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NATO - What Is It Good For?

Mon, 06/23/2014 - 12:29

Justin Logan

With continuing instability in Ukraine, and Poland’s foreign minister Radek Sikorski allegedly using vulgar and racist language to disparage the US-Poland alliance, now’s as good a time as any to evaluate what NATO does for Americans.

Not much, I argue in Foreign Policy (online). As I conclude:

NATO has produced some benefits, but the costs to the United States – tens of billions per year, validating Russian nationalist narratives about the West, and infantilizing its European partners – are often ignored. Washington should cut the Europeans loose, and encourage them to cooperate with each other on European security matters. With a combined GDP larger than the United States and a benign threat environment, Europeans are capable of defending themselves, but won’t until Washington makes them.

Please give it a read.

Categories: Policy Institutes

Can Private Disaster Relief Work?

Mon, 06/23/2014 - 11:45

Jeffrey Miron

In a new paper, Emily Skarbek (King’s College London) presents some evidence:

Using a novel set of comprehensive donation and expenditure data collected from archival records, this paper examines a bottom-up relief effort following one of the most devastating natural disasters of the nineteenth century: the Chicago Fire of 1871. Findings show that while there was no central government relief agency present, individuals, businesses, corporate entities and municipal governments were able to finance the relief effort though donations. The Chicago Relief and Aid Society, a voluntary association of agents with a stake in relief outcomes, leveraged organizational assets and constitutional rules to administer aid.

This contrasts sharply with conventional wisdom and current public policy, which assumes that private agents and local governments will “free ride” on the charitable actions of others, leading to “insufficient” relief activity unless the central government plays a large role.

In fact, private and local government efforts are often substantial, as demonstrated by this example and many others (e.g., the billions given by individuals, foundations, and corporations to help victims of Katrina, Sandy, and the Asian Tsunami).

Local efforts, moreover, are likely more efficient than those directed by a far away central government, as residents of New Orleans can readily attest.

Categories: Policy Institutes

Wal-Mart Swings Back against NYT Columnist

Mon, 06/23/2014 - 10:25

Walter Olson

Don’t you wish more companies would do this when attacked? After New York Times columnist Tim Egan took a swipe at Wal-Mart over its wage policies, Wal-Mart swiped right back this weekend in a way that’s effective as well as funny. 

One further point the company could have added: the company’s low prices significantly improve standards of living for low-wage and low-income shoppers across the nation. Here’s one economist’s comment from a few years back: 

Wal-Mart’s low prices help to increase real wages for the 120 million Americans employed in other sectors of the economy. And the company itself does not appear to pay lower wages or benefits than similar companies, or to cause substantially lower wages in the retail sector…

[T]o the degree the anti-Wal-Mart campaign slows or halts the spread of Wal-Mart to new areas, it will lead to higher prices that disproportionately harm lower-income families…

By acting in the interests of its shareholders, Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.

Although the link is via a post by colleague Michael Cannon, it wasn’t any of us at Cato who wrote that: it was Jason Furman, adviser to Democratic candidates and President Obama’s current chairman of the Council of Economic Advisers. More Furman on Wal-Mart here.

Categories: Policy Institutes

U.S. Should End Aid to Egypt’s New But Not Improved Mubarak

Mon, 06/23/2014 - 10:11

Doug Bandow

Much about the President Barack Obama’s foreign policy has been an embarrassment.  In Egypt the Obama administration incompetently followed in the footsteps of its predecessors.

Three years ago Hosni al-Mubarak’s dictatorship ingloriously collapsed.  The Obama administration constantly followed events, first embracing Mubarak, then calling for a negotiated transition, and finally endorsing his overthrow. 

The Muslim Brotherhood’s electoral success upset the military’s plans to retain power, but the “deep state” persisted.  Mohamed al-Morsi was elected president, but he controlled little of substance—not the military, police, courts, or bureaucracy.

Nearly a year ago Gen. Abdel Fatah al-Sisi ended any possibility of the government slipping outside of military control by staging a coup.  Since then thousands have been killed, hundreds sentenced to death, and tens of thousands detained. 

Through it all the Obama administration took the least principled position possible.  Although U.S. law required a cut-off of financial aid, the president simply refused to characterize the coup as a coup, as if not saying the name made it something else. 

Officials worried about lost leverage, even though Egyptian officials always ignored Washington’s political advice in the past.  Washington eventually held back a portion of planned U.S. assistance, apparently to demonstrate a little, but not too much, disapproval.  Particularly grotesque regime abuses earned complaints from the Obama administration, but then Secretary Kerry would suggest that democracy still was moving forward. 

In April the administration said it would allow distribution of some military aid and deliver ten Apache helicopters to Egypt’s military.  When I visited Egypt a couple months ago I found that virtually everyone believed America was on the wrong side, a notable if not particularly worthy achievement by the administration.

Now Congress can set things right.  Last year Cairo was slated to collect $1.3 billion in military and $250 million in economic assistance.  Although the military money was conceived of as an incentive to convince Cairo to keep the peace with Israel, the Egyptian military, which has not fought a war in more than four decades, has the most to lose from any hostilities. 

The economic payments do little to promote growth.  Instead, government-to-government payments usually underwrite autocracy and statism, and discourage reform by masking the pain of failure. 

House Republicans, apparently enthused with President Sisi’s promise to smite Islamists—along with everyone else who has the temerity to criticize him ever so slightly—proposed a nominal $50 million cut in economic assistance.  That’s barely enough for Cairo to notice, especially since the military would continue collecting its usual payments for use to purchase high-tech weapons which are more for show than use. 

In contrast, the Senate Appropriations Committee proposed to reduce military aid to $1 billion and economic assistance to $150 million.  That’s a $400 million cut.  U.S. aid still violates the law, but at least the reduction is noticeable.

However, even the Senate doesn’t go far enough.  Congress should end all aid.  The administration should shut up about democracy.  The Pentagon should be left to cooperate with the Egyptian military on essential tasks, including access to the Suez Canal—after all, Egypt’s generals will want to continue purchasing newer and better toys, as well as acquiring spare parts for existing weapons.

