Ted Galen Carpenter
Prominent foreign policy practitioners in both political parties now denounce the notion that we should expect major countries in the international system to establish and defend spheres of influence in their immediate neighborhoods. Condoleezza Rice, George W. Bush’s secretary of state, made that point explicitly in response to Moscow’s 2008 military intervention in Georgia. She scorned the notion of Russian primacy along the perimeter of the Russian Federation as the manifestation of “some archaic sphere of influence.” Secretary of State John Kerry embraces similar views. In November 2013, he even declared that “the era of the Monroe Doctrine is over,” thus rhetorically renouncing a U.S. foreign policy staple that is nearly two centuries old. Following Russia’s annexation of Crimea, Kerry asserted that “you don’t in the twenty-first century behave in nineteenth century fashion” by invading a neighbor.
As I argue in a recent article in Aspenia Online, that attitude is both unrealistic and hypocritical. While geographic factors are not as important to national security as they once were, they are far from being irrelevant. Barging into the neighborhood of another major power is still going to be viewed as a menacing act, regardless of any reassurances that the intruding country might give.
Moreover, the current U.S. position is more than a little hypocritical. Washington has firmly resisted Russia’s attempt to re-establish even a limited sphere of influence in Eastern Europe or Central Asia. Likewise, the United States has rebuffed China’s bid to establish a dominant role in the South China Sea. Yet Washington has intervened militarily as recently as the 1980s (Grenada and Panama) or even the 1990s (Haiti) within its traditional sphere of influence in the Western Hemisphere. U.S. leaders also have looked on benignly as a key ally, France, has repeatedly intervened in its former colonial holdings in Africa. Washington’s highly selective opposition to spheres of influence threatens to damage relations with Moscow, Beijing, and other capitals.
The United States and its allies need to adopt a more realistic and accommodating policy. Whether U.S. policymakers wish to acknowledge it or not, spheres of influence still play a important role in international affairs, and will continue to do so in the coming decades.
Instead of attempting to defy that reality, U.S. leaders should focus on getting major powers to exercise more subtlety in managing their spheres of influence. That goal at least has a reasonable prospect of being achieved. Such an approach might not fulfill idealistic aspirations regarding international behavior, but it would be a workable arrangement to minimize great power tensions. The current U.S. stance is doing the opposite.
In the months and years after the 9/11 disaster, federal policymakers did what they usually do after crises: they increased spending and seized more power. At the Bush administration’s urging, Congress created the Department of Homeland Security in 2002 as a complex amalgamation of 22 different federal agencies.
President Bush promised that DHS would “improve efficiency without growing government,” while creating “future savings achieved through the elimination of redundancies inherent in the current structure.” The DHS would promote “operational efficiencies,” “better asset utilization,” “targeted, effective programs,” etc, etc.
It did not turn out that way. Bush’s promise of creating a lean, efficient DHS was just empty rhetoric. DHS’s budget tripled from $18 billion in 2002 to $57 billion by 2013 (Table 4.1). The DHS workforce expanded from a huge 163,000 employees in 2004 to an even larger 193,000 by 2013.
A small bit of good news is that taxpayers may be spared the costs of a planned DHS Taj Mahal. From the Washington Post yesterday:
The construction of a massive new headquarters for the Department of Homeland Security, billed as critical for national security and the revitalization of Southeast Washington, is running more than $1.5 billion over budget, is 11 years behind schedule and may never be completed, according to planning documents and federal officials.
It looks like gridlock was the taxpayers’ benefactor in this case:
…the capital region’s largest planned construction project since the Pentagon — has become a monumental example of Washington inefficiency and drift. Bedeviled by partisan brawling, it has been starved of funds by both Republicans and Democrats.
Bigness and centralization rarely lead to quality and efficiency in government. So let’s hope that this Bush-era project is laid to rest and that policymakers start focusing on those “future savings” that we were promised.
Now that forest fires are in the news, someone noticed that President Obama has proposed a new way of funding wild firefighting. Instead of borrowing from its fuels treatment funds when the Forest Service exhausts its regular fire-fighting budget, Obama wants to let the agency draw upon a new “special disaster account” that is “adjusted each year to reflect the 10-year average cost of responding to such events.”
Treating excessive firefighting costs by giving the Forest Service more money makes as much sense as attempting to suppress forest fires by throwing gasoline on them. In case you don’t hear the sarcasm, it makes no sense at all.
Obama is focusing on the wrong problem, the drawdown of funds intended for fuel treatments. The real problem is the incentives the Forest Service has to spend wildly on firefighting.
As far as I know, no democracy has given any government agency a blank check to accomplish any goal–except the Forest Service for fighting fires. Even the Pentagon was given budgets for fighting World War II, the Cold War, and other wars. But in 1908, Congress gave the Forest Service a blank check for firefighting, saying the agency could spend as much as it needed to suppress fires, and Congress would reimburse it later.
Congress repealed the blank-check law in about 1978, leading to eight years of relatively modest spending on firefighting. But after two serious fire seasons in 1987 and 1988, Congress reimbursed the agency’s firefighting debts, and since then it has muddled about, not knowing what to do. Obama’s new proposal puts the agency firmly back in the blank-check mode.
The president has underscored his support for excessive spending by allowing the Forest Service to buy four new air tankers, including a DC-10. The agency already had access to a DC-10, but rarely used it because it wasn’t cost-effective. Now it will have two white elephants on its hands.
Contrary to popular belief, firefighting has not grown more expensive because of anthropogenic climate change. The nation actually suffered worse droughts in the 1930s than in the last decade, and there is no evidence, in the forests at least, that recent fires are due to anything but cyclical climate changes.
