trade policy. Last Friday, in a final antidumping determination, the U.S. Department of Commerce found exporters from nine countries to be dumping “Oil Country Tubular Goods” (OCTG) – a class of steel products used primarily in oil and gas well projects – in the U.S. market. The most important foreign source of OCTG in the case was South Korea, whose exporters were found NOT to be dumping in the preliminary determination issued back in February. But in the intervening months, the U.S. steel industry and the Congressional Steel Caucus impressed upon the bean counters at Commerce that the methodology they used for the Korean preliminary determination was inferior to an alterative they favored. Without getting too into the weeds here, as tends to happen when exposing the dishonesty of the antidumping regime, suffice it to say that the revision from 0% dumping margins to 10%-16% for Korean exporters was primarily the result of Commerce changing its estimate of what the home market profit rate “should be.” For the preliminary determination, that estimate was based on Korean OCTG producers’ experiences (with OCTG and other products). For the final determination, Commerce changed its estimate to one based on a University of Iowa graduate student’s estimation of the profit experience of a single Argentine OCTG producer named Tenaris. That’s right! The cost of steel for U.S. oil well projects will rise – maybe 16% – because some student was messing around with @functions on Microsoft Excel.
In its preliminary determination, Commerce expressed reservations about using that estimate: While the Tenaris profit information reflects predominantly OCTG sales, it represents neither production nor sales in the market under consideration. In addition, it is based on a research paper containing a disclaimer statement regarding its accuracy. Commerce then elaborated: The Tenaris profit information is based on a research paper prepared by a student at the University of Iowa School of Management. And the footnote associated with that comment was more illuminating still: This report was created by a student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management and contains several disclaimers. The intent of the report is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers, or officially licensed financial professionals. The investment opinion contained in the report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts, and figures included in this report are from publicly available sources. The report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report. Antidumping calculation – like the law itself – is farcical and driven mostly by political considerations. U.S. abuse of its antidumping law and the government’s growing reputation for flaunting the rules of trade hurt most Americans now and threaten worse in the future. I elaborate on the OCTG case, steel industry capture of the antidumping levers, and U.S. trade offenses in this piece in Forbes today.
Truth in legislative portraiture from the Pennsylvania State Capitol, as reported by Kris Maher in the Wall Street Journal: “On Tuesday, officials in the capital, Harrisburg, placed plaques beneath the portraits of three former state House speakers and a former Senate president pro tempore listing when the lawmakers left office—and when they were sentenced to prison.” The idea was a compromise between those who felt the portraits should be taken down entirely and those who favored keeping them on display with no mentions of criminality. The plaques cost $63.75 each, and if their shaming presence even slightly improves lawmakers’ incentives to avoid corruption, they could prove a good investment:
Pennsylvania was ranked the fifth most corrupt state in a recent study that analyzed federal data from 1997 to 2008. During that time, malfeasance among state officials appeared to boost per capita spending by about 5% in the 10 states with the highest levels of corruption, the study published in Public Administration Review found.
Paul Light of Brookings and NYU is a top expert on the federal bureaucracy. He has a new study on federal government failures over the 2001 to 2014 period.
Light’s paper is useful. He identifies 41 major federal failures, examines the reports completed on each, and classifies the types of mistakes that took place. From the 9/11 terrorist attacks to the recent veterans health care scandal, Light points to failures in both “operations” and “oversight.”
Certainly, government operations and oversight fail frequently. But I look at many of Light’s 41 events and see more fundamental failures than he does. Federal policies, for example, often distort the economy in ways that are bound to cause problems. Federal interventions based on coercion are generally worse than solutions developed in the private, voluntary sphere of society.
Light classifies the 2008 financial collapse as a failure of federal “oversight.” He says, “after years of risky investments and with little regulation, the banking system collapsed under the weight of toxic assets created by risky mortgage loans, poorly understood financial instruments, and a credit crisis that froze the economy.”
But it was government policies—such as Federal Reserve interest rate policies and federal housing subsidies—that incentivized the bad behavior on Wall Street. Federal oversight may have been poor, but the main problem was that government-created distortions cascaded and undermined markets.