There is no good answer to Egypt.  No one knows how a Morsi presidency would have turned out, but skepticism of the Brotherhood in power is understandable, given the abuses of Islamists elsewhere. 

Alas, as I point out in my new article on American Spectator online, “we do know how a Sisi presidency is likely to turn out:  a rerun of Mubarak’s authoritarian and corrupt reign.”  Repressive rule isn’t even likely to deliver stability, since the Egyptian people will eventually tire of yet another government which delivers arbitrary arrests, brutal torture, and summary punishment rather than economic growth.

The best Washington can do is stay out. Subsidize no one, endorse no one. Work privately to advance important interests.  Leave Egyptians to settle their fate. 

Categories: Policy Institutes

Border Patrol Spending

Fri, 06/20/2014 - 16:32

Chris Edwards

A tragedy is unfolding in Texas as thousands of illegal immigrants are pouring over the southern border. Alex Nowrasteh has examined the immigration statistics here.

But in this blog, let’s take a look at the budget situation. The chart below shows that total Border Patrol (BP) spending has more than tripled since 2000, from $1.1 billion to $3.5 billion, according to this BP website. That spending is within broader Customs and Border Protection (CBP) spending of about $12 billion a year currently. A breakdown of the CBP budget is on page 49 here.

Categories: Policy Institutes

Climate Change, Heat Waves, and Adaptation

Fri, 06/20/2014 - 11:56

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.”


The main idea, as it is portrayed, driving the Obama administration’s pursuit of carbon dioxide regulations is that climate change is leading to all manner of bad things. Pointing to concrete example of bad things that have resulted from human greenhouse gas emissions, however, is much more challenging than just saying it is the case. In fact, for most climate/weather events and their resulting effect, the bulk of the science contradicts the administration’s contentions.

Roger Pielke Jr. makes it a habit to point out how White House proclamations concerning extreme weather events go awry. We have similar habits.

An especially egregious example concerns heat-related mortality. It is true that extreme heat can lead to excess mortality. It is also true that global warming should lead to more heat waves. However, it is NOT true that global warming will lead to more heat-related mortality—the logic forwarded by the administration. Frequent readers of this blog are well aware of this.

However, as not everyone (to his or her detriment) is a frequent reader of this blog, we presented our findings on climate change and heat-related mortality to the audience at a science policy conference held by the American Geophysical Union (AGU) this week. Our conclusions were:

The cause of the observed decline in the sensitivity to extreme heat in the face of rising heat is likely found in a collection of adaptations including increased access to air-conditioning, better medical care, improved building design, community response programs, heat watch/warning systems, and biophysical changes. There is no reason to think that such response measures won’t continue to exist and be improved upon into the future.

In our recent study summarizing the findings on declining heat-related mortality trends in both the U.S and Europe, we made this observation (Knappenberger et al., 2014):

“Some portion of this response [the declining sensitivity to excessive heat events] probably reflects the temporal increase in the frequency of extreme-heat events, an increase that elevates public consciousness and spurs adaptive response. In this manner, climate change itself leads to adaptation.”

It is insufficient and inappropriate to ignore this effect when compiling and discussing the impacts of climate change. If an increasing frequency of heat events raises public awareness and gives rise to an adaptive response that lowers the population’s relative risk due to extreme heat, this must be properly weighed against any increases in mortality that result from a greater number of mortality-inducing heat events.

Our analysis highlights one of the many often overlooked intricacies of the human response to climate change.

Our full AGU poster, “Climate Change, Heat Waves, and Adaptation,” is available for viewing online here.

Hopefully, it opened some eyes.

Categories: Policy Institutes

Chinese Investment in Virginia

Fri, 06/20/2014 - 11:51

Simon Lester

From the Washington Post:

Gov. Terry McAuliffe scored an economic coup and expanded Virginia’s already substantial business ties with China on Wednesday as he unveiled plans for a major manufacturing facility in the Richmond suburbs.

The announcement caps a string of recent economic development deals involving China and Virginia, highlighting the country’s growing importance in the commonwealth’s economy as both a trading partner and an investor.

Under a deal that state officials called the largest ever between a Chinese investor and Virginia, Shandong Tranlin Paper Co. will create 2,000 jobs with a $2 billion plant that makes paper from corn stalks and other agricultural field waste.

My reaction to almost every announcement of new foreign investment goes like this: First, I’m excited to hear about the new investment, and pleased when people do not respond with a fit of economic nationalism. But then, inevitably, I read on and get frustrated:

McAuliffe (D) approved a $5 million grant from the Governor’s Opportunity Fund to help lure the company, reflecting the former entrepreneur’s push to expand and diversify the state’s defense-heavy economy.

Sigh. It’s great that foreign investors are building new factories. We should welcome that. But there is no reason to subsidize it. Let investors of all national origins go where they want, but offering them subsidies is just a big waste. It doesn’t create more investment, it just shifts it around based on non-market factors.

Categories: Policy Institutes

Kim Strassel and the WSJ on the Lost IRS Emails

Fri, 06/20/2014 - 11:07

Walter Olson

Earlier this week Wall Street Journal columnist Kim Strassel won a much deserved Bradley Award for her work in investigative journalism. It’s at times like this, in which revelations about evidence destruction at the Internal Revenue Service almost defy belief, that everyone interested in American governance should follow her column and the Journal editorial page.

Some highlights since the email story broke last Friday: 

* According to Strassel’s column today, the contents of Lois Lerner’s hard drive were wiped out by forces unknown “about 10 days after the Camp letter arrived,” that is to say, a letter from House Ways and Means Chairman Dave Camp inquiring into targeting of conservative groups. (Lerner then replied to Camp denying targeting and subsequently pleaded the Fifth before Congress.) 

* A WSJ editorial this morning points out the remarkable timing of the IRS’s begrudging disclosure last Friday that evidence central to the case has been destroyed: more than a year after the investigation began and only when a deadline was impending in which the IRS commissioner would have to certify personally that the agency had produced to Congress all relevant communications. Were responsible agency officials determined to treat this as a high-priority investigation, to be carried on in good faith and with all deliberate speed? (There was no doubt about the seriousness of the scandal, as President Obama himself admitted—or seemed to be admitting—at the time.) Or did they instead stall and deflect until the very last moment? So un-forthcoming was the agency that, according to today’s Journal editorial, IRS staffers met with Sen. Orrin Hatch (R-Utah) Monday and did not tell him that the external emails of six other IRS employees had gone missing too—he found that out only later in the week when he read a press release from the House side.  