Nor are costs high because of new houses in the woods, or wildland-urban interface as fire people call it. Protecting these homes only requires treatment, either in advance of the fire through landscaping and home design or as fires approach through application of fire retardant, of the homes themselves and land within 150 feet of the homes. Anything the Forest Service does beyond that 150 feet is neither necessary nor sufficient to protect homes that are themselves untreated.
Instead, lots of acres burn because the Forest Service now places firefighters well behind the fire lines and has them back burn everything between them and the fire lines. In some fires, close to half the acres burned are back burns.
Meanwhile, costs are high because the Forest Service knows it has what amounts to a blank check, so it makes no effort to save money. As I explain in this Cato paper, the only solution is to “divorce the agency from Congress’s blank check.” One way to do this might be to have national forests join state fire protection districts by paying an annual per-acre fee, and then letting the states worry about fire fighting. They would have much stronger incentives to control fire at the lowest, rather than the highest, possible cost.
The president’s concern that the Forest Service might hamper its fire prevention efforts by having to borrow from those funds to suppress fires is touching but needless. As shown by previous fires, Congress could fully fund fire prevention and fuel treatment programs for years without reducing the number of homes destroyed by fire each year. In fact, Congress is so willing to do anything to protect homes that the Forest Service practically depends on a few houses burning down each year to keep the money flowing.
The Forest Service should educate homeowners about what they need to do to defend their homes from fire. Beyond that, what people actually do is between them and their insurance companies, which for too long have indirectly relied on the blank check to keep their costs down. Getting firefighting decisions out of the hands of federal agencies may be the only way to let this happen.
I know, not exactly a shocking revelation! Nevertheless, here’s an article from today’s Washington Post:
With much of the focus on Obamacare now on how much individual premiums could increase next year, a new analysis suggests there’s one way to keep them in check — more competition. That’s the conclusion of a new report from economists Leemore Dafny, Christopher Ody and Obamacare architect Jonathan Gruber.
If every insurer that had sold individual policies in 2011 participated in Affordable Care Act insurance marketplaces this past year, average premiums for a benchmark exchange health plan would have been 11.1 percent lower in 2014, the economists found.
Big insurance companies generally took a cautious approach to the new exchanges in 2014, limiting their participation in the health-care law’s first year amid concerns about too many sick patients signing up for coverage. The Affordable Care Act exchanges were created as a way for people to buy their own insurance if they couldn’t find affordable options elsewhere, like through an employer.
The Affordable Care Act exchanges are supposed to fuel competition in the individual market, which hasn’t traditionally been all that competitive. Before the health-care law, a single insurer covered more than half of the individual market in 30 states, according to the Robert Wood Johnson Foundation.
A point I’ve been trying to make for a while is that there is a large untapped source of competition out there which could help lower prices: foreign insurance companies. With or without ObamaCare, American consumers would be better off with more companies in the market, and the nationality of those companies does not matter. Unfortunately, my sense is that foreign companies are not all that interested in entering the U.S. health insurance market. Maybe it’s too daunting a prospect (it’s a highly regulated market), or maybe they just haven’t thought of it. In case it’s the latter, I’m going to keep putting the idea out there, in the hopes that it reaches the right person.
The Center for Immigration Studies (CIS) released a new report claiming that there is no STEM worker “shortage”* after looking at the small wage gains in STEM occupations since 2000. CIS has a history of using poor methodology and data in their reports (see here, here, here, and here), but assuming that they did everything correctly this time, their results don’t tell us much for two reasons.
First, they don’t compare wage changes for STEM occupations with all other occupations.
Total real (2012 dollars) median annual wage growth for each of the three big STEM occupations was higher than for the median for all occupations from 2001 to 2012. Real wages for computer occupations grew by 2.05 percent, real wages for architecture and engineering occupations grew by 5.77 percent, and real wages for science occupations grew by 3.55 percent. Those gains look low until you realize that real wages for all occupations actually decreased by 0.94 percent. Compared to all occupations, wages for STEM occupations grew while attracting large numbers of immigrants.
Source: Occupational Employment Statistics, Bureau of Labor Statistics. http://www.bls.gov/oes/tables.htm.
Second, the CIS study ignores the dynamic economic effect of halting STEM immigration or what stopping STEM immigration years ago would have done to the economy. The dynamic (general equilibrium) effects of kicking out STEM immigrants or halting their flow would be to shrink the economy and diminish wage, employment, productivity, and economic growth.
*CIS and others use the word “shortage” incorrectly.
Former Treasury Secretary Larry Summers’ review of Thomas Piketty’s Capital in The Twenty-First Century, claims that Mr. Piketty and Emmanuel Saez have documented, “absolutely conclusively, that the share of income and wealth going to those at the very top—the top 1 percent, .1 percent, and .01 percent of the population—has risen sharply over the last generation, marking a return to a pattern that prevailed before World War I.” That statement is false.
Paul Krugman’s review “Why We’re in a New Gilded Age,” claims that “since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.” That statement is false.
A Pew Research Center report on the same data was titled, “U.S. income inequality, on rise for decades, is now the highest since 1928.” That too is false.
First of all, the Piketty and Saez estimates do not show top 1 percent income shares nearly as high as those of 1916 or 1928 once we use the same measure of total income for both prewar and postwar data.
Second, contrary to Summers, there is no data from Piketty, Saez or anyone else showing that the top 1 percent’s share of wealth “has risen sharply [if at all] over the last generation” – much less exhibited a “return to a pattern that prevailed before World War I.”