On Hurricane Katrina, Light notes that the federal emergency response was a failure in operations, and it is true that FEMA officials were mired in confusion and indecision when the storm hit. However, it was decades of misguided policies that encouraged many people to live in low-lying and dangerous areas in New Orleans in the first place, which made the disaster much worse.
After an initial coding of failures between “operations” and “oversight,” Light does proceed to look more deeply into why the government failed in each of the events. He finds multiple causes behind all of the failures, with the most common factor being poorly designed policies.
Still, there are deeper reasons why the government fails than the potentially fixable problems that Light identifies. Superficially, the veterans health care scandal is just a failure of “operations,” but the fundamental problem is the federal attempt to centrally plan an industry rather than relying on markets.
Light’s study is a thoughtful piece that will hopefully generate a broader discussion about government failure. The 15 factors in this recent testimony are my initial stab at identifying some of the more fundamental reasons for government failure.
The recent primary defeat of House Majority Leader Eric Cantor was one of the bigger shocks to American politics in some time. Congressional leaders, known to bring home the bacon for local folks, usually are handily reelected.
But Cantor’s loss will do more than simply reshuffle the biggest offices on Capitol Hill. He gave lip service to fiscal responsibility but was, argued Nick Gillespie of Reason, “atrocious and hypocritical in all the ways that a Republican can be,” constantly voting to grow government.
Indeed, Cantor’s constituency was as much corporate America as it was Virginia voters. Business was counting on him to help reauthorize the Export-Import Bank, known as “Boeing’s Bank” for lavishing extensive benefits on one company; extend terrorism risk insurance, which transfers financial liability for loss from firms to taxpayers; and preserve Fannie Mae and Freddie Mac, which nearly wrecked the economy while subsidizing homeowners, builders, and lenders.
The New York Times observed that Cantor was “a powerful ally of business big and small, from giants like Boeing to the many independently owned manufacturers and wholesalers that rely on the federal government for financial support.” He also was “one of Wall Street’s most reliable benefactors in Congress.” His opponent, an economics professor, targeted Cantor’s crony politics.
Sen. Thad Cochran (R-Miss.) faced a similar political challenge, trailing a Tea Party-backed state senator in the initial primary vote and before narrowly winning the runoff. Widely viewed as the “king of pork,” Cochran relied on his ability to raid the Treasury to pay off fellow Mississippians.
Cochran also has been a regular supporter of business subsidies, which is why corporate America returned the favor. Economic elites surprised by Cantor’s loss “are moving quickly to ensure that Mr. Cochran does not meet the same fate,” reported the Times.
It long has been evident that the greatest enemies of capitalism are the capitalists. Even Adam Smith, the famed author of The Wealth of Nations and great proponent of free markets, warned that businessmen oft gathered together to conspire against the public.
Of course, business is not alone in shoving its snout into the federal trough. Big Labor and many other influential interests do so as well. However, the disjunction of simultaneously praising and undermining the free market is particularly jarring when coming from businessmen.
Alas, our entire political system has been corrupted. In April, Sen. Mike Lee (R-Utah) gave a thoughtful speech warning of “America’s crisis of crony capitalism, corporate welfare, and political privilege.” The victims are every day folks, “the poor and middle class” excluded by government “from earning their success on a level playing field.”
Which helps explain Americans’ ever greater frustration with politics. Moreover, as Cantor discovered, discontent with the politics of privilege may be as strong on the right as on the left.
Who is the better candidate in any particular race is up to the voters in that district or state, but citizens everywhere should be angry when businessmen and politicians together subvert the market economy.
The problem is not just the money–roughly $100 billion a year for corporate welfare, for instance–but also the disturbing is the message government is sending to all Americans. As I point out in my latest article at Fee.org: “The way to rise and prosper, to expand one’s business and increase one’s income, is to seize control of state to loot your neighbors. Gaining wealth by working hard is, well, hard work. It is so much better to hire a lobbyist and whisper sweet nothings in legislators’ ears. No heavy lifting there.”
Moreover, the illusion of consent cannot hide the dubious moral principles relied upon. The purpose of government is to advance particularly important and genuinely collective interests which cannot be achieved privately. Taking people’s earnings for anything less differs little from theft.
