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Are Federal School Vouchers a Good Idea?

Tue, 01/28/2014 - 13:10

Andrew J. Coulson

Today, Senators Lamar Alexander and Tim Scott have proposed taking federal education funding and voucherizing it, allowing it to follow students to the schools of their choice, public or private. The goal of these plans is to expand families’ educational options and raise quality through competition and choice. Surely a worthy goal. But equally surely, federal education programs generally fail to achieve their goals. So it is essential to evaluate every proposal on its merits, using the best evidence available.

Senator Alexander’s plan is by far the larger of the two federal voucher proposals. It would serve up to 11 million low-income students—one out of every 5 public school students in the country. Do we have any examples of what happens when national governments start paying for private schooling? Indeed we do. There are numerous such cases in the 2,500 year history of formal schooling, and there are several programs around the world currently operating in this way. The lesson of those programs is very clear: government funding brings government control and cartellization, undermining the very independence and competition that gives private sector education its advantage.

What is especially pernicious about this effect at the national level is that every regulation affects every school in the country—there is nowhere for families to turn to escape an encroaching regulatory tide.

I wrote about the Dutch experience eight years ago, when then-President G.W. Bush proposed a similar voucherization of federal education spending. Nothing much has changed since. No experienced federal politician or observer of federal politics can doubt that, in the U.S. as in the Netherlands and elsewhere, federal funding would ultimately bring with it stifling regulation of private education.

Perhaps if there were no viable alternative policy, some would consider that an acceptable degree of collateral damage. But there are alternatives. Already, eleven states have education tax credit programs that improve achievement for both private and public school students, lower the net tax burden, avoid excessive regulation, and compel no one to support types of education they find objectionable.

Not only is this alternative policy superior on the merits, it also has the pleasant, if not entirely fashionable, advantage of comporting with the U.S. Constitution, which delegates to Congress no national powers in the area of education.

That is not to say that there is nothing federal lawmakers can do to improve education. The Constitution carves out certain special cases (e.g., the District of Columbia, the military) over which Congress can arguably make law relating to education. And by virtue of their limited scope, any regulations attached to such federal programs cannot suffocate the freedom of the entire education sector. Sen. Scott’s proposal does in fact single out military families, and to that extent is worthy of serious consideration.

Another federal initiative that deserves serious consideration is the LEARN act proposed by Rep. Garrett (NJ). This bill would simply cut taxes on the citizens of any state that decides to opt-out of federal education programs. And since existing federal programs haven’t been achieving their goals, opting out of them seems a wise course of action.

So, yes, let’s all celebrate school choice this week and every other week. But let’s be very, very leery about getting behind measues with as dangerous a set of precedents as national school vouchers.

Categories: Policy Institutes

Environmental Governance in Trade Agreements

Tue, 01/28/2014 - 12:52

Simon Lester

Before I came to Cato, I wrote a law journal article expressing concern about how trade agreements had expanded to become global governance agreements, addressing lots of issues that don’t have much to do with trade.  One of the issues in this regard is environmental protection.

The issue of environmental rules in trade agreements has now come up in the context of the Trans Pacific Partnership (TPP), as WikiLeaks leaked the latest draft of the environmental chapter in the TPP talks.  From the left, the response has been: The environmental rules are not strong enough. The key issue here is whether trade sanctions will be available as a way to enforce the environment provisions.

As it turns out, this isn’t so much a business versus NGO issue, as environment issues often are.  It’s a U.S. vs. the rest of the world issue.  The NY Times puts it this way:

American negotiators have sought to make the environmental provisions in the agreement enforceable through a dispute settlement process, an idea that most of the other countries appear to oppose.

And the Times makes clear which side it is on:

That list includes countries like Canada, Australia and New Zealand that might have been expected to play a more constructive role.

Now, I’m no expert on the environment, but it seems to me the Times is too focused on international law, and perhaps not focused enough on the actual environment.  I thought it was worth asking in this regard, how do the various TPP countries fare on the environment, according to those who support strong environmental protections?  I’m not sure the best place to look for this, but one seemingly credible ranking I found was the following from a group affiliated with Yale and Columbia, called the Environmental Performance Index (EPI).  Here’s how the TPP countries did:

Country EPI Ranking Australia 3 Singapore 4 New Zealand 16 Canada 24 Japan 26 Chile 29 United States 33 Brunei 37 Malaysia 51 Mexico 65 Peru 110 Viet Nam 136

So as I read all this, the U.S. is solidly middle of the pack here.  And if that’s the case, maybe we should look skeptically at the U.S. view of the issues.  Resistance to the U.S. proposals is coming from countries who, according to at least some environmentalists, do better than the U.S. on environmental protection.  Perhaps that suggests we should take our trading partners’ views seriously.  Maybe they just think binding international law on environmental matters through trade agreements is not the right approach to the issue.  And maybe they are right.

Categories: Policy Institutes

Post-World War II Migration and Lessons for Studying Liberalized Immigration

Tue, 01/28/2014 - 11:44

Alex Nowrasteh

Introduction 

This post is about two issues that are closely related.  The first are some facts and history that help explain why internal migration in post-World War II America was an important component of that economic expansion and likely to be as important in future growth.  Some of this data has applications for future research into the role migration plays as a stimulus to and reaction of economic growth.  The second is how studying this period of American migration could inform the academic literature on the probable effects of removing all or most of America’s immigration restrictions – an admittedly radical policy but one that should be understood.

The facts and history surrounding the post-World War II boom are somewhat controversial.  Some critics of immigration argue that post World War II economic growth occurred with relatively little immigration so therefore immigration is unnecessary for economic growth today.  Those critics are mistaken for many reasons, but fundamentally they misunderstand the role that national migration played in feeding economic growth during the 1950s and 1960s.  Ironically, economic growth at the 1950s and 1960s rate would be exceedingly difficult or impossible to achieve without immigration.    

The economic growth of the 1950s and 1960s with relatively closed borders can likely not be repeated today because there are fewer underutilized Southerners, Puerto Ricans, and women who could enter the workforce as substitutes for immigrants.  Growth during that time was partly fueled by the great migrations (migration is internal movement, immigration is international movement) of Americans from much poorer parts of the country, namely the South and Puerto Rico, to wealthier locations.  After the government began to severely restrict low-skilled immigration in 1921, migrants from the South and Puerto Rico moved in larger numbers to fill the economic gap left by the curtailment of low-skilled immigration, some migrants moved from rural areas to urban ones, and women began to enter the workforce in greater numbers.  Without the great migrations that brought tens of millions of black southerners, white southerners, and smaller numbers of Puerto Ricans to Northern and Western cities, American economic growth during those boom years would probably have been much smaller. 

Furthermore, American internal migration during the 1950s and 1960s was a one-time event due to unique historical, demographic, and economic circumstances that would not repeat today if immigration were similarly restricted.  Migrants and immigrants together as a percentage of the U.S. population move similarly with the average annual hours worked per worker and, thus, the labor component of production.  Lawful immigration is essential to recapturing the labor force growth necessary for approaching the economic growth rates of the 1950s and 1960s.         

The Great Migration

The growth of the post-war American labor force was dramatic.  From 1948 to 1982, the size of the U.S. labor force grew from 60 million to 111 million.  Over the same time, the number of people employed in the U.S. labor market increased from 58 million to 99 million.  The Labor Force Participation Rate (LFPR) increased from 58.6 percent to 64.1 percent and the total number of hours worked per worker decreased by 9.3 percent from 898 hours a year to 814 hours a year – likely because wealthier American workers opted to “purchase” more leisure time – meaning that they can afford not to work so many hours.  Here are the history and economics behind the post-World War II great migrations organized by group.