Dealing first with income, it is interesting that the first graph in Piketty’s book is about the top 10 percent – not the top 1 percent. Saez likewise writes that “the top decile income share in 2012 is equal to 50.4%, the highest ever since 1917 when the series start.” That is why President Obama said, “The top 10 percent no longer takes in one-third of our [sic] income – it now takes half.” A two-earner New York City family of six with a pretax income of only $110,000 would be in this top 10 percent, and they are certainly not taking “our” income. Regardless whether we examine the Top 10 percent or Top 1 percent, however, it is absolutely dishonest to compare the postwar estimates with prewar estimates.
The Piketty and Saez prewar estimates express top incomes as a share of Personal Income, after subtracting 20% to account for tax avoidance. Postwar estimates, by contrast, express top incomes as a share of only that fraction of income that happens to be reported on individual income tax returns – rather than being unreported, in tax-free savings or assets, or sheltered as retained corporate earnings.
Transfer payments are not counted as income in either series (as though federal cash and benefits were worthless); this distinction is inconsequential for the prewar figures but increasingly important lately. “Total income” as Piketty and Saez define it accounted for just 61.8 percent of personal income in 2012, down from 67 percent in 2000.
The line in my graph shows the top 1 percent’s share of income as reported by Piketty and Saez. The bars below the line restate top 1 percent shares on a the same consistent basis for all years since 1929 (the earliest available) as a share of what we’ll call “modified personal income” (MPI) – PI minus 20%. Measured on such a comparable basis, the Top 1% share was still 18.2% in 1929 but only 13.2% in 2011.
The 11-13 percent income shares of the top 1 percent since 1988 are not remotely close to the 18.6% Piketty-Saez estimate for 1916 or the record 19.6 percent estimate for 1928. The top 1 percent’s share of MPI did jump to 14.9% in 2012, but that was a fluke. As Saez explained, “part of the surge of top 1% incomes in 2012 could be due to income retiming to take advantage of the lower top tax rates in 2012 relative to 2013 and after… . Retiming of income should produce a dip in top reported incomes in 2013.”
Using modified personal income as the base for both prewar and postwar income shares, the Top 1% share clearly spiked upward after the 1986 Tax Reform, and then fluctuated cyclically between 11 and 13 percent from 1988 to 2011, averaging 12.3 percent.
The fact that few high incomes were reported on individual tax returns from 1932 to 1980 – when top tax rates were 63-91 percent – is entirely consistent with the evidence on “elasticity of taxable income.” [$] It should be no surprise that much more income was reported [$] on individual tax returns when tax rates on high salaries and unincorporated businesses dropped to 28 percent in 1988, or when tax rates on dividends and capital gains fell to 15 percent in 2003. That is exactly what the evidence should lead us to expect.
As Piketty, Saez and Stantcheva explain, “There is a clear negative overall correlation between the top 1% income share and the top marginal tax rate: (a) the top 1% income share was high before the Great Depression when top tax rates were low (except for a short period from 1917 to 1922), (b) the top 1% income share was consistently low between 1932 to 1980 when the top tax rate was uniformly high, (c) the top 1% income share has increased significantly since 1980 after the top tax rate has been greatly lowered. This … suggests that the overall elasticity of reported incomes is high.”
In other words, if top tax rates had not been prohitively high in 1917-22 and 1932-1980 the top 1 percent would have earned and reported much more income and paid more taxes. If tax rates had not been greatly reduced in 1983, 1988 and 2003, the top 1 percent would now be reporting much less income and paying fewer taxes.
What about Wealth – the defining topic of Piketty’s book? Summers conflates wealth and income – claiming Piketty and Saez have shown “absolutely conclusively, that the share of income and wealth [emphasis added] going to those at the very top … has risen sharply over the last generation.” On the contrary, a 2004 paper by Saez and Wojciech Kopczuk found the top one percent’s share of wealth was 38.1% in 1916, 40.29% in 1930, 25.25% in 1960 and 20.79% in 2000.
As they explained, “Top wealth shares … are much lower today than in the pre–Great Depression era… . Findings from the Survey of Consumer Finances … also display hardly any significant growth in wealth concentration since 1995… . Our composition series suggest that by 2000, the top one percent wealth holders do not hold a significantly larger fraction of their wealth in the form of stocks than the average person in the U.S. economy, explaining in part why the bull stock market of the late 1990s has not disproportionately benefited the rich.”
Those who claim the top one percent’s share of total income is now as high as it was in 1916 or 1928 have been deceived by the fact that Piketty and Saez patched together two time series based on different measures of total income. Those who claim the top 1 percent’s share of wealth is now as high as it was in 1916 or 1928 are seriously misinformed or lying.
The calendar of saints sets aside this day, May 20, as the feast of St. Bernardine of Siena, famous across Renaissance Italy for his impassioned sermons against what he saw as the luxury, vice and corruption of his times, especially usury (the lending of money at interest). While opposition to usury has faded in the West – we now recognize interest-charging as a foundation stone of capitalism and modern economics generally – Bernardine is still invoked on behalf of such causes as relief from respiratory ailments, help for compulsive gamblers, the welfare of the California city of San Bernardino, and, of interest here, the fields of advertising and public relations. The scope of public relations is often taken to include lobbying, and it’s as a forerunner of modern lobbyists that Bernardine appears in a tale, fanciful or otherwise, told a century ago:
A comic incident throwing light upon Bernardine’s attitude toward usurers is reported in an old chronicle. While preaching at Milan, he was often visited by a merchant who urged our saint to inveigh so strenuously against usury as to render it obnoxious in the eyes of all. On making inquiries, however, the latter ascertained his visitor to be himself the greatest usurer of the place, whose action in this matter was prompted by a wish to lessen the number of his competitors by inspiring them with a wholesome horror of the trade.