Eric Cantor’s defeat is a useful reminder that even the political class is ultimately accountable to the people, but only by sharing that message widely do we have any chance of rolling back the rampant political privilege and cronyism which dominates Washington today.
In a world aflame, religious minorities are among those who suffer most. Pakistan is notable for its failure to protect religious liberty, the most basic right of conscience.
The State Department recently reported on Pakistan that “The constitution and other laws and policies officially restrict religious freedom and, in practice, the government enforced many of these restrictions. The government’s respect for and protection of the right to religious freedom continued to be poor.”
Minority faiths frequently face violent attack. Although Islamabad does not launch these assaults, it does little to prevent or redress them. This failure, the State Department explained, “allowed the climate of impunity to continue.”
The most common tool of persecution may be the charge of blasphemy which, explained the U.S. Commission on International Religious Freedom, is used to “target members of religious minority communities and dissenting Muslims and frequently result in imprisonment.” The blasphemy laws are made for abuse: “The so-called crime carries the death penalty or life in prison, does not require proof of intent or evidence to be presented after allegations are made, and does not include penalties for false allegations.”
With evidence unnecessary, the charge is routinely used in personal and business disputes. Penalties are not limited to the law. Since 1990, at least 52 people charged with blasphemy have been killed before reaching trial.
Judges who acquitted defendants and politicians who talked of reforming the blasphemy laws also have been assassinated. In May, gunmen killed a human rights lawyer who was defending a professor accused of blasphemy.
Although Pakistan is not alone in punishing religious free speech, it has jailed more people for blasphemy than any other nation. The group Freedom House published a detailed report on the detrimental impact of blasphemy laws: these measures “impose undue restrictions on freedom of expression” and are “prone to arbitrary or overly broad application, particularly in settings where there are no checks and balances in place to prevent abuses.”
Pakistan originally respected religious liberty. Alas, the government of dictator Mohammed Zia ul-Haq not only criminalized blasphemy, but, as Freedom House noted, also imposed “harsh Shari’a punishments for extramarital sex, theft, and violations of the prohibition of alcohol.”
The impact of such laws fell most heavily on religious minorities and liberals. Again, Freedom House: “it is clear that Pakistan’s blasphemy laws are used politically and applied disproportionately to non-Muslims. Although many other countries have laws against blasphemy, the situation in Pakistan is unique in its severity and its particular effects on religious minorities.”
Unfortunately, there are spillover impacts from abusive blasphemy prosecutions. Freedom House warned: “Pakistan’s blasphemy laws foster an environment of intolerance and impunity, and lead to violations of a broad range of human rights, including the obvious rights to freedom of expression and freedom of religion, as well as freedom from arbitrary arrest and detention; the right to due process and a fair trial; freedom from torture and cruel, inhuman, and degrading treatment; and the right to life and security of the person.”
Obviously, there is little the United States can do directly about policy in Pakistan. However, the International Religious Freedom Act empowers the State Department to designate countries as Countries of Particular Concern.
As I noted in my latest Forbes online column: “A state which fails to protect the right of individuals to respond to their belief (or unbelief) in God is more likely to leave other essential liberties unprotected. And a society in which life and dignity of the human person is not respected is more likely to become a hothouse to hostile ideas and beliefs, ” which we see in Pakistan today. Rising religious extremism, exemplified by abusive blasphemy prosecutions, threatens the integrity of the Pakistani state and thus the security of its nuclear program.
Although Americans cannot control policy in Pakistan, they can help highlight a problem that threatens people in that nation and ultimately others around the world.
The Congressional Budget Office has released new long-term projections of federal spending and debt. Without reforms, spending is expected to rise steadily and dangerously as a share of the economy in coming decades. The chart below shows spending under CBO’s “extended alternative” scenario, which assumes that politicians keep current policies in place. Spending would rise from 17.6 percent of GDP in 2000, to 20.4 percent this year, to 31.8 percent by 2040.
Under that scenario, federal debt held by the public would rise from 74 percent of GDP this year to a giant 170 percent by 2040. But if spending and debt were to rise along that trajectory, we would surely have a major financial and economic meltdown long before we got to 2040.