     

Southerners 

There were three large movements that helped to increase the size of the American workforce after the end of international immigration.  The first was the large scale outmigration from the South.  28.6 million southerners migrated to the North during the twentieth century, 8 million blacks and about 20 million whites. 

Black migration transformed a mostly rural racial group into a largely urban one within a generation.  By 1980, black Americans were a majority in several cities and over 40 percent of the population in numerous others.  That is an especially remarkable development because in 1940 they were no more than 13 percent of any non-southern city’s population.  In 1940, 45 percent of black Southerners lived on farms while only 1 percent did so in 1980.  Many blacks left the South to avoid state enforced racial segregation under brutal Jim Crow laws but higher wages elsewhere also attracted workers.  The immigration restrictions of the 1920s are probably partly responsible for some of the rapid 20th century increase in the black population of Northern and Western cities.  Black migration began to take off in the first two decades of the century when the U.S. had open borders with Europe and fell off during the Great Depression to be revived again by the war-time employment boom.  Arguably, some of the black workers who came after the border with Europe was closed came because there was less competition in Northern and Western cities due to immigration.  White migration was an even larger phenomenon – 20 million during the twentieth century – but the migration of both groups had a profound impact on American culture, politics, and economic growth.  Everything from music to regional cuisines to the spread of racial politics across the country can be partly explained by the great migration of blacks and whites from the South.

 

Source: The Southern Diaspora by James N. Gregory.     

Of the 28.6 million who migrated, 26.4 million or 92 percent did so after the government ended free-immigration from Europe in 1921.  Southern blacks as a percentage were more likely to migrate after 1921 but the percentage of white migrants was also high.  At the peak of 1980, when the greatest percentage of southern born adults were living outside of the South, 34 percent of black southerners and 20 percent of white southerners were migrants.  After 1980, the percentage of southern blacks and whites living outside of the south fell for four reasons.

 

Source: The Southern Diaspora by James N. Gregory.     

First, the population began to age and an aging population does not send many migrants.  Between 1955 and 1970, only about 15 percent of all new migrants were over 40 years old.  The most common age range for new migrants during those years was between 20 and 24.  Younger people are more likely to migrate and the South was younger than the rest of the country until 1970, the year that migration as a percent of the U.S. population was at its trough and was the last time southern migrants outnumbered those earning their green cards.  By 2000 the median age in the South was 35 and is surely even higher today so the quantity of people who are most likely to migrate is shrinking as a percent of the population.            

Median Ages

Years

Southern Men

Southern Women

South

United States

1900

19

19

19

22

1910

20

20

20

24

1920

21

21

21

25

1930

22

22

22

26

1940

25

25

25

28

1950

26

27

27

30

1960

25

28

27

29

1970

25

28

27

27

1980

28

30

29

29

1990

31

34

32

32

2000

34

36

35

35

Source: iPUMS. 

Second, immigration of substitute workers from other countries increased.  Lawful and unlawful immigration increased beginning with the economic recovery of the early 1980s and following reform of American immigration laws.  The decline of Southern migrants began before the 1980s but increased immigration could be one reason why it continued to drop so much after 1980.    

 

 

Source: U.S. Department of Homeland Security and The Southern Diaspora by James N. Gregory.     

 

 

Source: U.S. Department of Homeland Security and The Southern Diaspora by James N. Gregory

Third, many of the original migrants had started to die of old age.  By 1980, age cohorts from the earlier half of the twentieth century were reaching ages where they had a higher probability of dying.  A 25 year old migrant who emigrated from the South in 1940 was 65 years old in 1980, for instance.  This thinned the ranks of migrants.  

Fourth, return migration increased sharply as a percentage of all migrants beginning in the late 1960s. The rate of economic and real wage growth increased in the South, providing a big economic incentive to return or not migrate in the first place.  Interestingly, the number of blacks who returned to the South during the late 1990s was almost a third greater than those who left.  The success of the civil rights movement and destruction of the Jim Crow laws also made the South more welcoming for blacks.  Whites had a higher rate of return than blacks did in every time period reported except for the last two – but even their rate picked up quite after the civil rights movement succeeded.     

Southern Return Migration

   

Returnees

5 Year

Return

Rate

New Migrants from South

Ratio: Returnees/ Migrants

1935-40 Blacks

25,673

1.8

127,015

0.20

  Whites

176,682

6.4

595,981

0.30

1955-60 Blacks

78,010

2.7

361,168

0.22

  Whites

647,786

10.6

1,194,039

0.54

1965-70 Blacks

114,296

3.7

336,578

0.34

  Whites

781,687

11.6

999,363

0.78

1975-80 Blacks

210,800

5.2

278,600

0.76

  Whites

897,400

12.2

915,600

0.98

1985-90 Blacks

229,113

6.3

241,892

0.95

  Whites

733,902

10.4

984,267

0.75

1995-2000 Blacks

232,985

7.7

176,642

1.32

  Whites

772,076

10.8

907,550

0.85

Source: The Southern Diaspora by James N. Gregory.     

None of this migration can be understood without studying regional wage differences.  Wages are the prices that incentivize migration and immigration.  Wage gains from migration for the lower-skilled workers were almost always higher as a percentage compared to wage gains for higher skilled workers in 1949 and 1969.  While wages are vitally important to understanding the great migration, uncovering much of the wage data is a research project itself.  I will just post this table to indicate how large the wages gap was. 

Mean Income for Southern-Born Black Males by Location Schooling in 1949 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$2,375

$1,415

67.8%

$2,409

$1,776

35.6%

0-8 grade

$2,253

$1,318

70.9%

$2,288

$1,699

34.7%

9-12 grade

$2,604

$1,858

40.2%

$2,623

$1,913

37.1%

Some College

$2,940

$2,351

25.1%

$2,957

$2,505

18.0%

             

Mean Income for Southern-Born White Males by Location Schooling in 1949 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$3,449

$2,850

21.0%

$3,629

$3,495

3.8%

0-8 grade

$2,825

$2,156

31.0%

$2,950

$2,716

8.6%

9-12 grade

$3,597

$3,248

10.7%

$3,702

$3,632

1.9%

Some College

$5,026

$4,705

6.8%

$5,214

$5,077

2.7%

             

Mean Income for Southern-Born Black Males by Location Schooling in 1969 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$7,548

$5,036

49.9%

$7,618

$5,590

36.3%

0-8 grade

$6,681

$4,111

62.5%

$6,765

$4,698

44.0%

9-12 grade

$7,376

$5,389

36.9%

$7,423

$5,634

31.8%

Some College

$10,206

$8,238

23.9%

$10,290

$8,306

23.9%

             

Mean Income for Southern-Born White Males by Location Schooling in 1969 (Age 35-49)

 

 Migrants 

 In South

 % Gain Outside South

 Migrants in Non-Southern Cities

 Living in Southern Cities

 % Gain Outside South

All

$10,950

$9,575

14.4%

$11,427

$10,989

4.0%

0-8 grade

$8,370

$6,446

29.8%

$8,863

$7,396

19.8%

9-12 grade

$9,926

$8,860

12.0%

$10,196

$9,618

6.0%

Some College

$15,127

$14,154

6.9%

$15,714

$15,186

3.5%

Source: The Southern Diaspora by James N. Gregory.     

