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Dave Brat on Free Trade

Thu, 06/12/2014 - 12:02

Simon Lester

When I’m out at trade events, people in the trade world often ask me, as a Cato person, what the tea party thinks of free trade (libertarians are unfamiliar to many of my friends in the trade world, and I’m their only link to such views, so they come to me with anything vaguely related to these issues).  I usually say something along the lines of: it’s complicated and nuanced, there are a range of views, and that I’m still trying to find out myself!

Dave Brat, who is associated with the tea party, just made headlines by defeating House Majority leader Eric Cantor in a Republican primary.  I was thinking about ways to ask him his views on trade, but then Chuck Todd beat me to it (starts at 4:02 of the video):

Chuck Todd: Let me ask you about trade agreements.  There’s a couple of big ones likely to come for you to vote on…A big one with Europe, and a big one with Asia.  In general, what are your views of trade agreements, are you open to big free trade agreements or not?

Dave Brat: Yeah, I’m a free trader.  After World War II, the GATT brought tariffs roughly from 50% down to about 4% or less today.  And that’s been good for European trade with us.  We set up our arch-enemies Japan and Germany after the war, started trading with them, and it enriched all of us.  I have a win-win positive view about relationships with other countries that respect the rule of law.  So we have to move forward on that front.

A couple noteworthy things about this response.

First, he doesn’t leave much doubt about his view that free trade, in the form of lower tariffs, is good.  That’s not too surprising, given his background as an economics professor.  (Although on immigration, his economics fails him.)

Second, he focuses his discussion on tariffs.  But trade agreements go far beyond tariffs these days.  What does he think about provisions in trade agreements that strengthen intellectual property protection, set binding labor and environment rules, and allow foreign investors to sue governments in international tribunals?  I’m curious about his take on the nuances of today’s trade agreements.  The question from Chuck Todd does refer to the trade talks with Europe and Asia, which have all these new rules in them, so you could take his response to mean he is fine with everything that might be in the Pacific and European trade agreements under negotiation.  But I wouldn’t be sure until he gets asked more directly.

And third, he does note that these views apply to “countries that respect the rule of law.”  I’d like to know who he thinks fits that description and who does not.

Categories: Policy Institutes

0.02°C Temperature Rise Averted: The Vital Number Missing from the EPA’s “By the Numbers” Fact Sheet

Wed, 06/11/2014 - 12:39

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

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

Last week, the Obama Administration’s U.S. Environmental Protection Agency (EPA) unveiled a new set of proposed regulations aimed at reducing carbon dioxide emissions from existing U. S. power plants. The motivation for the EPA’s plan comes from the President’s desire to address and mitigate anthropogenic climate change.

We hate to be the party poopers, but the new regulations will do no such thing.

The EPA’s regulations seek to limit carbon dioxide emissions from electricity production in the year 2030 to a level 30 percent below what they were in 2005. It is worth noting that power plant CO2 emissions already dropped by about 15% from 2005 to2012, largely, because of market forces which favor less-CO2-emitting natural gas over coal as the fuel of choice for producing electricity. Apparently the President wants to lock in those gains and manipulate the market to see that the same decline takes place in twice the time.  Nothing like government intervention to facilitate market inefficiency. But we digress.

The EPA highlighted what the plan would achieve in their “By the Numbers” Fact Sheet that accompanied their big announcement.

For some reason, they left off their Fact Sheet how much climate change would be averted by the plan. Seems like a strange omission since, after all, without the threat of climate change, there would be no one thinking about the forced abridgement of our primary source of power production in the first place, and the Administration’s new emissions restriction scheme wouldn’t even be a gleam in this or any other president’s eye.

But no worries.  What the EPA left out, we’ll fill in.

Using a simple, publically-available, climate model emulator called MAGICC that was in part developed through support of the EPA, we ran the numbers as to how much future temperature rise would be averted by a complete adoption and adherence to the EPA’s new carbon dioxide restrictions*.

The answer? Less than two one-hundredths of a degree Celsius by the year 2100.

0.018°C to be exact.

We’re not even sure how to put such a small number into practical terms, because, basically, the number is so small as to be undetectable.

Which, no doubt, is why it’s not included in the EPA Fact Sheet.

It is not too small, however, that it shouldn’t play a huge role in every and all discussions of the new regulations.

*********

* Details and Additional Information about our Calculation

We have used the Model for the Assessment of Greenhouse-gas Induced Climate Change (MAGICC)—a simple climate model emulator that was, in part, developed through support of the EPA—to examine the climate impact of proposed regulations.

