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Measuring Misery in Latin America: More Dollarization, Please

Tue, 06/10/2014 - 16:27

Steve H. Hanke

In my misery index, I calculate a ranking for all countries where suitable data from the Economist Intelligence Unit exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 89 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Categories: Policy Institutes

California Judge Strikes Down Teacher Tenure/Dismissal Laws

Tue, 06/10/2014 - 15:41

Andrew J. Coulson

A superior court judge has ruled in Vergara v. California that the state’s laws regulating tenure, dismissals, and last-in-first-out layoffs are all unconstitutional. The judge ruled that these laws impede administrators’ efforts to improve the quality of the teaching workforce, and that the harm falls disproportionately on poor, minority students. Naturally, the reformers who brought and supported the suit are elated.

The decision will almost certainly be appealed, but even if it is upheld it seems to me unlikely to accomplish as much as its supporters hope. I wrote about the reasons why in a piece earlier this year, concluding that:

Lawsuits can redress specific legal wrongs, like compelled segregation, but they can’t produce educational outcomes that require the coordination and relentless dedication of thousands or even millions of people, year after year.

For those who really want to maximize the quality of education offered to disadvantaged and minority students—indeed to all students—the best hope is to study the different sorts of education systems that have been tried around the world and across history, and then ensure universal access to the best among them: a free educational marketplace.

If you want people to relentlessly search for better and more efficient ways to serve families, you have to give them the freedom, the encouragement, and the incentives to do so. Liberate, respect, and reward education entrepreneurs, and they will strive to the utmost to better educate your children. Don’t, and they won’t.

Categories: Policy Institutes

Put Off By Constant Drug Tests, Eighth Grader Skips Honor Society

Tue, 06/10/2014 - 12:25

Walter Olson

At Susquenita Middle School in Duncannon, Pa., a community 20 minutes north of Harrisburg, an eighth-grader chose to skip the National Junior Honor Society this year, reports Eric Veronikis at PennLive

Leila May was drug-tested once during her fifth grade year, once in sixth grade and three times as a seventh grader because Susquenita School District randomly tests students in grades five through 12 who participate in extracurricular activities and apply for parking permits.

She always tested negative but her parents have tired of the intrusion and embarrassment and her mother Melinda says they’re weren’t willing to sign another consent form. “It’s sad that this is what we had to resort to. It’s ridiculous.”

Twelve years ago, the U.S. Supreme Court ruled 5-4 in Board of Education v. Earls (2002) that schools generally have discretion to impose drug testing on participants in extracurricular activities even without particularized suspicion, on the grounds that such activities are voluntary. It declined to follow an amicus brief in which the Cato Institute and other groups had argued that random suspicionless searches in this instance amount a Fourth Amendment violation, and pointed out that kids who join academic honors groups appear less prone to engage in drug abuse than their peers, not more. Instead the Court extended the reach of a 1995 precedent, Vernonia School Dist. v. Acton, which had approved a similar regime for high school athletes

Even if the courts will not restrain the Susquenita district, common sense should. Stop the madness and let kids be kids. 

Categories: Policy Institutes

Did the FDA Just Ban European Cheese?

Tue, 06/10/2014 - 12:06

K. William Watson

Up till now, the biggest concern of European cheesemakers in the U.S. markets has been to establish “geographic indicators” that would keep American companies from using names like gorgonzola, feta, or parmesan.  But does it matter what the product is called if no one is allowed to eat it?  A recent decision by the U.S. Food and Drug Administration (FDA) to ban cheese aged on wooden boards could potentially shut out the bulk of imports from Europe.

The FDA’s recent move seems to be part of a bizarre crusade to ban flavorful cheese.  Last year the FDA targeted mimolette cheese, inspiring informative commentary and a video by my Cato colleagues.  The stated reason for the ban was that mimolette rinds might contain trace amounts of cheese mites, a harmless critter essential to the creation of certain cheese flavors.

Now the FDA has gone full throttle and banned all cheese aged on wood.  According to the agency:

“The porous structure of wood enables it to absorb and retain bacteria, therefore bacteria generally colonize not only the surface but also the inside layers of wood. The shelves or boards used for aging make direct contact with finished products; hence they could be a potential source of pathogenic microorganisms in the finished products.”

Does placing food on wood really make it too dangerous for humans to eat?

While this is certainly a problem for artisanal cheese makers in the United States, it could have serious implications for cheese imports from Europe.  According to the Cheese Underground blog, most cheeses imported into the United States are aged on wood.

Businesses in the United States often complain that European regulators are overly cautious when it comes to permitting new methods of producing food products with genetic modification or growth hormones.  The most common complaint is that European regulations are based on irrational fear of new things and not based on hard science.  Practices that are common in the United States are outlawed in Europe, preventing U.S. producers from selling their products overseas.