* While some IRS critics focus almost to the exclusion of all else on the possible role of the Obama White House in directing the IRS, Strassel and the WSJ correctly will not let us forget that much of the pressure on the agency was coming from Congress itself. In particular, Sens. Carl Levin (D-Mich.), Dick Durbin (D-Ill.), and Chuck Schumer (D-N.Y.), along with Reps. Chris Van Hollen and Elijah Cummings (both D-Md.), were among many Democrats seeking to enlist the IRS in a crackdown on politically antagonistic nonprofits.

Thank heavens for Kim Strassel and her colleagues at the WSJ, because otherwise it would seem as if few in the press were willing to focus serious investigative attention on this extraordinary scandal. (Many other press outlets have treated it as a dull page-A-18 story, run wire service coverage only, or–as with the New York Times–waited three days even to notice it.) 

People used to ask how Watergate might have turned out if the press had sided with Nixon instead of against him. Thanks to the work of Strassel and her WSJ colleagues, let’s hope we never find out.

Categories: Policy Institutes

Don't Overestimate ISIS Gains in Iraq

Fri, 06/20/2014 - 10:42

Jennifer Keister

ISIS’s territorial gains in Syria and Iraq are impressive. However, the group has its work cut out for it.

First, ISIS may face internal tensions. The nature of the relationship between the group and Iraqi Baathists has been variously reported. While the two have an obvious operational incentive to collaborate, if the former Baathist elements retain their original ideological platform, it is likely incompatible with ISIS’s radical preferences. Should ISIS determine it is content with its territorial holdings, any partnership could face tensions in the absence of a common enemy in Maliki’s sectarian rule.

Second, the Kurds. ISIS appears to have largely avoided direct confrontation with Kurdish forces. But the Kurds appear far from assuming ISIS is an ally, or that the group does not have designs on territory the Kurds themselves claim. If and when ISIS and Kurdish ambitions clash, the peshmerga are likely to put up a fight.

Third, ISIS may be able to take territory, but it now faces the challenge of ruling it. The group has a track record over the last year of ruling in Syrian cities like Raqqa. In Syria, ISIS rebels provided public services, and tried to moderate their implementation of sharia law so as to avoid civilian resistance. But gradually the group reverted to its own ideological platform—an Islamic interpretation not in line with that of the Syrian civilians under their rule. In order to tamp down public dissent and quell resistance, the rebels have become notoriously brutal—showcasing their brutality publicly and electronically. In Iraq, at least some civilians have welcomed ISIS’s arrival and the Iraqi military’s departure. But preferring ISIS to Maliki isn’t necessarily saying a lot.

The US also sought to control areas ISIS now claims in Iraq, and America’s limited success was hard-won. ISIS’s acceptability as a ruler remains to be seen (the group has just published its first set of rules for those newly under its control). As time wears on, any distance between ISIS’s political and ideological platform and those of its new residents will become clearer. If, as in Syria, this gap proves to be wide, we may expect similarly brutal rule by ISIS in Iraq.

If so, the international community will need to weigh the suffering of those under ISIS control against the likely costs and success of intervening to improve the situation.

Unless they moderate their platform, there are few ways to encourage ISIS to adopt less coercive rule. Interdicting support from abroad can strain the group in a variety of ways, but access to oil wealth (and now, cash) will dampen the effects of any interdiction, and even a weakened ISIS is likely to abuse civilians.

But beyond the first blush of victory, governance is a difficult and costly undertaking. Reports note ISIS’s extensive and coercive reach into civilians’ lives in Syrian cities it has controlled since last year. But this apparatus eats up resources. Even if ISIS uses public brutality to quash resistance and retain control, it will have to task personnel to do this—personnel that cannot then be used to pursue additional territory, or protect themselves against government troops or other rival factions.

Unfortunately for those who live under it, brutality can be a sustainable means of retaining control—for rebels like ISIS, as well as for states. ISIS may manage to keep the territory it has captured, but it will have to work for it—as Ghengis Khan noted “Conquering the world on horseback is easy; it is dismounting and governing that is hard.”

Categories: Policy Institutes

Are Economists Captured Too?

Fri, 06/20/2014 - 10:06

Jeffrey Miron

Economists have long worried about regulatory “capture,” the process whereby regulators become cozy with the businesses they regulate. This is one reason for caution about the value of regulation.

According to economist Luigi Zingales (Chicago), 

The very same forces that induce economists to conclude that regulators are captured should lead us to conclude that the economic profession is captured as well. As evidence of this capture, I show that papers whose conclusions are pro-management are more likely to be published in economic journals and more likely to be cited. I also show that business schools’ faculty write papers that are more pro management. I highlight possible remedies to reduce the extent of this capture: from a reform of the publication process, to an enhanced data disclosure, from a stronger theoretical foundation to a mechanism of peer pressure. Ultimately, the most important remedy, however, is awareness, an awareness most economists still do not have.

In other words, “Economist: heal thyself!”

Categories: Policy Institutes

Congress May Hike VA Spending $400 Billion

Thu, 06/19/2014 - 17:32

Chris Edwards

Last week the Senate voted to greatly increase health care spending for veterans. If the new spending were made permanent, it would cost at least $385 billion over 10 years, as Nicole Kaeding noted. The House version of the bill would cost at least $477 billion if made permanent. The chambers will now work out a compromise bill, and—going out on a limb here—I’m guessing that the compromise is also a budget buster.

The bills would allow veterans to access health services from facilities outside of the Veterans Affairs (VA) system. The VA system needs a fundamental overhaul, but these bills would appear to just throw money at the problem without creating structural reforms.

The CBO score for the Senate bill is here and for the House bill here. For the House bill, CBO says spending would be $16 billion in 2015 and $28 billion 2016. The House bill would authorize the new spending until 2016, but if Congress extends it permanently the total costs would be $54 billion a year and about $477 billion over 10 years.