MAGICC version 6 is available as an on-line tool.

We analyzed the climate impact of the new EPA regulations by modifying future emissions scenarios that have been established by the United Nation’s Intergovernmental Panel on Climate Change (IPCC), to reflect the new EPA proposed emissions targets.

Specifically, the three IPCC scenarios we examined were the Representative Concentration Pathways (RCPs) named RCP4.5, RCP 6.0 and RCP8.5.  RCP4.5 is a low-end emissions pathway, RCP6.0 is more middle of the road, and RCP8.5 is a high-end pathway.

The emissions prescriptions in the RCPs are not broken down on a country by country basis, but rather are defined for country groupings.  The U.S. is included in the OECD90 group.

To establish the U.S. emissions pathway within each RPC, we made the following assumptions:

1) U.S. carbon dioxide emissions make up 50 percent of the OECD90 carbon dioxide emissions.

2) Carbon dioxide emissions from electrical power production make up 40 percent of the total U.S. carbon dioxide emissions.

Figure 1 shows the carbon dioxide emissions pathways of the original RCPs along with our determination within each of the contribution from U.S. electricity production.

 

Figure 1. Carbon dioxide emissions pathways defined in, or derived from, the original set of Representative Concentration pathways (RCPs), for the global total carbon dioxide emissions as well as for the carbon dioxide emissions attributable to U.S. electricity production.

As you can pretty quickly tell, the projected contribution of U.S. carbon dioxide emissions from electricity production to the total global carbon dioxide emissions is vanishingly small.

The new EPA regulations apply to the lower three lines in Figure 1.

To examine the impact of the EPA proposal, we replace the emissions attributable to U.S. power plants in the original RCPs with targets defined in the new EPA regulations. We determined those targets to be (according to the EPA’s Regulatory Impacts Analysis accompanying the regulation), 0.4864 GtC in 2020 and 0.4653 GtC in 2030.  Thereafter, the U.S. power plant emissions were held constant at the 2030 levels until they fell below those levels in the original RCP prescriptions (specifically, that occurred in 2060 in RPC4.5, 2100 in RCP6.0, and sometime after 2150 in RCP8.5).

We then used MAGICC to calculate the rise in global temperature projected to occur between now and the year 2100 when with the original RCPs as well as with the RCPs modified to reflect the EPA proposed regulations (we used the MAGICC default value for the earth’s equilibrium climate sensitivity (3.0°C)).

The output from the six MAGICC runs is depicted as Figure 2.

Figure 2. Global average surface temperature anomalies, 2000-2100, as projected by MAGICC run with the original RCPs as well as with the set of RCPs modified to reflect the EPA 30% emissions reductions from U.S power plants.

In case you can’t tell the impact by looking at Figure 2 (since the lines are basically on top of one another), we’ve summarized the numbers in Table 1.

 

In Table 2, we quantify the amount of projected temperature rise that is averted by the new EPA regulations.

 

The rise in projected future temperature rise that is averted by the proposed EPA restrictions of carbon dioxide emissions from existing power plants is less than 0.02°C between now and the end of the century assuming the IPCC’s middle-of-the-road future emissions scenario.

While the proposed EPA plan seeks only to reduce carbon dioxide emissions, in practice, the goal is to reduce the burning of coal. Reducing the burning of coal will have co-impacts such as reducing other climatically active trace gases and particulate matter (or its precursors). We did not model the effects of changes in these co-species as sensitivity tests using MAGICC indicate the collective changes in these co-emissions are quite small and largely cancel each other out.

Categories: Policy Institutes

Tea Party Discovers Eric Cantor's Record on Federal Spending

Wed, 06/11/2014 - 12:14

David Boaz

I was as surprised as everybody else by David Brat’s defeat of Eric Cantor yesterday. But I’m not really surprised that Tea Party-type voters were tired of Cantor’s voting record. In 2010, I noted that Cantor, Rep. Kevin McCarthy, and Rep. Paul Ryan had published a book, Young Guns, which cast the Republican congressional leaders who preceded them as a group that “betrayed its principles” and was plagued by “failures from high-profile ethics lapses to the inability to rein in spending or even slow the growth of government.”

But, I wondered, how credible were the messengers? Once you ruin a brand, it can take a long time to restore it. And part of the solution is owning up to your own errors, not just pointing the finger.