Our own era, as we know, is one in which moralistic attacks on gambling have been secretly backed by nearby casino proprietors who don’t want the competition, in which “the estate-planning industry [has lobbied] hard against a [reduced federal] estate tax, which would kill its costly tax-avoidance schemes,” and in which various energy producers quietly assist environmental and NIMBY resistance to projects advancing competing sources of energy. My colleague Chris Edwards has compiled many more examples. You have to wonder whether much has really changed since Bernardine’s time.
Over at See Thru Edu, I’ve got a post weighing in on the plague of college graduation speech controversies, asking why taxpayers should have to subsidize any college speech. A taste:
As a basic matter of free-speech principle and logic, everyone, left or right, should object to subsidizing higher ed. Why? Perhaps Smith president Kathleen McCartney, as quoted by faculty members concerned about the action against Christine Lagarde, captured the reason best: “An invitation to speak at a commencement is not an endorsement of all views or policies of an individual or the institution she or he leads. Such a test would preclude virtually anyone in public office or position of influence. Moreover, such a test would seem anathema to our core values of free thought and diversity of opinion.”
Check out the rest right here!
Marian L. Tupy
Today marks 141 years since the U.S. government issued Levi Strauss & Co. a patent for the first blue jeans. Back in 1873, the jeans cost $13.10, which would be $251.18 in 2013 dollars.
If you go on Levi’s website today, you will be able to purchase their original-model 501 jeans for $68 and the Levi corporation will ship your new purchase anywhere in the United States for free.
That’s a 73 percent reduction in real price. That’s capitalism. That’s progress.
You can find more on prices over time at www.humanprogress.org.
Daniel J. IkensonThe Washington Post reported this morning that the U.S. government is “charging members of the Chinese military with conducting economic cyber-espionage against American companies.” According to the story, Attorney General Eric Holder will “announce a criminal indictment in a national security case,” naming members of the People’s Liberation Army. If you will recall, cyber-security, cyber-espionage, and cyber-theft of trade secrets and other intellectual property belonging to American businesses started becoming prominent sources of friction in the U.S.-China relationship about 18 months ago before suddenly dropping off the front pages 11 months ago to make way for revelations of domestic spying by the U.S. National Security Agency. Somehow, the notion that Chinese government-sponsored cyber-theft broached a red line lost some of its luster after Americans learned what Edward Snowden had to share about their own government. But today the issue of Chinese cyber-transgression is back on the front pages. Never before – according to the Washington Post – has the U.S. government leveled such criminal charges against a foreign government. The U.S. rhetoric has been heated and, just this afternoon, the Chinese government responded by characterizing the claims as “ungrounded,” “absurd,” “a pure fabrication,” and “hypocritical.” While the U.S. allegations may be true, given well-publicized U.S. cyber-intrusions, it isn’t too difficult to agree with the “hypocritical” characterization either. Perhaps that’s why the U.S. government is attempting to distinguish between cyber-espionage, which is conducted by states to discern the intentions of other governments – and is, from the U.S. perspective, fair play – from “economic” cyber-espionage, which is perpetrated by states or other actors against private businesses and is, from the U.S. perspective, completely unacceptable. It’s not too difficult to understand why the United States has adopted that bifurcated position. The Washington Post quotes a U.S. government estimate of annual losses due to economic cyber espionage at $24-$120 billion. That is an enormous amount of loss. But the figure is impossible to verify since just about all the information from which it derives is classified. Even if it were verifiable, who is to blame for such loss? The Chinese government may be complicit and, if so, should be asked to make amends. Chinese companies or individuals may be guilty and, if so, should be prosecuted for violating specific laws. But let’s not let the victims off the hook so easily. Under the doctrine of “fool me once shame on you, fool me twice shame on me,” how is it possible for profit-maximizing U.S. companies to be so reckless and cavalier about protecting their assets, especially when these alleged losses accrued over a period of time? Theft – including intellectual property theft – is a fact of life, and it is the responsibility of property owners to do their parts to reduce the incidence of theft. If that means incurring greater private costs to make illegal downloading or duplication more difficult, so be it. If it means investing in extra cybersecurity measures to protect trade secrets, do it. If it means taking executive communications off the main server and onto a dedicated, impenetrable network without access to the internet, c’est la vie. The primary beneficiaries of intellectual property are its owners. Companies owning patents, copyrights, and trade secrets – not the taxpaying public – benefit financially from the use of that intellectual property. Why, then, should the taxpaying public – instead of the direct beneficiaries of intellectual property – be called upon to flip the bill when it comes to enforcing intellectual property rights? Perhaps, you may think, I’m getting ahead of myself. How has the taxpaying public been asked to flip the bill, you wonder? Well, before these bilateral cyber-tensions were defused temporarily by the NSA revelations, it looked like cyber-espionage would become the single most important issue in the U.S.-China trade and economic relationship for the foreseeable future. U.S. congressional committees and executive agencies were effectively blacklisting Chinese telecom companies, and legislation was passed into law forbidding U.S. agencies from purchasing Chinese information technology systems. Those actions might have merited a Chinese challenge at the World Trade Organization on the grounds that the United States was violating its market access commitments. However, WTO members are permitted under Article XXI of the General Agreement on Tariffs and Trade to act in accordance with their own national security interests, even if that means suspending tariffs and other market access concessions. To demonstrate that banning Chinese IT products was a matter of national security – which the United States might be compelled to do if there were a WTO case – the United States might want to point to other efforts it has made to dissuade Chinese actions that threaten U.S. national security. So that brings us to the criminal case brought today by the Justice Department. It’s tough to imagine that lodging today’s complaint will do much more than build a case record that the United States is taking measured steps to address a perceived problem, which would ultimately make the case for banning Chinese imports of telecom products more defensible from a WTO perspective. That’s where the cost of enforcement is socialized. In this atmosphere of distrust, where allegations based on classified or other unverifiable information have to suffice for the closest thing to the truth, only blanket solutions that curtail Americans’ economic freedoms, such as trade and investment restrictions, can prevail. That outcome subsidizes IP holders and benefits U.S. companies that will fare better in the absence of Chinese competition. We need to find a more reasonable solution than this. It should start with our insistence that companies do a better job of protecting their own interests.