The FDA, apparently, is interested in eradicating the more traditional methods.  Can “science” truly justify the criminalization of patently safe production techniques intentionally employed to improve product quality.

Regulatory differences are the most salient issue being addressed in ongoing negotiations toward a free trade agreement between the United States and the European Union.  As U.S. negotiators push Europeans to adopt a more scientific approach to regulation, perhaps the EU negotiators should demand a bit more common sense.

Categories: Policy Institutes

Core Misinformation: Bad News for the Blame Obama Crowd

Tue, 06/10/2014 - 11:58

Neal McCluskey

A favorite refrain of Common Core advocates is that their opponents are peddling “misinformation.” Well Core fans are quite adept at doing the same thing, and as a new Washington Post article reinforces, no case of this is more egregious than pretending that Core adoption was supposed to be “state-led” and “voluntary,” and federal coercion was just unwanted Obama administration interference. That is simply not true: Core crusaders wanted federal involvement from before the Common Core was even given its name.

On numerous occasions I have cited the 2008 report Benchmarking for Success, from the Core-creating National Governors Association and Council of Chief State School Officers, as indisputable evidence that Core supporters wanted federal pressure to push state adoption of common, internationally benchmarked standards. That report – written before there was an Obama administration – says explicitly that Washington should “offer funds” and provide “tiered incentives” to push states onto common standards. It was a call reiterated on the website of the Common Core State Standards Initiative, though it was eventually removed.

Despite this crystal clear evidence, Core defenders have continued to imply that federal intervention has all been the unwanted, unappreciated pushiness of President Obama. Indeed, just last Friday, Michael Petrilli of the Core-supporting Thomas B. Fordham Foundation said it again in a discussion with AEI’s Mike McShane. Go to the 28:50 mark to hear Petrilli say, “I think many of us could make the argument that this whole thing would have played out very differently if the Obama administration had just stayed out of it.” And Petrilli is not alone in suggesting that the Core initiative was always supposed to be fed-free. Oklahoma Governor Mary Fallin (R), signing a bill removing her state from the Core last week, implied the same thing, saying:

Unfortunately, federal overreach has tainted Common Core. President Obama and Washington bureaucrats have usurped Common Core in an attempt to influence state education standards. The results are predictable. What should have been a bipartisan policy is now widely regarded as the president’s plan to establish federal control of curricula, testing and teaching strategies.

Obviously, based on Benchmarking for Success alone, this is utterly misleading. But what the Washington Post has now reported, in a piece largely about the role of Bill Gates in pushing the Core, is that Core supporters not only suggested that there be federal incentives, they worked with the Obama administration to get them:

Duncan and his team leveraged stimulus money to reward states that adopted common standards.

They created Race to the Top, a $4.3 billion contest for education grants. Under the contest rules, states that adopted high standards stood the best chance of winning. It was a clever way around federal laws that prohibit Washington from interfering in what takes place in classrooms. It was also a tantalizing incentive for cash-strapped states.

Heading the effort for Duncan was Joanne Weiss, previously the chief operating officer of the Gates-backed NewSchools Venture Fund.

As Race to the Top was being drafted, the administration and the Gates-led effort were in close coordination.

Note that the article goes on to say that an early draft of RTTT mentioned the Core by name, but supporters objected that that would be too much for some states to handle. Instead, in contrast to what the article suggests, to be fully competitive for grants the regulations required adoption of standards common to a “majority” of states – not just “high” standards – a parameter that only included Common Core.

Now, I don’t think this will happen, but at this point it would at least clear the air for Core supporters to openly admit that they always wanted to employ federal pressure, and gladly worked with President Obama to get it. At the very least, it would make their own accusations of “misinformation” a little more tolerable.

Categories: Policy Institutes

Happy Birthday Nat Hentoff!

Tue, 06/10/2014 - 09:17

Tim Lynch

Today Cato Senior Fellow Nat Hentoff is 89!  Happy Birthday Nat!

Check out the documentary film on his civil liberties work and writings on jazz, The Pleasures of Being Out of Step.

Here is the trailer:

THE PLEASURES OF BEING OUT OF STEP - Official Trailer
Categories: Policy Institutes

Student Loan Gifts Don’t Help

Mon, 06/09/2014 - 15:57

Neal McCluskey

Today must be student loan day in President Obama’s “year of action” – also “year of midterm elections” – as the President announced he will expand eligibility for student loan repayment capping and forgiveness. In addition, this week the Senate is set to take up Elizabeth Warren’s (D-MA) bill to federally refinance student loans at lower interest rates, including truly private loans.