The South wasn’t the only source of migrants during this period.  Millions of rural Americans moved to cities but data on this is far from reliable or complete.  Education, skills, and incomes were generally lower in the South than in the rest of the United States, the South was as poor as many foreign countries that previously sent large numbers of low-skilled immigrants, and migrants from the South earned lower incomes, on average, than other Americans.  Those similar characteristics make southern migrants partly substitutable for lower-skilled immigrants from abroad. 

Puerto Ricans

The second phase was the movement of Puerto Ricans to the American mainland.  Puerto Rico was conquered by the United States in 1898 during the Spanish American War.  In 1917, all Puerto Ricans were granted American citizenship and were allowed to travel to the mainland without legal barriers.  Puerto Ricans were far less skilled, educated, and were usually not proficient in English compared to southerners and other Americans.  This group is the most substitutable for low-skilled immigrants from abroad and they moved to New York and other East Coast destinations in large numbers after European immigration was ended. 

Prior to the Census of 1960, Puerto Ricans were defined as those who were born on the island and lived in the United States while after 1960 that category included those of Puerto Rican parentage, so I had to estimate the numbers.  Since they are so small in comparison to the size of the workforce and population, my estimates could be wildly off and it won’t change my outcomes.

Women

The third movement was the large-scale entry of women into the American workforce.  After World War II the number of working women rose from 16.3 million in 1948 to 43.3 in 1982 – a 165 percent increase.  Female LFPR increased from 33 percent to 53 percent.  During the same time, male workers went from 42 million to 56 million workers, increasing by a modest 34 percent.  The male labor-force participation rate, however, declined from 87 percent to 77 percent.    

Importantly, women were complements for men in the workforce because they tended to work in different professions until later in the twentieth century.  Women entering the workforce could have been responsible for some of the lowering male labor force participation rates but, if men and women are complements in the labor market, their entry could have created employment opportunities for men so many of them decided to leave the workforce for other reasons.     

 

 

Source: Historical Statistics of the United States, 2013 Economic Report of the President, Valerie Ramey, and Brink Lindsey.

Increasing female LFPRs added to an population-wide increase in that metric.  However, total LFPR often goes in the opposite direction as the average number of hours worked.  That is because labor supply curves are backward bending at a point, thus workers with higher incomes chose to “purchase” more leisure time at the expense of foregone income.  It’s possible that female LFPRs could increase and push total LFPR up.  However, looking back at the twentieth century, it is unclear whether that would increase the total number of hours worked.  Migrants and immigrants look to be more closely associated with increases in the total number of hours worked.

Importance of Labor Force Growth

Economic growth comes from a function of two sources.  The first is an increase in the quantity of the factors of production like the number of laborers and capital.  The second is an increase in the productivity of those factors.  If the quantity of factors decreases or remains steady then their productivity has to increase to hold growth steady.  If productivity decreases, then an increase in the quantity of factors can make up for it.  Measuring the quantity of labor and capital is relatively straightforward but numerous methodological problems emerge when measuring productivity.

Economists try to solve those problems through a measure known as total factor productivity (TFP) or multi-factor productivity.  The most famous equation that represents that is the Cobb-Douglas Production Function:

 

Y=Total Production.

L=Labor input, the total number of human-hours worked.

K=Capital input, the real value of all equipment, machinery, and buildings.

A=Total factor productivity, productivity that cannot be explained by changed to L and K.  

α and β are the output elasticities of capital and labor, respectively. These values are constants determined by available technology.

A is the measure of productivity not caused by an increase in K or L.  If K or L decreases then A must increase to make up for it or else Y will shrink.  Growth of all of these factors has either slowed or actually reversed in the first decade of the twenty-first century, an unprecedented event.  As my colleague Brink Lindsey pointed out, when growth in one or two factors slowed or reversed in America’s past, growth in the others increased.  That offsetting increase in growth of factors or productivity has not occurred in recent years.  An increasing quantity of L can make up for a decreasing A or K, thus guaranteeing an increase in Y. 

Migrants and Immigrants Increase Per Capita Work Hours 

Migrants likely have a higher LFPR and work more hours because of their relatively elastic labor supply curves, thus migrant share of the population could explain the change in average work hours over the course of the 20th century.  As the percentage of migrants shifts as a percentage of the total population, the number of average hours worked per capita shifts in the same direction – increasing L in the equation above.

 

 

Source: Valerie Ramey, Current Population Survey, The Southern Diaspora by James N. Gregory, and U.S. Census   

From 1964 to 2000 the number of hours worked per worker has increased, making up for declining TFP and capital growth during that time – meaning that economic growth was maintained in part through growth in the quantity of hours worked.  Migrants and immigrants have more elastic labor supply curves as they respond to the income effect, meaning that they increased the quantity of their work hours supplied more than other Americans in response to similar wage increases.  Migrants and immigrants move toward those higher wages, guaranteeing an increase in the per capita quantity of hours – making up for declining total factor productivity and capital accumulation.         

 

Source: Valerie Ramey, Current Population Survey, The Southern Diaspora by James N. Gregory, and U.S. Census.   

Post-War America was the Exception

The mass movement of southern Americans, women, and Puerto Ricans into the workforce was a one-time boon that cannot be repeated.  The potential to expand America’s workforce to fuel future economic growth is extremely limited because so many are already working and Americans are aging.  The U.S. workforce was able to adapt to the end of immigration after 1921 because vast numbers of Americans were underutilized in the South, Puerto Rico, out of the labor force entirely, and young – a reserve army of labor.  If such a policy were adopted today the U.S. labor force would not be able to adapt similarly. Immigrant labor is the most effective, cheapest, and possibly only realistic way to guarantee long-term increases in the size of the labor force, grow L, and increase economic growth.   

Current unemployment, relatively low Labor Force Participation Rates (LFPR), and large numbers of able elderly workers will provide some labor force growth when the economy picks up but not enough to replicate or expand upon the labor force growth that occurred in the mid-twentieth century.  Teenage LFPR could also increase but that would require lowering minimum wages and lowering the opportunity cost of education.  It’s unlikely that teenage employment growth will somehow increase enough to make up for that shortfall.         

 

Source:  Historical Statistics of the United States, 2013 Economic Report of the President

Between 1900 and 2000, the percentage of Americans not working fell from 49.8 percent to 32.9 percent – decreasing by a third the relative quantity of non-workers.  84 percent of that total increase occurred after 1950 when the great migration of southerners, women, and Puerto Ricans was in full swing.

Increasing wages due to increased labor scarcity would draw more workers out of retirement, teenagers, other Americans, and unauthorized immigrants to work in sectors of the economy.  During the 1950s and 1960s the Bracero Program supplied Mexican farm workers to rural areas which made unauthorized immigration largely unnecessary.  Since Bracero was cancelled in 1964, other guest worker visas for lower-skilled immigrants have not been able to meet demand, creating a black market of unauthorized immigrant workers.  The percentage of Americans who could be drawn from outside of the labor force into it will likely shrink without large increases in immigration. 

Whatever happens on the margin, large increases in the size of the labor force similar to that which occurred in the 1950s and 1960s will not occur again without immigration.  the pool of the presently unemployed could shrink substantially, it is unlikely to fill a potential gap left by the end of immigration.  In examining policy proposals to increase economic growth, policymakers should be keenly aware that migration played a critical role in the economic expansion of the 1950s and 1960s.     