I can’t remember an instance when Congress has voted so quickly to spend so much money with so little debate and analysis. The CBO cautioned that their numbers are essentially only rough guesses. So the ultimate spending could be even higher than shown in the chart.

Categories: Policy Institutes

Marriage Equality in Michigan, Kentucky, and Tennessee

Thu, 06/19/2014 - 14:23

Ilya Shapiro

Having filed amicus briefs in Hollingsworth v. Perry (California’s Prop 8), United States v. Windsor (Defense of Marriage Act), and the cases involving the marriage laws of Oklahoma, Utah, and Virginia in the U.S. Courts of Appeals for the Tenth and Fourth Circuits, respectively, Cato and the Constitutional Accountability Center have filed briefs in three marriage-related cases now before the Sixth Circuit. DeBoer v. Snyder questions Michigan’s constitutional ban on same-sex marriage. Tanco v. Haslem challenges Tennessee’s non-recognition of same-sex marriages, while Bourke v. Beshear does the same in Kentucky. 

DeBoer was originally filed to similarly challenge Michigan’s non-recognition of same-sex marriages, but was later amended to attack the underlying issue of the state’s ban on same-sex marriage all-told. In the wake of the Supreme Court’s ruling in Windsor (striking down part of DOMA), the DeBoar district court ruled in the plaintiffs’ favor. The district court in Bourke then ruled in favor of two couples and their respective children; Kentucky’s attorney general had refused to defend the non-recognition law, so the governor hired outside counsel. Finally, in Tanco, decided this past March, three Tennessee couples were also successful in court. The Sixth Circuit stayed all three rulings pending its own examination of the issues presented.

The Cato-CAC position continues to be what we’ve argued all along: The Fourteenth Amendment promises the equal protection of the laws to all persons. It’s a sweeping guarantee that eliminates class-based discrimination that lacks a strong policy justification (for example, denying driver’s licenses to blind people). Though enacted in response to failures to protect the rights of the newly freed slaves, this guarantee was intended to protect the rights of all persons — as demonstrated textually by its neutral phrasing, extending its protections to “any person.” The amendment’s proponents consciously rejected race-specific language. Indeed, in introducing the amendment, Senator Jacob Howard explained that it “abolish[ed] all class legislation.” The common, public understanding was that the Fourteenth Amendment “[took] from the States the power to make class legislation and to create inequality among their people.”

Both early Supreme Court cases and modern precedent demonstrate that it was understood that the Equal Protection Clause spoke in general terms that were considered comprehensive. The equal right to marry the person of one’s choice is guaranteed by that provision. Even opponents of the Fourteenth Amendment acknowledged the fundamental nature of the right to marry. The modern Supreme Court has recognized this as well, most famously in Loving v. Virginia, as well as in Zablocki v. Redhail and elsewhere. 

Laws that prohibit or refuse to recognize same-sex couples’ marriages therefore violate the constitutional guarantee of equal protection of the laws. They impose badges of inferiority on persons based solely on their class and the harm extends to the children being raised by such couples. No compelling state interest is served by and no constitutionally legitimate rationale can be found in such disparate treatment. Merely invoking “tradition” can’t save a practice from constitutional prohibition — as has been shown in cases involving segregation, sodomy, and speech restrictions. The very purpose of the Fourteenth Amendment was to break the tradition of denying the equal protection of the laws to newly freed slaves and other disfavored groups.

The Sixth Circuit will hear argument in all these cases, along with one out of Ohio (to round out the four states that make up the Sixth Circuit) on August 6.

Categories: Policy Institutes

Mission Accomplished, He Said

Thu, 06/19/2014 - 08:59

David Boaz

Everything that American troops have done in Iraq, all the fighting and all the dying, the bleeding and the building, and the training and the partnering — all of it has led to this moment of success. Now, Iraq is not a perfect place.  It has many challenges ahead.  But we’re leaving behind a sovereign, stable and self-reliant Iraq.

Yes, that was President Obama at Fort Bragg, North Carolina, on December 14, 2011.

For another perspective, former vice president Dick Cheney in the Wall Street Journal Wednesday:

Rarely has a U.S. president been so wrong about so much at the expense of so many. 

In case there’s any doubt – he means President Obama, not the president who launched the war that cost 4,487 American soldiers’ lives, 32,000 Americans wounded, some 100,000 to 500,000 Iraqi deaths, and as much as $6 trillion.

Maybe they should have listened to the Cato Institute back in 2001 and 2002.

Categories: Policy Institutes

Lessons from Stamp Collecting

Wed, 06/18/2014 - 16:35

Chris Edwards

My mom recently handed me a large bag of stamps she had collected as a child. There are thousands of stamps from about 100 countries, most from the 1910s to the 1950s. It’s a treasure trove.

My daughters and I started digging through them, and we checked out Internet resources on philately, a hobby I know little about.

Here are a few observations:

  • Most old postmarked stamps are worth relatively little. I guess the reason is high supply and low demand.
  • The world’s first postage stamp was the British Penny Black in 1840, which portrayed Queen Victoria. Stamps were introduced as part of U.K. postal reforms to cut government waste and mismanagement. The first U.S. stamps in 1847 showed Franklin and Washington. Canada’s first stamp in 1851 did not show a government leader, but instead the clever and industrious beaver.
  • Great Britain used to rule a vast area of the globe, and dozens of nations had the British monarch on their stamps. And many countries used to honor American liberty on their stamps, such as these fascinating issues from the 1930s. I doubt whether that happens much anymore.
  • Small countries often have attractive stamps. Some of the prettiest I have are from the Caribbean and Africa. The least attractive are from Germany and the United States. In a competitive world, small countries know that they must put in an extra effort. (See photo). It’s a similar situation with corporate tax rates today: small countries tend to have low and competitive rates, but the United States has an ugly 40 percent rate.
  • U.S. postage stamps and currency have long been printed by the government, although postage stamp printing was privatized in 2005. By contrast, Canadian stamps and currency have long been printed by private firms, such as the Canadian Bank Note Company.
  • Hyperflation plays out on stamps. I have a Deutsches Reich 5 mark stamp that is stamped with heavy black ink “2 Millionen.” Another says “4 Millionen.” (See photo). Here is the interesting story of these relics of government folly.
  • I have a German Democratic Republic stamp with a cute portrait of Marx, Engels, and Lenin. (See photo). The communist government is showing off that it has computers and oil refineries.