Sadly, I discovered at the time that the authors didn’t have very clean hands when it came to the overspending and overregulation of the Bush years. Most relevantly for today, I found that Rep. Cantor voted for the Bush administration’s No Child Left Behind Act in 2001, expanding federal control over education. He voted for the costly Iraq war in 2002. He voted for the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, which was projected to add more than $700 billion to Medicare costs over the following decade. He voted for the Emergency Economic Stabilization Act of 2008, which included the $700 billion TARP bailout. 

To be fair, he did get A’s and B’s in the annual ratings of Congress by the National Taxpayers Union, which means he had a better record on spending than most of his colleagues. But as the Tea Party’s been complaining, that’s not saying much.

David Brat, a professor of economics, promised in his campaign to “fight to end crony capitalist programs that benefit the rich and powerful.” While I’m disappointed in his opposition to sensible immigration reform, I hope that if he does get to Washington he’ll bring a revitalized Tea Party message of fiscal responsibility and opposition to big business cronyism.

Categories: Policy Institutes

London Cabbies Hold Uber Regulation Protest

Wed, 06/11/2014 - 12:11

Matthew Feeney

Today, thousands of drivers of London’s iconic black cabs are taking part in a possibly illegal demonstration in response to how Transport for London (TfL), the city’s transportation agency, is treating Uber. The drivers plan to cause congestion which Kabbee, a mini cab app company, believes will cost the London economy an estimated £125 million. Licensed taxi drivers are also holding protests related to Uber across other European cities today.

The Licensed Taxi Drivers Association (LTDA) believes that Uber, the San Francisco-based transport technology company, is operating illegally in London. Thanks to the Private Hire Vehicles (London) Act 1998, it is illegal for a London vehicle with a private hire vehicle license to have a taximeter. Up until yesterday Uber’s website stated that anyone who wanted to be an Uber driver in London must have a private hire vehicle license. Today those requirements remain the same, however in response to the London protest Uber has opened to licensed black cabs.

TfL disagrees with LTDA and believes that the phones used by Uber should not be considered taximeters because they are not physically attached to the vehicle:

Smartphones used by private hire drivers – which act as GPS tracking devices to measure journey distances and relay information so that fares can be calculated remotely from the vehicle – do not constitute the equipping of a vehicle with a taxi meter.

However, TfL has asked the High Court to rule on the matter. LTDA’s secretary general, Steve McNamara, believes the court is unlikely to announce a ruling before the end of the year.

McNamara has used blunt language when discussing Uber and its presence in London:

This is not some philanthropic friendly society, it’s an American monster that has no qualms about breaching any and all laws in the pursuit of profit, most of which will never see a penny of tax paid in the UK.

Becoming a driver of one of London’s black cabs is a long process. In order to be a London black cab driver you need to pass “The Knowledge,” a rigorous test on London’s thousands of streets, roads, and landmarks, which takes years to prepare for. Not only do those hoping to become London cabbies have to spend years studying London, they also have to pay the relevant fees to complete the application process.

Speaking to the BBC, London black cab driver Lloyd Baldwin said:

Our beef with Uber is that these drivers have come straight into London, and have been licensed straight away by Transport for London. We’re regulated to within an inch of our lives.

We don’t do protests willy-nilly for petty things, we feel it’s our only course.

and,

We just want them to be treated exactly the same as we are.

Baldwin’s frustrations make sense in light of the time and money invested into becoming a driver of one of London’s iconic taxis. But, as in other jurisdictions, the answer is not to make new and innovative companies like Uber conform to already out-of-date regulations and legislation, but rather to liberalize the market Uber and London black cabs are competing in. When the Private Hire Vehicles Act was signed in 1998 the iPhone was still nine years away, and “The Knowledge” test, which began almost 150 years ago, predates cell phones (never mind smartphones). Regulations such as the ban on private hire vehicle license holders from having taxi meters are out of date, and it is long past due for them to be repealed in order to allow traditional cabs to compete with companies like Uber.

Categories: Policy Institutes

Eric Cantor’s Website

Wed, 06/11/2014 - 11:27

Chris Edwards

My Daily Caller op-ed today looks at the website of a typical modern politician, Rep. Sean Patrick Maloney (D-NY). His site is designed to impress voters and the media in his district with all the federal benefits he has brought home. Maloney is taking a pork and constituent service approach to gaining reelection.

There are other approaches to electoral success. Senator Rand Paul (R-KY) has a strategy of championing principles and specific issues that broadly resonate. The detail on Paul’s website is much better than most. Under “Issues,” he describes his general approach to each policy topic and discusses his stands on particular bills. Under “Budget” he provides a 106-page plan to cut spending.  