Applications for Academic Research

Many people cite Michael Clemens’ 2011 paper in the Journal of Economic Perspectives as evidence of the vast economic gains that would occur if there were global open borders.  Clemens took a look at the leading papers that estimated the economic gains from open borders and interpreted the estimates – ranging from about a 50 percent increase in global GDP to a 150 percent increase.  Big numbers.

But those big numbers depend upon many people moving from the developing world to the developed world where their wages, because of their increased productivity, are higher.  The numbers of people who would have to move to boost GDP by such large amounts are so large that they are unrealistic, a point articulately made in this blog post

Studying the quantity of migrants who moved from the South to the rest of the United States during the great migrations of the 20th century and the wage factors that incentivized their migration could help set a baseline to investigate potential immigration if the U.S. ever adopts an open-borders policy.  This will require more research into regional wage variations during the great migrations but it could be a very fruitful project in trying to accurately predict the numbers of people who would immigrate if the U.S. adopted an open immigration policy.         

Conclusion

The economic experience of the 1950s and 1960s – rapid economic growth with relatively closed borders – cannot be repeated today because there are fewer underutilized Southerners, Puerto Ricans, and women who could enter the workforce as substitutes for immigrants.  Teenagers, some of the unemployed, and others who have dropped out of the labor force could provide some growth in the quantity of workers but nowhere near enough to substantially increase the number of hours worked and make up for relatively low growth in the other factors of production.  Immigrants did not crowd out many American migrants.  The substitution of southern and Puerto Rican migrants petered out sometime between 1960 and 1970, before international immigration could substitute and at a time when the percentage of immigrants was the lowest ever recorded in American history.  Immigration restrictions face a trade-off between more restrictive immigration and economic growth that they should be weighing more carefully than they currently do.

Studying the great migrations can also help illuminate how many immigrants would come if radical policy alternatives like open border are ever adopted in the developed world – but more research needs to be done on historical regional wage variations.  

Categories: Policy Institutes

Defending Religious Liberty Against Obamacare

Tue, 01/28/2014 - 11:34

Ilya Shapiro

Obamacare violates civil rights in so many ways. The latest example has arrived at the Supreme Court by way of the “contraceptives-mandate” cases, which will be argued March 25. Cato is proud to have filed a brief in Sebelius v. Hobby Lobby arguing that the government can’t force people to pick and choose among their constitutionally protected individual liberties.    In 1970, David Green founded a picture-frame company in his Oklahoma City garage. Since then, Hobby Lobby has grown into a leader in the arts-and-crafts retail industry, with 588 stores and around 13,000 employees across the United States.    Ever since the company’s founding, the Green family—David, his wife Barbara, and their three children—has managed the company in accordance with their Christian principles. For example, Hobby Lobby is closed on Sunday and often purchases newspaper advertisements suggesting that readers seek Jesus.    Following in his father’s footsteps, Mart Green also founded a business, a chain of Christian bookstores called Mardel, of which he remains CEO. In the Green family tradition, Mardel is also managed in accordance with religious principles.    Thanks to the Affordable Care Act, however, the Greens are being forced to choose between operating their businesses in direct contravention of their deeply held religious principles or running them into the ground. Among Obamacare’s thousands of pages is a requirement that corporations with more than 50 employees provide coverage in their group health plans for certain medical services or else face severe additional “taxes.” 

  These mandated services include certain methods of contraception, some of which function by preventing the implantation of a fertilized egg. Among the religious tenets that have guided the Green family’s spiritual lives and business decisions, however, is the belief that life begins when sperm fertilizes an egg. They are morally opposed to contraceptives that prevent implantation and thus destroy life. The Greens believe that being forced to provide health insurance that facilitates the use of such contraceptives is a substantial burden on their right to exercise their religion under the federal Religious Freedom Restoration Act, as well as under the First Amendment’s Free Exercise Clause.    The Greens sued to protect that right and last year won in the U.S. Court of Appeals for the Tenth Circuit. Now the case is pending in the Supreme Court, along with a similar case out of the Third Circuit, Conestoga Wood Specialties Corp. v. Sebelius, that involves a woodworking company run by a Mennonite family. These cases will determine whether individuals who wish to conduct their lives in accordance with their religious beliefs forfeit the right to do so when they engage in business activities, particularly through the corporate form.    Cato has submitted an amicus brief supporting Hobby Lobby and Conestoga. We argue that individuals should be able to order their professional lives according to their religious beliefs, that engaging in business doesn’t demand the surrender of religious freedom, and that there’s nothing inherent in the corporate form that requires denying the owners of a corporation the right to direct their business in a manner that comports with their religion. This is an important case because the corporate form is an essential tool for operating successfully in the complex modern economy and the right to exercise one’s religion—even through one’s business—is an essential right in a free nation.   

Nobody should have to choose between the two.

Categories: Policy Institutes

Senate Prepares to Roll Back Flood Insurance Reforms

Mon, 01/27/2014 - 17:47

Mark A. Calabria

A funny thing happened in 2012, Congress actually passed a bill that intentionally cut subsidies.  In this case subsidies given to homeowners under the National Flood Insurance Program (NFIP).  The Biggert-Waters Act of 2012, if fully implemented, would eliminate almost half of the annual billion in estimated subsidies under the NFIP.  Now before your opinion of Congress suddenly improves, its important to remember that subsidies reductions were done only because the NFIP had expired and some responsible members objected to extending the program without reform.  Now that the program is up and running again, beach front homeowners and their friends in the real estate industry want their subsidies back.

The Senate is currently moving towards that goal.  Not even wanting to bother with the normal process of hearings and a Committee vote, Senate Majority Leader Harry Reid has brought S.1926 directly to the floor for a vote, likely to occur this week.  S.1926 would indefinitely delay the premium increases passed in Waters-Biggert, effectively hitting the taxpayer for $100s of millions annually.  But hey there’s a close Senate race going on it Louisiana, so regular order can wait.

Now I have every sympathy for households facing rate increases under NFIP.  They’ve been getting a subsidy for years and have grown used to it.  Given the sometimes high cost of NFIP, it might not even feel like a subsidy.  But then part of that is because almost a third of the premium income is pocketed by the insurance companies (at no risk to them I might add).  The solution is to let those households either get out of NFIP altogether or to purchase private insurance, that would likely be cheaper given the inefficiencies of the NFIP.  If one feels that maintaining flood coverage is vital for these households, yet they cannot bear the higher raters, another option would be a significantly higher deductible.  Rolling back the premium reforms in Biggert-Waters is simply short-sighted and irresponsible, but then that’s nothing new for Washington.

Categories: Policy Institutes

Is School Choice Worth Celebrating? A Look at the Evidence

Mon, 01/27/2014 - 16:41

Andrew J. Coulson

In honor of School Choice Week, I’ll be answering questions on Facebook tomorrow (4:00pm, Eastern) about the evidence regarding free education markets. When I began studying education policy back in the early 1990s, parent-driven education markets were generally thought of as a new, radical and speculative adventure—uncharted waters where, heaven help us, “thar be monstars.” That was a mistaken view then, and it’s positively absurd now.

As I wrote in Market Education, The Unknown History, the education market of classical Athens, in the 5th century BC, was the first time and place on Earth in which education reached beyond a tiny ruling elite. There was no government participation in education. Teachers competed in the town square to attract paying customers, families called the shots, and the city ended up building a thriving economy and the highest literacy rate in the ancient world. During their heyday, the Athenians invented democracy, most forms of Western literature, and some pretty enduring art and philosophy. Simultaneously, 100 miles away, Sparta established a highly organized system of public boarding schools. It’s legacy? One decent action movie and a name for high school football teams.