In the stamp bag, my mom saved an October 1948 Woman’s Day article “Inside Stories about Stamps.” Under the heading “Private Enterprise,” it says “until the 1880s, private firms in several American cities operated postal systems of their own in open—often violent—defiance of federal postal laws. Probably the last of these carriers was the St. Louis City Delivery Company which the Post Office finally suppressed in 1883.”

Ironically, the federal government imposed the Sherman Antitrust Act only seven years later to stomp out monopolies, but not government monopolies of course.

I’ll have more on private postal competition in the 19th century in a future blogpost. Meanwhile, here’s Tad DeHaven on postal reform and me on privatizing the Royal Mail.

Categories: Policy Institutes

Debunking the Induced-Demand Myth

Wed, 06/18/2014 - 16:26

Randal O'Toole

“Building bigger roads actually makes traffic worse,” asserts Wired magazine. “The reason you’re stuck in traffic isn’t all these jerks around you who don’t know how to drive,” says writer Adam Mann; “it’s just the road that you’re all driving on.” If only we had fewer roads, he implies, we would have less congestion. This “roads-induce-demand” claim is as wrong as Wired’s previous claim that Tennessee fiscal conservatives were increasing Nashville congestion by banning bus-rapid transit, when actually they were preventing congestion by banning the conversion of general lanes to dedicated bus lanes.

In support of the induced-demand claim, Mann cites research by economists Matthew Turner of the University of Toronto and Gilles Duranton of the University of Pennsylvania. “We found that there’s this perfect one-to-one relationship,” Mann quotes Turner as saying. Mann describes this relationship as, “If a city had increased its road capacity by 10 percent between 1980 and 1990, then the amount of driving in that city went up by 10 percent. If the amount of roads in the same city then went up by 11 percent between 1990 and 2000, the total number of miles driven also went up by 11 percent. It’s like the two figures were moving in perfect lockstep, changing at the same exact rate.” If this were true, then building more roads doesn’t make traffic worse, as the Wired headline claims; it just won’t make it any better.

However, this is simply not true. Nor is it what Duranton & Turner’s paper actually said. The paper compared daily kilometers of interstate highway driving with lane kilometers of interstates in the urbanized portions of 228 metropolitan areas. In the average metropolitan area, it found that between 1983 and 1993 lane miles grew by 32 percent while driving grew by 77 percent. Between 1993 and 2003, lane miles grew by 18 percent, and driving grew by 46 percent.

That’s hardly a “perfect one-to-one relationship.”

The paper also calculated the elasticities of driving in relationship to lane kilometers. An elasticity of 2 would mean a 10 percent increase in lane miles would correspond with a 20 percent growth in driving; an elasticity of 1 would mean that lane miles and driving would track closely together. The paper found that elasticities were very close to 1 with standard errors of around 0.05. Even though this is contradicted by the previously cited data showing that driving grew much faster than lane miles, this is the source of Turner’s “perfect one-to-one relationship.”

I have a serious problem with this result, mainly because my analysis of driving and highway capacity data for the 101 largest urban areas from 1982 through 2011 produces very different results. Yes, there is a correlation between an increase in road capacity and an increase in driving. But the correlation is far from perfect and it is very far from one-to-one.

Looking at the same years as Duranton & Turner, in more than 90 percent of urban areas, driving grew far faster than lane miles. On average, driving grew more than twice as fast as lane miles. But in Boston between 1983 and 1993, freeway capacities grew by less than 1 percent, while driving grew by more than 35 percent. In Madison, capacities grew by 35 percent, while driving grew by less than 20 percent. The wide range in differences between urban areas suggests that, not only are Duranton & Turner’s elasticities wrong, their standard errors are far too low. (You can check my results by downloading Texas Transportation Institute data for 101 urban areas.)

One source of error in Duranton & Turner’s paper may be in their definition of urbanized area. They first collected data for metropolitan areas (which include entire counties that contain urban areas), then estimated the share of driving within those metropolitan areas that takes place in the urbanized portions. Their estimate that well under half of all driving is in the urbanized areas does not seem credible considering the non-urbanzed portions are, by definition, rural and house few people and businesses. By comparison, the data I used are based on state highway bureau estimates of driving and lane miles within urbanized areas.

If it were true, as Mann claims, that capacity generates its own demand, then freeways would be equally congested all over the country. Yet this is far from true. While Los Angeles freeways support more than 22,000 daily miles of driving per lane mile, Pittsburgh freeways host less than 9,000 miles per lane mile. Nor are the numbers consistent over time within an urban area, as Duranton & Turner’s elasticities would predict. Instead, many urban areas, including Miami, Las Vegas, and Sacramento, saw miles of driving per lane mile more than double between 1983 and 2003; the average growth was 50 percent, and some grew less than 20 percent, which again suggests that both elasticities and standard errors are much different than found by Duranton & Turner.

So Duranton & Turner’s numbers appear to be wrong, and Wired overstated those numbers anyway. But let’s say it were true that there is a perfect one-to-one relationship between driving and highway capacity, and further stipulate that increasing capacity leads to increased driving (rather than the other way around, which is equally credible if highway engineers are trying to keep up with demand). Is that a bad thing?

We know that every car on the road has someone in it who is going somewhere that is important to them. Increasing the number of cars on the road means more people are getting to do things that are important to them. Provided we aren’t subsidizing that travel (and, as I’ve shown before, subsidies per passenger mile are small and probably zero for freeways), then increasing highway capacity leads to net economic benefits because it generates travel that wouldn’t have taken place otherwise.

By comparison, building expensive transit systems aimed at getting people out of their less-expensive cars generates zero economic benefits if it generates no new travel. Only new travel generates economic benefits, so people who argue that new roads induce new travel are actually arguing that new roads create economic benefits.