Peter Van Doren
On May 15 the FCC announced a proposed rule that would govern the relationship between content providers and internet service providers. Consumer groups argued the proposed rule was not strong enough because it did not ban differential arrangements between them.
The underlying economic issues are several. Should the government concern itself with the relationship between the “creators” of things and the “transporters” of them? In particular should economic profits go just to the creators of things? Is it “wrong” for the transporters to extract some as well? What if a creator of content and a transporter want to vertically integrate or enter into a long-term contract to end the costly dispute between them over the division of any economic profits? Should such arrangements be forbidden because of the possibility such an entity would refuse to transport the content of a different creator?
These issues are not new. In fact they first arose between railroads and the creators of “content” i.e. farmers, mines, steel mills etc. in the 19th century. The political resolution of these issues was the Interstate Commerce Act of 1887. It took about one hundred years for the experiment in transportation common carrier rate regulation to end. Scholars have concluded that rate regulation raised rather than lowered transportation prices. And the public has come to the same conclusion because in the quarter century since the end of transportation rate regulation, prices have decreased dramatically. For a discussion of the rise and fall of transportation regulation see this article by Thomas Gale Moore.
In “Antecedents to Net Neutrality” Bruce Owen explicitly makes the link between the concerns of traditional transportation common carrier regulation and the contemporary notion of “Internet neutrality.” Net neutrality policies could be implemented only through detailed price regulation, an approach that failed to improve consumer welfare in the transportation sector. History thus counsels against adoption of most versions of net neutrality. Christopher Yoo has written a detailed history of how difficult common carriage regulation was to implement in traditional telecommunications regulation. A shorter version will appear in the summer issue of Regulation.
The public debate over net neutrality also does not reflect the increased variation in the price and quality of its services that already exists. Innovations such as private peering, multihoming, secondary peering, server farms, and content delivery networks have caused the Internet’s traditional one-size-fits-all architecture to be replaced by one that is more heterogeneous. Related, network providers have begun to employ an increasingly varied array of business arrangements and pricing. These changes reflect network providers’ attempts to reduce cost, manage congestion, and maintain quality of service. Policy proposals to constrain this variation risk harming these beneficial developments.
Experience shows that green business subsidies are a green light for misallocation and inefficiency. Subsidy programs seem to prompt company leaders to think:
- “Washington experts say this is a good idea. Let’s do it!”
- “Yeehaw, we’re getting free money. Let’s blow the bank!”
Those sorts of thoughts seem to have steered Southern Company into building a very expressive boondoggle project in Mississippi. The clean coal plant is to include a complex carbon capture system with a 62-mile pipeline. The Washington Post reports:
The only thing the Kemper power plant is burning now is money. The plant has suffered almost every kind of cost overrun, beset by bad weather, labor costs, shortages and “inconsistent” quality of equipment and materials, and contractor and supplier delays. Southern said in April that it was raising the projected cost of the plant by $235 million, to a total of $5.5 billion, more than double the original estimate.
So the Kemper plant yielded to Edwards’ Law of cost overruns. When the government subsidizes large and complex projects, costs tend to double. The Southern plant “received a $270 million grant from the Energy Department and $133 million of federal investment tax credits — though by blowing a deadline, Southern will lose some tax benefits.”
The Post story mentions another company that was led astray by the pied piper of green subsidies:
The electric utility AEP, one of the largest U.S. emitters of greenhouse gases, built a pilot plant (half financed by the Energy Department) for capturing and burying CO2 from its Mountaineer plant in New Haven, W.Va. But the project was abandoned because it was too expensive.
There is one more failure mentioned by the Post: “… for years a proposed carbon capture and storage consortium called FutureGen, backed in part by federal funds, has failed to get off the ground.”
These projects indicate that when considering the waste caused by business subsidies, you cannot just tally up the federal cash out of the door. You also need to consider the private money following the government money as it is flushed down the drain.
Of all the Obama administration’s scandals—Benghazi, IRS/tea party, AP/Fox News, the near daily rewrite of Obamacare, and more—perhaps none is as telling as the unfolding VA Hospital debacle, now reaching seven states, with officials in the Albuquerque, New Mexico, hospital busy destroying records to cover their tracks, we learn today from the Daily Beast. And it isn’t simply because the outrage over the VA scandal, unlike with the others, is bipartisan that the scandal is so telling. No, it’s telling because it says so much about what’s wrong with the president’s political vision.
This is an administration, after all, that’s dedicated, root and branch, to government. (Recall the much parodied “Life of Julia” White House cartoon from the 2012 campaign—the story of a woman whose entire life was lived through government.) No problem for Mr. Obama is too trivial or too personal not simply for state but for federal attention, no less.
With veterans, of course, a measure of public responsibility is in order, whether justified as entailed by the conscription policies of the past or by the contractual arrangements of the all-volunteer military today. But how that is done is no small matter. To be sure, veterans hospitals preceded the great wave of veterans returning from World War II: in fact, 54 existed in 1930 when Congress created the Veterans Administration. But as those veterans were returning, Congress in 1944 passed the G.I. Bill, which was noteworthy for two of its core programs: low-cost mortgages, and cash payments of tuition and living expenses to attend college, high school, or vocational education.