Over the next 2,500 years, markets continued to outshine state-run school systems in their ability to serve the needs of families, and they also reduced the social tensions created by state schooling. Near-universal literacy and elementary enrollment among the free population were achieved in the United States by the mid-19th century—before the rise of state school systems—chiefly through private and home schools financed by a combination of parent fees and philanthropy. Even the semi-public “district” schools of the early 19th century charged most parents fees, reserving free and subsidized places for the poor.

Granted, historical evidence is subject to interpretation and charges of selectivity, and so it might not be universally persuasive. But, since 1990, scores of within-country scientific studies have compared education systems ranging from state-run monopolies such as our public schools, to state-funded and regulated private schools, to truly market-like systems in which regulation is minimal and parents choose their schools, as well as paying at least some of the cost directly themselves. I reviewed that body of research a few years ago for the Journal of School Choice and found that it shows private schools tend to outperform state-run schools. More specifically, it shows that the freest and most market-like education systems have the most consistent advantage over state schooling.

There is no credible case against this body of research. I could not find a single study that found a public school system to be more efficient than a market system in terms of student achievement per dollar spent. There weren’t even any insignificant findings for this comparison. Every single study that looked at the efficiency question found statistically significant results favoring education markets over state schooling. It’s rare to see such clear results in the social sciences, but perhaps that’s because there are few areas of life that are still under the thrall of state-run monopolies.

Education markets, when coupled with a mechanism to ensure universal access (such as education tax credits) are a better way to serve our individual needs and to advance our shared ideals. Compulsion and state provision are not only unnecessary, they are counterproductive to our most cherished educational ideals.

Categories: Policy Institutes

SCOTUS: Unions Can Waive Don/Doff Pay

Mon, 01/27/2014 - 16:40

Walter Olson

Earlier this month I noted that despite sporadic attacks on the present Supreme Court as supposedly gripped by a result-oriented and pro-business majority, “much of its work [in business law] consists simply of trying to keep the law on a logically coherent and predictable course,” often by unanimous vote. Today we can add another example: a unanimous Court (with Justice Sotomayor withholding consent from one footnote) ruled that U.S. Steel does not owe workers back pay for time spent donning and doffing protective gear in a context where the union representing the workers had specifically bargained away any right for them to be paid for that time. 

If it seems bizarre for employees to claim a right to pay that their union has elected to waive during contract negotiations, read on. Like some others before it, this case illustrates a tension I described in my book The Excuse Factory between the old and mostly stagnant field of labor law – in which unions and their strike threat had been envisaged as the driving and potent force, and progress is measured by contracts for future higher pay – and the newer, perennially self-energizing employment law, in which private attorneys and their lawsuits act as the driving force, with the goal being big backward-looking settlements and the associated attorneys’ fees. So the first point about Sandifer v. U.S. Steel Corp. is that the steelworkers’ union was not the plaintiff, and that we shouldn’t assume unions necessarily wish suits of this kind to succeed.

Private employment-law attorneys do well enough from discrimination and harassment law, but their fastest-growing field of activity in recent years has been wage-and-hour law. Together with several associated statutes, the New Deal-era Fair Labor Standards Act (FLSA) creates many openings to sue in class or collective actions over large retroactive pots of pay for allegedly mischaracterized work – salary vs. hourly-wage, tipped vs. off-tip, employee vs. independent-contractor, and many others. That a particular company policy was well explained to workers at the time, and met with no objection, is no defense, since contracting around the rules is mostly not allowed. For example, an up-and-coming theme in wage-hour lawsuits is that employees should be able to claim retroactive on-the-clock pay for time spent away from the workplace using (or simply being available for) company cellphones, pagers, or email – a form of liability to which many employers have begun reacting by forbidding use of company cellphones or email outside work hours. 

While many of the dictates of wage-hour law are appallingly obscure – a quarter century ago Judge Frank Easterbrook eloquently decried the high cost of its tendency to leave the fact of liability uncertain until long after employers have acted – Congress had actually come very near addressing the question at issue in 1949 when it enacted a relatively narrow legislative fix declaring that it would be up to unions to decide whether to seek or waive pay for time spent “changing clothes.”  

This still left a crack of ambiguity wide enough to try to slip a suit through (the legal, if not the apparel, kind). Lawyers for Sandifer argued that the task of donning metal-tipped boots, flame-retardant jackets and leggings, and other steel-mill gear did not qualify as “changing clothing” because, among other reasons, many of the protective garments were donned on top of (rather than substituting for) street clothes. That meant, they argued, that the union had no right to bargain away the entitlement to the time, and Sandifer and others could seek back pay. The Court unanimously disagreed. It conceded that some types of technical gear, such as safety goggles and wearable electronics, will not qualify as “clothing,” but the overall activity of donning steel-mill protection still more closely resembles “changing clothes” than anything else. 

So there’s a bit of clarity for the law, at long last. Now if only Congress felt any responsibility to clarify – or better yet, move to repeal – the hundred other ambiguous demands of wage-hour law. 

Categories: Policy Institutes

Free America’s Energy Future: Drop Washington’s Misguided Export Ban

Mon, 01/27/2014 - 16:37

Doug Bandow

For years people have been told to expect a dismal energy future.  But because of rapid market innovation Americans now can look forward to an abundant energy future.  The U.S. could even become a leading exporter—if Washington gets out of the way. 

An energy revolution currently is underway, with increasing supplies and falling prices.  Even more could be done if Washington expanded access to federal lands and waters and freed producers to make best use of what they extract.

Arbitrary restrictions bedevil energy exports.  For instance, natural gas licenses are granted automatically for nations with free trade agreements—in this case Canada and Mexico—but otherwise the review process is lengthy and approval is rare.  Last year Energy Secretary Ernest Moniz announced that he was delaying decisions on a score of applications for political reasons even though the department had already concluded that such exports would benefit the U.S. economy. 

The ban on oil is even tougher, with only small amounts being shipped to Canada.  Few licenses have been issued under the law’s “national interest” exception, and none since 2000.

As I point out in my latest Forbes online column:

Forbidding petroleum exports does not make additional oil available to Americans.  Rather, the ban prevents energy companies from saving money.  For instance, it would be cheaper to sell Alaskan crude to Asia and purchase more oil from Latin America.

The export ban also risks halting the increase in domestic energy production.  U.S. oil production is at a quarter century high, but the greatest supply increases have been of crude oil that is “lighter” and “sweeter” than usual.  Most domestic refineries, especially in the Gulf Coast, are designed to handle “heavy” oil. 

It is difficult to get the lighter oil to the right refineries, and there are not enough of them.  Creating a domestic glut depresses prices in America, which means they have less incentive to invest more to produce more. 

If supplies exceed refining capacity, there will be no incentive for more production.  Maria van der Hoeven, executive director of the International Energy Agency, similarly worried that the export ban “could threaten the economic viability of these new supplies, potentially stopping the boom in its tracks.”  

Supporters of the prohibition contend that it helps consumers and reduces foreign dependency.  In fact, exporting natural gas and oil does not increase America’s dependence on foreign imports, but merely reshuffles global supplies.  Today Americans are wasting money on extra transportation costs and failing to collect from higher-priced sales.

Lifting the export prohibition would have little impact on consumer prices.  The ban most directly benefits refiners, who are exporting record amounts of products.  Today a few lucky firms gain billions from an unfair and arbitrary subsidy courtesy Uncle Sam.