If congestion is the issue, then–as Mann briefly mentions–the solution is congestion pricing. But Mann doesn’t understand the difference between true congestion pricing and New York City’s proposal for cordon pricing. Cordon pricing is more a way of raising revenue to fund urban boondoggles than a way of relieving congestion.

Even UC Berkeley planning professor Robert Cervero believes that the induced demand argument is “wrong headed.” “Road investments by themselves do not increase volumes,” he writes. “Only by conferring a benefit, like faster speeds, will traffic increase.” Provided that benefit is greater than the cost–something that could be assured, Cervero says, through proper pricing of roads–then it is a good thing.

That’s why I support, not new road construction, but better road pricing. If congested freeways are congestion-priced and revenues exceed costs, including the costs of maintenance, the extra revenues should be spent building new highway capacity. This will help restore America’s transportation system to be, as it once was, the best in the world.

Categories: Policy Institutes

America Should Stay Out of Iraq and Stop Trying to Fix the World

Wed, 06/18/2014 - 16:19

Doug Bandow

KILIS, TURKEY—Syria’s civil war has washed over Turkey’s border, flooding the latter with hundreds of thousands of refugees. Washington’s efforts to solve the crisis so far have yielded few positive results. George W. Bush’s grandest foreign policy “success,” the ouster of Saddam Hussein, is turning into an even more dramatic debacle. 

The region is aflame and U.S. policy bears much of the blame. Washington’s relentless attempt to reorder and reshape complex peoples, distant places, and volatile disputes has backfired spectacularly.

The blame is not limited to Barack Obama. However ineffective his policies, they largely follow those of his predecessors. Moreover, his most vociferous critics were most wrong in the past. Those who crafted the Iraq disaster now claim that keeping U.S. troops in Iraq would have prevented that nation’s current implosion ignores both history and experience.

Rather than acknowledge their own responsibility for that nation’s implosion, they prefer to blame President Obama, who merely followed the withdrawal schedule established by President George W. Bush, who failed to win Baghdad’s agreement for a continuing U.S. force presence before leaving office. Exactly how President Obama could have forced sovereign Iraq to accept a permanent U.S. garrison never has been explained. 

Even less clear is how American troops could have created a liberal, democratic, and stable Iraq. Intervening today would be a cure worse than the disease. Air strikes, no less than ground forces, would simultaneously entangle the United States and increase its stakes in another predictably lengthy conflict.

In Iraq, the Sunni radicals are unlikely to conquer the Shia-majority country. Their success already has mobilized Shiites, and predominantly Shia Iran will ensure Baghdad’s control over majority-Shiite areas, at least. Ultimately de facto partition may be the most practical solution.

Further American intervention in Syria would be no less foolish. America has no reason to fight over who rules Damascus.

The civil war is destabilizing the region, but American involvement would not impose order. Moreover, Assad’s ouster likely would trigger a second round of killing directed against regime supporters, such as Alawites and other religious minorities. With multiple parties engaged in the killing, there is no humanitarian option.

Nor does anyone know who would end up controlling what. The assumption that Washington could get just the right arms to just the right opposition forces to ensure emergence of just the right liberal, democratic, pro-Western government of a united Syria is charmingly naive.

If there is a bright spot for the administration, it unexpectedly is Iran, where a negotiated nuclear settlement remains possible. However, the underlying problem is almost entirely of America’s creation. In 1953, the United States overthrew the democratically elected prime minister, transferring power to the Shah, who brutalized his people. In 1978, the angry Iranian people overthrew him and radical Islamists took control. Fear of Iranian domination of the Persian Gulf led Washington to back Iraqs Saddam Hussein in his bloody aggressive war against Iran. 

After an emboldened Iraq sought to swallow Kuwait, the United States attacked the former and deployed troops to Saudi Arabia, which became one of Osama bin Laden’s chief grievances. President Bush later invaded Iraq, which empowered Islamist Iran—then feared to be developing nuclear weapons. Now Tehran is sending a rescue mission to save the Iraqi government installed by Washington.

American intervention has broken pottery all over the Middle East. Washington should stop trying to micromanage the affairs of other nations and start practicing humility. This would not be isolationism. America, and especially Americans, should be engaged in the world. 

However, as I point out in my new Forbes online article:  “the U.S. government’s expectations should be realistic and ambitions should be bounded. American officials should abandon their persistent fantasy of reordering the world.”

President Obama’s foreign policy may be feckless, but that’s not its principal failing. As long as Washington attempts to dominate and micromanage the world, its policies will end up harming American interests.

Categories: Policy Institutes

John Walters, Drugs, and Libertarians

Wed, 06/18/2014 - 14:11

Tim Lynch

Over at Politico, former Bush administration drug czar and Hudson Institute official, John Walters, has an article titled, “Why Libertarians Are Wrong About Drugs.”  The thrust of the article is that (1) drug policy is one of the political divides between libertarians and social conservatives and that the social conservatives have the better case; and (2) libertarians can support the drug war without surrendering essential tenets of their political philosophy.  In this post, I want to briefly scrutinize some of Walters’ arguments and observations.

Walters tries to set up his article by framing the debate between social conservatives and libertarians fairly, but right away he falters. “Social conservatives,” he writes, “are troubled by drug abuse, especially among the young.” The implication seems to be that libertarians are not troubled by drug abuse–even if it involves minors. That’s unfair to Milton Friedman, who is quoted in that paragraph, and libertarians generally. I don’t think Walters is intentionally trying to mislead readers here, but that statement does expose one of his faulty understandings of libertarianism. The question has never been whether drug abuse is a problem. It is. The question is how best to address that problem.

Next, Walters tries to demonstrate that a basic tenet of libertarianism is inconsistent with reality–at least in the area of narcotics. Here is Walters: “[L]ibertarians argue that the state should have no power over adult citizens and their decision to ingest addictive substances–so long as they do no harm to anyone but themselves…But this harmless world is not the real world of drug use. There is ample experience that a drug user harms not only himself, but also many others.” Walters then cites instances of domestic violence and other criminal acts that were committed by persons under the influence of narcotics. More faulty reasoning

The libertarian critique of drug prohibition does not depend on the existence of a “harmless world.” I should not have to point out (but, alas, I guess I do for some) that libertarians have heard of domestic violence and drugged driving. We are also aware that criminal acts are sometimes committed by persons under the influence of narcotics. Now, let’s return to the tenet that Walters fairly stated, but misapplied: The state should have power over adults who harm others. A batterer, for example, should be arrested and prosecuted (whether he was stoned, drunk, or sober.)