Note the difference, however, between those programs and the VA hospitals. Congress didn’t build houses for the returning veterans, or build colleges or vocational schools. It simply gave the vets “vouchers,” as we’d say today, which they could use in the already existing, largely private housing and educational markets. But on the hospital side, service was to be provided by the government itself. Ever more VA hospitals were built—some 152 hospitals exist today. And they’re run with all the efficiency and accountability we’ve come to expect from government institutions.
Indeed, the Daily Beast story today puts some perspective on that. Looking at the long wait times to see a cardiologist in the Albuquerque VA hospital, the reporter Jacob Siegel writes:
There are eight physicians in the cardiology department. But at any given time, only three are working in the clinic, where they see fewer than two patients per day, so on average there are only 36 veterans seen per week. That means the entire eight-person department sees as many patients in a week as a single private practice cardiologist sees in two days, according to the doctor.
For perspective, 60% of cardiologists reported seeing between 50 and 124 patients per week, according to a 2013 survey of medical professionals’ compensation conducted by Medscape. On the low end, the average single private practice cardiologist who participated in the study saw more patients in a week than the Albuquerque VA’s entire eight-person cardiology department.
The lesson is clear: Even in those cases where there’s a credible argument for the government to be involved with a service, it’s far better for it to stay out of the business of actually providing the service—far better to leave it to private individuals and institutions to provide it through the competitive markets that reason and experience tell us will ensure both liberty and efficiency. This latest scandal, if we learn the right lesson from it, may be a blessing in disguise.
K. William Watson
Government has so many ignoble tendencies, it’s often difficult to guess which ones are driving any particular policy choice. For example, how does the government decide which products are available for purchase using WIC benefits? As reported today in DC political newspaper, The Hill:
A new rider to the 2014 funding bill for the Agriculture Department forbids the agency from excluding “any variety of fresh, whole, or cut vegetables, except for vegetables with added sugars, fats, or oils, from being provided as supplemental foods” under the Women, Infants and Children nutrition program
Rep. Mike Simpson (R-Idaho) is a lead sponsor of the language and can be expected to defend it from attacks during a full committee markup of the bill.
The Agriculture Department excluded white potatoes from its list of approved items in 2009 because it argued they do not contain enough nutritional value and people shouldn’t be encouraged to buy them. Lawmakers fighting the exclusion are predominantly from the largest potato-growing areas such as Idaho and Maine.
I’m hopeful that Congress and the USDA will figure out just the right mix of paternalism and cronyism needed to ensure the effectiveness of federal food assistance programs.
Christopher A. Preble
Yale Senior John Kerry, speaking in 1966 (courtesy of POLITICO):
“What was an excess of isolationism has become an excess of interventionism,” Kerry told Yale graduates in his Class Day speech. There’s a “serious danger of assuming the roles of policeman, prosecutor, judge, and jury, all at one time, and then, rationalizing our way deeper and deeper into a hold of commitment which other nations neither understand nor support.”
Secretary of State John Kerry, speaking at Yale this past weekend (from The Hill):
“In 1966 I had suggested an excess of isolation had led to an excess of interventionism,” he said. “We cannot allow a hangover from the excessive interventionism of the last decade to lead now to an excess of isolationism in this decade.”
Maybe Kerry, and other foreign policy makers, shouldn’t be so quick to reach for the term isolationism? And maybe avoiding excesses on both extremes–neither reckless military interventions that undermine U.S. security, nor a foolish attempt to separate from the rest of the world–is the goal that critics of U.S. foreign policy are actually seeking? If Kerry and others ignore this sentiment, or continue to mischaracterize it, they will bear much of the blame if true isolationism takes root.
I warned about this in my book, The Power Problem (2009):
Surveying the high costs and dubious benefits of our frequent interventions over the past two decades, many Americans are now asking themselves, “what’s the point?” Why provide these so-called global public goods if we will be resented and reviled–and occasionally targeted–for having made the effort? When Americans tell pollsters that we should “mind our own business” they are rejecting the global public goods argument in its entirety…
The defenders of the status quo like to describe such sentiments as isolationist, a gross oversimplification that has the additional object of unfairly tarring the advocates of an alternative foreign policy–any alternative–with an obnoxious slur. There is, however, an ugly streak to the United States’ turn inward. It appears in the form of anti-immigrant sentiment and hostility to free trade….
For the most part, Americans want to remain actively engaged in the world without having to be in charge of it. We tire of being held responsible for everything bad that happens, and always on the hook to pick up the costs….But if Washington refuses to [change course], or simply tinkers around the margins while largely ignoring public sentiment, then we should not be surprised if many Americans choose to throw the good engagement out with the bad, opting for genuine isolationism, with all of its nasty connotations.
That would be tragic. It would also be dangerous….If Americans reject the peaceful coexistence, trade, and voluntary person-to-person contact that has been the touchstone of U.S. foreign policy since the nation’s founding, the gap between the United States and the rest of the world will grow only worse, with negative ramifications for U.S. security for many years to come.
For years India has disappointed expectations. Tagged as the next great power preparing to challenge China and eventually America, India instead has lagged economically, stagnated politically, and battled religiously.
Now Narendra Modi’s Bharatiya Janata Party (BJP) has won a stunning political victory. India’s future depends on Modi’s ability to transcend his sectarian roots and govern on behalf of all Indians.
Throughout the Cold War the Delhi government kept its people poor by mismanaging the economy. Politics was dominated by the dynastic India National Congress Party. Eventually the Congress Party began economic reforms and the BJP broke the Congress political monopoly.