In fact, argued van der Hoeven, “American end-users do not benefit from this production windfall since U.S. retail product prices are still heavily influenced by international markets.”  Energy remains a global marketplace.  The best way to reduce consumer prices would be for Uncle Sam to reduce domestic barriers to production and allow international markets to function.  Economists believe that unleashing U.S. exports would have a noticeable impact on the price of  light, sweet crude.

Anyway, trying to artificially hold down prices always has been bad energy policy.  For years below market prices encouraged consumption and discouraged production. 

Last month Secretary Muniz expressed the administration’s interest in relaxing the ban. Congress should eliminate energy export controls, or at least make licensing automatic.  Second best would be to streamline the process, with a presumption in favor of granting licenses.  At least the administration should approve applications before it using existing authority. 

The energy boom is a great boon for Americans.  Innovative markets have erased decades of rhetoric about shortages and scarcity.  America’s energy future will grow even brighter if only Uncle Sam stops getting in the way.

Categories: Policy Institutes

A Primer on State of the Union Economics

Mon, 01/27/2014 - 15:09

Alan Reynolds

Until recently, President Obama’s December 4 “Remarks on Economic Mobility” were thought to preview his State of the Union address by defining “dangerous and growing inequality and lack of upward mobility” as “the defining challenge of our time.”  

That downbeat and divisive theme polled badly. As a result, the President is expected to recast the same story as “ladders to economic opportunity” (which is just another way of describing upward mobility). Obama’s passionately misinformed perceptions about rising inequality and falling mobility, however, are surely unchanged.

In his December 4 address, the President could find no official statistics to support his overblown claims about “growing inequality.” The Census Bureau and Congressional Budget Office report that the top 20 percent earns about half of all income. The CBO finds the top 20 percent received an average of 47.6 percent of all after-tax income since 1983, and roughly the same percentage (48.1) in 2010 and 2011. Yet the President insisted on claiming, “The top 10 percent [not the top 20 percent] no longer takes in one-third of our income – it now takes half.”

Unless the President thinks all affluent people are thieves, the top 10 percent never “take” any fraction of “our” income. On the contrary, they earn 100 percent of their own income.

Eschewing all official data, President Obama relied instead on estimates of pretax, pre-transfer income (which are clearly irrelevant to issues concerning taxes or transfers) from Thomas Piketty and Emmanuel Saez. Among many other problems with these figures, documented in my recent paper, growth in top incomes is exaggerated by including a rising share of business income formerly reported on corporate returns, and also by counting realized capital gains as income (in fact, selling assets does not make anyone richer). Lower incomes, by contrast, are grossly understated by completely excluding the huge and rising share of income from government transfer payments, now approaching $3 trillion a year.

“The combined trends of increased inequality and decreasing mobility,” said President Obama, “pose a fundamental threat to the American Dream, our way of life, and what we stand for.” As the title of his talk suggested, Obama was primarily focusing on decreasing mobility (since repackaged as decreasing opportunity), not increasing inequality per se. As he put it, “the problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years.”

Two major studies by U.S. Berkeley’s Emmanuel Saez, Harvard’s Raj Chetty and others, find the President entirely wrong about diminished mobility. Their newest paper shows that, “children entering the labor market today have the same chances of moving up in the income distribution relative to their parents as children born in the 1970s.” Moreover, a narrowing “gap in college attendance between children from the lowest- and highest- income families… suggests that mobility in the U.S. may be improving.” The authors conclude that, “if one defines mobility based on relative positions in the income distribution – e.g., a child’s prospects of rising from the bottom to the top quintile – then intergenerational mobility has remained unchanged in recent decades. If instead one defines mobility based on the probability that a child from a low-income family (e.g., the bottom 20%) reaches a fixed upper income threshold (e.g., $100,000), then mobility has increased…” As for the President’s rhetorical effort to link top income shares with declining mobility, the authors find “little or no correlation between mobility and… top 1% income shares – both across countries and across areas within the U.S.” The biggest actual barrier to upward mobility, in fact, turns out to be single parenthood.

President Obama’s revealing December 4 lecture relied on irrelevant pretax, pre-transfer estimates to assert that the top 10 percent have been “taking” half of “our” income, and he used no evidence whatsoever to assert that upward mobility has been declining.

The defining challenge of our time may be to discover ways to stop politicians from using made-up numbers to excuse destructive and demoralizing economic policies.

Categories: Policy Institutes

Closing the Books on 2013: Another Year, Another Nail in the Coffin of Disastrous Global Warming

Mon, 01/27/2014 - 13:03

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

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

A few weeks have now passed since the end of last year, giving enough time for various data-compiling (and “data-adusting”) agencies to get their numbers in order and to release the sad figures from 2013.

U.S. Annual Average Temperature

We pointed out, back in this post in mid-December, that there was an outside chance—if December were cold enough—that the average annual temperature for the U.S. in 2013 would fall below the 20th century average for the first time since 1996.  Well, despite how cold it seemed in December, it turned out to not quite be cold enough to push the January-December 2013 temperature anomaly into negative territory. Figure 1 below shows the U.S. temperature history as compiled by the National Climatic Data Center from 1895 through 2013.

Figure 1. U.S. annual average temperature as compiled by the National Climatic Data Center, 1895-2013 (data: NCDC Climate at a Glance).

Please be advised that this history has been repeatedly “revised” to either make temperatures colder in the earlier years or warmer at the end.  Not one “adjustment” has the opposite effect, a clear contravention of logic and probability.  While the US has gotten slightly warmer in recent decades, compared to the early 20th century, so have the data themselves.  It’s a fact that if you just take all the thousands of fairly evenly-spaced “official” weather stations around the country and average them up since 1895, that you won’t get much of a warming trend at all.   Consequently a major and ongoing federal effort has been to try and cram these numbers into the box imposed by the theory that gives the government the most power—i.e., strong global warming.

What immediately stands out in 2013 is how exceptional the average temperature in 2012 (the warmest year in the record) really was. In fact, the recovery in 2013 from the lofty heights in 2012 was the largest year-over-year temperature decline in the complete 119 year record—an indication that 2012 was an outlier more so than “the new normal.”

Billion Dollar Weather Disasters

Each year the National Oceanic and Atmospheric Administration (NOAA) puts together a list of “billion dollar weather disasters.”  NOAA started doing this a few years ago so as to try to paint a picture that human-caused global warming was leading to ever more weather-related “disasters” in the United States. We dutifully pointed out that NOAA just as well could compile a list of “billion dollar weather disasters averted by global warming,” but for some reason they don’t.   Maybe the same reason that the raw temperature data is continually adjusted to show more warming.

Anyway, NOAA’s annual announcement is usually accompanied by a lot of press fanfare as the powers-that-be at NOAA revisit the damage done by severe weather events during the past year, usually ending the presser with some grand total that shows the past year was the worst one record, or very near to it.

This year, NOAA dropped the number in silence. You can guess the reason… even under their cockeyed accounting system (where, for example, no compensatory benefits occur when a damaging rainstorm also rescues the corn crop, as has happened several times in history) it turns out there were only seven billion-dollar weather disasters in 2013, down from 11 in 2102 and 14 in 2011.  And most of 2013’s billion dollar disasters were near the low end of the cost scale, and in total, amounted to somewhere in the 15-20 billion dollar range (final numbers for damages are not in yet)—near the average of the past 34 years (beginning in 1980 when the NOAA compilation begins (Figure 2)).  But, even this is an overestimate as the NOAA damage numbers do not factor out changes in population and wealth. If you divide the total damages from all billion-dollar weather events NOAA has complied since 1980 by the levelized GDP for each year, the 2013 total comes in at less than half the 34 year average and the overall apparent upwards trend largely disappears. While this method is less than ideal (e.g., it does not examine the changes in the local environment where the damages occurred), it provides a better indication of what has been going on than does the NOAA compilation.