The reality recognized by libertarians, but ignored by Walters, is that millions and millions of people use drugs peacefully and do not harm anyone. Our government treats these people like criminals and that is wrong. This is the real divide between neoconservatives like Walters (conservatives such as William F. Buckley and Thomas Sowell oppose drug prohibition) and libertarians. As drug czar, Walters approved television ads that said casual drug users were ipso facto guilty of serious crimes, such as supporting terrorists! Even before 9/11, First Lady Nancy Reagan said casual drug users were guilty of aiding and abetting murder. Libertarians vehemently reject such claims.

Walters does not address the unintended consequences of drug prohibition, such as the enrichment of gangster organizations, the billions wasted on futile interdiction operations, and the curtailment of our civil and constitutional rights by militarized police units and the use of civil asset forfeiture laws. Without any evidence, he expresses fears about the future of our political order because voters are starting to approve drug reform initiatives in Colorado and Washington and elect reform-minded candidates. And yet no mention of the corruption and carnage in Mexico that can be traced to neoconservative drug prohibition policies. Also no mention of Portugal and its successful move to decriminalize drugs there in 2001.

The libertarian case against drug prohibition is gaining traction both here at home and around the world. Like alcohol prohibition, drug prohibition will eventually come to an end.  We should welcome, not fear, that development.


Categories: Policy Institutes

A Grim Update on European Tax Policy

Wed, 06/18/2014 - 14:05

Daniel J. Mitchell

I wrote the other day that Americans, regardless of all the bad policy we get from Washington, should be thankful we’re not stuck in an economic graveyard like Venezuela.

But we also should be happy we’re not Europeans. This is a point I’ve made before, usually accompanied by data showing that Americans have significantly higher living standards than their cousins on the other side of the Atlantic.

It’s now time to re-emphasize that message. The European Commission has issued its annual report on “Taxation Trends” and it is–at least for wonks and others who care about fiscal policy–a fascinating and compelling document.

If you believe in limited government, you’ll read the report in the same way you might look at a deadly traffic accident, filled with morbid curiosity and fear that you may eventually suffer the same fate.

But if you’re a statist, you’ll read the report like a 14-year old boy with his first copy of a girlie magazine, filled with fantasies about eventually getting to experience what your eyes are seeing.

Let’s start by giving the bureaucrats some credit for self-awareness. They openly admit that the tax burden is very onerous in the European Union.

The EU remains a high tax area. In 2012, the overall tax ratio, i.e. the sum of taxes and compulsory actual social contributions in the 28 Member States (EU-28) amounted to 39.4 % in the GDP-weighted average, nearly 15 percentage points of GDP over the level recorded for the USA and around 10 percentage points above the level recorded by Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members for which recent detailed tax data is available, Russia (35.6 % of GDP in 2011) and New Zealand (31.8 % of GDP in 2011) have tax ratios exceeding 30 % of GDP, while tax-to-GDP ratios for Canada, Australia and South Korea (2011 data) remained well below 30 %.

Here’s a chart from the report showing that taxes consume about 40 percent of economic output in EU nations. And while Americans correctly view the internal revenue code as very burdensome, taxes “only” consume about 25 percent of GDP in the United States.

Other nations with comparatively modest tax burdens include Canada (CA), Australia (AU), South Korea (KR), and Switzerland (CH).

But it’s important to understand that not all nations in the European Union are identical.

Just as there are high-tax states and low-tax states in America, there are high-tax countries and low-tax countries in Europe. Surprisingly, France was not the worst nation.

…the ratio of 2012 tax revenue to GDP was highest in Denmark, Belgium and France (48.1 %, 45.4 % and 45.0 % respectively); the lowest shares were recorded in Lithuania (27.2 % of GDP), Bulgaria (27.9 % of GDP) and Latvia (27.9 % of GDP).

I’m surprised, by the way, that Sweden isn’t among the highest-taxed nations. I guess they’ve made even more progress than I thought.

Now let’s drill down into the report and look at some of the specific data. You may want to stop reading now if you get easily depressed,  because it’s time to look at a chart showing what’s happened to income tax rates. Specifically, this chart shows the average top tax rate on personal income, both for Eurozone (nations using the euro currency) and European Union nations.

As you can see, the average top tax rate has jumped by almost four percentage points for euro nations and by about two percentage points for all EU nations.

This is very unfortunate. Tax rates were heading in the right direction when there was vigorous tax competition inside Europe. But now that high-tax nations have been somewhat successful in forcing low-tax jurisdictions to become deputy tax enforcers, that positive trend has halted and policy is moving in the wrong direction.

But not in all regards.

Tax competition also has been compelling governments to lower corporate tax rates. And while that trend has abated, you can see in this chart that politicians haven’t felt they have leeway to push rates higher.

Though I am very concerned about the OECD’s campaign to undermine corporate tax competition. If they’re successful, there’s no doubt we’ll see higher corporate tax rates.

Let’s now look at some more depressing data. This chart shows that a continuation in the trend toward higher rates for value-added taxes (VATs).

I’ve warned repeatedly that the VAT is a money machine for big government and the EU data certainly support my position. But if you want evidence from other parts of the world, there’s some IMF data that clearly shows how politicians use the VAT to expand the burden of government.

Last but not least, let’s now draw some conclusions from all this information. At the beginning of the post, I mentioned that Americans should not copy Europe because bigger government translates into lower living standards. Simply stated, there’s a negative relationship between the size of government and economic performance. So let’s look at another piece of data to emphasize that point. The bureaucrats at the OECD just did a report on the U.S. economy and they produced a chart showing that the current recovery is very anemic. We haven’t recaptured lost economic output, which normally happens after a downturn. Indeed, we haven’t even returned to normal growth levels.

But that’s not news to regular readers. I’ve shared powerful data from the Minneapolis Federal Reserve showing the failure of Obamanomics.