India is a secular republic in which freedom of religion is formally protected. However, legislation authorizes government interference in the name of preventing conduct “promoting enmity,” undermining “harmony,” and more. Moreover, 7 of 28 states have passed anti-conversion laws, which target proselytizing. Of particular concern is the government’s inability or unwillingness to combat religious violence and prosecute those responsible.
Much violence occurs between the two largest groups, Hindus and Muslims, but other religious minorities also are targeted. In 2007 and 2008 in the state of Odisha (formerly known as Orissa) rioting Hindus murdered scores of Christians, forced thousands to flee, and destroyed many homes and churches.
Unfortunately, India’s presumptive prime minister, Narentra Modi, was implicated in one of the country’s worst episodes of sectarian violence. In 2002 in the state of Gujarat, in which Modi served as chief minister, Hindu rioters killed more than 1200 people, mostly Muslims, and forced 150,000 people from their homes. Critics charged Modi with both encouraging the violence and failing to stop it. He defends his conduct, saying he only wishes he had handled the media better.
However, Modi has ridden a sectarian tide to power. He graduated to the BJP from the Hindu nationalist group Rashtriya Swayamsevak Sangh (“National Volunteer Society”), which he joined young. He denounced Muslims early in his career and received strong backing from the RSS.
The good news in Modi’s victory is that he was elected to reform the faltering economy, not stoke the fires of religious hatred. Gujarat has prospered and the BJP is committed to relaxing India’s often stultifying government regulations. The quickest way for the new government to discourage foreign investment would be to trigger more sectarian violence.
Relations with the U.S. will be a key issue. The Bush administration formally acknowledged Delhi’s acquisition of nuclear weapons, improving bilateral ties. Since then, however, relations have stagnated.
Modi’s election poses another challenge. In 2005 the State Department refused to issue him a visa because of his presumed role in the Gujarat violence.
But the U.S. ambassador to India met with him in February. President Barack Obama congratulated Modi after the latter’s victory and extended an invitation to visit America. No doubt the visa ban will be quietly forgotten.
As I point out in my new Forbes online column: “The responsibility to reconcile is not Washington’s alone. Set to become perhaps the most powerful Indian prime minister since Indira Gandhi three decades ago, he should attempt to set foreign governments and, even more important, his own citizens at ease.”
After the election results were announced, he said that “The age of divisive politics has ended, from today onwards the politics of uniting people will begin.” It was a good beginning, but he needs to clearly communicate that he will be prime minister of all and his government will not tolerate violence or discrimination against religious minorities.
Modi has a historic opportunity. His government will be the first in years to enjoy a solid majority in the Lok Sabha, or lower house. The people he will represent are both entrepreneurial and impatient, demanding the chance to better their lives. The Indian people need more opportunity, not more dependency.
The choice soon will be up to Narendra Modi. Much around the globe depends on what he decides.
Washington Post reporter Bill Turque swallowed the Democrats’ spin hook, line, and sinker. He reports in Friday’s paper:
The Potomac estate of IT entrepreneur and philanthropist Frank Islam seemed more fitting for a Republican soiree than a Democratic fundraiser, some of Maryland’s top elected officials said Wednesday.
But big-time donors, including developers Aris Mardirossian and Fred Ezra, hotel and nursing home magnate Stewart Bainum and auto executive Tammy Darvish, gathered there to raise big bucks for the re-election campaign of Montgomery County Executive Isiah Leggett (D).
“There are not too many people who own homes like this who are great Democrats,” Sen. Benjamin L. Cardin (D-Md.) told the audience of about 400.
I’m not surprised that Senator Cardin would press the line that Republicans are the rich guys with mansions. But why would the Post report it as fact? Consider a few other news articles from the past few days. Here’s the Post’s Zachary Goldfarb reporting from California:
As he toured a series of mansions,…at the home of Walt Disney Studios chief executive Alan Horn… at an event hosted by Marissa Mayer, the chief executive of Yahoo, and Sam Altman, the president of Y Combinator…At the home of Irwin Jacobs, founder of the telecom giant Qualcomm,…Obama put the blame for failing to make progress squarely on the Republicans — “a party that has been captive to an ideology, to a theory of economics, that says those folks, they’re on their own and government doesn’t have an appropriate role to play.”
Later that day, the Associated Press reported,
Obama was to attend a fundraiser hosted by Anne Wojcicki, a biotech entrepreneur who founded the personal-genomics startup 23andMe. The event is advertised as a Tech Roundtable, with 30 guests and tickets set at $32,400 — a nearly $1 million potential haul for the Democratic National Committee.
A couple of days later the AP reported:
In what’s become an election-year routine for the president, Obama took the mic at an opulent Manhattan apartment and urged Democrats not to let their party’s tendency to neglect midterm elections hand Republicans a chance to capture the Senate.
Money-and-politics watchdog Ken Vogel wrote up a monied Democratic gathering in Politico two weeks ago:
During a gathering here of major Democratic donors this week that has raised more than $30 million for liberal groups, questions about the party’s split personality on the issue were dodged, rejected or answered with an array of rationalizations. That is, when they weren’t met with recriminations or even gentle physical force.
Those who did address the issue at the annual spring meeting of the Democracy Alliance donor club at the Ritz-Carlton sounded not unlike the conservatives who bristle at questions about their own big-money activity….
San Francisco hedge fund billionaire Tom Steyer, whose aides delivered a Tuesday morning presentation to DA donors on his plan to spend $100 million in the 2014 midterms boosting environmentally minded candidates, has invested in renewable energy initiatives that could be boosted by his advocacy.