Figure 2. Total annual damage from billion-dollar weather events, 1980-2013. The original (CPI-adjusted) data from NOAA is in red, while our GDP-adjusted data is in blue (data from NOAA).

U.S. Carbon Dioxide Emissions

We are fond to point out that while the current Administration insidiously plots ways of trying to force U.S. carbon dioxide emissions downward, carbon dioxide emissions have been dropping for the past 10 years or so largely as a result of factors other than direct emissions-limiting regulations (etc.) imposed by the federal government. The year 2013 was an exception to this trend. The Energy Information Agency reports that preliminary numbers indicate that carbon dioxide emissions in the U.S. rose by about 2% between 2012 and 2013 (Figure 3). This occurred largely as a result of rising natural gas prices which allowed coal to regain some market share of power production that it had lost to natural gas in recent years.  But even with this small increase in emissions, the 2013 carbon dioxide emission were still more than 10% below the 2005 emissions total and still on target to meet the President’s goal of a 17% reduction from 2005 to 2020.

We reiterate our oft-posed question: Since emissions are largely dropping without a great deal of government intervention, why the continued push from the Administration for more regulations?

Figure 3. Energy related-carbon dioxide emission from the U.S., 2005-2013 (figure adapted from the EIA).

Global Temperatures

And we’d be remiss not to review the global temperature for 2013.

The liberal-leaning press reports the 2013 global temperature as the seventh (or fourth) highest on record, while the conservative-leaning press reports it as another year in which the global temperature has refused to rise (Figure 4).

Figure 4. TOP: Annual global surface temperature history, 1880-2013, as compiled by NOAA (blue) and NASA (red) (figure source, NOAA/NASA Joint Briefing). BOTTOM: Monthly global surface temperature anomalies, 1997-2013 (source: U.K. Hadley Center).

But all can agree that the temperatures in 2013 further extended the “pause” in the global surface temperature record-which now stands at some 17 years. A lot of people are at work trying to explain what’s behind the “pause,” but no matter the cause the longer that it continues, the further from reality climate model projections become (Figure 5).

Figure 5. Observed (blue) and projected (red) temperatures, 1980-2013. The projected temperatures are the annual mean of 106 climate runs (data source, Climate Explorer).

The most viable explanation that ties everything together is that the climate sensitivity-that is, how much the earth will warm in response to a doubling of the effective carbon dioxide concentration-is much larger in the climate models than it is in reality.

If this is indeed the case, and there is plenty of evidence to suggest that it is, than the urgency to “do something” about climate change is reduced and so too the level of support for federal regulations aimed at limiting carbon dioxide and thus limiting our energy choices.

Categories: Policy Institutes

School Choice Enrollment Reaches Record High

Mon, 01/27/2014 - 12:27

Jason Bedrick

Just in time for National School Choice Week, the Friedman Foundation for Educational Choice has released its annual ABCs of School Choice report, detailing every private school choice program in the nation. The number of students participating in school choice programs has reached a record high of more than 301,000 students nationwide, up from about 260,000 in 2012-13. More than half of those students are participating in scholarship tax credit programs.

The Friedman Foundation’s report is an invaluable resource for understanding the dozens of school choice programs and their various rules and regulations. A new feature in this year’s report is an infographic ranking every school choice program along two criteria: eligible population and purchasing power. The Friedman Foundation’s view is that choice programs should have universal eligibility and that the purchasing power of the vouchers or scholarships should be on par with the per student spending at government schools.

Universal access to a variety of schooling options is certainly a noble goal, essential to fostering equality of opportunity. However, it should be noted that wealthier families can already afford school choice. Universal access to school choice does not require universal access to school choice programs. Targeting support to low- and middle-income families is a more efficient way to ensure universal school choice as it directs scarce resources to those who need them most. Of course, measuring access is a lot more difficult than measuring program eligibility, so this is not a deficiency of the Friedman report.

There are other important criteria by which we should judge school choice programs, particularly the amount of regulatory interference imposed on private schools (e.g. - mandating state tests) and the amount of freedom granted to parents to tailor their child’s education (e.g. - New Hampshire’s tax-credit scholarships for homeschoolers). Perhaps the Friedman Foundation will consider these and other criteria for future reports.

Categories: Policy Institutes

New Farm Bill Much Larger Than Last One

Mon, 01/27/2014 - 12:11

Chris Edwards

Congress is gearing up to pass the first big farm bill since 2008. The logrolling between farm interests is nearing completion, the Republicans have given up on making substantial food stamp cuts, and the Treasury stands ready to borrow another $1 trillion. We are all set to go.

It looks like the final farm bill will be expected to cost about $950 billion over 10 years. CRS has details on bill versions from the Fall, but I adjusted those numbers based on the reported GOP cave-in on food stamps.

If the final number is $950 billion, the 2014 farm bill will cost 48 percent more than the $640 billion farm bill passed in 2008. Farm bill supporters claim that the new bill includes “savings” and “cuts,” but that is a myth created by the rising CBO baseline. The reality is that Congress is set to impose a huge, damaging, and unaffordable burden on taxpayers and the economy.

Categories: Policy Institutes

Live Blog of the 2014 State of the Union

Mon, 01/27/2014 - 12:03

Cato Editors

Tomorrow night, President Obama will lay out his plans for the upcoming year in his fifth annual State of the Union (SOTU) address. And, after a year dominated by budget battles, the NSA spying scandal, and the meltdown of Obamacare, the libertarian message is more relevant than ever.

Please join us at 9:00pm Eastern on Tuesday, January 28, 2014 for live commentary during President Obama’s State of the Union address and the Republican response. Cato scholars will live-blog their reactions to what the president says—and what he leaves out.

You may also follow the conversation on Twitter – and add your two cents – using #CatoSOTU. Follow @CatoInstitute for updates.

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Categories: Policy Institutes

Another Cost Overrun on Government Infrastructure

Mon, 01/27/2014 - 09:12

Chris Edwards

From the Wall Street Journal, here’s the latest evidence on quality and efficiency in government infrastructure spending:

New questions were raised about the construction quality of one of the nation’s most vital commuter links when engineers who worked on a Bay-area bridge that replaced one damaged in a 1989 earthquake said Friday that bridge officials routinely brushed aside their concerns.

The engineers’ testimony came at a hearing in Sacramento, where lawmakers also grilled bridge officials about the $6.4 billion eastern span of the San Francisco-Oakland Bay Bridge, which ran into long delays and cost overruns before opening last fall.

The project was beset by political wrangling, delays, construction issues, and cost overruns. The original estimate for the bridge was $1.4 billion, according to the report.

James Merrill, an engineer hired for quality assurance, testified that his firm raised concerns about cracked welds on steel deck pieces being built in China. But he said bridge officials discounted the reports and instructed him “multiple times” that “you’re not to put it in writing.” Mr. Merrill said the request was made so that the concerns would not become public.

See here for more on infrastructure investment. And see here for more on government cost overruns.