Our fiscal outlook is actually much worse than reflected in this scenario. That’s because under the basic extended alternative, CBO does not take into account the negative effects of rising spending and debt on GDP over the long term. CBO does have a special chapter in their report looking at some of these negative effects—but only some of them. In this testimony, I mention reasons why the outlook is worse than under the CBO baseline.
Steve H. Hanke
Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.
All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.
That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system provides monetary and fiscal discipline, which produces positive results in a region plagued with problems.
Well into our sixth year with this president, we’re long past the point of having to demonstrate his indifference to the rule of law—the unconstitutional appointments, the Obamacare rewrites, the IRS and VA scandals, the list goes on. In fact, it’s Obama’s indifference simply to doing his job that lately has drawn attention. “The bear is loose”—on the golf course, in the pool hall, dining late with athletes and entertainers. It’s driven House Republicans to talk of impeachment and of a House suit against him for his failure to faithfully execute the laws.
Both would be a mistake, Thomas Sowell tells us this morning, and he’s right. As November’s mid-term elections loom just ahead, either course would shift public attention from Obama to his critics, just as happened when the House impeached President Clinton. Not that there isn’t a case to be made for both impeachment and a suit. But impeachment, at the end of the day, is less a legal than a political matter, as we saw in the Clinton episode. So too is the suit that Speaker Boehner is now considering. Both proposals, therefore, have to be looked at through that lens.
To a good many in the House, however, a suit against the president seems like the lesser but wiser course. And contrary to first impressions, including my own, such a move is not as far-fetched as it might seem. In fact, if one takes the time to wade through the dense testimony that our good friend Elizabeth Price Foley presented to the House Judiciary Committee last February, it soon becomes clear that the standing objection that arises immediately with such a suit could likely be overcome in this case.
But even if a suit could get off the ground, would one be wise? True, unlike with impeachment, where the House is the “grand jury” and the Senate the “court,” in this case it wouldn’t be the other political branch attacking the president. Rather, attention would be directed to the third, non-political branch of government, where the action would be happening, and that would soften the attack to some extent, making it seem less a political than a legal charge. But those are subtleties. In the hands of the media, they’d likely pass over most heads as we move toward November.
And what turns on November? Nothing less than the courts themselves, as Sowell points out. To elaborate just a bit on the point, after November, Obama will have two more years in office. He got off to a slow start exercising the most long-lasting of a president’s powers, the power to nominate judges for lifetime appointments on our federal courts. But he’s catching up. We saw just last month how his two Supreme Court appointments have read the Constitution on some of the most important cases of the Court’s just-concluded term.
Well it’s no different below, especially in the courts of appeal, except that it’s less noticed. We tend to focus on the Supreme Court, which blinds us too often to the fact that the Court decides only 70 or so cases a year while the 13 federal appellate courts terminate some 60,000 cases—and they don’t always follow the guidance of the Supreme Court in doing so. It’s crucial, therefore, given the inclination of this president to see his view of the Constitution reflected in the people he nominates for seats on those courts, to have a Senate over the next two years that will carry out its advice and consent responsibilities more responsibly than has been done under the leadership of Harry Reid. Anything that distracts from that focus should be avoided.
Activists in Florida found a way to torture the state’s education spending data to make appear as though Florida is 50th in education spending. The only catch is that their rather unconventional method ranks Washington D.C. as 51st, despite the fact that D.C. spends nearly $30,000 per pupil, putting it in first place for spending per pupil according to the U.S. Census Bureau (page 11, table 11).
How did they accomplish this literally unbelievable statistical feat? As Patrick Gibbons explains at RedefinED, the activists have inappropriately seized on the U.S. Census Bureau’s “education revenues per $1,000 of personal income” figure. Holding all else constant, Florida could improve its ranking using that figure either by spending more on education or by its citizens becoming poorer. Gibbons crunched the numbers to see what it would take to put Florida in 24th place, just above the median, without increasing spending:
To reach the “above average” point on the spending-per-income statistic, Florida would need education revenues of $49.15 per $1,000 of personal income. Without spending a dime more, or less, on education, Florida could boost its ranking to 24th in the nation if its collective income simply shrank by 26 percent.