And here’s a San Francisco Chronicle story from a year ago:
About 100 guests gathered at the home of Democratic billionaire and environmental activist Tom Steyer to hear President Obama Wednesday — an event inside a three story stucco home which overlooks the Golden Gate Bridge (and lists for $5.8 million on Zillow).
The setting was spectacular — at the end of a peninsula and a dead end road in the tony Sea Cliff neighborhood.
Seems like Democrats don’t have much trouble finding billionaires and mansions for fundraising events. Reporters shouldn’t act like it’s an unusual event.
Jack Martin at the Federation for American Immigration Reform (FAIR) argues that I inaccurately characterized FAIR’s pledge as anti–legal immigration. On FAIR’s pledge, it states that its purpose is this:
It is therefore essential that we know whether you will support TRUE immigration reform policies.
What are FAIR’s “TRUE immigration reform policies” that the pledge references and emphasizes with blue underlined font? Here they are, in a document with the same title. One of FAIR’s points of “TRUE immigration reform” reads as follows:
End family chain migration. Family-based immigration must be limited to spouses and unmarried minor children. Entitlements for extended family migration lead to an immigration system that is not based on merit, runs on autopilot and fosters exponential growth in immigration.
Depending on what FAIR means exactly, such a policy change would decrease annual lawful immigration to the United States by at least 138,066 or as many as 340,000 annually if we use 2011 as a benchmark. To put that in perspective, FAIR’s TRUE immigration reform policies advocate for a decrease in legal immigration of between 13 percent and 32 percent. Sound anti–legal immigration to me. If Mr. Martin is so concerned about inaccurate characterizations of FAIR’s pledge, perhaps he should be more troubled by FAIR President Dan Stein’s reference to it as the “No New Amnesty Pledge” since most of the pledge’s points concern opposition to legal immigration and not amnesty.
Infrastructure is in the news as policymakers face a deadline to pass a new highway bill. President Obama visited the Tappan Zee Bridge yesterday and said that “rebuilding America … shouldn’t be a partisan issue,” and then cast blame on the Republicans.
The president is right that America ought to have better infrastructure. But the leaders of both parties are overlooking the most straightforward and powerful way to do it: slashing taxes on business investment.
Most of America’s infrastructure is provided by the private sector, not governments. In fact, private infrastructure spending—on factories, freight rail, cell phone towers, pipelines, refineries, and many other items—is more than four times larger than federal, state, and local government infrastructure spending combined. BEA Table 1.5.5 shows that gross private fixed investment in 2013 was $2.56 trillion, while investment by all levels of government was $606 billion.
Private investment was $2.05 trillion when you take out residential. And government investment was $448 billion when you take out defense. Thus, when infrastructure is measured this way, private investment is also more than four times larger than government investment.
Why do U.S. companies spend more than $2 trillion a year on infrastructure? They do it in the hopes of earning profits years down the road from often risky investments. The government stands in the way of these growth-generating investments by confiscating a large share of those profits with income taxes.
We have the highest federal-state corporate income tax rate in the world at 40 percent, which sends a strong signal to manufacturers, utilities, energy firms, and other infrastructure companies not to expand and upgrade their facilities. If policymakers want infrastructure, they should slash the federal corporate income tax rate from 35 percent to 15 percent, which is the rate in Canada after recent reforms.
Another reform is “capital expensing,” meaning allowing businesses to immediately deduct the cost of new fixed investments. That tax treatment would be a huge simplification, and it would end the anti-investment bias in our income tax system. In recent years, Congress has passed temporary and partial capital expensing measures, but we really need a permanent policy change so that businesses could plan for the long term.
Also, expensing should be expanded to include business structures, such as factory buildings, and not just business equipment as has been the case in recent years. The chart at the bottom shows that real U.S. investment in structures was hammered by the recession and still remains at disturbingly low levels (BEA Table 1.5.6).
The stagnant investment in structures is troubling because it suggests a major lack of confidence in the outlook for U.S. economic policy. If business leaders see little hope for relief from Washington’s aggressive tax and regulatory policies, they will build their factories elsewhere and supply expanding global markets from abroad.
President Obama is right to focus on “rebuilding America,” but step one should be to remove the high tax barriers to private infrastructure investment. Let’s follow the successful Canadian approach and slash our corporate tax rate. And then let’s move toward permanent expensing for structures and equipment. As William McBribe of the Tax Foundation notes in a new analysis of expensing, the benefits would “go primarily to workers with low incomes due to higher productivity, higher wages, and more jobs.”
Farmers in the storied “Golden Triangle” region of Mexico’s Sinaloa state, which has produced the country’s most notorious gangsters and biggest marijuana harvests, say they are no longer planting the crop. Its wholesale price has collapsed in the past five years, from $100 per kilogram to less than $25.
“It’s not worth it anymore,” said Rodrigo Silla, 50, a lifelong cannabis farmer who said he couldn’t remember the last time his family and others in their tiny hamlet gave up growing mota. “I wish the Americans would stop with this legalization.”
That’s actually great news: along with the big profits, marijuana brought northern Mexico tens of thousands of murders. We can all do without those.
One possible negative consequence has been an observed increase in Mexican opium production, although it may be too soon to say whether opiate use is really on the rise, and if so, whether it’s been driven by a greater availability of heroin, or by the government cracking down harder on prescription opiate addicts.
Of course, the answer to that problem resembles the answer to our marijuana problem, and both resemble the way we finally stopped bootleggers under alcohol Prohibition: legalize, establish relatively sensible regulations, and let addicts get treatment in an environment free of fear and threat. One doesn’t have to be a Harvard economist to see why that approach makes sense.