Let’s review the folly of such seemingly well-intentioned efforts:

  • Making student loans cheaper, which includes indicating that Washington will always soften your loan terms if politically possible, mainly encourages students to demand more stuff, and colleges to charge more. They’re called “perverse incentives.”
  • In the name of helping them, federal politicians, and many other people, massively oversell higher education to the detriment of students. Perhaps as much as half of people who enter college don’t finish; a third of people with a bachelor’s degree are in jobs not requiring the credential; underemployment is even worse for graduate-degree holders, and; cheap college has almost certainly fueled credential inflation, not major increases in knowledge or skills.
  • Decreasing what borrowers will repay means taxpayers – who had no choice in whether the loans were made – have to make up the difference. And there is a little matter of being nearly $18 trillion in debt already.
  • The Public Service Loan Forgiveness program encourages people to work for not-for-profit entities, especially government. As if government work were a major sacrifice, and things produced or operated for profit such as iPads, grocery stores, bicycles, door knobs, restaurants, books, airplanes, and on and on, didn’t make us better off.

Someday, I hope somebody’s “year of action” will finally deal with the crippling reality of federal student aid “help.” But that will only happen if the public gets tired of sweet-sounding “solutions,” especially in years of elections.    

Categories: Policy Institutes

Progressivism Is Bad for Your Health

Mon, 06/09/2014 - 15:39

Marian L. Tupy

The American citizenry is already used to our progressive friends taxing the hell out of everything they don’t like: smoking, drinking, fatty foods, etc. But now, apparently, the hyper-progressive and very cash-strapped D.C. Council is seriously considering slapping a 5.75 percent tax on health club memberships. That is riveting stuff, considering how many progressives out there are urging the unwashed masses rest of us to eat our broccoli and get on that treadmill.

The nation’s capital is, of course, a temporary home to that most progressive and fittest of couples: POTUS and FLOTUS. There is a government website with a catchy name “Let’s move.” It features many a picture of our First Lady in a variety of physical activities. What fun!

Not to be outdone, the Exerciser in Chief can take pride in “The President’s Challenge,” which is “the premier program of the President’s Council on Fitness, Sports, and Nutrition.” The President’s Challenge, its website tells us, “helps people of all ages and abilities increase their physical activity and improve their fitness through research-based information, easy-to-use tools, and friendly motivation.”

The former British Prime Minister Margaret Thatcher used to say that “the problem with socialism is that eventually you run out of other people’s money.” And so it is with the D.C. council, which in its perpetual quest for more revenue might very well end up discouraging behavior that progressives claim to want to encourage.

Welcome to Absurdistan on the Potomac!

Categories: Policy Institutes

Morris Adelman, RIP

Mon, 06/09/2014 - 13:56

Peter Van Doren

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

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

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

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

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

Categories: Policy Institutes

Linear Thinking and the Rahn Curve: Responding to a Critic

Mon, 06/09/2014 - 12:22

Daniel J. Mitchell

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

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

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

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

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

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

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

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

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

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

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

He elaborates, emphasizing the importance of nonlinear thinking.

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

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

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

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

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

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

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

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

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

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

The Rahn Curve and the Growth-Maximizing Level of Government

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

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

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

Categories: Policy Institutes

Is Uber Really Worth $18 Billion?

Mon, 06/09/2014 - 11:50

Matthew Feeney

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

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

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

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

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

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

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

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

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

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

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

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

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

Categories: Policy Institutes

How Walmart Improves the Lives of Everybody, Especially the Poor

Mon, 06/09/2014 - 11:03

Stephanie Rugolo

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

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

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

Categories: Policy Institutes

Cut Saturday Mail to Fund Highways?

Mon, 06/09/2014 - 08:57

Randal O'Toole

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

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

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

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

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

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

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

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

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

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

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

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

Categories: Policy Institutes

Top Catholics Take Aim at Libertarianism

Mon, 06/09/2014 - 08:54

Andrew J. Coulson

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

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

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

Categories: Policy Institutes

Political Connections and SEC Enforcement

Mon, 06/09/2014 - 08:53

Jeffrey Miron

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

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

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

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

Categories: Policy Institutes

Virginia DMV Orders Uber and Lyft to Cease and Desist

Fri, 06/06/2014 - 14:48

Matthew Feeney

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

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

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

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

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

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

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

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

Categories: Policy Institutes

Feds Hire, then Prosecute, Tree Trimmer

Fri, 06/06/2014 - 12:39

Tim Lynch

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

Categories: Policy Institutes

Pareto on Piketty

Fri, 06/06/2014 - 11:14

Alan Reynolds

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

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

Categories: Policy Institutes

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

Fri, 06/06/2014 - 10:03

Jason Kuznicki

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

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

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

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

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

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

Categories: Policy Institutes

Vultures on K Street

Fri, 06/06/2014 - 09:59

Walter Olson

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

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

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

Categories: Policy Institutes

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