Florida would become THE POOREST state in the U.S., but we would have above-average education spending – at least according to this misleading metric. Something tells me nobody will be happy with those results.
Embedded in the activists’ use of this figure is the odd notion that it costs more to educate students from wealthier states than students from poorer states. Indeed, if every state had exactly the same “education revenues per $1,000 of personal income” then rich states would far outspend poor states, yet I suspect that the activists citing this figure would not be pleased.
The organization peddling this nonsense is not alone. A group clamoring for more education spending in Colorado used the same deceptive tactic in 2012. In just the last year, numerous groups have claimed that their state is 50th in education spending, including the NEA in Arizona, Public Advocates Inc. in California (citing Education Week), an academic in Idaho (citing the U.S. Census Bureau), and a media outlet in Utah (citing the National Center for Education Statistics). Most of these organizations at least have respectable sources upon which to rely. Since the rankers employ varying methods of accounting for spending, groups in numerous states can plausibly claim that they are at the bottom in education spending (unlike the groups in Florida and Colorado). One year, groups in eight states claimed that their state was second-to-last in spending. Many of these groups, including the one in Florida, have sued their respective states in an effort to persuade the courts to force the state legislatures to spend more.
These groups assume that spending more will lead to improved student outcomes, but there is no strong correlation between education spending and performance. Moreover, increasing spending has not consistently yielded improved outcomes, as Harvard University’s Paul E. Peterson, Stanford University’s Eric Hanushek, and the University of Munich’s Ludgar Woessmann found in a 2012 study:
Just about as many high-spending states showed relatively small gains as showed large ones. Maryland, Massachusetts, and New Jersey enjoyed substantial gains in student performance after committing substantial new fiscal resources. But other states with large spending increments—New York, Wyoming, and West Virginia, for example—had only marginal test-score gains to show for all that additional expenditure. And many states defied the theory by showing gains even when they did not commit much in the way of additional resources. It is true that on average, an additional $1000 in per-pupil spending is associated with an annual gain in achievement of one-tenth of 1 percent of a standard deviation. But that trivial amount is of no statistical or substantive significance. Overall, the 0.12 correlation between new expenditure and test-score gain is just barely positive.
Torture the data long and hard enough and they’ll confess to almost anything. The statistical Torquemadas in Florida found a way to make Washington D.C. look like the lowest spender instead of the highest. But as D.C. illustrates, what matters most is not how much is spent but how it is spent.
U.S. policy is equally generous to unaccompanied children (UAC) from El Salvador, Guatemala, Honduras, and Nicaragua – but today’s child migrants are not coming from Nicaragua. Explaining why Nicaraguan UAC are not part of the recent surge may help explain why so many are coming from El Salvador, Guatemala, and Honduras - the so-called Northern Triangle.
Nicaragua has low rates of violent crime, gang membership, and fewer family connections to the United States than the Northern Triangle. If U.S. policy was the main reason why there is a sudden surge of UAC, it should also pull UAC from Nicaragua. This suggests that other factors like the high levels of violence and strong family connections are the main reasons why UAC from the Northern Triangle are coming and why Nicaraguan UAC are absent.
Nicaragua has a much lower homicide rate than El Salvador, Honduras, and Guatemala. According to the United Nations, there has been a dramatic increase in murder rates across Central America since 2006 – except in Nicaragua.
Source: United Nations Office on Drugs and Crime https://www.unodc.org/gsh/en/data.htm.
Nicaraguan gang membership is low compared to other nations in Latin America. The numbers are so low they don’t merit close recording and only one major Central American gang even has a substantial presence there: Los Perrones.
Source: United Nations Office on Drugs and Crime, http://www.unodc.org/documents/data-and-analysis/Studies/TOC_Central_America_and_the_Caribbean_english.pdf#page=29.
Only about one percent of Nicaraguans in 2010 said that crime was the most important issue facing their country. By contrast, 44 percent of El Salvadorans, 35 percent of Guatemalans, and 25 percent of Hondurans said crime was the most important issue facing their respective countries. Lower homicide rates and gang membership have made Nicaraguans feel much safer than citizens of the Northern Triangle. This also explains the recent large percentage increase in asylum seekers in non-Northern Triangle Central American countries, although their numbers remain low.