What is noteworthy, though, is comparing Europe to the United States. As you can see from these two charts, euro nations have flatlined. And if you look at the vertical scale, you can see that they were growing a lot slower than the United States to begin with.

In other words, we’re not doing very well in the United States. But compared to Europe, we’re Hong Kong.

Two final caveats: First, I always like to stress that economic performance is impacted by a wide range of policies. So while I think that rising tax burdens and higher tax rates are hurting growth in Europe, there are other factors that also matter.

Second, any analysis of fiscal policy should also include data on the burden of government spending. After all, a nation with a low tax burden will still suffer economic problems if there’s a large public sector financed by red ink.

And one big warning: Obama wants to make America more like Europe. If he succeeds, we can expect European-style stagnation.

Categories: Policy Institutes

Common Core Survey: You’ll Love the Pufferfish!

Wed, 06/18/2014 - 12:41

Neal McCluskey

A new Wall Street Journal/NBC News poll finds that after being presented with a description of the Common Core, 59 percent of Americans “strongly” or “somewhat” support “adoption and implementation,” while 31 percent oppose it. Of course, as we’ve seen before, the description is key. The WSJ/NBC pollsters used the following:

The Common Core standards are a new set of education standards for English and math that have been set to internationally competitive levels and would be used in every state for students in grades K through 12.

This is first biased in favor of the Core in what it says. It is, in fact, highly debatable that the Core is set to top international levels, while the use of “competitive” might suggest that the standards aren’t just benchmarked to top countries, but will help us to compete with them, an empirically hollow suggestion.

More important, though, is what’s not included: any mention of the massive federal role in pushing state adoption. The WSJ notes this omission deep in its online coverage of the question, after stating that “the Obama administration’s disbursal of federal education grants to states that adopted Common Core set off alarms among conservative activists wary of federal incursion into local schools.”

The poll question, in other words, is like failing to tell people pufferfish are poisonous, saying, “pufferfish are delicious and nutritious,” then asking, “would you like to eat some pufferfish?”

Leaving out the “poisonous” part – and presenting deliciousness and nutritiousness as fact – would probably make a difference. Don’t you think?

Categories: Policy Institutes

Washington’s Middle East Policy Reaches New Heights of Incoherence

Wed, 06/18/2014 - 11:37

Ted Galen Carpenter

It’s hard to imagine that U.S. policy in the Middle East, which has helped make a shambles of the region over the past six decades, could get much worse. But developments during the past week demonstrate that it has the potential to do so. Hawks in both parties are shocked (shocked!) that Iraq shows unmistakable signs of coming apart along ethno-religious lines. But critics of the hawkish lobbying for U.S. military intervention in the period leading up to the invasion and occupation in 2003 warned that the move had major destabilizing implications, and that a fractured Iraq was a likely outcome. Early this year, I renewed those warnings, arguing that multiple developments indicated that Iraq was heading toward fragmentation.

As in the earlier case of Yugoslavia, the wonder is not that an artificial country like Iraq (cobbled together by British colonial officials from three disparate provinces of the old Ottoman Empire) is coming apart. The wonder is that it held together for so long.

Rather than accept an outcome contrary to the unrealistic wishes of U.S. policymakers, there is a surge of calls for Washington to “do something” to prevent Sunni militant insurgents from continuing their string of military victories over Prime Minister Nouri al-Maliki’s Shiite-controlled government. Although the Obama administration has wisely ruled-out putting large numbers of U.S. boots on the ground, air strikes and a limited deplyment of troops apparently remain an option. That would be an ill-advised move, since it would risk again entangling the United States in Iraq’s bitter, convoluted political and religious rivalries.

But the strangest suggestion is that Washington should open talks with Tehran about coordinating efforts to stem the advance of the Islamic State of Iraq and Syria (ISIS). That truly is a case of compulsive meddlers grasping at any possibility to try to save a bankrupt policy. After all, the U.S. government officially brands Iran as a leading state sponsor of terrorism, and a high priority of Washington’s policy over the past two decades has been to prevent Iran from acquiring a nuclear capability. 

Yet the Obama administration seems receptive to exploring military cooperation with Iran to stop ISIS, and at least a few hawkish types, most notably Senator Lindsey Graham, have embraced the idea. Graham noted that the United States backed Stalin against Hitler in World War II because we feared the former less than the latter. 

But Graham failed to note that Washington had not actively aided Hitler before making common cause with Stalin against him. The United States has aided the Sunni-dominated Syrian rebels against the government of Bashar al-Assad, Iran’s principal ally in the region. And Republican hawks advocated stepping-up support for the anti-Assad insurgency, including imposing a no-fly zone and launching cruise missile strikes against government targets. Graham’s ideological compatriot, Senator John McCain, even participated in an ill-conceived photo op with insurgent leaders during a visit to rebel-controlled territory, including one leader who turned out to be a notorious Islamic terrorist. Some of those Syrian rebels now help fill the ranks of ISIS.

Washington’s closest Middle East allies, including Saudi Arabia and its junior Gulf partners, have been bankrolling Sunni militants in both Syria and Iraq for years. Yet frustrated hawks, including two guests on Neil Cavuto’s June 16 Fox News show, now urge the United States to (somehow) induce those allies to take the lead in pursuing military action against ISIS.

To sum up: After overthrowing anti-Iranian Sunni dictator Saddam Hussein and enabling a corrupt, pro-Iranian Shiite political leader (Maliki) to take power in Iraq, the United States proceeded to back a Sunni-dominated rebel movement in neighboring Syria that has now become part of an broader Islamist insurgency determined to oust the government we helped install in Baghdad. That insurgency is backed by a key U.S. ally, Saudi Arabia, and its junior partners, which are also supposedly U.S. allies. Meanwhile, Washington is considering creating a common front against the Sunni insurgency with Iran, the country that U.S. leaders of both political parties have condemned repeatedly as a state sponsor of terrorism and a would-be nuclear rogue state.

That contradictory mess would seem to constitute the perfect operational definition of an incoherent foreign policy.  It lacks even the most basic internal logic and consistency.  

Categories: Policy Institutes