Categories: Policy Institutes

Tax Reform: The First Step Is Simple

Mon, 01/27/2014 - 09:10

Chris Edwards

New leadership is coming to the congressional tax-writing committees. Ron Wyden will be taking the helm of Senate Finance and Paul Ryan will be likely taking the helm of Ways and Means. This is good news, as both gentlemen are serious legislators and very interested in major tax reform.

One thing they should tackle is the personal income tax, which is a complex and high-rate mess. It should be restructured into a simple flat tax.

However, the most urgent needed reform is to slash the corporate income tax rate. Policymakers should put aside changes to deductions, credits, and loopholes for now. Those tax base issues are a diversion and policy quagmire, as the R&D credit illustrates. It is far more important to just cut the statutory corporate rate, which would automatically reduce the effects of tax-base distortions and make it politically easier to reform the tax base later on.

Our current high-rate policy is harming the U.S. economy, reducing job growth, and stifling wages—for no good reason. Abolition is a good long-term goal for corporate income tax reform, but we can start with at least chopping our federal-state rate of 40 percent down to the global average of 24 percent.

The charts show KPMG data for top statutory corporate income tax rates in 2013. KPMG shows UAE with the highest rate in the world at 55 percent. However, that rate just applies to foreign banks and foreign oil companies. So I don’t show UAE since the reported rate is not the general corporate rate.

That leaves the United States with the highest general corporate tax rate in the world, and that makes no sense in today’s competitive global economy.

Categories: Policy Institutes

The Drug War vs. the Constitution: 1928 Edition

Fri, 01/24/2014 - 18:21

Walter Olson

Prof. Gerard Magliocca of Indiana University has been doing historical work on the Supreme Court’s “Four Horsemen”—the Justices who dug in to resist FDR’s constitutional revolution in the 1930s—and is coming up with many noteworthy tidbits. Among them is a dissenting opinion by arch-conservative James McReynolds in a 1928 case called Casey v. U.S. At issue was a man’s conviction under a federal statute providing that if an individual was found to possess morphine derivatives without official stamps, it would be prima facie evidence of having obtained them from unlawful sources. Five Justices, led by Holmes, upheld Casey’s conviction, while four (McReynolds, Brandeis, Butler, and Sanford) dissented on various grounds. Here’s McReynolds:

The suggested rational connection between the fact proved and the ultimate fact presumed is imaginary.

Once the thumbscrew and the following confession made conviction easy; but that method was crude and, I suppose, now would be declared unlawful upon some ground. Hereafter, the presumption is to lighten the burden of the prosecutor. The victim will be spared the trouble of confessing and will go to his cell without mutilation or disquieting outcry.

Probably most of those accelerated to prison under the present act will be unfortunate addicts and their abettors; but even they live under the Constitution. And where will the next step take us?

When the Harrison Anti-Narcotic Law became effective, probably some drug containing opium could have been found in a million or more households within the Union. Paregoric, laudanum, Dover’s Powders, were common remedies. Did every man and woman who possessed one of these instantly become a presumptive criminal and liable to imprisonment unless he could explain to the satisfaction of a jury when and where he got the stuff? Certainly, I cannot assent to any such notion, and it seems worthwhile to say so.

Ironic, or maybe not so, that cane-waving mossbacks like McReynolds often showed a stronger commitment to principles of civil liberty than much-hailed progressives like Holmes. 

Categories: Policy Institutes

Nightmare on K Street: Lobbying Revenue Drops a Bit

Fri, 01/24/2014 - 15:25

David Boaz

The Hill, a newspaper covering Capitol Hill, published this scary headline this week:

What’s the nightmare? Lobbying revenues are down! How much? Well, The Hill doesn’t say. But the Washington Post reports:

The District’s 10 largest lobbying firms reported a collective 1 percent drop in lobbying revenue in 2013 compared with 2012, slipping to $226.3 million from $228.9 million.

Oh, the horror.

To be sure, the Post also notes that the revenue of the top 10 firms dropped 10 percent last year. So that’s a real cut. Still, these drops come after total lobbying expenditures doubled in a decade, peaking in those heady days of 2009 and 2010 when federal dollars were being handed out with wild abandon.

Why the slowdown since then? The Hill’s Kevin Bogardus and Megan Wilson note that “most lobby shops couldn’t escape the downward pull of a historically unproductive Congress.” Ah yes, that “least productive Congress” we keep hearing about. Well, this is what you get from an unproductive Congress: a tiny drop in expenditures on lobbying. Keep on being unproductive—of laws, regulations, taxes, grants, subsidies, loans, and bailouts—and maybe lobbying will keep on declining.

Of course, the lobbyists won’t take this lying down. Inside the same issue of The Hill, Wilson reports:

K Street lobbyists are racking up frequent flyer miles with regular trips to Silicon Valley in search of clients.

They are trading power suits for California casual to cash in on the explosive growth of technology lobbying, which has more than doubled over the past decade and shows no signs of slowing down.

Can’t keep a lobbyist down for long. As I’ve written before, Washington keeps telling tech executives, “Nice little company ya got there. Shame if anything happened to it.”

The most important factor in America’s economic future—in raising everyone’s standard of living—is not land, or money, or computers; it’s human talent. And every time some part of the human talent at another of America’s most dynamic companies is diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own, it slows our economy down a bit. The parasite economy sucks in another productive enterprise, and we’ll all be poorer for it.

Meanwhile, a real “Nightmare on K Street” would be a blessing for the rest of us. 

Categories: Policy Institutes

Food Stamp Growth Continues, Despite Economic Recovery

Fri, 01/24/2014 - 14:14

Michael D. Tanner

As food stamp utilization escalated over the last several years, the program’s advocates assured us that there was nothing to worry about. Yes, more people than ever before were on food stamps, but that was just because of the recession. Once the recovery began and the unemployment rate declined, fewer people would need food stamps.

Yet, newly released data from the U.S. Department of Agriculture now tells us that in 2013, years after the recession officially ended, 20 percent of U.S. households were on food stamps, an all-time high. According to the USDA, 23.05 million households received food stamps in FY2013. While no doubt some increase in food stamps was a countercyclical response to the recession, this cannot adequately explain why the number of households in the program has increased by 4.43 million since 2010—a period of consistent, albeit low, job growth and a decreasing unemployment rate.

This continued increase in food stamp participation runs counter to the projections put out by the Congressional Budget Office, which in 2011 projected that SNAP participation would decline from 2012 levels to 45.9 million individual participants in 2013. Instead, average monthly enrollment for 2013 was 47.6 million. The continued growth in food stamp participation raises the question of when, if ever, the program will return to pre-recession levels as promised.

In fact, as I pointed out in this policy analysis last year, much of the growth in the program was not due to the recession, but rather to deliberate policy choices that loosened eligibility and work requirements.

Categories: Policy Institutes

Meet the Kronies!

Fri, 01/24/2014 - 13:18

Caleb O. Brown

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Get Konnected with The Kronies Action Figures

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s DownsizingGovernment.org. Learn more from our video series on how to downsize specific departments (all videos will play below):

Downsize the Department of Agriculture
Categories: Policy Institutes

Thought For The Day

Fri, 01/24/2014 - 10:44

Walter Olson

“Maybe we should email one another the Constitution so the government would read it.” – @Ruth_A_Buzzi (yes, of Laugh-In fame).

Ed. note: To read the Constitution and other Founding documents online (and order a copy of Cato’s famed “Pocket Constitution”), click here.

Categories: Policy Institutes

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