Nicaragua is also a destination for migrants from El Salvador, Guatemala, and Honduras. In 2012, there were 14,597 Hondurans, 3,291 El Salvadorans, and 1,387 Guatemalans living in Nicaragua.
There is not a history of Nicaraguan unlawful immigration to the United States – it’s not even on the top ten list. There are more Ecuadorian unlawful immigrants to the United States than unlawful Nicaraguan immigrants. As I explained here, the timing and flow of UAC from El Salvador, Honduras, and Guatemala is consistent with the theory of stage migration – one or both parents migrate first and then send for their children later. After an increase in unlawful immigrant adults from Central America and the destruction of circular migration because of more effective border enforcement in the United States, their children coming up to reunite with them.
Of all immigrants in the United States, both legal and illegal, there are about 1.3 million from El Salvador, 900,000 from Guatemala, and 500,000 from Honduras. By contrast, there are only about 260,000 immigrants from Nicaragua. The few family connections between Nicaraguans and Americans have helped to keep the UAC numbers small.
Nicaragua is part of the Central America-4 Border Control Agreement that allows nationals from El Salvador, Honduras, Guatemala, and Nicaragua to move freely across those four nations. Border controls between those nations do not constrain Nicaraguan migration to the United States. Liberalized Mexican immigration laws have also lowered the costs of all migration from Central America.
Those seeking to blame U.S. policy for the surge of UAC can claim, at best, that U.S. policy is partially to blame for such a surge, but they cannot justfiably claim that it is the sole or most important explanation. As the absence of Nicaraguan UAC indicates, violence and family reunification seem to be much bigger factors in explaining the surge in UAC than any recent change in U.S. policy.
Most politicians are optimistic about the government’s ability to intervene and solve problems. That’s one reason why they run for office. Neocons, for example, have excessive faith that foreign intervention can fix the world, while liberals embrace the misguided idea that subsidies and regulations can boost the economy.
On infrastructure, we’ve seen political enthusiasm leading to overpromised and underdelivered projects since the founding of the nation. The construction the National Road—funded by Congress beginning in 1806—was fraught with problems. The Army Corps of Engineers has been known for boondoggles since the 19th century. In recent decades, government infrastructure has become so notorious for waste that The Simpsons had an episode about a failed monorail scheme.
Chapter 1 of Burton and Anita Folsoms’ book, Uncle Sam Can’t Count, examined the inefficiency of the government’s fur-trading infrastructure from 1795 to 1825. Chapter 2 of the book looked at how 19th century subsidies for steamship transportation were wasteful and damaging.
Chapter 3 of the book looks at the orgy of state government canal building from the 1820s to the 1840s. Here is the basic story:
- New York State funds construction of the Erie Canal, which opens in 1825.
- The Erie Canal is a big success, which spurs canal fever across the nation and encourages other state governments to hand out subsidies. Government canal schemes are launched in Michigan, Pennsylvania, Ohio, Indiana, Maryland, and Illinois. There is particular excitement about subsidized “internal improvements” among Whig politicians, including Abraham Lincoln.
- However, politicians overestimate the demand for canals in their states and underestimate the costs and difficulty of construction. They do not recognize that the Erie Canal is uniquely practical and economic as it traverses relatively flat land and connects the Great Lakes with the Atlantic.
- Some of the state-sponsored canals are huge boondoggles and are abandoned. And other than the Erie Canal, all of the state canals sustain heavy losses, including other subsidized canals in New York.
- After the failures, numerous states privatize their infrastructure and change their constitutions to prevent politicians from wasting further money on such schemes.
Thomas DiLorenzo writes about these issues here. And Clifford Thies goes into detail about the canal follies in this Cato Journal article. As these authors discuss, governments unfortunately made similar mistakes subsidizing railroads in the 19th century.
Perhaps our current political leaders are not funding escalators to nowhere—as they did on The Simpsons monorail episode—but today’s uneconomic streetcars and high-speed rail schemes are not that much different.