Looking at Rep. Eric Cantor’s (R-VA) website, you can see that he followed neither the pork nor the principled approach. If Cantor brought pork home to his district, he does not do a very good job telling people about it.

Regarding big ideas or describing his positions on issues, Cantor’s congressional website is nearly empty. Unlike most members, he does not even have an “Issues” section to explain his approach to tax reform, the budget, economic growth, civil liberties, energy, or other policies. His website is fluff.

Cantor’s primary defeat seems partly due to a lack of trust, meaning that voters in his district did not really know where he stood on issues or how he would vote. His website seems to have reflected his strategy of not taking hard stands and having few guiding principles. In his district, that ended up being a losing strategy.

(As majority leader, Cantor also runs this website. But for all the resources that office must have, this site is also very fluffy).

 

Categories: Policy Institutes

FDA Decides Not to Walk the Cheese Plank... for Now

Wed, 06/11/2014 - 09:41

Andrew J. Coulson

FDA:  You know that artisanal cheese you love, that you have to age on wood planks? That’s dangerous and we don’t approve.

Fancy Cheese Lovers:  Hey, FDA, these cheese wheels will be your tombstones.

FDA:  Oh. What? Did you think we meant we were going to regulate your much loved, centuries-old practices out of existence just because we’re a regulatory agency that stops people from doing things for a living? Of course we’re not doing that… right now… while the media spotlight is so bright it’s hurting our eyes… but you’d better convince us we should allow you to do that anyway.

The latter bit is what has apparently played out this morning, according to Forbes online.

But as Cato’s Walter Olson explains, this apparent victory for sanity and liberty may simply be due to the fact that the usual advocates of regulatory encroachment in every aspect of our lives happened to have been personally inconvenienced this time around, and may have had the subject-area knowledge to realize how ridiculous this encroachment was. So, for once, they pushed back instead of rooting for leviathan.

If so, let’s hope they learn a broader lesson from this experience: maybe other people should also be left to make their own choices in the areas about which they care deeply. Maybe all that stifles is not gold.

And if you call Uber or Lyft to pick up your fancy cheese in Virginia, be prepared to get busted…they’re still banned.
Categories: Policy Institutes

Los Angeles' Confused Suit against Mortgage Lenders

Wed, 06/11/2014 - 08:48

Mark A. Calabria

Recently the City of Los Angeles filed suit against JP Morgan Chase.  The suit alleges “the bank engaged in discriminatory lending, which the City contends led to a wave of foreclosures that continues to diminish the City’s property tax revenues and increase the need for costly City services.”  So the City’s logic basically goes like this:  the housing market was humming along just fine, kicking off lots of property tax revenue allowing the City to spend like there’s no tomorrow, then evil JP Morgan comes in and lends to borrowers with the intention of pushing those borrowers into default, which pushed down housing prices, reducing property taxes and causing the city to cut “essential services”. 

So let’s start with the facts upon which I assume everyone can agree on.  Los Angeles experienced a massive boom in housing prices starting in the late 1990s (see chart below).  Rather than see this boom as temporary, the City increased property tax revenues as prices soared.  it spent those property tax revenues (have these people never heard of a rainy day fund?).  As the boom was building in 2002, according to the Census Bureau Los Angeles collected about $850 million in property tax revenue.  At the peak of the market in 2006 Los Angeles was collecting over $1 billion in property tax revenue, an increase of around 17% over four years.

Then the market begins to slow in 2006, prices decline and surprise property revenues decline as well.  A central flaw in Los Angeles’ logic is that the inflection point in prices came before that in delinquencies.  Put simply, Los Angeles has their causality wrong.  Price declines drove foreclosures.  Yes, I suspect there was a feedback from foreclosures to prices, but the temporal order of events strongly suggests price declines was the driver here.

Now one could argue that loose lending drove up prices in the first place.  But then that would mean that LA owes mortgages lenders for all that extra property tax revenue it collected during the boom.  Somehow I suspect they aren’t interested in sharing the up-side of boom/busts, just the downside.  And if LA believes that foreclosures drove down prices and hence revenues, why isn’t the city suing all the borrowers who walked away from their homes?  After all, under the City’s theory these delinquent borrowers cost the City tax revenues.  But since some of these borrowers are voters, I doubt we’ll see any consistency from the City there.

At the end of the day this suit appears little more than cheap pandering meant to distract from the dysfunctional governance of Los Angeles.  If mortgage lenders had any sense they’d just cut off lending to LA altogether, but then they’d probably get suited by DOJ for discriminating.  Can’t win either way.

Categories: Policy Institutes

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

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